<PAGE>
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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):
June 14, 2000
----------------
SOFTWARE.COM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 000-26379 77-0392373
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification Number)
</TABLE>
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)
--------------------------------------------------------------------------------
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<PAGE>
This Current Report on Form 8-K/A amends Items 2 and 7 of the Current Report
on Form 8-K filed with the Securities and Exchange Commission on June 29, 2000.
ITEM 2.
On June 14, 2000, Software.com, Inc. completed its acquisition of bCandid
Corporation. BCandid was formed in early 1999 through the merger of two
companies, ISPNews (a service related business) and Highwind Software, Inc. (a
software developer). Immediately prior to the acquisition by Software.com,
bCandid spun-off the service portion of its business. As a result, Software.com
acquired the remaining business of bCandid representing its core software
development operations. The financial statements filed under Item 7. herein
represent those of bCandid Corporation as of and for the year ended December
31, 1999 and of Highwind Software, Inc., (the predecessor business to acquired
entity) as of and for the year ended December 31, 1998. The unaudited proforma
condensed consolidated financial statements reflect both the combination of
Software.com and bCandid and the spin-off of the Company's service business as
if both had occurred as of the beginning of the periods presented.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
<TABLE>
<C> <S> <C>
(a) bCandid Corporation Financial Statements
Report of Ernst & Young LLP, Independent Auditors................... 3
Consolidated Balance Sheets as of December 31, 1999 and March 31,
2000 (unaudited)................................................... 4
Consolidated Statements of Operations for the Year Ended December
31, 1999 and the Three Month Periods Ended March 31, 1999
(unaudited) and March 31, 2000 (Unaudited)......................... 5
Consolidated Statements of Shareholder's Equity (Deficit) for the
Year Ended December 31, 1999 and for Three Month Period Ended March
31, 2000 (unaudited)............................................... 6
Consolidated Statements of Cash Flows for the Year Ended December
31, 1999 and the Three Month Periods Ended, March 31, 1999
(unaudited) and March 31, 2000 (Unaudited)......................... 7
Consolidated Notes to Financial Statements.......................... 8
(b) Highwind Corporation Financial Statements
Report of KPMG LLP, Independent Auditors............................ 15
Balance Sheet as of December 31, 1998............................... 16
Statement of Operations for the Year Ended December 31, 1998........ 17
Statement of Shareholder's Equity (Deficit) for the Year Ended
December 31, 1998.................................................. 18
Statement of Cash Flows for the Year Ended December 31, 1998........ 19
Notes to Financial Statements....................................... 20
(c) Pro Forma Condensed Consolidated Financial Information
Overview............................................................ 22
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March
31, 2000........................................................... 23
Unaudited Pro Forma Condensed Consolidated Statements of Operations
for the Year Ended December 31, 1999 and for the Three Month Period
ended March 31, 2000............................................... 24
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information........................................................ 26
(d) Exhibits
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of KPMG LLP, Independent Auditors
</TABLE>
2
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors
bCandid Corporation
We have audited the accompanying consolidated balance sheet of bCandid
Corporation as of December 31, 1999, and the related consolidated statement of
operations, shareholders' equity and cash flows for the year 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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 consolidated financial position of bCandid
Corporation at December 31, 1999, and the consolidated results of its
operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States.
Ernst & Young LLP
August 25, 2000
Woodland Hills, California
3
<PAGE>
bCANDID CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 March 31
1999 2000
----------- -----------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash............................................... $ 1,751,000 $ 696,000
Accounts receivable (net of allowance for doubtful
accounts of $28,000 and $29,000 respectively)..... 988,000 1,830,000
Prepaid and other.................................. 417,000 334,000
----------- -----------
Total current assets............................. 3,156,000 2,860,000
Equipment and improvements, net...................... 3,433,000 3,410,000
Goodwill, net........................................ 1,527,000 1,145,000
Other assets......................................... 34,000 40,000
----------- -----------
Total assets..................................... $ 8,150,000 $ 7,455,000
=========== ===========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable................................... $ 1,010,000 $ 736,000
Convertible promissory notes....................... 2,725,000 2,725,000
Current portion of line of credit.................. 338,000 263,000
Accrued liabilities................................ 692,000 497,000
Deferred revenue................................... 1,908,000 2,355,000
----------- -----------
Total current liabilities........................ 6,673,000 6,576,000
Line of credit, long-term portion.................... 549,000 549,000
Commitments
Shareholders' equity:
Series A Preferred stock, $.001 par value:
Authorized shares--5,000,000
Issued and outstanding shares--2,000,000......... 3,998,000 3,998,000
Common stock, $.001 par value:
Authorized shares--20,000,000
Issued and outstanding shares--6,685,591 and
6,687,091, respectively......................... 7,000 7,000
Additional paid in capital......................... 5,210,000 5,957,000
Notes receivable for common stock.................. (1,038,000) (1,038,000)
Deferred compensation.............................. -- (742,000)
Accumulated deficit................................ (7,249,000) (7,852,000)
----------- -----------
Total shareholders' equity....................... 928,000 330,000
----------- -----------
Total liabilities and shareholders' equity..... $ 8,150,000 $ 7,455,000
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
bCANDID CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
Year ended March 31
December 31 -----------------------
1999 1999 2000
----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Net revenue............................... $ 3,802,000 $ 825,000 $ 1,673,000
Costs and expenses:
Cost of revenues........................ 2,675,000 202,000 868,000
R&D expense............................. 972,000 85,000 518,000
Selling, general and administrative..... 6,796,000 817,000 1,749,000
----------- --------- -----------
Operating loss............................ (6,641,000) (279,000) (1,462,000)
Gain on sale of assets.................... -- -- 848,000
Other income/(expense).................... (41,000) (6,000) 11,000
----------- --------- -----------
Loss before taxes......................... (6,682,000) (285,000) (603,000)
Provision for income taxes................ -- -- --
----------- --------- -----------
Net loss.................................. $(6,682,000) $(285,000) $ (603,000)
=========== ========= ===========
</TABLE>
See accompanying notes.
