<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A-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):
May 15, 2000 (January 19, 2000)
CNET NETWORKS, Inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C> <C>
Delaware 0-20939 13-3696170
(STATE OR OTHER (COMMISSION FILE NUMBER) (IRS EMPLOYER IDENTIFICATION NO.)
JURISDICTION OF
INCORPORATION)
</TABLE>
150 Chestnut Street
San Francisco, California 94111
---------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code:
(415) 364-8000
<PAGE> 2
ITEM 2. OTHER EVENTS.
On February 29, 2000, CNET Networks, Inc. completed the acquisition of
mySimon, Inc., pursuant to which CNET issued approximately 10.7 million shares
of its Common Stock. CNET had previously announced its intention to account for
this transaction using the pooling of interests accounting method, but has now
accounted for the transaction using the purchase method of accounting as a
result of CNET's stock repurchase program announced April 19, 2000 (described in
its Form 8-K filed April 27, 2000). MySimon operates www.mySimon.com, an online
comparison shopping web site. For more information with respect to mySimon or
the terms of the Merger, reference is made to the Agreement and Plan of Merger
attached hereto as Exhibit 2.1 and the press release attached hereto as Exhibit
99.1.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The following financial statements are filed as Exhibit 99.2 and are
incorporated herein by reference:
Independent Auditors' Report
Balance Sheets as of December 31, 1999 and December 31, 1998
Statements of Operations for the Year Ended December 31, 1999
and Period from April 22, 1998 (inception) to December 31, 1998
Statements of Stockholders' Equity for the Year Ended December 31, 1999
and Period from April 22, 1998 (inception) to December 31, 1998
Statements of Cash Flows for the Year Ended December 31, 1999
and Period from April 22, 1998 (inception) to December 31, 1998
Notes to Financial Statements
(b) Proforma Financial Information.
The following financial statements are filed as Exhibit 99.3 and are
incorporated herein by reference:
Unaudited Pro Forma Condensed Financial Statements
Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31, 1999
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Year ended December 31, 1999
Unaudited Pro Forma Condensed Combined Statement of Operations for the Three
Month Period Ended March 31, 2000
Notes to Unaudited Pro Forma Condensed Financial Statements
(c) Exhibits
2.1 Agreement and Plan of Merger dated January 19, 2000 among CNET, Inc.,
CNET Sub, Inc. and mySimon.*
23.1 Consent of KPMG, LLP
99.1 Press Release dated January 20, 2000.*
<PAGE> 3
99.2 Audited financial statements of mySimon, Inc. for the year ended
December 31, 1999 and the Period from April 22, 1998 (inception)
December 31, 1998.
99.3 Pro forma financial statements for the year ended December 31, 1999
and for the three-month period ended March 31, 2000.
*Previously filed with CNET's Current Report on Form 8-K filed on January 24,
2000.
<PAGE> 4
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 thereunto duly authorized.
Dated: May 15, 2000 CNET NETWORKS, INC.
By: /s/ DOUGLAS WOODRUM
-----------------------
Name: Douglas Woodrum
Title: Chief Financial Officer
<PAGE> 5
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
2.1 Agreement and Plan of Merger dated January 19, 2000 among CNET, Inc.,
CNET Sub, Inc. and mySimon.*
23.1 Consent of KPMG LLP
99.1 Press Release dated January 20, 2000.*
99.2 Financial statements of mySimon, Inc. for the year ended December 31,
1999 and the period from April 22, 1998 (inception) to December 31,
1998.
99.3 Pro forma financial statements for the year ended December 31, 1999 and
for the three-month period ended March 31, 2000.
*Previously filed with CNET's Current Report on Form 8-K filed on January 24,
2000.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
Consent of KPMG LLP, independent auditors
The Board of Directors
MySimon, Inc.:
We consent to the incorporation by reference in the registration
statements on Form S-8 (File Nos. 333-07667, 333-07671, 333-34491, 333-67325,
333-78247 and 333-35458) and Forms S-3 (File Nos. 333-46203, 333-56633,
333-73023, 333-77065, 333-77757, 333-78585, 333-85513 and 333-90739) of CNET
Networks, Inc. of our report dated February 18, 2000, except as to Note 8, which
is as of February 29, 2000, with respect to the balance sheets of mySimon, Inc.
as of December 31, 1999 and 1998, and the related statements of operations,
shareholders' equity, and cash flows for the year ended December 31, 1999 and
for the period from April 22, 1998 (inception) to December 31, 1998, which
report appears in the Form 8-K of CNET Networks, Inc. dated May 15, 2000.
KPMG LLP
Mountain View, California
May 15, 2000
<PAGE> 1
EXHIBIT 99.2
MYSIMON, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report 1
Balance Sheets 2
Statements of Operations 3
Statements of Shareholders' Equity 4
Statements of Cash Flows 6
Notes to Financial Statements 7
</TABLE>
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
The Board of Directors
mySimon, Inc.:
We have audited the accompanying balance sheets of mySimon, Inc. (the
Company) as of December 31, 1999 and 1998, and the related statements of
operations, shareholders' equity, and cash flows for the year ended December 31,
1999 and for the period from April 22, 1998 (inception) to December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of mySimon, Inc. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the year ended December 31, 1999 and for the period from April 22, 1998
(inception) to December 31, 1998, in conformity with generally accepted
accounting principles.
