VERISIGN INC/CA
8-K/A, 2000-03-10
COMPUTER PROGRAMMING SERVICES
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<PAGE>

================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                            _______________________

                                  FORM 8-K/A

                            AMENDED CURRENT REPORT

                        PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

        Date of Report (Date of earliest event reported): March 10, 2000

                                VERISIGN, INC.
            (Exact name of registrant as specified in its charter)


            Delaware                  0-23596                94-3221585
(State or other jurisdiction of     (Commission           (I.R.S. Employer
incorporation or organization)      File Number)          Identification No.)

1350 Charleston Road, Mountain View, CA                       94043-1331
(Address of principal executive offices)                      (Zip Code)

      Registrant's telephone number, including area code:  (650) 961-7500

================================================================================
<PAGE>

Item 7.  Financial Statements and Exhibits

     On February 16, 2000 and on March 7, 2000, VeriSign, Inc. ("VeriSign")
filed Current Reports on Form 8-K to report its acquisitions of Thawte
Consulting (Pty) Ltd., Thawte Holding (Pty) Ltd. and Thawte USA, Inc.
("Thawte"), and Signio, Inc. ("Signio"), respectively. Pursuant to Item 7 of
Form 8-K, VeriSign indicated that it would file certain financial information no
later than the date required under Item 7 of Form 8-K. This Amendment is filed
to provide the required financial information.

     (a)  Financial statements of businesses acquired.

          The financial statements of Thawte and Signio included in this Amended
  Current Report, Form 8-K/A are as follows:

<TABLE>
<CAPTION>
           Financial Statement Description                                           Page
     -----------------------------------------------------------------------    -------------
     <S>                                                                        <C>
     Thawte Holdings (Pty) Ltd., Thawte Consulting (Pty) Ltd. and Thawte USA,
     Inc.:

     .   Independent Auditors' Report.......................................          4

     .   Combined Balance Sheets
         As of February 28, 1999 and 1998...................................          5

     .   Combined Statements of Operations
         For the Years Ended February 28, 1999 and 1998.....................          6

     .   Combined Statements of Stockholder's Deficit
         For the Years Ended February 28, 1999 and 1998.....................          7

     .   Combined Statements of Cash Flows
         For the Years Ended February 28, 1999 and 1998.....................          8

     .   Notes to Combined Financial Statements.............................          9

     .   Unaudited Combined Balance Sheets
         As of November 30, 1999 and 1998...................................         14

     .   Unaudited Combined Statements of Operations
         For the Nine Months Ended November 30, 1999 and 1998...............         15

     .   Unaudited Combined Statements of Cash Flows
         For the Nien Months Ended November 30, 1999 and 1998...............         16

     .   Notes to Unaudited Combined Financial Statements...................         17


     Signio, Inc. (formerly PaymentNet, Inc.):

     .   Independent Auditors' Report.......................................         20

     .   Balance Sheets
         As of December 31, 1999 and 1998...................................         21

     .   Statements of Operations
         For the Years Ended December 31, 1999 and 1998.....................         22

     .   Statements of Shareholder's Equity (Deficit)
         For the Years Ended December 31, 1999 and 1998.....................         23

     .   Statements of Cash Flows
         For the Years Ended December 31, 1999 and 1998.....................         26

     .   Notes to Financial Statements......................................         28
</TABLE>

                                       2
<PAGE>

  (b)  Exhibits.

     The following exhibits are filed with this Amended Current Report, Form
8-K/A:

<TABLE>
<CAPTION>
  Exhibit
  Number                          Exhibit Description
  ------    --------------------------------------------------------------------
  <S>       <C>
   23.1     Consent of Independent Auditors
             (Thawte Holdings (Pty) Ltd., Thawte Consulting (Pty) Ltd. and
             Thawte USA, Inc.)

   23.2     Consent of Independent Auditors
             (Signio, Inc.)

   23.3     Consent of Independent Auditors
             (VeriSign, Inc. and Subsidiaries)

   99.1     VeriSign , Inc. 1999 Financial Statements
</TABLE>

  (c)  Pro forma financial information.

     The pro forma financial statements included in this Amended Current Report,
Form 8-K/A are as follows:

<TABLE>
<CAPTION>
                         Financial Statement Description                            Page
  ------------------------------------------------------------------------------    ----
  <S>                                                                               <C>
  .    Unaudited Pro Forma Combined Condensed Balance Sheets....................      41
  .    Unaudited Pro Forma Combined Condensed Statements of Operations..........      42
  .    Notes to Unaudited Pro Forma Combined Condensed Financial Statements.....      43
</TABLE>

                                       3
<PAGE>

                         INDEPENDENT AUDITORS' REPORT

To the Stockholders of Thawte Holdings (Pty) Ltd., Thawte Consulting (Pty) Ltd.
and Thawte USA, Inc.:

     We have audited the accompanying combined balance sheets of Thawte Holdings
(Pty) Ltd., Thawte Consulting (Pty) Ltd. and Thawte USA, Inc. as of February 28,
1999 and 1998, and the related combined statements of operations, stockholders'
deficit and cash flows for each of the years in the two-year period ended
February 28, 1999. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.

Scope

     We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit 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,
     .    assessing the accounting principles used and significant estimates
          made by management, and
     .    evaluating the overall financial statement presentation.

     We believe that our audits provide a reasonable basis for our opinion.

Audit Opinion

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Thawte Holdings
(Pty) Ltd., Thawte Consulting (Pty) Ltd. and Thawte USA, Inc. as of February 28,
1999 and 1998, and the combined results of their operations and their cash flows
for each of the years in the two-year period ended February 28, 1999, in
conformity with U.S. generally accepted accounting principles.


                                                            /s/ KPMG Inc.

Cape Town, South Africa
January 31, 2000

                                      4
<PAGE>

                          THAWTE HOLDINGS (PTY) LTD.
                         THAWTE CONSULTING (PTY) LTD.
                               THAWTE USA, INC.

                            COMBINED BALANCE SHEETS
                  (In Rand, in thousands, except share data)

<TABLE>
<CAPTION>
                                                                   February 28,
                                                               --------------------
                                                                 1999        1998
                                                               --------    --------
                                                                   R           R
<S>                                                            <C>         <C>
                                 Assets

Current assets:
 Cash and cash equivalents...................................     2,882         432
 Accounts receivable.........................................       590          65
 Other current assets........................................        52          --
                                                               --------    --------

   Total current assets......................................     3,524         497

Property and equipment, net..................................     1,876         320
Deferred income taxes........................................     1,239         279
                                                               --------    --------

                                                                  6,639       1,096
                                                               ========    ========

                     Liabilities and Stockholders' Deficit

Current liabilities:
 Accounts payable............................................       726         103
 Income taxes payable........................................     1,574         195
 Other current liabilities...................................        --          63
 Deferred revenue............................................     4,761       1,071
                                                               --------    --------
  Total current liabilities..................................     7,061       1,432

Commitments

Stockholder's deficit:
 Common stock - no par value
  Authorized shares:             1,000
  Issued and outstanding shares: 100 at February 28, 1999
                                 100 at February 28, 1998....        --          --
 Note payable to stockholder.................................       100          --
 Accumulated deficit.........................................      (553)       (336)
 Cumulative translation adjustment...........................        31          --
                                                               --------    --------
  Total stockholder's deficit................................      (422)       (336)
                                                               --------    --------

                                                                  6,639       1,096
                                                               ========    ========
 </TABLE>

            See accompanying Notes to Combined Financial Statements.

                                       5
<PAGE>

                          THAWTE HOLDINGS (PTY) LTD.
                         THAWTE CONSULTING (PTY) LTD.
                               THAWTE USA, INC.

                       COMBINED STATEMENTS OF OPERATIONS
                            (In Rand, in thousands)

<TABLE>
<CAPTION>
                                                    Year Ended February 28,
                                                   -------------------------
                                                     1999             1998
                                                   --------         --------
                                                       R               R
<S>                                                <C>              <C>
Revenues.........................................     4,647              700
                                                   --------         --------
Costs and expenses:
  Cost of revenues...............................     1,650              294
  Sales and marketing............................       716              159
 General and administrative......................     2,251              675
                                                   --------         --------

   Total costs and expenses......................     4,617            1,128
                                                   --------         --------
   Operating income (loss).......................        30             (428)

Interest income..................................       183               10
Other expense, net...............................        (3)              (1)
                                                   --------         --------
   Income (loss) before income taxes.............       210             (419)
Income taxes expense (benefit)...................       427              (84)
                                                   --------         --------

Net loss.........................................      (217)            (335)
                                                   ========         ========
</TABLE>

            See accompanying Notes to Combined Financial Statements.

                                       6
<PAGE>

                          THAWTE HOLDINGS (PTY) LTD.
                         THAWTE CONSULTING (PTY) LTD.
                               THAWTE USA, INC.

                 COMBINED STATEMENTS OF STOCKHOLDER'S DEFICIT
                  (In Rand, in thousands, except share data)

<TABLE>
<CAPTION>
                                                      Year Ended February 28,
                                                    ---------------------------
                                                      1999               1998
                                                    --------           --------
                                                       R                  R
<S>                                                 <C>                <C>
Common stock:
  Balance, beginning of year
         100 shares at March 1, 1998
         100 shares at March 1, 1997..............        --                 --
                                                    --------           --------
    Balance, end of year
         100 shares at February 28, 1999
         100 shares at February 28, 1998..........        --                 --
                                                    --------           --------

  Note payable to stockholder:
    Balance, beginning of year....................        --                 --
    Loan from stockholder.........................       100                 --
                                                    --------           --------
      Balance, end of year........................       100                 --
                                                    --------           --------

  Accumulated deficit:
    Balance, beginning of year....................      (336)                (1)
    Net loss......................................      (217)              (335)
                                                    --------           --------

      Balance, end of year........................      (553)              (336)
                                                    --------           --------

  Cumulative translation adjustment:
    Balance, beginning of year....................        --                 --
    Currency translation adjustment...............        31                 --
                                                    --------           --------
      Balance, end of year........................        31                 --
                                                    --------           --------

Total stockholder's deficit.......................      (422)              (336)
                                                    ========           ========

</TABLE>

            See accompanying Notes to Combined Financial Statements.

                                       7
<PAGE>

                          THAWTE HOLDINGS (PTY) LTD.
                         THAWTE CONSULTING (PTY) LTD.
                               THAWTE USA, INC.

                       COMBINED STATEMENTS OF CASH FLOWS
                            (In Rand, in thousands)

<TABLE>
<CAPTION>
                                                              Year Ended February 28,
                                                              -----------------------
                                                                1999           1998
                                                              --------       --------
                                                                 R               R
<S>                                                           <C>            <C>
Cash flows from operating activities:
 Net loss.................................................        (217)          (335)
  Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities:
     Depreciation.........................................         193            125
     Foreign currency translation adjustments.............          31             --
     Deferred income taxes................................        (960)          (279)
     Changes in operating assets and liabilities:
      Accounts receivable.................................        (525)           (58)
      Accounts payable....................................         623            103
      Income taxes payable................................       1,379            195
      Deferred revenue....................................       3,690          1,071
                                                              --------       --------
Net cash provided by operating activities.................       4,214            822
                                                              --------       --------
Cash flows from investing activities:
 Purchases of property and equipment......................      (1,749)          (427)
                                                              --------       --------
Net cash used for investing activities....................      (1,749)          (427)
                                                              --------       --------
Cash flows from financing activities:
 Proceeds from borrowings.................................         100             19
 Repayment of borrowings..................................        (115)            --
                                                              --------       --------
Net cash provided by financing activities.................         (15)            19
                                                              --------       --------
Net increase in cash and cash equivalents                        2,450            414
Cash and cash equivalents at beginning of year............         432             18
                                                              --------       --------
Cash and cash equivalents at end of year..................       2,882            432
                                                              ========       ========
</TABLE>

           See accompanying Notes to Combined Financial Statements.

                                       8
<PAGE>

                          THAWTE HOLDINGS (PTY) LTD.
                         THAWTE CONSULTING (PTY) LTD.
                               THAWTE USA, INC.

                    NOTES TO COMBINED FINANCIAL STATEMENTS

                          February 28, 1999 and 1998

Note 1.  Description of Business and Summary of Significant Accounting Policies

  Business

  Thawte Consulting (Pty) Ltd. was incorporated in Cape Town, South Africa in
November 1997 when the entity changed from a close corporation with limited
creditor protection company with limited shareholder liability. Thawte USA, Inc.
was incorporated in May 1997. Thawte Holdings (Pty) Ltd. was incorporated in
Cape Town, South Africa in November 1997. Thawte Holdings (Pty) Ltd. has been
dormant for the period of November 7, 1997 to February 28, 1998. Thawte Holdings
(Pty) Ltd. is the holding company of Thawte Consulting (Pty) Ltd and does not
conduct any business of its own.

  The combined operation provides Internet-based trust services needed by
websites, enterprises and individuals to conduct trusted and secure commerce and
communications over the Internet. The combined operation provides both public
and private certificate authority services to organizations needing digital
certificates for website authentication electronic commerce and virtual private
network connections.

  Non co-terminus year-ends

  The financial year-end of Thawte USA, Inc. of December 31 is combined with the
February 28 first year statements of the South African operation. Significant
transactions within the trailing months would be reflected in the combined
financial statements.

  Foreign Currency Translation

  The functional currency for Thawte's international subsidiary is the U.S.
dollar. As a result, the subsidiaries' financial statements are translated into
South African Rand using a combination of current and historical exchange rates
and any transaction gains and losses are included in the cumulative translation
adjustment.

  Property and Equipment

  Property and equipment are stated at cost less accumulated depreciation. Other
than freehold land on which depreciation is not provided, depreciation is
calculated using the straight-line method over the estimated useful lives of the
assets, generally two to six years.

  Revenue Recognition

  Revenues from the sale or renewal of digital certificates are deferred and
recognized ratably over the life of the digital certificate, generally 12
months. Deferred revenue principally consists of payments for unexpired digital
certificates. Revenue represents net certification income, which excludes value-
added tax and represents the invoice value of services supplied, after taking
into account commission of R1,927,417.

  Advertising Expense

  Advertising expense is charged to operations as incurred. Advertising expense
was R358,000 in 1999 and R19,000 in 1998.

                                       9
<PAGE>

                          THAWTE HOLDINGS (PTY) LTD.
                         THAWTE CONSULTING (PTY) LTD.
                               THAWTE USA, INC.

             NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)

                          February 28, 1999 and 1998

  Income Taxes

  The combined operations use the asset and liability method to account for
income taxes. Deferred 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 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 tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is recorded for
deferred tax assets whose realization is not sufficiently likely.

  Concentration of Credit Risk

  Financial instruments that subject the combined operations to significant
concentrations of credit risk consist principally of cash and cash equivalents.
The combined operations maintain its cash and short-term investments with high
quality financial institutions. The combined operations require up front payment
for issuing of certificates and are therefore not subject to credit risk from
customers.

  Related Party Transactions

  Thawte Consulting (Pty) Ltd. uses an affiliated company, Thawte USA, Inc., as
a foreign representative for certificate issuing in the United States. The
effect of inter-group transactions has been adjusted for when preparing the
combined financial statements.


Note 2.  Balance Sheet Detail

                                                     February 28,
                                                ----------------------
                                                  1999          1998
                                                --------      --------
                                                   R              R
                                                (In Rand, in thousands)
  Property and equipment, net

  Land and buildings.........................      1,351            --
  Computer equipment and purchased software..        560           171
  Office equipment, furniture and fixtures...        296           287
                                                --------      --------
                                                   2,207           458
  Less accumulated depreciation..............        331           138
                                                --------      --------
                                                   1,876           320
                                                ========      ========

  Other current assets/other current liabilities

  Other current assets are comprised of a loan due from the director of Thawte
Consulting (Pty) Ltd. and other current liabilities are comprised of a loan due
to the director of Thawte Consulting (Pty) Ltd. The loans are unsecured,
interest is charged at 16% and they have no fixed date of repayment.

                                      10
<PAGE>

                          THAWTE HOLDINGS (PTY) LTD.
                         THAWTE CONSULTING (PTY) LTD.
                               THAWTE USA, INC.

             NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)

                          February 28, 1999 and 1998

Note 3.  Stockholder's Deficit

  Note payable to stockholder

  The sole stockholder of Thawte Holdings (Pty) Ltd. has loaned R100,000 to the
Company. The loan is unsecured, interest free, and has no fixed terms of
repayment.

Note 4.  Income Taxes

  Income tax expense is comprised of:

                                                     Year Ended February 28,
                                                    -------------------------
                                                       1999           1998
                                                    ----------     ----------
                                                         R              R
                                                      (In Rand, in thousands)

  South Africa income taxes:
   Current................................               1,290            194
   Deferred...............................                (944)          (279)
                                                    ----------     ----------
                                                           346            (85)
  United States income taxes:
   Current................................                  97              1
   Deferred...............................                 (16)            --
                                                    ----------     ----------
                                                            81              1
                                                    ----------     ----------
  Total income tax expense................                 427            (84)
                                                    ==========     ==========

  The income tax rate reconciliation is as follows:

                                                     Year Ended February 28,
                                                    -------------------------
                                                       1999           1998
                                                    ----------     ----------
                                                         R              R
                                                      (In Rand, in thousands)
  South Africa income taxes:
   Normal tax.............................                 346            (85)
  United States income taxes:
   Federal income taxes:
    Expected tax..........................                  58              1
    Permanent differences.................                  (2)            --
                                                    ----------     ----------
                                                            56              1
   State income taxes:
    Expected tax............................                26             --
    Permanent differences...................                (1)            --
                                                    ----------     ----------
                                                            25             --
                                                    ----------     ----------
  Total income tax expense..................               427            (84)
                                                    ==========     ==========

                                       11
<PAGE>

                          THAWTE HOLDINGS (PTY) LTD.
                         THAWTE CONSULTING (PTY) LTD.
                               THAWTE USA, INC.

             NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)

                          February 28, 1999 and 1998

Note 5.  Commitments

  Leases

  Thawte leases its facilities under operating leases that extend through 2000.
Future minimum lease payments under non-cancelable operating leases as of
February 28, 1999 are as follows:


                                                                     R
                                                         (In Rand, in thousands)

  1999.......................................................              65
  2000.......................................................              22
                                                                      -------
  Total minimum lease payments...............................              87
                                                                      =======

  In addition, Thawte Consulting (Pty) Ltd. has committed itself to capital
expenditures of approximately R10 million for an office building and it is to be
funded out of cash resources.

Note 6.  Segment Information

  Thawte operates in the United States, Europe, Asia and South Africa and
derives substantially all its revenue from sales of Internet-based trust
services. All certificates are controlled centrally in South Africa but are sold
either directly or through representatives in particular countries.

  Geographic information

                                                       Year Ended February 28,
                                                       -----------------------
                                                         1999           1998
                                                       --------       --------
                                                           R             R
                                                        (In Rand, in thousands)
  Revenues:
   United States.....................................     3,145            412
   Europe............................................     1,019            146
   All other countries...............................       483            142
                                                        -------        -------
   Total.............................................     4,647            700
                                                        =======        =======

  Long-lived assets consist primarily of property and equipment and are deployed
in South Africa.

  Major customers

  Thawte had no customers that accounted for 10% of combined revenues in 1999 or
1998.

                                       12
<PAGE>

                          THAWTE HOLDINGS (PTY) LTD.
                         THAWTE CONSULTING (PTY) LTD.
                               THAWTE USA, INC.

             NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)

                          February 28, 1999 and 1998

Note 7.  Subsequent Event

     During the course of the year the Thawte Consulting (Pty) Ltd. loaned
R100,000 to its sole director who utilized the proceeds as a loan to the
holdings company, Thawte Holdings (Pty) Ltd., subsequent to the year-end. These
funds were utilized by the holdings company to acquire the minority shares in
Thawte Consulting (Pty) Ltd. This is a contravention of Section 38 of the South
African Companies Act.

     In April 1999, the Thawte Holdings (Pty) Ltd. declared a dividend of
R250,000 to its holding company which is owned solely by Thawte Holding (Pty)
Ltd. Chairman and Chief Executive Officer.

                                      13
<PAGE>

                          THAWTE HOLDINGS (PTY) LTD.
                          THAWTE CONSULTING (PTY) LTD.
                                THAWTE USA, INC.

                       UNAUDITED COMBINED BALANCE SHEETS
                   (In Rand, in thousands, except share data)


<TABLE>
<CAPTION>
                                                                                November 30,
                                                                                ------------
                                                                               1999      1998


                                                                               ----      ----
                                                                                 R        R

                                     Assets

Current assets:
<S>                                                                             <C>      <C>
 Cash and cash equivalents...................................................   10,478   1,626
 Accounts receivable.........................................................    1,644     844
 Other current assets........................................................       96       1
                                                                                ------   -----
   Total current assets......................................................   12,218   2,471
Property and equipment, net..................................................    6,112   1,800
Deferred income taxes........................................................    3,950     896
                                                                                ------   -----
                                                                                22,280   5,167
                                                                                ======   =====

                     Liabilities and Stockholders' Deficit

Current liabilities:
 Accounts payable............................................................      560     637
 Income taxes payable........................................................    5,206      90
 Deferred revenue............................................................   13,682   3,571
                                                                                ------   -----
  Total current liabilities..................................................   19,448   4,298
Commitments
Stockholder's equity:
 Common stock - no par value
  Authorized shares:                 1,000
  Issued and outstanding shares:.....100 at November 30, 1999
                                     100 at November 30, 1998................       --      --
 Note payable to stockholder.................................................       38      49
 Retained earnings...........................................................    2,765     577
 Cumulative translation adjustment...........................................       29     243
                                                                                ------   -----
  Total stockholder's equity.................................................    2,832     869
                                                                                ------   -----
                                                                                22,280   5,167
                                                                                ======   =====
</TABLE>



       See accompanying Notes to Unaudited Combined Financial Statements.

                                       14
<PAGE>

                           THAWTE HOLDINGS (PTY) LTD.
                          THAWTE CONSULTING (PTY) LTD.
                                THAWTE USA, INC.

                  UNAUDITED COMBINED STATEMENTS OF OPERATIONS
                            (In Rand, in thousands)
<TABLE>
<CAPTION>

                                         Nine Months Ended November 30,
                                         -------------------------------
                                              1999             1998
                                         --------------   --------------
                                               R                R
<S>                                      <C>              <C>
Revenues..............................           12,713           2,721
                                                 ------           -----
Costs and expenses:
 Cost of revenues.....................            3,071             927
 Sales and marketing..................              778             252
 General and administrative...........            3,206           1,371
                                                 ------           -----
  Total costs and expenses............            7,055           2,550
                                                 ------           -----
  Operating income (loss).............            5,658             171
Interest income.......................              365             133
Other expense, net....................               13              (7)
                                                 ------           -----
  Income (loss) before income taxes...            6,036             297
Income taxes expense (benefit)........            2,469            (616)
                                                 ------           -----
Net income............................            3,567             913
                                                 ======           =====
</TABLE>



       See accompanying Notes to Unaudited Combined Financial Statements.

                                       15
<PAGE>

                           THAWTE HOLDINGS (PTY) LTD.
                          THAWTE CONSULTING (PTY) LTD.
                                THAWTE USA, INC.

                  UNAUDITED COMBINED STATEMENTS OF CASH FLOWS
                            (In Rand, in thousands)
<TABLE>
<CAPTION>

                                                               Nine Months Ended November 30,
                                                              --------------------------------
                                                                   1999              1998
                                                              ---------------   --------------
                                                                     R                R
<S>                                                           <C>               <C>
Cash flows from operating activities:
 Net income................................................            3,567              913
  Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities:
     Depreciation..........................................              159              129
     Foreign currency translation adjustments..............               (2)             243
     Deferred income taxes.................................           (2,807)            (617)
     Changes in operating assets and liabilities:
      Accounts receivable..................................           (1,054)            (779)
      Accounts payable.....................................             (166)             535
      Income taxes payable.................................            3,632             (105)
      Deferred revenue.....................................            8,921            2,500
                                                                      ------           ------
Net cash provided by operating activities..................           12,250            2,819
                                                                      ------           ------
Cash flows from investing activities:
 Purchases of property and equipment.......................           (4,395)          (1,609)
                                                                      ------           ------
Net cash used for investing activities.....................           (4,395)          (1,609)
                                                                      ------           ------
Cash flows from financing activities:
 Payment of cash dividends.................................             (250)              --
 Proceeds from borrowings..................................               53               --
 Repayment of borrowings...................................              (62)             (16)
                                                                      ------           ------
Net cash provided by financing activities..................             (259)             (16)
                                                                      ------           ------
Net increase in cash and cash equivalents..................            7,596            1,194
Cash and cash equivalents at beginning of year.............            2,882              432
                                                                      ------           ------
Cash and cash equivalents at end of year...................           10,478            1,626
                                                                      ======           ======
</TABLE>



       See accompanying Notes to Unaudited Combined Financial Statements.

                                       16
<PAGE>

                           THAWTE HOLDINGS (PTY) LTD.
                          THAWTE CONSULTING (PTY) LTD.
                                THAWTE USA, INC.

                NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS

                           November 30, 1999 and 1998

Note 1.  Description of Business and Summary of Significant Accounting Policies

  Business

  The accompanying interim unaudited combined balance sheets and statements of
operations and cash flows reflect all normal recurring adjustments that are, in
the opinion of management, necessary for a fair presentation of the financial
position of Thawte Consulting (Pty) Ltd., Thawte Holdings (Pty) Ltd and Thawte
USA, Inc., at November 30, 1999, and the results of operations and cash flows
for the interim 9 month period ended November 30, 1999.

  The accompanying unaudited financial statements have been prepared in
accordance with the instructions for Form 10-Q and, therefore, do not include
all information and footnotes necessary for a complete presentation of Thawte's
combined unaudited results of operations, financial position and cash flows.

  The results of operations for any interim period are not necessarily
indicative of our results of operations for any other future interim period or
for a full fiscal year.

  Non co-terminus year-ends

  The financial year end of Thawte Inc. is December 31 in comparison to February
28 of the South African operation. The difference in financial year-ends is
unlikely to affect the financial statement presentation.

  Foreign Currency Translation

  The functional currency for Thawte's international subsidiary is the U.S.
dollar. As a result, the subsidiaries' financial statements are translated into
South African Rand using a combination of current and historical exchange rates
and any transaction gains and losses are included in the cumulative translation
adjustment.

  Revenue Recognition

  Revenues from the sale or renewal of digital certificates are deferred and
recognized ratably over the life of the digital certificate, generally 12
months. Deferred revenue principally consists of payments for unexpired digital
certificates. Revenue represents net certification income, which excludes value-
added tax and represents the invoice value of services supplied, after taking
into account commission.

                                       17
<PAGE>

                           THAWTE HOLDINGS (PTY) LTD.
                          THAWTE CONSULTING (PTY) LTD.
                                THAWTE USA, INC.

        NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS -- (Continued)

                           November 30, 1999 and 1998

  Property and Equipment

  Property and equipment are stated at cost less accumulated depreciation. Other
than freehold land on which depreciation is not provided, depreciation is
calculated using the straight-line method over the estimated useful lives of the
assets, generally two to six years.

  Income Taxes

  The combined operations use the asset and liability method to account for
income taxes. Deferred 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 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 tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is recorded for
deferred tax assets whose realization is not sufficiently likely.

  Concentration of Credit Risk

  Financial instruments that subject the combined operations to significant
concentrations of credit risk consist principally of cash and cash equivalents.
The combined operations maintain its cash and short-term investments with high
quality financial institutions. The combined operations require up front payment
for issuing of certificates and are therefore not subject to credit risk from
customers.

Note 2.  Balance Sheet Detail

<TABLE>
<CAPTION>

                                                    November 30,
                                                --------------------
                                                 1999          1998
                                                ------        ------
                                                   R             R
                                               (In Rand, in thousands)
 Property and equipment, net

<S>                                             <C>          <C>
 Land and buildings..........................     5,477        1,574
 Computer equipment and purchased software...     1,091          442
 Office equipment, furniture and fixtures....        34           51
                                                  -----        -----
                                                  6,602        2,067
 Less accumulated depreciation...............       490          267
                                                  -----        -----
                                                  6,112        1,800
                                                  =====        =====
</TABLE>

  Other current assets/other current liabilities

  Other current assets are comprised of a loan due from the director of Thawte
Consulting (Pty) Ltd. and other current liabilities are comprised of a loan due
to the director of Thawte Consulting (Pty) Ltd. The loans are unsecured,
interest is charged at 16% and they have no fixed date of repayment.

                                       18
<PAGE>

                           THAWTE HOLDINGS (PTY) LTD.
                          THAWTE CONSULTING (PTY) LTD.
                                THAWTE USA, INC.

        NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS -- (Continued)

                           November 30, 1999 and 1998


Note 3.  Income Taxes

  Income tax expense is comprised of:

<TABLE>
<CAPTION>

                                    Year Ended November 30,
                                   -------------------------
                                       1999          1998
                                   ------------   ----------
                                        R             R
                                    (In Rand, in thousands)
<S>                                <C>            <C>
  South Africa income taxes:
   Current......................         4,877           --
   Deferred.....................        (2,714)        (616)
                                        ------    ---------
                                         2,163         (616)
  United States income taxes:
   Current......................           249           --
   Deferred.....................            57           --
                                        ------    ---------
                                           306           --
                                        ------    ---------
  Total income tax expense......         2,469         (616)
                                        ======    =========
</TABLE>

                                       19
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of Signio, Inc.:

     We have audited the accompanying balance sheets of Signio, Inc. (formerly
PaymentNet, Inc.) as of December 31, 1999 and 1998, and the related statements
of operations, shareholders' equity (deficit), and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Signio, Inc. (formerly
PaymentNet, Inc.) as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years in the two-year period ended
December 31, 1999, in conformity with generally accepted accounting principles.

     As discussed in note 1(a) to the financial statements, Signio, Inc. entered
into an agreement for the sale of its assets and liabilities to a third party on
December 17, 1999. The accompanying balance sheet as of December 31, 1999 has
been prepared as of a date prior to the consummation of this sale. The
accompanying balance sheet does not include any adjustments relating to the
realization and classification of the recorded assets and liabilities that might
be necessary to reflect the intentions of the purchasers.

                                                            /s/ KPMG LLP

San Francisco, California
February 29, 2000

                                      20
<PAGE>

                                  SIGNIO, INC.
                          (Formerly PaymentNet, Inc.)

                                 BALANCE SHEETS
                       (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                         --------------------
                                                                                          1999         1998
                                                                                         -----        -------
<S>                                                                                      <C>          <C>
                                    Assets
Current assets:
 Cash and cash equivalents................................................               $     766    $   702
 Short-term investments...................................................                   2,232         --
 Accounts receivable, net of allowance for doubtful
  accounts of $43 in 1999 and $15 in 1998.................................                     230         38
 Prepaid expenses and other current assets................................                     363         34
                                                                                         ---------    -------
   Total current assets...................................................                   3,591        774
Property and equipment, net...............................................                   1,756        516
Other assets, net.........................................................                     672         89
Goodwill and other intangible assets, net.................................                     858         --
                                                                                         ---------    -------
                                                                                         $   6,877    $ 1,379
                                                                                         =========    =======

       Liabilities and Shareholders' Equity (Deficit)

Current liabilities:
 Accounts payable.........................................................               $     864    $   288
 Accrued liabilities......................................................                   1,860        490
 Deferred revenue.........................................................                     185         34
 Current portion of long-term obligations.................................                     178         67
                                                                                         ---------    -------
  Total current liabilities...............................................                   3,087        879
Convertible notes payable.................................................                      --      1,071
Long-term obligations and deferred rent...................................                     412        184
                                                                                         ---------    -------
                                                                                             3,499      2,134
                                                                                         ---------    -------
Commitments
Shareholders' equity (deficit):
 Convertible preferred stock - par value $.0001 per share
  Series A:
   Authorized shares:              3,104,674
   Issued and outstanding shares:  3,064,674 at December 31, 1999
                                   3,064,674 at December 31, 1998.........                      --         --
   Liquidation preference:        $2,879
  Series B:
   Authorized shares:              24,000,000
   Issued and outstanding shares:  15,689,977 at December 31, 1999
                                         none at December 31, 1998........                       1         --
   Liquidation preference;         $15,690
 Common stock - par value $.001 per share
  Authorized shares:               57,500,000
  Issued and outstanding shares:   14,030,325 at December 31, 1999
                                    5,205,000 at December 31, 1998........                       14         5
 Additional paid-in capital...............................................                   27,118     2,890
 Notes receivable from shareholders.......................................                     (836)       --
 Unearned compensation....................................................                   (4,776)       --
 Accumulated deficit......................................................                  (18,143)   (3,650)
                                                                                         ----------   -------
  Total shareholders' equity (deficit)....................................                    3,378      (755)
                                                                                         ----------   -------
                                                                                         $    6,877   $ 1,379
                                                                                         ==========   =======
</TABLE>

                See accompanying Notes to Financial Statements.

                                      21
<PAGE>

                                  SIGNIO, INC.
                          (Formerly PaymentNet, Inc.)

                            STATEMENTS OF OPERATIONS
                                (In thousands)

                                Year Ended December 31,
                               -------------------------
                                   1999         1998
                               ------------  -----------
Revenues.....................   $      742    $     239
                                ----------    ---------
Costs and expenses:
 Cost of revenues............        2,562          566
 Sales and marketing.........        3,347        1,015
 Research and development....        2,798          643
 General and administrative..        6,451        1,337
                                ----------    ---------
  Total costs and expenses...       15,158        3,561
                                ----------    ---------
  Operating loss.............      (14,416)      (3,322)
Other expense, net...........          (77)         (37)
                                ----------    ---------
Net loss.....................   $  (14,493)   $  (3,359)
                                ==========    =========

                See accompanying Notes to Financial Statements.

                                      22
<PAGE>

                                  SIGNIO, INC.
                          (Formerly PaymentNet, Inc.)

                  STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                         (In thousands, except shares)

<TABLE>
<CAPTION>
                                                                                           Year Ended December 31,
                                                                                      ------------------------------------
                                                                                            1999               1998
                                                                                      ---------------      ---------------
<S>                                                                                   <C>                  <C>
Convertible preferred stock - Series A:
          Balance, beginning of year:
          3,064,674 shares at January 1, 1999
          No shares at January 1, 1998................................                $            --      $            --
 Issuance of convertible preferred stock, Series A,
  net of issuance costs of $96:
          1,588,205 shares in 1998...............................                                  --                   --
 Conversion of convertible notes payable to
  Series A convertible preferred stock:
          1,476,469 shares in 1998...............................                                  --                   --
 Interest accrued on convertible notes payable...................                                  --                   --
                                                                                      ---------------      ---------------
  Balance, end of year:
          3,064,674 shares at December 31, 1999
          3,064,674 shares at December 31, 1998..................                                 --                    --
                                                                                      ---------------      ---------------
Convertible preferred stock - Series B:
 Balance, beginning of year:
          No shares at January 1, 1999
          No shares at January 1, 1998...........................                                 --                    --
 Issuance of convertible preferred stock, Series B,
  net of issuance costs of $151:
          13,826,817 shares in 1999..............................                                  1                    --
 Conversion of convertible notes payable to
  Series B convertible preferred stock:
          1,088,160 shares in 1999...............................                                 --                    --
 Issuance of convertible preferred stock upon
  acquisition of Business Projects, Inc.:
          775,000 shares in 1999.................................                                 --                    --
                                                                                      --------------       ---------------
  Balance, end of year:
          15,689,977 shares at December 31, 1999
          No shares at December 31, 1998.........................                                  1                    --
                                                                                      --------------       ---------------
</TABLE>

                                                                     (Continued)

                See accompanying Notes to Financial Statements.

