<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 8-K/A
--------------
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report March 14, 1997
(Date of earliest event reported): January 1, 1997
HARBINGER CORPORATION
(Exact name of Company specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
GEORGIA 0-26298 58-1817306
(State or other jurisdiction of (Commission File Number) (IRS Employer Identification No.)
incorporation or organization)
1055 LENOX PARK BOULEVARD, ATLANTA, GEORGIA 30319
(Address of principal executive offices) (Zip Code)
</TABLE>
(404) 467-3000
(Company's telephone number, including area code)
This Form 8-K/A amends Registrant's previously filed Form 8-K dated
January 1, 1997, which was filed on or about January 15, 1997.
This document includes the financial statements and pro forma financial
information which had been omitted from the previously filed document as
permitted by Item 7(a)(4) of Form 8-K.
================================================================================
Page 1 of 24
Exhibit Index on Page 4
1
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired. The following financial
statements for Harbinger NET Services, LLC are attached hereto as
Exhibit 99.3:
- Independent Auditors' Report
- Balance Sheets as of December 31, 1996 and 1995
- Statements of Operations for the periods ended December 31, 1996
and 1995
- Statements of Shareholders' Equity for the periods ended
December 31, 1996 and 1995
- Statements of Cash Flows for the periods ended December 31, 1996
and 1995
- Notes to Financial Statements for the periods ended December 31,
1996 and 1995
(b) Pro Forma Financial Information. Attached hereto as Exhibit 99.4 is the
unaudited pro forma consolidated condensed statement of operations for
the year ended December 31, 1996 and the unaudited pro forma
consolidated condensed balance sheet as of December 31, 1996 including
the notes to the unaudited pro forma consolidated condensed financial
statements.
(c) Exhibits.
*2.1 Debenture Purchase Agreement Dated as of January 1, 1997
between the Company and BellSouth Telecommunications, Inc.
*99.1 Text of Press Release of Harbinger Corporation, dated
January 2, 1997.
*99.2 Text of Press Release of Harbinger Corporation, dated
October 28, 1996.
99.3 Audited Financial Statements of Harbinger NET Services, LLC
for the periods ended December 31, 1996 and 1995.
99.4 Unaudited pro forma consolidated condensed statement of
operations for the year ended December 31, 1996 and the
unaudited pro forma consolidated condensed balance sheet as of
December 31, 1996 including the notes to the unaudited pro
forma consolidated condensed financial information.
- -----------------
* Previously filed
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: March 13, 1997
3
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page No.
--------- -----------
<S> <C>
*2.1 Debenture Purchase Agreement Dated as of January 1, 1997 between the
Company and BellSouth Telecommunications, Inc.
*99.1 Text of Press Release of Harbinger Corporation, dated January 2,
1997.
*99.2 Text of Press Release of Harbinger Corporation, dated October 28,
1996.
99.3 Audited Financial Statements of Harbinger NET Services, LLC for the
periods ended December 31, 1996 and 1995. 5
99.4 Unaudited pro forma consolidated condensed statement of operations
for the year ended December 31, 1996 and the unaudited pro forma
consolidated condensed balance sheet as of December 31, 1996
including the notes to the unaudited pro forma consolidated
condensed financial statements. 19
</TABLE>
- ---------------------
* Previously filed.
4
<PAGE> 1
EXHIBIT 99.3
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
HARBINGER NET SERVICES, LLC PAGE
----
<S> <C>
Independent Auditors' Report........................................................ F-2
Balance Sheets as of December 31, 1996 and 1995..................................... F-3
Statements of Operations for the periods ended December 31, 1996
and 1995....................................................................... F-4
Statements of Shareholders' Equity for the periods ended
December 31, 1996 and 1995..................................................... F-5
Statements of Cash Flows for the periods ended December 31, 1996
and 1995....................................................................... F-6
Notes to Financial Statements for the periods ended December 31, 1996
and 1995....................................................................... F-7
HARBINGER CORPORATION
Unaudited Pro Forma Consolidated Condensed Balance Sheets as of F-16
December 31, 1996..............................................................
