<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): January 7, 2000
---------------
WEBB INTERACTIVE SERVICES, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
Colorado
------------------------------
(State or other jurisdiction of incorporation)
0-28462 84-1293864
------- ----------
(Commission File Number) (IRS Employer Identification No.)
1800 Glenarm Place, Suite 700, Denver, CO 80202
- ------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 296-9200
--------------
N/A
------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
(1) Audited financial statements of Update Systems, Inc. from
February 24, 1999 to December 31, 1999*
(b) Pro Forma Financial Information.
Pro forma combined financial information relative to the acquisition
for the nine months ended September 30, 1999.*
Pro forma financial information as of December 31, 1999 relative to
the acquisition will be filed as soon as practicable after Webb files
its 10KSB for the year ended December 31, 1999.
(c) Exhibits:
10.1 Asset Purchase Agreement, including exhibits thereto, dated
December 27, 1999, between Webb Interactive Services, Inc.,
Update Systems, Inc. and Kevin Schaff. (1)
- -----------------
* Filed herewith.
(1) Filed with our original current report on Form 8-K, filed January 14,
2000, Commission File No. 0-28462.
<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: March 22, 2000 WEBB INTERACTIVE SERVICES, INC.
By /s/ Lindley S. Branson
----------------------------------
Lindley S. Branson
Its: Vice-President/General Counsel
<PAGE>
A. UPDATE SYSTEMS, INC.
(A Development Stage Company)
Financial Statements For The Period From
Inception (February 24, 1999) To December 31, 1999
Together With Report Of Independent Public Accountants
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Update Systems, Inc.:
We have audited the accompanying balance sheet of UPDATE SYSTEMS, INC. (a
Delaware corporation in the development stage) ("Update") as of December 31,
1999, and the related statement of operations, shareholders' deficit and cash
flows for the period from inception (February 24, 1999) through December 31,
1999. These financial statements are the responsibility of Update'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 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 Update Systems, Inc. as of
December 31, 1999, and the results of its operations and its cash flows for the
period from inception (February 24, 1999) through December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
Denver, Colorado,
January 27, 2000.
1
<PAGE>
UPDATE SYSTEMS, INC.
(A Development Stage Company)
BALANCE SHEET
AS OF DECEMBER 31, 1999
ASSETS
------
CASH AND CASH EQUIVALENTS $ 83,565
ACCOUNTS RECEIVABLE 600
------------
Total current assets 84,165
------------
PROPERTY AND EQUIPMENT, NET (Note 3) 45,932
------------
Total assets $ 130,097
============
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 35,877
Accrued payroll 9,362
Deferred revenue 6,032
Deferred compensation (Note 6) 83,333
------------
Total current liabilities 134,604
------------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' DEFICIT:
Common stock, $0.001 par value, 2,000,000 shares authorized
850,000 shares issued and outstanding 850
Additional paid-in capital 1,194,340
Deficit accumulated during development stage (1,199,697)
------------
Total shareholders' deficit (4,507)
------------
Total liabilities and shareholders' deficit $ 130,097
============
The accompanying notes to the financial statements
are an integral part of this balance sheet.
2
<PAGE>
UPDATE SYSTEMS, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (FEBRUARY 24, 1999)
THROUGH DECEMBER 31, 1999
REVENUE $ 4,373
-----------
OPERATING EXPENSES:
Research and Development 966,579
Sales and Marketing 44,571
General and Administrative 200,807
-----------
1,211,957
-----------
Net loss from operations (1,207,584)
OTHER INCOME:
Interest income 7,642
Other income, net 245
-----------
NET LOSS $(1,199,697)
===========
The accompanying notes to the financial statements
are an integral part of this statement.
