EX-99.2 3 dex992.htm UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

 

EXHIBIT 99.2

 

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

 

On December 27, 2002, Network Engines, Inc. (the “Company”) completed its acquisition of TidalWire Inc. (“TidalWire”). In connection with this acquisition, the Company made a net cash payment of approximately $9,320,000, representing gross cash payments of approximately $9,910,000 less amounts due to TidalWire by a stockholder under a note of $590,000 and issued 3,331,043 shares of its common stock (valued at approximately $3,331,000). In addition, the Company assumed and repaid $1,878,000 outstanding under TidalWire’s working capital line of credit (approximately $2,149,000 at September 30, 2002). The Company also issued options for the purchase of 1,035,033 shares of its common stock with an average exercise price of $0.36 (valued, based on the Black-Scholes valuation model, at approximately $882,000). The Company also incurred estimated transaction-related fees of approximately $2,169,000 in connection with this transaction. Total consideration for the acquisition, as of September 30, 2002, was valued at $17,851,000.

 

The accompanying unaudited pro forma combined financial statements are presented as if the Company and TidalWire had been operating as a combined entity. The unaudited pro forma combined balance sheet as of September 30, 2002 presents the financial position of the Company assuming the acquisition had occurred on September 30, 2002. The unaudited pro forma combined statement of operations for the year ended September 30, 2002 presents the results of operations of Network Engines assuming the acquisition had occurred on October 1, 2001. All material adjustments to reflect the acquisition are set forth in the column “Pro Forma Adjustments.”

 

The pro forma data is for informational purposes only and may not necessarily reflect future results of operations and financial position or what the results of operations or financial position would have been had Network Engines and TidalWire been operating as a combined entity for the specified periods. The unaudited pro forma combined financial statements should be read in conjunction with the audited financial statements and the accompanying notes included in the Company’s 2002 Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission on December 20, 2002 and the historical financial statements of TidalWire included in the Company’s proxy statement filed by the Company with the Securities and Exchange Commission on December 6, 2002.

 

Network Engines, Inc.

Unaudited Pro Forma Combined Balance Sheet

September 30, 2002

 

    

Network Engines

     

TidalWire (A)

     

Pro Forma Adjustments

         

Pro Forma Combined

  

ASSETS

                                        

Current Assets:

                                        

Cash and cash equivalents

   

$

46,552

 

   

$

244

 

   

$

(11,469

)

  

B

   

$

35,327

 

Short-term investments

   

 

8,546

 

   

 

—  

 

                

 

8,546

 

Restricted cash

   

 

1,098

 

   

 

—  

 

                

 

1,098

 

Accounts receivable, net

   

 

2,729

 

   

 

4,864

 

                

 

7,593

 

Inventories

   

 

1,956

 

   

 

3,459

 

                

 

5,415

 

Prepaid expenses and other current assets

   

 

1,065

 

   

 

330

 

                

 

1,395

 

    
  
  
      

Current Assets

   

 

61,946

 

   

 

8,897

 

   

 

(11,469

)

       

 

59,374

 

Property and equipment, net

   

 

2,236

 

   

 

219

 

   

 

272

 

  

C

   

 

2,727

 

Goodwill

                     

 

7,911

 

  

C

   

 

7,911

 

Amortizable intangible assets

                     

 

5,071

 

  

C

   

 

5,071

 

Other assets

   

 

28

 

   

 

411

 

                

 

439

 

    
  
  
      

Total Assets

   

$

64,210

 

   

$

9,527

 

   

$

1,785

 

       

$

75,522

 

    
  
  
      

LIABILITIES & EQUITY

                                        

Current Liabilities:

                                        

Accounts payable

   

$

1,474

 

   

$

4,208

 

                

$

5,682

 

Income Tax Payable

   

 

—  

 

   

 

397

 

                

 

397

 

Accrued compensation and other related benefits

   

 

683

 

   

 

402

 

                

 

1,085

 

Other accrued expenses

   

 

785

 

   

 

224

 

   

 

2,169

 

  

B

   

 

