<PAGE>   1


                                                                    EXHIBIT 13.1

                         QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>

(In thousands, except per share data)                                      THREE MONTHS ENDED
---------------------------------------------------------------------------------------------------------------

                                                            MAR. 31,       JUNE 30,     SEPT. 30,      DEC. 31,
                                                              1996           1996         1996           1996
                                                            --------       -------      --------       --------
<S>                                                         <C>            <C>           <C>           <C>

Revenues .................................................  $ 17,233       $21,935       $22,846       $ 27,231
                                                            ========       =======       =======       ========

Gross margin .............................................  $ 12,910       $16,384       $16,984       $ 19,855
                                                            ========       =======       =======       ========

Operating income (loss) ..................................  $ (8,212)      $(1,528)      $(1,898)      $    971
                                                            ========       =======       =======       ========

Net loss applicable to common shareholders ...............  $ (8,763)      $(3,054)      $(3,465)      $   (809)
                                                            ========       =======       =======       ========

Net loss per share of common stock .......................  $  (0.39)      $ (0.13)      $ (0.15)      $  (0.03)
                                                            ========       =======       =======       ========
Weighted average common and common
    equivalent shares outstanding ........................    22,663        23,366        23,511         23,748
                                                            ========       =======       =======       ========

----------------------------------------------------------

Net income applicable to common shareholders
  (excluding equity in loss of HNS, expected
  to recur, and acquisition related and other
  one-time charges listed separately below)* .............  $    531       $   858       $   747       $  1,158
                                                            ========       =======       =======       ========
Net income per common share (excluding equity
  in loss of HNS, expected to recur, and
  acquisition related and other one-time
  charges listed separately below)* ......................  $   0.02       $  0.03       $  0.03       $   0.05
                                                            ========       =======       =======       ========

<CAPTION>

(In thousands, except per share data)                                      THREE MONTHS ENDED
---------------------------------------------------------------------------------------------------------------

                                                             MAR. 31,      JUNE 30,      SEPT. 30,     DEC. 31,
                                                              1997          1997           1997          1997
                                                            --------       -------       --------      --------
<S>                                                         <C>            <C>           <C>           <C>

Revenues .................................................  $ 24,320       $28,418       $30,236       $ 37,701
                                                            ========       =======       =======       ========

Gross margin .............................................  $ 17,638       $21,052       $22,453       $ 28,235
                                                            ========       =======       =======       ========

Operating income (loss) ..................................  $(14,911)      $ 3,767       $(9,743)      $(12,129)
                                                            ========       =======       =======       ========
Net income (loss) applicable to
  common shareholders ....................................  $(16,353)      $ 2,724       $(8,970)      $(16,448)
                                                            ========       =======       =======       ========

Net income (loss) per share of common stock ..............  $  (0.68)      $  0.10       $ (0.35)      $  (0.61)
                                                            ========       =======       =======       ========
Weighted average common and common
  equivalent shares outstanding ..........................    24,167        26,115        25,953         27,166
                                                            ========       =======       =======       ========

----------------------------------------------------------

Net income applicable to common shareholders
  (excluding charges listed separately below)** ..........  $  1,168       $ 2,724       $ 3,902       $  5,938
                                                            ========       =======       =======       ========
Net income per common share (excluding
  charges listed separately below)** .....................  $   0.05       $  0.10       $  0.14       $   0.21
                                                            ========       =======       =======       ========

</TABLE>


*   Excludes pre-tax charge of $8.4 million for the quarter ended March 31,
    1996, $2.2 million for the quarter ended June 30, 1996, $2.5 million for the
    quarter ended September 30, 1996 and $425,000 for the quarter ended December
    31, 1996 for purchased in-process product development, write-off of software
    development costs and acquisition related and other one-time charges.


                                      -34-
<PAGE>   2

**  Excludes pre-tax charge of $16.2 million for quarter ended March 31, 1997,
    $15.0 million for the quarter ended September 30, 1997 and $20.5 million for
    at the quarter ended December 31, 1997 for purchased in-process product
    development, write-off of software development costs, acquisition related
    and other one-time charges. Also excludes a $2.4 million charge for quarter
    ended March 31, 1997 for extraordinary loss on debt extinguishment and a
    $4.0 million charge for quarter ended December 31, 1997 for loss on disposal
    of TrustedLink Banker division, including provision for operating losses
    during phase-out period.




                                      -35-
<PAGE>   3
                             SELECTED FINANCIAL DATA


<TABLE>
<CAPTION>

STATEMENT OF OPERATIONS DATA:

(In thousands, except per share data)                                   Years Ended December 31,
-----------------------------------------------------------------------------------------------------------------------
                                                       1997           1996           1995          1994          1993
                                                     --------       --------       --------       -------       -------
<S>                                                  <C>            <C>            <C>            <C>           <C>

Revenues ..........................................  $120,675       $ 89,245       $ 60,077       $45,454       $33,697
Direct costs ......................................    31,297         23,112         14,994        10,558         8,138
                                                     --------       --------       --------       -------       -------
Gross margin ......................................  $ 89,378       $ 66,133       $ 45,083       $34,896       $25,559
                                                     ========       ========       ========       =======       =======

Operating income (loss) ...........................  $(33,016)      $(10,667)      $  1,314       $   505       $ 1,890
                                                     ========       ========       ========       =======       =======
Net income (loss) applicable to common
    shareholders ..................................  $(39,047)      $(16,091)      $   (444)      $  (273)      $ 3,113
                                                     ========       ========       ========       =======       =======
Diluted net income (loss) per share of
    common stock ..................................  $  (1.53)      $  (0.69)      $  (0.02)      $ (0.02)      $  0.21
                                                     ========       ========       ========       =======       =======
Weighted average common and common
    equivalent shares outstanding .................    25,441         23,387         19,049        16,075        14,660
                                                     ========       ========       ========       =======       =======

---------------------------------------------------
Pooled Basis of Accounting for Acquisitions
Operating income (excluding special charges)* .....  $ 18,638       $  2,808       $  2,474       $ 4,822       $ 1,890
                                                     ========       ========       ========       =======       =======


Net income applicable to common shareholders**.....  $ 13,708       $  3,366       $  1,608       $ 2,524       $ 3,113
                                                     ========       ========       ========       =======       =======

Diluted net income per common share** .............  $   0.50       $   0.14       $   0.08       $  0.15       $  0.21
                                                     ========       ========       ========       =======       =======

<CAPTION>
BALANCE SHEET DATA:

(In thousands)                                                                At December 31,
-----------------------------------------------------------------------------------------------------------------------
                                                       1997           1996          1995           1994          1993
                                                     --------       --------       --------       -------       -------
<S>                                                    <C>            <C>            <C>            <C>           <C>

Working capital ...................................    94,307         60,392         73,167         4,550         3,862
Total assets ......................................   183,559        131,199        125,867        34,751        24,823
Long-term obligations, redeemable preferred
    stock and puttable common stock ...............        --          1,608          7,116           803         5,591
Shareholders' equity ..............................   130,018         94,118         93,196        10,052         7,062



*   Excludes $51.7 million, $13.5 million, $1.2 million and $4.3 million pre-tax
    charges for 1997, 1996, 1995 and 1994, respectively, for purchased
    in-process product development, write-off of software development costs,
    acquisition related and other one-time charges.

**  Excludes $7.0 million and $954,000 for 1996 and 1995, respectively, of
    equity in loss of HNS expected to recur, $51.7 million, $13.5 million,
    $1.2 million and $4.3 million of charges for 1997, 1996, 1995 and 1994,
    respectively, for purchased in-process product development, write-off of
    software development costs, acquisition related and other one-time charges.
    Also excludes $2.4 million loss on extinguishment of debt in 1997 and $4.0
    million loss on disposal of TrustedLink Banker division, including
    provision for operating losses during phase-out period in 1997.

</TABLE>

Supplemental Information
------------------------
Statement of Operations Data as Originally Reported
(excluding acquisitions accounted for under the pooling of
interests method of accounting):

<TABLE>
<CAPTION>

(In thousands)                                                       Years Ended December 31,
-----------------------------------------------------------------------------------------------------------------------
                                                       1997           1996          1995           1994          1993
                                                     --------       --------       --------       -------       -------
<S>                                                    <C>            <C>            <C>            <C>           <C>
Operating income*................................... $ 18,638        $  7,589      $  3,135       $  1,619      $  1,142
Net income applicable to common
    shareholders**.................................. $ 13,708        $  4,654      $  1,563       $    626      $  3,242
Diluted net income per common share**............... $   0.50        $   0.27      $   0.12       $   0.06      $   0.32


*   Excludes $51.7 million, $8.8 million, $4.3 million of pre-tax charges for
    1997, 1996 and 1994, respectively, for purchased in-process product
    development, write-off of software development costs, acquisition related
    and other one-time charges. The as originally reported supplemental
    information above includes the financial results of the TrustedLink Banker
    Division

**  Excludes $7.0 million and $954,000 for 1996 and 1995, respectively, of
    equity in loss of HNS, expected to recur, $51.7 million, $8.8 million, and
    $4.3 million of charges for 1997, 1996 and 1994, respectively, for purchased
    in-process product development, write-off of software development costs,
    acquisition related and other one-time charges. Also excludes $2.4 million
    loss on extinguishment of debt in 1997 and $4.0 million loss on disposal of
    TrustedLink Banker division, including provision for operating losses during
    phase-out period in 1997.  The as originally reported supplemental
    information above includes the financial results of the TrustedLink Banker
    division.

</TABLE>
                                      -36-
<PAGE>   4


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF

                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


OVERVIEW

ABOUT THE COMPANY

         Harbinger Corporation (the "Company") generates revenues from various
sources, including revenues for services and license fees for software. Revenues
for services principally include subscription fees for transactions on the
Company's Value-Added 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 distribution agreements with third party
distributors which are recognized based upon sales to end users by that
distributor. During 1997, the Company incurred $51.7 million in purchased
in-process product development, write-off of software development costs,
acquisition related and other one-time charges associated with its purchases of
HNS, STI, Acquion, Atlas and Premenos. These costs related to the business
combinations include activities such as cross training, planning, product
integration and marketing ("Integration Activities"). Due to Integration
Activities in 1997, certain internal expense allocations ("Integration Activity
Costs") included in the acquisition related charges may recur in other expense
categories in the future and may result in an increase in some expense
categories as a percentage of total revenues. In connection with the Premenos
merger, the Company anticipates additional merger related charges totaling
$10-$15 million in the first quarter of 1998.

1997 ACQUISITIONS

HARBINGER NET SERVICES, LLC ("HNS")

         In December 1994, the Company founded HNS to develop products and
services to facilitate electronic commerce using the Internet. HNS was
capitalized with an initial investment of approximately $360,000 from the
Company and approximately $340,000 from 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 was accounted for under the equity method of
accounting 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 began accounting 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 recorded 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 at $2.2 million. Including transaction and other costs of $350,000, the
Company paid $4.1 million for the acquisition of the HNS


                                      -37-

<PAGE>   5
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF

                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


minority interest which was 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 also incurred acquisition related expenses and asset
write downs related to this acquisition of $2.0 million. The Company recorded a
net deferred income tax asset of approximately $840,000 as a result of this
acquisition and provided a valuation allowance against such net deferred income
tax asset to reduce it to zero.

         STI

         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 incurred a charge
of $12.4 million for acquisition related expenses, asset write downs and
integration costs incurred (including a $3.2 million charge for the vesting of a
contingent option which became exercisable upon the closing of the merger). The
Company recorded a net deferred income tax asset during the first quarter of
1997 of approximately $1.8 million relating to the STI acquisition and provided
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.