                                      23
<PAGE>

                                  SIGNIO, INC.
                          (Formerly PaymentNet, Inc.)

          STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) -- (Continued)
                         (In thousands, except shares)

<TABLE>
<CAPTION>
                                                                                               Year Ended December 31,
                                                                                          -----------------------------------
                                                                                           1999                       1998
                                                                                          ---------                 ---------
<S>                                                                                       <C>                       <C>
Common stock:
  Balance, beginning of year:
        5,205,000 shares at January 1, 1999
        5,410,000 shares at January 1, 1998....................................           $       5                 $       5
  Issuance of common stock for services:
           90,333 shares in 1999...............................................                  --                        --
  Issuance of common stock:
          150,000 shares in 1998...............................................                  --                        --
  Exercise of common stock options:
          8,772,492 shares in 1999
          20,000 shares in 1998................................................                   9                        --
  Repurchase of common stock:
          (37,500) shares in 1999
          (375,000) shares in 1998.............................................                  --                        --
                                                                                          ---------                 ---------
   Balance, end of year:
          14,030,325 shares at December 31, 1999
          5,205,000 shares at December 31, 1998................................                  14                         5
                                                                                          ---------                 ---------
Additional paid-in capital:
  Balance, beginning of year...................................................               2,890                        (2)
  Series A offering costs......................................................                  (3)                       --
  Issuance of warrants in connection with issuance
     of convertible notes payable..............................................                  --                        --
  Issuance of convertible preferred stock, Series A............................                  --                     1,517
  Conversion of convertible notes payable to
     Series A convertible preferred stock......................................                  --                     1,320
  Issuance of convertible preferred stock, Series B............................              13,675                        --
  Conversion of convertible notes payable to
     Series B convertible preferred stock......................................               1,221                        --
  Issuance of convertible preferred stock upon
     acquisition of Business Projects, Inc.....................................                 775                        --
 Issuance of stock issued for services.........................................                 162                        --
 Issuance of common stock options for services.................................                 327                         1
 Issuance of common stock......................................................                  --                        52
 Exercise of stock options.....................................................                 914                         2
 Repurchase of common stock....................................................                  (4)                       --
 Unearned compensation related to
     common stock options......................................................               7,161                        --
                                                                                          ---------                 ---------
     Balance, end of year......................................................              27,118                     2,890
                                                                                          ---------                 ---------

                                                                                                                     (Continued)
</TABLE>

                See accompanying Notes to Financial Statements.

                                      24
<PAGE>

                                 SIGNIO, INC.
                          (Formerly PaymentNet, Inc.)

          STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) -- (Continued)
                         (In thousands, except shares)

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                                    -------------------------
                                                        1999         1998
                                                    ------------  -----------
<S>                                                 <C>           <C>
Notes receivable from stockholders:
 Balance, beginning of year.......................     $     --      $    --
 Loans to stockholders to purchase stock options..         (836)          --
                                                       --------      -------
  Balance, end of year............................         (836)          --
                                                       --------      -------
Unearned compensation:
 Balance, beginning of year.......................           --           --
 Stock-based compensation expense
  related to stock options........................       (4,776)          --
                                                       --------      -------
  Balance, end of year............................       (4,776)          --
                                                       --------      -------
Accumulated deficit:
 Balance, beginning of year.......................       (3,650)        (291)
 Net loss.........................................      (14,493)      (3,359)
                                                       --------      -------
  Balance, end of year............................      (18,143)      (3,650)
                                                       --------      -------
Total stockholders' equity (deficit)..............     $  3,378      $  (755)
                                                       ========      =======
</TABLE>

                See accompanying Notes to Financial Statements.

                                       25
<PAGE>

                                 SIGNIO, INC.
                          (Formerly PaymentNet, Inc.)

                           STATEMENTS OF CASH FLOWS
                                (In thousands)

<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                         -------------------------
                                                             1999         1998
                                                         ------------  -----------
<S>                                                      <C>           <C>
Cash flows from operating activities:
 Net loss..............................................     $(14,493)     $(3,359)
  Adjustments to reconcile net loss to net cash
   used in operating activities:
     Depreciation and amortization.....................          694          140
     Loss on disposal of property and equipment........           --            9
     Stock issued for services.........................          162           --
     Stock options issued for services.................          327            1
     Non-cash interest expense.........................          149           30
     Stock-based compensation..........................        2,385           --
     Changes in operating assets and liabilities:
      Purchases of trading securities..................      (17,955)          --
      Proceeds from sales or maturities
       of trading securities...........................       15,723           --
      Accounts receivable..............................         (192)         (16)
      Prepaid expenses and other current assets........         (251)         (34)
      Other assets.....................................         (292)         (11)
      Accounts payable.................................          576          215
      Accrued liabilities..............................        1,035          404
      Deferred revenue.................................          151           28
                                                            --------      -------
Net cash used in operating activities..................      (11,981)      (2,593)
                                                            --------      -------
Cash flows from investing activities:
 Purchases of property and equipment...................       (1,005)        (595)
 Proceeds from disposals of property and equipment.....           --           10
 Acquisition of Structured Arts Computing Corporation..          (27)          --
 Note receivable from related party....................         (292)          (7)
                                                            --------      -------
Net cash used for investing activities.................       (1,324)        (592)
                                                            --------      -------
Cash flows from financing activities:
 Proceeds from sale of convertible preferred
  stock and warrants, net..............................       13,673        1,517
 Proceeds from issuance of common stock................           --           53
 Proceeds from exercise of common stock options........           88            2
 Repurchase of common stock............................           (4)          --
 Proceeds from issuance of convertible notes payable...           --        2,112
 Proceeds from issuance of secured promissory note.....           --          238
 Repayment of secured promissory note..................         (214)         (24)
 Repayment of convertible note payable.................           --          (95)
 Repayment of capital lease obligation.................         (174)          (9)
                                                            --------      -------
Net cash provided by financing activities..............       13,369        3,794
                                                            --------      -------
Net increase in cash and cash equivalent...............           64          609
Cash and cash equivalents at beginning of year.........          702           93
                                                            --------      -------
Cash and cash equivalents at end of year...............     $    766      $   702
                                                            ========      =======
</TABLE>

                                                                     (Continued)

                See accompanying Notes to Financial Statements.

                                       26
<PAGE>

                                 SIGNIO, INC.
                          (Formerly PaymentNet, Inc.)

                    STATEMENTS OF CASH FLOWS -- (Continued)
                                (In thousands)

<TABLE>
<CAPTION>

                                                           Year Ended December 31,
                                                           ------------------------
                                                               1999         1998
                                                           ------------  ----------
<S>                                                        <C>           <C>
Supplemental cash flow disclosures:
 Summary of the acquisitions described in Note 2:
  Fair value of assets acquired..........................      $1,137       $   --
  Net cash paid..........................................         (27)          --
  Fair value of preferred stock and warrants issued......        (775)          --
                                                               ------       ------
   Liabilities assumed...................................      $  335       $   --
                                                               ======       ======
 Noncash investing and financing activities:
  Conversion of convertible notes payable
   to preferred stock....................................      $1,088       $1,291
                                                               ======       ======
  Equipment acquired through capital lease transactions..      $  642       $   33
                                                               ======       ======
  Issuance of warrants...................................      $  325       $   28
                                                               ======       ======
  Notes issued to shareholders for stock
   option exercises......................................      $  836       $   --
                                                               ======       ======
 Cash paid during the year for:
  Income taxes...........................................      $    1       $    1
                                                               ======       ======
  Interest...............................................      $  119       $   56
                                                               ======       ======
</TABLE>

                See accompanying Notes to Financial Statements.

                                       27
<PAGE>

                                 SIGNIO, INC.
                          (Formerly PaymentNet, Inc.)

                        NOTES TO FINANCIAL STATEMENTS

                          December 31, 1999 and 1998


(1)  Description of Business and Summary of Significant Accounting Policies

(a)  The Company

Signio, Inc., formerly PaymentNet, Inc. (the Company) was incorporated in July
1995 in California. The Company delivers secure, reliable and fast e-commence
transaction processing services on an outsourced basis to organizations of
various sizes. The acquisition in May 1999 of Business Projects, Inc. (Business
Projects), brought a new chairman and CEO to the Company, as well as other
experienced engineering, marketing, and sales resources from Business Projects.
The acquisition in August 1999 of Structured Arts Computing Corporation
(Structured Arts) brought to the Company two individuals with engineering
experience related to internet security and digital certificates. In addition,
the Company also received intellectual property, which was subsequently licensed
to a third party.

On December 17, 1999, the Company entered into an agreement to sell its assets
and liabilities to a third party.

(b)  Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

(c)  Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist primarily of cash equivalents, short-term investments
and accounts receivable. The Company invests in low-risk commercial paper with
short-term maturities. The Company provides services to companies in North
America. The Company does not require collateral or other security to support
accounts receivable. To reduce credit risk, management performs ongoing credit
evaluations of its customers' financial condition. The Company maintains
allowances for doubtful accounts to cover potential credit losses.

(d)  Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.

(e)  Short-Term Investments

Short-term investments as of December 31, 1999 consist of commercial paper and
bankers acceptances. The Company classifies its investment securities as trading
securities. Trading securities are bought and held principally for the purpose
of selling them in the near term. Trading securities are recorded at fair value
and unrealized holding gains and losses are included in earnings. Unrealized
holding gains included in December 31, 1999 operating results totaled
approximately $38,000.

                                       28
<PAGE>

                                 SIGNIO, INC.
                          (Formerly PaymentNet, Inc.)

                  NOTES TO FINANCIAL STATEMENTS - (Continued)

                          December 31, 1999 and 1998

(f)  Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from three to seven years. Leasehold
improvements are amortized using the straight-line method over the shorter of
the lease term or the useful life of the related asset.

(g)  Revenue Recognition

Revenue consists primarily of service revenue which is recognized ratably over
the periods in which the services are provided. Advance customer deposits
received are deferred and allocated ratably to revenue over the periods the
services are provided.

During 1999, the Company adopted Statement of Position (SOP) No. 97-2, Software
Revenue Recognition, as amended by SOP No. 98-4 Deferral of the Effective Date
of a Provision of SOP 97-2, Software Revenue Recognition. SOP 97-2 provides
guidance for software revenue recognition. The adoption of SOP 97-2 did not have
a significant impact on the Company's financial position or results of
operations.

In December 1998, the AICPA issued Statement of Position No. 98-9, Modifications
of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions.
SOP 98-9 requires recognition of revenue using the "residual method" in a
multiple-element software arrangement when fair value does not exist for one or
more of the delivered elements in the arrangement. Under the "residual method,"
the total fair value of the undelivered elements is deferred and recognized in
accordance with SOP 97-2. SOP 98-9 also extends the deferral of the application
to SOP 97-2 to certain other multiple-element software arrangements to the
Company's fiscal year ending December 31, 2000. SOP 98-9 will not have
significant impact on the Company's financial position or results of operations.

(h)  Software Development Costs

The Company's transaction processing services are comprised of various software
features which contribute to the overall functionality of the service. Costs for
the development of new software products and substantial enhancements to
existing software products are expensed as incurred until technological
feasibility has been established, at which time any additional costs would be
capitalized in accordance with Statement of Financial Accounting Standards
(SFAS) No. 86, Computer Software to be Sold, Leased, or Otherwise Marketed. The
Company considers technological feasibility to be established upon completion of
a working model of the software and related hardware. Because the Company
believes its current process for developing software is essentially completed
concurrently with the establishment of technological feasibility, no costs have
been capitalized to date.

The Company accounts for the costs of computer software developed or obtained
for internal use in accordance with SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use, which was effective
for fiscal years beginning after December 15, 1998. This statement requires that
certain costs incurred during a software development project be capitalized.
These costs generally include external direct costs of materials and services
consumed in the project, and internal costs such as payroll and benefits of
those employees directly associated with the development of software. During
1999, the Company did not capitalize any internal costs as there were no such
costs that met the definition for capitalization under SOP 98-1. External direct
costs of purchased internal use software have been capitalized and included in
fixed assets.

                                       29
<PAGE>

                                 SIGNIO, INC.
                          (Formerly PaymentNet, Inc.)

                  NOTES TO FINANCIAL STATEMENTS - (Continued)

                          December 31, 1999 and 1998

(i)  Research and Development

Research and development costs are expensed as incurred.

(j)  Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred
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 and operating
loss and tax credit carryforwards. Deferred 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. A valuation allowance is recorded to reduce deferred tax assets to an
amount whose realization is more likely than not. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

(k)  Intangibles

The intangible assets, consisting of goodwill and non-compete agreements, arose
principally from business acquisitions and are amortized on a straight-line
basis over the period of expected benefit, which is three years. The Company
assesses the recoverability of goodwill by evaluating the undiscounted projected
results of operations over the remaining amortization period.

(l)  Stock Option Plan

The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations, in accounting for its fixed plan stock
options. As such, compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise
price. SFAS No. 123, Accounting for Stock-Based Compensation, established
accounting and disclosure requirements using a fair value-based method of
accounting for stock-based employee compensation plans. As allowed by SFAS No.
123, the Company has elected to continue to apply the intrinsic value-based
method of accounting described above, and has adopted the disclosure
requirements of SFAS No. 123.

Stock-based awards to nonemployees are accounted for pursuant to the fair value
method in accordance with SFAS No. 123 and EITF No. 96-18. The associated
expense is recognized by the Company over the period the services are performed
by the nonemployees.

The Company has recorded deferred compensation for the difference between the
exercise price and the deemed fair market value of the common stock for
financial reporting purposes of stock options granted to employees. The
compensation expense related to such grants is amortized over the vesting period
of the related stock options using the straight-line method.

                                       30
<PAGE>

                                 SIGNIO, INC.
                          (Formerly PaymentNet, Inc.)

                  NOTES TO FINANCIAL STATEMENTS - (Continued)

                          December 31, 1999 and 1998

(m)  Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

The Company accounts for long-lived assets in accordance with the provisions of
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.

(n)  Comprehensive (Loss) Income

In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, Reporting Comprehensive Income, which requires that an enterprise report,
by major components and as a single total, the change in its net assets from
nonowner sources. The Company adopted SFAS No. 130 in 1998, and for all periods
presented, comprehensive loss was equal to the Company's net loss.

(o)  Advertising Costs

All costs associated with advertising and promoting products are expensed in the
period incurred. Costs totaled $297,000 and $189,000 for the years ended
December 31, 1999 and 1998, respectively.

                                       31
<PAGE>

                                 SIGNIO, INC.
                          (Formerly PaymentNet, Inc.)

                  NOTES TO FINANCIAL STATEMENTS - (Continued)

                          December 31, 1999 and 1998

(2)  Business Combinations

(a)  Structured Arts Computing Corporation

On August 18, 1999, Signio completed the acquisition of certain engineering
equipment, intellectual property and noncompete agreements from Structured Arts
Computing Corporation (Structured Arts) for $400,000 in cash in a transaction
accounted for as a purchase business combination. Of the $400,000 purchase
price, $240,000 was allocated to goodwill with an estimated life of three years.
The intellectual property and noncompete agreements were assigned an estimated
life of three years. As of December 31, 1999, the balances of the intellectual
property and noncompete agreements were $66,667 and $71,111, respectively, net
of accumulated amortization of $8,333 and $8,889, respectively. As of December
31, 1999, the balance of the goodwill was $213,333, net of accumulated
amortization of $26,667.

(b)  Business Projects, Inc.

On May 18, 1999, Signio issued 775,000 shares of its Series B preferred stock
and warrants to purchase 310,000 shares of Series B Preferred Stock for all of
the outstanding shares of Series A Preferred Stock of Business Projects, Inc.
(Business Projects), a communications software company. The merger was accounted
for as a purchase, and accordingly, Signio's December 31, 1999 financial
statements include the results of Business Projects' operations since the date
of acquisition.

The fair value of the shares of Series B Preferred Stock and warrants was
determined to be $775,000.

Of the $775,000 purchase price, $628,821 was assigned to goodwill with an
estimated life of three years. As of December 31, 1999, the balance of the
goodwill was $506,551, net of accumulated amortization of $122,270.

The purchase price was allocated to the assets and liabilities assumed as
follows:

<TABLE>
<CAPTION>
                                                                 (In thousands)
                                                                 --------------
            <S>                                                     <C>
            Cash                                                      $   373
            Shareholder note receivable                                    25
            Other current assets                                           53
            Equipment and leasehold improvements                           30
            Goodwill                                                      629
            Liabilities assumed and acquisition costs incurred           (335)
                                                                    ---------
                                                                      $   775
                                                                    =========
</TABLE>

If the acquisitions of Structured Arts and Business Projects had occurred at the
beginning of 1998, the Company's revenues and results of operations would not
have been materially impacted.

                                       32
<PAGE>

                                 SIGNIO, INC.
                          (Formerly PaymentNet, Inc.)

                  NOTES TO FINANCIAL STATEMENTS - (Continued)

                          December 31, 1999 and 1998

(3)  Prepaid Compensation

In 1999, the Company issued two-year forgivable notes totaling $367,078 to
several employees for relocation expenses incurred upon being hired by the
Company. These notes earn interest at 4.98% and 5.43% and will be forgiven upon
the completion of two years of employment with the Company. In the event that an
employee leaves before the two years, the entire amount of the note will be owed
to the Company. The Company is amortizing the notes to compensation expense over
two years. As of December 31, 1999, $151,089 had been recorded as compensation
expense. The unamortized amount is presented as prepaid compensation in the
accompanying financial statements.