Unaudited Pro Forma Consolidated Condensed Statement of Operations for
the year ended December 31, 1996............................................... F-17
Notes to Unaudited Pro Forma Consolidated Condensed Financial
Statements..................................................................... F-18
</TABLE>
F-1
6
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Harbinger NET Services, LLC:
We have audited the accompanying balance sheets of Harbinger NET Services, LLC
as of December 31, 1996 and 1995 and the related statements of operations,
shareholders' equity and cash flows for the periods ended December 31, 1996 and
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Harbinger NET Services, LLC as
of December 31, 1996 and 1995 and the results of its operations and its cash
flows for the periods ended December 31, 1996 and 1995 in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
February 7, 1997
F-2
7
<PAGE> 3
HARBINGER NET SERVICES, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS December 31,
------------------------------------
1996 1995
------------- -----------
Current assets:
<S> <C> <C>
Cash and cash equivalents............................ $ 3,322,000 $ 10,645,000
Accounts receivable.................................. 1,866,000 -
Other current assets................................. 277,000 42,000
------------- ------------
Total current assets........................ 5,465,000 10,687,000
Property and equipment, less accumulated
depreciation and amortization.................... 1,039,000 219,000
------------- ------------
$ 6,504,000 $ 10,906,000
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable....................................... $ 207,000 $ 13,000
Due to affiliates, net................................. 2,040,000 180,000
Accrued expenses....................................... 783,000 160,000
Deferred revenues...................................... 196,000 -
------------- ------------
Total current liabilities..................... 3,226,000 353,000
Long-term debt......................................... 3,000,000 3,000,000
------------- ------------
Total liabilities............................. 6,226,000 3,353,000
------------- ------------
Shareholders' equity:
Common stock, no par value; 10,000,000 shares
authorized, 6,819,559 and 6,718,286 shares
issued and outstanding, at December 31, 1996
and 1995, respectively........................ 8,870,000 8,703,000
Accumulated deficit................................ (8,592,000) (1,150,000)
------------- ------------
Total shareholders' equity.................... 278,000 7,553,000
------------- ------------
Commitments and contingencies.......................... $ 6,504,000 $ 10,906,000
============= ============
</TABLE>
See accompanying notes to financial statements.
F-3
8
<PAGE> 4
HARBINGER NET SERVICES, LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Periods ended December 31,
-------------------------------------
1996 1995
-------------- -------------
<S> <C> <C>
Revenues:
Services ........................................ $ 117,000 $ -
Software ........................................ 2,036,000 -
-------------- -------------
Total revenues.............................. 2,153,000 -
-------------- -------------
Direct costs:
Services ........................................ 644,000 -
Software (including royalties payable to
Harbinger Corporation and subsidiaries of
$1.2 million - see Note 5)....................... 1,617,000 -
-------------- -------------
Total direct costs.......................... 2,261,000 -
-------------- -------------
Gross margin............................ (108,000) -
-------------- -------------
Operating costs (including amounts for services
provided by Harbinger Corporation and
subsidiaries - see Note 5):
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>
See accompanying notes to financial statements.
F-4
9
<PAGE> 5
HARBINGER NET SERVICES, LLC
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIODS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Common stock Shareholder Total
------------------------- Accumulated note shareholders'
Shares Amount deficit receivable equity
--------- ------------ ------------ --------------- -------------
<S> <C> <C> <C> <C> <C>
INITIAL CAPITALIZATION
(MARCH 1995)...................... 1,004,000 $ 703,000 $ - $ - $ 703,000
Sale of common stock.............. 5,714,286 8,000,000 - (6,000,000) 2,000,000
Proceeds from payment of
shareholder note receivable... - - - 6,000,000 6,000,000
Net loss.......................... - - (1,150,000) - (1,150,000)
--------- ------------ ------------- -------------- --------------
BALANCE,
DECEMBER 31, 1995................. 6,718,286 8,703,000 (1,150,000) - 7,553,000
--------- ------------ ------------- -------------- --------------
Sale of common stock.............. 101,273 167,000 - - 167,000
Net loss.......................... - - (7,442,000) - (7,442,000)
--------- ------------ ------------- -------------- --------------
BALANCE,
DECEMBER 31, 1996................. 6,819,559 $ 8,870,000 $ (8,592,000) $ - $ 278,000
========= ============ ============= ============== ==============
</TABLE>
See accompanying notes to financial statements.
