Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
SOCKET COMMUNICATIONS, INC.
September 30, 2000
The following unaudited pro forma combined condensed financial statements consist of the Socket Communications, Inc. (the "Company") unaudited pro forma condensed statement of operations for the year ended December 31, 1999 and the nine months ended September 30, 2000 and the Company's unaudited pro forma combined condensed balance sheet as of September 30, 2000.
The Company's unaudited pro forma combined condensed financial statements give effect to the issuance of Socket Communications, Inc. common stock and cash for all of the outstanding common stock of 3rd Rail Engineering, Inc. ("3rd Rail Engineering").
The unaudited pro forma condensed statements of operations for the nine months ended September 30, 2000 and the year ended December 31, 2000 have been prepared based on the historical financial statements of the Company adjusted to give pro forma effect to the acquisition as if it had occurred at the beginning of the respective periods. The unaudited pro forma condensed balance sheet is adjusted to give pro forma effect to the acquisition as if it had occurred on September 30, 2000.
The unaudited pro forma combined condensed financial statements should be read in conjunction with the audited financial statements of Socket Communications, Inc. for the year ended December 31, 1999 and the unaudited financial statements of Socket Communications, Inc. for the nine months ended September 30, 2000 that are incorporated by reference. The unaudited pro forma condensed financial information is for informational purposes only and does not purport to represent what the financial position or results of operations of the Company would have been had the acquisition occurred as of the dates indicated, nor does the unaudited pro forma condensed financial information purport to project the results of the Company for any future period.
SOCKET COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET
September 30, 2000
Historical
-------------------------
Pro Forma Pro Forma
Socket 3rd Rail Adjustments Combined
------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents.................... $8,862,577 $317,051 ($1,003,345)(a) $8,240,403
64,120 (b)
Accounts receivable, net..................... 1,952,702 391,373 2,344,075
Inventory.................................... 1,358,153 -- 1,358,153
Prepaid expenses and other assets............ 211,106 15,713 226,819
------------ ------------ ------------ ------------
Total current assets......................... 12,384,538 724,137 (939,225) 12,169,450
--
Property and equipment, net.................. 556,192 103,117 659,309
Intangibles, net............................. -- -- 11,083,602 (c) 11,083,602
Other assets................................. 345,937 11,300 357,237
------------ ------------ ------------ ------------
Total assets................................. $13,286,667 $838,554 $10,144,377 $24,269,598
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........ $2,152,770 $103,333 $125,000 (d) $2,381,103
Accrued payroll and related expenses......... 366,290 194,097 560,387
Lines of credit.............................. -- 43,496 43,496
Deferred revenue............................. 380,812 209,886 590,698
Income taxes payable......................... -- 36,000 36,000
Deferred income taxes........................ -- 47,000 47,000
Capital lease obligation - current portion... -- 21,600 21,600
------------ ------------ ------------ ------------
Total current liabilities.................... 2,899,872 655,412 125,000 3,680,284
Capital lease obligations.................... -- 49,924 49,924
Commitments..................................
Stockholders' equity:
Common stock and additional paid-in capital.. 32,344,557 7,091,960 10,152,595 (a) 42,497,152
(65,264)(e)
(7,026,696)(e) --
Stockholder note receivable.................. -- (64,120) 64,120 (b) --
Deferred compensation........................ (557,513) -- (557,513)
Accumulated deficit.......................... (21,400,249) (6,894,622) 6,894,622 (e) (21,400,249)
------------ ------------ ------------ ------------
Total stockholders' equity................... 10,386,795 133,218 10,019,377 20,539,390
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity... $13,286,667 $838,554 $10,144,377 $24,269,598
============ ============ ============ ============
SOCKET COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
For the nine months ended September 30, 2000
Historical
-------------------------
Pro Forma Pro Forma
Socket 3rd Rail Adjustments Combined
------------ ------------ ------------ -------------
Total revenues.......................... $7,686,561 $1,971,031 $ -- $9,657,592
Cost of revenue......................... 3,297,513 1,503,999 91,250 (f) 4,892,762
------------ ------------ ------------ -------------
Gross profit............................ 4,389,048 467,032 (91,250) 4,764,830
Operating expenses:
Research and development................ 1,618,380 -- 1,618,380
Sales and marketing..................... 2,570,020 -- 2,570,020
General and administrative.............. 1,091,984 491,187 1,583,171
Stock option compensation............... 1,665,467 7,026,696 8,692,163
Amortization of goodwill and other
acquisition related intangibles...... -- -- 1,148,422 (f) 1,148,422
------------ ------------ ------------ -------------
Total operating expenses................ 6,945,851 7,517,883 1,148,422 15,612,156
------------ ------------ ------------ -------------
Operating loss.......................... (2,556,803) (7,050,851) (1,239,672) (10,847,326)
Interest income......................... 274,559 9,863 284,422
Interest expense........................ (1,797) (8,558) (10,355)
------------ ------------ ------------ -------------