         ACQUION, INC. ("ACQUION")

         Effective August 22, 1997, the Company acquired all of the common stock
of Acquion, a California corporation based in Greenville, South Carolina, for
approximately $13.6 million, consisting of $12.0 million in cash and the
assumption of approximately $1.6 million in liabilities. The Company recorded
the acquisition using the purchase method of accounting with $10.9 million of
the purchase price allocated to in-process product development and charged to
the consolidated statement of operations on August 22, 1997, $641,000 allocated
to purchased technology and $2.0 million allocated to goodwill. The Company also
incurred acquisition related expenses and asset write downs during 1997 related
to this acquisition of $2.5 million. The Company recorded a net deferred income
tax asset of approximately $4.1 million as a result of this acquisition and
provided a valuation allowance against such net deferred income tax asset to
reduce it to zero.

         ATLAS PRODUCTS INTERNATIONAL, LIMITED ("ATLAS")

         On October 23, 1997, the Company acquired Atlas, a company organized
under the laws of England, based in Manchester, United Kingdom, for 311,399
unregistered shares of the Company's common stock in a transaction accounted for
using the pooling-of-interests method of accounting. In connection with the
acquisition, the Company incurred a charge of $2.0 million in 1997 for
acquisition related expenses, asset write downs and integration costs incurred.
The Atlas business combination is not material and therefore has been accounted
for as an immaterial pooling.



                                      -38-
<PAGE>   6

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF

                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


         PREMENOS TECHNOLOGY CORP. ("PREMENOS")

         On December 19, 1997, the Company acquired Premenos, a Delaware
corporation based in Concord, California. In connection with the transaction,
which was accounted for using the pooling-of-interests method of accounting, the
Company issued 5,358,655 shares of its common stock in exchange for all of the
shares of Premenos common stock. All Premenos options and warrants were
converted into the Company's options and warrants in accordance with the
conversion ratio.

         In connection with the Premenos acquisition, the Company incurred a
charge of $15.3 million in 1997 for acquisition related expenses, asset write
downs and integration costs incurred. The Company anticipates additional merger
related charges totaling $10-$15 million in the first quarter of 1998.

         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 acquisition. The Company acquired net operating losses and research tax
credit carryforwards of approximately $1.3 million and $1.7 million,
respectively. The utilization of these net operating loss and research tax
credit carryforwards is restricted based on the ability of Premenos, as a
separate company, to generate taxable income.

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 five other acquisitions during 1996, which
are more fully described in the notes to the Company's accompanying consolidated
financial statements and which are not expected to have a significant impact on
the Company's financial position or results of operations. In the fourth quarter
of 1997, the Company sold its interest in one of the companies.

SSA ALLIANCE

         Effective July 21, 1995, the Company purchased technology and entered
into a distribution agreement with System Software Associates, Inc. ("SSA") for
$4.7 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 SSA Alliance, the Company acquired software products and
technologies that complement the Company's existing software product line.
During 1997, the purchased technology was written down due to the acquisition of
other replacement technology that will be licensed to SSA and the distribution
agreement was written down based upon future expectations of net cash flows from
the arrangement.




                                      -39-
<PAGE>   7

                     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 consolidated statements of operations data items to
total revenues.

<TABLE>
<CAPTION>
                                                             Percentage of Total Revenues
                                                            ------------------------------
                                                               Years Ended December 31,
                                                            ------------------------------
                                                            1997         1996         1995
                                                            ----         ----         ----
<S>                                                         <C>          <C>          <C>

STATEMENTS OF OPERATIONS DATA:
Revenues:
  Services ..............................................   53.9%        51.8%        48.7%
  Software ..............................................   46.1         48.2         51.3
                                                           -----        -----        -----
     Total revenues .....................................  100.0        100.0        100.0
                                                           -----        -----        -----
Direct costs:
  Services ..............................................   19.5         18.3         16.2
  Software ..............................................    6.4          7.6          8.8
                                                           -----        -----        -----
     Total direct costs .................................   25.9         25.9         25.0
                                                           -----        -----        -----
        Gross margin ....................................   74.1         74.1         75.0
                                                           -----        -----        -----
Operating costs:
  Selling and marketing .................................   22.4         28.0         29.2
  General and administrative ............................   17.4         19.4         19.2
  Depreciation and amortization .........................    6.0          5.3          3.6
  Product development ...................................   12.9         18.3         18.9
  Charge for purchased in-process product
     development, write-off of software
     development costs, acquisition
     related and other one-time charges .................   42.8         15.1          1.9
                                                           -----        -----        -----
        Total operating costs ...........................  101.5         86.1         72.8
                                                           -----        -----        -----
           Operating income (loss) ......................  (27.4)       (12.0)         2.2
                                                           -----        -----        -----
Interest income, net ....................................   (3.2)        (3.2)        (1.3)
Equity in losses of joint ventures ......................    0.2          8.1          2.1
                                                           -----        -----        -----
           Income (loss) from continuing operations
              before income taxes .......................  (24.4)       (16.9)         1.4
Income tax expense ......................................    2.6          1.1          2.1
                                                           -----        -----        -----
           Loss from continuing operations ..............  (27.0)       (18.0)        (0.7)
                                                           -----        -----        -----
Income (loss) from operations of TrustedLink Banker
  division, net of  taxes in 1995 .......................   (0.1)          --          0.3
Loss on disposal of TrustedLink Banker division,
  including provision for operating  losses during
  phase-out period ......................................   (3.3)          --           --
                                                           -----        -----        -----
           Loss before extraordinary item ...............  (30.4)       (18.0)        (0.4)
Extraordinary loss on debt extinguishment ...............   (2.0)          --           --
Preferred stock dividends ...............................     --           --         (0.3)
                                                           -----        -----        -----
           Net loss applicable to common
              shareholders ..............................  (32.4)%      (18.0)%       (0.7)%
                                                           =====        =====         ====
</TABLE>



         Revenues. Total revenues increased from $60.1 million in 1995 to $89.2
million in 1996 and to $120.7 million in 1997. Revenues for services increased
from $29.2 million in 1995 to $46.2 million in 1996 and to $65.0 million in
1997. 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. Revenues from




                                      -40-
<PAGE>   8
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF

                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


software maintenance and implementation also increased in each year, reflecting
an overall increase in the number of customers. Revenues from software license
fees increased from $30.8 million in 1995 to $43.0 million in 1996 and to $55.7
million in 1997. The increase in 1997 as compared to 1996 was primarily the
result of increases in domestic PC and enterprise software sales, sales from the
Company's European subsidiaries, software sales from 1997 acquisitions and
increases in revenues derived through the Company's network of international
distributors. The increase in 1996 as compared to 1995 was primarily the result
of a $4.3 million increase in royalties from SSA over the prior year, $1.2
million in royalties for software licensed through HNS, increases in software
license fees attributable to the licensing of enterprise-wide software products,
including sales of EDI/Open UNIX software and increases in revenues derived
through Premenos' network of distributors. Revenues reported by the Company for
its European subsidiaries were impacted by the effect of exchange rates in
converting their currency into the Company's reporting currency and management
issues associated with its European operations.

         Direct Costs. Direct costs for services increased from $9.7 million in
1995 to $16.3 million in 1996 and to $23.5 million in 1997. As a percentage of
services revenues, these costs were 33.3% in 1995, 35.4% in 1996 and 36.1% in
1997. The increase in direct costs 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. The increase as a percentage of services revenues from 1996 to
1997 primarily reflects the higher mix of lower margin professional services
revenues at the Company's European subsidiaries and at Acquion which were
acquired in March 1996 and August 1997, respectively. Additionally, the
professional services margins decreased at Premenos due to increased emphasis on
providing software integration and consulting services to customers. Direct
software costs increased from $5.3 million in 1995 to $6.8 million in 1996 and
to $7.8 million in 1997. Direct software costs, as a percentage of software
revenues, were 17.0% in 1995, 15.7% in 1996 and 14.0% in 1997. The decrease in
direct software costs as a percentage of software revenues from 1995 to 1997
primarily reflects the effect of higher margin royalty revenues from certain
distributors, licensing of higher margin software products and decreases in
software amortization as a result of write-offs of software development in
connection with the STI business combination.

         Selling and Marketing. Selling and marketing expenses increased from
$17.5 million in 1995 to $25.0 million in 1996 and to $27.0 million in 1997. As
a percentage of revenues, these expenses were 29.2% in 1995, 28.0% in 1996 and
22.4% in 1997. The decreases as a percentage of revenues between years
principally reflect the effect of increased services revenues, efficiencies
associated with other costs to support increased sales activity and the effect
of merger and Integration Activity Costs.

         General and Administrative. General and administrative expenses
increased from $11.6 million in 1995 to $17.3 million in 1996 and to $21.0
million in 1997. As a percentage of revenues, these expenses were 19.2% in 1995,
19.4% in 1996 and 17.4% in 1997. The increase from 1995 to 1996 primarily
reflects increases in the provision for various legal and tax exposures at STI.
The decrease as a percentage of revenues between 1996 and 1997 reflects
efficiencies associated with expanding the Company's operations, the effect of
increases in software and services revenues and the effect of merger and
Integration Activity Costs.

         Depreciation and Amortization. Depreciation and amortization increased
from $2.2 million in 1995 to $4.7 million in 1996 and to $7.2 million in 1997.
As a percentage of revenues, these expenses increased from 3.6% in 1995 to 5.3%
in 1996 and to 6.0% in 1997. The increases, as a percentage of revenues,
primarily relate to amortization of intangible assets related to the
acquisitions completed between 1995 and 1997 and increases in capital
expenditures between 1995 and 1997.

         Product Development. Total expenditures for product development,
including capitalized software development costs, increased from $14.1 million
in 1995 to $21.1 million in 1996 and decreased to $20.6 million in 1997. This
decrease is due to increased synergies realized from the STI merger and
Integration Activities. The Company capitalized software development costs of
$2.7 million, $4.8 million and $5.0 million in 1995, 1996 and 1997,
respectively, which represented 19.4%, 22.7% and 24.4% 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
1995 to 1997 reflects the Company incurring greater product development costs in
1996 and 1997 on products that had reached technological feasibility. As a
percentage of revenues, total product development expenses increased from 23.4%
in 1995 to 23.6% in 1996 and decreased to




                                      -41-
<PAGE>   9
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF

                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


17.1% in 1997. The increase in product development expenses as a percentage of
revenues between 1995 and 1996 principally reflects additional development
resources associated with the Windows PC product line, enterprise software
products, European software products and continuing development of technology
acquired in other acquisitions in 1996. The decrease in product development
expenses as a percentage of revenues between 1996 and 1997 is attributable to
increased revenues, development synergies realized from merging with STI and
Integration Activities. Amortization of capitalized software development costs
included in direct costs of software totaled $1.8 million, $3.4 million and $3.7
million in 1995, 1996 and 1997, 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, Acquisition Related and Other One-Time Charges. The
Company incurred expenses of $1.2 million in 1995, $13.5 million in 1996 and
$51.7 million in 1997 primarily for purchased in-process product development and
integration related costs. In connection with the acquisition of certain assets
in December 1995, STI acquired in-process product development associated with
certain AS/400 technology. In connection with the acquisition of three European
companies in March 1996, the Company acquired in-process product development for
several software products. In addition, the Company acquired in-process product
development in connection with its acquisition of Don Valley Technology Corp.
and Prime Factors, Inc. in May and July of 1996, respectively. In connection
with the HNS and Acquion acquisitions in 1997, the Company acquired in-process
product development of approximately $2.7 million and $10.9 million,
respectively. 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.
In connection with the HNS, STI, Acquion, Atlas and Premenos acquisitions, the
Company incurred $2.0 million, $12.4 million, $2.5 million, $2.0 million and
$15.3 million, respectively, for acquisition related expenses, asset write downs
and integration costs incurred. Approximately $8.0 million of the costs and
expenses incurred in connection with the acquisitions of HNS, STI, Acquion,
Atlas and Premenos were Integration Activity Costs which may recur in other
expense categories in the future and may result in an increase in some expense
categories as a percentage of total revenues. The Company also incurred $3.8
million in restructuring charges related to increasing synergies among all
operating divisions as a result of recent acquisitions.

         Equity in Losses of Joint Ventures. The Company recognized equity in
losses of insignificant joint ventures of $131,000 and $302,000 in 1996 and
1997, respectively. The Company recognized, as its equity in the losses of HNV,
$313,000 in 1995 and $69,000 in 1996. These losses reflect the impact of the
operations of HNV for the full year in 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 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.