(4)  Property and Equipment

A summary of property and equipment as of December 31, 1999 and 1998, consisted
of:

                                                         (In thousands)
                                                    ------------------------
                                                       1999           1998
                                                    -----------     --------

Computers and software                                  $ 1,385          565
Office furniture and equipment                              517          113
Leasehold improvements                                      427           11
Construction in progress                                      4           --
                                                    -----------     --------

                                                          2,333          689
Less accumulated depreciation and amortization             (577)        (173)
                                                    -----------     --------

                                                        $ 1,756          516
                                                    ===========     ========

(5)  Long-Term Obligations

Long-term obligations as of December 31, 1999 and 1998, consisted of:

                                                         (In thousands)
                                                    ------------------------
                                                       1999           1998
                                                    -----------     --------

Accrued rent                                            $   130           --
Secured promissory note                                      --          214
Capital lease obligations (note 9)                          460           37
                                                    -----------     --------

                                                            590          251
Less current portion                                       (178)         (67)
                                                    -----------     --------

                                                        $   412          184
                                                    ===========     ========

The Company no longer occupies a facility for which it has a remaining lease
obligation. The $130,023 of accrued rent primarily relates to the Company's
remaining obligation on a facility it is no longer using, net of the anticipated
sublease income.

The secured promissory note was due in 36 monthly installments of $7,892 and was
fully repaid in 1999.

                                       33
<PAGE>

                                 SIGNIO, INC.
                          (Formerly PaymentNet, Inc.)

                  NOTES TO FINANCIAL STATEMENTS - (Continued)

                          December 31, 1999 and 1998

(6)  Convertible Notes Payable

The Company has issued two separate traunches of convertible notes payable. The
first issuance was convertible at the option of the note holder into Series A
preferred stock and detachable warrants at a conversion rate of either $0.63 or
$1.00 per share. These notes accrued interest at 10% per annum and were due and
payable six months after issuance. The detachable warrants gave the holder the
right to purchase a variable number of shares of the Company's common stock at
35 cents per share. In 1998, $1,290,500 of notes payable were converted into
1,476,469 shares of Series A Preferred Stock and 478,700 warrants to purchase
common stock. These warrants expire at various dates in 2000 and 2001. At the
conversion date, the Company recorded a charge of $2,911, which represents the
estimated value of the beneficial conversion feature measured at the date the
notes were issued.

The second issuance, which was sold in 1998, was convertible into Series B
preferred stock and detachable warrants at a conversion rate of $1.00 per share
upon the occurrence of a subsequent round of financing in excess of $4,000,000.
These notes accrued interest at 8% per annum and were due and payable six months
after issuance. The detachable warrants gave the holder the right to purchase a
variable number of Series B preferred shares at the value as determined by a
subsequent round of financing. In 1999, $1,088,160 of notes payable were
converted into 1,088,160 shares of Series B preferred stock and 214,299 warrants
to purchase Series B preferred stock at $1.00 per share. The warrants are
exercisable through 2003. At the conversion date, the Company recorded a charge
of $132,652, which represents the estimated value of the beneficial conversion
feature measured at the date the notes were issued.

(7)  Capital Stock and Stock Option Plan

(a)  Convertible Preferred Stock

Significant terms of the Series A and B preferred stock are as follows:

Each share is convertible into one share of common stock (subject to adjustments
for events of dilution) at the option of the holder. Each share will
automatically convert into common stock upon the completion of a public offering
with aggregate proceeds greater than $15,000,000 and at a price per share not
less than $5.00.

 . Each share has voting rights equal to the number of shares of common stock
  into which it may convert.

 . In the event of liquidation, dilution or winding up of the Company, the
  holders of Series A and B preferred stock shall receive first, and in
  preference, if any distribution to the common stock, an amount equal to the
  original issue price. Upon satisfaction of Series A and B liquidation
  preferences, the holders of Series A and B preferred stock and common stock
  shall receive on a pro rata basis the remaining assets of the Company until
  the holders of Series A and B preferred stock receive an aggregate of $3.50
  per share.

 . Series A and B preferred shareholders are entitled to noncumulative dividends
  of 8% of the original issuance price, when and if declared by the Board of
  Directors, prior to any dividends declared on common stock.

 . Preferred shareholders have certain registration rights.

                                       34
<PAGE>

                                 SIGNIO, INC.
                          (Formerly PaymentNet, Inc.)

                  NOTES TO FINANCIAL STATEMENTS - (Continued)

                          December 31, 1999 and 1998

(b)  Stock Option Plan

Under the 1998 Stock Option Plan, 3,100,000 shares of common stock are
authorized for issuance. During 1999, an additional 10,780,621 shares of common
stock were authorized for issuance. Under the Plan, incentive and nonstatutory
options may be granted to employees and nonemployees. Such options generally
vest over four years and expire in 10 years.

The Company allows its employees to exercise their options early. The common
stock received upon such exercise is subject to repurchase by the Company upon
the employees' termination at the exercise price. The Company's repurchase
rights lapse over the vesting period of the options.

In 1999, the Company issued nonrecourse and nonrefundable notes to certain
employees totaling $819,675 for the exercise of stock options. The notes bear
interest at approximately 5.5% and are secured by the underlying common stock.
Interest rates are fixed and accrued interest is nonrefundable. As of December
31, 1999, $16,021 of interest was accrued on notes receivable from shareholders.

Stock option activity is as follows:

<TABLE>
<CAPTION>
                                           1999                             1998
                                ----------------------------      ---------------------------
                                                   Weighted-                        Weighted-
                                                    average                          average
                                                   exercise                          exercise
                                  Shares             price          Shares            price
                                ----------         ---------      ----------        ---------
<S>                             <C>                <C>            <C>               <C>
Outstanding at
  beginning of year              1,536,500           $  0.16              --           $   --
Granted                         11,075,020              0.75       1,666,500             0.15
Exercised                       (8,772,492)             0.10         (20,000)            0.10
Canceled                        (1,935,053)             0.15        (110,000)            0.10
                                ----------                        ----------

Outstanding at
  end of year                    1,903,975           $  3.93       1,536,500           $ 0.16
                                ==========                        ==========

Options exercisable
  at end of year                    60,597           $ 0.323          13,334           $ 0.10
                                ==========                        ==========

Weighted-average fair
  value of options
  granted during the
  year at market                $    4.613                        $     0.06

Weighted-average fair
  value of options
  granted during the
  year below market             $    0.857                        $       --
</TABLE>

                                       35
<PAGE>

                                 SIGNIO, INC.
                          (Formerly PaymentNet, Inc.)

                  NOTES TO FINANCIAL STATEMENTS - (Continued)

                          December 31, 1999 and 1998

Additional information regarding options outstanding as of December 31, 1999, is
as follows:

<TABLE>
<CAPTION>
                       Options Outstanding                               Options Exercisable
- -----------------------------------------------------------------     -------------------------
                                                       Weighted-
                                      Weighted-        average                        Weighted-
     Range                             average        remaining                        average
  of exercise         Number           exercise      contractual                      exercise
     prices         outstanding         price        life (years)     Shares            Price
- --------------     -------------      ---------      ------------    --------         ---------
<S>                 <C>               <C>            <C>              <C>             <C>
$         0.10         1,190,275      $    0.10              9.50      59,597         $    0.10
          0.50           222,500           0.50              9.75          --                --
         13.60           401,000          13.60              9.90       1,000             13.60
         18.78            90,200          18.78              9.98          --                --
- --------------     -------------      ---------      ------------    --------         ---------

$ 0.10 - 18.78         1,903,975      $    3.93              9.62      60,597         $    0.32
==============     =============      =========      ============    ========         =========
</TABLE>

As of December 31, 1999, 3,184,154 shares were available for future grant under
the stock option plan.

(c)  Additional Stock Option Information

As discussed in note 1, the Company accounts for its stock-based awards using
the intrinsic value method in accordance with APB No. 25, Accounting for Stock
Issued to Employees and its related interpretations.

SFAS No. 123, Accounting for Stock-Based Compensation, requires the disclosure
of pro forma net loss had the Company adopted the fair value method. Under SFAS
No. 123, the fair value of stock-based awards to employees is calculated through
the use of option pricing models. These models require subjective assumptions,
including expected time to exercise, which greatly affect the calculated values.
The Company's calculations were made using the minimum value option pricing
model with the following weighted-average assumptions: expected life, four
years; risk-free interest rate of approximately 5%; and no dividend payments
during the expected term. Forfeitures are recognized as they occur. If the
computed fair values of the Company's stock-based awards to employees had been
amortized to expense over the vesting period of the awards, the pro forma effect
on net loss would have been an increase of $103,000 and $1,300 for the years
ended December 31, 1999 and 1998, respectively.

The Company granted 158,800 and 35,000 nonstatutory stock options to consultants
during the years ended December 31, 1999 and 1998, respectively. Compensation
expense of $327,000 and $693 was recognized as a result of such grants in 1999
and 1998, respectively. The fair value of the unvested portion of such grants is
expensed over the vesting period of four years. The fair value attributable to
the unvested portion of such options is subject to adjustment based upon the
future value of the Company's common stock. The value of each option granted to
nonemployees was estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions for the years
ended December 31, 1999 and 1998: contractual life, 10 years; risk-free interest
rate of approximately 5.7%; expected volatility of 90%; and no dividend payments
during the contractual term.

The weighted-average fair value of options granted to nonemployees was $9.16 and
$2.57 for the years ended December 31, 1999 and 1998, respectively.

                                       36
<PAGE>

                                 SIGNIO, INC.
                          (Formerly PaymentNet, Inc.)

                  NOTES TO FINANCIAL STATEMENTS - (Continued)

                          December 31, 1999 and 1998

(d)  Preferred Stock Warrants

In 1998, in connection with the sale of Series A preferred stock, the Company
issued a warrant to purchase up to 40,000 shares of Series A preferred stock at
$1.00 per share. The warrant is exercisable through 2001. The estimated fair
value of this warrant of $15,525 has been accounted for as a reduction in the
proceeds of the Series A preferred financing and as a component of additional
paid-in capital.

In 1999, in connection with the sale of Series B preferred stock, the Company
issued warrants to purchase up to 5,965,991 shares of Series B preferred stock
at $1.00 per share. The warrants are exercisable through 2004. The estimated
fair value of these warrants of $3,423,520 has been accounted for as a reduction
in the proceeds of the Series B preferred financing and as a component of
additional paid-in capital.

(e)  Common Stock Warrants

During 1998, the Company issued to Series A investors, warrants to purchase
239,100 shares of the Company's common stock at an exercise price of $0.10 per
share. The warrants are exercisable through 2001. The estimated fair value of
these warrants of $9,278 has been accounted for as a reduction of the proceeds
of the Series A preferred financing and as a component of additional paid-in
capital.

(f)  Common Shares Reserved for Issuance

As of December 31, 1999, the Company has reserved shares of common stock for
issuance as follows:

Exercise of options                                              5,063,129
Conversion of Series A preferred stock                           3,064,674
Conversion of Series B preferred stock                          15,689,977
Exercise of common stock warrants                                  717,800
Exercise and conversion of Series A warrants                        40,000
Exercise and conversion of Series B warrants                     6,490,290
                                                                ----------

                                                                31,065,870
                                                                ==========

(8)  Income Taxes

Income tax expense for the years ended December 31, 1999 and 1998 differed from
the amounts computed by applying the U.S. federal income tax rate of 34% to
pretax losses as a result of the following:

<TABLE>
<CAPTION>
                                                                   (In thousands)
                                                              -------------------------
                                                                  1999          1998
                                                              ------------   ----------
     <S>                                                      <C>            <C>
     Federal tax (benefit) at statutory rate                        (5,956)      (1,130)
     State taxes, net of federal income tax benefit                      1            1
     Unutilized net operating losses and deferred assets             4,063        1,106
     Nondeductible expenses                                          1,893           24
                                                              ------------   ----------
                                                                  $      1            1
                                                              ============   ==========
</TABLE>

                                       37
<PAGE>

                                 SIGNIO, INC.
                          (Formerly PaymentNet, Inc.)

                  NOTES TO FINANCIAL STATEMENTS - (Continued)

                           December 31, 1999 and 1998

The tax effects of temporary differences that gave rise to significant portions
of deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                              (In thousands)
                                                         -------------------------
                                                            1999           1998
                                                         -----------    ----------
<S>                                                      <C>            <C>
Deferred tax assets:
  Net operating loss carryforwards                             5,768         1,272
  Accruals not currently deductible for tax purposes             870            99

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

                                                               6,638         1,371
Valuation allowance                                           (6,638)       (1,371)
                                                         -----------    ----------

     Net deferred tax assets                                $     --            --
                                                         ===========    ==========
</TABLE>

The increase in the valuation allowance of $5,266,715 and $1,258,969 for the
years ended December 31, 1999 and 1998, respectively, was primarily due to net
operating loss carryforwards.

As of December 31, 1999, the Company has federal and state net operating loss
carryfowards of approximately $13,642,000 and $13,473,000, respectively,
expiring through 2018 and 2003, respectively. The extent to which the loss
carryfowards can be used to offset future taxable income and tax liabilities may
be limited depending on the extent of ownership changes within any three-year
period.

                                       38
<PAGE>

                                 SIGNIO, INC.
                         (Formerly PaymentNet, Inc.)

                  NOTES TO FINANCIAL STATEMENTS - (Continued)

                          December 31, 1999 and 1998

(9)    Lease Commitments

The Company leases facilities and equipment under noncancelable operating leases
expiring from 2000 through 2006, and equipment under capital leases expiring in
2002. Rental expense under operating lease agreements for the years ended
December 31, 1999, 1998 and 1997 was $549,585, $112,137 and $23,585,
respectively.

Future minimum lease commitments under noncancelable capital and operating
leases as of December 31, 1999, are as follows:

                                                   (In thousands)
                                             -------------------------
  Years ending                             Capital             Operating
  December 31,                             leases               leases
- ----------------                        ------------          ------------

     2000                                     $  256                 1,426
     2001                                        285                 1,451
     2002                                         56                 1,181
     2003                                         --                 1,110
     2004 and thereafter                          --                 2,800
                                        ------------          ------------

     Total                                       597               $ 7,968
                                                              ============

     Less amount representing interest          (137)
                                        ------------


     Present value of future minimum
       lease payments                            460

     Current portion                            (178)
                                        ------------

     Long-term portion                        $  282
                                        ============


(10)   Related Party Transaction

In December 1998, the Company purchased intellectual property for a note payable
in the amount of $135,000 from a company in which a member of the Board of
Directors has a financial interest. The asset was written off in fiscal 1998,
with a charge to expense, as it was subsequently deemed to be of no real value
to the Company. The note was repaid in fiscal 1999. As of December 31, 1998, the
above-mentioned member of the Board of Directors received advances from the
Company totaling $74,958. These advances were repaid to the Company in 1999.

(11)   401(k) Plan

In August 1998, the Company established a deferred profit sharing 401(k) plan
and trust (the Plan) for all employees who meet certain eligibility
requirements. The Company's contributions to the Plan are discretionary, and
there were no contributions made for the years ended December 31, 1999 and 1998.

                                       39
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

          UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS

     The following unaudited pro forma combined condensed financial statements
are presented for illustrative purposes only and are not necessarily indicative
of the combined financial position or results of operations for future periods
or the financial position that actually would have been realized had VeriSign,
Thawte and Signio been a combined company during the specified periods. The
unaudited pro forma combined condensed financial statements, including the
related notes, are qualified in their entirety by reference to, and should be
read in conjunction with, historical consolidated financial statements and
related notes thereto of VeriSign, Thawte and Signio, included elsewhere in this
filing.

     The following unaudited pro forma combined condensed financial statements
give effect to the merger between VeriSign and Thawte, and VeriSign and Signio
using the purchase method of accounting. The pro forma combined condensed
financial statements are based on the respective historical audited and
unaudited consolidated financial statements and related notes of VeriSign,
Thawte and Signio. The pro forma adjustments are preliminary and based on
management's estimates of the value of the tangible and intangible assets
acquired. In addition, management is in the process of assessing and formulating
its integration plans, which may include employee separations, employee
relocations, and other restructuring actions and has not yet determined the
costs, if any, of these plans.

     The actual adjustments may differ materially from those presented in these
pro forma financial statements. A change in the pro forma adjustments would
result in reallocation of the purchase price affecting the value assigned to the
long-term tangible and intangible assets or, in some circumstances, in a charge
to the statement of operations. The effect of these changes on the statement of
operations will depend on the nature and amounts of the assets and liabilities
adjusted. See Note 1 (a) to the pro forma combined condensed financial
statements.

     The unaudited pro forma combined condensed balance sheet assumes that the
merger took place on December 31, 1999, and combines VeriSign's and Signio's
audited December 31, 1999 balance sheet with Thawte's unaudited November 30,
1999 combined balance sheet. The pro forma combined statements of operations
assume the merger took place as of January 1, 1999 and combines VeriSign's and
Signio's audited statements of operations for the year ended December 31, 1999,
with Thawte's unaudited statement of operations for the twelve months ended
November 30, 1999.

