<PAGE>
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 17, 1999
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>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
DOGPILE, LLC
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K
dated August 17, 1999, related to the Registrant's completion of the purchase
of Dogpile, LLC ("Dogpile") by means of the purchase of all the outstanding
membership interests in Dogpile (the "Purchase"), 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 Dogpile
(b) UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited Pro Forma Condensed Combined Financial
Statements give effect to both previously reported acquisitions, which
include Haggle Online and USAOnline, Inc., IQC Corporation and
Authorize.Net (collectively as previously reported acquisitions) and the
current purchase business combination of Dogpile LLC by Go2Net, Inc.
("Go2Net" or the "Company"). Under the purchase method of accounting, the
purchase price is allocated to the assets acquired and liabilities assumed
based on their estimated fair values. The estimated fair values included
herein are based upon preliminary estimates and may not be indicative of the
final allocation of purchase price consideration. Any amounts that may be
allocable to in process research and development would be recorded as one
time charges that would reduce the goodwill reflected in the unaudited Pro
Forma Condensed Combined Balance Sheet and the related amortization expense
reflected in the unaudited Pro Forma Condensed Combined Statements of
Operations.
Such preliminary estimates of the fair values of the assets and liabilities
of Dogpile and the previously reported acquisitions have been combined with
the recorded values of the assets and liabilities of Go2Net in the unaudited
Pro Forma Condensed Combined Balance Sheet. 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 (SEC) on December 29, 1998, the historical financial
statements of previously reported acquisitions reported on Forms 8K/A dated
July
<PAGE>
2, 1999, July 27, 1999 and September 13, 1999 and the historical financial
statements and the notes thereto of Dogpile included herein.
The unaudited Pro Forma Condensed Combined Balance Sheet has been
prepared to reflect the purchase of Dogpile and the previously reported
acquisitions as if the purchase of Dogpile LLC had occurred on June 30, 1999.
The unaudited Pro Forma Condensed Combined Statements of Operations for the
year ended September 30, 1998 reflect the combined results of operations of
Go2Net the previously reported acquisitions and Dogpile for its year ended
July 31, 1998. The unaudited Pro Forma Condensed Combined Statements of
Operations for the nine months ended June 30, 1999, include Go2Net, the
previously reported acquisitions and Dogpile. The unaudited Pro Forma
Condensed Combined Statements of Operations are presented as if the purchases
of the previously reported acquisitions and Dogpile occurred on October 1,
1997.
The unaudited Pro Forma Condensed Combined Balance Sheet and Statements
of Operations are provided for illustrative purposes only and should be read
in conjunction with the accompanying notes thereto, the audited financial
statements and notes thereto for the year ended September 30, 1998 of Go2Net
included in its annual report on Form 10-K, the unaudited financial
statements and notes thereto for the nine months ended June 30, 1999,
included in Go2Net's Quarterly Report on Form 10-Q, Current Reports on Form
8-K/A filed on July 2, 1999, July 27, 1999, September 13, 1999 and the
audited financial statements and notes thereto of Dogpile included herein.
The unaudited Pro Forma Condensed Combined Balance Sheet and Statements of
Operations are not necessarily indicative of the operating results or
financial position that would have been achieved had the purchases of the
previously reported acquisitions and Dogpile been consummated at the dates
indicated, nor is it necessarily indicative of future operating results and
financial condition.
