<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
November 2, 2000
Commission File number 000-25829
PORTAL SOFTWARE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 77-0369737
-------- ----------
(State or Other Jurisdiction of (I.R.S. employer identification no.)
Incorporation or Organization)
10200 South DeAnza Blvd
Cupertino, California 95014
---------------------------
(Address of principal executive offices, including zip code)
(408) 572-2000
--------------
(Registrant's telephone number, including area code)
<PAGE>
PORTAL SOFTWARE, INC.
FORM 8-K/A
AMENDMENT NO. 1
INDEX
Item 2: Acquisition or Disposition of Assets 3
Item 7: Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of SOLUTION42 AG 3
(b) Pro Forma Financial Information 24
(c) Exhibits 29
Signatures 30
Exhibit Index 31
2
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On November 13, 2000, Portal Software, Inc., ("Portal") filed a Current Report
on Form 8-K reporting Portal's acquisition of Solution42 AG, a German company,
which Current Report is incorporated herein by this reference. Under Item 7 of
such Current Report, Portal undertook to file the financial information required
by Item 7 (a) and Item 7 (b) of Form 8-K by amendment to such Current Report
within the time proscribed in Item 7. Set forth below as part of this Amendment
No. 1 to the Current Report is such financial information required by Item 7 (a)
and Item 7 (b) of Form 8-K.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF SOLUTION42 AG
REPORT OF INDEPENDENT ACOUNTANTS
The Board of Directors and the Shareholders of SOLUTION42 AG:
We have audited the accompanying combined balance sheets of SOLUTION42 AG
("Solution42") as of December 31, 1999 and 1998, and the related combined
statements of income, net assets, and cash flows for each of the years then
ended. These combined financial statements are the responsibility of
Solution42's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Solution42 as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft Wirtschaftsprufungsgesellschaft
Hamburg,
September 15, 2000
except for notes 15 and 16
which are as of Decmber 15, 2000
3
<PAGE>
Solution42
COMBINED BALANCE SHEETS AS OF DECEMBER 31,
(USD; in thousands)
<TABLE>
<CAPTION>
1999 1998
--------------------------- ----------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents............................... $ 651 $ 846
Trade accounts receivable, net of allowance for
doubtful accounts of $50 and $7 as of December 31, 1999
and 1998, respectively................................. 1,520 942
Work-in-process......................................... 66 63
Deferred tax assets..................................... 0 2
Other current assets.................................... 54 26
--------------------------- ----------------------------
Total current assets............................ 2,291 1,879
Software, net........................................... 278 240
Property and equipment, net............................. 2,554 1,834
Investment in affiliate................................. 56 29
Other assets............................................ 65 20
--------------------------- ----------------------------
Total assets.............................................. $ 5,244 $ 4,002
=========================== ============================
Liabilities and combined net assets
Current liabilities
Current portion of borrowings........................... 19 15
Trade accounts payable.................................. $ 453 $ 316
Amounts due to related parties.......................... 48 105
Current portion of lease liabilities.................... 25 2
Deferred tax liabilities................................ 4 46
Income tax liabilities.................................. 254 106
Deferred revenue........................................ 280 23
Other liabilities and accrued expenses.................. 476 369
--------------------------- ----------------------------
Total current liabilities...................... 1,559 982
Noncurrent liabilities
Borrowings, net of current portion...................... 1,973 1,178
Loans from related parties.............................. 770 895
Lease liabilities, net of current portion............... 27 3
Deferred tax liabilities................................ 23 22
Minority interest....................................... 13 0
Commitments (see note 14)................................. -- --
Combined net assets....................................... 879 922
--------------------------- ----------------------------
Total liabilities and combined net assets................. $ 5,244 $ 4,002
=========================== ============================
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
Solution42
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
(USD; in thousands)
1999 1998
-------------------------- ------------------------
<S> <C> <C>
Revenues:
Services................................................ $ 8,314 $ 3,563
License fees............................................ 1,456 1,164
-------------------------- ------------------------
Total revenues...................................... 9,770 4,727
-------------------------- ------------------------
Cost of services.......................................... (6,419) (2,885)
Selling and marketing expenses............................ (962) (338)
General and administrative expenses....................... (793) (378)
Research and development expenses......................... (1,221) (282)
-------------------------- ------------------------
Operating income.......................................... 375 844
Other income, net......................................... 25 5
Interest income........................................... 11 6
Interest expense.......................................... (140) (41)
-------------------------- ------------------------
Income before income taxes, equity in income of affiliate
and minority interest.................................... 271 814
Income taxes.............................................. (144) (162)
Equity in income of affiliate............................. 45 13
Minority interest......................................... 92 0
-------------------------- ------------------------
Net income................................................ $ 264 $ 665
========================== ========================
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
5
<PAGE>
Solution42
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(USD; in thousands)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net income...................................................... $ 264 $ 665
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization................................. 472 200
Loss on disposal of fixed assets.............................. 1 7
Equity in income of affiliate................................. (45) (13)
Deferred taxes................................................ (32) 61
Minority interest............................................. (92) 0
Changes in operating assets and liabilities
Work-in-process.............................................. (13) (42)
Trade accounts receivable.................................... (753) (764)
Amounts due to or due from related parties-operating portion. (50) 99
Trade accounts payable....................................... 192 246
Other assets and other liabilities........................... 576 439
Other........................................................ 13 0
----------- -----------
Net cash provided by operating activities................... 533 898
----------- -----------
Purchase of fixed assets
Software..................................................... (173) (243)
Property and equipment....................................... (1,326) (1,880)
Investment in affiliate........................................ 0 (14)
Proceeds from sale of fixed assets............................. 3 0
----------- -----------
Net cash used in investing activities....................... (1,496) (2,137)
----------- -----------
Proceeds from borrowings....................................... 1,755 1,189
Repayments of borrowings....................................... (788) 0
Loans from related parties..................................... 0 547
Contributions from minority shareholders....................... 108 0
Dividends paid................................................. (181) 0
Principal payments under capital lease obligations............. (22) (1)
----------- -----------
Net cash provided by financing activities................... 872 1,735
Effect of foreign currency translation on cash................. (104) 76
Change in cash and cash equivalents............................ (195) 572
Cash and cash equivalents at beginning of year................. 846 274
----------- -----------
Cash and cash equivalents at end of year....................... $ 651 $ 846
=========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
6
<PAGE>
Solution42
COMBINED STATEMENTS OF NET ASSETS
(USD; in thousands)
<TABLE>
<CAPTION>
Accumulated
other
Accumulated comprehensive
Contributions earnings income Combined
from owners (deficit) (loss) Net Assets
--------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Balance as of December 31, 1997.................................. $ 247 $ (35) $ (1) $ 211
Comprehensive income:
Net income..................................................... -- 665 --
Other comprehensive income:
Foreign currency translation adjustment...................... -- -- 46
--------- --------- ---------- --------
Total comprehensive income..................................... -- 665 46 711
--------- --------- ---------- --------
Balance as of December 31, 1998.................................. 247 630 45 922
Comprehensive income:
Net income..................................................... -- 264 --
Other comprehensive income:
Foreign currency translation adjustment....................... -- -- (126)
--------- --------- ---------- --------
Total comprehensive income............................................ -- 264 (126) 138
Dividends...................................................... -- (181) -- (181)
--------- --------- ---------- --------
Balance as of December 31, 1999.................................. $ 247 $ 713 $ (81) $ 879
========= ========= ========== =======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
7
<PAGE>
Solution42
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(USD; in thousands, except as otherwise stated)
1 ORGANIZATION AND FORMATION
SOLUTION42 AG ("Solution42") was incorporated on July 26, 2000 when Solution42
IT-Systems & Consulting GmbH & Co. KG was transformed from a limited partnership
to a corporation and changed its name to SOLUTION42 AG. In connection with the
legal reorganization, Solution42 purchased all shares of its then general
partner, an entity named Verwaltung Solution 42 IT-Systems & Consulting GmbH, in
exchange for cash equal to the capital contributed by the shareholders to the
general partner. In 1999, Solution42 also received a contribution from its
limited partners consisting of all interests in Estate42 GbR, a partnership that
owned the real estate used by Solution42.