                                       40
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

             UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
                                (In thousands)

<TABLE>
<CAPTION>
                                                                Historical
                                               --------------------------------------------
                                                  VeriSign        Thawte          Signio
                                                   As Of           As Of          As Of             Adjustments
                                                                                              -------------------------
                                               Dec. 31, 1999   Nov. 30, 1999  Dec. 31, 1999     Amount      Reference     Combined
                                               -------------   -------------  -------------   ----------   ------------  ----------
<S>                                            <C>             <C>            <C>             <C>          <C>           <C>
              Assets
Current assets:
 Cash and cash equivalents....................      $ 70,382          $1,694       $    766   $      (60)  (a)           $   72,782
 Short-term investments.......................        86,098              --          2,232           --                     88,330
 Accounts receivable, net.....................        22,727             266            230           --                     23,223
 Prepaid expenses and
  other current assets........................         3,635              16            363           --                      4,014
                                                    --------          ------       --------   ----------                 ----------
   Total current assets.......................       182,842           1,976          3,591          (60)                   188,349

Property and equipment, net...................        10,194             988          1,756           --                     12,938
Long-term investments.........................       144,751              --             --           --                    144,751
Other assets, net.............................         3,379              --            672           --                      4,051
Goodwill and other intangible
   assets, net................................            --              --            858    1,480,289   (a)(b)(c)(d)   1,481,147
Deferred income taxes.........................            --             639             --           --                        639
                                                    --------          ------       --------   ----------                 ----------
                                                    $341,166          $3,603       $  6,877   $1,480,229                 $1,831,875
                                                    ========          ======       ========   ==========                 ==========
         Liabilities and
       Stockholders' Equity
Current liabilities:
 Accounts payable.............................      $  4,665          $   91       $    864   $     (955)  (a)(c)             4,665
 Accrued liabilities..........................         6,237              --          1,860       (1,860)  (c)                6,237
 Income taxes payable.........................            --             842             --         (842)  (a)                   --
 Deferred revenue.............................        31,777           2,212            185         (647)  (a)(b)(c)(d)      33,527
 Current portion of
  long-term obligations.......................            --              --            178         (178)  (c)                   --
                                                    --------          ------       --------   ----------                 ----------
  Total current liabilities...................        42,679           3,145          3,087       (4,482)                    44,429
Convertible notes payable.....................            --              --            412         (412)  (c)                   --
Minority interest in subsidiary...............           128              --             --           --                        128
                                                    --------          ------       --------   ----------                 ----------
                                                      42,807           3,145          3,499       (4,894)                    44,557
                                                    --------          ------       --------   ----------                 ----------
Stockholders' equity:
 Preferred stock..............................            --              --              1           (1)  (c)                   --
 Common stock.................................           103              --             14           (4)  (a)(c)               113
 Additional paid-in capital...................       258,239              --         27,118    1,461,831   (a)(c)         1,747,188
 Note payable to (receivable
  from) stockholders..........................            --               6           (836)         830   (a)(c)                --
 Unearned compensation........................          (172)             --         (4,776)       4,776   (c)                 (172)
 Retained earnings/
  (accumulated deficit).......................       (47,452)            447        (18,143)      17,696   (a)(c)           (47,452)
 Accumulated other
  comprehensive income........................        87,641               5             --           (5)  (a)               87,641
                                                    --------          ------       --------   ----------                 ----------
  Total stockholders' equity..................       298,359             458          3,378    1,485,123                  1,787,318
                                                    --------          ------       --------   ----------                 ----------
                                                    $341,166          $3,603       $  6,877   $1,480,229                 $1,831,875
                                                    ========          ======       ========   ==========                 ==========
</TABLE>

  See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
                                  Statements.

                                       41
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

        UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                              Historical
                                             --------------------------------------------
                                                VeriSign        Thawte          Signio
                                               Year ended      Year ended     Year ended        Adjustments
                                                                                            --------------------
                                             Dec. 31, 1999   Nov. 30, 1999  Dec. 31, 1999     Amount    Reference   Combined
                                             -------------   -------------  -------------   ---------   ---------   ---------
<S>                                          <C>             <C>            <C>             <C>         <C>       <C>
Revenues......................................    $ 84,776          $2,461       $    742   $      --             $  87,979
                                                  --------          ------       --------   ---------             ---------
Costs and expenses:
 Cost of revenues.............................      31,898             638          2,562          --                35,098
 Sales and marketing..........................      34,145             209          3,347          --                37,701
 Research and development.....................      13,303              --          2,798          --                16,101
 General and administrative...................       8,740             687          6,451      (2,385)  (i)          13,493
 Amortization of goodwill and
  other intangible assets.....................          --              --             --     495,604   (e)(g)      495,604
                                                  --------          ------       --------   ---------             ---------
  Total costs and expenses....................      88,086           1,534         15,158     493,219               597,997
                                                  --------          ------       --------   ---------             ---------
  Operating loss..............................      (3,310)            927        (14,416)   (493,219)             (510,018)
Interest income...............................       7,365              70             --          --                 7,435
Other expense, net............................        (936)              3            (77)         --                (1,010)
                                                  --------          ------       --------   ---------             ---------
Income (loss) before
 income taxes.................................       3,119           1,000        (14,493)   (493,219)             (503,593)
Provision for income taxes....................          --             591             --          --                   591
                                                  --------          ------       --------   ---------             ---------
Income (loss) before
 minority interest............................       3,119             409        (14,493)   (493,219)             (504,184)
Minority interest in net loss
 of subsidiary................................         836              --             --          --                   836
                                                  --------          ------       --------   ---------             ---------
Net income (loss).............................    $  3,955          $  409       $(14,493)  $(493,219)            $(503,348)
                                                  ========          ======       ========   =========             =========
Net income (loss) per share:
 Basic........................................    $    .04                                                        $   (4.56)
                                                  ========                                                        =========
 Diluted......................................    $    .03                                                        $   (4.56)
                                                  ========                                                        =========
Shares used in per
 share computation:
  Basic.......................................     100,531                                      9,952   (f)(h)      110,483
                                                  ========                                  =========             =========
  Diluted.....................................     114,610                                      9,952               110,483
                                                  ========                                  =========             =========
</TABLE>

   See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
                                  Statements.

                                       42
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

                NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
                             FINANCIAL STATEMENTS

Note 1.  Unaudited Pro Forma Combined Condensed Balance Sheet

         The pro forma combined condensed balance sheet gives effect to the
merger as if it had occurred on December 31, 1999.

     Thawte

     On February 1, 2000, VeriSign acquired all the outstanding capital stock of
Thawte in exchange for 4,360,424 shares of VeriSign common stock and $60,000 of
cash. The following adjustment has been reflected in the unaudited pro forma
combined condensed balance sheet:

     (a)  To record common stock issued to the shareholder of Thawte, and record
          applicable purchase accounting entries. Transaction costs were not
          significant to the total purchase price and were therefore not
          included below.

          Under purchase accounting, the total purchase price will be allocated
          to Thawte's tangible assets and liabilities based on their relative
          fair values. Allocations are subject to valuations as of the date of
          the consummation of the merger. The amounts and components of the
          estimated purchase price along with the preliminary allocation of the
          estimated purchase price to net assets purchased are presented below.

                                Purchase Price

<TABLE>
<CAPTION>
                                                                        (In thousands)
          <S>                                                           <C>
          Cash........................................................     $     60
          Common stock................................................            5
          Additional paid-in capital..................................      649,946
                                                                           --------
          Total purchase price........................................     $650,011
                                                                           ========

                              Net Assets Acquired

          Book value of net tangible assets of Thawte.................     $    456
          Intangible assets:
             Workforce in place.......................................          342
             Non-compete agreement....................................          939
             Technology in place......................................        2,963
             Thawte trade name........................................          913
                                                                           --------
                                                                              5,157
                                                                           --------
          Current products and relationships:
             Customer relationships...................................        2,807
             Internet Service Provider ("ISP") hosting partnerships...       11,330
                                                                           --------
                                                                             14,137
                                                                           --------
          Goodwill....................................................      630,261
                                                                           --------
          Net assets acquired.........................................     $650,011
                                                                           ========
</TABLE>

          The actual allocation of the purchase price will depend upon the
          composition of Thawte's net assets on the closing date and VeriSign's
          evaluation of the fair value of the net assets as of the date
          indicated. Consequently, the actual allocation of the purchase price
          could differ from that presented above.

                                      43
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

                NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
                      FINANCIAL STATEMENTS -- (Continued)

    (b)   To record a reduction in deferred revenue related to the estimated
          calculation of VeriSign's obligation to perform life cycle services
          around digital certificates equal to the expected costs to provide the
          services, plus a normal profit margin.

     Signio

     On February 29, 2000, VeriSign acquired all the outstanding capital stock
of Signio in exchange for 5,591,819 shares of VeriSign common stock. In
addition, VeriSign issued options to purchase a total of approximately 234,227
shares of VeriSign common stock in exchange for all issued and outstanding
Signio options. The following adjustment has been reflected in the unaudited pro
forma combined condensed balance sheet:

     (c)  To record common stock and options issued to the shareholders of
          Signio, and record applicable purchase accounting entries. Transaction
          costs were not significant to the total purchase price and were
          therefore not included below.

          Under purchase accounting, the total purchase price will be allocated
          to Signio's assets and liabilities based on their relative fair
          values. Allocations are subject to valuations as of the date of the
          consummation of the merger. The amounts and components of the
          estimated purchase price along with the preliminary allocation of the
          estimated purchase price to net assets purchased are presented below.

                                 Purchase Price

                                                        (In thousands)
          Common stock..................................   $      6
          Fair value of Signio options assumed..........     31,798
          Additional paid-in capital....................    839,002
                                                           --------
          Total purchase price..........................   $870,806
                                                           ========

                              Net Assets Acquired

          Book value of net tangible assets of Signio..    $  2,522
          Intangible assets:
           Workforce in place..........................         961
           Signio trade name...........................       4,501
                                                           --------
                                                              5,462
                                                           --------
          Current products and technology:
           Customer relationships......................      29,061
           Technology..................................       5,764
                                                           --------
                                                             34,825
                                                           --------
          Goodwill.....................................     827,997
                                                           --------
          Net assets acquired..........................    $870,806
                                                           ========

          The actual allocation of the purchase price will depend upon the
          composition of Signio's net assets on the closing date and VeriSign's
          evaluation of the fair value of the net assets as of the date
          indicated. Consequently, the actual allocation of the purchase price
          could differ from that presented above.

                                      44
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

                NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
                      FINANCIAL STATEMENTS -- (Continued)

   (d)  To record a reduction in deferred revenue related to the estimated
        calculation of VeriSign's obligation to perform life cycle services
        around payment services equal to the expected costs to provide the
        services, plus a normal profit margin.

Note 2. Unaudited Pro Forma Combined Condensed Statement of Operations

   The unaudited pro forma combined condensed statement of operations gives
effect to the merger had it occurred at the beginning of the period presented.
                                            ---------

   Thawte

   The following adjustments have been reflected in the unaudited pro forma
combined condensed statement of operations:

   (e)  Adjustment to remove the amortization of historical goodwill and other
        intangible assets previously recorded by Thawte and to record the
        amortization of goodwill and intangible assets resulting from the
        allocation of the purchase price. The pro forma adjustment assumes
        goodwill and other intangible assets will be amortized on a straight-
        line basis over the following estimated lives:

        Intangible assets:
          Workforce in place.......................................    3 years
          Non-compete agreement....................................    3 years
          Technology in place......................................    3 years
          Thawte trade name........................................    3 years
        Current products and relationships:
          Customer relationships...................................    3 years
          Internet Service Provider ("ISP") hosting partnerships...    2 years
        Goodwill...................................................    3 years

        The ultimate lives assigned will be determined at the date of
        acquisition based on the facts and circumstances existing at that date.

   (f)  To reflect the estimated shares to be issued as consideration for the
        merger.

                                      45
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

                NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
                      FINANCIAL STATEMENTS -- (Continued)

   Signio

   The following adjustments have been reflected in the unaudited pro forma
combined condensed statement of operations:

   (g)  Adjustment to remove the amortization of historical goodwill and other
        intangible assets previously recorded by Signio and to record the
        amortization of goodwill and intangible assets resulting from the
        allocation of the purchase price. The pro forma adjustment assumes
        goodwill and other intangible assets will be amortized on a straight-
        line basis over the following estimated lives:

        Intangible assets:
          Workforce in place...........................    3 years
          Signio trade name............................    3 years
        Current products and relationships:
          Customer relationships.......................    3 years
          Technology...................................    3 years
        Goodwill.......................................    3 years

        The ultimate lives assigned will be determined at the date of
        acquisition based on the facts and circumstances existing at that date.

   (h)  To reflect the estimated shares and options to be issued as
        consideration for the merger.

   (i)  To eliminate the stock based compensation recorded by Signio. The
        intrinsic value of outstanding options is included in the purchase
        price.

                                      46
<PAGE>

                                   SIGNATURES

   Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                             VERISIGN, INC.



Date:  March 10, 2000                         By: /s/ STRATTON D. SCLAVOS
                                                 ------------------------------
                                                      Stratton D. Sclavos
                                                           President
                                                              and
                                                   Chief Executive Officer
                                                 (Principal Executive Officer)



Date:  March 10, 2000                         By: /s/ DANA L. EVAN
                                                -------------------------------
                                                     Dana L. Evan
                                             Executive Vice President of
                                             Finance and Administration
                                                         and
                                                Chief Financial Officer
                                                (Principal Financial and
                                                 Accounting Officer)

                                      47
<PAGE>

                                    EXHIBITS

  The exhibits filed as part of this report are provided in this separate
section. The exhibits included in this section are as follows:

     Exhibit
     Number                      Exhibit Description
     -------    ---------------------------------------------------------------
      23.1      Consent of Independent Auditors
                  (Thawte Holdings (Pty) Ltd., Thawte Consulting (Pty) Ltd. and
                  Thawte USA, Inc.)

      23.2      Consent of Independent Auditors
                  (Signio, Inc.)

      23.3      Consent of Independent Auditors
                  (VeriSign, Inc. and Subsidiaries)

      99.1      VeriSign , Inc. 1999 Financial Statements

                                      48

<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

                                 EXHIBIT 23.1

                        CONSENT OF INDEPENDENT AUDITORS
(Thawte Holdings (Pty) Ltd., Thawte Consulting (Pty) Ltd. and Thawte USA, Inc.)

The Board of Directors and Stockholders
VeriSign, Inc.:

We consent to incorporation by reference in the Registration Statements (Nos.
333-45237, 333-46803, 333-58583 and 333-82941) on Form S-8 and Registration
Statements (Nos. 333-74393, 333-77433 and 333-89991) on Form S-3 of VeriSign,
Inc. of our report dated January 31, 2000, relating to the combined financial
position of Thawte Holdings (Pty) Ltd., Thawte Consulting (Pty) Ltd. and Thawte
USA, Inc. as of February 28, 1999 and 1998, and the combined results of their
operations and their cash flows for each of the years in the two year period
February 28, 1999 which report appears herein.


                                                            /s/ KPMG Inc.

Cape Town, South Africa
March 10, 2000

                                     49

<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

                                 EXHIBIT 23.2

                        CONSENT OF INDEPENDENT AUDITORS
                                (Signio, Inc.)

The Board of Directors and Stockholders
VeriSign, Inc.:

We consent to incorporation by reference in the registration statements
(Nos. 333-45237, 333-46803, 333-58583 and 333-82941) on Form S-8 and
registration statements (Nos. 333-74393, 333-77433 and 333-89991) on Form S-3 of
VeriSign, Inc. of our report dated February 29, 2000, relating to the balance
sheets of Signio, Inc. (formerly PaymentNet, Inc.) as of December 31, 1999 and
1998, and the related statements of operations, shareholders' equity (deficit),
and cash flows for the years then ended which report appears herein.


                                                            /s/ KPMG LLP

San Francisco, California
March 10, 2000

                                     50

<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

                                 EXHIBIT 23.3

                        CONSENT OF INDEPENDENT AUDITORS
                       (VeriSign, Inc. and Subsidiaries)

The Board of Directors and Stockholders
VeriSign, Inc.:

We consent to incorporation by reference in the registration statements
(Nos. 333-45237, 333-46803, 333-58583 and 333-82941) on Form S-8 and
registration statements (Nos. 333-74393, 333-77433 and 333-89991) on Form S-3 of
VeriSign, Inc. of our report dated January 14, 2000, relating to the
consolidated balance sheets of VeriSign, Inc. and subsidiaries as of December
31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity, comprehensive income (loss), and cash flows
for each of the years in the three-year period ended December 31, 1999, which
report appears herein.

                                                            /s/ KPMG LLP

Mountain View, California
March 10, 2000

                                     51

<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

                                 EXHIBIT 99.1

                   VERISIGN, INC. 1999 FINANCIAL STATEMENTS

     The financial statements of VeriSign, Inc. and Subsidiaries included in
this exhibit are as follows:

<TABLE>
                          Financial Statement Description                                Page
- ---------------------------------------------------------------------------------        ----
<S>                                                                                      <C>
VeriSign, Inc. and Subsidiaries.:

 .   Independent Auditors' Report.................................................          53

 .   Consolidated Balance Sheets
    As of December 31, 1999 and 1998.............................................          54

 .   Consolidated Statements of Operations
    For the Years Ended December 31, 1999, 1998 and 1997.........................          55

 .   Consolidated Statements of Stockholders' Equity
    For the Years Ended December 31, 1999, 1998 and 1997.........................          56

 .   Consolidated Statements of Comprehensive Income (Loss)
    For the Years Ended December 31, 1999, 1998 and 1997.........................          58

 .   Consolidated Statements of Cash Flows
    For the Years Ended December 31, 1999, 1998 and 1997.........................          59

 .   Notes to Consolidated Financial Statements...................................          61
</TABLE>

                                      52
<PAGE>

                         INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of VeriSign, Inc.:

     We have audited the accompanying consolidated balance sheets of VeriSign,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, comprehensive
income (loss) and cash flows for each of the years in the three-year period
ended December 31, 1999. 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 conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of VeriSign,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.