-2-
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR
PREVIOUSLY PREVIOUSLY
JUNE 30, 1999 REPORTED REPORTED
GO2NET ACQUISITIONS ACQUISITIONS SUBTOTAL
------ ------------ ------------ --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 133,176,418 $ 1,621,738 $ (13,500,000) $ 121,298,156
Short-term investments ........................ 134,394,249 -- -- 134,394,249
Trade account receivables, net ................ 2,946,886 418,770 -- 3,365,656
Other accounts receivable ..................... 1,884,980 -- -- 1,884,980
Deferred tax assets, current .................. -- 2,473,495 -- 2,473,495
Prepaid expenses and other assets ............. 425,450 11,500 -- 436,950
------------ ----------- ------------- ------------
Total current assets ....................... 272,827,983 4,525,503 (13,500,000) 263,853,486
Property and equipment, net ..................... 2,009,892 241,513 -- 2,251,405
Other assets, net ............................... 363,400 5,300 -- 368,700
Intangible assets, net .......................... 49,955,876 -- 91,901,722 141,857,598
Long term investments ........................... 40,715,569 -- -- 40,715,569
Deposits ........................................ 250,000 -- -- 250,000
------------ ----------- ------------- ------------
Total assets .................................... $ 366,122,720 $ 4,772,316 $ 78,401,722 $ 449,296,758
------------ ----------- ------------- ------------
------------ ----------- ------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ......... $ 2,354,104 $ 253,839 $ -- $ 2,607,943
Accrued compensation and benefits ............. 841,478 217,693 -- 1,059,171
Merchant Funds ................................ -- 473,260 -- 473,260
Deferred tax liability ........................ 3,298,111 -- 15,562,642 18,860,753
Deferred revenue .............................. 1,106,671 -- -- 1,106,671
------------ ----------- ------------- ------------
Total current liabilities .................. 7,600,364 944,792 15,562,642 24,107,798
Shareholders' equity:
Preferred stock ................................. 450,996,185 -- -- 450,996,185
Common stock .................................... 72,434,214 46,016,392 (46,016,392) 149,534,214
77,100,000
Voting membership of LLC ........................ -- -- -- --
Accumulated comprehensive deficit ............... (362,940) -- (362,940)
Retained earnings (accumulated deficit).......... (164,545,103) (42,188,868) 31,755,472 (174,978,499)
------------ ----------- ------------- ------------
Total shareholders' equity ................. 358,522,356 3,827,524 62,839,080 425,188,960
------------ ----------- ------------- ------------
Total liabilities and shareholders' equity . $ 366,122,720 $ 4,772,316 $ 78,401,722 $ 449,296,758
------------ ----------- ------------- ------------
------------ ----------- ------------- ------------
</TABLE>
<TABLE>
<CAPTION>
DOGPILE
DOGPILE PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS COMBINED
---------- ----------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 12,799 $ (15,000,000)(a) $ 106,310,955
Short-term investments ......................... -- -- 134,394,249
Trade account receivables, net ................. 548,077 -- 3,913,733
Other accounts receivable ...................... -- -- 1,884,980
Deferred tax assets, current ................... -- -- 2,473,495
Prepaid expenses and other assets .............. -- -- 436,950
------------- ------------- ----------
Total current assets ........................ 560,876 (15,000,000) 249,414,362
Property and equipment, net ...................... 45,021 -- 2,296,426
Other assets, net ................................ -- -- 368,700
Intangible assets, net ........................... 8,972,008 45,494,188 (c) 196,323,794
Long term investments ............................ -- -- 40,715,569
Deposits ......................................... -- -- 250,000
------------- ------------- ----------
Total assets ..................................... $ 9,577,905 $ 30,494,188 $ 489,368,851
------------- ------------- ----------
------------- ------------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses .......... $ 31,662 $ -- $ 2,639,605
Accrued compensation and benefits .............. 40,431 -- 1,099,602
Merchant Funds ................................. -- -- 473,260
Deferred tax liability ......................... -- -- 18,860,753
Deferred revenue ............................... -- -- 1,106,671
------------- ------------- ----------
Total current liabilities ................... 72,093 -- 24,179,891
Shareholders' equity:
Preferred stock .................................. -- -- 450,996,185
Common stock ..................................... -- -- 189,534,214
40,000,000 (a)
Voting membership interests of Dogpile LLC ....... 9,795,945 (9,795,945)(c) --
Accumulated comprehensive deficit ................ -- -- (362,940)
Retained earnings (accumulated deficit)........... (290,133) 290,133(b) (174,978,499)
------------- ------------- ----------
Total shareholders' equity .................. 9,505,812 30,494,188 465,188,960
------------- ------------- ----------
Total liabilities and shareholders' equity .. $ 9,577,905 $ 30,494,188 $ 489,368,851
------------- ------------- ----------
------------- ------------- ----------
</TABLE>
See accompanying notes.