3
<PAGE>
UPDATE SYSTEMS, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' DEFICIT
FOR THE PERIOD FROM INCEPTION (FEBRUARY 24, 1999)
THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During
------------------------- Paid-In Development
Shares Amount Capital Stage Total
------- ------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balances, inception
(February 24, 1999) - $ - $ - $ - $ -
Issuance of common
stock to founders 500,000 500 714,500 - 715,000
Sale of common stock,
net of offering costs
of $19,810 350,000 350 479,840 - 480,190
Net loss - - - (1,199,697) (1,199,697)
--------- ---- ---------- ----------- -----------
Balances, December 31, 1999 850,000 $850 $1,194,340 $(1,199,697) $ (4,507)
======= === ========== =========== ===========
</TABLE>
The accompanying notes to the financial statements
are an integral part of this statement.
4
<PAGE>
UPDATE SYSTEMS, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (FEBRUARY 24, 1999)
THROUGH DECEMBER 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,199,697)
Adjustments to reconcile net loss to net cash
used in operating activities-
Stock based expenses 714,500
Depreciation 7,888
Increase in accounts receivable (600)
Increase in accounts payable and accrued expenses 35,877
Increase in accrued payroll 9,362
Increase in deferred revenue 6,032
Increase in deferred compensation 83,333
-----------
Net cash used in operating activities (343,305)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (53,820)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 500,500
Costs related to issuance of common stock (19,810)
-----------
Net cash provided by financing activities 480,690
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 83,565
CASH AND CASH EQUIVALENTS, beginning of period -
-----------
CASH AND CASH EQUIVALENTS, end of period $ 83,565
===========
The accompanying notes to the financial statements
are an integral part of this statement.
5
<PAGE>
UPDATE SYSTEMS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. Organization and DEVELOPMENT STAGE RISKS:
Update Systems, Inc. (the "Company" or "Update"), was incorporated in the state
of Delaware on February 24, 1999. The Company provides customer relation
management ("CRM") solutions as an e-communication software and strategy
provider for small to medium size businesses. The Company was formed out of the
research and development activities of Wind River Visual Communications ("Wind
River"), a Wyoming S corporation. The activities carried out at Wind River prior
to the Company's formation were limited to the development of the Update product
concept and involved minimal expenses. Accordingly, the accompanying financial
statements do not include the activities of Wind River.
Update is in the development stage and its activities to date have been
primarily related to organization, raising capital, research and development
related to its products and the development of its sales and marketing
functions. The Company has incurred losses since inception and has an
accumulated development stage deficit of $1,199,697 as of December 31, 1999. The
Company's operations are subject to certain development stage risks and
uncertainties. The Company was formed to develop a customer relationship
management tool for small to medium size businesses. The development of such a
product is complex and subject to significant risks. The Company believes it has
developed a viable product that has been tested at beta sites, however, it must
be able to demonstrate commercial acceptance of its product in the marketplace
before the Company can attain successful and profitable operations. The Company
expects to incur additional losses in the future as it continues to develop the
commercialization of its product. There can be no guarantee that the Company
will achieve or sustain significant revenues or profitability in the future.
Effective January 5, 2000 the Company was acquired by Webb Interactive Services,
Inc. ("Webb") through an asset purchase agreement whereby Webb acquired all the
assets and certain liabilities of Update in exchange for 278,411 shares of Webb
common stock and 49,704 options to purchase shares of Webb common stock with a
total value of approximately $10,000,000. Webb also has significant risks
associated with its operations. Webb has undertaken initiatives, including
seeking additional capital, to ensure that adequate capital is available to its
anticipated level of operations through the year ended December 31, 2000. If
capital is not available, or the terms of available capital are not acceptable,
Webb may have to delay planned expenditures and/or cut back on its current level
of spending, among other actions.
6
<PAGE>
2. Summary of SIGNIFICANT Accounting Policies:
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions may affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers investments in highly liquid instruments purchased with an
original maturity of 90 days or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents.
The Company has no significant off-balance sheet concentrations of credit risk,
such as foreign exchange contracts, option contracts or other foreign currency
hedging arrangements. The Company maintains cash balances in the form of bank
demand deposits and money market accounts with financial institutions that
management believes are creditworthy.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable from future undiscounted cash flows. If not fully recoverable,
impairment losses are recorded for the difference between the carrying value and
fair value of the long-lived assets.