F-5
10
<PAGE> 6
HARBINGER NET SERVICES, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Periods Ended December 31,
---------------------------------------
1996 1995
----------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,442,000) $ (1,150,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization....................... 621,000 21,000
Increase in:
Accounts receivable............................. (1,866,000) -
Other current assets............................ (235,000) (49,000)
Increase in:
Accounts payable................................ 194,000 13,000
Due to affiliates, net.......................... 1,860,000 180,000
Accrued expenses................................ 623,000 160,000
Deferred revenues............................... 196,000 -
-------------- --------------
Net cash used in operating activities........ (6,049,000) (825,000)
-------------- --------------
Cash flows from investing activities--purchases of property
and equipment (1,441,000) (233,000)
-------------- --------------
Cash flows from financing activities:
Proceeds from sale of common stock........................ 167,000 2,703,000
Proceeds from issuance of long-term debt.................. - 3,000,000
Proceeds from payment of shareholder note receivable...... - 6,000,000
-------------- --------------
Net cash provided by financing
activities............................... 167,000 11,703,000
-------------- --------------
Net increase (decrease) in cash and
cash equivalents......................... (7,323,000) 10,645,000
Cash and cash equivalents at beginning of the period.......... 10,645,000 -
-------------- --------------
Cash and cash equivalents at end of the period................ $ 3,322,000 $ 10,645,000
============== ==============
Supplemental disclosure of noncash financing activity -
sale of common stock for shareholder not receivable....... $ - $ 6,000,000
============== ==============
</TABLE>
See accompanying notes to financial statements.
F-6
11
<PAGE> 7
HARBINGER NET SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS ENDED DECEMBER 31, 1996 AND 1995
1. PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Harbinger NET Services, LLC (the "Company") was organized by Harbinger
Corporation and certain other shareholders in December 1994 and began operations
as a development stage enterprise in March 1995. Harbinger Corporation owned
91.4% of the Company's common stock outstanding at December 31, 1996 (see Note
6). The Company develops, markets, and supports software products to enable
businesses to engage in electronic commerce using the Internet.
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
REVENUE RECOGNITION
Software
Revenues derived from software license fees are recognized
upon shipment.
Services
Revenues derived from services include hosting fees, Internet
access fees and consulting and training fees. Hosting revenue consists
of fees related to the maintenance of client web pages on the Internet.
Internet access revenue includes both fixed and usage based fees for
use of the Company's Internet service. Consulting and training fees are
billed under both time and materials and fixed fee arrangements and are
recognized as services are performed.
Deferred revenues
Deferred revenues represent payments received from customers
or billings invoiced to customers for software and services billed in
advance.
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:
<TABLE>
<CAPTION>
<S> <C>
Furniture, fixtures and leasehold improvements 10 years
Computer software 5 years
Computer and office equipment 5-10 years
</TABLE>
F-7
12
<PAGE> 8
HARBINGER NET SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS ENDED DECEMBER 31, 1996 AND 1995
PRODUCT AND SOFTWARE DEVELOPMENT COSTS
Product development costs consist principally of compensation and
benefits paid to the Company's employees or employees of Harbinger Corporation.
All product development costs not qualifying for capitalization as software
development costs are expensed as incurred.
The Company's policy is to expense all software development costs
associated with establishing technological feasibility. Because the Company's
products have reached this stage of development almost concurrently with general
release, the Company has not capitalized any software development costs in the
accompanying financial statements, due to the amounts being insignificant.