Mountain View, California KPMG LLP
February 18, 2000, except as to Note 8,
which is as of February 29, 2000
<PAGE> 3
MYSIMON, INC.
Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
------------ -----------
<S> <C> <C>
Current assets:
Cash and short-term investments $ 15,956,230 3,280,168
Restricted cash 1,000,000 --
Advances to employees -- 35,253
Accounts receivable, net of allowance for doubtful
accounts of $302,605 1,072,869 --
Prepaid expenses and other current assets 74,546 47,308
------------ -----------
Total current assets 18,103,645 3,362,729
Property and equipment, net 2,158,819 501,422
Other assets 121,900 12,736
------------ -----------
Total assets $ 20,384,364 3,876,887
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 820,624 101,820
Accrued expenses and other liabilities 5,456,289 70,747
Line of credit 1,000,000 --
Deferred revenue 214,059 --
------------ -----------
Total current liabilities 7,490,972 172,567
------------ -----------
Commitments
Shareholders' equity
Preferred stock; convertible and participating:
Series A, no par value; 2,857,142 shares authorized;
2,857,142 shares outstanding; liquidation preference
of $514,286 491,273 491,273
Series B, no par value; 6,000,000 shares authorized;
1,800,000 shares outstanding; liquidation preference
of $1,494,000 1,483,895 1,483,895
Series C, no par value; 5,000,000 shares authorized; 920,712
and 916, 029 shares outstanding, respectively; liquidation
preference of $3,019,935 and $3,004,575, respectively 2,975,334 2,960,258
Series D, no par value; 18,000,000 shares authorized; 11,261,262
shares outstanding; liquidation preference of $25,000,000 23,072,356 --
Common stock, no par value; 50,000,000 shares authorized;
13,842,236 and 10,001,000 shares issued and outstanding,
respectively 1,236,528 25,080
Additional paid-in capital 11,947,795 28,707
Deferred stock-based compensation (7,874,178) --
Notes receivable from shareholders (1,038,069) --
Accumulated deficit (19,401,542) (1,284,893)
------------ -----------
Total shareholders' equity 12,893,392 3,704,320
------------ -----------
Total liabilities and shareholders' equity $ 20,384,364 3,876,887
============ ===========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 4
MYSIMON, INC.
Statements of Operations
Year ended December 31, 1999 and the period from
April 22, 1998 (inception) to December 31, 1998
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Revenues:
Licensing revenue $ 74,099 2,400
Adverting and promotion revenue 1,608,965 677
------------ -----------
Total revenues 1,683,064 3,077
Cost of revenues - advertising and promotion revenue 475,192 44,242
------------ -----------
Gross margin 1,207,872 (41,165)
------------
Operating expenses:
Research and development, excludes stock-based compensation
of $511,503 and $-0-, respectively 2,894,382 649,974
Sales and marketing, excludes stock-based compensation of
$1,365,079 and $-0-, respectively 11,629,514 309,045
General and administrative, excludes stock-based
compensation of $1,381,142 and $-0-, respectively 2,061,776 315,268
Stock-based compensation 3,257,724 --
------------ -----------
Total operating expenses 19,843,396 1,274,287
------------ -----------
Operating loss (18,635,524) (1,315,452)
Other income (expense):
Interest income 532,160 32,881
Interest expense (13,285) (2,322)
------------ -----------
Net loss $(18,116,649) (1,284,893)
============ ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 5
MYSIMON, INC.
Statements of Shareholders' Equity
Year ended December 31, 1999 and the period from
April 22, 1998 (inception) to December 31, 1998
<TABLE>
<CAPTION>
Preferred stock
-------------------------------------------------------------------------------------------
Series A Series B Series C Series D
--------------------- --------------------- --------------------- ----------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
founders at $0.0025 per share for
cash on May 13, 1998 -- $ -- -- $ -- -- $ -- -- $ --
Issuance of Series A preferred stock
at $0.18 per share for cash in June
1998, net of issuance cost of $8,727 2,857,142 491,273 -- -- -- -- -- --
Issuance of Series B preferred stock
at $0.83 per share for cash in
September 1998, net of issuance
cost of $16,105 -- -- 1,800,000 1,483,895 -- -- -- --
Issuance of Series C preferred stock
at $3.28 per share for cash in
October 1998, net of issuance cost
of $42,030 -- -- -- -- 916,029 2,960,258 -- --
Issuance of Series C preferred stock
warrants -- -- -- -- -- -- -- --
Issuance of common stock upon
exercise of stock options -- -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
Balances, December 31, 1998 2,857,142 491,273 1,800,000 1,483,895 916,029 2,960,258 -- --
Issuance of Series D preferred stock
at $2.22 per share for cash in June
1999, net of issuance cost
of $1,047,532 -- -- -- -- -- -- 11,261,262 23,072,356
Issuance of Series D preferred stock
warrants -- -- -- -- -- -- -- --
Issuance of Series C preferred stock
upon warrant exercise -- -- -- -- 4,683 15,076 -- --
Issuance of common stock upon
exercise of stock options -- -- -- -- -- -- -- --
Issuance of common stock for note
receivable -- -- -- -- -- -- -- --
Deferred compensation related to
stock option grants -- -- -- -- -- -- -- --
Amortization of stock-based
compensation -- -- -- -- -- -- -- --
Nonemployee stock compensation -- -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
Balances, December 31, 1999 2,857,142 $ 491,273 1,800,000 $1,483,895 920,712 $2,975,334 11,261,262 $23,072,356
