EXHIBIT 99.2
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial statements of
Kana Communications, Inc. (Kana) have been prepared to give effect to the
mergers of Kana, netDialog, Inc. (netDialog), and Business Evolution, Inc.
(BEI), using the pooling of interests method of accounting.
The pro forma combined condensed balance sheet gives effect to the merger as if
it had occurred on September 30, 1999, and combines the unaudited condensed
consolidated balance sheet of Kana and the unaudited condensed balance sheetsof
netDialog and BEI as of September 30, 1999. The pro forma combined condensed
statements of operations combine the historical consolidated statements of
operations of Kana and the historical statements of operations of netDialog and
BEI for the years ended December 31, 1997 and 1998 and the nine months ended
September 30, 1999 and 1998, in each case as if the mergers had occurred at the
beginning of the earliest period presented.
Such pro forma combined condensed financial information is presented for
illustrative purposes only and is not necessarily indicative of the financial
position or results of operations that would have actually been reported had
the mergers occurred at the beginning of the periods presented, nor is it
necessarily indicative of future financial position or results of operations.
In addition, Kana recorded a charge for acquisition-related costs of
approximately $4.5 million in operations for the quarter ended December 31,
1999. This is an estimate and is subject to change. There can be no assurance
that Kana will not incur additional charges to reflect costs associated with
the mergers or that management will be successful in its efforts to integrate
the operations of the three companies.
These pro forma combined condensed financial statements are based upon the
respective historical consolidated financial statements of Kana and the
historical financial statements of netDialog and BEI. These should be read in
conjunction with the respective supplemental consolidated financial statements
and notes thereto of Kana included in the Form S-1 registration statement
(333-82587) as filed with the Securities and Exchange Commission on September
21, 1999 and the historical consolidated financial statements and notes thereto
of netDialog included herein.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(In thousands)
PRO FORMA
--------------------------------
ASSETS KANA NETDIALOG BEI ADJUSTMENTS COMBINED
-------------- ------------- -------- -------------- -------------
Cash and cash equivalents $ 57,200 $ 524 $ 3,059 $ $ 60,783
Short-term investments 7,427 137 -- 7,564
Accounts receivable, net 2,268 63 230 2,561
Prepaid expenses and other current assets 1,606 4 16 1,626
--------- -------- -------- --------- --------
Total current assets 68,501 728 3,305 -- 72,534
Property and equipment, net 3,942 554 312 4,808
Other assets 150 56 152 358
--------- -------- -------- --------- --------
Total assets $ 72,593 $ 1,338 $ 3,769 $ -- $ 77,700
========= ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Convertible debt $ -- $ 4,800 $ -- $ (4,800) 2b $ --
Current portion of notes payable 1,236 512 -- 1,748
Accounts payable 1,389 330 254 1,973
Accrued payroll and related liabilities 713 -- -- 713
Other accrued liabilities 3,618 391 69 4,500 2a 8,578
Deferred revenue 3,709 -- 1,064 4,773
--------- -------- -------- --------- --------
Total current liabilities 10,665 6,033 1,387 (300) 17,785
Notes payable, less current portion 652 83 735
--------- -------- -------- --------- --------
Total liabilities 11,317 6,116 1,387 (300) 18,520
--------- -------- -------- --------- --------
Redeemable preferred stock -- 4,995 -- (4,995) 2b --
Stockholders' equity:
Convertible preferred stock -- -- 4,976 (4,976) 2c --
Common stock 29 -- -- 2 2d 31
Additional paid-in capital 111,867 1,015 798 14,769 2b-2d 128,449
Deferred stock-based compensation (16,127) (374) (16,501)
Notes receivable from stockholders (6,246) -- (6,246)
Accumulated other comprehensive loss (31) -- (31)
Accumulated deficit (28,216) (10,414) (3,392) (3,794) 2a, 2e (45,816)
--------- -------- -------- --------- --------
Total stockholders' equity 61,276 (9,773) 2,382 6,001 59,886
--------- -------- -------- --------- --------
Total liabilities and
stockholders' equity $ 72,593 $ 1,338 $ 3,769 $ 706 $ 78,406
========= ======== ======== ========= ========
