<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1 to
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 20, 1999
-----------------------------
SOFTWARE.COM, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 000-26379 77-0392373
- --------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification Number)
incorporation)
525 ANACAPA STREET, SANTA BARBARA, CALIFORNIA 93101
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (805) 882-2470
---------------------------
N/A
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
This Current Report on Form 8-K/A amends Item 7 of the Current Report on Form
8-K filed with the Securities and Exchange Commission on November 1, 1999.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
---------------------------------
(a) Telarc, Inc. Financial Statements
Report of Ernst & Young LLP, Independent Auditors
Balance Sheets as of December 31, 1997, December 31, 1998 and
September 30, 1999 (unaudited)
Statements of Income for the Years Ended December 31, 1997 and
December 31, 1998 and the Nine Month Periods Ended September 30,
1998 (unaudited) and September 30, 1999 (unaudited)
Statements of Shareholder's Equity for the Years Ended December 31,
1997 and December 31, 1998 and for the Nine Month Period Ended
September 30, 1999 (unaudited)
Statements of Cash Flows for the Years Ended December 31, 1997 and
December 31, 1998 and the Nine Month Periods Ended September 30,
1998 (unaudited) and September 30, 1999 (unaudited)
Notes to Financial Statements
(b) Pro Forma Financial Information.
-------------------------------
Overview
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1999
Unaudited Pro Forma Condensed Consolidated Statements of Income for
the Year Ended December 31, 1998 and for the Nine Month Period ended
September 30, 1999
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information
(c) Exhibits
--------
23.1 Consent of Ernst & Young LLP, Independent Auditors.
-2-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: December 30, 1999 SOFTWARE.COM, INC.
/s/ John S. Ingalls
----------------------------------------------
John S. Ingalls
Senior Vice President, Chief Financial Officer
<PAGE>
Telarc, Inc.
Financial Statements
Report of Ernst & Young LLP, Independent Auditors
Board of Directors and Shareholders of
Software.com, Inc.
We have audited the accompanying balance sheets of Telarc, Inc. as of December
31, 1998 and 1997, and the related statements of income, shareholder's equity
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 Telarc, Inc. at December 31,
1998 and 1997, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
Woodland Hills, California
December 27, 1999
<PAGE>
Telarc, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998 1999
---------------------------------------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 82,721 $49,545 $ 37,721
Accounts receivable 25,716 38,520 48,560
Prepaid expenses and other assets - 4,880 6,012
------------------------------------------
Total current assets 108,437 92,945 92,293
Property and equipment, net 4,539 6,478 11,684
------------------------------------------
$112,976 $99,423 $103,977
==========================================
Liabilities and shareholder's equity
Current liabilities:
Accounts payable $ 8,748 $ 5,787 $ 288
Accrued payroll and related liabilities - 1,065 1,523
Other accrued liabilities - 18,000 -
Deferred revenue - - 9,928
------------------------------------------
Total current liabilities 8,748 24,852 11,739
Shareholder's equity:
Common stock, no par value, 200 shares authorized;
10 shares issued and outstanding 10 10 10
Retained earnings 104,218 74,561 92,228
------------------------------------------
Total shareholder's equity 104,228 74,571 92,238
------------------------------------------
Total liabilities and shareholder's equity $112,976 $99,423 $103,977
==========================================
</TABLE>
See accompanying notes.
<PAGE>
Telarc, Inc.
Statements of Income
<TABLE>
<CAPTION>
Nine months ended
Year ended December 31, September 30,
1997 1998 1998 1999
-----------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Revenues:
Software licenses $ - $ - $ - $309,000
Services 328,798 293,521 198,715 277,086
-----------------------------------------------------------
Total revenues 328,798 293,521 198,715 586,086
-----------------------------------------------------------
Cost of revenues:
Software licenses - - - -
Services 111,713 164,836 124,777 179,622
-----------------------------------------------------------
Total cost of revenues 111,713 164,836 124,777 179,622
-----------------------------------------------------------
Gross profit 217,085 128,685 73,938 406,464
Selling, general and administrative
expenses 12,638 71,189 56,044 49,044
-----------------------------------------------------------
Income from operations 204,447 57,496 17,894 357,420
Other income, net 211 610 515 1,431
-----------------------------------------------------------
Net income $204,658 $ 58,106 $ 18,409 $358,851
===========================================================
</TABLE>
See accompanying notes.
