EXHIBIT 99.1
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
September 30, 2000
Historical Pro forma
------------------------ -------------------------
Phone.com Software.com Adjustments Combined
---------- ------------ ----------- ----------
(in thousands)
ASSETS
Current assets:
Cash and cash
equivalents............ $ 94,529 $ 47,748 $ -- $ 142,277
Short-term investments.. 323,589 39,285 -- 362,874
Accounts receivable..... 58,041 49,052 (3,853)(A) 103,240
Prepaid expenses and
other current assets... 13,633 8,000 (439)(A) 21,194
---------- -------- --------- ----------
Total current assets.. 489,792 144,085 (4,292) 629,585
Property and equipment,
net...................... 30,348 9,988 -- 40,336
Restricted cash and
investments.............. 20,700 -- -- 20,700
Deposits and other
assets................... 7,663 797 (4,471)(A) 3,989
Goodwill and other
intangible assets, net... 1,460,667 64,164 1,585 (A) 1,526,416
---------- -------- --------- ----------
Total assets.......... $2,009,170 $219,034 $ (7,178) $2,221,026
========== ======== ========= ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of
equipment loans and
capital lease
obligations............ $ 2,858 $ 363 $ -- $ 3,221
Accounts payable........ 5,299 4,745 -- 10,044
Accrued liabilities..... 36,630 10,934 (4,132)(A) 128,432
85,000 (B)
Deferred revenue........ 99,930 22,875 -- 122,805
---------- -------- --------- ----------
Total current
liabilities.......... 144,717 38,917 80,868 264,502
Equipment loans and
capital lease
obligations, less current
portion.................. 2,634 5 -- 2,639
---------- -------- --------- ----------
Total liabilities..... 147,351 38,922 80,868 267,141
---------- -------- --------- ----------
Stockholders' equity:
Common stock............ 83 241,265 (241,184)(D) 164
Additional paid-in
capital................ 2,340,872 -- 241,184 (D) 2,582,056
Deferred stock-based
compensation........... (4,770) (1,216) 767 (C) (5,219)
Notes receivable from
stockholders........... (650) (361) -- (1,011)
Accumulated other
comprehensive loss..... (413) (16) -- (429)
(3,046)(A)
(85,000)(B)
Accumulated deficit..... (473,303) (59,560) (767)(C) (621,676)
---------- -------- --------- ----------
1,861,819 180,112 (88,046) 1,953,885
---------- -------- --------- ----------
Total stockholders'
equity............... $2,009,170 $219,034 $ (7,178) $2,221,026
========== ======== ========= ==========
See accompanying notes to unaudited pro forma combined condensed financial
information
1
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Year ended June 30, 1998
Pro forma
--------------------------
Historical Phone.com/
----------------------- Software.com
Phone.com Software.com Adjustments Combined
--------- ------------ ----------- ------------
(in thousands, except per share data)
Revenues:
License.................. $ 522 $ 17,462 $ -- $ 17,984
Maintenance and support
services................ 1,683 2,713 -- 4,396
Consulting services...... -- 6,558 -- 6,558
-------- -------- ------- --------
Total revenues......... 2,205 26,733 -- 28,938
-------- -------- ------- --------
Cost of revenues:
License.................. 95 1,568 -- 1,663
Maintenance and support
services................ 1,063 1,639 (2)(C) 2,700
Consulting services...... -- 7,382 (6)(C)
(2,215)(E) 5,161
-------- -------- ------- --------
Total cost of
revenues.............. 1,158 10,589 (2,223) 9,524
-------- -------- ------- --------
Gross profit........... 1,047 16,144 2,223 19,414
-------- -------- ------- --------
Operating expenses:
Research and
development............. 5,732 12,093 (3)(C) 17,822
Sales and marketing...... 5,011 12,337 (22)(C)
2,215 (E) 19,541
General and
administrative.......... 1,801 5,891 (15)(C) 7,677
Stock-based
compensation............ 108 -- 227 (C) 335
Legal matter............. -- (400) -- (400)
-------- -------- ------- --------
Total operating
expenses.............. 12,652 29,921 2,402 44,975
-------- -------- ------- --------
Operating loss......... (11,605) (13,777) (179) (25,561)
Interest income (expense),
net....................... 982 (536) -- 446
-------- -------- ------- --------