========== ========== ========== ========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to financial statements (continued)
4
<PAGE> 6
<TABLE>
<CAPTION>
Notes
Common stock Additional Deferred receivable Total
------------------------- paid-in stock-based from Accumulated shareholders'
Shares Amount capital compensation shareholders deficit equity
----------- ----------- ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
founders at $0.0025 per share for
cash on May 13, 1998 10,000,000 $ 25,000 -- -- -- -- 25,000
Issuance of Series A preferred stock
at $0.18 per share for cash in June
1998, net of issuance cost of $8,727 -- -- -- -- -- -- 491,273
Issuance of Series B preferred stock
at $0.83 per share for cash in
September 1998, net of issuance
cost of $16,105 -- -- -- -- -- -- 1,483,895
Issuance of Series C preferred stock
at $3.28 per share for cash in
October 1998, net of issuance cost
of $42,030 -- -- -- -- -- -- 2,960,258
Issuance of Series C preferred stock
warrants -- -- 28,707 -- -- -- 28,707
Issuance of common stock upon
exercise of stock options 1,000 80 -- -- -- -- 80
Net loss -- -- -- -- -- (1,284,893) (1,284,893)
----------- ----------- ---------- ------------ ------------ ----------- -------------
Balances, December 31, 1998 10,001,000 25,080 28,707 -- -- (1,284,893) 3,704,320
Issuance of Series D preferred stock
at $2.22 per share for cash in June
1999, net of issuance cost
of $1,047,532 -- -- -- -- -- -- 23,072,356
Issuance of Series D preferred stock
warrants -- -- 787,186 -- -- -- 787,186
Issuance of Series C preferred stock
upon warrant exercise -- -- -- -- -- -- 15,076
Issuance of common stock upon
exercise of stock options 853,896 173,379 -- -- -- -- 173,379
Issuance of common stock for note
receivable 2,987,340 1,038,069 -- -- (1,038,069) -- --
Deferred compensation related to
stock option grants -- -- 9,349,235 (9,349,235) -- -- --
Amortization of stock-based
compensation -- -- -- 1,475,057 -- -- 1,475,057
Nonemployee stock compensation -- -- 1,782,667 -- -- -- 1,782,667
Net loss -- -- -- -- -- (18,116,649) (18,116,649)
----------- ----------- ---------- ------------ ------------ ----------- -------------
Balances, December 31, 1999 13,842,236 $ 1,236,528 11,947,795 (7,874,178) (1,038,069) (19,401,542) 12,893,392
=========== =========== ========== ============ ============ =========== =============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 7
MYSIMON, INC.
Statements of Cash Flows
Year ended December 31, 1999 and the period from
April 22, 1998 (inception) to December 31, 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(18,116,649) (1,284,893)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 385,329 25,690
Allowance for doubtful accounts 302,605 --
Amortization of stock-based compensation 1,475,057 --
Nonemployee stock-based compensation expense 1,782,667 --
Changes in operating assets and liabilities:
Advances to employees 35,253 (35,253)
Accounts receivable (1,375,474) --
Prepaid expenses and other current assets (27,239) (47,308)
Other assets (109,164) (12,736)
Accounts payable 718,804 101,820
Accrued expenses and other liabilities 5,385,542 70,747
Deferred revenue 214,059 --
------------ ------------
Net cash used in operating activities (9,329,210) (1,181,933)
------------ ------------
Cash flows from investing activities:
Capital expenditures (2,042,724) (527,112)
Short-term investments (8,353,613) (20,414)
------------ ------------
Net cash used in investing activities (10,396,337) (547,526)
------------ ------------
Cash flows from financing activities:
Proceeds from sale of convertible preferred stock, net 23,874,616 4,964,133
Proceeds from issuance of common stock 173,379 25,080
Proceeds from line of credit 1,000,000 --
Restricted cash used to secure financing (1,000,000) --
------------ ------------
Net cash provided by financing activities 24,047,995 4,989,213
------------ ------------
Net increase in cash and cash equivalents 4,322,448 3,259,754
Cash and cash equivalents at beginning of year/period 3,259,754 --
------------ ------------
Cash and cash equivalents at end of year/period 7,582,202 3,259,754
Short-term investments 8,374,027 20,414
------------ ------------
Cash and short-term investments $ 15,956,229 3,280,168
============ ============
Supplemental disclosures of cash flow information:
Cash paid during year/period for interest $ 13,258 2,322
============ ============
Noncash financing and investing activity:
Common stock issued for notes receivable $ 1,038,069 --
============ ============
Deferred stock-based compensation $ 9,349,235 --
============ ============
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 8
MYSIMON, INC.
Notes to Financial Statements
December 31, 1999 and 1998
(1) SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
(a) THE COMPANY
mySimon, Inc. (the Company or mySimon) was incorporated on April
22, 1998, to operate a destination site on the worldwide Web that
is focused on providing comparison shopping and purchasing
services to online shoppers. As consumers access a corporate
Internet site, the Company's system helps consumers around the
world shop on the Internet to find the lowest price for anything
sold on the Web. The Company also delivers branding and
promotional opportunities to on-line merchants, enabling them to
communicate their message to shoppers at the time they are making
a purchase decision.
