<PAGE> 1
EXHIBIT 99.1
THE AIRBOSS BUSINESS UNIT OF TELCORDIA TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report 7
Balance Sheets as of January 31, 2000 and 1999 and as of
April 30, 2000 (Unaudited) 8
Statements of Operations for the Years Ended January 31, 2000 and January 31,
1999 and for the Three Months Ended April 30, 2000 and 1999 (Unaudited) 9
Statements of Stockholder's Net Investment for the Years Ended
January 31, 2000 and 1999 and for the Three Months Ended
April 30, 2000 (Unaudited) 10
Statements of Cash Flows for the Years Ended January 31, 2000 and 1999 and for
the Three Months Ended April 30, 2000 and 1999 (Unaudited) 11
Notes to Financial Statements 12
</TABLE>
6
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of Telcordia Technologies, Inc.:
We have audited the accompanying balance sheets of the AirBoss Business Unit
("AirBoss") of Telcordia Technologies, Inc. (the "Company") (a wholly-owned
subsidiary of Science Applications International Corporation) as of January 31,
2000 and 1999, and the related statements of operations, stockholder's net
investment (deficit), and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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, such financial statements present fairly, in all material
respects, the financial position of AirBoss at January 31, 2000 and 1999, 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.
/S/ DELOITTE & TOUCHE LLP
Jericho, New York
July 7, 2000
7
<PAGE> 3
THE AIRBOSS BUSINESS UNIT OF TELCORDIA TECHNOLOGIES, INC.
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUARY 31,
-------------------- APRIL 30,
2000 1999 2000
----- ----- -----
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Accounts Receivable:
Billed $ 609 $ 309 $ 260
Unbilled -- 16 --
----- ----- -----
Total Account Receivable 609 325 260
----- ----- -----
Property and Equipment:
Computer Equipment, at Cost 811 758 772
Accumulated Depreciation (548) (502) (465)
----- ----- -----
Property and Equipment, Net 263 256 307
----- ----- -----
Total Assets $ 872 $ 581 $ 567
===== ===== =====
LIABILITIES AND STOCKHOLDER'S
NET INVESTMENT (DEFICIT)
Current Liabilities:
Accounts Payable 144 24 103
Deferred Revenue 220 327 397
Accrued Payroll Related Costs 324 374 214
Other Accrued Liabilities 5 5 18
----- ----- -----
Total Current Liabilities 693 730 732
----- ----- -----
Stockholder's Net Investment (Deficit) 179 (149) (165)
Total Liabilities and Stockholder's
----- ----- -----
Net Investment (Deficit) $ 872 $ 581 $ 567
===== ===== =====
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 4
THE AIRBOSS BUSINESS UNIT OF TELCORDIA TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JANUARY 31, APRIL 30,
------------------------ ------------------------
2000 1999 2000 1999
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Product $ 4,511 $ 294 $ 339 $ 47
Other 15 79 -- --
------- ------- ------- -------
Total Revenue 4,526 373 339 47
Cost of Sales:
Product 3,280 1,239 809 302
Other 8 29 -- --
------- ------- ------- -------
Total Cost of Sales 3,288 1,268 809 302
------- ------- ------- -------
Gross Profit (Loss) 1,238 (895) (470) (255)
Operating Expenses:
Research and Development 622 1,017 188 355
Selling, General and Administrative 2,188 1,440 461 581
------- ------- ------- -------
Total Operating Expenses 2,810 2,457 649 936
------- ------- ------- -------
Net Loss $(1,572) $(3,352) $(1,119) $(1,191)
======= ======= ======= =======
</TABLE>
See Notes to Financial Statements.
9
<PAGE> 5
THE AIRBOSS BUSINESS UNIT OF TELCORDIA TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDER'S NET INVESTMENT (DEFICIT)
(IN THOUSANDS OF DOLLARS)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
BALANCE, FEBRUARY 1, 1998 $ --
Net Loss (3,352)
Transfers from Telcordia Technologies, Inc. 3,203
-------
BALANCE, JANUARY 31, 1999 (149)
Net Loss (1,572)
Transfers from Telcordia Technologies, Inc. 1,900
-------
BALANCE, JANUARY 31, 2000 179
Net Loss (Unaudited) (1,119)
Transfers from Telcordia Technologies, Inc. (Unaudited) 775
-------
BALANCE, APRIL 30, 2000 (Unaudited) $ (165)
=======
</TABLE>
See Notes to Financial Statements.
