<PAGE> 1
UNITED STATES
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): AUGUST 13, 1998
GO2NET, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
--------------------------------------------
(STATE OR OTHER JURISDICTION OF
INCORPORATION)
0-22047 91-1710182
------------ -------------------
(Commission (IRS Employer
File Number) Identification No.)
999 THIRD AVENUE, SUITE 4700
SEATTLE, WASHINGTON 98104
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(206) 447-1595
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
<PAGE> 2
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K dated
July 6, 1998, related to the Registrant's completion of the acquisition of
Silicon Investor, Inc. ("Silicon Investor") by means of a merger (the "Merger")
of Silicon Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of the Registrant with and into Silicon Investor, as set forth below
and in the pages attached hereto:
ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
See Exhibit 20.1 for the audited financial statements of Silicon Investor
(b) UNAUDITED PRO FORMA FINANCIAL INFORMATION
Pro Forma Condensed Combined Financial Information (Unaudited)
The following unaudited Pro Forma Condensed Combined Financial Statements
reflect the business combination between go2net, Inc. ("go2net" or the
"Company") and Silicon Investor ("SI") which is accounted for as a pooling of
interests. The Unaudited Pro Forma Condensed Combined Financial Statements are
based on, and should be read in conjunction with, the historical financial
statements and the notes thereto of go2net included in the Annual Report on Form
10-K filed with the Securities and Exchange Commission on December 23, 1997, and
the historical financial statements and the notes thereto of Silicon Investor
included herein.
The historical financial statements of go2net for the year ended
September 30, 1997, the period from inception (February 12, 1996) to September
30, 1996, and the six months ended March 31, 1998 have been combined with the
historical financial statements of SI for the years ended December 31, 1997 and
1996, the period from inception (April 27, 1995) to December 31, 1995 and the
six months ended March 31, 1998. This presentation has the effect of including
SI's results of operations for the three months ended December 31, 1997 in the
unaudited pro forma condensed combined statements of operations twice.
The proforma combined balance sheets and statements of operations are
provided for illustrative purposes only and should be read in conjunction with
the accompanying notes thereto, the audited consolidated financial statements
and notes thereto of go2net for the year ended September 30, 1997 and for the
period from inception (February 12, 1996) to September 30, 1996, the unaudited
consolidated financial statements and notes thereto for the six months ended
March 31, 1998, and the audited financial statements and notes thereto of SI for
the year ended December 31, 1997, all of which are included elsewhere in this
document. The proforma data is not necessarily indicative of the operating
results or financial position that would have been achieved had the Merger been
consummated at the dates indicated, nor is it necessarily indicative of future
operating results and financial condition.
-2-
<PAGE> 3
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1998
SILICON PRO FORMA PRO FORMA
GO2NET INVESTOR ADJUSTMENTS COMBINED
----------- -------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................... $ 2,225,664 $127,710 $ -- $ 2,353,374
Short-term investments .......................... 7,400,000 -- -- 7,400,000
Receivables ..................................... 433,762 147,452 -- 581,214
Prepaid expenses ................................ 97,991 285 -- 98,276
----------- -------- --------- -----------
Total current assets .......................... 10,157,417 275,447 -- 10,432,864
Property and equipment, net ....................... 835,518 184,262 -- 1,019,780
Intangibles, net .................................. 546,210 -- -- 546,210
Deposits .......................................... 300,000 -- -- 300,000
Other assets ...................................... 18,118 3,350 -- 21,468
----------- -------- --------- -----------
Total assets .................................. $11,857,263 $463,059 $ -- $12,320,322
=========== ======== ========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ........... $ 307,196 $ 62,726 $ -- $ 369,922
Income taxes payable ............................ -- 20,908 -- 20,908
Short term debt ................................. 587 -- -- 587
Notes payable to stockholders ................... -- 31,577 -- 31,577
Deferred income taxes ........................... -- 21,207 -- 21,207
Deferred revenue ................................ 38,320 62,345 -- 100,665
Accrued merger expenses ......................... -- -- 715,982 715,982
----------- -------- --------- -----------
Total current liabilities ..................... 346,103 198,763 715,982 1,260,848
Shareholders' equity:
Common stock .................................... 14,658,573 173,164 -- 14,831,737
Retained Earnings/(Accumulated deficit) ......... (3,147,413) 91,132 (715,982) (3,772,263)
----------- -------- --------- -----------
Total shareholders' equity .................... 11,511,160 264,296 $(715,982) 11,059,474
----------- -------- --------- -----------
Total liabilities and shareholders' equity .... $11,857,263 $463,059 $ -- $12,320,322
=========== ======== ========= ===========
</TABLE>
See accompanying notes.