Solution42, its former general partner and Estate42 were all owned by the same
individuals with each individual owning the same proportionate interest in each
of the entities. Since all entities have been under common control of the same
owners, the financial statements of Solution42 combine all operations which are
owned by SOLUTION42 AG when the legal reorganization was completed.
2 DESCRIPTION OF BUSINESS
Solution42 develops and markets customer care & billing (CC&B) software for the
European telecommunications market. CC&B software products involve software for
the processing and management of customer data in the telecommunications area.
Solution42 also offers consulting and other services necessary for the
implementation and maintenance of such software, as well as services in the
billing and customer mediation area. Customized solutions are developed on the
basis of two platforms in the areas of rating, interconnect-billing, end
customer-billing and customer analysis as well as service provisioning, event
collection and number portability. The main feature of Solution42's products
and services is the availability of integrated solutions from a single source.
Customers of Solution42 include network operators and service providers.
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation and combination
The accompanying combined financial statements of Solution42 have been prepared
in accordance with United States Generally Accepted Accounting Principles ("US
GAAP") and on a basis which reflects the combined results of operations,
financial position, cash flows and changes in combined net assets of Solution42.
The combined financial statements of Solution42 include all entities of which
SOLUTION42 AG has legal or effective control. An investment in an affiliated
entity over which Solution42 has a significant influence but less than a
controlling interest is accounted for under the equity method.
All balances and transactions between combined businesses have been eliminated
for purposes of the combined financial statements.
The combined financial statements are reported in US dollars.
(b) Cash and cash equivalents
Cash equivalents are considered to be all highly liquid, low-risk debt
instruments with an original maturity at the date of purchase of three months or
less.
(c) Property and equipment
Property and equipment, as well as software, are recorded at cost, net of
accumulated depreciation and amortization. The historical cost is depreciated on
a straight-line basis over the expected useful lives. Leased equipment, whose
economic
8
<PAGE>
Solution42
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(USD; in thousands, except as otherwise stated)
ownership lies with Solution42, is capitalized at the present value of the
minimum lease payments. The present value of the corresponding payment
obligations is recorded as a liability.
The expected useful lives are as follows:
--------------------------------------------------------------------------------
Useful lives
in years
--------------------------------------------------------------------------------
. Buildings 25
. Office equipment 4 - 10
. Leased equipment Lease term
--------------------------------------------------------------------------------
(d) Impairment
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of",
requires that intangible assets and property, plant and equipment be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset will no longer be recovered by future cash flows
expected to result from the use of the asset. No impairment losses were
recorded in 1999 and 1998.
(e) Revenue recognition
Solution42 generates revenue from the licensing of software products, from the
implementation of software solutions, from consulting and support services, and
from the operation of its own or third party products (outsourcing of services).
Revenue from software licensing is recognized at the time delivery has occurred
provided (i) the license fees are fixed or determinable; (ii) persuasive
evidence of an agreement exists; and (iii) the collectibility of the license
fees is probable.
If services are rendered in connection with the sale of software licenses, those
services are evaluated whether they are essential to the functionality of the
software. Services involving significant implementation and customization of the
software are considered essential to the functionality of the software.
Revenues under such agreements are recognized when Solution42's contractual
obligations have been completed.
Revenues under license agreements, with license fees dependent on the
achievement of certain performance criteria, are recognized when the performance
criteria are met and the related payments are due.
Maintenance revenues are recognized over the period of the maintenance services
rendered. Revenues are based on contractual provisions or, if the support is
provided free of charge, on the fair value of such a service in proportion to
the fair value of the software. Deferred maintenance revenues are reported under
the caption "Deferred revenues".
Advances from customers for software licenses or for services, for which the
respective services have not yet been completed, are reported under the caption
"Deferred revenues".
(f) Advertising
Solution42 expenses advertising costs as incurred. Advertising expense for the
years ended December 31, 1999, and 1998 was approximately $183 and $134,
respectively.
9
<PAGE>
Solution42
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(USD; in thousands, except as otherwise stated)
(g) Research and development
Research and development expenditures are charged to operations as incurred.
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased or Otherwise Marketed", requires the
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the product development
process, technological feasibility is established upon the completion of a
working model. Capitalized software development costs are amortized straight-
line over the expected useful life of three years beginning when the software is
available for general release to the public.
Software acquired that is used in the software development process is
capitalized only if the software can be alternatively used in the programming of
customized software solutions. Acquired software is amortized straight-line
over the expected useful life of four years.