10
<PAGE> 6
THE AIRBOSS BUSINESS UNIT OF TELCORDIA TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JANUARY 31, APRIL 30,
------------------------ ------------------------
2000 1999 2000 1999
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,572) $(3,352) $(1,119) $(1,191)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and Amortization 141 69 41 34
Changes in assets and liabilities:
Accounts Receivable (300) (309) 349 (283)
Unbilled Receivables 16 (16) -- 16
Accounts Payable 120 24 (41) 19
Deferred Revenue (107) 327 177 (36)
Accrued Payroll Related Costs (50) 374 (97) (153)
Other Accrued Liabilities -- 5 -- --
------- ------- ------- -------
Net cash from operating activities (1,752) (2,878) (690) (1,594)
------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Property and Equipment (148) (325) (85) (32)
------- ------- ------- -------
Net cash from investing activities (148) (325) (85) (32)
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net transfers from Telcordia
Technologies, Inc. 1,900 3,203 775 1,626
------- ------- ------- -------
Net cash from financing activities 1,900 3,203 775 1,626
------- ------- ------- -------
Change in Cash and Cash Equivalents -- -- -- --
Cash and Cash Equivalents, beginning of
period -- -- -- --
------- ------- ------- -------
Cash and Cash Equivalents, end of
period $ -- $ -- $ -- $ --
======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Accounts Receivable Transferred in
at Inception of Business $ -- $ 48 $ -- $ --
======= ======= ======= =======
</TABLE>
See Notes to Financial Statements.
11
<PAGE> 7
THE AIRBOSS BUSINESS UNIT OF TELCORDIA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 2000 AND 1999 AND THE THREE MONTHS ENDED APRIL 30, 2000
AND 1999 (INFORMATION AS OF AND FOR THE THREE MONTHS ENDED APRIL 30, 2000 AND
1999 IS UNAUDITED)
--------------------------------------------------------------------------------
1. BACKGROUND AND BASIS OF PRESENTATION
On May 4, 2000, Telcordia Technologies Inc. ("Telcordia" or the
"Company"), a subsidiary of Science Applications International
Corporation ("SAIC"), and Geoworks, Inc. ("Geoworks") signed a letter of
intent to sell Telcordia's AirBoss(R) Wireless product line ("AirBoss")
to Geoworks in exchange for Geoworks common stock. Geoworks will acquire
all assets associated with the business, including fixed assets and
intellectual property related to the AirBoss. The amount of Geoworks
common to be exchanged will be determined by using a formula based on
the average price of Geoworks common stock for the last ten trading days
up to the sale date, anticipated to be on mid-July 2000.
AirBoss develops, markets, and sells a suite of patented software
products and consulting services that provide enhanced wireless access
to corporate data (such as e-mail, intranets, and the internet) over a
wide variety of wireless networks and computing devices. These
leading-edge wireless solutions help businesses gain and maintain a
competitive advantage by allowing information assets to be used more
effectively by mobile workers. The AirBoss product was
internally-developed by Telcordia as a research and development effort
beginning in 1995.
The financial statements of AirBoss reflect the historical results of
operations and cash flows of the AirBoss business unit of Telcordia
during each respective period. The financial statements have been
prepared using Telcordia's historical bases in the assets and
liabilities and the historical results of operations of AirBoss. The
financial information included herein may not reflect the operating
results, changes in stockholder's net investment, and cash flows of
AirBoss in the future or what they would have been had AirBoss been a
stand-alone entity during the periods presented.
The inception of business for AirBoss was deemed to be February 1, 1998,
at which time the Company started capturing all direct costs of AirBoss
for management reporting. Prior to that time, AirBoss was a research and
development effort with two contracts in progress. The business was
deemed to have started with the transfer of these contracts to the
AirBoss business unit.