-3-
<PAGE> 4
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1997
------------- ---------------- PRO FORMA PRO FORMA
GO2NET SILICON INVESTOR ADJUSTMENTS COMBINED
------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue ............................. $ 254,389 $ 558,091 $ -- $ 812,480
Cost of revenue ..................... 226,839 144,343 -- 371,182
----------- ----------- -------- -----------
Gross profit .............. 27,550 413,748 -- 441,298
Operating expenses:
Advertising and marketing ......... 88,491 -- -- 88,491
Product development ............... 548,706 54,557 -- 603,263
General and administrative ........ 1,379,105 143,262 -- 1,522,367
----------- ----------- -------- -----------
Total operating expenses ........ 2,016,302 197,819 -- 2,214,121
----------- ----------- -------- -----------
Income/(loss) from operations ....... (1,988,752) 215,929 -- (1,772,823)
Other income/(expense) .............. 270,272 (46,489) -- 223,783
----------- ----------- -------- -----------
Net income/(loss) ................... $(1,718,480) $ 169,440 -- $(1,549,040)
=========== =========== ======== ===========
Basic and diluted net
income (loss) per share ............. $ (0.52) $ .02 -- $ (0.34)
Number of shares used in
computing net income
(loss) per share .................... 3,284,995 10,385,804 -- 4,526,826
</TABLE>
See accompanying notes.
-4-
<PAGE> 5
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION
(FEBRUARY 12,
1996) TO YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1996
-------------- ---------------- PRO FORMA PRO FORMA
GO2NET SILICON INVESTOR ADJUSTMENTS COMBINED
-------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue ............................. $ -- $ 8,000 $ -- $ 8,000
Cost of revenue ..................... -- -- -- --
---------- ----------- -------- ----------
Gross profit .............. -- 8,000 -- 8,000
Operating expenses:
Advertising and marketing ......... 10,150 -- -- 10,150
Product development ............... 137,159 33,983 -- 171,142
General and administrative ........ 283,832 101,367 -- 385,199
---------- ----------- -------- ----------
Total operating expenses ........ 431,141 135,350 -- 566,491
---------- ----------- -------- ----------
Loss from operations ................ (431,141) (127,350) -- (558,491)
Other income/(expense) .............. 13,383 (5,313) -- 8,070
---------- ----------- -------- ----------
Net loss ............................ $ (417,758) $ (132,663) -- $ (550,421)
========== =========== ======== ==========
Basic and diluted net
loss per share ...................... $ (0.26) $ (0.01) -- $ (0.19)
Number of shares used in
computing basic and diluted
net loss per share .................. 1,619,100 10,154,640 -- 2,833,305
</TABLE>
See accompanying notes.
-5-
<PAGE> 6
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
FOR THE YEAR INCEPTION (APRIL 27,
ENDED 1995) TO
DECEMBER 31, DECEMBER 31,
1995 1995
-------------- -------------------- PRO FORMA PRO FORMA
GO2NET SILICON INVESTOR ADJUSTMENTS COMBINED
-------------- -------------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue ............................. $ -- $ -- $ -- $ --
Cost of revenue ..................... -- -- -- --
---------- ----------- -------- ----------
Gross profit .............. -- -- -- --
Operating expenses:
Advertising and marketing ......... -- -- -- --
Product development ............... -- 5,090 -- 5,090
General and administrative ........ -- 25,002 -- 25,002
---------- ----------- -------- ----------
Total operating expenses ........ -- 30,092 -- 30,092
---------- ----------- -------- ----------
Loss from operations ................ (--) (30,092) -- (30,092)
Other expense ....................... -- (1,448) -- (1,448)
---------- ----------- -------- ----------
Net loss ............................ $ (--) $ (31,540) -- $ (31,540)
========== =========== ======== ==========
Basic and diluted net
loss per share ...................... $ (--) $ (.00) -- $ (.00)
Number of shares used in
computing basic and diluted
net loss per share .................. -- 10,000,000 -- 1,195,714
</TABLE>
See accompanying notes.