5
<PAGE>
bCANDID CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Notes
Preferred Stock Common Stock Additional Receivable
-------------------- ---------------- Paid-in for Common Deferred Accumulated
Shares Amount Shares Amount Capital Stock Compensation Deficit Total
--------- ---------- --------- ------ ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January
1, 1999............ -- -- 2,999,994 $3,000 $1,080,000 -- -- $ (567,000) $ 516,000
Issuance of
preferred stock
for cash.......... 1,900,000 3,798,000 -- -- -- -- -- -- 3,798,000
Conversion of notes
payable to common
stock............. 100,000 200,000 -- -- -- -- -- -- 200,000
Issuance of common
stock for
acquisition of
Highwind.......... -- -- 2,004,627 2,000 2,003,000 -- -- -- 2,005,000
Issuance of common
stock............. -- -- 1,070,000 1,000 1,069,000 -- -- -- 1,070,000
Fair value of
warrants issued to
financial
institution....... -- -- -- -- 20,000 -- -- -- 20,000
Common stock issued
for note
receivable........ -- -- 610,970 1,000 1,038,000 (1,038,000) -- -- 1,000
Net loss........... -- -- -- -- -- -- -- (6,682,000) (6,682,000)
--------- ---------- --------- ------ ---------- ----------- --------- ----------- ----------
Balance, December
31, 1999........... 2,000,000 3,998,000 6,685,591 7,000 5,210,000 (1,038,000) -- (7,249,000) 928,000
Exercise of stock
options
(unaudited)....... -- -- 1,500 -- 2,000 -- -- -- 2,000
Deferred
compensation
(unaudited)....... -- -- -- 745,000 -- (745,000) -- --
Amortization of
deferred
compensation
(unaudited)....... -- -- -- -- -- -- 3,000 -- 3,000
Net loss
(unaudited)....... -- -- -- -- -- -- -- (603,000) (603,000)
--------- ---------- --------- ------ ---------- ----------- --------- ----------- ----------
Balance, March 31,
2000 (unaudited)... 2,000,000 $3,998,000 6,687,091 $7,000 $5,957,000 $(1,038,000) $(742,000) $(7,852,000) $ 330,000
========= ========== ========= ====== ========== =========== ========= =========== ==========
</TABLE>
See accompanying notes
6
<PAGE>
bCANDID CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
March 31
December 31 ------------------------
1999 1999 2000
----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Operating activities
Net loss............................... $(6,682,000) $ (285,000) $ (603,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization........ 2,074,000 382,000 614,000
Gain on sale of assets............... -- -- (848,000)
Changes in other operating assets and
liabilities:
Accounts receivable................ (608,000) (337,000) (842,000)
Accounts payable and accrued
liabilities....................... 1,592,000 216,000 (462,000)
Accrued payroll and related........ 391,000 (7,000) 76,000
Deferred revenue................... 1,452,000 704,000 454,000
Other.............................. 38,000 (14,000) (108,000)
----------- ----------- -----------
Net cash used in operating activities.. (1,743,000) 659,000 (1,719,000)
Investing activities
Capital expenditures................... (3,655,000) (123,000) (239,000)
Cash paid to purchase HW............... (1,007,000) (1,007,000) --
----------- ----------- -----------
Net cash used in investing activities.. (4,662,000) (1,130,000) (239,000)
Financing activities
Proceeds related to sale of assets..... -- -- 1,000,000
Promissory note........................ 2,725,000 -- --
Proceeds related to the line of
credit................................ 1,106,000 -- --
Payments related to the line of
credit................................ (637,000) -- (100,000)
Common stock issuances/stock option
exercises............................. 1,071,000 1,070,000 3,000
Preferred stock issuances.............. 3,798,000 -- --
----------- ----------- -----------
8,063,000 1,070,000 903,000
Net increase (decrease) in cash........ 1,658,000 599,000 (1,055,000)
Cash at beginning of year.............. 93,000 93,000 1,751,000
----------- ----------- -----------
Cash at end of year.................... $ 1,751,000 $ 692,000 $ 696,000
=========== =========== ===========
Income tax paid........................ $ -- $ -- $ 3,000
=========== =========== ===========
Interest paid.......................... $ 42,000 $ 1,000 $ 36,000
=========== =========== ===========
</TABLE>
See accompanying notes.
7
<PAGE>
bCANDID CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2000 and for the three months ended March 31, 2000
and March 31, 1999 is unaudited)
1. Summary of Significant Accounting Policies
Business and Organization
ISPNews, Inc. (ISPNews), a privately held company, was incorporated in
Michigan in March of 1997. ISPNews is a service provider of usenet technologies
solutions.
Highwind Software, Inc. (Highwind), a privately held company, was
incorporated in Massachusetts in July of 1996. Highwind is a market leader in
providing carrier-class discussion server infrastructure software to service
providers worldwide.
On January 8, 1999, ISPNews and Highwind entered into an Agreement of
Reorganization ("the Agreement") by which a newly formed company was
incorporated in the state of Delaware under the name ISPNews--Highwind Inc.