-3-
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS YEAR ENDED
FOR JULY 31,
YEAR ENDED PREVIOUSLY PREVIOUSLY 1998
SEPTEMBER 30, 1998 REPORTED REPORTED DOGPILE
GO2NET ACQUISITIONS(1) ACQUISITIONS SUBTOTAL HISTORICAL
--------- ------------ ------------ -------- ----------
<S> <C> <C> <C> <C> <C>
Revenue ............................... $ 7,109,432 $ 2,402,663 $ -- $ 9,512,095 $ 230,084
Cost of revenue ....................... 2,295,194 214,703 -- 2,509,897 31,050
----------- ------------ ------------ ------------ -----------
Gross profit ................ 4,814,238 2,187,960 -- 7,002,198 199,034
Operating expenses:
Sales and marketing ................. 2,044,086 559,836 -- 2,603,922 20,685
Product development ................. 1,376,238 710,971 -- 2,087,209 41,370
General and administrative .......... 2,454,620 1,296,161 -- 3,750,781 122,285
Amortization of intangible
assets .............................. -- -- 51,641,917 51,641,917 --
Merger and acquisition
costs ............................... 1,035,494 -- -- 1,035,494 --
Impairment loss ..................... 398,126 -- -- 398,126 --
Stock compensation .................. 212,841 25,676,078 -- 25,888,919 --
----------- ------------ ------------ ------------ -----------
Total operating expenses .......... 7,521,405 28,243,046 51,641,917 87,406,368 184,340
----------- ------------ ------------ ------------ -----------
Income (loss) from operations ......... (2,707,167) (26,055,086) (51,641,917) (80,404,170) 14,694
Interest income, net .................. 510,529 4,144 -- 514,673 --
----------- ------------ ------------ ------------ -----------
Income (loss) before taxes ............ (2,196,638) (26,050,942) (51,641,917) (79,889,497) 14,694
Income taxes (benefit) ................ 59,417 1,327 (6,353,251) (6,292,507) --
----------- ------------ ------------ ------------ -----------
Net income (loss) ..................... $(2,256,055) $(26,052,269) $(45,288,666) $(73,596,990) $ 14,694
----------- ------------ ------------ ------------ -----------
----------- ------------ ------------ ------------ -----------
Basic and diluted net loss per share... $ (0.10) $ (2.99)
Number of shares used in computing
basic and diluted net loss per share 23,432,061 1,208,201 24,640,262
</TABLE>
<TABLE>
<CAPTION>
DOGPILE
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
------------ -----------
<S> <C> <C>
Revenue ................................ $ -- $ 9,742,179
Cost of revenue ........................ -- 2,540,947
------------ -----------
Gross profit ................. -- 7,201,232
Operating expenses:
Sales and marketing .................. -- 2,624,607
Product development .................. -- 2,128,579
General and administrative ........... -- 3,873,066
Amortization of intangible
assets ............................... 18,420,672 (c) 70,062,589
Merger and acquisition
costs ................................ -- 1,035,494
Impairment loss ...................... -- 398,126
Stock compensation ................... -- 25,888,919
------------ -----------
Total operating expenses ........... 18,420,672 106,011,380
------------ -----------
Income (loss) from operations .......... (18,420,672) (98,810,148)
Interest income, net ................... -- 514,673
------------ -----------
Income (loss) before taxes ............. (18,420,672) (98,295,475)
Income taxes (benefit) ................. -- (6,292,507)
------------ -----------
Net income (loss) ...................... $(18,420,672) $ (92,002,968)
------------ -----------
------------ -----------
Basic and diluted net loss per share.... $ (3.63)
Number of shares used in computing
basic and diluted net loss per share.... 682,156 25,322,418
</TABLE>
(1) Represents the historical operating results of the previously reported
acquisition prior to their date of acquisition by the Company. See notes to
the unaudited Pro Forma Condensed Combined Statements of Operations for
certain operating data by acquisition.