-6-
<PAGE> 7
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31, 1998
----------------------------------------------------------
PRO FORMA PRO FORMA
GO2NET SILICON INVESTOR ADJUSTMENTS COMBINED
------------ ---------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue .......................... $ 934,536 $ 610,239 $ -- $1,544,775
Cost of revenue .................. 626,908 189,995 -- 816,903
----------- ------------ ------ ----------
Gross profit ................. 307,628 420,244 -- 727,872
Operating expenses:
Advertising and marketing ...... 364,228 -- -- 364,228
Product development ............ 406,351 -- -- 406,351
General and administrative ..... 827,260 127,128 -- 954,388
----------- ------------ ------ ----------
Total operating expenses .... 1,597,839 127,128 -- 1,724,967
----------- ------------ ------ ----------
Income/(loss) from operations .... (1,290,211) 293,116 -- (997,095)
Other income/(expense) ........... 279,035 $ (27,968) $ -- 251,067
----------- ------------ ------ ----------
Income/(loss) before taxes ....... $(1,011,176) 265,148 -- (746,028)
Income tax expense ............... -- 42,115 -- 42,115
----------- ------------ ------ ----------
Net income/(loss) ................ $(1,011,176) $ 223,033 -- $ (788,143)
=========== ============ ====== ==========
Basic and diluted net
income/(loss) per share .......... $ (.23) $ .02 -- $ (.14)
=========== ============ ====== ==========
Number of shares used in
computing basic and
diluted net income/(loss)
per share ........................ 4,493,477 10,353,992 -- 5,731,519
</TABLE>
See accompanying notes.
-7-
<PAGE> 8
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. PERIODS COMBINED
The historical financial statements of go2net for the year ended September 30,
1997, the period from inception (February 12, 1996) to September 30, 1996, and
the six months ended March 31, 1998 have been combined with the historical
financial statements of SI for the years ended December 31, 1997 and 1996, the
period from inception (April 27, 1995) to December 31, 1995 and the six months
ended March 31, 1998. This presentation has the effect of including SI's results
of operations for the three months ended December 31, 1997 in the unaudited pro
forma combined statements of operations twice.
The pro forma combined condensed balance sheets give effect to the Merger as if
the Merger were effective March 31, 1998. The pro forma combined statements of
operations give effect to the Merger as if the Merger were effective as of the
beginning of the periods presented.
2. BASIS OF PRESENTATION
The unaudited pro forma condensed combined financial statements reflect the
issuance of approximately 1,238,042 shares of go2net Common Stock for all of the
outstanding shares of Silicon Investor Common Stock in connection with the
Merger at an exchange ratio of 0.1196 shares of go2net Common Stock for each
share of Silicon Investor Common Stock.
3. MERGER TRANSACTION COSTS
go2net and SI incurred direct transaction costs of approximately $715,982
associated with the Merger, primarily for legal, accounting, other professional
consulting fees and certain contractual termination payments, which will be
charged to operations during the quarter ending June 30, 1998. The unaudited pro
forma condensed combined balance sheet gives effect to such charges as if they
had been incurred as of October 1, 1997, but the effect of these costs has not
been reflected in the unaudited pro forma condensed combined statement of
operations as they are nonrecurring in nature. It is expected that substantially
all of the cash transactions and other charges will be paid out of the existing
cash and cash equivalents of go2net within six to twelve months after the
consummation of the merger. There can be no assurance that go2net will not incur
additional charges in subsequent quarters to reflect costs associated with the
Merger or that management will be successful in their efforts to integrate the
operations of the two companies.