Pursuant to the terms of the Agreement, each share of issued and outstanding
ISPNews common stock (12,109shares) was exchanged for 247.8 shares of ISPNews--
Highwind Inc. common stock (2,999,994 shares). Additionally, as a condition of
closing the Agreement, ISPNews shareholders contributed $1,070,000 to ISPNews--
Highwind Inc. in return for 1,070,000 shares of common stock. ISPNews--Highwind
Inc. also issued 2,004,677 shares of common stock , paid $1,007,000 in cash and
issued a promissory note for $353,000 all to the sole shareholder of Highwind
in exchange for 100% of the common stock of Highwind. For financial reporting
purposes, the formation of ISPNews--Highwind Inc. was accounted for as the
purchase by ISPNews of Highwind and accordingly, the excess of the purchase
price over the fair value of the net assets acquired was allocated to goodwill
(see Note 2). The results of operations from January 1, 1999 through January 8,
1999, were not significant.
In April of 1999, ISPNews--Highwind Inc. changed its name to bCandid
Corporation ("bCandid" or the "Company").
Basis of Presentation
The accompanying consolidated financial statements of the Company and its
subsidiaries have been prepared in accordance with generally accepted
accounting principles. All significant intercompany balances and transactions
have been eliminated.
Interim Financial Statements
The accompanying consolidated balance sheet as of March 31, 2000 the
consolidated statements of operations and consolidated statement of cash flows
for the three months ended March 31, 1999 and 2000, and the statement of
shareholders' equity for the three months ended March 31, 2000, 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 three months ended
March 31, 2000, are not necessarily indicative of operating results to be
expected for the full fiscal year.
Significant Customers and Concentration of Credit Risk
The Company's customers are not concentrated in any geographic region.
During the year ended December 31, 1999, the Company had no significant
customers. At December 31, 1999, one customer accounted for 13% of accounts
receivable. The Company routinely assesses the financial strength of
significant customers but generally does not require collateral. The Company
establishes an allowance for potential credit losses based on the credit risk
for specific customers, historical trends and other information; such losses
have been within management's expectations.
8
<PAGE>
bCANDID CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at March 31, 2000 and for the three months ended March 31, 2000
and March 31, 1999 is unaudited)
Revenue Recognition
In October 1997, the American Institute of Certified Public Accountants
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 not expected to have a material
impact on the Company's financial condition or results of operations.
The Company recognizes revenue from sales of products and software licenses
upon shipment of the product or issuance of a software access key to the
customer, provided that persuasive evidence of an agreement exists, the license
fee is fixed and determinable, and collection of the fee is considered
probable. Revenue from maintenance contracts generally call for the Company to
provide technical support and software updates and upgrades to customers and is
recognized ratably over the maintenance period, principally one year. Training
and other consulting services are recognized as the services are performed.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes
certain of the SEC's views in applying generally accepted accounting principles
to revenue recognition in financial statements. The company is required to
adopt SAB 101 in the first quarter of fiscal 2001. Management does not expect
the adoption of SAB 101 to have a material effect on the company's operations
or financial position.
Research and Development
Pursuant to Statement of Financial Accounting Standards No. 86 "Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,"
development costs related to software products are expensed as incurred until
the "technological feasibility" of the product has been established. Because of
the relatively short time period between "technological feasibility" and
product release, and the insignificant amount of costs incurred during such
period, no software development costs have been capitalized.
Cash Equivalents
Cash equivalents consist of investments with original maturities of three
months or less from the date of purchase.
Equipment and Improvements
Equipment and improvements are stated at cost. Depreciation is provided for
by the straight-line method over the estimated useful lives ranging from 2-5
years. Leasehold improvements are amortized using the straight-line method over
the shorter of their estimated useful lives or the lease term.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs for the year
ended December 31, 1999 amounted to $282,000.
Accounting for Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123), encourages but does not require that stock
awards granted subsequent to December 31, 1994, be
9
<PAGE>
bCANDID CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at March 31, 2000 and for the three months ended March 31, 2000
and March 31, 1999 is unaudited)
recognized as compensation expense based on their fair value at the date of
grant. Pursuant to SFAS 123, a company may elect to continue to account for
stock awards using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25), but must disclose pro forma income amounts which would have resulted
from recognizing such awards at their fair value. The Company continues to
account for stock-based compensation under APB 25 and provides the pro forma
footnote disclosures required under SFAS 123 (Note 8).
Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. To date, the Company has not had any transactions that
are required to be reported in comprehensive income.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash and cash
equivalents, accounts receivable, accounts payable, and the line of credit
approximate their fair values due to the short-term nature of these financial
instruments.
Impairment of Long-Lived Assets
The Company assesses on an ongoing basis the recoverability of long-lived
assets, based on estimates of future undiscounted cash flows compared to net
book value. If the future undiscounted cash flow estimates were less than net
book value, net book value would then be reduced to fair value based on an
estimate of discounted cash flow. The Company also evaluates the amortization
periods of assets, including goodwill and other intangible assets, to determine
whether events or circumstances warrant revised estimates of useful lives.
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
the accompanying notes. Actual results could differ from those estimates and
such differences may be material to the financial statements.
2. Goodwill
In connection with the purchase of Highwind by ISPNews in January 1999 (See
Note 1), the majority of the purchase price was allocated to goodwill as the
net assets of Highwind on the date of acquisition had a nominal fair value. The
goodwill of $3,054,000 is being amortized on a straight-line basis over 2 years
and is reported net of accumulated amortization of $1,527,000 at December 31,
1999 and $1,909,000 at March 31, 2000.
10
<PAGE>
bCANDID CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at March 31, 2000 and for the three months ended March 31, 2000
and March 31, 1999 is unaudited)
3. Equipment and Improvements, net
Equipment and improvements at December 31 consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------ ----------
<S> <C> <C>
Furniture and fixtures........................... $ 249,000 $ 327,000
Office computer equipment........................ 507,000 669,000
Network/computer equipment....................... 2,549,000 2,438,000
Leasehold improvements........................... 298,000 241,000
Software......................................... 519,000 451,000
---------- ----------
4,122,000 4,126,000
Less accumulated depreciation and amortization... (689,000) (716,000)
---------- ----------
$3,433,000 $3,410,000
========== ==========
</TABLE>
4. Debt Obligations
Convertible Promissory Notes and Warrants
In November and December of 1999, the Company issued convertible promissory
notes (the "Notes") for total proceeds of $2,725,000. The Notes bore interest
at 6% and were payable, including accrued interest, on April 25, 2000. Under
the terms of the Note agreements, if the Company was able to close the sale and
issuance of shares in a second round of preferred stock financing by April 25,
2000, the outstanding principal and unpaid accrued interest on the Notes would
automatically convert into shares of the second round preferred financing. The
conversion price would be equal to the price per share paid by the investors
purchasing such shares.