Loss before income
taxes................... (10,623) (14,313) (179) (25,115)
Income taxes............... -- (446) -- (446)
-------- -------- ------- --------
Net loss................. (10,623) (14,759) (179) (25,561)
Accretion on redeemable
convertible preferred
stock..................... -- (825) -- (825)
-------- -------- ------- --------
Net loss attributable to
common stock
stockholders............ $(10,623) $(15,584) $ (179) $(26,386)
======== ======== ======= ========
Basic and diluted net loss
per share attributable to
common stockholders....... $ (1.02) $ (0.54) $ (0.47)
======== ======== ========
Shares used in computing
basic and diluted per
share data................ 10,442 28,671 17,504 (F) 56,617
======== ======== ======= ========
See accompanying notes to unaudited pro forma combined condensed financial
information
2
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Year ended June 30, 1999
Historical Pro forma
----------------------- --------------------------
Phone.com/
Software.com
Phone.com Software.com Adjustments Combined
--------- ------------ ----------- ------------
(in thousands, except per share data)
Revenues:
License.................. $ 5,229 $ 26,847 $ -- $ 32,076
Maintenance and support
services................ 5,921 7,586 -- 13,507
Consulting services...... 2,292 12,508 -- 14,800
-------- -------- ------- --------
Total revenues......... 13,442 46,941 -- 60,383
-------- -------- ------- --------
Cost of revenues:
License.................. 371 2,677 (2)(C) 3,046
Maintenance and support
services................ 3,022 2,816 (41)(C) 5,797
Consulting services...... 1,146 10,865 (67)(C)
(3,259)(E) 8,685
-------- -------- ------- --------
Total cost of
revenues.............. 4,539 16,358 (3,369) 17,528
-------- -------- ------- --------
Gross profit........... 8,903 30,583 3,369 42,855
-------- -------- ------- --------
Operating expenses:
Research and
development............. 13,082 15,910 (58)(C) 28,934
Sales and marketing...... 10,840 19,686 (188)(C)
3,259 (E) 33,597
General and
administrative.......... 4,432 8,055 (188)(C) 12,299
Stock-based
compensation............ 1,011 125 1,100 (C) 2,236
Amortization of goodwill
and other intangible
assets.................. -- 329 -- 329
In-process research and
development............. -- 3,210 -- 3,210
Legal matter............. -- (200) -- (200)
-------- -------- ------- --------
Total operating
expenses.............. 29,365 47,115 3,925 80,405
-------- -------- ------- --------
Operating loss......... (20,462) (16,532) (556) (37,550)
Interest income, net....... 1,803 1,026 -- 2,829
-------- -------- ------- --------
Loss before income
taxes................. (18,659) (15,506) (556) (34,721)
Income taxes............... (2,104) (212) -- (2,316)
-------- -------- ------- --------
Net loss................. (20,763) (15,718) (556) (37,037)
Accretion on redeemable
convertible preferred
stock..................... -- (403) -- (403)
-------- -------- ------- --------
Net loss attributable to
common stockholders..... $(20,763) $(16,121) $ (556) $(37,440)
======== ======== ======= ========
Basic and diluted net loss
per share attributable to
common stockholders....... $ (1.49) $ (0.45) $ (0.52)
======== ======== ========
Shares used in computing
basic and diluted per
share data................ 13,932 35,754 21,828 (F) 71,514
======== ======== ======= ========
See accompanying notes to unaudited pro forma combined condensed financial
information
3
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Year ended June 30, 2000
Pro Forma Software.com Acquired
Phone.com/ Phone.com Acquired Entities Entities
Software.com ---------------------------------------------- --------------------------- Pro Forma
Combined APiON AtMotion Paragon Onebox Adjustments Telarc bCandid Adjustments Combined
------------ ----- -------- ------- ------- ----------- ------ ------- ----------- ---------
(in thousands, except per share data)
Revenues:
License............. $ 93,126 $ 473 $ -- $ 1,843 $ 212 $ -- $364 $3,103 $ -- $ 99,121
Maintenance and
support services.... 25,835 -- -- -- -- -- -- 873 -- 26,708
Consulting