INCOME TAXES
The Company has elected to incorporate as a Limited Liability Company
in accordance with the laws in the State of Georgia. As a result, the Company is
taxed in a manner similar to a partnership and has not provided for 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company uses financial instruments in the normal course of its
business. The carrying values of cash equivalents, accounts receivable, other
current assets, accounts payable, due to affiliates, net, accrued expenses and
deferred revenues approximate fair value due to the short-term maturities of
these assets and liabilities. The Company believes the fair value of its
long-term debt exceeds its carrying value.
STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996 the Company adopted 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 net income 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 4).
F-8
13
<PAGE> 9
HARBINGER NET SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS ENDED DECEMBER 31, 1996 AND 1995
2. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment as of December 31, 1996 and 1995 consists of the
following:
1996 1995
---------- -----------
<S> <C> <C>
Furniture, fixtures and leasehold improvements......... $ 254,000 $ 4,000
Computer software...................................... 246,000 36,000
Computer and office equipment.......................... 1,174,000 193,000
----------- ----------
1,674,000 233,000
Less accumulated depreciation and amortization..... (635,000) (14,000)
----------- ----------
$ 1,039,000 $ 219,000
=========== ==========
</TABLE>
3. LONG-TERM DEBT
In connection with a June 1995 financing, the Company issued a $3
million subordinated convertible debenture bearing interest at 6% with principal
and accrued interest due in full in June 2000. This financing was completed
simultaneously with a capital investment made by Harbinger Corporation of $8
million. The Company is party to an Operating Agreement (see Note 4) between
Harbinger Corporation, the holder of the $3 million subordinated convertible
debenture, and the Company's shareholders which provides, among other terms, a
right of first refusal to Harbinger Corporation and the debenture holder with
respect to future securities sales by the Company and restricts the Company from
certain activities including issuing additional debt in excess of $7.5 million.
The terms of the Operating Agreement also provide for the automatic conversion
of the subordinated convertible debenture into the number of shares of the
Company's common stock equivalent to the outstanding principal and accrued
interest on the subordinated convertible debenture divided by the conversion
price, as defined, at the time that the debenture holder receives any and all
regulatory approvals required to hold equity in the Company.
In January 1997, Harbinger Corporation purchased the $3 million
subordinated convertible debenture (see Note 6).
4. SHAREHOLDERS' EQUITY
COMMON STOCK
The Company's initial capitalization of $703,000 was provided by
Harbinger Corporation and certain other shareholders in March 1995 through the
issuance of 1,004,000 shares of the Company's common stock at $0.70 per share.
In connection with a June 1995 financing, the Company issued 5,714,286
shares of its common stock to Harbinger Corporation at a price equivalent to
$1.40 per share in exchange for $2 million in cash and a $6 million note
receivable bearing interest at 7% due at the earlier of September 1996 or the
completion of an initial public offering, as defined, by Harbinger Corporation.
The note receivable was paid in full in August 1995.
In September of 1996, the Company issued 101,273 shares of its common
stock pursuant to an employee stock purchase plan at $1.65 per share in exchange
for $167,000 in cash.
F-9
14
<PAGE> 10
HARBINGER NET SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS ENDED DECEMBER 31, 1996 AND 1995
In January 1997, Harbinger Corporation purchased all shares and options
held by minority shareholders (see Note 6).
OPERATING AGREEMENT
The shareholders of the Company, including the holder of the
subordinated convertible debenture, are parties to an Operating Agreement which
grants certain designated shareholders, presently Harbinger Corporation and the
holder of the subordinated convertible debenture, the right after December 1,
1996 to initiate a buy-sell procedure with respect to shares owned by such
shareholders. The Operating Agreement also provides for the Company to be
controlled by a Board of Managers of seven individuals, two of which are
designated by Harbinger Corporation, two are designated by the holder of the
subordinated convertible debenture, two are jointly designated by these two
parties, and the final member is selected by majority vote of shareholders other
than these two parties. After December 31, 1996, the members of the Board of
Managers are elected by a simple majority vote of all of the Company's
shareholders.
