-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LPw0OLZtDPlD9ea0kDVqFrD4Xmm8fPA7M8WNwNdQH+8V1dExM5v7cZv4DvKtuQqD E8dwH3XiDweAeCNORAlmEg== 0000950144-97-004968.txt : 19970502 0000950144-97-004968.hdr.sgml : 19970502 ACCESSION NUMBER: 0000950144-97-004968 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970428 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970501 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARBINGER CORP CENTRAL INDEX KEY: 0000947116 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 581817306 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-93804 FILM NUMBER: 97593420 BUSINESS ADDRESS: STREET 1: 1055 LENOX PARK BLVD CITY: ATLANTA STATE: GA ZIP: 30319 BUSINESS PHONE: 4048414334 8-K 1 HARBINGER CORPORATION 1 =============================================================================== 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) 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) (404) 467-3000 (Company's telephone number, including area code) =============================================================================== Page 1 of 60 -1- 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
(c) Exhibits 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
-2- 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- 4
EXHIBIT INDEX Exhibit No. Description - ----------- ------------------------------------------------------------- 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
-4- EX-23.1 2 INDEPENDENT AUDITORS CONSENT 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 EX-23.2 3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 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 EX-23.3 4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 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 EX-99.1 5 SUPPLEMENTAL SELECTED FINANCIAL DATA 1 EXHIBIT 99.1 SUPPLEMENTAL SELECTED FINANCIAL DATA
STATEMENT OF OPERATIONS DATA: (in thousands, except per share data) Year Ended December 31, - ------------------------------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 --------- -------- -------- ------- -------- 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) ======== ======== ======== ======= ========
BALANCE SHEET DATA: (in thousands) At December 31, - ------------------------------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ------ ------ ------ ------ ------ 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)
(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. EX-99.2 6 SUPPLEMENTAL QUARTERLY RESULTS OF OPERATION 1 EXHIBIT 99.2 SUPPLEMENTAL QUARTERLY RESULTS OF OPERATIONS - 1995
(in thousands, except for per share data) THREE MONTHS ENDED - ------------------------------------------------------------------------------------------------------ MAR. 31, JUNE 30, SEPT. 30, DEC. 31, 1995 1995 1995 1995(1) ---- ---- ---- ------- 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 ======== ======== ======== ========
(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. 2 SUPPLEMENTAL QUARTERLY RESULTS OF OPERATIONS - 1996
(in thousands, except for per share data) THREE MONTHS ENDED - ------------------------------------------------------------------------------------------------------ MAR. 31, JUNE 30, SEPT. 30, DEC. 31, 1996(1) 1996 1996 1996(1) ------- ---- ---- ------- 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 ======== ======== ======== ========
(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. EX-99.3 7 SUPP MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCE 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. 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. 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. 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.