<PAGE>
Telarc, Inc.
Statements of Shareholder's Equity
<TABLE>
<CAPTION>
Common Stock Retained
Shares Amount Earnings Total
----------------------------------------------------
<S> <C> <C> <C> <C>
Issuance of common stock at inception 10 $10 $ - $ 10
Net income - - 204,658 204,658
Shareholder distributions - - (100,440) (100,440)
----------------------------------------------------
Balance at December 31, 1997 10 10 104,218 104,228
Net income - - 58,106 58,106
Shareholder distributions - - (87,763) (87,763)
----------------------------------------------------
Balance at December 31, 1998 10 10 74,561 74,571
Net income (unaudited) - - 358,851 358,851
Shareholder distributions (unaudited) - - (341,184) (341,184)
----------------------------------------------------
Balance at September 30, 1999
(unaudited) 10 $10 $ 92,228 $ 92,238
====================================================
</TABLE>
See accompanying notes.
<PAGE>
Telarc, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, September 30,
1997 1998 1998 1999
-------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Operating activities
Net income $ 204,658 $ 58,106 $ 18,409 $ 358,851
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 301 1,272 949 2,168
Changes in operating assets and liabilities:
Accounts receivable (25,716) (12,804) (15,404) (10,040)
Prepaid expenses and other current assets - (4,880) (9,880) (1,132)
Accounts payable 8,748 (2,960) (8,748) (5,499)
Accrued payroll and related liabilities - 1,064 1,000 458
Other accrued liabilities - 18,000 - (18,000)
Deferred revenue - - - 9,928
-------------------------------------------------------------
Net cash provided by (used in) operating
activities 187,991 57,798 (13,674) 336,734
Investing activities
Purchases of property and equipment (4,840) (3,211) (395) (7,374)
-------------------------------------------------------------
Net cash used in investing activities (4,840) (3,211) (395) (7,374)
Financing activities
Issuance of common stock 10 - - -
Shareholder distributions (100,440) (87,763) (39,531) (341,184)
-------------------------------------------------------------
Net cash used by financing activities (100,430) (87,763) (39,531) (341,184)
-------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 82,721 (33,176) (53,600) (11,824)
Cash and cash equivalents at
beginning of period - 82,721 82,721 49,545
-------------------------------------------------------------
Cash and cash equivalents at end of period $ 82,721 $ 49,545 $ 29,121 $ 37,721
=============================================================
</TABLE>
See accompanying notes.
<PAGE>
Notes to Financial Statements
(Information at September 30, 1999 and for the nine months ended
September 30, 1998 and September 30, 1999 is unaudited)
1. Summary of Significant Accounting Policies
Organization and Business
Telarc, Inc. (the Company), a New York Corporation, provides Internet, SS7, SMS,
and Paging products, middleware and consulting solutions for the
telecommunication industries. The Company was incorporated in January 1997
through the issuance of 10 shares of common stock with no par value.
Interim Financial Information (Unaudited)
The accompanying balance sheet as of September 30, 1999, the statements of
income and cash flows for the nine months ended September 30, 1999 and 1998, and
the statement of shareholder's equity for the nine months ended September 30,
1999, are unaudited. In the opinion of management, the unaudited financial
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the financial position,
results of operations, and cash flows for the interim periods. The results of
operations for the nine months ended September 30, 1999, are not necessarily
indicative of operating results to be expected for the full fiscal year.
Cash Equivalents
The Company considers investments in money market funds to be cash equivalents.
Concentration of Credit Risk, Other Risks and Significant Customers
The Company grants credit terms in the normal course of business to its
customers. The Company does not require collateral. Credit losses have been
within management's expectations and potential uncollectible accounts have been
provided for in the financial statements. The Company's only employee is its
sole shareholder. For the years ended December 31, 1997 and 1998, salary and
related benefits paid to the sole shareholder totaled $101,200 and $160,000,
respectively, and have been classified as cost of services in the accompanying
statements of income. For the nine months ended September 30, 1998 and 1999,
salary and related benefits paid to the sole shareholder totaled $126,000 and
$175,000, respectively, and have been classified as cost of services in the
accompanying statements of income.