         Income Taxes. The Company recorded income tax expense of $1.3 million,
$996,000 and $3.1 million in 1995, 1996 and 1997, respectively. Taxable income
of $7.4 million will be required in future years to realize the Company's net
deferred income tax assets at December 31, 1997 of $2.8 million, net of a
valuation allowance of $22.7 million. Future decreases of $3.3 million in the
total valuation allowance of $22.7 million at December 31, 1997 relate to
foreign net operating loss carryforwards and will reduce the intangibles
associated with those acquisitions as those net operating loss carryforwards are
realized.

         Loss on Extinguishment of Debt. The Company recorded a loss of $2.4
million on debt extinguishment in the first quarter of 1997 related to the HNS
transaction.

         Discontinued Operations. The Company discontinued its TrustedLink
Banker division ("Banker") in 1997, which had been generating lower than desired
profitability and growth. The results of Banker for all years presented are
reported in the accompanying reclassified statements of operations under
discontinued operations. In addition, in the fourth quarter of 1997, the Company
provided for an anticipated loss of $4 million related to the discontinuance of
the Banker operations.




                                      -42-
<PAGE>   10
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF

                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


         Net Loss. The Company realized a net loss of $444,000, $16.1 million
and $39.0 million in 1995, 1996 and 1997, respectively. The net loss in 1995
reflects principally the effect of equity in losses of joint ventures of $1.3
million and the effect of charges for purchased in-process product development
of $1.2 million. Excluding the equity in losses of HNS and the charges for
in-process product development, the Company's net income in 1995 would have been
approximately $1.6 million or $0.08 per share. The net loss in 1996 reflects
principally the effect of charges for purchased in-process product development
and acquisition related charges of $13.5 million in connection with three
European acquisitions effected in March 1996 and two other acquisitions effected
in May and July of 1996 and equity in losses of HNS of $7.0 million. Excluding
these charges and the equity in losses of HNS, the Company's net income in 1996
would have been $3.4 million or $0.14 per share. The net loss in 1997 reflects
principally the effect of charges for purchased in-process product development,
write-off of software developments costs, acquisition related and other one-time
charges of $51.7 million in connection with the acquisitions of HNS, STI,
Acquion, Atlas and Premenos in 1997, loss on disposal of TrustedLink Banker
division, including provision for operating losses during the phase-out period,
of $4.0 million and the loss on debt extinguishment of $2.4 million. Excluding
these charges, the Company's net income in 1997 would have been approximately
$13.7 million or $0.50 per share.

LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 1997, the Company had working capital of $94.3 million.
Cash and short-term investments totaled $102.1 million, representing
approximately 56% of total assets. Since its inception, the Company has financed
its operations through a combination of private and public equity and debt
financing, a bank line of credit and cash flows from operations. The Company
generated cash from operating activities of $6.8 million in 1995, $11.9 million
in 1996 and $1.6 million in 1997. The Company used net cash for investing
activities of $67.6 million, $1.3 million and $30.1 million in 1995, 1996 and
1997, respectively. Cash used for investing activities in 1997 primarily
consisted of investments in acquisitions, purchases of property and equipment
and capitalized software development costs. Financing activities provided $76.0
million, $570,000 and $59.1 million in 1995, 1996 and 1997, respectively. The
1995 and 1997 amounts were generated principally from the public issuance of
common stock.

         The Company's 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, subject to a limitation based upon the
Company's qualified receivables. This facility, which also 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, 1997, the Company had $10 million available on this
facility. At December 31, 1997, the Company has a $623,000 obligation for debt
and capital leases acquired in business combinations. The Company's other
commitments consist principally of operating leases on its office space. In
October 1997, the Company entered into a lease agreement with the current
landlord to occupy space in an adjoining building. The expected occupancy is in
Spring 1998. In conjunction with the lease, the Company was required to provide
a letter of credit for $2.75 million. The lease has a term of ten years with a
right to cancel after seven years and requires annual rent payments of
approximately $2.1 million. In connection with the relocation, management
expects to incur approximately $2.0 million for capital expenditures and other
moving costs. Aside from the above, the Company currently has no material
commitments for capital expenditures.

         Under the terms of the amended alliance agreement with SSA, the Company
provides for 360-day payment terms.




                                      -43-
<PAGE>   11
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF

                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


         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, borrowings 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.

YEAR 2000 COMPLIANCE

         The Company is addressing the Year 2000 Compliance issues on the
software that it licenses and on the software that it uses internally. Based on
its current analysis, the Company believes that Year 2000 compliance will not
have a material effect on its business, operations or financial condition, as
remediation costs either have been incurred or those costs estimated to be
incurred are not material.

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. The company undertakes no obligation to update or revise
forward looking statements to reflect changed assumptions, the occurrence of
unanticipated events or changes to future operating results.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS No. 130"). SFAS No. 130 requires companies to display, with the
same prominence as other financial statements, the components of comprehensive
income. SFAS No. 130 requires that an enterprise classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company's financial
statements will include the disclosure of comprehensive income in accordance
with the provisions of SFAS No. 130 beginning the first quarter of 1998.

         In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information ("SFAS No. 131"). SFAS No. 131 requires that an enterprise disclose
certain information about operating segments. SFAS No. 131 is effective for
financial statements for periods beginning after December 15, 1997. The Company
will evaluate the need for such disclosures at that time.

         In October 1997, the Accounting Standards Executive Committee issued
Statement of Position 97-2, Software Revenue Recognition ("SOP 97-2"). SOP 97-2
is effective for financial statements for fiscal years beginning after December
15, 1997. The Company does not expect that adoption of SOP 97-2 will
significantly affect its results of operations.





                                      -44-
<PAGE>   12

                     HARBINGER CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>

                                                                        DECEMBER 31,
                                                                 -------------------------
ASSETS                                                              1997           1996
                                                                 ---------       ---------
<S>                                                              <C>             <C>
Current assets:
     Cash and cash equivalents ................................  $  69,811       $  35,697
     Short-term investments ...................................     32,333          29,844
     Accounts receivable, less allowances for returns and
        doubtful accounts of $2,790 and $2,425 in 1997 and
        1996, respectively ....................................     35,017          19,993
     Royalties receivable .....................................      5,364           1,337
     Deferred income taxes ....................................      1,892           4,033
     Other current assets .....................................      3,431           4,736
                                                                 ---------       ---------
        Total current assets ..................................    147,848          95,640
                                                                 ---------       ---------
Property and equipment, less accumulated depreciation
     and amortization .........................................     18,167          14,926
Intangible assets, less accumulated amortization ..............     16,464          19,806
Deferred income taxes .........................................        909              --
Other assets ..................................................        171             827
                                                                 ---------       ---------
                                                                 $ 183,559       $ 131,199
                                                                 =========       =========


LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Accounts payable .........................................  $   8,734       $   4,474
     Accrued expenses .........................................     25,835          13,125
     Deferred revenues ........................................     18,349          14,595
     Current portion of long-term debt ........................        623           1,504
     Note payable to bank                                               --           1,550
                                                                 ---------       ---------
          Total current liabilities ...........................     53,541          35,248
                                                                 ---------       ---------

Commitments and contingencies

Long-term debt, excluding current portion .....................         --           1,608
Deferred income taxes .........................................         --             122
Equity in loss in joint venture in excess of investment
   in joint venture ...........................................         --              81
Minority interest in consolidated subsidiaries ................         --              22

Zero Coupon redeemable preferred stock, no par value;
   4,000,000 shares issued and outstanding ....................         --              --

Shareholders' equity:
     Common stock, $0.0001 par value; 100,000,000 shares
        authorized; 27,218,571 and 23,871,064 shares issued
        and outstanding as of December 31, 1997 and 1996,
        respectively ..........................................          3               2
     Additional paid-in capital ...............................    189,842         113,847
     Accumulated deficit ......................................    (59,827)        (19,731)
                                                                 ---------       ---------
          Total shareholders' equity ..........................    130,018          94,118
                                                                 ---------       ---------
                                                                 $ 183,559       $ 131,199
                                                                 =========       =========

</TABLE>



See accompanying notes to consolidated financial statements.




                                      -45-
<PAGE>   13

                     HARBINGER CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                          YEARS ENDED DECEMBER 31,
                                                                 ---------------------------------------
                                                                   1997            1996           1995
                                                                 ---------       --------       --------
<S>                                                              <C>             <C>            <C>
Revenues:
   Services .................................................... $  65,018       $ 46,225       $ 29,235
   Software (including related party royalties from HNS and
     SSA of $6.9 million and $1.5 million for the years
     ended December 31, 1996 and 1995, respectively) ...........    55,657         43,020         30,842
                                                                 ---------       --------       --------
          Total revenues .......................................   120,675         89,245         60,077
                                                                 ---------       --------       --------
Direct costs:
   Services ....................................................    23,478         16,346          9,738
   Software ....................................................     7,819          6,766          5,256
                                                                 ---------       --------       --------
          Total direct costs ...................................    31,297         23,112         14,994
                                                                 ---------       --------       --------

             Gross margin ......................................    89,378         66,133         45,083
                                                                 ---------       --------       --------

Operating costs:
   Selling and marketing .......................................    27,014         25,032         17,516
   General and administrative ..................................    20,951         17,293         11,553
   Depreciation and amortization ...............................     7,211          4,695          2,193
   Product development .........................................    15,564         16,305         11,347
   Charge for purchased in-process product development,
     write-off of software development costs, acquisition
     related and other one-time charges ........................    51,654         13,475          1,160
                                                                 ---------       --------       --------
          Total operating costs ................................   122,394         76,800         43,769
                                                                 ---------       --------       --------
             Operating income (loss) ...........................   (33,016)       (10,667)         1,314

Interest income, net ...........................................    (3,902)        (2,838)          (800)
Equity in losses of joint ventures .............................       302          7,204          1,266
Minority interest ..............................................        (2)             4            (20)
                                                                 ---------       --------       --------
             Income (loss) from continuing operations
                 before income taxes ...........................   (29,414)       (15,037)           868
Income tax expense .............................................     3,093            996          1,313
                                                                 ---------       --------       --------
             Loss from continuing operations ...................   (32,507)       (16,033)          (445)
Discontinued operations:
   Income (loss) from operations of TrustedLink Banker
     division, net of income taxes of $128 in 1995 .............      (121)           (30)           200
   Loss on disposal of TrustedLink Banker division,
     including provision for operating losses during
     phase-out period of $2.3 million ..........................    (4,000)            --             --
                                                                 ---------       --------       --------
             Loss before extraordinary item ....................   (36,628)       (16,063)          (245)
Extraordinary loss on debt extinguishment ......................    (2,419)            --             --
                                                                 ---------       --------       --------
             Net loss ..........................................   (39,047)       (16,063)          (245)
Preferred stock dividends                                               --            (28)          (199)
                                                                 ---------       --------       --------
             Net loss applicable to common shareholders ........ $ (39,047)      $(16,091)      $   (444)
                                                                 =========       ========       ========

</TABLE>


          See accompanying notes to consolidated financial statements.