3,178

 

Accrued restructuring and other charges

   

 

355

 

   

 

—  

 

                

 

355

 

Deferred Revenue

   

 

23

 

   

 

3

 

                

 

26

 

Current portion of capital lease obligations

   

 

14

 

   

 

—  

 

                

 

14

 

Line of Credit

            

 

2,149

 

   

 

(2,149

)

  

B

   

 

—  

 

    
  
  
      

Total Current Liabilities

   

 

3,334

 

   

 

7,383

 

   

 

20

 

       

 

10,737

 

Stockholders’ Equity:

                                        

Common Stock

   

 

357

 

   

 

81

 

   

 

(48

)

  

B, D

   

 

390

 

APIC

   

 

174,252

 

   

 

2,082

 

   

 

2,098

 

  

B, D, E

   

 

178,432

 

Note Receivable

   

 

(281

)

   

 

(590

)

   

 

590

 

  

D

   

 

(281

)

Treasury Stock

   

 

(4,707

)

   

 

(371

)

   

 

371

 

  

D

   

 

(4,707

)

Deferred stock compensation

   

 

(1,185

)

   

 

—  

 

   

 

(304

)

  

E

   

 

(1,489

)

Unrealized gain on short-term investments

   

 

3

 

   

 

—  

 

                

 

3

 

Retained Earnings (Accumulated Deficit)

   

 

(107,563

)

   

 

942

 

   

 

(942

)

  

D

   

 

(107,563

)

    
  
  
      

Total Equity

   

 

60,876

 

   

 

2,144

 

   

 

1,765

 

       

 

64,785

 

Total Liabilities & Equity

   

$

64,210

 

   

$

9,527

 

   

$

1,785

 

       

$

75,522

 

    
  
  
      

 

See the accompanying notes to the unaudited pro forma combined financial statements.

 

Network Engines, Inc.

Unaudited Pro Forma Combined Statement of Operations

For the year ended September 30, 2002

 

    

Network Engines

     

TidalWire

     

Pro Forma Adjustments

         

Pro Forma Combined

  

Net revenues

   

$

14,534

 

   

$

30,490

 

                

$

45,024

 

Cost of revenues

   

 

12,329

 

   

 

24,124

 

                

 

36,453

 

Cost of revenues stock compensation

   

 

147

 

                         

 

147

 

    
  
  
      

Total cost of revenues

   

 

12,476

 

   

 

24,124

 

   

 

—  

 

       

 

36,600

 

    
  
  
      

Gross profit

   

 

2,058

 

   

 

6,366

 

   

 

—  

 

       

 

8,424

 

Operating expenses:

                                        

Research and development

   

 

4,693

 

                         

 

4,693

 

Selling and marketing

   

 

3,836

 

   

 

1,556

 

                

 

5,392

 

General and administrative

   

 

4,602

 

   

 

3,485

 

                

 

8,087

 

Stock compensation

   

 

4,291

 

            

 

248

 

  

F

   

 

4,539

 

Restructuring and other charges

   

 

353

 

                         

 

353

 

Amortization of intangible assets

                     

 

1,014

 

  

G

   

 

1,014

 

    
  
  
      

Total operating expenses

   

 

17,775

 

   

 

5,041

 

   

 

1,262

 

       

 

24,078

 

    
  
  
      

Income (loss) from operations

   

 

(15,717

)

   

 

1,325

 

   

 

(1,262

)

       

 

(15,654

)

Interest income, net

   

 

1,432

 

   

 

39

 

                

 

1,471

 

Interest expense and other

   

 

160

 

   

 

(63

)

                

 

97

 

    
  
  
      

Income (loss) before income taxes

   

 

(14,125

)

   

 

1,301

 

   

 

(1,262

)

       

 

(14,086

)

Provision for income taxes

            

 

561

 

   

 

(561

)

  

H

   

 

—  

 

    
  
  
      

Net income (loss)

   

$

(14,125

)

   

$

740

 

   

$

(701

)

       

$

(14,086

)

    
  
  
      

Net income (loss) per share—basic and diluted

   

$

(0.44

)

                         

$

(0.40

)

    
                        

Shares used in computing net loss per share—basic

   

 

32,270

 

            

 

3,331

 

  

I

   

 

35,601

 

 

See the accompanying notes to the unaudited pro forma combined financial statements.