The financial statements include allocations of certain Telcordia and
SAIC expenses, including centralized corporate functions such as
accounting, legal, treasury, facilities management, procurement,
information technology, marketing and sales, research and development,
and other Telcordia and SAIC activities and services. The financial
statements also include allocations of certain expenses from the
operating division that AirBoss is included in. The expense allocations
have been determined on the bases that Telcordia considered to be
reasonable reflections of the utilization of services provided or the
benefit received by AirBoss. Included in cost of sales are $19,000,
$66,000, $3,000 and $18,000 of allocated expenses for the years ended
January 31, 1999 and 2000 and for the three months ended April 30, 1999
and 2000, respectively. Included in research and development expenses
are $1,000, $2,000, $-0- and $1,000 of allocated expenses for the years
ended January 31, 1999 and 2000 and for the three months ended April 30,
1999 and 2000, respectively. Included in selling, general and
administrative expenses are $245,000, $1,034,000, $44,000 and $232,000
of allocated expenses for the years ended January 31, 1999 and 2000 and
for the three months ended April 30, 1999 and 2000, respectively.
12
<PAGE> 8
THE AIRBOSS BUSINESS UNIT OF TELCORDIA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 2000 AND 1999 AND THE THREE MONTHS ENDED APRIL 30, 2000
AND 1999 (INFORMATION AS OF AND FOR THE THREE MONTHS ENDED APRIL 30, 2000 AND
1999 IS UNAUDITED)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
the Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting periods. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION - The financial information as of April
30, 2000 and 1999 and for the three months ended April 30, 2000 and 1999
is unaudited and includes all adjustments, consisting only of normal and
recurring accruals, that Telcordia management considers necessary for a
fair presentation of its financial position, operating results, and cash
flows. Results for the three months ended April 30, 2000 are not
necessarily indicative of results to be expected for the full fiscal
year 2001 or for any future period.
CASH AND CASH EQUIVALENTS - Historically, Telcordia has managed cash and
cash equivalents on a centralized basis. Cash receipts associated with
AirBoss are aggregated with other customer receipts and are held at the
corporate level. Telcordia also funds all disbursements of AirBoss.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost and
consist principally of computer equipment. Depreciation of property and
equipment is computed on a straight-line basis generally over a period
of three years. The Company periodically reviews property and equipment
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. An impairment
loss would be recognized when estimated future cash flows expected to
result from the use of the asset and its eventual disposition are less
than its carrying amount. No such impairment losses with respect to the
AirBoss property and equipment have been identified by the Company.
SOFTWARE DEVELOPMENT COSTS - Costs for the development of new software
or enhancements to existing software are expensed as incurred until
technological feasibility has been established, after which any
development costs would be capitalized in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86, "Computer Software to be
Sold, Leased, or Otherwise Marketed." With respect to AirBoss, Telcordia
believes its current process for developing software results in the
establishment of technological feasibility when the software is
substantially complete. Accordingly, no costs have been capitalized to
date.
STOCKHOLDER'S NET INVESTMENT - Stockholder's net investment represents
Telcordia's net investment in AirBoss. Because there has not been any
intercompany debt between AirBoss and Telcordia, no interest income or
expense has been allocated to, or included in, the accompanying
financial statements.
13
<PAGE> 9
THE AIRBOSS BUSINESS UNIT OF TELCORDIA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 2000 AND 1999 AND THE THREE MONTHS ENDED APRIL 30, 2000
AND 1999 (INFORMATION AS OF AND FOR THE THREE MONTHS ENDED APRIL 30, 2000 AND
1999 IS UNAUDITED)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION - Revenue is recognized when it is earned in
accordance with applicable accounting standards, including American
Institute of Certified Public Accountants ("AICPA") Statement of
Position ("SOP") 97-2, Software Revenue Recognition, as amended, and SOP
No. 81-1, "Accounting for Performance of Construction-Type and Certain
Production-Type Contracts". Revenue from software license arrangements
where no significant production, modification, or customization of
software is required is recognized when the software is delivered, the
sales price is fixed and determinable, and collection of the resulting
receivable is probable. Revenue from arrangements which require
significant production, modification, or customization of software is
recognized on a percentage of completion basis as the work effort
progresses. AirBoss provides its customers with maintenance or
post-contract support services, which generally consist of bug-fixing
and telephone access to AirBoss technical personnel, but may also
include the right to receive unspecified product updates, upgrades and
enhancements, on a when and if available basis. Revenue from these
services is recognized ratably over the contract period. Post-contract
support services included in the initial license fee are allocated from
the total contract amount based on the relative fair value as
established by vendor specific objective evidence ("VSOE"). For
multiple-element arrangements, VSOE of fair value is determined based on
the price charged when the same element is sold separately or, for
elements not yet being sold separately, the price established by
management having the relevant authority. If VSOE of fair value does not
exist for one or more delivered elements of a multi-element arrangement
and VSOE of fair value exists for all undelivered elements, then revenue
is recognized using the "residual method."