(h) Income taxes
Income taxes are recorded in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". 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. Deferred tax assets and liabilities are measured using
enacted tax rates that apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. In assessing the
realizability of deferred tax assets it is considered whether it is more likely
than not that some portion or all of the future tax benefits will not be
realized.
(i) Foreign currency
For purposes of the accompanying combined financial statements, the reporting
currency is the US dollar. The functional currency is the local currency of the
country in which the entity is located.
Assets and liabilities recorded in foreign currencies are translated at the
exchange rate on the balance sheet date, and revenue, costs and expenses are
translated at average rates of exchange in effect during the year. Translation
gains and losses are reported within accumulated other comprehensive income
(loss) as a separate component of the combined net assets.
(j) Comprehensive income
Comprehensive income is comprised of net income and other comprehensive income
(loss), which includes certain changes in the combined net assets that are
excluded from net income. Comprehensive income for the two years ended December
31, 1999 has been disclosed in the combined statements of net assets.
(k) Estimates and assumptions
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the amounts reported in the financial statements and the accompanying
notes. Actual results can differ materially from the amounts resulting from the
estimates and assumptions.
(l) Recently issued accounting standards
In June 1998, the Financial Accounting Standards Board (FASB) issued "Accounting
for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 133
establishes methods for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. In June
1999, the FASB deferred the effective date of SFAS 133 to be effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000 by issuing
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133,
10
<PAGE>
Solution42
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(USD; in thousands, except as otherwise stated)
an Amendment of FASB Statement No. 133. In June 2000, the FASB issued SFAS No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an Amendment of FASB Statement No. 133". SFAS 138 amends SFAS 133 by
expanding the definition of permissible hedging activities. As Solution42 does
not have any derivatives, Solution42 expects that the adoption of SFAS 133 will
not have an impact on its financial position or results of operations.
On December 3, 1999, the SEC staff issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" (SAB 101). SAB 101 summarizes
certain staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. On March 24, 2000, the SEC issued
SAB No. 101A which amends the transition guidance for SAB 101, allowing
companies to report the effect of the applied accounting requirements as a
change in accounting principle in accordance with APB Opinion No. 20,
"Accounting Changes". On June 26, 2000, the SEC issued SAB 101B which delays
the implementation date of SAB 101 until no later than the fourth quarter of
fiscal years beginning after December 15, 1999. Management of Solution42
expects to adopt SAB 101 during 2000. Management is reviewing the provisions of
SAB 101 to determine their impact, if any, on Solution42's financial statements
and does not expect that the adoption of SAB 101 will have any impact on
Solution42's financial position or results of operations.
4 SOFTWARE
Software consists of the following as of December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Acquired software $ 173 $ 84
Internally developed software 208 169
----- -----
381 253
Less: Accumulated amortization (103) (13)
----- -----
$ 278 $ 240
===== =====
</TABLE>
Amortization expense was $97 and $12 for 1999 and 1998, respectively.
Amortization for internally generated software amounted to $63 and $0 in 1999
and 1998, respectively.
5 PROPERTY AND EQUIPMENT
As of December 31, property and equipment consist of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Land and buildings $1,951 $1,237
Office equipment 1,055 793
Leased equipment 74 7
------ ------
3,080 2,037
Less: Accumulated depreciation (526) (203)
------ ------
$2,554 $1,834
====== ======
</TABLE>
Depreciation expense was $375 and $188 for 1999 and 1998, respectively.
11
<PAGE>
Solution42
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(USD; in thousands, except as otherwise stated)
6 INVESTMENT IN AFFILIATE
Solution42 owns 51% of the share capital of connection42 Telecommunication -
Planning & Consulting GmbH ("connection42"), a telecommunication consultancy,
which was formed in March 1998.
Under the terms of connection42's bylaws, control of connection42 did not rest
with Solution42 because the minority shareholder had substantial participating
rights related to the operations of connection42. In addition, the minority
shareholder is entitled to 75% of connection42's earnings. Therefore,
Solution42 accounted for its investment in connection42 using the equity method
of accounting.
The following is the aggregate financial information of connection42:
<TABLE>
<CAPTION>
1999 1998
-------- --------
Results of operations:
----------------------
<S> <C> <C>
Revenues $ 659 $ 237
Operating income 338 99
Net income 181 53
Financial position :
--------------------
Current assets 418 134
Noncurrent assets 39 18
Current liabilities 242 64
Equity 215 88
</TABLE>
7 BORROWINGS
As of December 31, borrowings outstanding included:
<TABLE>
<CAPTION>
1999 1998 Interest Rate
--------------------- -------------------- ----------------------
<S> <C> <C> <C>
Mortgage loan, due in 2010 $ 757 $ -- 4.45%
Mortgage loan, due in 2011 665 -- 4.45%
Term loan, payable in monthly installments until 2015 326 394 5.10%
Term loan, payable in monthly installments until 2024 244 -- 4.88%
Credit line -- 799 4.45%
--------------------- --------------------
1,992 1,193
Less current maturities (19) (15)
--------------------- --------------------
$ 1,973 $ 1,178
===================== ====================
</TABLE>
The mortgage loans are guaranteed by a government organization, bear fixed
interest and place restrictions on the transfer of the property and changes in
Solution42's ownership. The interest rates on the term loans are fixed until
2008 and 2009, respectively.
As of December 31, 1998, a credit line in the amount of $799, used as a bridge
finance for the acquisition of property, was recorded as a noncurrent liability
due to the subsequent refinancing of the overdraft by a noncurrent loan at the
beginning of 1999.
12
<PAGE>
Solution42
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(USD; in thousands, except as otherwise stated)
The loans are secured by the property.
Payments due under the loan agreements during each of the five years subsequent
to December 31, 1999 are as follows:
2000 $ 19
2001 20
2002 21
2003 22
2004 23
These payments do not include any amounts due for loans from related parties
(see Note 13).
As of December 31, 1999, unused credit lines of $257 were available to
Solution42.
8 OTHER LIABILITIES AND ACCRUED EXPENSES
As of December 31, other liabilities and accrued expenses are comprised as
follows:
1999 1998
--------------- ---------------
Amounts due to employees $ 167 $ 55
VAT and other non-income tax liabilities 164 238
Social security tax 95 62
Other 50 14
--------------- ---------------
Total $ 476 $ 369
=============== ===============
9 INCOME TAXES
Prior to the transformation of Solution42 to a corporation, it was a limited
partnership. As such, it was not subject to federal income taxes in Germany.