As part of the Note agreements, the Company was also required to issue
warrants to purchase Series A preferred shares to the holders of the Notes on
the earlier of April 25, 2000 or the closing of a second round of preferred
financing.
The Company was unable to close the second round of preferred financing and
on May 12, 2000, the principal and unpaid accrued interest was converted into
704,000 shares of the Company's common stock and the warrants were exercised
for 82,000 shares of Series A preferred stock.
Line of Credit
The Company has an equipment line of credit at December 31, 1999 for maximum
borrowings of $1,700,000 that expires August 2002. As of December 31, 1999,
there was $887,000 outstanding under the line of credit and is collateralized
by all assets of the Company. The line of credit agreement provides for
interest at 9%. Minimum future payments under the line of credit are $404,000,
$404,000 and 185,000 for 2000, 2001 and 2002, respectively.
5. Income Taxes
Prior to the formation of bCandid in January of 1999, ISPNews and Highwind
both had S corporation tax status for federal and state income tax purposes.
For the year ended December 31, 1999, the Company changed its tax status to a
taxable C corporation. In accordance with Financial Accounting Standards No.
109, the effect of the change in tax status resulted in the recognition of
deferred tax assets and liabilities primarily related to
11
<PAGE>
bCANDID CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at March 31, 2000 and for the three months ended March 31, 2000
and March 31, 1999 is unaudited)
the current year net operating loss carryforward. However, the Company has
placed a valuation allowance against these otherwise recognizable deferred tax
assets due to the uncertainty of realizing the benefit of these favorable tax
attributes in the future.
At December 31, 1999, the Company's net operating loss carryforward was
approximately $5,399,000, expiring 2019.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
as of December 31 are as follows:
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards............................ $ 1,836,000
Bad debt reserve............................................ 10,000
-----------
Total deferred tax assets................................. 1,846,000
Deferred tax liability:
Depreciation and amortization............................... (118,000)
Less valuation reserve........................................ (1,728,000)
-----------
Net deferred taxes........................................ $ --
===========
</TABLE>
6. Commitments
The Company leases office space under an agreement expiring in 2001. The
office lease requires payment of real estate taxes and maintenance in addition
to the minimum rental payments.
Minimum future rental payments under the noncancelable operating lease for
the remaining lease term are as follows:
<TABLE>
<S> <C>
2000.............................................................. $105,000
2001.............................................................. 44,000
--------
$149,000
========
</TABLE>
Total rent expense was $73,000 in 1999.
7. Shareholders' Equity
Initial Issuance of Shares
On January 8, 1999, the Company issued 2,999,994 shares for all of the
issued and outstanding common stock of ISPNews. Additionally, the Company
issued 1,070,000 shares for $1,070,000. In exchange for 100% of the common
stock of Highwind common stock, the sole shareholder received 2,004,627 shares
of the Company, $1,007,000, and Company's promissory note for $353,000.
Approximately $61,000 was paid on the promissory note with the remaining
$92,000 recorded as an adjustment to goodwill. The remaining $200,000 was
converted into Series A convertible preferred stock.
12
<PAGE>
bCANDID CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at March 31, 2000 and for the three months ended March 31, 2000
and March 31, 1999 is unaudited)
Series A Convertible Preferred Stock
On April 8, 1999, the Company sold an aggregate of 1,900,000 shares of
Series A convertible preferred stock ("Series A") at $2.00 per share, resulting
in net proceeds of $3,798,000. Additionally, a note payable to shareholder in
the amount of $200,000 was converted into 100,000 shares of Series A. The
Series A may, at the option of the holder, be converted at any time into fully-
paid and non-assessable shares of Common Stock. Each share of Series A is
entitled to share equally with the holders of common shares as to dividends, if
declared, and the preferred shareholders have the same voting rights (on an as-
converted basis) as the common shareholders. In the event of liquidation, the
preferred shareholders have preferential rights to liquidation payments.
Warrants Issued
In connection with entering into an equipment line of credit (see Note 4),
the Company issued 25,500 and 12,750 warrants to purchase Series A convertible
preferred stock at exercise prices of $2.00 and $1.00, respectively. The
warrants are immediately exercisable and expire 10 years from the date of
grant. The fair value of the warrants granted was determined to be
approximately $20,000 using the minimum value option pricing model. In May
2000, the warrants were exercised.
Common Stock Issued for Notes Receivable
During December 1999, the Company issued 610,970 shares of common stock upon
exercise of stock options in exchange for notes receivable of $1,038,000. The
notes receivable are full recourse notes, bear interest at 6.02%, and are due
on December 29, 2004, including accrued interest. The notes receivable were
classified as a reduction of shareholders' equity.
8. Stock Options
The 1999 Equity Incentive Plan provides for the granting of nonqualified and
incentive stock options to directors, employees and consultants of the Company.
The Board of Directors is authorized to administer the Plan and establish the
stock option terms, including the grant price and vesting period. The plan
allows for the grant of options for 1,500,000 shares of common stock. As of
December 31, 1999, the Company had 123,000 shares of common stock available for
future grant under its stock option plan
Stock options typically vest over a four-year period and expire ten years
from the date of grant. Vested incentive stock options are exercisable during
continued employment or generally within 90 days of terminating employment.