services............ 27,447 -- -- -- -- -- 21 246 -- 27,714
--------- ----- ------- ------- ------- --------- ---- ------ -------- ---------
Total revenues.... 146,408 473 -- 1,843 212 -- 385 4,222 -- 153,543
--------- ----- ------- ------- ------- --------- ---- ------ -------- ---------
Cost of revenues:
License............. 6,739 310 -- 1,127 5,022 -- -- 158 -- 13,356
Maintenance and
support services.... 14,867 -- -- -- -- -- -- 283 -- 15,150
Consulting
services............ 16,894 -- -- -- -- -- 56 270 -- 17,220
--------- ----- ------- ------- ------- --------- ---- ------ -------- ---------
Total cost of
revenues.......... 38,500 310 -- 1,127 5,022 -- 56 711 -- 45,726
--------- ----- ------- ------- ------- --------- ---- ------ -------- ---------
Gross profit
(loss)............ 107,908 163 -- 716 (4,810) -- 329 3,511 -- 107,817
--------- ----- ------- ------- ------- --------- ---- ------ -------- ---------
Operating expenses:
Research and
development......... 59,675 197 3,563 1,745 2,923 -- -- 639 -- 68,742
Sales and
marketing........... 68,745 276 -- 2,485 6,512 -- -- 1,300 -- 79,318
General and
administrative...... 24,056 241 1,757 3,292 2,318 -- 49 698 -- 32,411
Stock-based
compensation........ 10,185 -- -- 3,189 -- 1,274 (G)
(3,189)(H) -- -- 547 (T) 12,006
Amortization of
goodwill and other
intangible assets... 216,446 -- -- -- -- 27,084 (I)
55,626 (J)
103,478 (K)
202,517 (L) -- 1,472 657 (R)
20,425 (S)
(1,472)(U) 626,233
In-process research
and development..... 27,700 -- -- -- -- -- -- -- -- 27,700
Acquisition related
costs............... 10,395 -- -- -- -- -- -- -- -- 10,395
--------- ----- ------- ------- ------- --------- ---- ------ -------- ---------
Total operating
expenses.......... 417,202 714 5,320 10,711 11,753 386,790 49 4,109 20,157 856,805
--------- ----- ------- ------- ------- --------- ---- ------ -------- ---------
Operating income
(loss)............ (309,294) (551) (5,320) (9,995) (16,563) (386,790) 280 (598) (20,157) (748,988)
Interest and other
income (expense),
net.................. 23,220 -- (68) 13 (10,085) -- 1 745 -- 13,826
--------- ----- ------- ------- ------- --------- ---- ------ -------- ---------
Income (loss)
before income
taxes............. (286,074) (551) (5,388) (9,982) (26,648) (386,790) 281 147 (20,157) (735,162)
Income taxes......... (2,019) (68) -- -- -- -- -- (6) -- (2,093)
--------- ----- ------- ------- ------- --------- ---- ------ -------- ---------
Net income
(loss)............ (288,093) (619) (5,388) (9,982) (26,648) (386,790) 281 141 (20,157) (737,255)
Accretion on
redeemable
convertible preferred
stock................ -- -- (752) -- -- 752 (M) -- -- -- --
--------- ----- ------- ------- ------- --------- ---- ------ -------- ---------
Net income (loss)
attributable to
common
stockholders...... $(288,093) $(619) $(6,140) $(9,982) (26,648) $(386,038) $281 $ 141 $(20,157) $(737,255)
========= ===== ======= ======= ======= ========= ==== ====== ======== =========
Basic and diluted net
loss per share....... $ (2.06) $ (4.92)
========= =========
Shares used in
computing basic and
diluted net loss per
share................ 139,921 774 (N)
=========
1,393 (O)
1,831 (P)
4,898 (Q) 104 (V)
1,027 (W) 149,948
=========
See accompanying notes to unaudited pro forma combined condensed financial
information
4
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Year ended June 30, 2000
Pro Forma
--------------------------
Historical Phone.com/
----------------------- Software.com
Phone.com Software.com Adjustments Combined
--------- ------------ ----------- ------------
(in thousands, except per share data)
Revenues:
License.................. $ 43,729 $ 50,182 $ (785)(A) $ 93,126
Maintenance and support
services................ 14,548 11,423 (136)(A) 25,835
Consulting services...... 10,450 16,997 -- 27,447
--------- -------- ------- ---------
Total revenues......... 68,727 78,602 (921) 146,408
--------- -------- ------- ---------
Cost of revenues:
License.................. 4,233 2,863 (354)(A)
(3)(C) 6,739
Maintenance and support
services................ 10,437 4,463 (33)(C) 14,867