(b) REVENUE RECOGNITION
The Company's revenues are derived principally from the sale of
merchant promotion sponsorships, banner ads, merchant transaction
programs, and licensing revenue. Merchant promotion sponsorships
are earned based on either a monthly flat fee or on a
"cost-per-click" basis, whereby the customer pays each time a user
is placed on the merchant's "buy" page. Banner ads and advertising
revenue is recognized on a per "impressions" basis in the period
in which the advertisement is displayed. Merchant transaction
revenues are generated based on a percentage of purchases made by
web traffic directed by the Company to the supporting affiliate's
site. The Company also earns revenue on license contracts from
fees relating to co-branding arrangements whereby the customer
jointly works to integrate the Company's comparison shopping
service into the customer's web site. Such license revenue is
recognized once the related activities have been performed or
ratably over the contract term, as the obligations of the Company
expire.
(c) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported results of operations during the reporting period. Actual
results could differ from those estimates.
7
<PAGE> 9
MYSIMON, INC.
Notes to Financial Statements
December 31, 1999 and 1998
(d) CASH AND SHORT-TERM INVESTMENTS
Cash and short-term investments as of December 31, 1999 and 1998,
consisted of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash and equivalents:
Cash $ 4,560,420 111,368
Certificates of deposit 45,182 2,943,420
Money market account 2,976,601 204,966
----------- -----------
Cash and equivalents 7,582,203 3,259,754
----------- -----------
Short-term investments:
Certificates of deposit 21,393 20,414
Corporate notes and bonds 8,352,634 --
----------- -----------
Short-term investments 8,374,027 20,414
----------- -----------
Cash and short-term investments $15,956,230 3,280,168
=========== ===========
</TABLE>
Short-term investments are recorded at amortized cost which
approximates market. Corporate notes and bonds are classified as
held-to-maturity and mature within a year. The Company maintains a
checking account with Chase Manhattan as of December 31, 1999,
with a balance of $3,296,471 used to pay advertising expenses
incurred on its behalf by SFM, the Company's advertising
consultant. SFM and mySimon have signature authority on this
account, although the account is maintained in mySimon's name.
As of December 31, 1999, the Company held a $1,000,000 certificate
of deposit with Silicon Valley Bank as collateral for the
Company's line of credit which is classified as restricted cash.
(e) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated
depreciation and amortization. Depreciation is calculated using
the straight-line method over the estimated useful lives of the
assets, generally three years. Leasehold improvements are recorded
at cost and amortized over the lesser of their useful lives or
term of the related lease.
(f) RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred until
technological feasibility has been established. To date, the
Company's software has been available for general release
concurrent with the establishment of technological feasibility
and, accordingly, no development costs have been capitalized.
(g) ADVERTISING COSTS
The Company's policy is to expense advertising costs as incurred.
The Company's advertising and promotion expense was $9,194,665 and
$10,568 for the year ended December
(CONTINUED)
8
<PAGE> 10
MYSIMON, INC.
Notes to Financial Statements
December 31, 1999 and 1998
31, 1999, and for the period from April 22, 1998 (inception) to
December 31, 1998, respectively.
(h) INCOME TAXES
The Company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates in effect for the year in
which those temporary differences are expected to be recovered or
settled.
(i) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company uses the intrinsic-value method of accounting for all
of its employee stock-based compensation plans. Expense associated
with stock-based compensation is being amortized on an accelerated
basis over the vesting period of the individual award consistent
with the method described in Financial Accounting Standards Board
(FASB) Interpretation No. 28.
(j) IMPAIRMENT OF LONG-LIVED ASSETS
Statement of Financial Accounting Standards (SFAS) No. 121,
prescribes accounting and reporting standards when circumstances
indicate that the carrying amount of an asset may not be
recoverable. As of December 31, 1999, no unrecoverable amounts are
evident.
(k) COMPREHENSIVE INCOME
The Company did not have any significant components of other
comprehensive income for the year ended December 31, 1999 and the
period from April 22, 1998 (inception) to December 31, 1998 other
than net loss.
(l) STOCK SPLIT
During September 1998, the Board of Directors declared a
two-for-one common stock and convertible Series A preferred stock
split. All share data, including stock option plan information,
has been restated to reflect the increase in number of shares
authorized, issued and outstanding.
(m) SEGMENT REPORTING
The Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, for the year ended December
31, 1999. Based on definitions contained within SFAS No. 131, the
Company determined that it operates in one segment.
(CONTINUED)
9
<PAGE> 11
MYSIMON, INC.
Notes to Financial Statements
December 31, 1999 and 1998
(n) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative
financial instruments and hedging activities related to those
instruments as well as other hedging activities. Because the
Company does not currently hold any derivative financial
instruments and does not engage in hedging activities, the Company
expects that the adoption of SFAS No. 133 will not have a material
impact on its financial position, results of operations or cash
flows. The Company will be required to adopt SFAS No. 133 for the
year ended December 31, 2001, in accordance with SFAS No. 137,
which delayed implementation of SFAS No. 133.