See accompanying notes.
-4-
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30, 1999
-------------------------------
PRO FORMA
NINE ADJUSTMENTS
MONTHS FOR
ENDED PREVIOUSLY PREVIOUSLY
JUNE 30, 1999 REPORTED REPORTED DOGPILE
GO2NET ACQUISITIONS(1) ACQUISITIONS SUBTOTAL HISTORICAL
--------- --------------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C>
Revenue ............................ $ 12,651,287 $ 4,633,015 $ -- $ 17,284,302 $ 1,407,359
Cost of revenue .................... 2,832,068 284,896 -- 3,116,964 205,858
------------- ------------ ------------ ------------- -----------
Gross profit ............. 9,819,219 4,348,119 -- 14,167,338 1,201,501
Operating expenses:
Sales and marketing .............. 3,618,551 1,152,202 -- 4,770,753 149,715
Product development .............. 1,452,403 819,994 -- 2,272,397 112,286
General and administrative ....... 3,697,917 3,111,920 -- 6,809,837 467,860
Amortization of intangible
assets ........................... 2,740,763 -- 35,898,462 38,639,225 764,514
Merger and acquisition costs ..... 650,257 -- -- 650,257 --
Stock compensation ............... 960,708 15,606,080 -- 16,566,788 --
------------- ------------ ------------ ------------- -----------
Total operating expenses ........... 13,120,599 20,690,196 35,898,462 69,709,257 1,494,375
Loss from operations ............... (3,301,380) (16,342,077) (35,898,462) (55,541,919) (292,874)
Interest income, net ............... 3,151,426 10,802 -- 3,162,228 --
------------- ------------ ------------ ------------- -----------
Loss before taxes .................. (149,954) (16,331,275) (35,898,462) (52,379,691) (292,874)
Income taxes (benefit) ............. 18,533 (2,447,437) (3,890,661) (6,319,565) (--)
------------- ------------ ------------ ------------- -----------
Income (loss) before extraordinary
items .............................. (168,487) (13,883,838) (32,007,801) (46,060,126) (292,874)
Loss on extinguishment of debt, net
of tax ............................. -- 3,018,046 -- 3,018,046 --
------------- ------------ ------------ ------------- -----------
Net loss ........................... (168,487) (16,901,884) (32,007,801) (49,078,172) (292,874)
Preferred stock dividend ........... 159,930,733 -- -- 159,930,733 --
------------- ------------ ------------ ------------- -----------
Net loss applicable to common
shareholders ....................... $(160,099,220) $(16,901,884) $(32,007,801) $(209,008,905) $ (292,874)
------------- ------------ ------------ ------------- -----------
------------- ------------ ------------ ------------- -----------
Basic and diluted net loss per share $ (6.31) $ (7.87)
------------- -------------
------------- -------------
Number of shares used in computing
basic and diluted net loss per
common share ....................... 25,363,715 1,208,201 26,571,916
</TABLE>
NINE MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
DOGPILE
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
------------ -------------
<S> <C> <C>
Revenue ............................ $ -- $ 18,691,661
Cost of revenue .................... -- 3,322,822
------------ -------------
Gross profit ............. -- 15,368,839
Operating expenses:
Sales and marketing .............. -- 4,920,468
Product development .............. -- 2,384,683
General and administrative ....... -- 7,277,697
Amortization of intangible
assets ........................... 13,050,990 (c) 52,454,729
Merger and acquisition costs ..... -- 650,257
Stock compensation ............... -- 16,566,788
------------ -------------
Total operating expenses ........... 13,050,990 84,254,622
Loss from operations ............... (13,050,990) (68,885,783)
Interest income, net ............... -- 3,162,228
------------ -------------
Loss before taxes .................. (13,050,990) (65,723,555)
Income taxes (benefit) ............. -- (6,319,565)
------------ -------------
Income (loss) before extraordinary
items .............................. (13,050,990) (59,403,990)
Loss on extinguishment of debt, net
of tax ............................. -- 3,018,046
------------ -------------
Net loss ........................... (13,050,990) (62,422,036)
Preferred stock dividend ........... -- 159,930,733
------------ -------------
Net loss applicable to common
shareholders ....................... $(13,050,990) $(222,352,769)
------------ -------------
------------ -------------
Basic and diluted net loss per share
$ (8.11)
--------------
--------------
Number of shares used in computing
basic and diluted net loss per
common share ....................... 682,156 27,254,072
</TABLE>
(1) Represents the historical operating results of the previously reported
acquisitions prior to their date of acquisition by the Company. See notes to
the unaudited Pro Forma Condensed Combined Statements of Operations for
certain operating data by acquisition.