                                      -46-
<PAGE>   14

                     HARBINGER CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
                        (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                       YEARS ENDED DECEMBER 31,
                                                                 ------------------------------------
                                                                  1997           1996           1995
                                                                 ------         ------         ------
<S>                                                              <C>          <C>             <C>
Basic and diluted net loss per share:
   Loss from continuing operations ............................  $(1.28)      $  (0.69)       $ (0.02)

   Income (loss) from operations of TrustedLink Banker
     division, net of income taxes ............................      --             --           0.01
   Loss on disposal of TrustedLink Banker division,
     including provision for operating losses during
     phase-out period .........................................   (0.16)            --             --
   Extraordinary loss on debt extinguishment ..................   (0.09)            --             --
   Preferred stock dividends ..................................      --             --          (0.01)
                                                                 ------       --------        -------

   Net loss per common share ..................................  $(1.53)      $  (0.69)       $ (0.02)
                                                                 ======       ========        =======
Weighted average number of common shares
   outstanding ................................................  25,441         23,387         19,049
                                                                 ======       ========        =======


Pro forma net loss data:
   Income (loss) from continuing operations before
     income taxes as reported .................................               $(15,037)       $   868
   Pro forma income tax expense ...............................                    996            797
                                                                              --------        -------
   Pro forma net income (loss) from continuing
     operations ...............................................                (16,033)            71
   Income (loss) from discontinued operations .................                    (30)           200
                                                                              --------        -------
   Pro forma net income (loss) ................................                (16,063)           271
   Preferred stock dividends ..................................                    (28)          (199)
                                                                              --------        -------
   Pro forma net income (loss) applicable to common
     shareholders .............................................               $(16,091)       $    72
                                                                              ========        =======
   Pro forma net income (loss) per common share ...............               $  (0.69)       $    --
                                                                              ========        =======
Weighted average number of common shares
   outstanding ................................................                 23,387         19,049
                                                                              ========        =======


</TABLE>

          See accompanying notes to consolidated financial statements.




                                      -47-
<PAGE>   15

                     HARBINGER CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                        (IN THOUSANDS, EXCEPT SHARE DATA)

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                         Preferred stock,
                                             Series C          Common stock   Additional Deferred                 Total
                                     -------------------     -----------------  paid-in   compen-  Accumulated shareholders'
                                      Shares      Amount       Shares   Amount  capital   sation     deficit      equity
                                     -------      ------     ---------- ------  --------   -----    --------     --------
<S>                                 <C>           <C>        <C>          <C>    <C>       <C>      <C>          <C>

BALANCE, DECEMBER 31, 1994                --      $  --      16,129,438   $ 2   $ 13,169   $ (87)   $ (3,032)    $ 10,052
Exercise of stock options
  and warrants                            --         --         951,007    --      1,970      --          --        1,970
Issuance of stock in exchange
  for subsidiary stock                    --         --         435,404    --        453      --          --          453
Issuance of common stock in
  public offering, net                    --         --       4,165,554    --     77,995      --          --       77,995
Reclassification of Series C
  preferred stock to
  shareholders' equity               250,000      2,485              --    --         --      --          --        2,485
Tax benefits from stock plans             --         --              --    --        557      --          --          557
Other transactions                        --         --          (1,500)   --        200     (50)        (22)         128
Preferred stock dividends                 --         --              --    --         --      --        (199)        (199)
Net loss                                  --         --              --    --         --      --        (245)        (245)
                                     -------      -----      ----------   ---   --------   -----    --------     --------
BALANCE, DECEMBER 31, 1995           250,000      2,485      21,679,903     2     94,344    (137)     (3,498)      93,196
Exercise of stock options and
  warrants and issuance of
  stock under employee stock
  purchase plan                           --         --         701,609    --      2,545      --          --        2,545
Tax benefits from stock plans             --         --              --    --      2,854      --          --        2,854
Conversion of preferred stock,
 Series C to common stock           (250,000)    (2,489)        211,038    --      2,489      --          --           --
Issuance of common stock and
  options and warrants to
  acquire common stock in
  connection with acquisitions            --         --         447,745    --      6,750      --          --        6,750
Reclassification of puttable
  common stock to common stock
  as a result of forfeiture
  of put right                            --         --         825,000    --      4,675      --          --        4,675
Other transactions                        --          4           5,769    --        190     137          (4)         327
Preferred stock dividends                 --         --              --    --         --      --         (28)         (28)
Foreign currency translation
  adjustment                              --         --              --    --         --      --        (138)        (138)
Net loss                                  --         --              --    --         --      --     (16,063)     (16,063)
                                     -------      -----      ----------   ---   --------   -----    --------     --------
BALANCE, DECEMBER 31, 1996                --         --      23,871,064     2    113,847      --     (19,731)      94,118
Exercise of stock options and
  warrants and issuance of
  stock under employee stock
  purchase plan                           --         --         693,166    --      5,098      --          --        5,098
Tax benefits from stock plans             --         --              --    --        498      --          --          498


</TABLE>




                                      -48-
<PAGE>   16
<TABLE>
<S>                                 <C>           <C>        <C>          <C>    <C>       <C>      <C>          <C>
Issuance of stock and stock
  options to purchase a
  debenture and acquire
  minority interest of
  subsidiary                              --         --         242,288    --      6,416      --          --        6,416
Issuance of common stock and
  vesting of contingent option
  in connection with acquisitions         --         --         342,053    --      3,958      --        (296)       3,662
Issuance of stock in secondary
  offering, net                           --         --       2,070,000     1     60,025      --          --       60,026
Treasury stock transaction                --         --              --    --         --      --          (9)          (9)
Foreign currency translation
  adjustment                              --         --              --    --         --      --        (744)        (744)

Net loss                                  --         --              --    --         --      --     (39,047)     (39,047)
                                     -------      -----      ----------   ---   --------   -----    --------     --------
BALANCE, DECEMBER 31, 1997                --      $  --      27,218,571   $ 3   $189,842   $  --    $(59,827)    $130,018
                                     =======      =====      ==========   ===   ========   =====    ========     ========


</TABLE>


          See accompanying notes to consolidated financial statements.




                                      -49-
<PAGE>   17

                     HARBINGER CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                               YEARS ENDED DECEMBER 31,
                                                                       ---------------------------------------
                                                                         1997           1996            1995
                                                                       ---------      ---------       --------
<S>                                                                    <C>            <C>               <C>

Cash flows from operating activities:
   Net loss..........................................................  $ (39,047)     $ (16,063)        $ (245)
   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, acquisition
          related and other one-time charges.........................     26,761         13,005          1,160
        Loss on disposal of TrustedLink Banker division..............      4,000             --             --
        Loss on debt extinguishment..................................      2,419             --             --
        Depreciation and amortization................................     10,917          8,180          3,907
        Loss on sale of property and equipment.......................        389             54            177
        Discount amortization on investments.........................         88           (723)          (709)
        Equity in losses of joint ventures...........................        302          7,204          1,266
        Noncash compensation charges.................................        -               40            125
        Minority interest and other..................................       (287)             8            (26)
        Deferred income taxes........................................      1,110          1,354          1,005
        (Increase) decrease in:
          Accounts receivable........................................    (12,971)        (5,237)        (3,524)
          Royalties receivable.......................................     (4,027)         1,890         (2,403)
          Other assets...............................................      1,410         (2,488)        (1,164)
        Increase in:
          Accounts payable and accrued expenses......................      9,300          2,144          4,141
          Deferred revenues..........................................      1,260          2,510          3,055
                                                                       ---------      ---------       --------
             Net cash provided by operating activities...............      1,624         11,878          6,765
                                                                       ---------      ---------       --------

Cash flows from investing activities:
   Short-term investments............................................     (2,577)        22,601        (51,013)
   Purchases of property and equipment...............................     (8,576)        (9,666)        (4,880)
   Additions to software development costs...........................     (5,014)        (4,798)        (2,727)
   Purchased technology..............................................         --             --           (150)
   Investment in acquisitions........................................    (13,924)        (9,524)          (300)
   Investment in joint ventures......................................         --             --         (8,551)
   Organizational expenditures.......................................         --             --            (11)
   Proceeds from disposal of property and equipment..................          7             57             35
                                                                       ---------      ---------       --------
             Net cash used in investing activities...................    (30,084)        (1,330)       (67,597)
                                                                       ---------      ---------       --------
</TABLE>




          See accompanying notes to consolidated financial statements.




                                      -50-
<PAGE>   18

                     HARBINGER CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                YEARS ENDED DECEMBER 31,
                                                                         ------------------------------------
                                                                           1997         1996           1995
                                                                         --------      --------      --------
<S>                                                                                         <C>          <C>
Cash flows from financing activities:
   Dividends paid on preferred stock .................................         --           (28)         (199)
   Exercise of stock options and warrants and issuance of
     stock under employee stock purchase plan ........................      5,098         2,545         1,970
   Principal payments under notes payable, long-term debt
     and capital lease obligations ...................................     (2,968)       (3,547)       (3,328)
   Proceeds from issuance of common stock ............................     60,026            --        77,995
   Repayments under credit agreement .................................     (1,550)           --            --
   Decrease in restricted cash .......................................         --            50            80
   Increase in note payable to bank, net .............................         --         1,550            --
   Purchase of HNS subordinated debenture ............................     (1,500)           --            --
   Redemption of Series B preferred stock ............................         --            --          (480)
                                                                         --------      --------      --------
          Net cash provided by financing activities ..................     59,106           570        76,038
                                                                         --------      --------      --------
Net increase in cash and cash equivalents ............................     30,646        11,118        15,206
Cash and cash equivalents at beginning of year .......................     35,697        24,258         9,052
Effect of exchange rates on cash held in foreign currencies ..........        (76)          (53)           --
Cash received from acquisitions ......................................      3,544           374            --
                                                                         --------      --------      --------
Cash and cash equivalents at end of year .............................   $ 69,811      $ 35,697      $ 24,258
                                                                         ========      ========      ========

Supplemental disclosures:
   Cash paid for interest ............................................   $     90      $    407      $    299
                                                                         ========      ========      ========
   Cash paid for income taxes ........................................   $     --      $    152      $    540
                                                                         ========      ========      ========

Supplemental disclosures of noncash investing and
financing activities:
   Purchase of HNS subordinated debenture in exchange
     for common stock ................................................   $  4,200      $     --      $     --
                                                                         ========      ========      ========
   Acquisition of HNS minority interest in exchange
     for issuance of options .........................................   $  2,216      $     --      $     --
                                                                         ========      ========      ========
   Acquisition of technology and distribution agreement
     in exchange for common stock ....................................   $     --      $     --      $  4,675
                                                                         ========      ========      ========

   Long-term debt assumed in acquisition of product line .............   $     --      $     --      $  2,200
                                                                         ========      ========      ========
   Capital lease obligation for equipment ............................   $     --      $     --      $    631
                                                                         ========      ========      ========
   Conversion of minority interest to equity .........................   $     --      $     --      $    454
                                                                         ========      ========      ========
   Long-term debt assumed in acquisition of a
     business ........................................................   $     --      $    670      $     --
                                                                         ========      ========      ========
   Acquisition of minority interest in exchange for
     common stock ....................................................   $    392      $     --      $     --
                                                                         ========      ========      ========
   Acquisition of businesses in exchange for assumption of
     liabilities and issuance of common stock, options and
     warrants to acquire common stock ................................   $    454      $ 13,143      $     --
                                                                         ========      ========      ========


</TABLE>

         See accompanying notes to consolidated financial statements.


                                      -51-
<PAGE>   19
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 customers in targeted
industries, including the petroleum, chemicals, utilities, electronics,
distribution, aerospace, automotive, communications, transportation,
textile/apparel and healthcare industries both in the United States and certain
international markets including Europe and South America.

         The consolidated financial statements of the Company include the
accounts of Harbinger Corporation and its direct and indirect subsidiaries. All
significant intercompany balances and transactions between companies have been
eliminated.

         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 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 are
         recognized based upon sales to end users.

         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 Revenues

                  Deferred revenues represent payments received from customers
         or billings invoiced to customers for software and services billed in
         advance of revenue recognition.

         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 and royalties paid to third party distributors.

         CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

         Cash, cash equivalents and short-term investments are stated at cost,
which approximates fair value, and consist primarily of money market funds and
U.S. Treasury bills. The Company considers all highly liquid investments with
original maturities of three months or less to be cash equivalents. Investments
maturing between three and twelve months from the date of purchase are
classified as short-term investments.



                                      -52-

<PAGE>   20
         Management determines the appropriate classification of debt securities
at the time of purchase and reevaluates such designation as of each balance
sheet date. As of December 31, 1997, debt securities were classified as
held-to-maturity as the Company intended to hold, and had the ability to hold,
these securities to maturity. Held-to-maturity securities are stated at
amortized cost, which approximates fair market value.

         Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and other short-term obligations of the U.S. Government.

         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, fixtures and leasehold improvements        5 - 10 years
              Transportation equipment                              3 years
              Equipment and fixtures under capital leases           3 - 7 years
              Building                                              10 years

         INVESTMENTS IN JOINT VENTURES

         The Company's 91% investment in Harbinger Net Services, LLC ("HNS")
through December 31, 1996 (see Notes 2 and 5), its 20% investment in Harbinger
N.V. ("HNV") through March 31, 1996 (see Notes 2 and 5) and its investment in
other joint ventures are accounted for using the equity method of accounting.
The Company applied the equity method of accounting for its investment in HNS
because of a shareholders' agreement among all HNS shareholders which provided
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
was not controlled by the Company (see Notes 2 and 5).

         INTANGIBLE ASSETS

         Purchased Technology, Goodwill and Other Intangible Assets

              Purchased technology, goodwill and other intangible assets are
being amortized over periods of five 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 the fair value to determine 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. 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.



                                      -53-

<PAGE>   21

         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.

         During 1997, the Company acquired SupplyTech, Inc. and SupplyTech
International, LLC (collectively, "STI") (see Note 2). Effective January 1,
1995, SupplyTech, Inc. elected to be taxed as an S corporation under the
Internal Revenue Code. The acquisition of SupplyTech, Inc. by the Company
terminated the S corporation status under the Internal Revenue Code.
Accordingly, SupplyTech, Inc. was taxed as a regular corporation in 1997.
SupplyTech International, LLC was incorporated under the laws of the state of
Michigan as a Limited Liability Corporation ("LLC"). As an LLC, SupplyTech
International, LLC has elected to be taxed as a partnership under the Internal
Revenue Code. In 1997, SupplyTech International, LLC's income is included in the
Company's consolidated income subject to regular corporate tax. 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 are passed through to, and the related income taxes
become, the individual responsibility of STI's shareholders.

         The pro forma income tax expense for 1996 and 1995 reflects the income
tax expense that would have been reported if STI had been a C corporation and
subject to SFAS No. 109 during these periods.

         NET EARNINGS (LOSS) PER SHARE OF COMMON STOCK

         On December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128"), which
prescribes the calculation methodology and financial reporting requirements for
basic and diluted earnings per share. Basic earnings (loss) per common share
available to common shareholders are based on the weighted average number of
common shares outstanding. Diluted earnings (loss) per common share available to
common shareholders are based on the weighted average number of common shares
outstanding and dilutive potential common shares, such as dilutive stock
options. All prior period net earnings (loss) data presented in these
consolidated financial statements have been restated to conform to the
provisions of SFAS No. 128.

         RECLASSIFICATIONS

         Certain amounts in the accompanying 1996 and 1995 consolidated
financial statements have been reclassified to conform to the presentation
adopted in the 1997 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, short-term investments,
accounts and royalties receivable, accounts payable, accrued expenses and
deferred revenues approximate fair value due to the short-term maturities of
these assets and liabilities. The Company believes the fair value of its
long-term debt approximates its carrying value.

         FOREIGN CURRENCY TRANSLATION

         Foreign currency financial statements of the Company's international
operations 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.



                                      -54-
<PAGE>   22

         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 Opinion
No. 25, Accounting for Stock Issued to Employees ("APB No. 25"), and related
interpretations. As such, compensation expense would generally 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

         1997 ACQUISITIONS

         SUPPLYTECH, INC. AND SUPPLYTECH INTERNATIONAL, LLC

         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. In connection with the STI
acquisition, the Company incurred a charge of $12.4 million for acquisition
related expenses, asset write downs and integration costs incurred (including a
$3.2 million charge for the vesting of a contingent option which became
exercisable upon the closing of the merger) (see Note 15). The Company recorded
a net deferred income tax asset during the first quarter of 1997 of $1.8 million
relating to the STI acquisition and provided a valuation allowance against such
net deferred income tax asset to reduce it to zero.

         PREMENOS TECHNOLOGY CORP. ("PREMENOS")

         On December 19, 1997, the Company acquired Premenos, a Delaware
corporation based in Concord, California. In connection with the transaction,
which was accounted for using the pooling-of-interests method of accounting, the
Company issued 5,358,655 shares of its common stock in exchange for all of the
shares of Premenos common stock. All Premenos options and warrants were
converted into the Company's options and warrants in accordance with the
conversion ratio.

         In connection with the Premenos acquisition, the Company incurred a
charge of $15.3 million in 1997 for acquisition related expenses, asset write
downs and integration costs incurred (see Note 15).

         The financial position and results of operations of the Company have
been restated for all periods prior to the mergers to give retroactive effect to
the STI and Premenos acquisitions.



                                      -55-
<PAGE>   23
         Total revenues and net loss for the individual companies as previously
reported are as follows (in thousands):

<TABLE>
<CAPTION>
                                                       Years Ended December 31,
                                                 --------------------------------------
                                                   1997           1996           1995
                                                 --------       --------        -------
         <S>                                     <C>            <C>             <C>
         Total revenues:
              Harbinger Corporation..........    $ 79,868       $ 38,236        $19,845
              STI............................          --         17,538         14,713
              Premenos.......................      40,807         33,471         25,519
                                                 --------       --------        -------
                                                 $120,675       $ 89,245        $60,077
                                                 ========       ========        =======


         Net income (loss) applicable to
           common shareholders:
              Harbinger Corporation..........    $(42,832)      $ (8,277)       $ 1,048
              STI............................          --         (4,818)        (2,989)
              Premenos.......................       3,785         (2,996)         1,497
                                                 --------       --------        -------
                                                 $(39,047)      $(16,091)       $  (444)
                                                 ========       ========        =======
</TABLE>


         Effective January 3, 1997, the operations of Harbinger Corporation and
STI were combined. In addition, all acquisition related and other one-time
charges are reflected in Harbinger Corporation's net loss.

         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 (see Note
5), 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 began accounting 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 recorded 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 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
was 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 also incurred
acquisition related expenses and asset write downs related to this acquisition
of $2.0 million (see Note 15). The Company recorded a net deferred income tax
asset of approximately $840,000 as a result of this acquisition and provided a
valuation allowance against such net deferred income tax asset to reduce it to
zero.



                                      -56-
<PAGE>   24
         SMART SOLUTIONS FOR ELECTRONIC COMMERCE, INC. ("SMART SOLUTIONS")

         Effective May 1, 1997, the Company acquired all of the common stock of
Smart Solutions, a Michigan corporation based in Traverse City, Michigan, for
$677,000, consisting of 19,757 unregistered shares of the Company's common stock
valued at $454,000 and the assumption of $223,000 in liabilities. The Company
recorded the acquisition using the purchase method of accounting with $100,000
of the purchase price allocated to purchased technology, $71,000 allocated to
tangible assets and $506,000 allocated to goodwill.

         ACQUION, INC. ("ACQUION")

         Effective August 22, 1997, the Company acquired all of the common stock
of Acquion, a California corporation based in Greenville, South Carolina, for
approximately $13.6 million, consisting of $12.0 million in cash and the
assumption of approximately $1.6 million in liabilities including transaction
costs. The Company recorded the acquisition using the purchase method of
accounting with $10.9 million of the purchase price allocated to in-process
product development and charged to the consolidated statement of operations on
August 22, 1997, $641,000 allocated to purchased technology and $2.0 million
allocated to goodwill. The Company also incurred acquisition related expenses
and asset write downs of $2.5 million during 1997 related to this acquisition
(see Note 15). The Company recorded a net deferred income tax asset of
approximately $4.1 million as a result of this acquisition and provided a
valuation allowance against such net deferred income tax asset to reduce it to
zero.

         ATLAS PRODUCTS INTERNATIONAL, LIMITED ("ATLAS")

         Effective October 23, 1997, the Company acquired Atlas, a company
organized under the laws of England, based in Manchester, United Kingdom, for
311,399 unregistered shares of the Company's common stock in a transaction
accounted for using the pooling-of-interests method of accounting. In connection
with the acquisition, the Company incurred a charge of $2.0 million in 1997 for
acquisition related expenses, asset write downs and integration costs incurred
(see Note 15). The Atlas business combination is not material, and therefore has
been accounted for as an immaterial pooling with Atlas' accumulated deficit of
$296,000 being credited directly to the Company's accumulated deficit on the
date of acquisition.

         1996 ACQUISITIONS

         NTEX HOLDING, B.V. ("NTEX")

         Effective March 31, 1996, the Company acquired all of the common stock
of NTEX, a Dutch corporation based in Rotterdam, The Netherlands, for $8.0
million, consisting of $3.2 million in cash, 107,780 shares of the Company's
common stock valued at $1.2 million, warrants to acquire 18,750 shares of the
Company's common 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 $4.4 million 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.

         INOVIS GmBH & CO. ("INOVIS")

         Effective March 31, 1996, the Company acquired all of the common stock
of INOVIS, a German corporation based in Karlsruhe, Germany, for $6.1 million,
consisting of $1.4 million 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
common 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, $1.0 million allocated to
tangible assets and $1.1 million allocated to goodwill.



                                      -57-
<PAGE>   25

         HNV

         Effective March 31, 1996, the Company acquired the remaining
outstanding common stock of 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
including transaction costs. 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).

         DON VALLEY TECHNOLOGY CORPORATION ("DON VALLEY")

         Effective May 14, 1996, the Company acquired all the common stock of
Don Valley, a Canadian corporation based in Toronto, Canada, for $2.5 million,
consisting of $1.1 million in cash, 25,945 shares of the Company's common stock
valued at $1.1 million and the assumption of $300,000 in liabilities including
transaction costs. The Company recorded the acquisition using the purchase
method of accounting with $2.0 million of the purchase price allocated to
in-process product development and charged to the consolidated statement of
operations on May 14, 1996, a net liability of $37,000 allocated to tangible
assets and $545,000 allocated to goodwill and other intangibles.

         PRIME FACTORS, INC. ("PRIME FACTORS")

         Effective July 19, 1996, the Company acquired all the common stock of
Prime Factors, an Oregon corporation based in Eugene, Oregon, for $4.1 million,
consisting of $3.0 million in cash, 21,118 shares of the Company's common stock
valued at $749,000 and the assumption of $351,000 in liabilities including
transaction costs. The Company recorded the acquisition using the purchase
method of accounting with $2.5 million of the purchase price allocated to
in-process product development and charged to the consolidated statement of
operations on July 19, 1996, $1.2 million allocated to purchased technology and
$411,000 allocated to tangible assets.

         COMTECH MANAGEMENT SYSTEMS, INC. ("COMTECH")

         Effective August 1, 1996, the Company acquired all of the common stock
of 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.

         EDI INTEGRATION SERVICES LIMITED ("EISL")


         Effective October 15, 1996, the Company acquired all of the common
stock of 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.

         PRO FORMA FINANCIAL INFORMATION

         The results of operations of the acquired companies have been included
in the Company's consolidated statements of operations beginning on the
following dates: HNS: January 1, 1997; Smart Solutions: May 1, 1997; Acquion:
August 22, 1997; Atlas: October 1, 1997; NTEX, INOVIS and HNV: March 31, 1996;
Don Valley: May 14, 1996; Prime Factors: July 19, 1996; Comtech: August 1, 1996;
EISL: October 15, 1996.



                                      -58-
<PAGE>   26

         The unaudited pro forma results of operations of the Company for 1997
and 1996 as if the acquisitions described above had been effected on January 1,
1997 and 1996, respectively, are summarized as follows (in thousands, except per
share data):

                                                      Years Ended December 31,
                                                      ------------------------
                                                        1997            1996
                                                      --------         -------

             Revenues...............................  $123,264         $97,197
                                                      ========         =======
             Net loss applicable to common
                 shareholders.......................  $(24,006)        $(9,417)
                                                      ========         =======
             Net loss per share applicable to
                 common shareholders................  $(0.93)          $ (0.39)
                                                      ========         =======
             Weighted average number of common
                 shares outstanding.................    25,683          23,848
                                                      ========         =======

         The unaudited pro forma results do not reflect the charges for
purchased in-process product development.