4. PRO FORMA LOSS PER SHARE
The pro forma combined basic and diluted net loss per share is based on the
combined weighted average number of common shares of go2net Common Stock and SI
Common Stock outstanding during the periods using the exchange ratio. All stock
options and shares subject to repurchase rights have been excluded from the
computation of pro forma combined basic and diluted net loss per share because
all such securities are anti-dilutive for the period presented.
5. CONFORMING AND PRO FORMA ADJUSTMENTS
There were no adjustments required to conform the accounting policies of go2net
and SI. Certain amounts for SI have been reclassified to conform with go2net's
financial statement presentation.
-8-
<PAGE> 9
(c) EXHIBITS.
The following exhibits are filed herewith:
20.1 Silicon Investor, Inc. audited financial statements for the
year ended December 31, 1997
-9-
<PAGE> 10
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
GO2NET, INC.
Date: August 13, 1998 By: /s/ Russell C. Horowitz
--------------------------------------
Russell C. Horowitz
President and Chief Executive Officer,
Chief Administrative Officer and
Chief Financial Officer
-10-
<PAGE> 1
EXHIBIT 20.1
FINANCIAL STATEMENTS
SILICON INVESTOR, INC.
<PAGE> 2
Silicon Investor, Inc.
Financial Statements
CONTENTS
Report of Independent Auditors.............................................. 1
Audited Financial Statements
Balance Sheet............................................................... 2
Statement of Operations..................................................... 3
Statement of Stockholders' Equity........................................... 4
Statement of Cash Flows..................................................... 5
Notes to Financial Statements............................................... 6
<PAGE> 3
The Board of Directors
Silicon Investor, Inc.
We have audited the accompanying balance sheet of Silicon Investor, Inc. (the
Company) as of December 31, 1997, and the related statements of operations,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Silicon Investor, Inc. at
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
Kansas City, Missouri
April 28, 1998
1
<PAGE> 4
Silicon Investor, Inc.
Balance Sheet
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
ASSETS
Current assets:
Cash $ 55,107
Accounts receivable 61,558
Prepaid expenses and other current assets 455
--------
Total current assets 117,120
Property and equipment (Note 2) 170,401
Other assets 3,820
--------
Total assets $291,341
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to stockholders (Note 4) $ 86,998
Accounts payable 7,518
Accrued payroll --
Income taxes payable --
Deferred revenue 18,424
Deferred income taxes --
--------
Total current liabilities 112,940
Stockholders' equity:
Common stock, $.00001 par value:
Authorized shares - 20,000,000
Issued and outstanding shares - 10,353,992 173,164
Retained earnings 5,237
--------
Total stockholders' equity 178,401
========
Total liabilities and stockholders' equity $291,341
========
</TABLE>
See accompanying notes.
2
<PAGE> 5
Silicon Investor, Inc.
Statement of Operations
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Revenue:
Membership fees $ 479,410
Advertising 78,681
-----------
558,091
Cost of revenue 144,343
-----------
Gross profit 413,748
Operating expenses:
Research and development 54,557
General and administrative 113,223
Depreciation 30,039
-----------
197,819
-----------
Operating income 215,929
Other expense:
Interest expense 7,000
Other, net 39,489
-----------
46,489
Income before income taxes 169,440
Income tax expense (Note 3) -
===========
Net income $ 169,440
===========
Net income per share -
basic and diluted (Note 8) $ .02
===========
Weighted average common shares
outstanding - basic 10,326,291
===========
Weighted average common shares
outstanding - assuming dilution 10,385,804
===========
</TABLE>
See accompanying notes.
3
<PAGE> 6
Silicon Investor, Inc.
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
-------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 10,309,280 $170,928 $(164,203) $ 6,725
Issuance of common stock upon
exercise of stock options 44,712 2,236 -- 2,236
Net income -- -- 169,440 169,440
-------------------------------------------------
Balance at December 31, 1997 10,353,992 173,164 5,237 178,401
========== ======== ========= ========
</TABLE>
See accompanying notes.
4
<PAGE> 7
Silicon Investor, Inc.