Revenue Recognition
The Company generates revenue from two sources: (i) the sale of software
licenses which are hosted on the Company's servers and (ii) consulting services.
The Company recognizes revenues from the sale of software licenses over the term
of the contract, generally one year, if there is persuasive evidence of an
arrangement, collection is probable, the fee is fixed or determinable, and there
are no acceptance criteria. If an acceptance periodis required, license revenues
are deferred and recognized over the period from when acceptance occurs to the
expiration of the license period. Services revenue is recognized as the services
are provided.
Research and Development Costs
Research and development costs are expensed as incurred. These costs consist
primarily of salaries, supplies and contract services relating to the
development of new products and technologies. Capitalization of software
development costs commences upon the establishment of technological feasibility
of the product. Due to the complexity of the Company's software product, dynamic
technology requirements and initial stage of the product, technological
feasibility has not been established and accordingly, the Company has not
capitalized any qualifying software development costs in the accompanying
financial statements.
7
<PAGE>
Income Taxes
The current provision for income taxes represents actual or estimated amounts
payable on tax return filings each year. Deferred tax assets and liabilities are
recorded for the estimated future tax effects of temporary differences between
the tax basis of assets and liabilities and amounts reported in the accompanying
balance sheet, and for operating loss and tax credit carryforwards. The change
in deferred tax assets and liabilities for the period measures the deferred tax
provision or benefit for the period. Effects of changes in enacted tax laws on
deferred tax assets and liabilities are reflected as adjustments to the tax
provision or benefit in the period of enactment. The Company's deferred tax
assets have been reduced by a valuation allowance to the extent it is more
likely than not, that some or all of the deferred tax assets will not be
realized.
Stock Compensation Plans
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB Opinion No. 25"), in accounting for its stock
option and other stock-based plans for employees and directors. The Company has
adopted the disclosure provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123") for such
options and stock-based plans for employees and directors.
Comprehensive Income
Effective upon inception (February 24, 1999), the Company adopted the provisions
of Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes all changes in equity during a period from
non-owner sources. From its inception through the period ending December 31,
1999, the Company has not had any transactions that are required to be reported
in comprehensive income as compared to its net loss.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). The Statement establishes
accounting and reporting standards for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. It requires an entity to recognize all derivatives as either assets
or liabilities in the statement of financial position and measures those
instruments at fair value. In June 1999, the FASB issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133-An
amendment of FASB Statement No. 133 ("SFAS No. 137"). SFAS No. 137 delays the
effective date of SFAS No. 133 to financial quarters and financial years
beginning after June 15, 2000. The Company does not typically enter into
arrangements that would fall under the scope of SFAS No. 133 and thus,
management believes that SFAS No. 133 will not significantly affect its
financial condition and results of operations.
3. PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method based on estimated useful lives ranging from three to five
years.
8
<PAGE>
Property and equipment consisted of the following at December 31, 1999:
Computer equipment and software $52,300
Furniture and fixtures 1,520
-------
53,820
Less - Accumulated depreciation (7,888)
-------
$45,932
=======
Depreciation expense for the period from inception (February 23, 1999) through
December 31, 1999 was $7,888.
4. SHAREHOLDERS' EQUITY:
1999 Performance Stock Options Plan
In April 1999, the Company adopted the 1999 Performance Stock Option Plan (the
"Plan") that provides officers and employees options to purchase an aggregate of
150,000 (amended to 425,000 in September 1999) shares of the common stock of the
Company. Under the terms of the Plan, the Board of Directors may grant officers
and employees either nonqualified or incentive options, as defined by the
Internal Revenue Service. The exercise price of the shares subject to incentive
stock options will be the fair market value of the common stock on the date of
grant. If the grantee owns more than 10% of the voting power of all classes of
stock on the date of grant, the purchase price of the shares subject to an
incentive stock option shall be at least 110% of the fair market value at the
date of grant and the exercise term will be up to five years from the date of
grant. All incentive options granted under the Plan are exercisable up to 10
years from the date of grant and shall be exercisable as determined by the Board
of Directors.