         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 provided an accrual of $425,000
for the year ended December 31, 1996 which was included in acquisition related
charges in the accompanying 1996 statement of operations to reflect the employee
compensation earned with respect to these agreements. This amount was paid
during 1997.


3.  PURCHASED TECHNOLOGY AND DISTRIBUTION AGREEMENT

         SYSTEM SOFTWARE ASSOCIATES, INC. ("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 $4.7 million at the date
of issuance and the issuance of 4,000,000 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 was 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. After 1996, the Company no longer considered SSA to be a
related party. 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 $0.67 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 royalty
targets for 1997 were not met.

         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 for 1996.



                                      -59-
<PAGE>   27

         The Company allocated the consideration associated with these
transactions of $4.8 million (including transaction costs of $122,000) as
follows: $2.3 million to purchased technology and $2.5 million to the
distribution agreement based upon the estimated fair values of the purchased
technology and distribution agreement at the date of the exchange. During 1997,
the purchased technology was written down due to the acquisition of other
replacement technology that will be licensed to SSA and the distribution
agreement was written down based upon future expectations of net cash flows from
the arrangement (see Note 15).

         GENERAL ELECTRIC INFORMATION SERVICES, INC. ("GEIS")

         On December 31, 1995, the Company entered into an agreement to purchase
certain software products and entered into an alliance agreement with 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 $1.2 million 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.
During 1997, the purchased technology was written down due to the acquisition of
other replacement technology that will be licensed to GEIS and the distribution
agreement was written down based upon future expectations of net cash flows from
the arrangement (see Note 15).

         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 ended December 31, 1997, relating to
software maintenance revenues to be paid by GEIS to the Company.

4.  PROPERTY AND EQUIPMENT

         Property and equipment consist of the following at December 31, 1997
and 1996 (in thousands):

<TABLE>
<CAPTION>
                                                          1997         1996
                                                        --------     --------
          <S>                                           <C>          <C>
          Computer and communications
               equipment..............................  $ 26,115     $ 18,964
          Furniture, fixtures and leasehold
               improvements...........................     6,766        5,880
          Transportation equipment....................       128          134
          Equipment and fixtures under capital
               leases.................................       720          669
          Building....................................        59           59
                                                        --------     --------
                                                          33,788       25,706
               Less accumulated depreciation
                  and amortization....................   (15,621)     (10,780)
                                                        --------     --------
                                                        $ 18,167     $ 14,926
                                                        ========     ========
</TABLE>

5.  INVESTMENTS 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 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 $7.0 million and $954,000 for the years ended December
31, 1996 and 1995, respectively.




                                      -60-
<PAGE>   28

         The Company had 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 $1.8
million and $324,000 for the years ended December 31, 1996 and 1995,
respectively. These amounts primarily consisted 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 were reimbursed by HNS.

         The Company recognized royalty revenues from HNS of $1.2 million 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 $1.8 million 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 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 in 1996 on behalf of the Company that
were reimbursed by the Company.

         Effective January 1, 1997, the Company purchased the BellSouth
Debenture and acquired the remaining minority interest in HNS (see Note 2).




                                      -61-
<PAGE>   29

         The following table sets forth the condensed balance sheet of HNS as of
December 31, 1996 and the condensed statements of operations for the years ended
December 31, 1996 and 1995 (in thousands):

Balance sheet:

<TABLE>
<CAPTION>

                                                   1996
                                                 -------
<S>                                              <C>
     Cash and cash equivalents ................  $ 3,322
     Accounts receivable ......................    1,866
     Property and equipment, net ..............    1,039
     Other assets .............................      277
                                                 -------
                                                 $ 6,504
                                                 =======


     Accounts payable and accrued expenses ....  $   990
     Due to affiliates, net ...................    2,040
     Deferred revenues ........................      196
     Long-term debt ...........................    3,000
     Shareholders' equity .....................      278
                                                 -------
                                                 $ 6,504
                                                 =======

<CAPTION>
                                                   1995           1995
                                                 -------        -------
<S>                                              <C>            <C>
Statements of operations:

     Revenues:
         Services .............................  $   117        $    --
         Software .............................    2,036             --
                                                 -------        -------
              Total revenues ..................    2,153             --
                                                 -------        -------
     Direct costs:
         Services .............................      644             --
         Software .............................    1,617             --
                                                 -------        -------
              Total direct costs ..............    2,261             --
                                                 -------        -------
                    Gross margin ..............     (108)            --
                                                 -------        -------

     Operating costs:
         Selling and marketing ................      926             84
         General and administrative ...........    1,614            133
         Depreciation and amortization ........      621             21
         Product development ..................    4,303          1,077
                                                 -------        -------
              Total operating costs ...........    7,464          1,315
                                                 -------        -------

                   Operating loss .............   (7,572)        (1,315)

     Interest income, net .....................      130            165
                                                 -------        -------
     Net loss .................................  $(7,442)       $(1,150)
                                                 =======        =======
</TABLE>




                                      -62-
<PAGE>   30
         INVESTMENT IN HNV

         On November 5, 1993, the Company acquired a 20% interest in HNV, 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 $2.0 million 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 had a license
arrangement with HNV which allowed HNV to use the Company's network and PC
technology and provided 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 1996 or 1995. Under a management
agreement, the Company provided certain consulting and management services to
HNV. 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 and $313,000 for the years ended December 31, 1996 and 1995,
respectively.

         Amounts charged to HNV by the Company for services provided during the
years ended December 31, 1996 and 1995 were (in thousands):

<TABLE>
<CAPTION>
                                                        1996         1995
                                                        ----         ----
         <S>                                            <C>          <C>

         Services - direct costs.....................   $ --         $ 63

         General and administrative..................     54          182
         Product development.........................     --           27
         Depreciation and amortization...............     --            4
                                                        ----         ----
                                                        $ 54         $ 76
                                                        ====         ====

</TABLE>


         These amounts have been included in the statements 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 and $95,000
for the years ended December 31, 1996 and 1995, respectively, that were
reimbursed by HNV.


6. INTANGIBLE ASSETS

         Intangible assets consist of the following at December 31, 1997 and
1996 (in thousands):

<TABLE>
<CAPTION>
                                                             1997       1996
                                                           -------     -------

         <S>                                               <C>         <C>
         Purchased technology (see Note 15).............   $ 2,523     $ 6,113
         Goodwill, GEIS alliance and SSA distribution
             agreements (see Note 15)...................     9,514       9,468
         Software development costs (see Note 15).......    10,473      11,774
         Other..........................................        --          30
                                                           -------     -------
                                                            22,510      27,385
         Less accumulated amortization..................    (6,046)     (7,579)
                                                           -------     -------
                                                           $16,464     $19,806
                                                           =======     =======

</TABLE>






                                      -63-
<PAGE>   31

7.  ACCRUED EXPENSES

         Accrued expenses consist of the following at December 31, 1997 and 1996
(in thousands):

<TABLE>
<CAPTION>

                                                         1997          1996
                                                        -------      -------
          <S>                                           <C>          <C>

         Accrued salaries and wages..................   $ 8,011      $ 5,284
         State income, property, sales and
              other taxes............................     3,227        2,290
         Accrued severance...........................     3,689           --
         Accrued TrustedLink Banker discontinued
             operations costs........................     3,685           --
         Accrued integration costs incurred..........     3,940           --
         Other accrued expenses......................     3,283        5,551
                                                        -------      -------
                                                        $25,835      $13,125
                                                        =======      =======
</TABLE>



8.  INCOME TAXES

         The provision for income tax expense (benefit) includes income taxes
currently payable and those deferred because of temporary differences between
the financial statement and tax bases of assets and liabilities and any increase
or decrease in the valuation allowance for deferred income tax assets.

         During 1997, the Company acquired SupplyTech, Inc. and SupplyTech
International, LLC (collectively "STI")(see Note 2). Effective January 1, 1995,
SupplyTech, Inc. elected to be taxed as an S corporation under the Internal
Revenue Code. The acquisition of SupplyTech, Inc. by the Company terminated the
S corporation status under the Internal Revenue Code. Accordingly, SupplyTech,
Inc. was taxed as a regular corporation in 1997. SupplyTech International, LLC
was incorporated under the laws of the state of Michigan as a Limited Liability
Corporation ("LLC"). As an LLC, SupplyTech International, LLC has elected to be
taxed as a partnership under the Internal Revenue Code. In 1997, SupplyTech
International, LLC's income is included in the Company's consolidated income
subject to regular corporate tax. 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 are
passed through to, and the related income taxes become, the individual
responsibility of STI's shareholders.

         Effective with the S corporation election, SupplyTech Inc.'s 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. Upon termination of SupplyTech,
Inc.'s S corporation status, the net deferred income tax asset of $1.8 million
was fully provided for by a valuation allowance.

         The pro forma income tax expense for 1996 and 1995 reflects the income
tax expense that would have been reported if STI had been a C corporation and
subject to SFAS No. 109 during these periods.

         Income (loss) from continuing operations before income taxes for the
years ended December 31, 1997, 1996 and 1995 consists of the following (in
thousands):

<TABLE>
<CAPTION>
                                                                 1997          1996       1995
                                                               --------      --------    -------

         <S>                                                  <C>           <C>         <C>
         U.S. operations..................................     $(31,375)     $ (6,583)   $ 2,021
         Foreign operations...............................        1,961        (8,454)    (1,153)
                                                               --------      --------    -------
             Total income (loss) from continuing
                operations before income taxes............     $(29,414)     $(15,037)   $   868
                                                               ========      ========    =======


</TABLE>





                                      -64-
<PAGE>   32

         Income tax expense (benefit) from continuing operations for the years
ended December 31, 1997, 1996 and 1995 is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                         1997         1996          1995
                                        ------       ------        ------
        <S>                             <C>          <C>           <C>
         Current:
            Federal                     $  581       $ (330)       $  242
            Foreign                      1,187           10            --
            State                          215          (38)          194
                                        ------       ------        ------
                 Total current          $1,983       $ (358)       $  436
                                        ------       ------        ------

         Deferred:
            Federal                     $  981       $1,064        $  843
            Foreign                         --          167            --
            State                          129          123            34
                                        ------       ------        ------
                 Total deferred         $1,110       $1,354        $  877
                                        ------       ------        ------

         Total income tax expense       $3,093       $  996        $1,313
                                        ======       ======        ======

</TABLE>



         The Company's income taxes currently payable for federal and state
purposes have been reduced by the tax benefit derived from stock option
transactions. The benefit, which totaled $498,000, $2.9 million and $557,000 for
the years ended December 31, 1997, 1996 and 1995, respectively, has been
credited directly to stockholders' equity.

         Income tax expense for discontinued operations of the TrustedLink
Banker division (from operations) for 1995 was $128,000. There was no income tax
expense for discontinued operations of the TrustedLink Banker division (from
operations) in 1997 or 1996. There is no income tax expense or benefit relating
to loss on disposal of TrustedLink Banker division or extraordinary loss on debt
extinguishment.