<PAGE>
Notes to Financial Statements
(Information at September 30, 1999 and for the nine months ended
September 30, 1998 and September 30, 1999 is unaudited)
1. Summary of Significant Accounting Policies (continued)
Concentration of Credit Risk, Other Risks and Significant Customers (continued)
Total revenues from the Company's two largest customers in the years ended
December 31, 1997 and 1998, accounted for 49% and 48% of total revenues,
respectively. Total revenues from the Company's two largest customers in the
nine months ended September 30, 1998 and 1999, accounted for 49% and 57% of
total revenues, respectively. One of the Company's two largest customers for the
nine months ended September 30, 1999, was Software.com, Inc. At December 31,
1997 and 1998, and September 30, 1999, the largest customer receivable balances
totaled 63%, 40% and 44% of total accounts receivable, respectively.
Property and Equipment
Property and equipment are stated at cost.
Depreciation is computed on a straight-line basis over the following estimated
useful lives:
Computer equipment and software 3 years
Furniture and fixtures 7 years
Income Taxes
The Company has been organized for federal and state income tax purposes as an S
Corporation under Subchapter S of the Internal Revenue Code of 1986, as amended,
and comparable state laws. As a result, the earnings of the Company are included
in the taxable income of the Company's sole shareholder at his individual
federal and state income tax rates, rather than that of the Company.
Revenue Recognition
In October 1997, the Accounting Standards Executive Committee issued Statement
of Position 97-2 (SOP 97-2), which was amended by SOP 98-4 and SOP 98-9,
"Software Revenue Recognition." These statements provide guidance on applying
generally accepted accounting principles in recognizing revenue on software
transactions. This guidance is effective for the Company's transactions entered
into subsequent to January 1, 1998. The application of certain provisions was
deferred until fiscal years beginning on or after March 15, 1999. Final adoption
of these provisions is
<PAGE>
Notes to Financial Statements
(Information at September 30, 1999 and for the nine months ended
September 30, 1998 and September 30, 1999 is unaudited)
1. Summary of Significant Accounting Policies (continued)
Revenue Recognition (continued)
not expected to have a material impact on the Company's financial condition or
results of operation.
Software Licenses Revenue. The Company recognizes revenue from sales of software
upon delivery of the license key to the customer, provided that persuasive
evidence of an arrangement exists, the license fee is fixed and determinable,
and collection of the fee is considered probable.
Services Revenue. Services revenue consists of consulting revenue and support
and maintenance contracts related to software licenses. Consulting revenue are
recognized on a time and materials basis as the services are performed. Support
and maintenance contracts generally call for the company to provide technical
support and software updates and upgrades to customers. Support and maintenance
revenue is recognized ratably over the support or maintenance period.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash and cash
equivalents, accounts receivable and accounts payable, approximate their fair
values due to the short-term nature of these financial instruments
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 amounts reported in the financial statements and accompanying notes.
Actual results may differ materially from those estimates.
<PAGE>
Notes to Financial Statements
(Information at September 30, 1999 and for the nine months ended
September 30, 1998 and September 30, 1999 is unaudited)
2. Property and Equipment
The major components of property and equipment are as follows (in thousands):
<TABLE>
<CAPTION>
December 31 September 30
1997 1998 1999
-----------------------------------------
(unaudited)
<S> <C> <C> <C>
Computer equipment and software $1,839 $ 4,654 $ 7,698
Furniture and fixtures 3,000 3,395 7,725
-----------------------------------------
4,839 8,049 15,423
Less accumulated depreciation (300) (1,571) (3,739)
-----------------------------------------
$4,539 $ 6,478 $11,684
=========================================
</TABLE>
3. Related Party Transactions
The Company uses a portion of its shareholder's premises at no cost.
4. Subsequent Event (unaudited)
On October 20, 1999, Software.com, Inc. acquired all outstanding common shares
of the Company in exchange for $1,500,000 in cash and 211,918 shares of
Software.com common stock valued at $10,000,000. In addition, the sole
shareholder of Telarc, Inc. will be entitled to receive (as additional
consideration for the shares of common stock) 10 cash payments of $350,000 each
for 10 consecutive quarters starting March 30, 2000, provided that such
shareholder is continuously employed by Software.com, Inc. from the acquisition
date through each payment date.