Solution 42 became a taxable entity upon the change in legal form in 2000. Had
Solution42 been a corporation in all periods presented, it would have been
subject to corporate income tax, solidarity surcharge and local trade
tax on income. The corporate income tax rate on undistributed profits for
corporations was 40% in 1999 and 45% in 1998 which is reduced to 30% if profits
are distributed. In addition, the solidarity surcharge is levied on the
corporate income tax at a rate of 5.5%. Unaudited pro forma income tax expense
for 1999 and 1998 would have been $198 and $411, respectively.
Solution42 generated $448 and $814 in 1999 and 1998, respectively, of income
before income taxes, equity in earnings of affiliate and minority interest in
Germany.
13
<PAGE>
Solution42
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(USD; in thousands, except as otherwise stated)
Income taxes relate exclusively to Germany, and are as follows:
1999 1998
--------------- ---------------
Current income taxes $(176) $(101)
Deferred taxes 32 (61)
--------------- ---------------
Total $(144) $(162)
=============== ===============
Deferred tax assets and (liabilities) arise for the following items:
1999 1998
---------------- ---------------
Tax loss carry forwards $ 54 $ 2
Deferred revenues 35 0
Trade accounts receivable 4 16
Trade accounts payable 3 0
---------------- ---------------
Gross deferred tax assets 96 18
Less valuation allowance (54) 0
---------------- ---------------
Net deferred tax assets 42 18
Other liabilities and accrued expenses 36 19
Internally developed software 19 21
Work in process 6 0
Deferred revenues 0 21
Other 8 23
---------------- ---------------
Deferred tax liabilities 69 84
---------------- ---------------
Net deferred tax liabilities $ 27 $ 66
================ ===============
The tax loss carry forward for the Spanish subsidiary incurred in 1999 can be
carried forward for ten years and is not subject to any restrictions with
respect to its usability except it can only be used to offset future income from
the Spanish subsidiary. Since its formation, the Spanish subsidiary has not
generated any taxable income and does not expect to generate income for the next
years. The realizability of the loss carry forward will depend on the ability of
the subsidiary to generate sufficient income from the commercial use of
Solution42's products in Spain. Management therefore assessed that a valuation
allowance is required for tax benefits whose realization is contingent upon
reaching these goals.
The amounts of the deferred tax assets and liabilities are as follows:
1999 1998
---------------- ----------------
Deferred tax assets
-------------------
Current $ 42 $ 18
Deferred tax liabilities
------------------------
Current 46 62
Noncurrent 23 22
---------------- ----------------
Total 69 84
---------------- ----------------
Net deferred tax liabilities $ 27 $ 66
================ ================
14
<PAGE>
Solution42
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(USD; in thousands, except as otherwise stated)
The following differences between the effective income tax rate and the expected
partnership income tax rate of zero, relate to the years 1999 and 1998.
1999 1998
----------- -----------
Expected income taxes $ -- $ --
Local income taxes (143) (163)
Tax rate differential 54 (1)
Change in valuation allowance (54) 0
Other (1) 2
----------- -----------
Actual income taxes $ (144) $ (162)
=========== ===========
10 FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, current receivables and
payables, noncurrent liabilities to related parties and lease obligations
approximates the fair value.
The fair value of loans equals the present value of the cash flows based on the
prevailing market interest rates for the corresponding terms of the loans as of
December 31, 1999. The fair value of these liabilities as of December 31, 1999
amounts to $1,830.
The carrying amount of the loans from related parties as of December 31, 1999
approximates their fair value.
11 SUPPLEMENTARY INFORMATION ON THE COMBINED STATEMENTS OF CASH FLOWS
1999 1998
--------------- ---------------
Interest paid $ 86 $ 2
Income taxes paid 4 0
Capital lease transactions 76 6
12 GEOGRAPHIC INFORMATION AND CONCENTRATION OF CREDIT RISK
Non-German revenues amounted to $66 and $14 in 1999 and 1998, respectively.
Three customers generated 72.5% and 60.4% of total revenues in 1999 and 1998,
respectively, as follows:
1999 1998
--------------- -------------
% %
Customer A 31.2 19.1
Customer B 23.3 18.0
Customer C 18.0 23.3
Trade accounts receivables from these customers amounted to 67.5% and 71.2% of
the total trade accounts receivables as of December 31, 1999 and 1998,
respectively.
15
<PAGE>
Solution42
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(USD; in thousands, except as otherwise stated)
13 TRANSACTIONS WITH RELATED PARTIES
On November 19, 1997, Solution42 was granted an unsecured loan of $826 by a
related party. Borrowings under the agreement were made in three installments as
of December 31, 1997, March 31, 1998 and June 30, 1998. Interest is charged at 6
% p.a. and is due annually. Repayment of the loan will begin June 30, 2002 in
four equal annual installments.
The following table summarizes the transactions and balances with related
parties:
1999 1998
----------- ----------
Balance sheets
Other current assets $ 7 $ 0
Amounts due to related parties 48 105
Loans from related parties 770 895
Statements of income
Interest expense $ 49 $ 38
14 COMMITMENTS
As of December 31, 1999, lease commitments are as follows:
operating capital
leases leases
----------- ----------
2000 $ 55 $ 27
2001 53 25
2002 7 3
2003 0 0
2004 and thereafter 0 0
----------- ----------
Total $ 115 55
===========
Less: Interest (3)
----------
Carrying amount of lease liabilities $ 52
==========
Rental expense amounted to $52 and $64 in 1999 and 1998, respectively.
15 SUBSEQUENT EVENTS
On May 26, 2000, Solution42, acquired the minority interest in its Spanish
subsidiary and receivables of $46 for $114 in cash.
A loan agreement for a total amount of $1,430 was concluded on June 15, 2000
with a related party. Borrowings under the loan agreement were made on July 12,
2000. The loan bears interest at 6% due quarterly from the date of its
availability. Repayment is due on June 30, 2001.
As a result of an agreement and resolution at the stockholders' meeting of
Solution42 as of August 1, 2000, the 49 % interest in connection42 previously
held by a third party was contributed to Solution42 in exchange for stock. The
fair value
16
<PAGE>
Solution42
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(USD; in thousands, except as otherwise stated)
of the shares issued in connection with the acquisition amounted to $1,113 based
on an evaluation performed by an independent investment bank.