Vested nonqualified stock options are exercisable until expiration.
The following table summarizes the Company's stock option activity:
<TABLE>
<CAPTION>
Weighted-
Average
Shares Low High Price
--------- ----- ----- ---------
<S> <C> <C> <C> <C>
Options granted............................... 2,708,000 $1.00 $5.00 $2.17
Options forfeited............................. (720,000) 1.00 5.00 $3.45
Options exercised............................. (611,000) 1.70 1.70 $1.70
--------- ----- ----- -----
Outstanding at December 31, 1999.............. 1,377,000 $1.00 $5.00 $2.69
Options granted (unaudited)................... 674,000 1.70 4.00 $3.11
Options forfeited (unaudited)................. (724,000) 1.00 4.00 $1.66
Options exercised (unaudited)................. (2,000) 1.70 1.70 $1.70
--------- ----- ----- -----
Outstanding at March 31, 2000 (unaudited)..... 1,325,000 $1.00 $5.00 $2.99
========= ===== ===== =====
</TABLE>
13
<PAGE>
bCANDID CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at March 31, 2000 and for the three months ended March 31, 2000
and March 31, 1999 is unaudited)
As of December 31, 1999 and March 31, 2000, stock options to purchase common
stock of 50,000 and 158,866, respectively, were exercisable. The weighted-
average remaining contractual life of options outstanding was 9.08 years at
December 31, 1999.
In computing the impact of SFAS 123, a weighted average fair value of $.38
for 1999 stock option grants was estimated at the date of grant using the
minimum value option pricing model with the following assumptions: risk-free
interest rate of 5.88%, a weighted-average expected life of the options of 3
years and no assumed dividend yield.
For purposes of pro forma disclosures, the estimated fair value of the
options is expensed over the vesting period. If the Company elected to
recognize compensation cost based on the fair value at the date of grant for
options awarded under the Plan as prescribed by SFAS No. 123, the pro forma
amounts of the Company's net loss for the years ended 1999 and 1998 would have
been as follows:
<TABLE>
<CAPTION>
December 31
1999
-----------
<S> <C>
Net loss--as reported......................................... $6,682,000
Net loss--pro forma........................................... $6,873,000
</TABLE>
The pro forma effect on net loss for 1999 is not representative of the pro
forma effect on net income in future years because compensation expense in
future years will reflect the amortization of a larger number of stock options
granted in several succeeding years.
9. Subsequent Events
In March 2000, the Company sold one of its product lines to an outside party
for $1,000,000 proceeds which resulted in a gain of $848,000.
In connection with the grant of certain stock options to purchase common
stock to employees during March 2000, the Company recorded deferred
compensation of $745,000 for the aggregate difference between the exercise
prices of the options at their dates of grant and the fair value of the common
stock. Such amount is being amortized over the vesting period of the related
stock options. Amortization expense recognized for the three months ended March
31, 2000 was $3,000.
On June 14, 2000, Software.com acquired all of the issued and outstanding
capital stock of the Company and assumed all of the outstanding warrants and
stock options in exchange for Software.com common stock valued at $65,400,000.
Immediately prior to the acquisition of the Company by Software.com on June
14, 2000, bCandid spun-off its service portion of the business. As a result,
Software.com acquired the remaining business of bCandid representing its core
software development operations.
The following unaudited pro forma information is presented as if the spin-
off had occurred on January 1, 1999.
<TABLE>
<CAPTION>
Pro Forma
bCandid BCandid
December ISPNews December 31,
31, 1999 Spin-off 1999
----------- ----------- ------------
<S> <C> <C> <C>
Revenues............................ $ 3,802,000 $ 361,000 $3,441,000
Net loss............................ $(6,682,000) $(6,243,000) $ (439,000)
</TABLE>
14
<PAGE>
Independent Auditors' Report
The Board of Directors
bCandid Corporation:
We have audited the accompanying balance sheet of HighWind Software, Inc. as
of December 31, 1998, and the related statements of operations, stockholders'
deficit and cash flows for the year 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 audit.
We conducted our audit 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 audit provides 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 HighWind Software, Inc. as
of December 31, 1998, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
KPMG LLP
Boulder, Colorado
March 31, 2000
15
<PAGE>
HIGHWIND SOFTWARE, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
Assets
Current assets:
Cash and cash equivalents....................................... $ 69,601
Trade accounts receivable, net of allowance for doubtful
accounts of $2,000............................................. 101,980
Prepaid expenses and other...................................... 362
-----------
Total current assets.......................................... 171,943
Furniture, fixtures and equipment, net............................ 4,640
Other assets...................................................... 1,819
-----------
Total assets.................................................. $ 178,402
===========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued liabilities........................ $ 48,556
Deferred revenue................................................ 1,216,172
-----------
Total liabilities............................................. 1,264,728
-----------
Stockholders' deficit:
Common stock, no par value, 1,000 shares authorized, issued and
outstanding.................................................... 11,000
Accumulated deficit............................................. (1,097,326)
-----------
Total stockholders' deficit................................... (1,086,326)
-----------
Commitment (note 3)
Total liabilities and stockholders' deficit................... $ 178,402
===========
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
HIGHWIND SOFTWARE, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Revenue............................................................. $1,028,665
Expenses:
Salaries and benefits............................................. 549,922
General and administrative........................................ 166,484
Sales and marketing............................................... 14,145
----------
Earnings from operations........................................ 298,114
Interest income, net................................................ 12,989
----------
Net earnings.................................................... $ 311,103
==========
Pro forma information (unaudited):
Historical net earnings........................................... $ 311,103
Pro forma adjustment for income tax expense....................... (124,000)
----------
Pro forma net earnings.......................................... $ 187,103
==========
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
HIGHWIND SOFTWARE, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common stock Total
-------------- Accumulated stockholders'
Shares Amount deficit deficit
------ ------- ----------- -------------
<S> <C> <C> <C> <C>
Balances at January 1, 1998.......... 1,000 $11,000 $ (212,765) $ (201,765)
Distributions to stockholders........ -- -- (1,195,664) (1,195,664)
Net earnings......................... -- -- 311,103 311,103
----- ------- ----------- -----------
Balances at December 31, 1998........ 1,000 $11,000 $(1,097,326) $(1,086,326)
===== ======= =========== ===========
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
HIGHWIND SOFTWARE, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net earnings................................................... $ 311,103
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization................................ 20,325
Changes in operating assets and liabilities:
Accounts receivable........................................ (83,270)
Prepaid expenses and other assets.......................... (190)
Accounts payable and accrued liabilities................... 18,981
Deferred revenue........................................... 852,883
-----------
Net cash provided by operating activities................ 1,119,832
-----------
Cash flows from investing activities--purchase of furniture,
fixtures and equipment.......................................... (19,050)
-----------
Cash flows from financing activities--distributions to
stockholders.................................................... (1,195,664)
-----------
Net decrease in cash and cash equivalents................ (94,882)
Cash and cash equivalents at beginning of year................... 164,483
-----------
Cash and cash equivalents at end of year......................... $ 69,601
===========
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
HIGHWIND SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) Business and Summary of Significant Accounting Policies
(a) Business and Basis of Financial Statement Presentation
Highwind Software, Inc., a Massachusetts corporation, (the Company)
develops and markets software for enterprise-based internet discussions.