Statement of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
OPERATING ACTIVITIES
Net income $ 169,440
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 30,039
Loss on sale of property and equipment 31,338
Changes in operating assets and liabilities:
Accounts receivable (61,558)
Prepaid expenses and other current assets 37,397
Accounts payable (39,077)
Deferred revenue 18,424
---------
Net cash provided by operating activities 186,003
INVESTING ACTIVITIES
Purchases of property and equipment (140,791)
Proceeds from sale of property and equipment 1,000
---------
Net cash used in investing activities (139,791)
FINANCING ACTIVITIES
Proceeds from borrowings from stockholders 19,813
Principal payments on notes payable to stockholders (50,000)
Proceeds from exercise of stock options 2,236
---------
Net cash provided by (used in) financing activities (27,951)
Net increase in cash 18,261
Cash at beginning of period 36,846
=========
Cash at end of period $ 55,107
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid during the year:
Interest $ 7,000
=========
Income taxes $ --
=========
</TABLE>
See accompanying notes.
5
<PAGE> 8
Silicon Investor, Inc.
Notes to Financial Statements
December 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Silicon Investor, Inc. (the Company) is a Delaware company which began
operations in 1995, under the name VB-Web Partners, Inc. The Company maintains a
site on the World Wide Web which provides information for technology stocks. The
Company charges a membership fee to users of the web site who request discussion
capabilities. In addition, the Company earns revenue from those vendors who
advertise on the Company's web site.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation for financial reporting
purposes is calculated using the straight-line method, over the useful lives of
the assets, ranging from five to seven years. Repair and maintenance costs are
charged to expense as incurred.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, the liability method is used in accounting for income taxes, whereby
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax basis of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
6
<PAGE> 9
Silicon Investor, Inc.
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion (APB) No.
25, "Accounting for Stock Issued to Employees," and related Interpretations in
accounting for its employee stock options and have adopted the pro forma
disclosure requirements under SFAS No. 123 "Accounting for Stock-Based
Compensation." Under APB No. 25, because the exercise price of the Company's
employee stock options is equal to or greater than the estimated fair value of
the underlying stock on the date of grant, no compensation expense is
recognized.
NET INCOME (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share," which the Company adopted for the year ended December 31,
1997. Basic net income (loss) per share is computed using the weighted average
number of shares of common stock outstanding during the period. Diluted earnings
per share includes the dilutive effect of stock options granted. (See Note 8).
REVENUE RECOGNITION
During the normal course of business, the Company enters into contracts with
companies who wish to advertise on the Company's web site. The Company
recognizes advertising revenues based on contracted rates over the course of the
contract term. Deferred revenue represents billings for advertising services to
be rendered subsequent to the end of the period. The Company recognizes revenue
for membership subscriptions when fees are received as consummation of a revenue
transaction is uncertain until cash is received.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
7
<PAGE> 10
Silicon Investor, Inc.
Notes to Financial Statements (continued)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Office furniture and equipment $ 17,771
Computer hardware 181,352
Computer software 6,593
---------
205,716
Accumulated depreciation 35,315
=========
$ 170,401
=========
</TABLE>
3. INCOME TAXES
The Company files a cash-basis income tax return. Deferred income taxes reflect
the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. Significant components of the Company's deferred tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 22,824
Accounts payable 4,722
---------
27,546
Deferred tax liabilities:
Accounts receivable (17,254)
Property and equipment (6,897)
Other (1,202)
---------
(25,353)
Valuation reserves (2,193)
=========
Net deferred tax liability $ --
=========
</TABLE>
8
<PAGE> 11
Silicon Investor, Inc.
Notes to Financial Statements (continued)
3. INCOME TAXES (CONTINUED)
The net deferred tax assets otherwise recorded in 1997 are offset by valuation
reserves of a similar amount due to uncertainty of future realization.
A reconciliation of the income tax provision to the amounts computed at the
federal statutory rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Federal income tax provision at statutory rate $57,610
State income taxes, net of federal tax benefit 6,710
Change in valuation reserve (64,320)
Other --
===========
$ --
===========
</TABLE>
At December 31, 1997, net operating loss carryforwards of $46,341 are
available to reduce future federal income taxes and will begin to
expire in 2010, if unused.