                                                            /s/ KPMG LLP

Mountain View, California
January 14, 2000

                                       53
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                       (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                             --------------------
                                                                               1999        1998
                                                                             ---------   --------
<S>                                                                          <C>         <C>
                                                Assets
Current assets:
 Cash and cash equivalents..............................................     $  70,382   $ 22,786
 Short-term investments.................................................        86,098     18,959
 Accounts receivable, net of allowance for doubtful
  accounts of $1,108 in 1999 and $517 in 1998...........................        22,727      9,769
 Prepaid expenses and other current assets..............................         3,635      2,174
                                                                             ---------   --------
   Total current assets.................................................       182,842     53,688
Property and equipment, net.............................................        10,194      9,234
Long-term investments...................................................       144,751        436
Other assets, net.......................................................         3,379        937
                                                                             ---------   --------
                                                                             $ 341,166   $ 64,295
                                                                             =========   ========

                                 Liabilities and Stockholders' Equity
Current liabilities:
 Accounts payable.......................................................     $   4,665   $  5,472
 Accrued liabilities....................................................         6,237      4,035
 Deferred revenue.......................................................        31,777     13,096
                                                                             ---------   --------
   Total current liabilities............................................        42,679     22,603

Minority interest in subsidiary.........................................           128        964

Commitments

Stockholders' equity:
 Preferred stock - par value $.001 per share
  Authorized shares:               5,000,000
  Issued and outstanding shares:   none.................................            --         --
 Common stock - par value $.001 per share
  Authorized shares:               200,000,000
  Issued and outstanding shares:   103,482,841 at December 31, 1999
                                   92,346,768 at December 31, 1998......           103         92
 Additional paid-in capital.............................................       258,239     92,728
 Notes receivable from stockholders.....................................            --       (409)
 Unearned compensation..................................................          (172)      (276)
 Accumulated deficit....................................................       (47,452)   (51,407)
 Accumulated other comprehensive income.................................        87,641         --
                                                                             ---------   --------
  Total stockholders' equity............................................       298,359     40,728
                                                                             ---------   --------
                                                                             $ 341,166   $ 64,295
                                                                             =========   ========
</TABLE>

         See accompanying Notes to Consolidated Financial Statements.

                                       54
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                                            ------------------------------
                                                              1999       1998       1997
                                                            --------   --------   --------
<S>                                                         <C>        <C>        <C>
Revenues..............................................      $ 84,776   $ 38,930   $ 13,356
                                                            --------   --------   --------
Costs and expenses:
 Cost of revenues.....................................        31,898     19,454      9,689
 Sales and marketing..................................        34,145     22,943     11,826
 Research and development.............................        13,303      8,435      5,303
 General and administrative...........................         8,740      7,688      5,039
 Special charges......................................            --      3,555      2,800
                                                            --------   --------   --------
  Total costs and expenses............................        88,086     62,075     34,657
                                                            --------   --------   --------
  Operating loss......................................        (3,310)   (23,145)   (21,301)
Interest income.......................................         7,365      2,280      1,235
Other expense, net....................................          (936)      (160)       (61)
                                                            --------   --------   --------
  Income (loss) before minority interest..............         3,119    (21,025)   (20,127)
Minority interest in net loss of subsidiary...........           836      1,282      1,538
                                                            --------   --------   --------
Net income (loss).....................................      $  3,955   $(19,743)  $(18,589)
                                                            ========   ========   ========
Net income (loss) per share:
 Basic................................................      $    .04   $   (.24)  $   (.65)
                                                            ========   ========   ========
 Diluted..............................................      $    .03   $   (.24)  $   (.65)
                                                            ========   ========   ========
Shares used in per share computation:
 Basic................................................       100,531     83,492     28,484
                                                            ========   ========   ========
 Diluted..............................................       114,610     83,492     28,484
                                                            ========   ========   ========
</TABLE>

         See accompanying Notes to Consolidated Financial Statements.

                                       55
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                         (In thousands, except shares)

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                          ------------------------------
                                                            1999       1998       1997
                                                          --------    ------    --------
<S>                                                      <C>          <C>       <C>
Preferred stock:
  Balance, beginning of year:
              No shares at January 1, 1999
      40,124,024 shares at January 1, 1998
      40,124,024 shares at January 1, 1997.............   $     --    $   40    $     40
  Conversion of preferred stock to common stock
       (40,124,024) shares in 1998.....................         --       (40)         --
                                                          --------    ------    --------
    Balance, end of year:
              No shares at December 31, 1999
              No shares at December 31, 1998
      40,124,024 shares at December 31, 1997...........         --        --          40
                                                          --------    ------    --------
Common stock:
  Balance, beginning of year:
      92,346,768 shares at January 1, 1999
      35,145,704 shares at January 1, 1998
      31,439,848 shares at January 1, 1997.............         92        36          32
  Issuance of common stock:
          81,600 shares in 1998
         487,232 shares in 1997........................         --        --          --
  Issuance of common stock for litigation settlement:
       1,000,000 shares in 1997........................         --        --           1
  Issuance of common stock for preferred
    provider agreement:
         400,000 shares in 1997........................         --        --           1
  Issuance of common stock through public offerings:
       6,390,000 shares in 1999
      13,800,000 shares in 1998........................          6        13          --
  Conversion of preferred stock to common stock:
      40,124,024 shares in 1998........................         --        40          --
  Issuance of common stock under employee
    stock purchase plan:
         547,896 shares in 1999
         232,900 shares in 1998........................          1        --          --
  Exercise of common stock options:
       4,198,177 shares in 1999
       2,962,540 shares in 1998
       2,131,124 shares in 1997........................          4         3           2
  Repurchase of common stock:
        (312,500) shares in 1997.......................         --        --          --
                                                          --------    ------    --------
    Balance, end of year:
      103,482,841...shares at December 31, 1999
      92,346,768 shares at December 31, 1998
      35,145,704 shares at December 31, 1997...........        103        92          36
                                                          --------    ------    --------
</TABLE>

                                                                     (Continued)

         See accompanying Notes to Consolidated Financial Statements.

                                       56
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY-- (Continued)
                                (In thousands)

<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                                                   ------------------------------
                                                    1999         1998         1997
                                                 -----------  -----------  -----------
<S>                                              <C>          <C>          <C>
Additional paid-in capital:
  Balance, beginning of year...................  $    92,728  $    45,360  $    41,272
  Issuance of common stock.....................           --           70          643
  Issuance of common stock for litigation
    settlement.................................           --           --        1,999
  Issuance of common stock for preferred
    provider agreement.........................           --           --          800
  Issuance of common stock through public
    offerings, net of offering expenses of
    $7,239 in 1999 and $4,561 in 1998..........      121,354       43,729           --
  Issuance of common stock under employee
    stock purchase plan........................        1,989          693           --
  Unearned compensation related to
    common stock options.......................           --        1,176          414
  Repurchase of common stock...................           --           --          (10)
  Income tax benefit from exercise of
    employee stock options.....................       29,778           --           --
  Exercise of common stock options.............       12,390        1,700          242
                                                 -----------  -----------  -----------
    Balance, end of year.......................      258,239       92,728       45,360
                                                 -----------  -----------  -----------
Notes receivable from stockholders:
  Balance, beginning of year...................         (409)        (644)        (543)
  Loans to stockholders to purchase stock
    options....................................           --           --         (116)
  Repurchase of common stock...................           --           --           10
  Payments on notes receivable.................          409          235            5
                                                 -----------  -----------  -----------
    Balance, end of year.......................           --         (409)        (644)
                                                 -----------  -----------  -----------
Unearned compensation:
  Balance, beginning of year...................         (276)        (380)          --
  Stock-based compensation expense
    related to stock options...................           --           --         (414)
  Amortization of stock-based compensation.....          104          104           34
                                                 -----------  -----------  -----------
    Balance, end of year.......................         (172)        (276)        (380)
                                                 -----------  -----------  -----------
Accumulated deficit:
  Balance, beginning of year...................      (51,407)     (30,871)     (12,282)
  Net income (loss)............................        3,955      (19,743)     (18,589)
  Subchapter S distributions of SecureIT, Inc..           --         (793)          --
                                                 -----------  -----------  -----------
    Balance, end of year.......................      (47,452)     (51,407)     (30,871)
                                                 -----------  -----------  -----------
Accumulated other comprehensive income:
  Balance, beginning of year...................           --           --           --
  Unrealized gain on investments, net of tax...       87,641           --           --
                                                 -----------  -----------  -----------
    Balance, end of year.......................       87,641           --           --
                                                 -----------  -----------  -----------
Total stockholders' equity.....................  $   298,359  $    40,728  $    13,541
                                                 ===========  ===========  ===========
</TABLE>

         See accompanying Notes to Consolidated Financial Statements.

                                       57
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                                (In thousands)

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                 ------------------------------------
                                                    1999         1998         1997
                                                 -----------  ----------  -----------
<S>                                              <C>          <C>         <C>
Net income (loss)..............................  $     3,955  $  (19,743) $   (18,589)
Other comprehensive income:
  Unrealized gain on investments, net of tax...       87,641          --           --
                                                 -----------  ----------  -----------
Comprehensive income (loss)....................  $    91,596  $  (19,743) $   (18,589)
                                                 ===========  ==========  ===========
</TABLE>

         See accompanying Notes to Consolidated Financial Statements.

                                       58
<PAGE>

                       VERISIGN, INC. AND SUBSIDIARIES

                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)


<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                                    ------------------------------------
                                                                        1999        1998        1997
                                                                    -----------  ----------  -----------
<S>                                                                 <C>          <C>         <C>
Cash flows from operating activities:
  Net income (loss).............................................    $     3,955  $  (19,743) $   (18,589)
      Adjustments to reconcile net income (loss) to net cash
        provided by (used in) operating activities:
      Special charges...........................................             --          --        2,800
      Depreciation and amortization.............................          5,404       3,946        2,621
      Minority interest in net loss of subsidiary...............           (836)     (1,282)      (1,538)
      Stock-based compensation..................................            104       1,280           34
      Loss on disposal of property and equipment................            381          42           63
      Changes in operating assets and liabilities:
        Accounts receivable.....................................        (12,958)     (6,379)      (2,628)
        Prepaid expenses and other current assets...............         (1,461)     (1,180)        (208)
        Accounts payable........................................           (807)      1,968        1,036
        Accrued liabilities.....................................          2,202       1,689          250
        Deferred revenue........................................         18,681       7,829        3,323
                                                                    -----------  ----------  -----------
Net cash provided by (used in) operating activities.............         14,665     (11,830)     (12,836)
                                                                    -----------  ----------  -----------
Cash flows from investing activities:
  Purchases of short-term investments...........................       (132,238)    (63,383)     (11,209)
  Maturities and sales of short-term investments................         65,099      52,375        3,258
  Purchases of long-term investments............................        (26,896)       (436)          --
  Purchases of property and equipment...........................         (6,019)     (4,413)      (6,823)
  Other assets..................................................         (3,168)       (119)        (505)
                                                                    -----------  ----------  -----------
Net cash used for investing activities..........................       (103,222)    (15,976)     (15,279)
                                                                    -----------  ----------  -----------
Cash flows from financing activities:
  Proceeds from bank borrowings.................................             --          --        2,420
  Repayment of bank borrowings..................................             --          --       (2,678)
  Proceeds from issuance of common stock, net of
    repurchases.................................................        135,744      46,208          771
  Collections on notes receivable from stockholders.............            409         235            5
  Subchapter S distributions by SecureIT, Inc...................             --        (793)          --
  Issuance of capital stock by subsidiary to
    minority interest...........................................             --          --        2,533
                                                                    -----------  ----------  -----------
Net cash provided by financing activities.......................        136,153      45,650        3,051
                                                                    -----------  ----------  -----------
Net increase (decrease) in cash and cash equivalents............         47,596      17,844      (25,064)
Cash and cash equivalents at beginning of year..................         22,786       4,942       30,006
                                                                    -----------  ----------  -----------
Cash and cash equivalents at end of year........................    $    70,382  $   22,786  $     4,942
                                                                    ===========  ==========  ===========
</TABLE>

                                                                     (Continued)

         See accompanying Notes to Consolidated Financial Statements.

                                       59
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF CASH FLOWS-- (Continued)
                                (In thousands)

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                                ------------------------------------
                                                                   1999         1998         1997
                                                                -----------  ----------  -----------
<S>                                                             <C>          <C>         <C>
Supplemental cash flow disclosures:
      Noncash investing and financing activities:
    Issuance of notes receivable collateralized
      by common stock.......................................    $        --  $       --  $       116
                                                                ===========  ==========  ===========
    Income tax benefit from exercise of stock options.......    $    29,778  $       --  $        --
                                                                ===========  =========== = =========
    Unrealized gain on investments, net of tax..............    $    87,641  $       --  $        --
                                                                ===========  ==========  ===========
  Cash paid for income taxes................................    $       698  $       --  $        --
                                                                ===========  ==========  ===========
</TABLE>

         See accompanying Notes to Consolidated Financial Statements.

                                       60
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       December 31, 1999, 1998 and 1997

Note 1.  Description of Business and Summary of Significant Accounting Policies

     Business

     VeriSign, Inc. was incorporated in Delaware in April 1995 when RSA Data
Security, Inc. ("RSA") contributed equipment, other assets and technology for
common stock. This transfer of nonmonetary assets was recorded at the founder's
historical cost basis. VeriSign provides Internet-based trust services needed by
websites, enterprises and individuals to conduct trusted and secure electronic
commerce and communications over the Internet, intranets and extranets ("IP
Networks"). VeriSign provides both public and private certificate authority
services to organizations needing digital certificates for website
authentication, intranet and extranet access control, electronic commerce
services and virtual private network connections.

     Consolidation

     The accompanying consolidated financial statements include the accounts of
VeriSign and its subsidiaries after elimination of intercompany accounts and
transactions. As of December 31, 1999, VeriSign owned approximately 50.5% of the
outstanding shares of capital stock of its subsidiary, VeriSign Japan K.K.
Changes in VeriSign's proportionate share of the net assets of VeriSign Japan
resulting from sales of capital stock by the subsidiary are accounted for as
equity transactions.

     Foreign Currency Translation

     The functional currency for VeriSign's international subsidiaries is the
U.S. dollar; however, the subsidiaries books of record are maintained in local
currency. As a result, the subsidiaries' financial statements are remeasured
into U.S. dollars using a combination of current and historical exchange rates
and any transaction gains and losses are included in operating results.

     Cash, Cash Equivalents, and Short and Long-Term Investments

     VeriSign considers all highly liquid investments with maturities of three
months or less at the date of acquisition to be cash equivalents. Cash and cash
equivalents include money market funds, commercial paper, market auction
securities, and various deposit accounts.

     VeriSign's investments are classified as "available-for-sale" and are
carried at fair value based on quoted market prices. These investments consist
of commercial paper, medium term notes, U.S. government and agency securities
and corporate bonds and notes. These investments with original maturities
greater than three months and less than twelve months are considered short-term
investments and those with original maturities greater than twelve months are
considered long-term investments. Realized gains and losses upon sale or
maturity of these investments are determined using the specific identification
method.

     VeriSign invests in equity instruments of privately-held, technology
companies for business and strategic purposes. These investments are included in
long-term investments and are accounted for under the cost method. For these
non-quoted investments, VeriSign's policy is to regularly review the assumptions
underlying the operating performance and cash flow forecasts in assessing the
carrying values. VeriSign identifies and records impairment losses on long-lived
assets when events and circumstances indicate that such assets might be
impaired. To date, no such impairment has been recorded. During 1999, one of
these investments in Keynote Systems, Inc., became a marketable equity security
when Keynote Systems, Inc. completed their initial public offering. This
investment is subject to significant fluctuations in fair market value due to
the volatility of the stock market, and is recorded in long-term investments.

                                       61
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                       December 31, 1999, 1998 and 1997

     Property and Equipment

     Property and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets, generally three to five years.

     Computer Software Costs

     In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires
that entities capitalize certain costs related to internal-use software once
certain criteria have been met. The Company implemented SOP 98-1 for the year
ended December 31, 1999.

     Revenue Recognition

     Revenues from our services consist of fees for the issuance of digital
certificates, fees for digital certificate service provisioning, fees for
technology and business process licensing to affiliates and fees for consulting,
implementation, training, support and maintenance services. Each of these
sources of revenue has different revenue recognition methods. We defer revenues
from the sale or renewal of digital certificates and recognize these revenues
ratably over the life of the digital certificate, generally 12 months. We defer
revenues from the sale of our OnSite managed services and recognize these
revenues ratably over the term of the license, generally 12 months. We recognize
revenues from the sale of digital certificate technology and business process
licensing to affiliates upon delivery of the technology and signing of an
agreement, provided the fee is fixed and determinable, collectibility is
probable and the arrangement does not require significant production,
modification or customization of the software. We recognize revenues from
consulting and training services using the percentage-of-completion method for
fixed-fee development arrangements or as the services are provided for time-and-
materials arrangements. We recognize revenues ratably over the term of the
agreement for support and maintenance services.

     VeriSign recognizes revenue in accordance with the American Institute of
Certified Public Accountants' ("AICPA") Statement of Position ("SOP") No. 97-2,
"Software Revenue Recognition." SOP No. 97-2 generally requires revenue earned
on software arrangements involving multiple elements to be allocated to each
element based on its relative fair value. The fair value of the element must be
based on objective evidence that is specific to the vendor. If a vendor does not
have objective evidence of the fair value of all elements in a multiple-element
arrangement, all revenue from the arrangement must be deferred until such
evidence exists or until all elements have been delivered.

     Research and Development Costs

     Research and development costs are expensed as incurred. Costs incurred
subsequent to establishing technological feasibility, in the form of a working
model, are capitalized and amortized over their estimated useful lives. To date,
software development costs incurred after technological feasibility has been
established have not been material.