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 revenue and expenses
during the reporting period. Actual results could differ significantly from
those estimates.
(b) Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
cash and investments with maturities of three months or less at the date of
purchase to be cash equivalents.
(c) Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are recorded at cost. Costs of
maintenance and repairs are charged to operations as incurred. Depreciation
is calculated using an accelerated method over the estimated useful lives
of the assets, which range from 3 to 5 years.
(d) Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, trade accounts receivable, accounts payable, and accrued
liabilities, which carrying values approximate fair values based on their
short-term nature.
(e) Impairment of Long-Lived Assets and Assets to be Disposed Of
In accordance with Statement on Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, the Company reviews long-lived assets and certain
identifiable intangibles 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 in operations is
generally measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be
recognized is equal to the amount by which the carrying amounts of the
assets exceed their fair values. Assets to be disposed of are reported at
the lower of the carrying amount or fair value, less costs to sell. No
asset impairment was recognized in 1998.
(f) Revenue Recognition
In accordance with the provisions of Statement of Position 97-2,
Software Revenue Recognition (SOP 97-2), the Company recognizes software
license revenue when persuasive evidence of an arrangement exists, delivery
has occurred, the fee is fixed or determinable and collectibility is
probable, based on the terms of the license agreement. In addition, SOP 97-
2 requires that revenue recognized from software arrangements be allocated
to each multiple element of the arrangement based on the relative fair
values of
20
<PAGE>
HIGHWIND SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998
each element. The Company generally sells software licenses with one year
maintenance agreements. As the Company does not have objective evidence of
the relative fair values of the software and maintenance, revenue for
software sales is recognized over the one year maintenance period.
(g) Income Taxes
The Company has elected S Corporation status for income tax purposes and
the results of operations of the Company are included in the individual
income tax returns of the stockholders. Accordingly, no provision for
income taxes has been included in the accompanying financial statements.
However, pro forma information has been included in the accompanying
statement of operations to reflect a pro forma adjustment for income tax
expense as if the Company had been a separate taxable entity subject to
federal and state income taxes for 1998.
(2) Furniture, Fixtures and Equipment
Furniture, fixtures and equipment consist of the following at December 31,
1998:
<TABLE>
<S> <C>
Office and computer equipment and purchased software............. $ 147
Furniture and fixtures........................................... 42,480
--------
42,627
Less accumulated depreciation and amortization................... (37,987)
--------
$ 4,640
========
</TABLE>
(3) Sale of Company
On January 8, 1999, all of the outstanding common stock of the Company was
acquired by bCandid Corporation.
21
<PAGE>
SOFTWARE.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
OVERVIEW
On June 14, 2000, Software.com, Inc. ("the Company") acquired bCandid
Corporation, ("bCandid") a market leader in providing carrier-class discussion
server infrastructure software to service providers worldwide. 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 Company issued approximately 667,000 shares of Software.com common stock
with a value of $65.4 million in exchange for all of the issued and outstanding
capital stock of bCandid, as well as the assumption of all outstanding warrants
and options to purchase shares of bCandid.
The purchase price of the acquisition has been allocated to the assets and
liabilities acquired based on their approximate fair market value.
Approximately $1.7 million was allocated to tangible assets, representing the
then net book value of such assets which approximated their fair values and the
remainder was allocated to intangible assets, including $300,000 to covenant
not to compete, $400,000 to assembled workforce, $600,000 to customer relations
and $6.7 million to core/alternative use technology and $55.9 million to
goodwill. In addition, the Company assumed approximately $2.2 million in
current liabilities as part of the purchase. The Company recorded a one-time
charge related to in-process research and development of $2 million at the date
of acquisition. The acquired intangible assets and goodwill are being amortized
over their estimated useful lives of two to four years.
The accompanying unaudited pro forma combined condensed consolidated balance
sheet gives effect to this consummated acquisition as if it had occurred on
March 31, 2000, by consolidating the balance sheets of bCandid and the Company
at March 31, 2000.
The accompanying unaudited pro forma condensed consolidated statements of
operations give effect to this consummated acquisition as if it had occurred on
January 1, 1999, by consolidating the results of operations of the Company and
bCandid for the year ended December 31, 1999 and the three months ended March
31, 2000.