At the same stockholders' meeting, Solution42 issued additional share capital
for cash. The contribution received of $2,775 is equal to the par value of the
stock issued. After that issuance of stock, SOLUTION42 AG has 3.6 million shares
of common stock with a par value of EUR 1 each issued and outstanding. All
shareholders participated in the capital increase under their preemptive rights.
On October 23, 2000, the Tax Reduction Act was enacted in Germany. Beginning
January 1, 2001, a corporate income tax rate of 25 % will be levied on
distributed and undistributed earnings of German corporations.
16 SALE OF BUSINESS
On November 2, 2000, Portal Software, Inc., a company incorporated in
Delaware, acquired SOLUTION42 AG and its subsidiaries. Under the terms of the
agreement, Portal Software will issue shareholders of SOLUTION42 AG shares in a
German Portal subsidiary that may be exchanged for up to 7.5 million shares of
Portal common stock, or approximately 4% of the combined company on a fully
diluted basis. Of the 7.5 million shares, 681.812 shares are subject to an
earn out which is contingent upon retention of SOLUTION42 AG's key employees for
two years.
These financial statements do not address any implications that may result from
the acquisition of SOLUTION42 AG by Portal Software, Inc.
17
<PAGE>
SOLUTION42 AG
UNAUDITED CONSOLIDATED BALANCE SHEETS
(USD; in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------------------- --------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents............................... $ 3,210 $ 651
Trade accounts receivable, net of allowance for
doubtful accounts of $5 and $50 as of September 30, 2000
and December 31, 1999, respectively ..................... 1,977 1,520
Work-in-process......................................... 208 66
Deferred tax assets..................................... 30 0
Other current assets.................................... 935 54
-------------------- --------------------
Total current assets............................... 6,360 2,291
Goodwill and other intangible assets, net................. 962 0
Software, net............................................. 354 278
Property and equipment, net............................... 2,490 2,554
Investment in affiliate................................... 0 56
Deferred tax assets....................................... 710 0
Other assets.............................................. 51 65
-------------------- --------------------
Total assets.............................................. $ 10,927 $ 5,244
==================== ====================
Liabilities and Stockholders' Equity
Current liabilities
Current portion of borrowings........................... $ 17 $ 19
Trade accounts payable.................................. 993 453
Amounts due to related parties.......................... 48 48
Current portion of loans from related parties........... 1,319 0
Current portion of lease liabilities.................... 23 25
Deferred tax liabilities................................ 411 4
Income tax liabilities.................................. 136 254
Deferred revenue........................................ 574 280
Other liabilities accrued expenses ..................... 1,566 476
-------------------- --------------------
Total current liabilities.......................... 5,087 1,559
Noncurrent liabilites
Borrowings, net of current portion...................... 1,717 1,973
Loans from related parties, net of current portion...... 675 770
Lease liabilities, net of current portion............... 10 27
Deferred tax liabilities................................ 0 23
Minority interest....................................... 0 13
Stockholders' equity.................................... 3,438 879
-------------------- --------------------
Total liabilities and stockholders' equity................ $ 10,927 $ 5,244
==================== ====================
</TABLE>
The accompanying notes are an integral part of the consolidated interim
financial statements.
18
<PAGE>
SOLUTION42 AG
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(USD; in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------
2000 1999
-------------------- --------------------
<S> <C> <C>
Revenues:
Services................................................ 6,071 5,998
License fees............................................ $ 2,177 $ 1,317
-------------------- --------------------
Total revenues..................................... 8,248 7,315
-------------------- --------------------
Cost of services.......................................... (6,171) (4,704)
Selling and marketing expenses............................ (1,070) (716)
General and administrative expenses....................... (1,292) (552)
Research and development expenses......................... (957) (809)
Amortization of goodwill and other intangible assets...... (40) 0
-------------------- --------------------
Operating (loss) income................................... (1,282) 534
Other income, net......................................... 40 1
Interest income........................................... 26 11
Interest expense.......................................... (130) (102)
-------------------- --------------------
(Loss) income before income taxes, equity in income
of affiliate and minority interest...................... (1,346) 444
Income taxes.............................................. 321 (135)
Equity in income of affiliate............................. 25 18
Minority interest......................................... 49 40
-------------------- --------------------
Net (loss) income......................................... $ (951) $ 367
==================== ====================
</TABLE>
The accompanying notes are an integral part of the consolidated interim
financial statements.
19
<PAGE>
SOLUTION42 AG
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(USD, in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------
2000 1999
-------------------- --------------------
<S> <C> <C>
Net (loss) income......................................... $ (951) $ 367
Adjustments to reconcile net (loss) income to net cash
used in/provided by operating activities:
Depreciation and amortization........................... 666 354
Loss on disposal of fixed assets........................ 10 1
Equity in income of affiliate........................... (25) (18)
Deferred taxes.......................................... (377) (51)
Minority interest....................................... (49) (40)
Changes in other assets and other liabilities:
Work-in-process....................................... (162) 46
Trade accounts receivable,............................ (582) (1,260)
Amounts due to or due from related parties
-operating portion................................... 55 (50)
Trade accounts payable................................ 639 524
Other assets and other liabilities.................... 438 584
Other................................................. 27 12
-------------------- --------------------
Net cash (used in) provided by operating
activities......................................... (311) 469
-------------------- --------------------
Purchase of fixed assets
Software.............................................. (240) (148)
Property and equipment................................ (765) (1,211)
Acquisition of interests................................ (114) 0
Cash held by investee acquired for stock................ 191 0
Proceeds from sale of fixed assets...................... 1 3
-------------------- --------------------
Net cash used in investing activities.............. (927) (1,356)
-------------------- --------------------
Proceeds from borrowings................................ 0 1,755
Repayment of borrowings................................. (14) (782)
Loans from related parties.............................. 1,430 0
Contributions from shareholders......................... 2,824 0
Contributions from minority shareholders................ 0 108
Distributions........................................... (202) (180)
Principal payments under capital lease obligations...... (13) (16)
-------------------- --------------------
Net cash provided by financing activities.......... 4,025 885
-------------------- --------------------
Effect of foreign currency translation on cash.......... (228) (66)
Change in cash and cash equivalents....................... 2,559 (68)
Cash and cash equivalents at January 1.................... 651 846
-------------------- --------------------
Cash and cash equivalents at September 30................. $ 3,210 $ 778
==================== ====================
</TABLE>
The accompanying notes are an integral part of the consolidated interim
financial statements.