See accompanying notes to unaudited pro forma combined condensed
financial statements.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands, except per share data)
PRO FORMA
----------------------
KANA NETDIALOG BEI ADJUSTMENTS COMBINED
------ ----------- ------- ----------- -------
Revenues:
License ..................................................... $ -- $ -- $ -- $ $ --
Service ..................................................... -- -- 617 617
----- ------- ------- ---------- ------
Total revenues .......................................... -- -- 617 -- 617
----- ------- ------- ---------- ------
Cost of revenues:
License ..................................................... -- -- -- --
Service ..................................................... -- -- 253 253
----- ------- ------- ---------- ------
Total cost of revenues .................................. -- -- 253 -- 253
----- ------- ------- ---------- ------
Gross profit ............................................ -- -- 364 -- 364
----- ------- ------- ---------- ------
Operating expenses:
Sales and marketing ......................................... 366 -- 146 512
Research and development .................................... 699 150 122 971
General and administrative .................................. 257 114 7 378
Amortization of stock based --
compensation ............................................ 113 -- -- 113
----- ------- ------- ---------- ------
Total operating expenses ................................ 1,435 264 275 -- 1,974
----- ------- ------- ---------- ------
Loss from operations .................................... (1,435) (264) 89 -- (1,610)
Other income, net ............................................... 52 2 4 -- 58
----- ------- ------- ---------- ------
Net loss ................................................ $(1,383) $ (262) $ 93 $ -- $(1,552)
====== ======= ======= ========== ======
Net loss per common share:
Basic and diluted $ (0.92) $(0.93)
======= =======
Weighted-average shares 1,497 1,669
======= =======
See accompanying notes to unaudited pro forma combined condensed
financial statements.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED DECMEBER 31, 1998
(In thousands, except per share data)
PRO FORMA
--------------------------
KANA NETDIALOG BEI ADJUSTMENTS COMBINED
------- ---------- ------- ----------- --------
Revenues:
License ......................................... $ 1,793 $ -- $ 221 $ $ 2,014
Service ......................................... 256 -- 77 333
------ ------ ------ ----- -------
Total revenues .............................. 2,049 -- 298 -- 2,347
------ ------ ------ ----- -------
Cost of revenues:
License ......................................... 54 ---- -- 54
Service ......................................... 519 -- 147 666
------ ------ ------ ----- -------
Total cost of revenues ...................... 573 -- 147 -- 720
------ ------ ------ ----- -------
Gross profit ................................ 1,476 -- 151 -- 1,627
------ ------ ------ ----- -------
Operating expenses:
Sales and marketing ............................. 3,938 915 651 5,504
Research and development ........................ 2,835 2,155 679 5,669
General and administrative ...................... 1,004 646 174 1,824
Amortization of stock based --
compensation ................................ 1,263 194 -- 1,457
------ ------ ------ ----- -------
Total operating expenses .................... 9,040 3,910 1,504 -- 14,454
------ ------ ------ ----- -------
Loss from operations ........................ (7,564) (3,910) (1,353) -- (12,827)
Other income, net ................................... 186 47 (7) 226
------ ------ ------ ----- -------
Net loss .................................... $ (7,378) $(3,863) $(1,360) $ -- $(12,601)
====== ====== ====== ===== ========
Net loss per common share:
Basic and diluted $ (2.58) $ (4.16)
======== ========
Weighted-average shares 2,864 3,032
======== ========
See accompanying notes to unaudited pro forma combined condensed
financial statements.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(In thousands, except per share data)
PRO FORMA
--------------------------
KANA NETDIALOG BEI ADJUSTMENTS COMBINED
------- ---------- ---------- ------------- ----------
Revenues:
License ....................................... $ 1,093 $ -- $ 132 $ $ 1,225
Service ....................................... 138 -- 115 253
------ ------ ---- ----- ------