The accompanying pro forma schedules also reflect the disposition of the
assets and liabilities related to the ISPNews portion of the bCandid business
as this disposition occurred prior to the consummation of the acquisition of
bCandid by the Company.
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.
22
<PAGE>
SOFTWARE.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
<TABLE>
<CAPTION>
Pro forma
bCandid combined
Software.com March 31, ISP News Software.com
March 31, 2000 March 31, Proforma March 31,
2000 Actual Actual 2000 Actual Subtotal Adjustments 2000
------------ ---------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current assets
Cash and cash
equivalents.......... $ 44,207,000 $ 696,000 $ (45,000) $ 44,858,000 -- $ 44,858,000
Short-term
investments.......... 30,276,000 -- -- 30,276,000 -- 30,276,000
Accounts receivable,
net.................. 28,434,000 1,830,000 -- 30,264,000 -- 30,264,000
Prepaid expenses and
other current
assets............... 1,618,000 334,000 (180,000) 1,772,000 -- 1,772,000
------------ ---------- ----------- ------------ ----------- ------------
Total current
assets.............. 104,535,000 2,860,000 (225,000) 107,170,000 -- 107,170,000
Property and equipment,
net.................... 6,515,000 3,410,000 (2,528,000) 7,397,000 -- 7,397,000
Goodwill and other
intangibles............ 7,625,000 1,145,000 -- 8,770,000 62,191,000 (1) 70,961,000
Deposits and other
assets................. 547,000 40,000 -- 587,000 -- 587,000
------------ ---------- ----------- ------------ ----------- ------------
Total assets......... $119,222,000 $7,455,000 $(2,753,000) $123,924,000 $62,191,000 $186,115,000
============ ========== =========== ============ =========== ============
Liabilities and
shareholders' equity
Current liabilities
Current portion of
long term debt....... -- 263,000 -- 263,000 -- 263,000
Accounts payable...... 4,598,000 736,000 (442,000) 4,892,000 -- 4,892,000
Accrued liabilities... 5,898,000 497,000 (302,000) 6,093,000 -- 6,093,000
Deferred revenue...... 15,362,000 2,355,000 -- 17,717,000 -- 17,717,000
Convertible promissory
notes................ -- 2,725,000 (1,793,000) 932,000 -- 932,000
------------ ---------- ----------- ------------ ----------- ------------
Total current
liabilities......... 25,858,000 6,576,000 (2,537,000) 29,897,000 -- 29,897,000
Long term Liabilities
LT Portion of -capital
lease................ -- 549,000 (330,000) 219,000 -- 219,000
Shareholders' equity
Common stock.......... 126,101,000 7,000 -- 126,108,000 65,393,000 (1) 191,501,000
Preferred Stock....... -- 3,998,000 -- 3,998,000 (3,998,000)(1) --
Notes receivable for
stock................ -- (1,038,000) -- (1,038,000) 1,038,000 (1) --
Additional paid in
Capital.............. -- 5,957,000 114,000 6,071,000 (6,071,000)(1) --
Deferred
compensation......... (1,520,000) (742,000) -- (2,262,000) 742,000 (1) (1,520,000)
Retained
earnings/Accumulated
(deficit)............ (31,217,000) (7,852,000) -- (39,069,000) 5,852,000 (1) --
(765,000)(1) (33,982,000)
------------ ---------- ----------- ------------ ----------- ------------
Total shareholders'
equity.............. 93,364,000 330,000 114,000 93,808,000 62,191,000 155,999,000
------------ ---------- ----------- ------------ ----------- ------------
Total liabilities and
shareholders'
equity.............. $119,222,000 $7,455,000 $(2,753,000) $123,924,000 $62,191,000 $186,115,000
============ ========== =========== ============ =========== ============
</TABLE>
23
<PAGE>
SOFTWARE.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Spin-Off Software.com
Software.com bCandid ISP News Pro forma combined
Actual Actual Actual Subtotal Adjustments Pro forma
------------ ----------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses..... $ 26,847,000 $ 3,441,000 $ -- $ 30,288,000 $ -- $ 30,288,000
Services.............. 20,094,000 361,000 (361,000) 20,094,000 -- 20,094,000
------------ ----------- ---------- ------------ ------------ ------------
Total revenues....... 46,941,000 3,802,000 (361,000) 50,382,000 -- 50,382,000
Cost of Revenues:
Software licenses..... 2,677,000 -- -- 2,677,000 -- 2,677,000
Services.............. 13,681,000 2,675,000 (2,308,000) 14,048,000 -- 14,048,000
------------ ----------- ---------- ------------ ------------ ------------
Total cost of
revenues............ 16,358,000 2,675,000 (2,308,000) 16,725,000 -- 16,725,000
------------ ----------- ---------- ------------ ------------ ------------
Gross Profit............ 30,583,000 1,127,000 1,947,000 33,657,000 -- 33,657,000
Sales and marketing..... 19,686,000 3,422,000 (2,349,000) 20,759,000 -- 20,759,000
Research and
development............ 15,910,000 972,000 (454,000) 16,428,000 -- 16,428,000
General and
administration......... 8,055,000 1,844,000 (1,584,000) 8,315,000 8,315,000
Stock based
compensation,
acqusition related..... 125,000 -- -- 125,000 -- 125,000
Amortization of goodwill
and purchased
intangible assets...... 329,000 1,530,000 76,000 1,935,000 21,300,000 (2) 23,235,000
Purchased in-process
research and
development............ 3,210,000 -- -- 3,210,000 -- 3,210,000
Legal matter............ (200,000) -- -- (200,000) -- (200,000)
------------ ----------- ---------- ------------ ------------ ------------
47,115,000 7,768,000 (4,311,000) 50,572,000 21,300,000 71,872,000
------------ ----------- ---------- ------------ ------------ ------------
Income/(loss) from
operations............. (16,532,000) (6,641,000) 6,258,000 (16,915,000) (21,300,000) (38,215,000)
Interest and other
income (expense), net.. 1,026,000 (41,000) (15,000) 970,000 -- 970,000