20
<PAGE>
SOLUTION42 AG
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(USD; in thousands except as otherwise stated)
1 ORGANIZATION AND FORMATION
SOLUTION42 AG ("Solution42") was incorporated on July 26, 2000 when Solution42
IT-Systems & Consulting GmbH & Co. KG was transformed from a limited partnership
to a corporation and changed its name to SOLUTION42 AG. In connection with the
legal reorganization, Solution42 purchased all shares of its then general
partner, an entity named Verwaltung Solution 42 IT-Systems & Consulting GmbH, in
exchange for cash equal to the capital contributed by the shareholders to the
general partner. In 1999 Solution42 had also received a contribution from its
partners consisting of all interests in Estate42 GbR, a partnership that owned
the real estate used by Solution42, prior to the transformation into a
corporation.
2 DESCRIPTION OF BUSINESS
Solution42 develops and markets customer care & billing (CC&B) software for the
European telecommunications market. CC&B software products involve software for
the processing and management of customer data in the telecommunications area.
Solution42 also offers consulting and other services necessary for the
implementation and maintenance of such software, as well as services in the
billing and customer mediation area. Customized solutions are developed on the
basis of two platforms in the areas of rating, interconnect-billing, end
customer-billing and customer analysis as well as service provisioning, event
collection and number portability. The main feature of Solution42's products and
services is the availability of integrated solutions from a single source.
Customers of Solution42 include network operators and service providers.
3 BASIS OF PRESENTATION AND CONSOLIDATION
The unaudited consolidated interim financial statements of Solution42 have been
prepared in accordance with generally accepted accounting principles in the
United States of America ("U.S. GAAP").
In the opinion of management, the unaudited consolidated interim financial
statements included herein reflect all adjustments necessary for a fair
presentation of the financial position as of September 30, 2000 and the result
of operations for the nine-month period ended September 30, 2000. Such
adjustments are of a normal, recurring nature.
It is suggested that these consolidated interim financial statements as of and
for the nine-month period ended September 30, 2000, be read in conjunction with
the consolidated financial statements for the year ended December 31, 1999. The
results of operations for the nine-month period ended September 30, 2000 are not
necessarily indicative of the operating results to be expected for the year
2000.
4 OTHER CURRENT ASSETS
Other current assets include costs of $831 net of the income tax benefit of
$411, incurred in connection with the planned initial public offering of
Solution42 at the "Neuer Markt" of the Frankfurt Stock Exchange (see note 11).
5 ACQUISITION OF INTERESTS
As a result of an agreement and resolution at the stockholders' meeting of
Solution42 as of August 1, 2000, the 49% interest in connection42 previously
held by a third party was contributed to Solution42 in exchange for stock. The
fair value of the 6,000 shares issued in connection with the acquisition
amounted to $1,113 based on an evaluation performed by an independent investment
bank. Under an agreement dated May 26, 2000, Solution42, acquired the remaining
48.78% of the share capital of its Spanish subsidiary and receivables of $46 for
$114.
21
<PAGE>
SOLUTION42 AG
NOTE TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(USD; in thousands, except as otherwise stated)
6 LOANS FROM RELATED PARTIES
On July 15, 2000, a loan agreement for $1,430 was signed with a related party.
The loan was paid out on July 12, 2000 and bears interest of 6% due quarterly.
7 STOCKHOLDERS' EQUITY
As a result of an agreement and resolution at the stockholders' meeting of
Solution42 as of August 1, 2000, Solution42 issued additional share capital for
cash. The contribution received of $2,775 is equal to the par value of the stock
issued. As a result of the capital increase, Solution42 has 3.6 million shares
of common stock with a par value of EUR1 each issued and outstanding. All
shareholders participated in the capital increase under their pre-emptive
rights.
8 INCOME TAXES
Solution42 became a taxable entity upon the change in legal form on July 26,
2000 and is subject to corporate income tax, solidarity surcharge and local
trade tax on income effective January 1, 2000. The corporate income tax rate on
undistributed profits for corporations was 40% in the periods presented in 2000
and 1999 which is reduced to 30% if profits are distributed. In addition, the
solidarity surcharge is levied on the corporate income tax at a rate of 5.5%.
Pro forma income tax expense for the nine-month period ended September 30, 1999
would have been $219 if Solution42 had been subject to corporate income tax,
solidarity surcharge and local trade tax on income in 1999.
As of September 30, 2000, Solution42 recognized a deferred tax asset of $751 for
tax losses incurred in the nine-month period ended September 30, 2000 (see
notes 11).
On October 23, 2000, the Tax Reduction Act was enacted in Germany. Beginning
January 1, 2001, a corporate income tax rate of 25 % will be levied on
distributed and undistributed earnings of German corporations. The impact of the
change in the tax rate had it occurred on September 30, 2000 would have been a
reduction of the net deferred tax asset by $208.
9 SUPPLEMENTARY INFORMATION ON THE CONSOLIDATED INTERIM STATEMENTS OF CASH
FLOWS
2000 1999
---------- ----------
Interest paid $ 94 $ 41
Income taxes paid 260 3
Capital lease transactions 5 73
Acquisition of interests in connection42 1,108 0
10 GEOGRAPHIC INFORMATION AND CONCENTRATION OF CREDIT RISK
Non-German revenues amounted to $1,081 and $66 in the nine-month periods ended
September 30, 2000 and 1999, respectively.
Three customers generated 39.3% and 62.9% of total revenues in the nine-month
periods ended September 30, 2000 and 1999, respectively. Trade accounts
receivables from these customers amounted to 31.8% and 47.6% of the total trade
accounts receivables as of September 30, 2000 and 1999, respectively.
11 SUBSEQUENT EVENTS
On November 2, 2000, Portal Software, Inc., a company incorporated in Delaware,
acquired Solution42 and its subsidiaries. Under the terms of the agreement,
Portal Software will issue shareholders of Solution shares in a German Portal
subsidiary that may be exchanged for up to 7.5 million shares of Portal common
stock.