Consulting services...... 6,156 15,452 (79)(C)
(4,635)(E) 16,894
--------- -------- ------- ---------
Total cost of
revenues.............. 20,826 22,778 (5,104) 38,500
--------- -------- ------- ---------
Gross profit........... 47,901 55,824 4,183 107,908
--------- -------- ------- ---------
Operating expenses:
Research and
development............. 37,965 21,777 (67)(C) 59,675
Sales and marketing...... 37,222 27,122 (234)(C)
4,635 (E) 68,745
General and
administrative.......... 13,492 10,757 (193)(C) 24,056
Stock-based
compensation............ 5,464 3,771 950 (C) 10,185
Amortization of goodwill
and other intangible
assets.................. 214,401 2,045 -- 216,446
In-process research and
development............. 22,490 5,210 -- 27,700
Acquisition related
costs................... -- 10,395 -- 10,395
--------- -------- ------- ---------
Total operating
expenses.............. 331,034 81,077 5,091 417,202
--------- -------- ------- ---------
Operating loss......... (283,133) (25,253) (908) (309,294)
Interest income, net....... 19,586 3,634 -- 23,220
--------- -------- ------- ---------
Loss before income
taxes................. (263,547) (21,619) (908) (286,074)
Income taxes............... (1,597) (422) -- (2,019)
--------- -------- ------- ---------
Net loss............... $(265,144) $(22,041) $ (908) $(288,093)
========= ======== ======= =========
Basic and diluted net loss
per share................. $ (3.81) $ (0.51) $ (2.06)
========= ======== =========
Shares used in computing
basic and diluted per
share data................ 69,650 43,633 26,638 (F) 139,921
========= ======== ======= =========
See accompanying notes to unaudited pro forma combined condensed financial
information
5
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Three months ended September 30, 2000
Pro Forma
------------------------
Historical Phone.com/
----------------------- Software.com
Phone.com Software.com Adjustments Combined
--------- ------------ ----------- ------------
(in thousands, except per share data)
Revenues:
License................... $ 33,327 $26,860 $(3,087)(A) $ 57,100
Maintenance and support
services................. 6,569 4,191 (219)(A) 10,541
Consulting Services....... 6,577 6,593 -- 13,170
--------- ------- ------- ---------
Total revenues.......... 46,473 37,644 (3,306) 80,811
--------- ------- ------- ---------
Cost of revenues:
License................... 5,988 815 (1,163)(A) 5,640
Maintenance and support
services................. 4,521 1,786 -- 6,307
Consulting services....... 4,003 5,709 (1,713)(E) 7,999
--------- ------- ------- ---------
Total cost revenues..... 14,512 8,310 2,876 19,946
--------- ------- ------- ---------
Gross profit............ 31,961 29,334 (430) 60,865
--------- ------- ------- ---------
Operating expenses:
Research and development.. 19,228 7,976 (48)(C) 27,156
Sales and marketing....... 20,537 11,388 (59)(C)
1,713 (E) 33,579
General and
administrative........... 6,940 3,857 (45)(C) 10,752
Stock-based compensation.. 3,563 959 152 (C) 4,674
Amortization of goodwill
and other tangible
assets................... 152,285 5,962 168 (X) 158,415
--------- ------- ------- ---------
Total operating
expenses............... 202,553 30,142 1,881 234,576
--------- ------- ------- ---------
Operating loss.......... (170,592) (808) (2,311) (173,711)
Interest income, net........ 6,939 1,375 -- 8,314
--------- ------- ------- ---------
Income (loss) before
income taxes........... (163,653) 567 (2,311) (105,397)
Income taxes................ (2,556) (68) -- (2,624)
--------- ------- ------- ---------
Net income (loss)......... $(166,209) $ 499 $(2,311) $(168,021)
========= ======= ======= =========
Basic net income (loss) per
share...................... $ (2.02) $ 0.01 $ (1.04)
========= ======= =========
Shares used in computing
basic per share data....... 82,279 49,571 30,263 (F) 162,113
========= ======= ======= =========
Diluted net income (loss)
per share.................. $ (2.02) $ 0.01 $ (1.04)
========= ======= =========
Shares used in computing
diluted per share data..... 82,279 57,853 162,113
========= ======= =========