9
<PAGE> 12
Silicon Investor, Inc.
Notes to Financial Statements (continued)
4. NOTES PAYABLE TO STOCKHOLDERS
The Company has unsecured notes payable with three different stockholders
totaling $86,998 at December 31, 1997. These notes are primarily a result of
cash advances to the Company, are noninterest bearing and do not have stated
repayment terms. The holder of each note can demand full or partial repayment at
any time. Accordingly, the amount outstanding under each note is classified as a
current liability in the accompanying balance sheets.
5. RELATED-PARTY TRANSACTIONS
The Company's primary legal counsel is also a stockholder. During the year ended
December 31, 1997, the Company paid this stockholder $15,905 in legal fees.
6. LEASE COMMITMENTS
The Company leases office space under a noncancelable operating lease agreement
expiring in 1998. The minimum annual rental commitments for the year ended
December 31 1998, under this noncancelable operating lease is $30,600. Rental
expense under all leases was $15,235 for the year ended December 31, 1997.
7. STOCK OPTION PLAN
In 1996, the Company adopted the 1996 Stock Plan under which an aggregate of
1,500,000 shares of common stock were reserved for grants to employees, members
of the Board of Directors and independent contractors. Options granted under
this plan may be designated as incentive or nonqualified at the discretion of
the Plan Administrator and expire 10 years from the date of grant.
A committee appointed by the Board of Directors determines the option price for
stock options granted under the Stock Plan. Incentive stock options may be
granted at not less than 100% of the fair market value per share at the date of
grant as determined by the Board of Directors or committee thereof, except for
incentive options granted to a person owning greater than 10% of the total
combined voting power of the Company's stock, for which the exercise price of
the options must be not less than 110% of the fair market value. Stock option
activity during the year ended December 31, 1997 is as follows:
10
<PAGE> 13
Silicon Investor, Inc.
Notes to Financial Statements (continued)
7. STOCK OPTION PLAN (CONTINUED)
<TABLE>
<CAPTION>
SHARES UNDER WEIGHTED AVERAGE
OUTSTANDING OPTIONS EXERCISE PRICE
------------------------------------------
<S> <C> <C>
Balance at December 31, 1996 45,000 $0.05
Granted 223,848 0.05
Exercised (44,712) 0.05
Canceled (124,136) 0.05
--------
Balance at December 31, 1997 100,000 $0.05
========
</TABLE>
Options considered exercisable as of December 31,1997 were 31,250 at a weighted
average exercise price of $0.05 per share. The weighted average remaining
contractual life of the outstanding options at December 31, 1997 was 9.08 years.
At December 31, 1997, options for 1,355,288 remain available for grant.
SFAS No. 123 requires the disclosure of pro forma net income and earnings per
share for stock-based awards as if the Company had used the fair value method of
accounting for such awards. Under SFAS No. 123, the fair value is calculated
through the use of option pricing models. These models require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. The Company's calculations
were made using the minimum value method with the following weighted-average
assumptions: expected life, 18 months following vesting; risk free interest rate
of 6% and no dividends during the expected term. Stock price volatility is not
considered under the minimum value method. Based on these calculations and
assumptions, the effect of applying SFAS No. 123's fair value method to the
Company's stock-based awards results in pro forma net income which is not
materially different from amounts reported in the accompanying statement of
income.
11
<PAGE> 14
Silicon Investor, Inc.
Notes to Financial Statements (continued)
8. NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of the numerator and denominator
used in the calculation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Numerator for basic and diluted earnings per share $ 169,440
===========
Denominator:
Denominator for basic earnings per share - weighted
average shares 10,326,291
Effect of dilutive securities:
Stock options 59,513
===========
Denominator for diluted earnings per share - adjusted
weighted average shares 10,385,804
===========
</TABLE>
9. SUBSEQUENT EVENT
In April 1998, the stockholders' of the Company signed an agreement to exchange
all of the common stock of the Company for 1,250,000 shares of go2net, Inc. in a
transaction to be accounted for as a pooling of interests.
12