Total revenues ............................ 1,231 -- 247 -- 1,478
------ ------ ---- ----- ------
Cost of revenues:
License ....................................... 33 -- -- 33
Service ....................................... 246 -- 78 -- 324
------ ------ ---- ----- ------
Total cost of revenues .................... 279 -- 78 -- 357
------ ------ ---- ----- ------
Gross profit .............................. 952 -- 169 -- 1,121
------ ------ ---- ----- ------
Operating expenses:
Sales and marketing ........................... 2,580 519 428 3,527
Research and development ...................... 1,658 1,624 446 3,728
General and administrative .................... 622 503 101 1,226
Amortization of stock based --
compensation .............................. 782 100 -- 882
------ ------ ---- ----- ------
Total operating expenses .................. 5,642 2,746 975 -- 9,363
------ ------ ---- ----- ------
Loss from operations ...................... (4,690) (2,746) (806) -- (8,242)
Other income, net ................................. 79 38 3 -- 120
------ ------ ---- ----- ------
Net loss .................................. $ (4,611) $(2,708) $(803) $ -- $(8,122)
====== ====== ==== ===== ======
Net loss per common share:
Basic and diluted $ (2.34) $ (3.28)
======== ======
Weighted-average shares 1,973 2,477
======== ======
See accompanying notes to unaudited pro forma combined condensed
financial statements.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(In thousands, except per share data)
PRO FORMA
-------------------------
KANA NETDIALOG BEI ADJUSTMENTS COMBINED
-------- --------- -------- ----------- ---------
Revenues:
License $ 5,442 $ 72 $ 297 $ 5,811
Service 1,732 -- 64 1,796
-------- -------- -------- ------ --------
Total revenues 7,174 72 361 $ -- 7,607
-------- -------- -------- ------ --------
Cost of revenues:
License 124 -- -- 124
Service 2,814 333 394 3,541
-------- -------- -------- ------ --------
Total cost of revenues 2,938 333 394 -- 3,665
-------- -------- -------- ------ --------
Gross profit 4,236 (261) (33) -- 3,942
-------- -------- -------- ------ --------
Operating expenses:
Sales and marketing 9,202 1,784 1,153 12,139
Research and development 5,667 1,901 877 8,445
General and administrative 1,768 1,117 329 3,214
Amortization of stock based
compensation 6,330 301 -- 6,631
Acquisition related costs 910 -- -- 910
-------- -------- -------- ------ --------
Total operating expenses 23,877 5,103 2,359 -- 31,339
-------- -------- -------- ------ --------
Loss from operations (19,641) (5,364) (2,392) -- (27,397)
Other income (expense), net 186 (924) (12) 706 2e (44)
-------- -------- -------- ------ --------
Net loss $(19,455) $ (6,288) $ (2,404) $ 706 $(27,441)
======== ======== ======== ====== ========
Net loss per common share:
Basic and diluted $ (2.53) $ (3.19)
======== ========
Weighted-average shares 7,689 8,593
======== ========
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) PRO FORMA BASIS OF PRESENTATION
These pro forma combined financial statements reflect the issuance of
1,383,539 shares of Kana common stock in exchange for an aggregate of
20,198,948 shares of netDialog common stock (including pro forma adjustments)
and 17,708,416 shares of BEI common stock (including pro forma adjustments) as
of September 30, 1999 in connection with the mergers based on the exchange
ratios set forth in the following table:
netDialog pro forma common stock outstanding
as of September 30, 1999 20,198,948
Exchange ratio 0.02763
-------------------
Number of Kana common stock shares exchanged 558,097
BEI pro forma common stock outstanding 17,708,416
as of September 30, 1999
Exchange ratio 0.053370518
-------------------
Number of Kana common stock shares exchanged 945,107
Number of Kana common stock shares outstanding
as of September 30, 1999 28,865,350
----------------
Number of shares of Kana common stock
outstanding as of September 30, 1999 assuming
completion of the mergers 30,368,554
================
The netDialog pro forma common stock as of September 30, 1999 includes
14,005,466 shares for the conversion of the redeemable preferred stock and
convertible debt, which converted immediately prior to the merger and 1,197,534
shares for common stock options and redeemable preferred stock warrants
exercised after September 30, 1999, net of 189,684 shares surrendered back to
netDialog in lieu of paying cash for the exercise of the warrants.