         Pro forma income tax expense (benefit) from continuing operations for
the years ended December 31, 1996 and 1995 is summarized as follows (in
thousands):

<TABLE>
<CAPTION>
                                                          1996         1995
                                                          ----         ----
         <S>                                             <C>           <C>
         Current:
            Federal ..................................   $ (330)       $242
            Foreign ..................................       10          --
            State ....................................      (38)        194
                                                         ------        ----
                 Total current .......................   $ (358)       $436
                                                         ------        ----

         Deferred:
            Federal ..................................   $1,064        $393
            Foreign ..................................      167          --
            State ....................................      123         (32)
                                                         ------        ----
                 Total deferred ......................   $1,354        $361
                                                         ------        ----

         Pro forma income tax expense ................   $  996        $797
                                                         ======        ====

</TABLE>




                                      -65-
<PAGE>   33

         Income tax expense (benefit) differs from the amounts computed by
applying the federal statutory income tax rate of 34% to income (loss) from
continuing operations before income taxes as a result of the following (in
thousands):

<TABLE>
<CAPTION>
                                                              1997        1996       1995
                                                            --------    -------     ------
<S>                                                         <C>         <C>         <C>

Computed "expected" income tax expense (benefit) .......... $(10,001)   $(5,113)    $  295
Increase (decrease) in income tax expense (benefit)
  resulting from:
   State income taxes, net of federal income tax
      benefit .............................................      227         56        150
   Tax-exempt income ......................................     (157)      (130)       (49)
   Loss from STI ..........................................       --      1,630        835
   Change in tax status of STI ............................   (1,798)        --        516
   Nondeductible charge for purchased in-process
      product development and other costs .................    1,431      3,134         --
   Increase (decrease) in the valuation allowance for
      deferred income tax assets ..........................   13,509      1,494       (226)
   Other ..................................................     (118)       (75)      (208)
                                                            --------    -------     ------
                                                            $  3,093    $   996     $1,313
                                                            ========    =======     ======
</TABLE>


         Pro forma income tax expense (benefit) differs from the amounts
computed by applying the federal statutory income tax rate of 34% to income
(loss) from continuing operations before income taxes as a result of the
following (in thousands):

<TABLE>
<CAPTION>
                                                            1996         1995
                                                            ----         ----
<S>                                                       <C>            <C>

Computed "expected" income tax expense (benefit) .......  $(5,113)       $ 295
Increase (decrease) in income tax expense (benefit)
  resulting from:
   State income taxes, net of federal income tax
      benefit ..........................................       56          107
   Tax-exempt income ...................................     (130)         (49)
   Nondeductible charge for purchased in-process
      product development and other costs ..............    3,134           --
   Increase in the valuation allowance for
      deferred income tax assets .......................    2,819          579
   Other ...............................................      230         (135)
                                                          -------        -----
                                                          $   996        $ 797
                                                          =======        =====
</TABLE>

         The significant components of deferred income tax expense (benefit)
from continuing operations for the years ended December 31, 1997, 1996 and 1995
are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                     1997       1996      1995
                                                   --------    ------    ------
<S>                                                <C>         <C>       <C>

Deferred income tax expense (benefit) ...........  $(14,619)   $ (140)   $1,103
Increase (decrease) in the valuation allowance
     for deferred income tax assets .............    13,509     1,494      (226)
                                                   --------    ------    ------
                                                   $ (1,110)   $1,354    $  877
                                                   ========    ======    ======
</TABLE>




                                      -66-
<PAGE>   34


         The significant components of pro forma deferred income tax expense
(benefit) from continuing operations for the years ended December 31, 1996 and
1995 are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                      1996           1995
                                                      ----           ----
<S>                                                  <C>            <C>

Deferred income tax expense (benefit) .............. $(1,465)       $(218)
Increase (decrease) in the valuation allowance
   for deferred income tax assets ..................   2,819          579
                                                     -------        -----
                                                     $ 1,354        $ 361
                                                     =======        =====

</TABLE>



         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, 1997
and 1996 are as follows (in thousands):

<TABLE>
<CAPTION>

                                                             1997        1996
                                                           --------    -------
<S>                                                        <C>         <C>
Deferred income tax assets:
   Net operating loss carryforwards......................  $  5,544    $ 5,469
   Deferred revenue......................................     1,486      1,008
   Intangible assets.....................................     7,924      2,391
   Accrued expenses......................................    10,313      1,011
   Research tax credit...................................     2,082      1,642
   Other.................................................       790         --
                                                           --------    -------
      Gross deferred income tax assets...................    28,139     11,521
Valuation allowance......................................   (22,671)    (4,798)
                                                           --------    -------
Deferred income tax assets, net of the valuation
  allowance..............................................     5,468      6,723
Deferred income tax liabilities - principally due to
  software development costs.............................    (2,667)    (2,812)
      Net deferred income tax assets.....................     2,801      3,911
Less current deferred income tax assets..................     1,892      4,033
                                                           --------    -------
Noncurrent deferred income tax assets (liabilities)......  $    909    $  (122)
                                                           ========    =======
</TABLE>


         The decrease in net deferred income tax assets for the years ended
December 31, 1997, 1996 and 1995 was $1.1 million, $1.4 million and $877,000,
respectively. During 1997, the net increase in the valuation allowance was $17.9
million. 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 (a) taxable income in
the current year or prior years that is available through carryback, (b) future
taxable income that will result from the reversal of existing taxable temporary
differences and (c) future taxable income generated by future operations. The
Company continually reviews the adequacy of the valuation allowance and
recognizes these benefits as reassessment indicates that it is more likely than
not that the benefits will be realized.

         As a result of the 1997 acquisition of the minority interest in HNS
(see Note 2), the Company acquired certain intangible assets for which it
provided a valuation allowance of $840,000 on the related deferred taxes. The
Company also acquired certain intangible assets in the Acquion acquisition (see
Note 2) for which it provided a valuation allowance of approximately $4.1
million on the related deferred taxes. The Company acquired net operating losses
and research tax credit carryforwards in the Premenos acquisition (see Note 2)
of approximately $1.3 million and $1.7 million, respectively. The utilization of
these net operating loss and research tax credit carryforwards is restricted
based on the ability of Premenos, as a separate company, to generate taxable
income.



                                      -67-
<PAGE>   35
         During 1996, the Company acquired foreign net operating loss
carryforwards in the NTEX and HNV acquisitions (see Note 2) of approximately
$6.5 million and $3.1 million, respectively. The Company established a valuation
allowance relating to the carryforwards of $2.4 million and $1.1 million,
respectively, which is included in the valuation allowance at December 31, 1996.
If the benefit from these net operating loss carryforwards is 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 $1.5 million for which the Company provided a valuation allowance.

         At December 31, 1997, the Company has domestic and foreign net
operating loss carryforwards and research tax credit carryforwards of
approximately $19.8 million, $9.7 million and $2.1 million, respectively. The
domestic net operating loss carryforwards expire at various dates through the
year 2012 unless utilized, the foreign net operating loss carryforwards do not
expire and the research tax credit carryforwards expire beginning in 2007
through 2012. The Company's domestic net operating loss carryforward at December
31, 1997 includes $14.7 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.


9.  LONG-TERM DEBT

         Long-term debt as of December 31, 1997 and 1996 consist of the
following (in thousands):

<TABLE>
<CAPTION>
                                                              1997        1996
                                                              ----        ----
<C>                                                           <C>        <C>

6% promissory note payable to GEIS; paid off in 1997 .......  $  --      $ 1,650
Non interest bearing note payable to the former
    shareholders of EISL, due in equal quarterly
    principal installments through September 1998
    (see Note 2) ...........................................    285          625
Capital lease obligations ..................................    146          460
Other debt .................................................    192          377
                                                              -----      -------
       Total long-term debt ................................    623        3,112
Less current portion of long-term debt .....................   (623)      (1,504)
                                                              -----      -------
       Long-term debt, excluding current portion ...........  $  --      $ 1,608
                                                              =====      =======
</TABLE>


10.  SHAREHOLDERS' EQUITY

         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. 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 (a) the issue price of
$10.00 times the number of shares of the Series C redeemable preferred stock
outstanding by (b) 95% of the average trading price of the common stock, as
defined. 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.




                                      -68-
<PAGE>   36
         COMMON STOCK

         1997 TRANSACTIONS

         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.

         In July 1997, the Company completed a secondary public offering of its
common stock. The Company sold 3.3 million shares consisting of 2.1 million
shares sold by the Company and 1.2 million shares sold by selling shareholders
at $30.75 per share resulting in net proceeds to the Company, after
underwriters' commissions and offering expenses, of $60.0 million.

         In January 1997, the Company issued 242,288 shares of the Company's
common stock as partial consideration related to the purchase of the BellSouth
Debenture in accordance with the debenture purchase agreement.

         In January 1997, the Company issued 2,400,000 shares of the Company's
common stock related to the Company's acquisition of STI which was accounted
for as a pooling-of-interests.

         In May 1997, the Company issued 19,757 shares of the Company's common
stock as partial consideration related to the Company's acquisition of Smart
Solutions.

         In October 1997, the Company issued 311,399 shares of the Company's
common stock related to the Company's acquisition of Atlas.

         In December 1997, the Company issued 5,358,655 shares of the Company's
common stock related to the Company's acquisition of Premenos which was
accounted for as a pooling-of-interests.

         In 1997, the Company issued 10,897 shares of the Company's common stock
related to earnout agreements with certain employees/shareholders which provided
for the Company to pay these individuals additional consideration based upon
attainment of certain performance goals for their respective former companies.

         1996 TRANSACTIONS

         In April 1996 the Company issued 376,121 shares of the Company's common
stock as partial consideration related to the Company's acquisition of NTEX,
INOVIS and 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 its rights to put the shares of common stock back to the Company.
Therefore, approximately $4.7 million of puttable common stock was reclassified
to shareholders' equity in 1996.

         WARRANTS

         The Company issued warrants in December 1997 related to the merger of
Premenos. The warrants enable the holders to acquire 17,467 shares of the
Company's common stock at $8.44 per share, representing the exchange ratio
agreed to in the merger agreement.

         The Company issued warrants in April 1996 related to the acquisition of
NTEX and INOVIS. 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. There are 30,000
warrants outstanding as of December 31,1997.



                                      -69-
<PAGE>   37
         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 together combined (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 5,125,000 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 the 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, 1997, there were options outstanding to purchase 4,628,341
shares of the Company's common stock, of which options to purchase 1,033,329
shares were exercisable. There were 1,316,521 options available for grant at
December 31, 1997.

                  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
has 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 136,500
shares of common stock were outstanding and exercisable as of December 31, 1997.
There were 41,625 options available for grant under the Nonemployee Directors
Plan at December 31, 1997.

                  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, 1997, 80,000 of these options were outstanding
and exercisable.

         At December 31, 1997 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. The compensation cost that would have been charged
against income for its plans was $9.2 million, $3.5 million and $984,000 for
1997, 1996 and 1995, respectively, had compensation cost for the Company's
five stock-based compensation plans been determined consistent with SFAS No.
123. The Company's net loss and loss per share would have been reduced to the
pro forma amounts indicated below (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                 1997          1996          1995
                                               --------      --------      -------
<S>                                            <C>           <C>           <C>

Net loss applicable to      As reported        $(39,047)     $(16,091)     $  (444)
    common shareholders     Pro forma          $(48,221)     $(19,592)     $(1,428)

Basic and diluted loss      As reported        $  (1.53)     $  (0.69)     $ (0.02)
    per common share        Pro forma          $  (1.90)     $  (0.84)     $ (0.08)

</TABLE>




                                      -70-
<PAGE>   38
         The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
1995 and 1996: dividend yield of 0.5%; expected volatility of 57.8%; risk-free
interest rates of 5.9%; and expected lives of five years for all of the Plan
options; 1997: dividend yield of 0.5%; expected volatility of 67.3%; risk-free
interest rate of 5.7%; and expected lives of five years for all of the Plan
options.