22
<PAGE>
Due to the acquisition resulting in the cancellation of the initial public
offering, Solution42 will expense in the fourth quarter of 2000 the costs
incurred in connection with the offering that had been deferred as of September
30, 2000. In addition, Solution42's ability to offset future taxable income by
utilizing the tax losses incurred prior to the acquisition may have been
adversely affected by the acquisition.
These financial statements do not address any further implications that may
result from the acquisition of Solution42 by Portal Software, Inc.
On December 1, 2000, Portal Software, Inc. granted Solution42 a loan of $2,274.
The loan bears interest of 6.75%.
23
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION
The acquisition of SOLUTION42 AG ("Solution42") will be accounted for
as a purchase, and accordingly, the purchase price will be allocated to the
tangible and intangible assets acquired and liabilities assumed on the basis of
their respective fair values on the acquisition date. Under the terms of the
agreement, Portal Software, Inc. ("Portal") will issue, to the shareholders of
Solution42, shares in a Portal subsidiary based in Germany, that may be
exchanged for up to 7.5 million shares of Portal common stock, or approximately
4% of the combined company on a fully diluted basis and includes a two-year
economic earn-out. Portal anticipates that it will take a one-time charge,
estimated at $9.2 million for purchased in-process research and development
expenses upon closing of the acquisition in the fourth quarter of fiscal 2001.
Total intangible assets, including goodwill, will be amortized over their
respective useful lives of four years.
The following pro forma financial information is set forth to give
effect to the acquisition of Solution42 by Portal as if the acquisition had
taken place at October 31, 2000 for purposes of the Unaudited Pro Forma
Condensed Combining Balance Sheet and as of February 1, 1999 for purposes of the
Unaudited Pro Forma Condensed Combining Statements of Operations. The pro forma
financial information combines the balance sheets of Portal as of October 31,
2000 and of Solution42 as of September 30, 2000 and the statements of operations
of Portal for the year ended January 31, 2000 and the nine months ended October
31, 2000 with the statements of operations of Solution42 for the year ended
December 31, 1999 and the nine months ended September 30, 2000, respectively.
The Unaudited Pro Forma Condensed Combining Balance Sheet and Statements of
Operations are not necessarily indicative of the financial position or operating
results that would have occurred if the acquisition had actually occurred on
such dates and do not purport to project the results of operations of the
Company for the current year or for any future period. The adjustments in the
Unaudited Pro Forma Condensed Combining Financial Information are based on
available information and on certain assumptions and best estimates available to
management at the time of this filing. All information contained herein should
be read in conjunction with the Consolidated Financial Statements and the Notes
thereto of Portal Software and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in Portal's fiscal 2000
Annual Report on Form 10K, Form 10Q for the first, second and third quarters of
fiscal 2001, the Financial Statements and Notes thereto of Solution42 included
in this Form 8-K/A, and the Notes to the Unaudited Pro Forma Condensed Combining
Balance Sheets and Statements of Operations.
24
<PAGE>
PORTAL SOFTWARE, INC. AND SOLUTION42 AG
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
Portal SOLUTION42 PRO FORMA
-----------------------------
10/31/00 9/30/00 Adjustments Combined
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................... $ 29,981 $ 3,210 $ -- $ 33,191
Accounts receivable, net.......................... 69,972 1,977 -- 71,949
Short-term investments............................ 171,827 -- -- 171,827
Restricted short-term investments................. 240 -- -- 240
Prepaids and other current assets................. 5,889 935 -- 6,824
Work-in-process................................... -- 208 -- 208
Deferred tax assets............................... -- 30 -- 30
--------- ---------- ----------- ---------
Total current assets.................... 277,909 6,360 -- 284,269
Software, net....................................... -- 354 -- 354
Property and equipment, net......................... 44,411 2,490 -- 46,901
Restricted long-term investments.................... 6,376 -- -- 6,376
Goodwill and other purchased intangibles, net....... -- 962 254,542 (a) 246,304
(9,200) (c)
Deferred tax assets................................. -- 710 -- 710
Other assets........................................ 12,337 51 -- 12,388
--------- ---------- ----------- ---------
Total assets........................................ $ 341,033 $ 10,927 $ 245,342 $ 597,302
========= ========== =========== =========
Liabilities and Equity
----------------------
Current liabilities:
Accounts payable.................................. $ 7,854 $ 993 $ -- $ 8,847
Accrued compensation.............................. 27,861 -- -- 27,861
Other accrued liabilities......................... 12,880 1,566 12,000 (a) 26,446
Due to related parties............................ -- 48 -- 48
Current portion of borrowings..................... -- 17 -- 17
Current portion of capital lease obligations...... 898 23 -- 921
Current portion of loans from related parties..... -- 1,319 -- 1,319
Accrued income tax................................ -- 136 -- 136
Deferred tax liabilities.......................... -- 411 -- 411
Deferred revenue.................................. 44,584 574 -- 45,158
--------- ---------- ----------- ---------
Total current liabilities................. 94,077 5,087 12,000 111,164
Long-term portion of borrowings..................... -- 1,717 -- 1,717
Long-term portion of capital lease obligations...... 834 10 -- 844
Long-term portion of borrowings..................... -- 675 -- 675
Commitments......................................... -- -- -- --
Equity:
Common stock...................................... 163 3,406 7 (a) 170
(3,406) (b) --
Additional paid-in-capital........................ 269,836 1,107 248,751 (a) 518,587
(1,107) (b)
Accumulated other comprehensive loss.............. (524) (275) 275 (b) (524)
Notes receivable from stockholders................ (135) -- -- (135)
Deferred stock compensation....................... (3,374) -- -- (3,374)
Accumulated deficit............................... (19,844) (800) (2,778) (b) (31,822)
800 (b)
(9,200) (c)
--------- ---------- ----------- ---------
Total equity............................. 246,122 3,438 233,342 482,902
--------- ---------- ----------- ---------
Total liabilities and equity........................ $ 341,033 $ 10,927 $ 245,342 $ 597,302
========= ======== =========== =========
</TABLE>
See accompanying notes.