The BEI pro forma common stock as of September 30, 1999 includes
4,443,758 shares for the conversion of the convertible preferred stock, which
converted immediately prior to the merger, and 2,217,737 shares of restricted
common stock issued in October 1999 to certain employees and members of the
board of directors.
(2) PRO FORMA ADJUSTMENTS
(a) Kana recorded a charge for acquisition-related costs of
approximately $4,500,000 in the operations for the quarter ended December 31,
1999. These costs include:
- Direct transaction costs of approximately $1,585,000 consisting
primarily of financial advisory, legal, accounting, regulatory
filing fees and other related costs;
- Severance and related employee termination costs of
approximately $430,000;
- Facilities and equipment costs of approximately $705,000
consisting primarily of estimated lease termination and duplicate
facility closure costs; and
- Other costs of approximately $1,780,000 primarily related to
advertising the mergers and employee communication to be
conducted in the quarter ended December 31, 1999.
The pro forma condensed balance sheet gives effect to the
acquisition-related charge as if such costs had been incurred as of September
30, 1999. This charge is not reflected in the unaudited pro forma combined
condensed statements of operations.
(b) Pursuant to the terms merger, the netDialog redeemable preferred
stock with a book value of $4,995,000 and convertible debt with a book value of
$4,800,000, including a charge of $706,000 for the fair value of redeemable
preferred stock warrants issued, converted into 14,005,466 shares of netDialog
common stock immediately prior to the merger.
(c) Pursuant to the terms of the merger, the BEI convertible preferred
stock with a book value of $4,976,000 converted into 4,443,758 shares of common
stock immediately prior to the merger.
(d) In connection with the merger agreements, based on the pro forma
number of shares of netDialog and BEI common stock outstanding at September 30,
1999, Kana will issue an aggregate of approximately 1,503,204 shares of common
stock with a par value of $2.
(e) In connection with restating its financial statements for all
periods presented pursuant to the pooling of interests method of accounting,
Kana expects to exclude a charge to interest expense of $706,000 related to the
fair value of reedemable prefered stock warrants issued by netDialog in 1999 in
connection with a convertible debt offering. The prefered stock and prefered
stock warrants of netDialog and BEI will be treated as Kana common stock and
common stock warrants for all periods presented in the Kana restated financial
statements, and accordingly, the charge for the netDialog prefered stock
warrants is expected to be treated as an increase to additional paid in capital.
(3) PRO FORMA NET LOSS PER COMMON SHARE
Pro forma net loss per share for the nine month periods ended September
30, 1998 and 1999 and for the years ended December 31, 1997 and 1998, is
computed using the historical weighted-average number of outstanding shares of
common stock, excluding common stock subject to repurchase, for Kana, netDialog
and BEI. In addition, the computation includes the pro forma effects of the
automatic conversion of the netDialog redeemable preferred stock, the netDialog
convertible debt, and the BEI convertible preferred stock into shares of Kana
common stock at the applicable exchange ratio upon the closing of the mergers as
if such conversion occurred on January 1, 1997, or at the date of issuance, if
later. Pro forma common equivalent shares, comprised of common shares subject to
repurchase and incremental shares issuable upon the exercise of stock options
and warrants are not included in pro forma diluted net loss per share because
they would be anti-dilutive.