         A summary of the status of the Company's stock option plans as of
December 31, 1997, 1996 and 1995 and changes during the years ended on those
dates is presented below:

<TABLE>
<CAPTION>
                                               1997                      1996                      1995
                                      -----------------------   -----------------------    ----------------------
                                                  Weighted                   Weighted                  Weighted
                                                   Average                   Average                   Average
                                      Shares      Exercise      Shares       Exercise      Shares      Exercise
          Fixed Options               (000s)        Price       (000s)        Price        (000s)       Price
----------------------------------    --------   ------------   --------    -----------    -------    -----------
<S>                                    <C>           <C>         <C>           <C>         <C>            <C>

Outstanding at beginning of year       3,045         $11.27      2,358         $ 4.68      2,040          $3.78
Granted                                2,998          20.99      1,577          17.88        854           7.76
Exercised                               (572)          5.42       (653)          2.87       (364)          1.98
Forfeited/canceled                      (626)         25.79       (237)         12.82       (172)          3.60
Outstanding at end of year             4,845          16.10      3,045          11.27      2,358           4.68

Options exercisable at end of year     1,250                     1,007                     1,052
Weighted average fair value of
    options granted during the year   $ 9.05                    $ 7.47                    $ 3.86


</TABLE>

         The following table summarizes information about fixed stock options
outstanding at December 31, 1997:

<TABLE>
<CAPTION>
                                    Options Outstanding                   Options Exercisable
                         -----------------------------------------     ------------------------
                                           Weighted
                                           Average        Weighted                    Weighted
                            Number        Remaining        Average        Number      Average
        Range of         Outstanding     Contractual      Exercise     Exercisable    Exercise
     Exercise Prices     at 12/31/97     Life (Years)      Price       at 12/31/97     Price
    -----------------    -----------     ------------    ---------     -----------    ---------

    <S>                    <C>               <C>          <C>             <C>          <C>
    $ 0.020 - $ 4.250      800,265           3.03         $ 3.3737        635,620      $ 3.1468
    $ 4.253 - $ 9.170      248,089           4.55         $ 6.3857         73,250      $ 6.9076
    $10.330 - $11.670      573,443           5.14         $11.6005        108,942      $11.3913
    $14.500 - $16.490      537,639           6.28         $15.7946        171,146      $15.5444
    $16.670 - $16.940      133,602           7.18         $16.7468         19,687      $16.7919
    $17.420 - $17.420      680,275           7.20         $17.4200             --            --
    $17.670 - $20.500      284,951           6.14         $18.1998         86,547      $18.6060
    $20.830 - $20.830      502,060           9.08         $20.8300             --            --
    $20.875 - $25.125      671,300           7.08         $23.1852         84,157      $22.2649
    $27.250 - $40.000      413,217           6.89         $32.1336         70,480      $32.2432
                         ---------                                      ---------
    $ 0.020 - $40.000    4,844,841           6.12         $16.1007      1,249,829      $10.0004
                         =========                                      =========

</TABLE>




                                      -71-
<PAGE>   39
                  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. During 1997 and 1996, 107,209 and
26,780 shares, respectively, were issued under the Purchase Plan.

                  Under SFAS No. 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
0.5%; expected volatility of 57.8%; and risk-free interest rate of 5.9%; for
1997: dividend yield of 0.5%; expected volatility of 67.3% and risk-free
interest rate of 5.7%. The weighted-average fair value of those purchase rights
granted in 1997 and 1996 was $5.95 and $5.62, respectively.


11.  OTHER RELATED PARTY TRANSACTIONS

         The Company received $465,000 and $600,000 in 1997 and 1996,
respectively, 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 $63,000 and $350,000 in 1997 and 1996,
respectively, for services that the affiliated company provided to the Company.

         Prior to the acquisition, one of Premenos' directors was a partner of a
law firm which provided various legal services to Premenos. In 1996, such legal
services included representation related to the acquisition of subsidiaries. Two
other directors of Premenos also provided training and consulting services to
the Company from time to time. Amounts incurred for all such services in 1997,
1996 and 1995 were $493,000, $879,000 and $1.0 million, respectively.


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

         A summary of the Company's operations by geographic area as of and for
the years ended December 31, 1997 and 1996 is presented below (in thousands):

<TABLE>
<CAPTION>
                     North                       Latin
                    America        Europe       America     Other  Eliminations     Total
                    -------        ------       -------     -----  ------------      ----
<S>                 <C>           <C>           <C>         <C>       <C>          <C>
Revenues:
   1997             $101,596      $17,676       $2,423      $523      $(1,543)     $120,675
   1996             $ 78,796      $10,787       $  358      $ --      $ (696)      $ 89,245

Operating
income (loss):
   1997             $(34,489)     $   959       $  376      $138      $    --      $(33,016)
   1996             $ (2,491)     $(8,138)      $    5      $ --      $   (43)     $(10,667)


Identifiable
assets:
   1997             $193,924      $13,345       $  200      $ --      $(23,910)    $183,559
   1996             $132,642      $12,362       $  112      $ --      $(13,917)    $131,199

</TABLE>




                                      -72-
<PAGE>   40
         Revenues from foreign operations and identifiable assets of foreign
operations were less than 10% of consolidated revenues and assets in 1995.

         Revenues generated from export sales included in United States revenues
were less than 10% of consolidated revenues in 1997, 1996 and 1995.

         MAJOR CUSTOMERS

         No single customer comprised greater than 10% of the Company's
consolidated revenues in 1997, 1996 or 1995.


13.  COMMITMENTS

         401(k) PROFIT SHARING PLAN

         In 1997, the Company maintained three separate 401(k) savings and
retirement plans for the benefit of its domestic employees. In accordance with
section 401(k) of the Internal Revenue Code, to be eligible for participation,
employees must be age 18 or older and meet length of service criteria (six or
twelve months of employment) as stipulated in each plan. Each plan provides for
matching contributions to be made by the Company. Under the terms of the plan
covering the former employees of Premenos, the Company is required to match 50%
of employee contributions to a maximum of 5% of their annual compensation. Under
the terms of the plan covering the former employees of STI, the Company is
required to match 25% of employee contributions to a maximum of 6% of their
annual compensation. Under the terms of the plan covering all other domestic
employees, subject to certain limitations, the Company may make a discretionary
matching contribution of up to $300 of the employee contributions at a rate
determined annually by the Board of Directors of the Company. Total Company
contributions under all 401(k) plans totaled $454,000, $194,000 and $148,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.

         The Board of Directors of the Company has approved the consolidation of
these plans into one standard 401(k) plan for all domestic employees. Management
anticipates that the new plan will be implemented by the third quarter of 1998
and will require the Company to match 50% of employee contributions to a maximum
of 4% of their annual compensation, subject to a $2,200 limit per employee.

         CREDIT FACILITY

         The Company maintains a credit facility which provides $10 million in
borrowing availability, subject to the terms of the facility, at an interest
rate of prime plus 0.625% and requires the Company to pay a commitment fee on
the unused portion of 0.375%. The credit facility requires, among other things,
the Company to maintain certain minimum financial ratios and restricts the
Company from making certain investments, incurring additional indebtedness and
making capital expenditures in excess of certain specified levels, as defined in
the terms of the facility. No amounts were outstanding under the facility at
December 31, 1997.

         LEASES

         The Company leases office facilities, automobiles, fixtures and
equipment under operating leases which extend through 2005. Rent expense under
all operating leases was approximately $4.3 million, $3.2 million and $1.9
million for the years ended December 31, 1997, 1996 and 1995, respectively. The
Company also leases equipment under capital leases. Substantially all of the
capital leases are collateralized by the equipment associated with the leases.
At December 31, 1997, the Company is obligated under these agreements to make
the following lease payments (in thousands):



                                      -73-
<PAGE>   41

<TABLE>
<CAPTION>
                                                          Operating      Capital
                                                            Leases       Leases
                                                          ---------      -------

         <S>                                                <C>           <C>
         1998............................................   $ 6,642       $151

         1999............................................     6,592         --
         2000............................................     5,719         --
         2001............................................     3,876         --
         2002............................................     3,192         --
         Thereafter......................................     7,747         --
                                                            -------       ----
         Total minimum lease payments....................   $33,768        151
                                                            =======
         Less amount representing interest...............                   (5)
                                                                          ----
         Present value of net minimum lease payments.....                 $146
                                                                          ====

</TABLE>


         In October 1997, the Company entered into a lease agreement with the
current landlord to occupy space in an adjoining building. The expected
occupancy is in Spring 1998. In conjunction with the lease, the Company was
required to provide a letter of credit for $2.75 million. The lease has a term
of ten years with a right to cancel after seven years and requires annual rent
payments of approximately $2.1 million. In connection with the relocation,
management expects to incur approximately $2.0 million for capital expenditures
and other moving costs.

         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.  DISCONTINUED OPERATIONS

         In the fourth quarter of 1997, the Board of Directors approved the
discontinuance of the Company's TrustedLink Banker division ("Banker"). Revenues
from Banker were $4.0 million, $3.5 million and $3.3 million for the years ended
December 31, 1997, 1996 and 1995, respectively. The results of operations for
Banker for all years presented are reported in the accompanying reclassified
statements of operations under discontinued operations. In the fourth quarter of
1997, the Company provided for an anticipated loss of $4.0 million related to
the phase out of Banker operations. No income tax expense or benefit was
recognized in 1997 or 1996 due to the Company's net operating loss
carryforwards. The 1995 results of operations are shown net of taxes at the
Company's then current effective tax rate. The assets and liabilities of Banker
are included in the Company's consolidated balance sheets as of December 31,
1997 and 1996 and are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                            1997         1996
                                                           -------     -------
             <S>                                           <C>         <C>
             Accounts receivable........................   $   215     $   684
             Other current assets.......................        49          39
             Property and equipment, net................       155         149
             Capitalized software, net..................         -         284
             Current liabilities........................    (1,765)     (2,383)
                                                           -------     -------
                   Net liabilities......................   $(1,346)    $(1,227)
                                                           =======     =======

</TABLE>





                                      -74-
<PAGE>   42

15. CHARGE FOR PURCHASED IN-PROCESS PRODUCT DEVELOPMENT, WRITE-OFF OF SOFTWARE
    DEVELOPMENT COSTS, ACQUISITION RELATED AND OTHER ONE-TIME CHARGES

         In connection with the 1997, 1996 and 1995 acquisitions, the Company
incurred charges for purchased in-process product development, write-off of
software development costs, acquisition related and other one-time charges. A
summary of the components are as follows (in thousands):

<TABLE>
<CAPTION>
                                                       1997       1996        1995
                                                     -------     -------     ------

        <S>                                          <C>         <C>         <C>
        In-process product development.............  $13,632     $12,649     $1,160
        Integration costs and non recurring
           one-time charges........................   14,639         826         --
        Transaction charges........................    9,515          --         --
        Intangible asset write downs...............    8,431          --         --
        Asset write downs..........................    1,599          --         --
        Restructuring charges......................    3,838          --         --
                                                     -------     -------     ------
                                                     $51,654     $13,475     $1,160
                                                     -------     -------     ------
</TABLE>



         The Company incurred $3.8 million in restructuring charges related to
increasing synergies among all operating divisions as a result of recent
acquisitions. The restructuring resulted in the termination of 82 employees
across several departments including research and development, customer service,
marketing, administrative and finance and other areas. As of December 31, 1997,
the Company had actually paid $261,000 in termination benefits to former
employees.

         Approximately $8.0 million of the costs and expenses incurred in
connection with the acquisitions of HNS, STI, Acquion, Atlas and Premenos
include certain internal expense allocations which may recur in other expense
categories in the future and may result in an increase in some expense
categories as a percentage of total revenues. The Company anticipates
additional merger related charges totaling $10-$15 million in the first
quarter of 1998.





                                      -75-
<PAGE>   43


                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Shareholders
Harbinger Corporation:


      We have audited the accompanying consolidated balance sheets of Harbinger
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the 1996 and 1995
consolidated financial statements of Premenos Technology Corp. and subsidiaries,
or the 1995 combined financial statements of SupplyTech, Inc. and SupplyTech
International, LLC, which statements reflect total assets constituting 64% in
1996 of the related consolidated total, and total revenues constituting 38% and
67% in 1996 and 1995, respectively, of the related consolidated totals. Those
statements were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to the amounts included for Premenos
Technology Corp. and subsidiaries for 1996 and 1995, and for SupplyTech, Inc.
and SupplyTech International, LLC for 1995, is based solely on the reports of
the other auditors.

      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 reports of the other auditors provide a
reasonable basis for our opinion.

      In our opinion, based on our audits and the reports of the other auditors
with respect to 1996 and 1995, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Harbinger Corporation and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997 in conformity with generally accepted
accounting principles.




                              /s/ KPMG Peat Marwick LLP
                              ------------------------------------
                              KPMG PEAT MARWICK LLP


Atlanta, Georgia
February 14, 1998





                                       76