A summary of option activity for the period ended December 31, 1999 is as
follows:
1999
----------------------
Weighted
Average
Exercise
Options Price
------- -------
Outstanding at beginning of year - $ -
Granted 154,114 1.43
Cancelled (3,500) 1.43
------- -----
Outstanding at end of year 150,614 $1.43
======= =====
Exercisable at end of year - $ -
======= =====
Weighted average fair value at date of grant $0.15
====
Weighted average remaining contractual
life (in years) $9.49
====
9
<PAGE>
Other Options
In July 1999, the Company issued 600 options to various consultants for
providing services. These options are fully vested and are exercisable at $1.43
per share. The estimated fair value of these options was immaterial to the
overall financial statements.
Common Stock Issued to Founders
Upon inception, the Company issued it's founders 500,000 shares of the Company's
common stock for $500. The fair value of the common stock issued to the founders
was $715,000. As the fair value of the common stock issued to the founders
exceeded the amount paid, the Company recorded additional compensation expense
of $714,500.
Statement of Financial Accounting Standards No. 123
SFAS No. 123 defines a fair value-based method of accounting for employee stock
options or similar equity instruments. However, SFAS No. 123 allows the
continued measurement of compensation cost for such plans using the intrinsic
value based method prescribed by APB Opinion No. 25, provided that pro forma
disclosures are made of net income or loss, assuming the fair value based method
of SFAS No. 123 had been applied.
The Company has elected to account for its employee stock-based compensation
plans under APB No. 25; accordingly, for purposes of the pro forma disclosures
presented below, the Company has computed the fair values of all options granted
during 1999, using the Black-Scholes pricing model and the following weighted
average assumptions.
1999
-------
Risk-free interest rate 6.0%
Expected lives 2 years
Expected volatility 0.001%
Expected dividend yield 0%
To estimate the expected lives of options for this valuation, it was assumed
that all options will be exercised upon becoming fully vested. Options granted
during the period from inception (February 24, 1999) through December 31, 1999
vest at various periods ranging from one to a two year period from the date of
grant. Cumulative compensation cost recognized in pro forma net loss with
respect to options that are forfeited prior to vesting is adjusted as a
reduction of pro forma compensation expense in the period of forfeiture.
10
<PAGE>
The total fair value of options granted was computed to be $23,517 for the year
ended December 31, 1999. This amount is amortized ratably over the vesting
periods of the options. Pro forma stock-based compensation, net of the effect of
forfeitures, was $6,064 for the period from inception (February 24, 1999)
through December 31, 1999. If the Company had accounted for its stock-based
compensation plans in accordance wit SFAS No. 123, the Company's net income
would have been reported as follows:
Period from
Inception through
December 31, 1999
-----------------
Net Loss:
As reported $1,199,697
=========
Pro forma $1,205,761
=========
5. INCOME TAXES:
The provision for income taxes includes the following:
Period from
Inception
(February 24, 1999)
Through
December 31, 1999
Current-
Federal $ -
State -
---------
Total current provision -
---------
Deferred-
Federal (407,897)
State (38,953)
Valuation allowance 446,850
---------
Total deferred provision (benefit) -
---------
Total provision $ -
=========
The statutory federal income tax rate was 34% for the period from inception
(February 24, 1999) through December 31, 1999.
11
<PAGE>
Reasons for the difference between the income tax expense reported in the
statements of operations and the amount computed by applying the statutory
federal income tax rate to earnings before income taxes are as follows:
Period from
Inception
(February 24, 1999)
Through
December 31, 1999
-----------------
Benefit at statutory rate $ (407,897)
Increase (decrease) due to-
State income taxes (38,953)
Valuation allowance 446,850
----------
Income tax provision $ -
==========
Components of net deferred tax assets (liabilities) as of December 31, 1999 are
as follows:
1999
---------
Current-
Accrued liabilities $ 5,742
Valuation allowance (5,742)
---------
Net current deferred tax assets $ -
=========
Non-current-
Depreciation $ (373)
Net operating losses 441,481
Valuation allowance (441,108)
---------
Net non-current deferred tax assets $ -
=========
For income tax reporting purposes, the Company has approximately $1,152,000 of
net operating loss carryforwards that expire at various dates through 2019. The
Tax Reform Act of 1986 contains provisions that may limit the net operating loss
carryforwards available to be used in any given year in the event of a
significant change in ownership interests. Realization of deferred tax assets is
dependent on generating sufficient taxable income prior to the expiration dates
of the respective tax assets.