See accompanying notes.
-5-
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited Pro Forma Condensed Combined Balance Sheet has been prepared to
reflect the purchase of the previously reported acquisitions and Dogpile as
if they had occurred on June 30, 1999. The unaudited Pro Forma Condensed
Combined Statements of Operations for the year ended September 30, 1998
reflect the combined results of operations of Go2Net, the previously reported
acquistions and Dogpile for its year ended July 31, 1998. The unaudited Pro
Forma Condensed Combined Statement of Operations for the nine months ended
June 30, 1999, includes Go2Net, the previously reported acquisitions and
Dogpile. The unaudited Pro Forma Condensed Combined Statements of Operations
have been prepared as if the purchases of the previously reported
acquisitions and Dogpile had occurred on October 1, 1997.
The unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 1999
and the related unaudited Pro Forma Condensed Statements of Operations for
the nine month period ended June 30, 1999, and for the year ended September
30, 1998, for Go2Net, Inc., the previously reported acquisitions, which
include Haggle Online, USAOnline, Inc., IQC Corporation and Authorize.Net are
combined in the subtotal column to reflect the impact of the previously
reported acquisitions, as reported on the Current Reports on Form 8-K/A filed
on July 2, 1999, July 27, 1999 and September 10, 1999.
The components of revenues, operating expenses, and net loss reflected as
historical operating results included in the unaudited Pro Forma Condensed
Combined Statements of Operations for the year ended September 30, 1998 of
the previously reported acquisitions for the year ended December 31, 1998 are
as follows:
<TABLE>
<CAPTION>
DATE OPERATING
ACQUIRED REVENUE EXPENSES NET LOSS
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Haggle Online April 16, 1999 $ 13,498 $ 25,890 $ (17,690)
USAOnline, Inc. April 28, 1999 12,098 30,041 (20,674)
IQC Corporation May 13, 1999 251,215 299,894 (159,886)
Authorize.Net July 1, 1999 $ 2,125,852 $ 27,887,221 $ (25,854,019)
------------- ------------- -------------
$ 2,402,663 $ 28,243,046 $ (26,052,269)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The components of revenues, operating expenses, and net income (loss)
reflected as historical operating results included in the unaudited Pro Forma
Condensed Combined Statement of Operations for the nine months ended June 30,
1999 of the previously reported acquisitions for the periods indicated below
are as follows:
<TABLE>
<CAPTION>
DATE OPERATING NET INCOME
ACQUIRED PERIOD ENDED REVENUE EXPENSES (LOSS)
-------- ------------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Six months ended
Haggle Online April 16, 1999 March 31, 1999 $ 18,945 $ 27,978 $ (9,386)
Six months ended
USAOnline, Inc. April 28, 1999 March 31, 1999 81,197 44,804 24,793
Six months ended
IQC Corporation May 13, 1999 March 31, 1999 281,195 313,112 (134,122)
Nine months ended
Authorize.Net July 1, 1999 June 30, 1999 $ 4,251,678 $ 20,304,302 $(16,783,169)
------------ ------------ ------------
$ 4,633,015 $ 20,690,196 $(16,901,884)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<PAGE>
The unaudited pro forma condensed combined financial statements reflect the
issuance of approximately 682,156 shares of Go2Net Common Stock and
$15,000,000 in cash in connection with the purchase of all of the outstanding
membership interests of Dogpile.