<PAGE>
Software.com, Inc.
Unaudited Pro Forma Condensed Consolidated Financial Information
Overview
On October 20, 1999, Software.com, Inc. ("the Company") acquired Telarc, Inc.
("Telarc"), a provider of carrier-scale Short Messaging Service (SMS)
technologies. The acquisition was accounted for using the purchase method of
accounting and accordingly, the purchase price was allocated to the tangible and
intangible net assets acquired on the basis of their respective fair values on
the acquisition date. The fair value of intangible assets was determined based
upon a valuation using a combination of methods, including an income approach
for in-process research and development, core/alternative use technology and a
covenant not to compete and a replacement cost approach for the value of the
assembled workforce.
The total purchase price of approximately $15.0 million consisted of $1.5
million of cash, $10.0 million of the Company's Common Stock (211,918 shares),
and ten equal quarterly installments of $350,000, totaling $3.5 million. Of the
total estimated purchase price, approximately $14,000 was allocated to net
tangible assets, and the remainder was allocated to intangible assets, including
assembled workforce ($43,000), covenant not to compete ($82,000),
core/alternative use technology ($5.7 million), and goodwill ($2.6 million). The
Company recorded a one-time charge related to in-process research and
development for $3.2 million. The quarterly payments totaling $3.5 million are
contingent upon the continued employment of the sole shareholder and as such
will be charged to operations over the 10 quarter service period. The acquired
intangible assets and goodwill are being amortized over their estimated useful
lives of three to five years.
The accompanying unaudited pro forma condensed consolidated balance sheet gives
effect to this consummated acquisition as if it had occurred on September 30,
1999, by consolidating the balance sheets of Telarc and the Company at September
30, 1999.
The accompanying unaudited pro forma condensed consolidated statements of
operations give effect to this consummated acquisition as if it had occurred on
January 1, 1998, by consolidating the results of operations of the Company and
Telarc for the year ended December 31, 1998 and the nine months ended September
30, 1999.
The unaudited pro forma condensed consolidated statements of operations are not
necessarily indicative of the operating results that would have been achieved
had the transaction been in effect as of the beginning of the periods presented
and should not be construed as being representative of future operating results.
<PAGE>
Software.com, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
Pro forma
Software.com Telarc combined
Sept 30, 1999 Sept 30, 1999 Pro forma Software.com
Actual Actual Adjustments Sept 30, 1999
--------------- -------------------------------- -------------
<S> <C> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 56,326,000 $ 37,721 $(1,500,000) 2 $ 54,863,721
Short-term investments 15,206,000 - 15,206,000
Accounts receivables, net 14,344,000 48,560 14,392,560
Prepaid expenses and other current assets 993,000 6,012 999,012
--------------- -------------------------------- -------------
Total current assets 86,869,000 92,293 (1,500,000) 85,461,293
Property and equipment, net 3,841,000 11,684 3,852,684
Deposits and other assets 431,000 -- 431,000
Goodwill and other intangibles -- -- 8,288,834 1 8,288,834
--------------- -------------------------------- -------------
Total assets $ 91,141,000 $103,977 $ 6,788,834 $ 98,033,811
=============== ================================ =============
Liabilities and shareholder's equity
Current liabilities
Accounts payable $ 2,657,000 $ 288 $ 2,657,288
Accrued liabilities 3,786,000 1,523 $ 101,000 1 3,888,523
Deferred revenue 6,598,000 9,928 (9,928) 1 6,598,000
Note payable to bank 511,000 511,000
Total current liabilities 13,552,000 11,739 91,072 13,654,811
-
Shareholder's equity -
Common stock 108,305,000 10 9,999,990 2 118,305,000
Deferred compensation (1,825,000) - (1,825,000)
Retained earnings/Accumulated (deficit) (28,891,000) 92,228 (3,210,000) 1 (32,101,000)
(92,228) 3
--------------- -------------------------------- -------------
Total shareholder's equity 77,589,000 92,238 6,697,762 84,379,000
--------------- -------------------------------- -------------
Total liabilities and shareholder's equity $ 91,141,000 $103,977 $ 6,788,834 $ 98,033,811
=============== ================================ =============
</TABLE>
Software.com, Inc.