During 1999, the Company increased its valuation allowance by $446,850 due
mainly to uncertainty relating to the realizability of the 1999 net operating
loss carryforward. The amount of the deferred tax assets considered realizable
could be adjusted in the near term if future taxable income materializes.
12
<PAGE>
6. EMPLOYMENT AGREEMENT:
The Company has entered into an employment agreement with an individual to serve
as the Company's Chief Executive Officer. The term of this agreement began on
August 1, 1999 and will continue through December 31, 2000. As compensation for
these services, the Company will pay the individual $200,000 annually, however,
this salary will be deferred until the Company receives an additional capital
contribution, as defined, in excess of $1,000,000. As of December 31, 1999 the
Company had not received any additional capital contribution in excess of
$1,000,000 and thus has accrued the deferred compensation of $83,333.
The Company also granted this individual 136,364 stock options that vest 30% on
August 1, 2000, 3% per month for twenty-three months and the remainder on August
1, 2002. The options are subject to antidilution protection which will allow the
individual to maintain 12% interest in all issues and outstanding classes and
series of stock. Additional options granted under this provision of the
agreement shall be issued at the then fair market value of the Company's common
stock and will vest in one year.
The individual is also entitled to the continuation of his salary and certain
benefits for six months should he be terminated without cause, as defined.
7. COMMITMENTS AND CONTINGENCIES:
The Company leases office space under a lease that expires in April 2000. Future
minimum annual rental payments due under this lease is $5,200 for the year
ending December 31, 2000.
13
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Basis of Presentation 14
Unaudited Condensed Combined Pro Forma Statement of Operations
for the nine months ended September 30, 1999 15
Unaudited Condensed Combined Pro Forma Balance Sheet
as of September 30, 1999 16
Notes to Unaudited Condensed Pro Forma Financial Information 17
Basis of Presentation
The unaudited condensed combined pro forma financial data as of
September 30, 1999 and for the nine months ended September 30, 1999 gives effect
to the acquisition by Webb Interactive Services, Inc. (the "Company" or "WEBB")
of the assets of Update Sytems, Inc. ("UPDATE") using the purchase method of
accounting. These statements are based on the historical financial statements of
WEBB and UPDATE and assumptions set forth below and in the notes to the
unaudited condensed combined pro forma financial statements. The unaudited
condensed combined pro forma balance sheet data assumes that the UPDATE
acquisition was consummated on September 30, 1999 and the unaudited condensed
combined pro forma statements of operations assumes the UPDATE acquisition was
consummated on February 24, 1999, the date UPDATE began operations. The Company
has not presented the condensed combined pro forma statements of operations for
the year ended December 31, 1998 as UPDATE did not commence operations until
February 24, 1999.
For purposes of presenting the unaudited condensed combined pro forma
balance sheet data, the tangible assets and assumed liabilities of UPDATE have
been adjusted to their estimated fair market value and the excess purchase price
has been preliminarily been allocated to developed technologies, goodwill and
other intangible assets, all of which are being amortized over a three year
period. The fair value of UPDATE'S assets and liabilities is based on
preliminary estimates and may change from those estimates due to changes in the
fair value of tangible assets and assumed liabilities based on management's
valuation of such assets and liabilities. The unaudited condensed combined pro
forma statements of operations data exclude any benefit that may result due to
synergies that may be derived and elimination of duplicative efforts resulting
for the acquisition of UPDATE.