See accompanying notes to unaudited pro forma combined condensed financial
information
6
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
Note 1--Periods Presented
Phone.com's fiscal year ends on June 30. Software.com's fiscal year ends on
December 31. The accompanying unaudited pro forma combined condensed statement
of operations information gives effect to the merger of Phone.com and
Software.com as if such merger occurred at the beginning of the earliest year
presented. The unaudited pro forma combined condensed statement of operations
for the year ended June 30, 1998, reflects the results of operations of
Phone.com for the fiscal year ended June 30, 1998 combined with the results of
operations of Software.com for the fiscal year ended December 31, 1998. The
unaudited pro forma combined condensed statement of operations for the year
ended June 30, 1999, reflects the results of operations of Phone.com for the
fiscal year ended June 30, 1999 combined with the results of operations of
Software.com for the fiscal year ended December 31, 1999. The unaudited pro
forma combined condensed statement of operations for the year ended June 30,
2000, on page 5, reflects the results of operations of Phone.com for the
fiscal year ended June 30, 2000, combined with the results of operations of
Software.com for the year ended June 30, 2000. The unaudited pro forma
combined condensed statement of operations for the year ended June 30, 2000,
on page 4, reflects the results of Phone.com/Software.com combined, which is
derived at page 5, combined with the results of operations of the Phone.com
Acquired Entities and the Software.com Acquired Entities for the period from
July 1, 1999 through their respective dates of acquisition. The unaudited pro
forma combined condensed statement of operations for the three-month period
ended September 30, 2000, reflects the results of operations of Phone.com for
the three-month period ended September 30, 2000 combined with the results of
operations of Software.com for the three-month period ended September 30,
2000.
Note 2--Phone.com Acquired Entities
The WAP Business of APiON
On October 26, 1999, Phone.com completed its acquisition of APiON Telecom
Limited, or APiON, a company based in Belfast, Northern Ireland, in exchange
for 2,393,026 shares of its common stock. In addition, Phone.com also agreed
to issue cash and common stock with an aggregate value of up to approximately
$14.1 million to the then current and former employees of APiON. APiON was a
provider of WAP software products to GSM network operators in Europe and had
expertise in GSM Intelligent Networks, wireless data and WAP technology.
Former employees of APiON received consideration totaling approximately $2.2
million in cash with the remaining $4.3 million payable in common stock of
Phone.com or cash on the one year anniversary of the closing of the
acquisition of APiON subject to forfeiture upon the occurrence of certain
events. Current employees of APiON received approximately $2.5 million in cash
with the remaining $5.1 million payable in common stock of Phone.com or cash
on each of the first two anniversaries of the closing of the acquisition of
APiON contingent upon continued employment. The actual number of Phone.com
shares to be issued to the then current and former employees of APiON, if any,
will depend upon the fair value of Phone.com common stock on the distribution
date. The total purchase price for the transaction including direct
acquisition costs was approximately $246.8 million.
Common stock issued to former shareholders and cash paid to current and
former employees of APiON at the closing of the acquisition was included in
the purchase price. Contingent common stock issuable in the future to former
employees of APiON has been treated as contingent consideration. The common
stock that is issued to the former employees of APiON upon the satisfaction of
certain future events will be added to goodwill and amortized over the
remaining useful life. Common stock issuable in the future to current
employees of APiON has been recorded as deferred stock-based compensation.