Percentage of Total Revenues ---------------------------------- Years Ended December 31, ---------------------------------- 1996 1995 1994 ---------- ---------- ---------- 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)% ======== ========
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 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 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 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. 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. EX-99.4 8 SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS 1 EXHIBIT 99.4 HARBINGER CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------------ ASSETS 1996 1995 ------------- ------------ 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 ============ ============
See accompanying notes to supplemental consolidated financial statements. 2 HARBINGER CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ------------------------------------------------ 1996 1995 1994 ------------ ------------ ------------ 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 ============ ============ ============
See accompanying notes to supplemental consolidated financial statements. 3 HARBINGER CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
YEARS ENDED DECEMBER 31, ------------------------------- 1996 1995 ------------ ------------- 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 ============ ============
See accompanying notes to supplemental consolidated financial statements. 4 HARBINGER CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
Preferred stock, Series C Common stock Additional ----------------------------- ----------------------- paid-In Shares Amount Shares Amount capital ------------- -------------- ----------- ---------- ------------ 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 ======== =========== =========== ====== ============
Total Accumulated shareholders' deficit equity -------------- ------------- 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 ============ ============
See accompanying notes to supplemental consolidated financial statements. 5 HARBINGER CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------------------------------- 1996 1995 1994 --------------- -------------- ------------- 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 ---------- ----------- ---------
See accompanying notes to supplemental consolidated financial statements. 6 HARBINGER CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, ----------------------------------------------- 1996 1995 1994 -------------- ------------- ------------- 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 ============ ============ ===========
See accompanying notes to supplemental consolidated financial statements. 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. 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. 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. 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. 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:
1996 1995 1994 ------------ ------------ ------------ 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) ============ ============ ============
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. 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:
Year Ended December 31, 1994 ----------------- 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 ============
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). 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:
Years Ended December 31, ------------------------------ 1996 1995 ------------ ------------ 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 ============ ============
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. 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. 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:
1996 1995 ------------ ------------ 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 =========== ===========
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 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:
1996 1995 ----------- ----------- 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: 1996 1995 ------------ ------------ 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) =========== ===========
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:
1996 1995 1994 ------- --------- --------- 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 ========= ========= =========
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. 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:
1996 1995 ------------- ------------ 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 ============ ============
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:
1996 1995 ------------ ------------ 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 ============ ============
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. 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:
1996 1995 1994 ------------ ----------- ----------- 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) ============ =========== ===========
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:
1996 1995 1994 --------- ----------- ----------- 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) ========= =========== ===========
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:
1996 1995 --------- --------- 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 ========= =========
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:
1996 1995 1994 ------------ ------------ ----------- 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) ============ ============ ===========
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:
1996 1995 ----------- ----------- 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 =========== ===========
The significant components of deferred income tax expense (benefit) for the years ended December 31, 1996, 1995, and 1994 are summarized as follows:
1996 1995 1994 ----------- ----------- ----------- 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) =========== =========== ===========
Pro forma significant components of deferred income tax expense (benefit) for the years ended December 31, 1996 and 1995 are summarized as follows:
1996 1995 ----------- ----------- 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 =========== ===========
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:
1996 1995 ----------- ----------- 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 =========== ===========
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. 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:
1996 1995 ----------- ----------- 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 =========== ===========
Future minimum annual payments under long-term debt for the next three years are as follows: 1997....................................... $ 907,000 1998....................................... 818,000 1999....................................... 550,000 ---------- $2,275,000 ==========
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. 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. 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:
Stock Options ----------------------------------- Number Price --------- -------------------- 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 ========= ====================
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:
1996 1995 -------------- -------------- 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)
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. 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:
1996 1995 ----------------------- ---------------------- Weighted- Weighted- Average Average Shares Exercise Shares Exercise Fixed Options (000) Price (000) Price - -------------------------------------- ------ -------- --------- ----------- 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
The following table summarizes information about fixed stock options outstanding at December 31, 1996:
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 - ----------------------- ------------- ----------- -------- ------------ ---------- $ 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 ========= =======
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. 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:
United States Europe Mexico Eliminations Total ------------ ------------- ----------- ---------------- ------------ 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
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: 1997......................... $ 3,067,000 1998......................... 3,209,000 1999......................... 3,195,000 2000......................... 1,938,000 2001......................... 778,000 ----------- $12,187,000 ===========
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. 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. 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 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 34 HARBINGER CORPORATION AND SUBSIDIARIES SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
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 - ----------------------------------- ------------ ---------- ------------ ----------- ------------ ------------ 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
- ----------- (A) Deductions represent write-offs of doubtful accounts and sales returns charged against the allowance. (B) Deductions from revenues for sales returns and allowances. 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 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 37 HARBINGER CORPORATION AND SUBSIDIARIES SUPPLEMENTAL COMPUTATION OF PRIMARY AND FULLY DILUTED PER SHARE EARNINGS
1996 1995 1994 ------------ ------------- ------------- 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) ============ ============ ============
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