The pro forma adjustments included herein are based upon estimates,
currently available information and certain assumptions that management believes
appropriate and factually supportable. In management's opinion, the estimates
regarding allocation of the purchase price of the UPDATE are not expected to
materially differ from the final adjustments. The unaudited condensed combined
pro forma financial data presented herein are not necessarily indicative of the
results that WEBB would have obtained had such events occurred at the beginning
of the year, as assumed, or of the future results of WEBB. The unaudited
condensed combined pro forma financial statements should be read in conjunction
with the other financial statements and notes thereto included elsewhere in this
Form 8-K/A, together with the audited financial statements and the notes thereto
included in the WEBB Form 10-KSB for the year ended December 31, 1998.
14
<PAGE>
WEBB INTERACTIVE SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
WEBB
Historical Pro Forma Pro Forma
-------------------------------------
WEBB UPDATE Adjustments Combined
----------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Net revenues $ 1,126,908 $ 3,061 - $ 1,129,969
Cost of revenues 1,143,397 - - 1,143,397
----------------- ---------------- -------------- ------------
Gross margin (16,489) 3,061 - (13,428)
Operating expenses 8,631,940 1,062,870 - 9,694,810
Amortization of goodwill 1,298,396 - 1,996,082 (1) 3,294,478
----------------- ---------------- -------------- -------------
Loss from operations (9,946,825) (1,059,809) (1,996,082) (13,002,716)
Other income (expense), net (675,076) 5,521 - (669,555)
----------------- ---------------- -------------- -------------
Net loss from continuing operations (10,621,901) (1,054,288) (1,996,082) (13,672,271)
Expenses allocable to common stockholders (4,420,468) - - (4,420,468)
----------------- ---------------- -------------- -------------
Loss available to common stockholders $(15,042,369) $ (1,054,288) $ (1,996,082) $(18,092,739)
================= ================ ============== =============
Loss from continuing operations per
common share, basic and diluted
(Note 4) $ (2.41) N/A N/A $ (2.78)
================= ================= ============== =============
Weighted average shares outstanding 6,228,731 N/A 278,411 (2) 6,507,142
================= ================= ============== =============
</TABLE>
The accompanying Notes to Unaudited Condensed Combined Pro Forma Financial
Statements are an integral part of these financial statements.
15
<PAGE>
WEBB INTERACTIVE SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHHETS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
WEBB
Historical Pro Forma Pro Forma
-------------------------------------
WEBB UPDATE Adjustments Combined
----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 6,445,206 $ 102,773 $ (102,773)(3) $ 6,380,206
(65,000)(4)
Current assets 474,653 600 (600)(3) 474,653
------------ ----------- ----------- ------------
Total current assets 6,919,859 103,373 (168,373) 6,854,859
Property and equipment, net 2,250,726 34,224 - 2,284,950
Intangible assets, net 13,728,002 - 10,026,193 (5) 23,754,195
Deferred financing costs and other assets 251,492 - - 251,492
------------ ----------- ----------- ------------
Total assets $ 23,150,079 $ 137,597 $ 9,857,820 $ 33,145,496
============ =========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 2,440,265 $ 46,695 $ (46,695)(3) $ 2,440,265
Capital leases payable 39,557 - - 39,557
10% convertible note payable 2,635,045 - 2,635,045
Stockholders equity
10% preferred stock 998,871 - 998,871
Common stock 46,129,934 850 8,630,741 (5) 54,760,675
(850)(5)
Additional paid-in capital - 1,194,340 (1,194,340)(5) -
Warrants and options 6,722,905 - 1,364,676 (5) 8,087,581
Accumulated deficit (35,816,498) (1,104,288) 1,104,288 (5) (35,816,498)
------------ ----------- ----------- ------------
Total stockholders' equity 18,035,212 90,902 9,904,515 28,030,629
------------ ----------- ----------- ------------
Total liabilities and stockholders' equity $ 23,150,079 $ 137,597 $ 9,857,820 $ 33,145,496
============ =========== =========== ============
</TABLE>
The accompanying Notes to Unaudited Condensed Combined Pro Forma Financial
Statements are an integral part of these financial statements.