The excess of the purchase price over the fair value of tangible net assets
acquired amounted to approximately $244.5 million, with $242.5 million
attributable to goodwill, $1.7 million attributable to assembled workforce,
$170,000 attributable to developed technology and $110,000 attributable to in-
process research and development. These assets are being amortized on a
straight-line basis over a period of three years
7
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION--
(Continued)
with the exception of the in-process research and development, which was
expensed on the acquisition date. In connection with the acquisition,
Phone.com recorded deferred stock-based compensation in the amount of
approximately $5.1 million, which is being amortized on an accelerated basis
over the vesting period of 24 months, consistent with the method described in
FASB Interpretation No. 28 (FIN 28).
The historical balance sheet of Phone.com as of September 30, 2000 reflects
the acquisition of APiON.
AtMotion
On February 8, 2000, Phone.com acquired all of the outstanding common and
redeemable convertible preferred stock of AtMotion, Inc., or AtMotion, in
exchange for 2,280,287 shares of its common stock. Phone.com also assumed all
of the outstanding options and warrants of AtMotion. AtMotion is a provider of
Voice Portal technology. Total consideration given aggregated approximately
$287.2 million. The excess of the purchase price over the fair value of
tangible net assets acquired amounted to approximately $286.1 million, with
$242.9 million attributable to goodwill, $655,000 attributable to assembled
workforce and $42.5 million attributable to developed technology. These assets
are being amortized on a straight-line basis over a period of three years. At
the time of the acquisition, 12.1% of the shares issued by Phone.com were
placed in escrow with most of the escrow shares to remain in escrow for a
period of at least one year from the date of the acquisition to be released
upon the occurrence of certain events.
The historical balance sheet of Phone.com as of September 30, 2000 reflects
the acquisition of AtMotion.
Paragon
On March 4, 2000, Phone.com acquired all of the outstanding common and
convertible preferred stock of Paragon Software (Holdings) Limited, or
Paragon, a company incorporated in England and Wales, in exchange for
approximately 3,051,016 shares of its common stock. Phone.com also assumed all
of the outstanding options of Paragon. Paragon is a provider of
synchronization technology allowing PC-based personal information to be easily
transferred to mobile devices. Total consideration aggregated approximately
$453.7 million in common stock of Phone.com in addition to a cash payment of
$3.6 million. An additional $17.0 million was to be paid within one year,
payable in approximately 143,000 common shares of Phone.com's common stock at
the election of the shareholder or in cash with the consent of Phone.com as
well as additional cash payments of approximately $3.9 million to be allocated
among certain employees of Paragon. The $17.0 million was paid to the former
shareholder on August 11, 2000, in conjunction with the former shareholder's
separation from Phone.com. There were also transaction costs in connection
with the purchase of approximately $11.6 million. The excess of the purchase
price over the fair value of tangible net assets acquired amounted to
approximately $483.7 million, with $455.1 million attributable to goodwill,
$980,000 attributable to assembled workforce, $7.2 million attributable to
developed technology, $2.3 million attributable to non-compete agreements and
$18.1 million attributable to in-process research and development. These
assets are being amortized on a straight-line basis over a period of three
years, except for the in-process research and development, which was expensed
on the acquisition date.
The historical balance sheet of Phone.com as of September 30, 2000 reflects
the acquisition of Paragon.
Onebox
On April 14, 2000, Phone.com acquired all of the outstanding common and
preferred stock of Onebox.com, Inc., or Onebox, a company based in San Mateo,
California, in exchange for approximately 6,207,865 shares of its common
stock. Phone.com also assumed all of the outstanding options of Onebox. Onebox
is a communications application service provider offering users unified e-
mail, voicemail, facsimile, and wireless-enabled communication applications.