Notes to unaudited pro forma condensed consolidated balance sheet
1 To record the allocation of the purchase price, including the in-process
R&D charge of $3,210,000, assuming the allocation occurred as of September
30, 1999. Due to the operating results through the closing date of October
20, 1999, the actual amount of Goodwill recorded is different than the
amount reflected above.
2 To record the funds used and the stock issued to complete the Telarc, Inc.
acquisition.
3 To eliminate Telarc's historical equity
<PAGE>
Software.com, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Year Ended December 31, 1998
Unaudited
-------------------------------------------------------------------------
Software.com
Software.com Telarc Pro Forma Combined
Actual Actual Combined Adjustments Pro Forma
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues;
Software licenses $17,462,000 $ - $17,462,000 $ 17,462,000
Services 8,157,000 293,521 8,450,521 8,450,521
-------------------------------------------------------------------------
Total revenues 25,619,000 293,521 25,912,521 25,912,521
Cost of Revenues:
Software licenses 1,568,000 1,568,000 1,568,000
Services 7,451,000 164,836 7,615,836 7,615,836
-------------------------------------------------------------------------
Total cost of revenues 9,019,000 164,836 9,183,836 9,183,836
-------------------------------------------------------------------------
Gross Profit 16,600,000 128,685 16,728,685 16,728,685
Sales and marketing 10,769,000 10,769,000 10,769,000
Research and development 8,716,000 8,716,000 8,716,000
General and administration 4,036,000 71,189 4,107,189 1,692,067 (a) 7,199,256
1,400,000 (b)
Legal matter (400,000) - (400,000) (400,000)
-------------------------------------------------------------------------
23,121,000 71,189 23,192,189 3,092,067 26,284,256
-------------------------------------------------------------------------
Income/(loss) from operations (6,521,000) 57,496 (6,463,504) (3,092,067) (9,555,571)
Interest and other income (expense), net (436,000) 610 (435,390) - (435,390)
-------------------------------------------------------------------------
Income/(loss) before income taxes (6,957,000) 58,106 (6,898,894) (3,092,067) (9,990,961)
Provision for income taxes (446,000) (446,000) (446,000)
-------------------------------------------------------------------------
Net income/(loss) $(7,403,000) $ 58,106 $(7,344,894) $(3,092,067) $(10,436,961)
=========================================================================
Pro forma net loss per share- basic and diluted $ (0.23)(c) $ (0.32)(c)
Pro forma weighted average shares - basic and
diluted 32,110,000 (c) 32,321,918 (c)
</TABLE>
Software.com, Inc.
Notes to unaudited pro forma condensed consolidated statement of operations
Year end December 31, 1998
a) To reflect the amortization of goodwill and intangibles resulting from the
purchase of Telarc, Inc.
b) To record compensation expense related to the Telarc, Inc. acquisition. In
connection with the Telarc, Inc. acquisition, the sole shareholder of
Telarc, Inc. is entitled to additional consideration of up to $3,500,000 (10
quarterly payments of $350,000) as long as such shareholder is continuously
employed by Software.com, Inc. from the closing date through each payment
date.
c) Pro forma basic and diluted net loss per share of Software.com, Inc. for the
year ended December 31, 1998 has been computed using the weighted average
number of common shares outstanding, including the pro forma effects of the
conversion of the Company's Series A, B, C, and D Convertible Preferred
Stock into shares of the Company's Common Stock effective upon the closing
of the initial public offering as if such conversion had occurred on January
1, 1998, or at the date of original issuance, if later. All potentially
dilutive securities have been excluded from the calculation of Pro forma
diluted net loss per share because their effect is anti-dilutive. The
adjustment to the pro forma Software.com, Inc. weighted average shares
outstanding results from inclusion of actual shares issued in conjunction
with the Telarc, Inc. acquisition as if such shares were outstanding from
January 1,1998.