(2) FINANCIAL STATEMENT COMPONENTS
(a) PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1999 and 1998, consisted
of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Computer equipment and software $1,625,961 498,839
Furniture, fixtures and equipment 491,189 28,273
Leasehold improvements 452,688 --
---------- ----------
2,569,838 527,112
Less accumulated depreciation and amortization 411,019 25,690
---------- ----------
$2,158,819 501,422
========== ==========
</TABLE>
(b) ACCRUED EXPENSES
Accrued expenses as of December 31, 1999 and 1998, consisted of
the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Accrued marketing expense $4,932,294 --
Accrued vacation 49,899 16,206
Accrued payroll and related expenses 347,333 40,773
Other 126,763 13,768
---------- ----------
$5,456,289 70,747
========== ==========
</TABLE>
(3) LINE OF CREDIT
On August 31, 1999, the Company entered into an equipment line of credit
for $1,000,000 with Silicon Valley Bank expiring on December 1, 2003. As
of December 31, 1999, $1,000,000 was outstanding with an interest rate of
6.60%. The line of credit is secured by a $1,000,000 certificate of
deposit held with the bank.
(CONTINUED)
10
<PAGE> 12
MYSIMON, INC.
Notes to Financial Statements
December 31, 1999 and 1998
(4) SHAREHOLDERS' EQUITY
(a) FOUNDERS STOCK
On May 13, 1998, the Board of Directors issued 10,000,000 shares
of restricted common stock to the founders of the Company. The
shares of restricted common stock vest at a rate of 50% after one
year from the date of issuance and the remaining 50% will vest
after two years from the date of issuance. As of December 31,
1999, 4,000,000 shares were subject to repurchase by the Company
at a weighted-average price of $0.95 per share.
(b) CONVERTIBLE PREFERRED STOCK
The rights, preferences, and privileges of the Series A, B, C, and
D convertible preferred stock shareholders are as follows:
o Shares of Series A, B, C, and D preferred stock have a
liquidation preference of $0.18, $0.83, $3.28, and $2.22 per
share, respectively, plus any declared and unpaid dividends.
If the assets and funds available for distribution are
insufficient to allow payment at the aforementioned rates,
then the entire amount of the assets and funds of the Company
legally available for distribution will be distributed ratably
among the holders of the preferred stock in proportion to the
respective amounts which would be payable on the shares if the
respective preferential amounts were paid in full.
o Each share of Series A, B, and D preferred stock is
convertible into one share of common stock, subject to certain
antidilution provisions. Each share of Series C preferred
stock is convertible into 1.19 shares of common stock, subject
to certain antidilution provisions.
o Shares of Series A, B, C, and D preferred stock automatically
convert to common stock immediately upon the consummation of a
firmly underwritten IPO, provided that the aggregate gross
proceeds to the Company are not less than $25,000,000 and that
the offering price is not less than $6.66 per share.
o The holders of Series A, B, C, and D preferred stock have the
right to one vote for each share on an "as if converted"
basis.
(c) WARRANTS
In October 1998, the Company issued 381,676 warrants to purchase
shares of common stock. Common stock purchase warrants were
granted to the investors in Series C convertible preferred stock
in connection with the Series C convertible preferred stock
purchase agreement. Such warrants had an exercise price of $3.28.
The warrants had a one-year term, and included registration rights
for the underlying stock following a public offering. As of
October 1999, the warrants remained unexercised and expired. The
fair value of the warrants issued was calculated using the
Black-Scholes option pricing model, $3.28 as the fair value of the
underlying convertible preferred stock, and the following
weighted-average assumptions: no dividends; contractual life of
one year; risk-free interest rate of 4.00%; and no volatility. The
fair value of $28,707 was recorded as additional paid-in capital.
In October 1999, the Company issued 4,331,250 warrants in
connection with the Series D convertible preferred stock purchase
agreement. Such warrants have an exercise price of $2.88 per
share. The warrants are immediately exercisable and expire in
October 2006. The fair value of the warrants issued was calculated
using the Black-Scholes option pricing model, $2.22 as the fair
value of the underlying convertible preferred stock, and the
following
(CONTINUED)
11
<PAGE> 13
MYSIMON, INC.
Notes to Financial Statements
December 31, 1999 and 1998
weighted-average assumptions: no dividends; contractual life of
seven years; risk-free interest rate of 5.00%; and no volatility.
The fair value of $787,186 was recorded as additional paid-in
capital.
(d) 1998 STOCK OPTION PLAN
The Company has reserved 7,273,695 shares of common stock issuable
upon exercise of options granted to certain employees, directors,
and consultants pursuant to the Company's 1998 Stock Option Plan
(the Plan). The Plan provides for the issuance of stock purchase
rights, incentive stock options or nonstatutory stock options.
Options granted under the Plan generally vest over a four-year
period with 25% vesting on the first anniversary of the grant date
and 1/48th of the balance each month thereafter. If an option
holder loses their eligibility, vested options held at the date of
loss of eligibility may be exercised generally within 90 days for
such loss of eligibility other than by reason of the holder's
death or disability, and within 12 months after such loss by
reason of the holder's death or disability
On October 7, 1999, the Company's Board of Directors approved an
Early Exercise Stock Option Program (the Program) which allows
employees to exercise unvested stock options in order to gain more
favorable tax treatment relating to potential gains in the value
of the Company. The Company has the right to repurchase the stock
upon voluntary or involuntary termination of the purchaser's
employment with the Company at the original issue cost. Through
December 31, 1999, the Company has issued 3,591,081 shares under
this Program of which 3,488,303 shares were subject to repurchase
at a weighted-average exercise price of $0.33 per share. Certain
of these restricted shares were issued to officers of the Company
for full recourse promissory notes with interest rates of 6.47%
and terms of 10 years.