Total consideration aggregated approximately $814.7 million including
estimated transaction costs of approximately $16.8 million. The excess of the
purchase price over the fair value of tangible net assets acquired amounted to
approximately $814.1 million, with $789.7 million attributable to
8
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION--
(Continued)
goodwill, $590,000 attributable to assembled workforce, $14.7 million
attributable to developed technology, $4.8 million attributable to non-compete
agreements and $4.3 million attributable to in-process research and
development. These assets are being amortized on a straight-line basis over a
period of three years, except for the amount recorded for in-process research
and development, which was expensed on the acquisition date.
The historical balance sheet of Phone.com as of September 30, 2000 reflects
the acquisition of Onebox.
Note 3--Software.com Acquired Entities
Telarc
On October 20, 1999, Software.com acquired Telarc, a provider of carrier-
scale Short Messaging Service (SMS) technologies. The total purchase price of
approximately $11.5 million consisted of $1.5 million of cash and $10.0 million
of Software.com common stock (211,918 shares). In addition, Software.com
incurred approximately $101,000 in costs directly attributable to the
completion of the acquisition. Of the total estimated purchase price of $11.6
million, approximately $263,000 was allocated to net tangible assets, and the
remainder was allocated to intangible assets, including $43,000 to assembled
workforce, $82,000 to covenant not to compete, $5.7 million to core/alternative
use technology, and $2.3 million to goodwill. The Company recorded a one-time
charge related to in-process research and development of $3.2 million at the
date of acquisition. The acquired intangible assets and goodwill are being
amortized over their estimated useful lives of three to five years.
The historical balance sheet of Software.com as of September 30, 2000
reflects the acquisition of Telarc.
bCandid
On June 14, 2000, Software.com completed its acquisition of bCandid
Corporation, a market leader in providing carrier-class discussion server
infrastructure software to service providers worldwide. BCandid was formed in
early 1999 through the merger of two companies, ISPNews, a service related
business, and Highwind Software, Inc., a software developer. Immediately prior
to the acquisition by Software.com, bCandid spun-off the service portion of its
business. As a result, Software.com acquired the remaining business of bCandid
representing its core software development operations. In connection with the
acquisition of bCandid, Software.com issued approximately 667,000 shares of its
common stock with a value of $65.4 million in exchange for all of the issued
and outstanding capital stock of bCandid, as well as the assumption of all
outstanding warrants and options to purchase shares of bCandid. The purchase
price plus costs directly attributable to the completion of the acquisition
have been allocated to the assets and liabilities acquired based on their
approximate fair market value. Approximately $1.7 million was allocated to
tangible assets and the remainder was allocated to intangible assets, including
$300,000 to covenant not to compete, $400,000 to assembled workforce, $600,000
to customer relations and $6.7 million to core/alternative use technology and
$55.9 million to goodwill. In addition, Software.com assumed approximately $2.2
million in current liabilities as part of the purchase. Software.com recorded a
one-time charge related to in-process research and development of $2.0 million
at the date of acquisition. The acquired intangible assets and goodwill are
being amortized over their estimated useful lives of two to four years.
The historical balance sheet of Software.com as of September 30, 2000
reflects the acquisition of bCandid and the spin-off of its service business,
ISP News.
Note 4--Adjustments Applied to the Historical Financial Information of
Phone.com, Software.com, Phone.com Acquired Entities, and Software.com
Acquired Entities to Arrive at the Unaudited Pro Forma Combined Condensed
Financial Information
(A) To eliminate intercompany purchases and sales, and related balance sheet
amounts, between Phone.com and Software.com.
9
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION--
(Continued)
(B) To record the accrual of estimated costs resulting from the merger of
Phone.com and Software.com. It is anticipated that Phone.com and
Software.com will incur charges to operations related to the merger
currently estimated to total approximately $85.0 million to be recorded
in the quarter in which the merger is consummated. These charges include
direct transaction costs, principally for financial advisory and legal
fees, and costs associated with combining operations of the two
companies. The estimated charge is reflected in the unaudited pro forma
combined condensed balance sheet information, but is not reflected in the
unaudited pro forma combined condensed statement of operations
information. The charge is a preliminary estimate only and is subject to
change.