AirBoss recognizes revenue from the resale of third party hardware when
delivered to the customer. The equipment purchases are charged to cost
of goods sold.
Certain contracts of the AirBoss business unit are an allocated portion
of larger Telcordia or SAIC contracts. At contract signing, contract
value was primarily allocated ratably to the performing business units
(including AirBoss) based on estimated total costs to complete the
various business unit portions of the contract. Revisions in the
estimated cost to complete any individual business unit portion of the
contract do not generate a reallocation of contract value. However,
scope changes to the initial work efforts relating to a particular
business unit portion of the contract may increase or decrease contract
value if the work efforts were transferred from another business unit of
Telcordia, or if the customer amends the contract to include the
additional efforts for a fee. The revenue allocations have been
determined by Telcordia, SAIC and AirBoss management to be reasonable
reflections of the fair value of services provided by AirBoss.
Management believes that the revenues allocated to AirBoss are
representative of the revenues it would have realized had AirBoss been
operated on a stand-alone basis.
Other revenues consist of revenue generated by AirBoss relating to
contracts associated with other Telcordia business units. Other cost of
sales consist of expenses incurred by AirBoss relating to contracts
associated with other Telcordia business units.
Deferred revenue consist primarily of amounts billed to customers
pursuant to the terms specified in contracts but for which revenue has
not been recognized.
14
<PAGE> 10
THE AIRBOSS BUSINESS UNIT OF TELCORDIA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 2000 AND 1999 AND THE THREE MONTHS ENDED APRIL 30, 2000
AND 1999 (INFORMATION AS OF AND FOR THE THREE MONTHS ENDED APRIL 30, 2000 AND
1999 IS UNAUDITED)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES - AirBoss operating results historically have been included
in the consolidated U.S. and state income tax returns of Telcordia's
parent company, SAIC. The provision for income taxes in the AirBoss
financial statements has been determined on a separate-return basis.
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets
and liabilities and their reported amounts. An offsetting valuation
allowance has been recognized to reflect the uncertainty surrounding the
ultimate recoverability of deferred tax assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts for accounts
receivable and accounts payable and accrued expenses approximate their
fair value due to the short maturity of these instruments.
CONCENTRATION OF CREDIT RISK - Financial instruments which potentially
expose AirBoss to a concentration of credit risk primarily consist of
accounts receivable. AirBoss primarily sells its products to large
customers who are dispersed across several geographic regions and who
principally are in the telecommunications and high technology
industries. AirBoss believes no significant concentrations of credit
risk exist with respect to accounts receivable. For the year ended
January 31, 2000, two customers represented 88% of revenues. For the
year ended January 31, 1999, two customers represented 100% of revenues
3. INCOME TAXES
Significant components of deferred tax assets are comprised of the
following:
<TABLE>
<CAPTION>
1999 2000
------- -------
<S> <C> <C>
Assets:
Net operating loss carryforwards $ 1,301 $ 1,929
Accrued liabilities 40 41
------- -------
1,341 1,970
Less: Valuation allowance (1,341) (1,970)
------- -------
Net deferred tax asset $ -- $ --
======= =======
</TABLE>
The increase in the valuation allowance for the year ended January 31,
2000 was due to an increase in deferred tax assets for which realization
was not more likely than not.
The primary reason the effective tax rate varied from the U.S. Federal
income tax rate of 35% was net losses incurred which produced no tax
benefit.
15