In January 1997, Harbinger Corporation appointed a majority to the
Board of Managers (see Note 6).
STOCK OPTIONS
The Company's Stock Option Plan (the "Plan") provides for the grant of
options to officers, directors, consultants and key employees. The maximum
number of shares of the Company's common stock that may be issued under the
terms of the Plan shall not exceed 800,000 shares. Options granted under the
terms of the Plan generally vest ratably over two or four years and are granted
with an exercise price no less than the fair market value of the Company's
common stock on the grant date. All options granted expire from seven to ten
years from the date of grant. At December 31, 1996, there were options
outstanding to acquire 564,727 shares of the Company's common stock, of which
options to purchase 26,301 shares were exercisable. There were 235,273 options
available for grant at December 31, 1996.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the Plan. As a result, the Company has not recognized
compensation cost for its fixed stock option plan. Had compensation cost for the
Company's stock-based compensation plans been determined consistent with SFAS
No. 123, the Company's net loss would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C> <C>
Net loss As reported $(7,442,000) $(1,150,000)
Pro forma $(7,496,000) $(1,153,000)
</TABLE>
For purposes of the pro forma amounts above, 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: dividend
yield and expected volatility of 0%; risk-free interest rate of 5.9%; and
expected lives of 2 years.
F-10
15
<PAGE> 11
HARBINGER NET SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS ENDED DECEMBER 31, 1996 AND 1995
A summary of the status of the Company's fixed stock option plan as of
December 31, 1996 and 1995, and changes during the periods ended on those dates
is presented below:
<TABLE>
<CAPTION>
1996 1995
--------------------------- ---------------------------
Weighted Weighted
Average Average
Exercise Exercise
Fixed Options Shares Price Shares Price
------------------------------------------------ ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period.......... 103,102 $ 1.28 - $ -
Granted..................................... 521,625 1.56 103,102 1.28
Exercised................................... - - - -
Forfeited/canceled.......................... (60,000) 1.40 - -
-------- --------
Outstanding at end of period................ 564,727 $ 1.53 103,102 $ 1.28
======== ========
Options exercisable at year-end............. 26,301 -
Weighted average fair value of options
granted during the year................ $ 0.35 $ 0.28
</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>
$ 0.70 17,102 8.35 $ 0.70 8,551 $ 0.70
$ 1.40 214,750 9.17 $ 1.40 17,750 $ 1.40
$ 1.65 332,875 9.48 $ 1.65 - $ -
------- ------
$ 0.70 - $1.65 564,727 9.33 $ 1.53 26,301 $ 1.17
======= ======
</TABLE>
F-11
16
<PAGE> 12
HARBINGER NET SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS ENDED DECEMBER 31, 1996 AND 1995
5. RELATED PARTY TRANSACTIONS
The Company has entered into several agreements with Harbinger
Corporation and subsidiaries governing certain transactions between them,
including the use of personnel, the use of technology owned by Harbinger
Corporation, the rights of Harbinger Corporation to license and distribute the
Company's products, and the payment of royalties by the Company and Harbinger
Corporation. Amounts charged to Harbinger Corporation by the Company for
services provided were $214,000 for the period ended December 31, 1996. This
amount primarily consists of employee salaries and related benefits and included
$191,000 in general and administrative expenses and $23,000 in selling and
marketing expenses. 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 Harbinger Corporation in
1996 of $50,000 that have been reimbursed by Harbinger Corporation. The Company
accrued royalties payable to Harbinger Corporation of $1,199,000 for the period
ended December 31, 1996 which is included in direct costs--software and is
related to the Company's licensing of products which include Harbinger
Corporation's technology. Likewise, amounts charged to the Company by Harbinger
Corporation for services provided were $1,785,000 and $324,000 for the periods
ended December 31, 1996 and 1995, respectively. These amounts include $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
expenses for the periods ended December 31, 1996 and 1995, respectively. These
amounts have been included in the Company's accompanying statement of operations
in the categories indicated. Additionally, Harbinger Corporation paid expenses
of $505,000 and $413,000 for the periods ended December 1996 and 1995,
respectively, on behalf of the Company that have been reimbursed to Harbinger
Corporation by the Company. At December 31, 1996 and 1995, the Company had
amounts due to Harbinger Corporation of $1,760,000 and $97,000 for these
services and expenses incurred by the Company and for the royalties due to
Harbinger Corporation.