 

 

 

Notes to Unaudited Pro Forma Combined

Financial Statements

 

A   To give effect to the acquisition of TidalWire as if it had occurred on September 30, 2002 for the pro forma combined balance sheet presentation and on October 1, 2001 for the pro forma combined statement of operations presentation. TidalWire statement of operations data is for the 12 months ended September 30, 2002, which includes results from the last six months of TidalWire’s fiscal year ended March 31, 2002 and the first six months of TidalWire’s fiscal year ending March 31, 2003.

 

B   To give effect to the total consideration of $17.9 million.

 

The calculation of the estimated purchase price, based upon TidalWire’s balance sheet as of September 30, 2002, was as follows (in thousands):

 

Cash consideration

   

$

9,320

Value of common stock issued

   

 

3,331

Assumption of TidalWire options

   

 

882

Assumption of TidalWire debt

   

 

2,149

Estimated transaction costs and expenses

   

 

2,169

Total estimated purchase price

   

$

17,851

 

The Company made net cash payments of approximately $9.3 million to the stockholders of TidalWire on December 27, 2002 and a cash payment of approximately $1.9 million to repay all amounts outstanding under TidalWire’s working capital line of credit (approximately $2.1 million at September 30, 2002), which was then cancelled. The Company issued 3,331,043 shares of its common stock to certain stockholders of TidalWire and, for the purposes of calculating the purchase price, the Company’s common stock was valued at a per share price of $1.00 (the average price of the Company’s common stock over the three days before and after the announcement of the acquisition). In addition, the Company issued options to purchase approximately 1,035,033 shares of its common stock at an average exercise price of $0.36 per share upon the assumption of all of the outstanding TidalWire options. The value of the assumed options, using the Black-Scholes model, is approximately $882,000 of which approximately $304,000 relates to unvested stock options and is recorded as deferred stock compensation. In addition, the Company has incurred estimated fees of approximately $2,169,000 in connection with this transaction, including $650,000 of transaction costs incurred by TidalWire, which were reimbursed in accordance with the terms of the merger agreement.

 

C   To record the purchase based on the estimate fair values of the acquired assets and liabilities.

 

As of September 30, 2002, the estimated purchase price allocation was as follows (in thousands):

 

Tangible current assets

  

$

8,897

 

Property and equipment

  

 

902

 

Goodwill

  

 

7,911

 

Customer relationships and other intangible assets

  

 

5,071

 

Deferred compensation for unvested options

  

 

304

 

Liabilities assumed

  

 

(5,234

)

Net assets acquired

  

$

17,851

 

 

Notes to Unaudited Pro Forma Combined

Financial Statements — (continued)

 

Network Engines engaged an independent valuation firm to perform an appraisal of the amounts allocated to tangible and intangible assets.

 

D   To record the elimination of TidalWire’s historical stockholders’ equity.

 

E   To record deferred stock compensation based on the intrinsic value of unvested TidalWire common stock options assumed upon the closing of the acquisition.

 

F   To record the amortization of deferred stock compensation related to the issuance of unvested options to purchase of Network Engines common stock to the holders of TidalWire common stock options.

 

G   To record the amortization of customer relationships (on a straight-line basis) over the estimated useful life of 5 years.

 

H   To reverse TidalWire’s provision for income taxes.

 

I   The calculation of pro forma weighted-average number of shares outstanding includes the weighted-average number of common shares outstanding of Network Engines, adjusted to give effect to the issuance of 3,331,043 shares of Network Engines’ common stock in connection with the acquisition. The calculation does not include the shares of Network Engines common stock issuable upon the exercise of the TidalWire stock options assumed by Network Engines upon the closing of the acquisition, as their inclusion would be antidilutive for the year ended September 30, 2002.