     Advertising Expense

     Advertising expense is charged to operations as incurred. Advertising
expense was $3,037,000 in 1999, $1,858,000 in 1998 and $197,000 in 1997.

                                       62
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                       December 31, 1999, 1998 and 1997

     Income Taxes

     VeriSign uses the asset and liability method to account for income taxes.
Deferred 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 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 tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is recorded for
deferred tax assets whose realization is not sufficiently likely.

     Stock-Based Compensation

     VeriSign accounts for its equity-based compensation plan using the
intrinsic value method.

     Net Income (Loss) Per Share

     Basic net income (loss) per share is computed using the weighted average
number of outstanding shares of common stock. Diluted net income (loss) per
share is computed using the weighted average number of shares of common stock
outstanding plus the dilutive effect of stock options computed using the
treasury stock method and convertible securities using the if-converted method.

     The following table presents the calculation for the number of shares used
in the basic and diluted net income (loss) per share computations:

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                                            -----------------------
                                                             1999     1998    1997
                                                            -------  ------  ------
                                                                (In thousands)
       <S>                                                  <C>      <C>     <C>
       Shares used to compute basic net income (loss)
        per share:
          Weighted average shares outstanding..........     100,531  83,492  28,484
       Dilutive stock options..........................      14,079      --      --
                                                            -------  ------  ------
       Shares used to compute diluted net
        income (loss) per share........................     114,610  83,492  28,484
                                                            =======  ======  ======
</TABLE>

     For 1999, VeriSign excluded from the calculation of diluted net income per
share 481,320 shares related to stock options with an exercise price higher than
$49.70, the weighted average fair market value for the year. For 1998 and 1997,
VeriSign excluded all convertible preferred stock and outstanding stock options
from the calculation of diluted net loss per share because these securities
would have been anti-dilutive for these periods. The excluded shares totaled
16,516,368 shares for 1998 and 50,495,180 shares for 1997.

     Other Comprehensive Income (Loss)

     Other comprehensive income (loss) includes gains and losses that are not
included in net income (loss) but instead are recorded directly in stockholders'
equity. Other comprehensive income (loss) includes unrealized gains (losses) on
investments.

                                       63
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                       December 31, 1999, 1998 and 1997

     Concentration of Credit Risk

     Financial instruments that potentially subject VeriSign to significant
concentrations of credit risk consist principally of cash, cash equivalents,
short and long-term investments and accounts receivable. VeriSign maintains its
cash, cash equivalents and short-term investments with high quality financial
institutions and, as part of its cash management process, performs periodic
evaluations of the relative credit standing of these financial institutions.
VeriSign also performs ongoing credit evaluations of its customers and,
generally, requires no collateral. VeriSign maintains an allowance for potential
credit losses. Amounts added to the allowance for doubtful accounts through
charges to bad debt expense totaled $859,000 in 1999, $590,000 in 1998 and
$387,000 in 1997. Uncollectible amounts written off totaled $268,000 in 1999,
$359,000 in 1998 and $136,000 in 1997.

     Related Party Transactions

     During 1998, VeriSign signed a joint venture agreement with certain
companies located in France to form Certplus, a provider of Internet trust
services. VeriSign has a minority interest of 15% in the joint venture, and
therefore has accounted for this as a long-term investment. Certplus is an
affiliate in the VeriSign affiliate program. Certplus accounted for
approximately 1% of revenues in 1999 and less than 1% of revenues in 1998 and
1997. Certplus accounted for 1% of the accounts receivable balance as of
December 31, 1999 and 2% of the accounts receivable balance as of December 31,
1998.

     In February 1999, VeriSign entered into a memorandum of understanding with
Keynote Systems. VeriSign is a 7% shareholder of Keynote as of December 31, 1999
and Stratton Sclavos, president and chief executive officer is a member of
Keynote's board of directors. Under the agreement, VeriSign received from
Keynote a non-exclusive license to sell two versions of Keynote's services as an
integrated part of VeriSign's product offerings. Per the agreement, VeriSign
will pay a fee to Keynote for each of these introductory services sold to a
customer. In the event that Keynote converts the introductory customer into a
paying customer within a certain timeframe, then Keynote will pay VeriSign a
one-time bounty fee for each customer. Through December 31, 1999, VeriSign has
received $20,000 in revenue and has paid Keynote approximately $250,000 under
this agreement.

     VeriSign entered into a development agreement in September 1997 with RSA
Security, formerly Security Dynamics Technologies, Inc. ("RSA Security"), the
parent company of RSA, an approximately 5% stockholder of VeriSign at December
31, 1999, to develop a customized certificate authority product in order to
enable RSA Security to offer a product with encryption and digital certificate
authority functionality. In December 1998, VeriSign and RSA Security amended the
development agreement to grant RSA Security an exclusive license to incorporate
the developed technology into original equipment manufacturers' ("OEM") products
in order to create products incorporating the technology and to sublicense the
technology to licensees of the OEMs.

     The development agreement provides that RSA Security pay VeriSign an
aggregate of $2.7 million as an initial license fee, of which $.9 million was
paid in October 1997, $1.4 million was paid during 1998 and $.4 million was paid
during 1999. At the time of the execution of the amendment in December 1998, RSA
Security paid VeriSign $500,000. Once RSA Security has received net revenues of
$2.8 million from OEMs, it will pay VeriSign a royalty equal to the greater of
18% of net revenues from the sale to OEMs or 18% of 60% of the current list
price for the product. RSA Security will not be obligated to pay any royalties
to VeriSign with respect to sales to value-added resellers.

                                       64
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                       December 31, 1999, 1998 and 1997

     In order for RSA Security to maintain its exclusivity rights, it must make
certain minimum aggregate annual payments to VeriSign, which are payable on a
quarterly basis. In addition, VeriSign will be obligated to pay RSA Security an
amount equal to 8% of net revenue recognized by VeriSign during a VeriSign
OnSite customers' first year using VeriSign OnSite if the customer had
previously purchased products from RSA Security that incorporate the developed
technology.

     Beginning in March 1998, RSA Security is required to pay VeriSign a monthly
product support fee for a three-year period and thereafter for successive annual
terms. For a yearly fee, RSA Security can purchase product maintenance services.
RSA Security paid both support and maintenance fees aggregating $210,000 in 1999
and $105,000 in 1998.

     Revenue from the development agreement accounted for less than 1% of
revenues in 1999, 6% of revenues in 1998 and 4% of revenues in 1997.

     In July 1999, VeriSign entered into a non-exclusive reseller agreement with
RSA Security to grant RSA Security the right to resell certain VeriSign products
and services for a discounted fee. Revenue from the reseller agreement accounted
for 1% of revenues in 1999.

     At December 31, 1999, VeriSign had no customers that accounted for more
than 10% of accounts receivable. At December 31, 1998, VeriSign had one
customer, a South African systems integrator, that accounted for 18% of accounts
receivable. VeriSign had one customer that accounted for 10% of revenues in 1997
and no other customers that accounted for more than 10% of revenues in 1999 or
1998. VeriSign had no other customers that accounted for more than 10% of
accounts receivable for any of the dates or years presented.

     Impairment of Long-Lived Assets

     VeriSign reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of long-lived assets is measured by comparison of
the carrying amount to future net cash flows the assets are expected to
generate. If assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the long-
lived asset exceeds its fair market value. To date, no adjustments to the
carrying value of long-lived assets have been required.

     Use of Estimates

     The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

     Recent Accounting Pronouncements

     In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 established methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. Because it currently
holds no derivative instruments and does not engage in hedging activities,
VeriSign expects that the adoption of SFAS No. 133 will have no material impact
on its financial position, results of operations or cash flows. VeriSign will be
required to implement SFAS No. 133, as amended, for the year ending December 31,
2001.

                                       65
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                       December 31, 1999, 1998 and 1997

     In December 1998, the AICPA issued SOP No. 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." SOP No. 98-
9 requires recognition of revenue using the "residual method" in a multiple-
element software arrangement when fair value does not exist for one or more of
the delivered elements in the arrangement. Under the "residual method," the
total fair value of the undelivered elements is deferred and recognized in
accordance with SOP No. 97-2. VeriSign will be required to implement SOP No. 98-
9 for the year ending December 31, 2000. SOP No. 98-9 also extended the deferral
of the application of SOP No. 97-2 to certain other multiple-element software
arrangements through the year ended December 31, 1999. We expect that the
adoption of SOP No. 98-9 will not have a material impact on our financial
position, results of operations or cash flows.

Note 2.  Business Combination

     In July 1998, VeriSign completed a merger with SecureIT, Inc. ("SecureIT").
SecureIT is a provider of Internet and enterprise security solutions comprising
a full range of products and services to assist clients with assessing,
designing and implementing security solutions. The merger was effected by
exchanging approximately 6,664,000 shares of VeriSign common stock for all of
the outstanding common stock of SecureIT. Each share of SecureIT was exchanged
for 0.164806 of one share of VeriSign common stock. In addition, outstanding
SecureIT employee stock options were converted at the same exchange ratio into
options to purchase approximately 760,000 shares of VeriSign common stock.

     The merger constituted a tax-free reorganization and has been accounted for
as a pooling-of-interests. Accordingly, all prior period financial statements
have been restated to include the combined results of operations, financial
position and cash flows of SecureIT as if it had always been a part of VeriSign.
There were no intercompany transactions between VeriSign and SecureIT prior to
the combination that required elimination and there were no material adjustments
required to conform SecureIT's accounting policies to those of VeriSign. Direct
costs and other related merger costs of approximately $3.6 million were incurred
in connection with the acquisition (see Note 9).

     The results of operations previously reported by the separate companies and
the combined amounts presented in the consolidated financial statements are
summarized below.

<TABLE>
<CAPTION>
                               Six Months     Year Ended
                                 Ended       December 31,
                             June 30, 1998       1997
                             --------------  -------------
                                    (In thousands)
     <S>                     <C>             <C>
       Revenues:
        VeriSign, Inc......       $  9,303       $  9,382
        SecureIT, Inc......          5,911          3,974
                                  --------       --------
          Combined.........       $ 15,214       $ 13,356
                                  ========       ========

       Net income (loss):
        VeriSign, Inc......       $(10,092)      $(19,195)
        SecureIT, Inc......            600            606
                                  --------       --------
          Combined.........       $ (9,492)      $(18,589)
                                  ========       ========
</TABLE>

                                       66
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                       December 31, 1999, 1998 and 1997

Note 3.  Cash, Cash Equivalents and Short and Long-Term Investments

     All cash equivalents, short-term investments, and marketable long-term
investments have been classified as available-for-sale securities and consist of
the following:

<TABLE>
<CAPTION>
                                                   As of December 31, 1999
                                        ---------------------------------------------
                                                    Gross        Gross
                                                  Unrealized  Unrealized   Estimated
                                          Cost      Gains       Losses     Fair Value
                                        --------  ----------  -----------  ----------
                                                       (In thousands)
<S>                                     <C>       <C>         <C>          <C>
Classified as current assets:
  Cash................................  $ 22,645    $     --       $  --     $ 22,645
  Commercial paper....................    57,243          20          --       57,263
  Corporate bonds and notes...........    28,349          --        (345)      28,004
  Money market funds..................     4,602          --          --        4,602
  Medium term corporate notes.........    23,276           1        (100)      23,177
  Market auction securities...........     5,000          --          --        5,000
  U.S. government and agency
   securities.........................    15,876          --         (87)      15,789
                                        --------    --------       -----     --------
                                         156,991          21        (532)     156,480
                                        --------    --------       -----     --------
  Included in cash and cash
   equivalents........................                                       $ 70,382
                                                                             ========
  Included in short-term investments..                                       $ 86,098
                                                                             ========
Classified as non-current assets:
  Equity securities...................    12,925     117,977          --      130,902
  U.S. government and agency
   securities.........................    14,000          --        (151)      13,849
                                        --------    --------       -----     --------
                                          26,925     117,977        (151)     144,751
                                        --------    --------       -----     --------
  Total cash and securities...........  $183,916    $117,998       $(683)    $301,231
                                        ========    ========       =====     ========
</TABLE>

                                       67
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                       December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                As of December 31, 1998
                                                 ---------------------------------------------------------
                                                                      Gross          Gross
                                                                    Unrealized    Unrealized    Estimated
                                                      Cost            Gains         Losses      Fair Value
                                                 -----------------  ----------  --------------  ----------
                                                                     (In thousands)
<S>                                              <C>                <C>         <C>             <C>
Classified as current assets:
  Cash......................................           $     3,619  $       --     $       --   $    3,619
  Commercial paper..........................                21,451           6             --       21,457
  Corporate bonds and notes.................                 5,031          --             (8)       5,023
  Money market funds........................                 4,600          --             --        4,600
  Medium term corporate notes...............                 4,049           2             (5)       4,046
  Market auction securities.................                 3,000          --             --        3,000
                                                 -----------------  ----------  --------------  ----------
                                                            41,750           8            (13)      41,745
  Included in cash and cash
   equivalents..............................                                                    $   22,786
                                                                                                ==========
  Included in short-term investments........                                                    $   18,959
                                                                                                ==========
Classified as non-current assets:
  Equity securities.........................                   436          --             --          436
                                                 -----------------  ----------  --------------  ----------
  Total cash and securities.................           $    42,186  $        8     $      (13)  $   42,181
                                                 =================  ==========  =============   ==========
</TABLE>

Gross realized gains and losses on investments were not material for any of the
periods presented.

Note 4.   Balance Sheet Detail

<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                                --------------------------
                                                                                     1999          1998
                                                                                -------------   ----------
                                                                                      (In thousands)
 <S>                                                                            <C>             <C>
 Property and equipment, net

  Computer equipment and purchased software.................................          $15,231      $11,402
  Office equipment, furniture and fixtures..................................            2,438        1,774
  Leasehold improvements....................................................            3,996        3,136
                                                                                -------------   ----------
                                                                                       21,665       16,312
  Less accumulated depreciation and amortization............................           11,471        7,078
                                                                                -------------   ----------
                                                                                      $10,194      $ 9,234
                                                                                =============   ==========

  Accrued liabilities

  Employee compensation.....................................................          $ 3,878      $ 2,255
  Professional fees.........................................................              284          288
  Other.....................................................................            2,075        1,492
                                                                                -------------   ----------
                                                                                      $ 6,237      $ 4,035
                                                                                =============   ==========
</TABLE>

                                       68
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                       December 31, 1999, 1998 and 1997

Note 5.   Stockholders' Equity

  Stock Splits

  In March 1999, the Board of Directors (the "Board") declared a two-for-one
stock split for stockholders of record on May 14, 1999. In November 1999, the
Board declared an additional two-for-one stock split for stockholders of record
on November 22, 1999. All share and per share information has been restated to
reflect the effect of the stock splits.

  Preferred Stock

  VeriSign is authorized to issue up to 5,000,000 shares of preferred stock. As
of December 31, 1999, no shares of preferred stock had been issued.

  Common Stock

  On January 30, 1998, VeriSign completed its initial public offering ("IPO") by
issuing 13,800,000 shares of its common stock at an initial public offering
price of $3.50 per share. VeriSign received net proceeds from the offering,
after deducting underwriting discounts and commissions and offering expenses, of
approximately $43.7 million. Concurrently with the IPO, each outstanding share
of VeriSign's convertible preferred stock was automatically converted into one
share of common stock.

  In January 1999, VeriSign completed a follow-on public offering by issuing
6,390,000 shares at an offering price of $20.13 per share. VeriSign received net
proceeds from the offering of approximately $121.4 million.

  No dividends have been declared or paid on common stock since VeriSign's
inception. SecureIT paid Subchapter S distributions of $793,000 to its
stockholders for minimum tax obligations during the year ended December 31,
1998.

  Notes Receivable From Stockholders

  In November 1996, VeriSign loaned several officers an aggregate of $543,000,
due December 31, 2005, bearing interest at a rate per annum of 6.95%, payable
quarterly. In August 1997, VeriSign loaned an officer an aggregate of $116,000,
due December 31, 2006, bearing interest at a rate per annum of 6.87%, payable
quarterly. The loans are full recourse and are collateralized by pledges of the
shares of VeriSign common stock that were purchased. As of December 31, 1999,
all loans had been repaid in full.

                                       69
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                       December 31, 1999, 1998 and 1997

Note 6.   Stock Compensation Plans

  Stock Option Plans

  As of December 31, 1999, a total of 22,719,893 shares of common stock were
reserved for issuance upon the exercise of stock options and for the future
grant of stock options or awards under VeriSign's equity incentive plans.

  The 1995 Stock Option Plan and the 1997 Stock Option Plan (the "1995 and 1997
Plans") were terminated concurrent with VeriSign's IPO. Options to purchase
common stock granted under the 1995 and 1997 Plans remain outstanding and
subject to the vesting and exercise terms of the original grant. All shares that
remained available for future issuance under the 1995 and 1997 Plans at the time
of their termination were transferred to the 1998 Equity Incentive Plan. No
further options can be granted under the 1995 and 1997 Plans. Options granted
under the 1995 and 1997 Plans are subject to terms substantially similar to
those described below with respect to options granted under the 1998 Equity
Incentive Plan.

  The 1998 Equity Incentive Plan (the "1998 Plan") authorizes the award of
options, restricted stock awards and stock bonuses. As of December 31, 1998, no
restricted stock awards or stock bonus awards have been made under the 1998
Plan.

  Options may be granted at an exercise price not less than 100% of the fair
market value of VeriSign's common stock on the date of grant for incentive stock
options and 85% of the fair market value for nonqualified stock options. All
options are granted at the discretion of the Board and have a term not greater
than 7 years from the date of grant. Options issued generally vest 25% on the
first anniversary date and ratably over the following 12 quarters. At December
31, 1999, 4,677,031 shares remain available for future awards under the 1998
Plan.