(C) To adjust Software.com's amortization of deferred stock-based
compensation to be consistent with Phone.com's method as described in FIN
28, which resulted in additional (less) amortization of deferred stock-
based compensation of $179,000, $556,000 and $341,000 in the years ended
December 31, 1998, December 31, 1999, and June 30, 2000, respectively,
and ($23,000) in the three-month period ended September 30, 2000.
(D) In connection with the merger, Phone.com has issued approximately
94,500,000 shares of its common stock to Software.com based on an
exchange ratio of 1.6105 shares of Phone.com common stock for each share
of Software.com common stock.
(E) To reclassify approximately $2.2 million, $3.3 million, $4.6 million, and
$1.7 million from Software.com's consulting services costs of revenues to
sales and marketing expense for the years ended December 31, 1998,
December 31, 1999, and June 30, 2000, and the three-month period ended
September 30, 2000, respectively, in order to conform to Phone.com's
accounting policies and basis of presentation.
(F) To reflect the number of Software.com weighted average shares outstanding
for basic and diluted earnings per share to give effect to the 1.6105 to
1 exchange ratio.
(G) To reflect the amortization of deferred stock-based compensation
associated with common stock of Phone.com issued to current employees of
APiON in a manner consistent with FIN 28. The accelerated amortization
results in 75% and 25% of the deferred stock-based compensation being
amortized in the first year and second year after the closing of the
acquisition of APiON, respectively.
(H) To reverse Paragon's historical amortization of stock-based compensation.
(I) Adjustment to record the amortization of goodwill and intangible assets
resulting from the allocation of the APiON purchase price. The pro forma
adjustment reflects goodwill and other intangible assets amortized on a
straight-line basis over an estimated life of three years.
(J) Adjustment to record the amortization of goodwill and intangible assets
resulting from the allocation of the AtMotion purchase price. The pro
forma adjustment reflects goodwill and other intangible assets amortized
on a straight-line basis over an estimated life of three years.
(K) Adjustment to record the amortization of goodwill and intangible assets
resulting from the allocation of the Paragon purchase price. The pro
forma adjustment reflects goodwill and other intangible assets amortized
on a straight-line basis over an estimated life of three years.
(L) Adjustment to record the amortization of goodwill and intangible assets
resulting from the allocation of the Onebox purchase price. The pro forma
adjustment reflects goodwill and other intangible assets amortized on a
straight-line basis over an estimated life of three years.
(M) To reverse historical accretion on preferred stock of AtMotion.
10
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION--
(Continued)
(N) To reflect the shares issued as consideration for the acquisition of
APiON.
(O) To reflect common stock issued to shareholders of AtMotion. Shares to be
issued for stock options and warrants and shares subject to repurchase
until vested are excluded as they are antidilutive.
(P) To reflect common stock issued to shareholders of Paragon. Shares to be
issued for stock options are excluded as they are antidilutive.
(Q) To reflect common stock issued to shareholders of Onebox. Shares to be
issued for stock options and warrants and shares subject to repurchase
until vested are excluded as they are antidilutive.
(R) Adjustment to record the amortization of goodwill and intangible assets
resulting from the allocation of the Telarc purchase price. The pro forma
adjustment reflects goodwill and other intangible assets amortized on a
straight-line basis over estimated lives of three to five years.
(S) Adjustment to record the amortization of goodwill and intangible assets
resulting from the allocation of the bCandid purchase price. The pro
forma adjustment reflects goodwill and other intangible assets amortized
on a straight-line basis over an estimated life of three years.
(T) To record compensation expense related to the Telarc acquisition. In
connection with the acquisition of Telarc, the sole shareholder of Telarc
is entitled to additional consideration of up to $3.5 million
(10 quarterly payments of $350,000) as long as such shareholder is
continuously employed by Software.com from the closing date through each
payment date.
(U) To reverse historical amortization of goodwill and other intangible
assets of bCandid.
(V) To reflect common stock issued to shareholders of Telarc.
(W) To reflect common stock issued to shareholders of bCandid. Shares to be
issued for stock options are excluded as they are antidilutive.
(X) To record amortization of additional goodwill that resulted from the
elimination of intercompany transactions in the adjustment described at
(A).
11