16
<PAGE>
NOTES TO UNAUDITED CONDENSED PRO FORMA FINANCIAL INFORMATION
NOTE 1 - BACKGROUND
On January 7, 2000, the Company completed an acquisition of UPDATE by
exchanging 278,411 of the Company's common stock valued at $8,630,741 for the
assets of UPDATE and options to purchase 49,704 shares of common stock valued at
$1,364,676. The acquisition of the assets was recorded using the purchase method
of accounting whereby the consideration paid of $10,060,417 was allocated based
on the relative fair values of the assets and liabilities acquired with the
excess consideration over the fair market value of tangible assets of
$10,026,193 recorded as intangible assets.
Total consideration for the merger is as follows:
Value of common stock issued $ 8,630,741(a)
Value of warrants and options issued 1,364,676(b)
Acquisition expenses 65,000
------------
Total purchase price $ 10,060,417
============
The purchase price was allocated to the assets acquired based on their fair
market values as follows:
Property and equipment, net $ 34,224
Developed technologies, goodwill and other
intangibles 10,026,193
-----------
Total assets acquired $10,060,417
===========
(a) 278,411 shares issued multiplied by $31.00, the average closing price of
the Webb stock the two days prior to and the two days subsequent to the
closing of the UPDATE transaction (January 7, 2000).
(b) 49,704 warrants and options issued valued using the Black-Scholes option
pricing model using the following assumptions:
Exercise prices $4.33
Fair market value of common stock on
measurement date $29.50
Option lives 5 years
Volatility rate 104%
Risk free rate of return 5.0%
Dividend rate 0%
The following table indicates the preliminary allocation of excess purchase
price and expected amortization periods:
Intangible Asset Assigned Value Amortization Period
- ------------------------------------- ------------- -------------------
Developed technologies $ 4,500,000 3 Years
Goodwill 5,526,193 3 Years
-----------
Total intangible assets and goodwill $10,026,193
===========
NOTE 2 - HISTORICAL
The unaudited condensed combined pro forma statements of operations include
the historical results of WEBB for the nine months ended September 30, 1999 and
of UPDATE for the period from inception (February 24, 1999) through September
30, 1999.
17
<PAGE>
The Company has not presented the condensed combined pro forma statements
of operations for the year ended December 31, 1998 as UPDATE did not commence
operations until February 24, 1999.
NOTE 3 - PRO FORMA ADJUSTMENTS
The condensed combined pro forma statements of operations have been
adjusted to reflect the following pro forma adjustments:
1. Reflects the amortization of intangible assets and goodwill over a
three year period assuming the transaction occurred February 24, 1999,
the date UPDATE began operations.
2. Reflects the issuance of 278,411 shares of Webb common stock issued in
accordance with the Asset Purchase Agreement.
3. Reflects certain assets and liabilities not acquired in the
acquisition in accordance with the Asset Purchase agreement.
4. Reflects the estimated acquisition costs consisting principally of
transaction fees for attorneys and accountants.
5. Reflects the issuance of 278,411 shares of the Company's common stock
to the stockholders of UPDATE; the value of the replacement options
issued to UPDATE employees; and the recording of the excess purchase
over the tangible assets and liabilities recorded as developed
technologies, goodwill and other intangibles which are being amortized
over three years.
NOTE 4 - LOSS FROM CONTINUING OPERATIONS PER COMMON SHARE
The combined Company has presented its loss from continuing operations per
common share for the nine months ended September 30, 1999 pursuant to Statement
of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share." Basic
loss per common share was computed by dividing loss from continuing operations
available to common shareholders by the weighted average number of shares of
common stock outstanding during the nine months ended September 30, 1999. The
loss from continuing operations available to common shareholders is equal to the
loss from continuing operations less the accretion of Preferred Stock to
redemption value and Preferred Stock dividends of $4,420,468 for the nine months
ended September 30, 1999. Diluted loss per common share has not been presented,
since the impact on loss per share using the treasury stock method is
anti-dilutive due to the combined Company's losses.
18