This Purchase was accounted for under the purchase method of accounting in
accordance with APB Opinion No.16, whereby, the purchase price is allocated
to the assets acquired and liabilities assumed based on their estimated fair
values. Estimates of the fair values of the assets and liabilities of Dogpile
have been combined with the recorded values of the assets and liabilities of
Go2Net and the previously reported acquisitions in the unaudited Pro Forma
Condensed Combined Financial Statements.
2. PURCHASE TRANSACTION COSTS
Go2Net and Dogpile incurred direct transaction costs of approximately
$175,000 associated with the purchase, primarily for legal and accounting
fees. These costs will be included in goodwill and amortized over three
years. There can be no assurance that Go2Net will not incur additional costs
in subsequent periods associated with the purchase or that management will be
successful in their efforts to integrate the operations of the two companies.
3. PRO FORMA LOSS PER COMMON SHARE
The pro forma combined basic and diluted net loss per common share are based
on the sum of weighted average number of common shares of Go2Net common stock
outstanding in the periods presented and the common stock issued in
connection with the purchase of Dogpile and the previously reported
acquisitions outstanding during the periods, assuming that the shares issued
were outstanding as of October 1, 1997.
4. CONFORMING AND RECLASSIFICATION ADJUSTMENTS
There were no adjustments required to conform the accounting policies of Go2Net
and Dogpile. Certain amounts for Dogpile have been reclassified to conform with
Go2Net's financial statement presentation. Pro forma adjustments were required
to record goodwill and the related amortization expense as if the transactions
occurred on October 1, 1997.
5. PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF DOGPILE
(a) To reflect the issuance of 682,156 shares of Go2Net common stock and
payment of $15,000,000 in cash in connection with the Dogpile
Purchase, for an aggregate purchase price of approximately $55
million, including approximately $175,000 of transaction costs.
(b) To eliminate the historical accumulated deficit of Dogpile.
(c) To record the excess of the purchase price over the fair value of
assets and liabilities in connection with the acquisition of Dogpile,
<PAGE>
and recognition of the related amortization expense. The purchase
price allocation is based on management's estimates of the fair
values of the tangible assets, intangible assets and technology.
The book net value of the tangible assets and liabilities acquired
approximate fair value. Goodwill and substantially all other
purchased intangible assets is amortized on a straight line basis
over 3 years.
-7-
<PAGE>
(c) EXHIBITS.
The following exhibits are filed herewith:
20.1 Dogpile, LLC and Predecessors audited financial statements
for the years ended July 31, 1998 and 1999.
23.1 Consent of KPMG LLP, Independent Auditors
-8-
<PAGE>
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: October 18, 1999 By: /s/ Russell C. Horowitz
Russell C. Horowitz
Chief Executive Officer,
Chief Administrative Officer and
Chief Financial Officer
-10-
<PAGE>
Exhibit 20.1
Independent Auditors' Report
The Board of Directors
Dogpile LLC and Predecessors:
We have audited the accompanying balance sheets of Dogpile LLC and Predecessors
(collectively, the Company) as of July 31, 1998 and 1999, and the related
statements of operations, owners' equity and cash flows for each of the years in
the two-year period ended July 31, 1999. 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 Dogpile LLC and Predecessors as
of July 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the years in the two-year period ended July 31, 1999 in conformity
with generally accepted accounting principles.