At December 31, 1996 and 1995, the Company had amounts due to (from)
affiliates resulting from these and other affiliated transactions as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Due to Harbinger Corporation and
subsidiaries.................................... $ 1,760,000 $ 97,000
Due to holder of the subordinated convertible
debenture (accrued interest included in
accrued expenses)............................... 280,000 97,000
Due from Harbinger Corporation
affiliate....................................... - (14,000)
------------- -------------
$ 2,040,000 $ 180,000
============= =============
</TABLE>
The Company believes the terms of transactions between the Company,
Harbinger Corporation and subsidiaries and the holder of the subordinated
convertible debenture are comparable to those which the Company could have
obtained in transactions with unaffiliated parties.
F-12
17
<PAGE> 13
HARBINGER NET SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS ENDED DECEMBER 31, 1996 AND 1995
6. SUBSEQUENT EVENTS (UNAUDITED)
On January 1, 1997, because of the expiration of restrictions under the
operating agreement on Harbinger Corporation's ability to appoint a majority of
the Company's Board of Managers, Harbinger Corporation exercised its rights as
majority shareholder of the Company by appointing a majority of the members of
the Company's Board of Managers. As a result, effective January 1, 1997,
Harbinger Corporation will account for its investment in the Company by
consolidating the statements of financial position and results of operations of
the Company with those of Harbinger Corporation.
Also on January 1, 1997, Harbinger Corporation entered into a debenture
purchase agreement with the holder of the subordinated convertible debenture
(the "Debenture") whereby Harbinger Corporation acquired the $3 million
Debenture of the Company in exchange for $1.5 million in cash and 242,288 shares
of Harbinger Corporation's common stock valued at $4.2 million.
Immediately after this transaction, Harbinger Corporation acquired the
minority interest in the Company, consisting of 585,335 shares of the Company's
common stock and stock options to acquire 564,727 shares of the Company's 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
Harbinger Corporation's common stock at exercise prices ranging from $15.22 per
share to $16.53 per share which were valued by Harbinger Corporation at $2.2
million.
F-13
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<PAGE> 1
EXHIBIT 99.4
HARBINGER CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma consolidated condensed financial
information of Harbinger Corporation (the "Company") set forth below as of
December 31, 1996 and for the year then ended give effect to (i) the Company's
consolidation of the financial statements of Harbinger NET Services, LLC
("HNS"), (ii) the Company's purchase of the HNS subordinated convertible
debenture (the "Debenture") as of December 31, 1996 with respect to the
unaudited pro forma consolidated condensed balance sheet and as of January 1,
1996 with respect to the unaudited pro forma consolidated condensed income
statement, and (iii) the Company's acquisition of all outstanding common stock
and stock options of HNS held by minority shareholders as of December 31, 1996
with respect to the unaudited pro forma consolidated condensed balance sheet and
as of January 1, 1996 with respect to the unaudited pro forma consolidated
condensed income statement.
The Company's purchase of the HNS Debenture has been accounted for as a
loss on extinguishment of debt and the Company's purchase of the minority
interest has been accounted for using the purchase method of accounting. For
purposes of the unaudited pro forma consolidated condensed financial
information, the allocations of the purchase price have been made based upon
current available information. The unaudited pro forma consolidated condensed
financial information should be read in conjunction with the historical
financial statements and notes of the Company and HNS. The unaudited pro forma
consolidated condensed financial information do not necessarily represent
results which would have occurred if the transactions had taken place on the
dates indicated nor are they necessarily indicative of the results of future
operations.