Net loss before income tax.............. (2,284,041) (7,049,546) (1,239,672) (10,573,259)
Income tax expense (benefit)............ -- (15,200) (15,200)
------------ ------------ ------------ -------------
Net loss................................ (2,284,041) (7,034,346) (1,239,672) (10,558,559)
Preferred stock dividend................ (47,179) -- (47,179)
------------ ------------ ------------ -------------
Net loss applicable to
common stockholders.................. ($2,331,220) ($7,034,346) ($1,239,672) ($10,605,238)
============ ============ ============ =============
Basic and diluted net loss per share.... ($0.12) ($0.51)
============ =============
Shares used in computation of net loss
per share applicable to common
stockholders -- basic and diluted.... 19,851,830 796,282 20,648,112
SOCKET COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
For the year ended December 31, 1999
Historical
-------------------------
Pro Forma Pro Forma
Socket 3rd Rail Adjustments Combined
------------ ------------ ------------ -------------
Total revenues.......................... $6,876,108 $1,792,531 $ -- $8,668,639
Cost of revenue......................... 2,801,091 1,243,512 121,667 (f) 4,166,270
------------ ------------ ------------ -------------
Gross profit............................ 4,075,017 549,019 (121,667) 4,502,369
Operating expenses:
Research and development................ 1,237,538 -- 1,237,538
Sales and marketing..................... 2,378,363 -- 2,378,363
General and administrative.............. 1,278,500 460,602 1,739,102
Stock option compensation............... -- -- --
Amortization of goodwill and other
acquisition related intangibles...... -- -- 1,531,229 (f) 1,531,229
------------ ------------ ------------ -------------
Total operating expenses................ 4,894,401 460,602 1,531,229 6,886,232
------------ ------------ ------------ -------------
Operating loss.......................... (819,384) 88,417 (1,652,896) (2,383,863)
Interest income......................... 12,005 1,211 13,216
Interest expense........................ (37,441) (4,352) (41,793)
------------ ------------ ------------ -------------
Net loss before income tax.............. (844,820) 85,276 (1,652,896) (2,412,440)
Income tax expense (benefit)............ -- 34,800 34,800
------------ ------------ ------------ -------------
Net loss................................ (844,820) 50,476 (1,652,896) (2,447,240)
Preferred stock dividend................ (245,548) -- (245,548)
------------ ------------ ------------ -------------
Net loss applicable to
common stockholders.................. ($1,090,368) $50,476 ($1,652,896) ($2,692,788)
============ ============ ============ =============
Basic and diluted net loss per share.... ($0.11) ($0.25)
============ =============
Shares used in computation of net loss
per share applicable to common
stockholders -- basic and diluted.... 9,939,198 796,282 10,735,480
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
1. Basis of Presentation
On October 5, 2000 Socket Communications, Inc. acquired all the outstanding capital stock of 3rd Rail Engineering in exchange for 796,282 shares of common stock and $1,003,345. The acquisition will be accounted for as a purchase. The unaudited pro forma condensed statements of operations for the nine months ended September 30, 2000 and the year ended December 31, 2000 have been prepared based on the historical financial statements of the Company adjusted to give pro forma effect to the acquisition as if it had occurred at the beginning of the respective periods. The unaudited pro forma condensed balance sheet is adjusted to give pro forma effect to the acquisition as if it had occurred on September 30, 2000.
The unaudited pro forma adjustments, which are based upon available information and upon assumptions that management believes are reasonable, are described in the accompanying notes. The unaudited pro forma condensed financial information is for informational purposes only and does not purport to represent what the financial position or results of operations of the Company would have been had the acquisition occurred as of the dates indicated, nor does the unaudited pro forma condensed financial information purport to project the results of the Company for any future period.
2. Pro Forma Assumptions
The following represents the preliminary allocation of the purchase price over the historical net book values of the acquired assets and assumed liabilities of 3rd Rail Engineering at September 30, 2000 and is included for illustrative pro forma purposes only. The Company is in the process of obtaining an independent appraisal of the fair value of identifiable intangible assets as of the acquisition date. Accordingly, this allocation is preliminary and is subject to significant change upon the completion of the independent third-party valuation. Assuming the transaction had occurred on September 30, 2000, the preliminary allocation would have been as follows:
Value of shares of the Company's common stock issued | $ 10,152,596 |
Cash paid | 1,003,345 |
Estimated transaction costs | 125,000 |
Estimated total acquisition costs | $ 11,280,941 |
Preliminary allocation to:
|
| Estimated useful life | Estimated annual amortization |
Tangible net assets | $ 72,339 |
|
|
Assembled workforce | 365,000 | 3 years | $ 121,667 |
Goodwill | 10,718,602 | 7 years | 1,531,229 |
Total | $ 11,280,941 |
|
|
3. Pro Forma Adjustments
The pro forma financial information reflects the following adjustments:
4. Earnings Per Share
Basic and diluted loss per share for the nine months ended September 30, 2000 and the year ended December 31, 1999 is calculated by dividing pro forma net loss by the shares used to calculate loss per share in the historical period plus the effect of the shares that were issued in connection with the acquisition of 3rd Rail Engineering.