(e) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has elected to use the intrinsic-value method to
account for all of its employee stock-based compensation plans.
The Company originally intended the exercise price of each option
granted to be greater than or equal to the fair value of the
underlying common stock. However, based on the subsequent
valuation of the Company's common stock as measured in the merger
agreement with CNET, Inc. (see note 8), the Company recorded
deferred stock compensation of $7,530,376. The amount is being
amortized on an accelerated basis over the vesting period,
generally four years, consistent with the method described in FASB
Interpretation No. 28. Amortization of the December 31, 1999
balance of deferred stock-based compensation for the fiscal years
ended 2000, 2001, 2002, and 2003, is expected to approximate
$3,709,000, $1,526,000, $684,000, and $136,000, respectively.
Pursuant to SFAS No. 123, the Company is required to disclose the
pro forma effect on net loss as if the Company had elected to use
the fair value approach to account for its employee stock-based
compensation plans. Had compensation cost for the Company's plans
been determined consistent with the fair value approach enumerated
in SFAS No. 123, the Company's pro forma net loss for the fiscal
year ended December 31, 1999, and the period from April 22, 1998
(inception) to December 31, 1998, would not have been materially
different from the net losses reported in the accompanying
statements of operations.
(CONTINUED)
12
<PAGE> 14
MYSIMON, INC.
Notes to Financial Statements
December 31, 1999 and 1998
The fair value of options granted was estimated on the date of
grant using the minimum value method with the following
weighted-average assumptions: risk-free interest rate of
approximately 6.0%; expected life of four years; and no dividends.
A summary of the activity related to the Company's option plan
from April 22, 1998 (inception) to December 31, 1998, and for the
year ended December 31, 1999, is presented below:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------- -------------------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 807,595 $ 0.02 -- $ --
Granted 4,612,566 0.36 808,595 0.02
Forfeited (325,827) 0.22 -- --
Exercised (3,829,470) 0.31 (1,000) 0.02
------------ -------------
Outstanding at end of year 1,264,864 0.34 807,595 0.02
============ =============
Options exercisable as of
year end 100,456 0.12 -- --
============ =============
Weighted-average fair value of
options granted during the year
with an exercise price equal
to fair value at grant date 818,983 0.06 783,595 0.01
============ =============
Weighted-average fair value of
options granted during the
period with an exercise price
less than fair value at
grant date 3,793,586 2.96 25,000 0.08
============ =============
</TABLE>
As of December 31, 1999, the ranges of exercise prices and
weighted-average remaining contractual lives of outstanding
options were as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------------------------------------------------
OPTIONS EXERCISABLE
WEIGHTED- -------------------------------
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES NUMBER LIFE (YEARS) PRICE EXERCISABLE PRICE
---------------- ---------------- --------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
$ 0.02 - 0.08 288,250 8.53 $ 0.02 62,125 $ 0.02
0.27 - 0.35 831,864 9.53 0.33 38,331 0.29
1.00 144,750 9.32 1.00 -- --
------------ ---------
1,264,864 0.34 100,456 0.12
============ =========
</TABLE>
(CONTINUED)
13
<PAGE> 15
MYSIMON, INC.
Notes to Financial Statements
December 31, 1999 and 1998
(6) INCOME TAXES
The difference between the income tax expense (benefit) computed at the
federal statutory rate and the Company's tax provision for each period is
primarily related to net operating losses not benefited. The types of
temporary differences that give rise to significant portions of the
Company's deferred tax assets and liabilities as of December 31, 1999 and
1998, are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Tangibles and intangibles $ 225,594 111,558
Accruals and reserves 168,884 5,753
Net operating loss carryforwards 6,498,984 428,938
Research credit carryforwards 262,950 44,560
----------- -----------
Total gross deferred tax assets 7,156,412 590,809
Valuation allowance (6,675,568) (552,756)
----------- -----------
Total deferred tax assets 480,844 38,053
----------- -----------
Deferred tax liabilities - state taxes (480,844) (38,053)
----------- -----------
Total deferred tax liabilities (480,844) (38,053)
----------- -----------
Net deferred tax assets $ -- --
=========== ===========
</TABLE>
Management has established a valuation allowance for the portion of
deferred tax assets for which it is not more likely than not that the
asset will be realized. The change in the valuation allowance for the
fiscal year ended December 31, 1999 and the period from April 22, 1998
(inception) to December 31, 1998, was an increase of $6,122,812 and
$552,756, respectively.
As of December 31, 1999, the Company had net operating loss carryforwards
for federal and California income tax purposes of approximately
$15,192,000 and $15,087,000, respectively. The federal net operating loss
carryforwards, if not offset against future taxable income, will expire
from 2018 through 2019. The California net operating loss carryforwards,
if not offset against future taxable income, expire in 2006.
As of December 31, 1999, unused research and development tax credits of
approximately $138,719 and $124,231 are available to reduce future
federal and California income taxes, respectively. Federal credit
carryforwards expire from 2018 through 2019; California credits will
carryforward indefinitely.
The Tax Reform Act of 1986 imposes substantial restrictions on the
utilization of net operating losses and tax credits in the event of an
"ownership change," as defined. Some of the federal and California net
operating loss carryforwards are already subject to limitation as a
result of these restrictions. If there should be a future ownership
change, as defined, the Company's ability to utilize its carryforwards
could be further reduced.