F-15
20
<PAGE> 2
HARBINGER CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------------------
Historical
--------------------------- Pro Forma Pro Forma
ASSETS Company HNS Adjustments Consolidated
------------ ----------- --------------- ---------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................ $ 8,395 $ 3,322 (1,500) (2) $ 8,660
(1,557) (3)
Accounts receivable, net................. 9,795 1,866 11,661
Deferred income taxes.................... 1,517 - 1,517
Due from joint venture................... 1,760 - (1,760) (4) -
Other current assets..................... 1,049 277 1,326
---------- --------- ---------
Total current assets.................. 22,516 5,465 23,164
---------- --------- ---------
Property and equipment, net................. 6,845 1,039 7,884
Investments in joint ventures............... 407 - 24 (1) -
(153) (1)
(278) (4)
Intangible assets, net...................... 11,405 - 153 (1) 12,942
1,384 (3)
Deferred income taxes....................... 1,284 - 1,284
---------- --------- ---------
$ 42,457 $ 6,504 $ 45,274
========== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......................... $ 1,570 $ 207 $ 1,777
Accrued expenses and due to
affiliates, net....................... 5,843 2,823 (280) (2) 6,976
350 (3)
(1,760) (4)
Deferred revenues........................ 3,751 196 3,947
---------- --------- ---------
Total current liabilities............. 11,164 3,226 12,700
---------- --------- ---------
Long-term debt.............................. - 3,000 (3,000) (2) -
Minority interest........................... - - 24 (1) -
(24) (3)
Redeemable preferred stock.................. - - -
Shareholders' equity:
Preferred stock.......................... - -
Common stock............................. 2 - 2
Additional paid in capital............... 45,259 8,870 4,200 (2) 51,675
2,216 (3)
(8,870) (4)
Accumulated deficit...................... (13,968) (8,592) (2,420) (2) (19,103)
8,592 (4)
(2,715) (3)
---------- --------- ---------
31,293 278 32,574
---------- --------- ---------
$ 42,457 $ 6,504 $ 45,274
========== ========= =========
</TABLE>
F-16
21
<PAGE> 3
HARBINGER CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
-------------------------------------------------------------------
Historical
--------------------------- Pro Forma Pro Forma
Company HNS Adjustments Consolidated
------------ ----------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Services ............................... $ 27,806 $ 117 $27,923
Software ............................... 13,919 2,036 (1,199) (4) 14,756
---------- ---------- -------
Total revenues........................ 41,725 2,153 42,679
---------- ---------- -------
Direct costs:
Services ............................... 8,619 644 9,263
Software ............................... 2,165 1,617 (1,199) (4) 2,583
---------- ---------- -------
Total direct costs.................... 10,784 2,261 11,846
---------- ---------- -------
Gross margin ............................... 30,941 (108) 30,833
---------- ---------- -------
Operating costs:
Selling and marketing.................... 7,929 926 8,855
General and administrative............... 7,799 1,614 9,413
Depreciation and amortization............ 1,992 621 172 (5) 2,785
Product development...................... 5,632 4,303 9,935
Charge for purchased in-process product
development and acquisition-related
charges............................... 8,775 - 8,775
---------- ---------- -------
Total operating costs.............. 32,127 7,464 39,763
---------- ---------- -------
Operating loss..................... (1,186) (7,572) (8,930)
Interest expense (income), net.............. (156) (130) (186) (2) (227)
245 (6)
Equity in losses of joint ventures.......... 7,073 - (7,004) (4) 69
---------- ---------- -------
Loss before income tax expense.............. (8,103) (7,442) (8,772)
Income tax expense.......................... 146 - 146
---------- ---------- -------
Net loss.................................... (8,249) (7,442) (8,918)
Preferred stock dividends................... (28) - (28)
========== ========== =======
Net loss applicable to common
shareholders............................. $ (8,277) $ (7,442) $(8,946)
========== ========== =======
Net loss per share of common stock.......... $ (0.52) $ (0.55)
========== =======
Weighted average common and common
equivalent shares outstanding............ 16,065 16,307
========== =======
</TABLE>
F-17
22
<PAGE> 4
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL INFORMATION
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 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 expects to record a net deferred income tax asset of
approximately $840,000 as a result of these transactions and intends to provide
a valuation allowance against such net deferred income tax asset to reduce it to
zero.