<PAGE>
Software.com, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
(unaudited)
-------------------------------------------------------------------------------
Software.com
Software.com Telarc Pro Forma Combined
Actual Actual Combined Adjustments Pro Forma
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues
Software licenses $ 17,156,000 $309,000 $17,465,000 (150,640)(a) $17,314,360
Services 11,969,000 277,086 12,246,086 (1,847)(a) 12,244,239
-------------------------------------------------------------------------------
Total revenues 29,125,000 586,086 29,711,086 (152,487) 29,558,599
Cost of Revenues:
Software licenses 2,002,000 - 2,002,000 (152,487)(a) 1,849,513
Services 8,138,000 179,622 8,317,622 8,317,622
-------------------------------------------------------------------------------
Total cost of revenues 10,140,000 179,622 10,319,622 (152,487) 10,167,135
-------------------------------------------------------------------------------
Gross Profit 18,985,000 406,464 19,391,464 - 19,391,464
Sales and marketing 12,620,000 12,620,000 12,620,000
Research and development 9,657,000 9,657,000 9,657,000
General and administration 3,916,000 49,044 3,965,044 1,269,050 (b) 6,284,094
1,050,000 (c)
Legal matter (200,000) - (200,000) (200,000)
-------------------------------------------------------------------------------
25,993,000 49,044 26,042,044 2,319,050 28,361,094
-------------------------------------------------------------------------------
Income/(loss) from operations (7,008,000) 357,420 (6,650,580) (2,319,050) (8,969,630)
Interest and other income 534,000 1,431 535,431 535,431
-------------------------------------------------------------------------------
Income/(loss) before income taxes (6,474,000) 358,851 (6,115,149) (2,319,050) (8,434,199)
Provision for income taxes (156,000) - (156,000) - (156,000)
-------------------------------------------------------------------------------
Net income/(loss) $(6,630,000) $358,851 $(6,271,149) (2,319,050) $(8,590,199)
===============================================================================
Pro forma net loss per share- basic and dilute $ (0.18)(d) $ (0.23)(d)
Pro forma weighted average shares - basic and
diluted 36,753,000 (d) 36,964,918 (d)
</TABLE>
Software.com, Inc.
Notes to unaudited pro forma condensed consolidated statement of operations
Nine Months Ended September 30, 1999
a) To eliminate the intercompany revenues and related cost of revenues between
the Company and Telarc, Inc.
b) To reflect the amortization of goodwill and intangibles resulting from the
purchase of Telarc, Inc.
c) To record compensation expense related to the Telarc, Inc. acquisition. In
connection with the Telarc, Inc. acquisition, the sole shareholder of
Telarc, Inc. is entitled to additional consideration of up to $3,500,000 (10
quarterly payments of $350,000) as long as such shareholder is continuously
employed by Software.com, Inc. from the closing date through each payment
date.
d) Pro forma basic and diluted net loss per share of Software.com, Inc. for the
nine months ended September 30, 1999 has been computed using the weighted
average number of common shares outstanding, including the pro forma effects
of the conversion of the Company's Series A, B, C, and D Convertible
Preferred Stock into shares of the Company's Common Stock effective upon the
closing of the initial public offering as if such conversion had occurred on
January 1, 1999, or at the date of original issuance, if later. All
potentially dilutive securities have been excluded from the calculation of
Pro forma diluted net loss per share because their effect is anti-dilutive.
The adjustment to the pro forma Software.com, Inc. weighted average shares
outstanding results from inclusion of actual shares issued in conjunction
with the Telarc, Inc. acquisition as if such shares were outstanding from
January 1, 1999.
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit
Number Description of Document
------ -----------------------
23.1 Consent of Ernst & Young LLP, Independent Auditors.
<PAGE>
EXHIBIT 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-89549) pertaining to the 1995 Stock Plan, the 1999 Employee Stock
Purchase Plan, the Mobility.Net Corporation 1999 Stock Option Plan and Options
under Stock Option Agreements of our report dated December 27, 1999 with respect
to the financial statements of Telarc, Inc. included in the Current Report on
Form 8-K/A of Software.com, Inc. dated October 20, 1999.
/s/ ERNST & YOUNG LLP
Woodland Hills, California
December 27, 1999