(CONTINUED)
14
<PAGE> 16
MYSIMON, INC.
Notes to Financial Statements
December 31, 1999 and 1998
(7) COMMITMENTS
The Company leases certain facilities under noncancelable operating
leases. Rent expense for the year ended December 31, 1999, and the period
from April 22, 1998 (inception) to December 31, 1998, was $338,135 and
$68,682, respectively. Future minimum lease payments under operating
leases that have lease terms in excess of one year as of December 31,
1999, were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
<S> <C>
2000 $ 574,446
2001 543,312
-----------
Total minimum lease payments $ 1,117,758
===========
</TABLE>
(8) SUBSEQUENT EVENTS
On February 29, 2000, the Company was acquired by CNET Networks, Inc.
(CNET) for approximately 10,700,000 shares of CNET common stock, valued
at approximately $680,000,000.
15
<PAGE> 1
EXHIBIT 99.3
UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements
including the notes thereto, give effect to the February 29, 2000 acquisition of
mySimon, Inc. ("mySimon") by CNET Networks, Inc. ("CNET") in a transaction
accounted for as a purchase. In connection with the acquisition, CNET issued
10,725,927 shares of its common stock and 364,730 options, having a combined
total value of approximately $678.2 million, to the shareholders of mySimon. The
condensed financial statements are based on and are qualified in their entirety
by reference to, and should be read in conjunction with, the consolidated
financial statements of CNET Networks, Inc, as previously filed, and mySimon,
included herein.
The unaudited pro forma condensed statements of operations for the year ended
December 31, 1999 give effect to the acquisition of mySimon as if it had
occurred on January 1, 1999. The unaudited pro forma condensed statements of
operations for the three months ended March 31, 2000 give effect to the
acquisition of mySimon as if it had occurred on January 1, 2000. The unaudited
pro forma condensed balance sheet as of December 31, 1999 gives effect to the
acquisition of mySimon as if the acquisition had occurred on that date.
The pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial position
that would have occurred had the acquisition been consummated as of the
beginning of the periods presented, nor is it necessarily indicative of future
operating results or financial position.
<PAGE> 2
CNET AND MYSIMON
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1999
(OOO's)
<TABLE>
<CAPTION>
PROFORMA PROFORMA
CNET MYSIMON ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 53,063 $ 16,956 $ 70,019
Investments in marketable debt securities ...... 65,985 -- 65,985
Investments in marketable equity securities .... 785,909 -- 785,909
Accounts receivable, net ....................... 24,628 1,073 25,701
Other current assets ........................... 18,743 75 18,818
Restricted cash ................................ 740 -- 740
----------- ----------- ----------- -----------
Total current assets ...................... 949,068 18,104 -- 967,172
Investments in marketable debt securities ........... 109,802 -- 109,802
Investments in marketable equity securities ......... -- -- --
Property and equipment, net ......................... 30,044 2,159 32,203
Other assets ........................................ 50,609 122 50,731
Goodwill ............................................ 90,788 -- 665,292 (a) 765,080
----------- ----------- ----------- -----------
$ 1,230,311 $ 20,385 $ 665,292 $ 1,915,988
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................... $ 11,461 $ 821 $ 12,282
Accrued liabilities ............................ 16,398 5,670 22,068
Current portion of long-term debt .............. 5,750 1,000 6,750
Income taxes payable ........................... 5,398 -- 5,398
Deferred tax liability ......................... 306,352 -- 306,352
----------- ----------- ----------- -----------
Total current liabilities ................. 345,359 7,491 -- 352,850
Long-term debt ...................................... 179,114 -- 179,114
----------- ----------- ----------- -----------
Total liabilities ......................... 524,473 7,491 -- 531,964
Stockholders' equity:
Preferred stock ................................ -- 28,022 (28,022)(b) --
Common stock ................................... 7 1,237 (1,237)(b) 7
Additional paid in capital ..................... 218,670 10,911 667,275 (c) 896,856
Other comprehensive income and stock based
compensation .................................. 121,409 (7,874) 7,874 (d) 121,409
Retained earnings (deficit) .................... 365,752 (19,402) 19,402 (b) 365,752
----------- ----------- ----------- -----------
Total stockholders' equity ................ 705,838 12,894 665,292 1,384,024
----------- ----------- ----------- -----------
$ 1,230,311 $ 20,385 $ 665,292 $ 1,915,988
=========== =========== =========== ===========
</TABLE>
<PAGE> 3
CNET AND MYSIMON
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
DECEMBER 31, 1999
(OOO's)
<TABLE>
<CAPTION>
PROFORMA PROFORMA
CNET MYSIMON ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Revenues:
Internet ................................. $ 104,887 $ 1,683 106,570
Broadcast ................................ 7,458 -- 7,458
--------- --------- ----------
Total revenues ........................ 112,345 1,683 114,028
Cost of revenues:
Internet ................................. 35,619 475 36,094
Broadcast ................................ 8,341 -- 8,341
--------- --------- ----------
Total cost of revenues ................ 43,960 475 44,435
--------- --------- ----------
Gross profit ................................ 68,385 1,208 69,593
Operating expenses:
Sales and marketing ...................... 91,660 11,630 103,290