The accompanying unaudited pro forma consolidated condensed financial
information illustrates the estimated effects of the transactions described
above as if they had occurred as of December 31, 1996 with respect to the
unaudited pro forma consolidated condensed balance sheet and as of January 1,
1996 with respect to the unaudited pro forma consolidated condensed statement of
operations.
The historical financial statements are derived from the audited
financial statements of the Company and HNS as of and for the year ended
December 31, 1996.
The unaudited pro forma consolidated condensed financial information
does not purport to represent what the results of operations or financial
position of the Company would actually have been if the transactions had
occurred on such dates or to project the results of operations or financial
position of the Company for any future date or period. The unaudited pro forma
consolidated condensed financial information should be read together with the
historical financial statements and notes of the Company and HNS. The unaudited
pro forma consolidated condensed financial information reflects the following
adjustments:
1) Reflects the recognition of the minority interest related to the Company's
change from the equity method to the consolidated method of accounting for
HNS and the reclassification of an insignificant intangible asset from
investment in HNS to intangible assets.
F-18
23
<PAGE> 5
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL INFORMATION
2) Reflects adjustments to record the Company's purchase of the Debenture for
$1.5 million in cash and the issuance of Harbinger common stock valued at
$4.2 million to the holder of the Debenture. The adjustment also reflects a
$2.42 million increase in the Company's accumulated deficit resulting from
the loss on debt extinguishment relating to the Company's purchase of the
Debenture and the elimination of the interest expense recorded with respect
to the Debenture.
3) Reflects adjustments to record the acquisition of the shares held by the
minority shareholders for $4.1 million including $1.6 million in cash and
the issuance of options to acquire the Company's stock valued at $2.2
million. The purchase price allocation reflects: (i) a $1.4 million
increase in goodwill and purchased technology; (ii) a $2.7 million increase
in the Company's accumulated deficit resulting from the valuation of
in-process product development which will be charged to the consolidated
statement of operations on January 1, 1997; and (iii) a provision of
$350,000 for transaction related costs.
4) Additionally, the Company has made the following consolidating adjustments:
(i) the elimination of the Company's investment in HNS and the historical
equity accounts of HNS; and (ii) the elimination of intercompany revenues
and expenses and their corresponding balance sheet accounts along with the
elimination of the Company's equity in losses of HNS.
5) Reflects an increase in amortization expense as a result of the acquisition
of HNS. Amortization of goodwill arising from the acquisition is provided
using the straight-line method over ten years. Purchased technology is
amortized using the straight-line method over the remaining estimated
economic life of the product or enhancement, which was determined to be
five years.
6) Reflects interest expense on the cash payment of $3,057,000 to fund the
transactions on January 1, 1996 at the prime rate (8%) for the year.
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. These acquisition integration costs have not been reflected in the
accompanying unaudited pro forma consolidated condensed financial information.
The unaudited pro forma consolidated condensed statement of operations does not
reflect the $2.4 million loss on extinguishment of the Debenture or the $2.7
million charge for in-process produce development related to the acquisition of
the minority interest of HNS. These charges will be recorded in the first
quarter of 1997.
All share, per share and shareholders' equity amounts for the Company
have been adjusted to reflect a three-for-two stock split effected in the form
of a 150% stock dividend paid on January 31, 1997.
F-19
24