  Members of the Board who are not employees of VeriSign, or of any parent,
subsidiary or affiliate of VeriSign, are eligible to participate in the 1998
Directors Plan (the "Directors Plan). The option grants under the Directors Plan
are automatic and nondiscretionary, and the exercise price of the options is
100% of the fair market value of the common stock on the date of the grant. Each
eligible director who becomes a director on or after January 28, 1998 will
initially be granted an option to purchase 60,000 shares on the date he or she
first becomes a director (the "Initial Grant"). On each anniversary of a
director's Initial Grant or most recent grant if he or she was ineligible to
receive an Initial Grant, each eligible director will automatically be granted
an additional option to purchase 30,000 shares of common stock if the director
has served continuously as a director since the date of the Initial Grant or
most recent grant. The term of the options under the Directors Plan is ten years
and options vest as to 6.25% of the shares each quarter after the date of the
grant, provided the optionee remains a director of VeriSign. At December 31,
1999, 200,000 shares remain available for future grant under the Directors Plan.

                                       70
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                       December 31, 1999, 1998 and 1997

  In connection with the acquisition of SecureIT, VeriSign assumed SecureIT's
1997 Stock Option Plan (the "SecureIT Plan"). The SecureIT Plan provided for the
grant of both fixed and performance-based stock options. Options granted under
the SecureIT Plan generally have a term of seven years and vest over a four-year
period, 25% on each anniversary of the grant date. No further options can be
granted under the SecureIT Plan.

  A summary of stock option activity under the Plans follows:

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                          --------------------------------------------------------------------------
                                                              1999                            1998                     1997
                                                          -------------------------  -----------------------  ----------------------
                                                                         Weighted                  Weighted                Weighted
                                                                          Average                   Average                 Average
                                                                         Exercise                  Exercise                Exercise
                                                             Shares        Price        Shares       Price       Shares      Price
                                                          ------------  -----------  ------------  ---------  ------------  --------
<S>                                                       <C>           <C>          <C>           <C>        <C>           <C>
Outstanding at
 beginning of year......................................   16,516,368   $      4.79   10,371,156     $   .75    6,432,300     $  .20
Granted.................................................    7,300,926         35.66    9,735,024        7.69    6,406,608       1.06
Exercised...............................................   (4,198,177)         3.10   (2,962,548)        .58   (2,131,124)       .12
Canceled................................................   (1,783,755)         9.60     (627,264)       2.84     (336,628)       .23
                                                          -----------                -----------               ----------
Outstanding at end
 of year................................................   17,835,362         16.77   16,516,368        4.79   10,371,156        .75
                                                          ===========                ===========               ==========
Exercisable at end
 of year................................................    2,424,728          3.36    1,673,860         .82    1,032,352        .20
                                                          ===========                ===========               ==========
Weighted average
  fair value of
          options granted
 during the year........................................                      21.86                     4.01                     .26
 </TABLE>

  The following table summarizes information about stock options outstanding as
of December 31, 1999:

<TABLE>
<CAPTION>
                                                         Weighted-
                                                          Average     Weighted-                 Weighted-
                                                         Remaining     Average                   Average
                                             Shares     Contractual   Exercise      Shares      Exercise
     Range of Exercise Prices              Outstanding     Life         Price     Exercisable    Price
- -----------------------------------        -----------  -----------   ---------   -----------   ---------
<S>                                        <C>          <C>           <C>         <C>           <C>
$   .01 -   $    .56...............         2,254,814    4.00 years      $   .36      962,603     $  .31
$  1.00 -   $   3.03...............         2,436,140    4.79 years         1.70      681,212       1.72
$  6.44 -   $   9.81...............         5,086,540    5.77 years         7.39      636,697       7.40
$ 10.03 -   $  18.25...............         1,670,768    5.93 years        13.31      136,716      12.11
$ 22.50 -   $  29.63...............         2,265,800    6.26 years        26.13           --         --
$ 30.70 -   $  38.50...............         3,206,030    6.57 years        36.85           --         --
$ 41.19 -   $  46.41...............           437,100    7.39 years        42.29        7,500      41.19
$ 53.03 -   $  54.44...............           152,210    6.75 years        53.49           --         --
$ 61.75 -   $  92.91...............           225,560    6.86 years        75.62           --         --
$112.38 -   $ 190.94...............           100,400    6.97 years       133.19           --         --
                                           ----------                              ----------
$   .01 -   $ 190.94...............        17,835,362    5.70 years                 2,424,728
                                          ===========                              ==========
</TABLE>

                                       71
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1999, 1998 and 1997

  1998 Employee Stock Purchase Plan

  VeriSign has reserved 3,000,000 shares for issuance under the 1998 Employee
Stock Purchase Plan ("Purchase Plan"). Eligible employees may purchase common
stock through payroll deductions by electing to have between 2% and 15% of their
compensation withheld. Each participant is granted an option to purchase common
stock on the first day of each 24 month offering period and this option is
automatically exercised on the last day of each six month purchase period during
the offering period. The purchase price for the common stock under the Purchase
Plan is 85% of the lesser of the fair market value of the common stock on the
first day of the applicable offering period and the last day of the applicable
purchase period. The first offering period began on January 30, 1998. Offering
periods thereafter will begin on February 1 and August 1 of each year. Shares of
common stock issued under the Purchase Plan totaled 547,896 in 1999 and 232,900
in 1998. As of December 31, 1999, 2,219,204 shares remain available for future
issuance. The weighted-average fair value of the options granted under the
Purchase Plan was $15.28 in 1999 and $7.18 in 1998.

  Pro Forma Information

  VeriSign applies the intrinsic value method in accounting for its equity-based
compensation plan. Had compensation cost for its equity-based compensation plans
been determined consistent with the fair value approach set forth in SFAS No.
123, "Accounting for Stock-Based Compensation," VeriSign's net income (loss)
would have been as follows:

<TABLE>
<CAPTION>
                                            Year Ended December 31,
                                      -----------------------------------
                                          1999        1998       1997
                                      -----------   ---------  ----------
                                     (In thousands, except per share data)
<S>                                       <C>       <C>        <C>
  As reported:
  Net income (loss).............         $  3,955   $(19,743)  $(18,589)
Net income (loss) per share:
Basic...........................         $    .04   $   (.24)  $   (.65)
  Diluted.......................         $    .03   $   (.24)  $   (.65)

Pro forma:
 Net (loss) under SFAS No. 123           $(24,667)  $(24,117)  $(18,904)
Net (loss) per share:
Basic...........................         $   (.25)  $   (.29)  $   (.66)
  Diluted.......................         $   (.25)  $   (.29)  $   (.66)
</TABLE>

  The fair value of stock options and Purchase Plan options granted subsequent
to VeriSign's IPO on January 30, 1998 was estimated on the date of grant using
the Black-Scholes model. The fair value of stock options granted prior to the
IPO and for stock options granted by SecureIT prior to its acquisition was
estimated on the date of grant using the minimum value method. The following
table sets forth the weighted-average assumptions used to calculate the fair
value of the stock options and Purchase Plan options for each period presented.

                                       72
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                       December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                 --------------------------------------
                                    1999           1998          1997
                                 -----------    ----------     --------
<S>                              <C>             <C>           <C>
  Stock options:
   Volatility...............         85%             70%*         0%
   Risk-free interest rate..        5.54%           4.95%        6.14%
   Expected life............      3.5 years       3.5 years     5 years
   Dividend yield...........        zero            zero          zero

  Purchase Plan options:
   Volatility...............         85%             70%           --
   Risk-free interest rate..        5.00%           5.35%          --
   Expected life............      1.25 years      1.25 years       --
   Dividend yield...........        zero            zero           --
</TABLE>

   *  Volatility was zero under the minimum value method for grants prior to
January 30, 1998 and for all grants made by SecureIT prior to its acquisition by
VeriSign.

                                       73
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                       December 31, 1999, 1998 and 1997

Note 7.  Income Taxes

 Total income tax expense for the year ended December 31, 1999 was allocated as
follows:

<TABLE>
<CAPTION>
                                                                            (In thousands)
<S>                                                                         <C>
Continuing operations:
   Current:
        Federal..........................................................       $  1,514
        State............................................................            212
                                                                                --------
                                                                                   1,726
                                                                         s       --------
   Deferred:
        Federal..........................................................         (1,514)
        State............................................................           (212)
                                                                                --------
                                                                                  (1,726)
                                                                                --------
   Income tax expense....................................................       $     --
                                                                                ========

Comprehensive income:
   Deferred..............................................................       $ 16,875
   Charge to comprehensive income in lieu of income taxes
       attributable to disqualifying dispositions of stock option........       (46,653)
                                                                                --------
                                                                                $(29,778)
                                                                                ========

</TABLE>

   The difference between income tax expense and the amount resulting from
applying the Federal statutory rate of 34% to income before income taxes for
1999 is attributable to the following:

<TABLE>
<CAPTION>
                                                        (In thousands)
<S>                                                     <C>
   Income taxes at Federal statutory rate.............     $    1,345
   Foreign losses.....................................          1,108
   Reduction in valuation allowance...................         (1,726)
   Research and experimentation credit................         (1,101)
   Other..............................................            374
                                                           ----------
     Income taxes.....................................     $       --
                                                           ==========
</TABLE>

   In 1998 and 1997, the Company did not record any income tax expense because
it experienced significant operating losses.

                                      74
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                       December 31, 1999, 1998 and 1997

  The tax effects of temporary differences that give rise to significant
portions of VeriSign's deferred tax assets are as follows:

                                                          December 31,
                                                       ------------------
                                                         1999      1998
                                                       --------  --------
                                                         (In thousands)
Deferred tax assets:
   Net operating loss carryforwards and deferred
     start-up costs...............................     $ 49,011  $ 22,188
   Tax credit carryforwards.......................        3,240     1,521
   Property and equipment.........................           54     1,135
   Other..........................................        2,084     1,331
                                                       --------  --------
                                                         54,389    26,175
  Valuation allowance.............................       (7,736)  (26,175)
                                                       --------  --------
Deferred tax liabilities:
   Unrealized gain................................      (46,653)       --
                                                       --------  --------
  Net deferred tax assets.........................     $     --  $     --
                                                       ========  ========

  Management has established a valuation allowance equal to 100% of the net
deferred tax assets because the realization of the deferred tax assets is
uncertain. The total valuation allowance decreased $18,439,000 in 1999 and
increased $13,250,000 in 1998.

  Gross deferred tax assets as of December 31, 1999 include approximately
$36,919,000 relating to the exercise of stock options, which is subject to a
valuation allowance of approximately $7,736,000. Upon reversal of this valuation
allowance, the tax benefit realized will be credited to stockholders'
equity.

  As of December 31, 1999, VeriSign has available net operating loss
carryforwards for federal income tax purposes of approximately $127,376,000 and
for California income tax purposes of approximately $64,510,000. The federal net
operating loss carryforwards will expire, if not utilized, in 2010 through 2019.
The California net operating loss carryforwards will expire, if not utilized, in
2004.

  As of December 31, 1999, VeriSign has available for carryover research and
experimentation tax credits for federal income tax purposes of approximately
$1,444,000 and for California income tax purposes of approximately $1,004,000.
The federal research and experimentation tax credits will expire, if not
utilized, in 2010 through 2019. California research and experimental tax credits
carry forward indefinitely until utilized. VeriSign also has federal foreign tax
credits of approximately $758,000, which expire, if not utilized, in 2001
through 2002. To date, foreign income taxes have not been significant.

  The Tax Reform Act of 1986 imposed substantial restrictions on the utilization
of net operating losses and tax credits in the event of an "ownership change" of
a corporation. Accordingly, VeriSign's ability to utilize net operating loss and
credit carryforwards may be limited as a result of such an "ownership change" as
defined in the Internal Revenue Code.

                                       75
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                       December 31, 1999, 1998 and 1997

Note 8.  Commitments

  Leases

  VeriSign leases its facilities under operating leases that extend through
2005. Future minimum lease payments under non-cancelable operating leases as of
December 31, 1999 are as follows:

                                                                 (In thousands)

  2000.........................................................        $ 4,337
  2001.........................................................          3,853
  2002.........................................................          3,003
  2003.........................................................          2,831
  2004.........................................................          2,787
  Thereafter...................................................            971
                                                                       -------
  Total minimum lease payments.................................        $17,782
                                                                       =======

  Net rental expense under operating leases was $3,700,000 in 1999, $1,936,000
in 1998 and $1,722,000 in 1997. VeriSign has sub-leased an office to a company
under a non-cancelable operating lease. VeriSign received payments of $507,000
during 1999 and will receive payments of $778,000 during 2000 and $533,000
during 2001.

Note 9.  Special Charges

  Merger-related expenses

  In connection with the acquisition of SecureIT in July 1998 (see Note 2),
VeriSign recorded a special charge of $3.6 million for direct and other merger-
related costs pertaining to the merger transaction and certain stock-based
compensation charges. Merger transaction costs totaled $2.4 million and
consisted primarily of fees for investment bankers, attorneys and accountants,
filing fees and other related charges. The stock-based compensation charges of
$1.2 million related to certain performance stock options held by SecureIT
employees, the vesting of which either automatically accelerated upon change of
control or were accelerated by VeriSign's Board of Directors subsequent to the
merger.

  VeriFone

  In September 1996, VeriFone, Inc. which subsequently became a wholly-owned
subsidiary of Hewlett-Packard, filed a lawsuit against VeriSign alleging, among
other things, trademark infringement. In November 1997, VeriSign, Hewlett-
Packard and VeriFone reached an agreement, under which, among other things, the
Company issued 1,000,000 shares of its common stock, which were transferred to
Hewlett-Packard, and VeriSign and VeriFone settled all claims. The settlement
amount was recorded in the third quarter of 1997 as a $2.0 million charge to
operations.

  Microsoft

     In November 1997, VeriSign entered into a preferred provider agreement with
Microsoft Corporation ("Microsoft") whereby the companies will develop, promote
and distribute a variety of client-based and server-based digital certificate
solutions and VeriSign will be designated as the premier provider of digital
certificates for Microsoft customers. In connection with the agreement, VeriSign
issued 400,000 shares of common stock to Microsoft resulting in an $800,000
charge to operations.

                                       76
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1999, 1998 and 1997

Note 10.  Segment Information

  VeriSign has adopted Statement of Financial Accounting Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information". This
statement establishes standards for publicly held entities to follow in
reporting information about operating segments in annual financial statements
and requires that those entities report selected information about operating
segments in interim financial statements. This statement also establishes
standards for related disclosures about product and services, geographic areas
and major customers. Operating segments are defined by SFAS No. 131 as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. VeriSign has
identified one reportable operating segment based on the criteria of SFAS No.
131.

  VeriSign operates in the United States, Europe and Japan and derives
substantially all of its revenues from sales of Internet-based trust services.
VeriSign's Chief Executive and Executive Officers evaluate financial performance
based on measures of business segment revenues.

  Geographic information

                                                      Year Ended December 31,
                                                     --------------------------
                                                       1999     1998     1997
                                                     --------  -------  -------
                                                           (In thousands)
  Revenues:
   United States.................................    $ 61,997  $33,650  $12,122
   All other countries...........................      22,779    5,280    1,234
                                                     --------  -------  -------
   Total.........................................    $ 84,776  $38,930  $13,356
                                                     ========  =======  =======

  In general, revenues are attributed to the country in which the contract
originated. However, revenues from all digital certificates issued from the
Mountain View, California facility are attributed to the United States because
it is impracticable to determine the country of origin.

                                                       Year Ended December 31,
                                                      -------------------------
                                                        1999    1998     1997
                                                      -------- -------  -------
                                                           (In thousands)

  Long-lived assets:
   United States.................................     $155,992 $ 8,655  $ 7,619
   All other countries...........................        2,332   1,952    2,008
                                                      -------- -------  -------
   Total.........................................     $158,324 $10,607  $ 9,627
                                                      ======== =======  =======

  Long-lived assets consist primarily of property and equipment and long-term
investments.

  Major customers

     VeriSign had one customer that accounted for 10% of consolidated revenues
in 1997 (see Note 1). No customer accounted for 10% or more of consolidated
revenues in 1999 or 1998.

                                       77
<PAGE>

                        VERISIGN, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1999, 1998 and 1997

Note 11.   Pending Acquisitions

  Thawte Consulting (Pty) Ltd.

     In December 1999, VeriSign announced that it would acquire Thawte
Consulting (Pty) Ltd. ("Thawte"), a privately held South African company that
provides digital certificates to websites and software developers. VeriSign will
issue shares of its common stock with an aggregate market value of $575 million
in exchange for all of the outstanding shares of Thawte. The transaction will be
accounted for as a purchase. The acquisition is subject to a number of
conditions, including regulatory approvals in South Africa and other customary
conditions.

  Signio,Inc.

     In December 1999, VeriSign announced that it would acquire Signio, Inc.
("Signio"), a privately held company that provides payment services that connect
online merchants, business-to-business exchanges, payment processors and
financial institutions on the Internet. VeriSign will issue approximately 5.6
million shares of its common stock in exchange for all of the outstanding shares
of Signio and will assume Signio's outstanding employee stock options. The
transaction will be accounted for as a purchase. The acquisition is subject to
customary conditions of closing and is expected to be completed in the first
quarter of 2000.

  Network Solutions, Inc. (Unaudited)

     On March 7, 2000, VeriSign announced that is would acquire Network
Solutions, Inc. ("Network Solutions"), a publicly held company that provides
Internet domain name registration and global registry services. VeriSign will
issue 2.15 shares of its common stock for each share of Network Solutions stock
as constituted prior to the 2 for 1 split of Network Solutions stock to be
completed on March 10, 2000. The transaction will be accounted for as a
purchase. The acquisition is subject to customary conditions of closing
including approval by both the VeriSign and Network Solutions stockholders.

                                       78



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