Development .............................. 7,561 2,894 10,455
General and administrative ............... 15,266 5,320 (3,258)(d) 17,328
Amortization of goodwill ................. 15,036 -- 221,764 (e) 236,800
--------- --------- --------- ----------
Total operating expenses .............. 129,523 19,844 218,506 367,873
--------- --------- --------- ----------
Operating income(loss) ...................... (61,138) (18,636) (218,506) (298,280)
Other income (expense):
Gain (loss) on investments ............... 734,138 -- 734,138
Interest income (expense), net ........... 1,223 519 1,742
--------- --------- ----------
Total other income (expense) ............ 735,361 519 735,880
--------- --------- ----------
Net income (loss) before income taxes .... $ 674,223 $ (18,117) 437,600
Income taxes ............................ 257,315 -- (91,027)(g) 166,288
--------- --------- ----------
Net income (loss) after income taxes ..... $ 416,908 $ (18,117) 271,312
========= ========= ==========
Basic net income (loss) per share ........... $ 5.80 $ 3.29
Diluted net income (loss) per share ......... $ 5.05 $ 2.88
Shares used in calculating
basic per share data ...................... 71,820 10,725 82,545
Shares used in calculating
diluted per share data .................... 83,373 10,959 94,332
</TABLE>
<PAGE> 4
CNET AND MYSIMON
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
MARCH 31, 2000
(OOO's)
<TABLE>
<CAPTION>
PROFORMA PROFORMA
CNET MYSIMON ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Revenues:
Internet ................................. $ 42,043 $ 1,060 43,103
Broadcast ................................ 2,323 -- 2,323
-------- -------- --------
Total revenues ........................ 44,366 1,060 45,426
Cost of revenues:
Internet ................................. 14,072 122 14,194
Broadcast ................................ 2,722 -- 2,722
-------- -------- --------
Total cost of revenues ................ 16,794 122 16,916
-------- -------- --------
Gross profit ................................ 27,572 938 28,510
Operating expenses:
Sales and marketing ...................... 14,728 3,672 18,400
Development .............................. 2,447 652 3,099
General and administrative ............... 5,994 6,041 (4,985)(d) 7,050
Amortization of goodwill ................. 28,114 -- 55,701 (f) 83,815
-------- -------- ----------- --------
Total operating expenses .............. 51,283 10,345 50,716 112,364
-------- -------- ----------- --------
Operating income(loss) ...................... (23,711) (9,427) ( 50,716) (83,854)
Other income (expense):
Gain (loss) on investments ............... (3,966) -- (3,966)
Interest income (expense), net ........... (13) 86 73
-------- -------- --------
Total other income (expense) ............ (3,979) 86 (3,893)
-------- -------- --------
Net income (loss) before income taxes .... $(27,690) $ (9,341) (87,747)
Income taxes ............................ -- -- --
-------- -------- --------
Net income (loss) after income taxes ..... $(27,690) $ (9,341) (87,747)
======== ======== ========
Basic net income (loss) per share ........... $ (0.36) $ (1.00)
Diluted net income (loss) per share ......... $ (0.36) $ (1.00)
Shares used in calculating
basic per share data ...................... 77,422 10,726 88,148
Shares used in calculating
diluted per share data .................... 77,422 10,726 88,148
</TABLE>
<PAGE> 5
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(1) Basis of Presentation
The unaudited pro forma condensed statement of operations for the year
ended December 31, 1999 gives effect to the acquisition of mySimon as if it had
occurred on January 1, 1999. The unaudited pro forma condensed statement of
operations for the three months ended March 31, 2000 gives effect to the
acquisition of mySimon as if it had occurred on January 1, 2000. The unaudited
pro forma condensed balance sheet as of December 31, 1999 gives effect to the
acquisition of mySimon as if it had occurred on that date. The condensed
financial statements, including the notes thereto, should be read in conjunction
with the consolidated financial statements of CNET, as previously filed on Form
10K and 10-Q, and mySimon, included herein.
(2) Pro Forma Adjustments
(a) Reflects the purchase price that is allocated to goodwill (which will
be amortized over 3 years) after adjusting for one full year of
amortization.
The purchase price was allocated based on the estimated fair value of the
acquired assets and liabilities. The preliminary allocation is as follows
(in thousands):
<TABLE>
<S> <C> <C>
Purchase Price $ 678,186
Assets Acquired
Cash 16,956
Accounts receivable, net 1,073
Property, plant, and equipment, net 2,159
Other assets 197
Liabilities Assumed (7,491)
-------
Net Assets Acquired 12,894 12,894
------- ---------
Goodwill $ 665,292
</TABLE>
(b) Reflects the elimination of mySimon preferred and common stock,
mySimon accumulated deficit, and reflects one year of goodwill
amortization.
(c) Reflects the 10,725,927 shares of CNET's common stock and 364,730
options issued for the acquisition of mySimon.
(d) Reflects the elimination of stock based compensation.
(e) Reflects one-year amortization of goodwill.
(f) Reflects three months amortization of goodwill.
(g) Reflects the adjustment for tax expense.
(3) Pro Forma Income/(Loss) Per Share
The pro forma basic and diluted net income/(loss) per share calculation
assumes that the 10,725,927 shares of CNET's common stock and 364,730 options
issued in the acquisition were outstanding for the entire year in 1999. For the
three months ended March 31, 2000, the options are not included because their
effect is anti-dilutive.