25
<PAGE>
PORTAL SOFTWARE, INC. AND SOLUTION42 AG
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Portal Solution42
for the year for the year
ended ended PRO FORMA
--------------------------------
1/31/00 12/31/99 Adjustments Combined
--------- --------- --------------- ------------
<S> <C> <C> <C> <C>
Revenues:
License fees....................................................... $ 67,049 $ 1,456 $ -- $ 68,505
Services........................................................... 36,000 8,314 -- 44,314
-------- --------- ----------- --------
Total revenues................................................. 103,049 9,770 -- 112,819
-------- --------- ----------- --------
Costs and expenses:
Cost of license fees............................................... 2,596 -- -- 2,596
Cost of services................................................... 22,808 6,419 -- 29,227
Research and development........................................... 26,090 1,221 -- 27,311
Sales and marketing................................................ 43,671 962 -- 44,633
General and administrative......................................... 15,349 793 -- 16,142
Amortization of deferred stock compensation........................ 8,235 -- -- 8,235
Amortization of goodwill and purchased intangibles................. -- -- 61,336 (d) 61,336
-------- --------- ----------- --------
Total costs and expenses...................................... 118,749 9,395 61,336 189,480
-------- --------- ----------- --------
Income (loss) from operations........................................ (15,700) 375 (61,336) (76,661)
Interest income (expense) and other income, net...................... 5,886 (104) -- 5,782
One-time gain upon expiration of unexercised
put option on common stock.......................................... 3,810 -- 3,810
-------- --------- ----------- --------
Income (loss) before income taxes, equity in
income of affiliate and minority interest........................... (6,004) 271 (61,336) (67,069)
Provision for income taxes........................................... (1,616) (144) -- (1,760)
Equity in income of affiliate........................................ -- 45 -- 45
Minority interest.................................................... -- 92 -- 92
-------- --------- ----------- --------
Net income (loss).................................................... $ (7,620) $ 264 $ (61,336) $(68,692)
======== ========= =========== ========
Basic net income (loss) per share.................................... $(0.06) $(0.52)
======== ========
Shares used in computing basic net income (loss) per share 124,816 7,500 (a) 132,316
======== =========== ========
Diluted net income (loss) per share $(0.06) $(0.52)
======== ========
Shares used in computing diluted net income
(loss) per share 124,816 7,500 (a) 132,316
======== =========== ========
</TABLE>
See accompanying notes.
26
<PAGE>
PORTAL SOFTWARE, INC. AND SOLUTION42 AG
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Portal Solution42
for the nine for the nine
months ended months ended PRO FORMA
---------------------------
10/31/00 9/30/00 Adjustments Combined
--------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
License fees.................................... $ 126,285 $ 2,177 $ -- $ 128,462
Services........................................ 60,909 6,071 -- 66,980
--------- -------------- ----------- -----------
Total revenues.............................. 187,194 8,248 -- 195,442
--------- -------------- ----------- -----------
Costs and expenses:
Cost of license fees 3,219 -- -- 3,219
Cost of services................................ 38,093 6,171 -- 44,264
Research and development........................ 39,753 957 -- 40,710
Sales and marketing............................. 72,091 1,070 -- 73,161
General and administrative...................... 22,188 1,292 -- 23,480
Amortization of deferred stock compensation..... 3,005 -- -- 3,005
Amortization of goodwill and intangibles........ -- 40 46,002 (d) 46,042
--------- -------------- ----------- -----------
Total costs and expenses 178,349 9,530 46,002 233,881
--------- -------------- ----------- -----------
Income (loss) from operations..................... 8,845 (1,282) (46,002) (38,439)
Interest income (expense) and other income,
net.............................................. 9,627 (64) -- 9,563
--------- -------------- ----------- -----------
Income (loss) before income taxes, equity in
income of affiliate and minority interest........ 18,472 (1,346) (46,002) (28,876)
Provision for income taxes........................ (2,757) 321 (2,436)
Equity in income of affiliate..................... -- 25 -- 25
Minority interest................................. -- 49 -- 49
--------- -------------- ----------- -----------
Net income (loss)................................. $ 15,715 $ (951) $ (46,002) $ (31,238)
========= ============== =========== ===========
Basic net income (loss) per share $ 0.10 $ (0.19)
========= ===========
Shares used in computing basic net income (loss)
per share 157,090 7,500 (a) 164,590
========= =========== ===========
Diluted net income (loss) per share $ 0.09 $ (0.19)
========= ===========
Shares used in computing diluted net income
(loss) per share 173,442 7,500 (a) 164,590
========= =========== ===========
</TABLE>
See accompanying notes.
27
<PAGE>
PORTAL SOFTWARE, INC AND SOLUTION42
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING
BALANCE SHEET AND STATEMENT OF OPERATIONS
The following pro forma adjustments are required to allocate the purchase price
and acquisition cost to the assets acquired from SOLUTION42 AG ("Solution42")
based on their fair value, as determined by Portal Software, Inc. ("Portal") and
to reflect the one-time write-off of purchased research and development
identified in the purchase price allocation.
(a) Reflects the estimated allocation of the purchase price, based on fair
market values, to the historical balance sheet. Purchase price includes an
increase in common stock for the shares issued in connection with the
purchase price of Solution42 for the net assets acquired.
(b) Reflects the elimination of Solution42's equity accounts.
(c) Reflects the write-off of purchased research and development identified in
the purchase price allocation. The pro forma statements of operations
exclude the write-off of purchased research and development due to its non-
recurring nature.
(d) Reflects the amortization of intangibles associated with the purchase of
Solution42 as if the merger was completed as of February 1, 1999, the
beginning of the earliest period presented. Amortization is over the
estimated useful lives of the assets acquired. Actual results may differ
from these estimates upon completion of the purchase price allocation in
Portal's fiscal fourth quarter.
The 681,812 shares subject to a two year earn-out have not been valued in these
pro forma financial statements. These shares will be recorded as additional
purchase price at the time that such contingency is resolved and will be valued
as of that date.
28
<PAGE>
(c) EXHIBITS
23.01 Consent of KPMG Deutsche Treuband-Gesellschaft Aktiengesellschaft
Wirtschaftsprufungsgesellschaft, Independent Accountants of SOLUTION42
AG
29
<PAGE>
SIGNATURE
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, thereunto duly authorized.
PORTAL SOFTWARE, INC.
Date: January 12, 2001 By /s/ JACK L. ACOSTA
--------------------------------------------
Jack L. Acosta
Vice President and Chief Financial Officer
30
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
23.01 Consent of KPMG Deutsche Treuband-Gesellschaft
Aktiengesellschaft Wirtschaftsprufungsgesellschaft,
Independent Accountants of SOLUTION42 AG
31