------------ ----------- ---------- ------------ ------------ ------------
Income/(loss) before
income taxes........... (15,506,000) (6,682,000) 6,243,000 (15,945,000) (21,300,000) (37,245,000)
Provision for income
taxes.................. 212,000 -- -- 212,000 -- 212,000
------------ ----------- ---------- ------------ ------------ ------------
Net income/(loss)....... (15,718,000) (6,682,000) 6,243,000 (16,157,000) (21,300,000) (37,457,000)
Accretion on redeemable
convertible preferred
stock.................. (403,000) -- -- (403,000) -- (403,000)
------------ ----------- ---------- ------------ ------------ ------------
Net income/(loss)....... $(16,121,000) $(6,682,000) $6,243,000 $(16,560,000) $(21,300,000) $(37,860,000)
============ =========== ========== ============ ============ ============
Pro forma net loss per
share--basic and
diluted................ $ (0.45) $ (1.04)(3)
Pro forma weighted
average share--basic
and diluted............ 35,754,000 36,421,000 (3)
</TABLE>
24
<PAGE>
SOFTWARE.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Spin-Off Software.com
Software.com bCandid ISP News Pro forma combined
Actual Actual Actual Subtotal Adjustments Pro forma
------------ ---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses..... $13,437,000 $1,090,000 $ -- $14,527,000 $ -- $14,527,000
Services.............. 6,681,000 583,000 (232,000) 7,032,000 -- 7,032,000
----------- ---------- ---------- ----------- ----------- -----------
Total revenues....... 20,118,000 1,673,000 (232,000) 21,559,000 -- 21,559,000
Cost of Revenues:
Software licenses..... 721,000 -- -- 721,000 -- 721,000
Services.............. 4,773,000 868,000 (616,000) 5,025,000 -- 5,025,000
----------- ---------- ---------- ----------- ----------- -----------
Total cost of
revenues............ 5,494,000 868,000 (616,000) 5,746,000 -- 5,746,000
----------- ---------- ---------- ----------- ----------- -----------
Gross Profit............ 14,624,000 805,000 384,000 15,813,000 -- 15,813,000
Sales and marketing..... 7,367,000 687,000 (438,000) 7,616,000 -- 7,616,000
Research and
development............ 5,771,000 519,000 (311,000) 5,979,000 -- 5,979,000
General and
administration......... 2,962,000 675,000 (417,000) 3,220,000 -- 3,220,000
Stock based
compensation,
acquisition related.... 2,064,000 -- -- 2,064,000 -- 2,064,000
Amortization of goodwill
and purchased
intangible assets...... 423,000 401,000 (240,000) 584,000 5,325,000 (2) 5,909,000
----------- ---------- ---------- ----------- ----------- -----------
18,587,000 2,282,000 (1,406,000) 19,463,000 5,325,000 24,788,000
----------- ---------- ---------- ----------- ----------- -----------
Income/(loss) from
operations............. (3,963,000) (1,477,000) 1,790,000 (3,650,000) (5,325,000) (8,975,000)
Interest and other
income (expense), net.. 1,129,000 859,000 (515,000) 1,473,000 -- 1,473,000
----------- ---------- ---------- ----------- ----------- -----------
Income/(loss) before
income taxes........... (2,834,000) (618,000) 1,275,000 (2,177,000) (5,325,000) (7,502,000)
Provision for income
taxes.................. 34,000 -- -- 34,000 -- 34,000
----------- ---------- ---------- ----------- ----------- -----------
Net income/(loss)....... $(2,868,000) $ (618,000) $1,275,000 $(2,211,000) $(5,325,000) $(7,536,000)
=========== ========== ========== =========== =========== ===========
Pro forma net loss per
share--basic and
diluted................ $ (0.07) $ (0.17)(4)
Pro forma weighted
average share--basic
and diluted............ 43,747,000 44,414,000 (4)
</TABLE>
25
<PAGE>
SOFTWARE.COM, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
1) To record the stock issued to complete the bCandid Corporation
acquisition and the allocation of the purchase price, including the in-process
R&D charge of $2,000,000, assuming the allocation occurred as of March 31,
2000. Due to the operating results through the closing date of June 14, 2000,
the actual amount of Goodwill recorded is different than the amount reflected
above.
2) To reflect the amortization of goodwill and intangibles resulting from
the purchase of bCandid Corporation, which are being amortized over three
years.
3) Pro forma basic and diluted net loss per share of Software.com, Inc. for
the year ended December 31, 1999 has been computed using the historical
weighted average number of common shares outstanding of Software.com as
adjusted to reflect the inclusion of actual shares issued in conjunction with
the bCandid Corporation acquisition as if such shares were outstanding from
January 1,1999. All potentially dilutive securities have been excluded from the
calculation of Pro forma diluted net loss per share because their effect is
anti-dilutive.
4) Pro forma basic and diluted net loss per share of Software.com, Inc. for
the three months ended March 31, 2000 has been computed using the historical
weighted average number of common shares outstanding of Software.com as
adjusted to reflect the inclusion of actual shares issued in conjunction with
the bCandid Corporation acquisition as if such shares were outstanding from
January 1, 2000. All potentially dilutive securities have been excluded from
the calculation of Pro forma diluted net loss per share because their effect is
anti-dilutive.
26
<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: August 28, 2000 SOFTWARE.COM, INC.
/s/ Amy E. Staas
_____________________________________
Amy E. Staas
Vice President, Finance Chief
Financial Officer
27
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of KPMG LLP, Independent Auditors
</TABLE>