Seattle, Washington
October 7, 1999
<PAGE>
DOGPILE LLC
AND PREDECESSORS
Balance Sheets
July 31, 1998 and 1999
<TABLE>
<CAPTION>
ASSETS 1998 1999
--------------- ---------------
<S> <C> <C>
Current assets:
Cash $ 10,064 232,999
Accounts receivable net of allowance for doubtful accounts of $0 and
$43,000, at July 31, 1998 and 1999, respectfully 41,105 492,305
--------------- ---------------
Total current assets 51,169 725,304
Computer and office equipment, net 29,051 49,736
Other assets, net 2,406 8,860,468
--------------- ---------------
Total assets $ 82,626 9,635,508
--------------- ---------------
--------------- ---------------
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable $ -- 144,093
Accrued payroll costs 34,925 32,075
--------------- ---------------
Total current liabilities 34,925 176,168
Owners' equity 47,701 9,459,340
--------------- ---------------
Total liabilities and owners' equity $ 82,626 9,635,508
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
DOGPILE LLC
AND PREDECESSORS
Statements of Operations
Years ended July 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
--------------- ---------------
<S> <C> <C>
Revenue $ 230,084 1,770,922
Cost of revenues 31,050 255,049
--------------- ---------------
Gross profit 199,034 1,515,873
--------------- ---------------
Operating expenses:
General and administrative 122,285 587,780
Selling and marketing 20,685 186,992
Product development 41,370 148,378
Amortization of intangible assets -- 903,062
--------------- ---------------
Total operating expenses 184,340 1,826,212
--------------- ---------------
Net income (loss) $ 14,694 (310,339)
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
DOGPILE LLC
AND PREDECESSORS
Statements of Owners' Equity
Years ended July 31, 1998 and 1999
<TABLE>
<CAPTION>
ADVANCES FROM PARTNERS'
OWNER OF CAPITAL OF COMMON ADDITIONAL
UNUSUAL FLIN STOCK OF PAID IN CAPITAL
SOLUTIONS PARTNERSHIP PILE, INC.
---------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
Balances as of July 31, 1997 $ 1,893 -- -- --
Net income of Unusual Solutions from August 1,
1997 to December 31, 1997
4,833 -- -- --
Formation of Flin Partnership and contribution
of cash (6,726) 37,840 -- --
Net income of Flin Partnership from January 1,
1998 to July 31, 1998
-- 9,861 -- --
---------------- -------------- -------------- -----------------
Balances at July 31, 1998 -- 47,701 -- --
Cash distribution to owners -- (6,244) -- --
Formation of Pile, Inc., issuance of 900,900
common shares for contribution of assets
-- (41,457) 414 41,043
Contribution of computer and office equipment,
issuance of 99,100 common shares
-- -- 35 3,434
Net income of Pile, Inc. from October 1, 1998
to April 19, 1999 -- -- -- --
Formation of Dogpile LLC and acquisition of
assets from Thunderstone
-- -- (449) (44,477)
Net loss of Dogpile LLC from April 20, 1999 to
July 31, 1999 -- -- -- --
---------------- -------------- -------------- -----------------
Balances as of July 31, 1999 $ -- -- -- --
---------------- -------------- -------------- -----------------
---------------- -------------- -------------- -----------------
<CAPTION>
VOTING
MEMBERSHIP TOTAL OWNERS'
INTERESTS OF ACCUMULATED EQUITY
DOGPILE LLC DEFICIT
------------- ------------- ---------------
<S> <C> <C> <C>
Balances as of July 31, 1997 -- -- 1,893
Net income of Unusual Solutions from August 1,
1997 to December 31, 1997
-- -- 4,833
Formation of Flin Partnership and contribution
of cash -- -- 31,114
Net income of Flin Partnership from January 1,
1998 to July 31, 1998
-- -- 9,861
------------- ------------- ---------------
Balances at July 31, 1998 -- -- 47,701
Cash distribution to owners -- -- (6,244)
Formation of Pile, Inc., issuance of 900,900
common shares for contribution of assets
-- -- --
Contribution of computer and office equipment,
issuance of 99,100 common shares
-- -- 3,469
Net income of Pile, Inc. from October 1, 1998
to April 19, 1999 -- 31,266 31,266
Formation of Dogpile LLC and acquisition of
assets from Thunderstone
9,800,945 (31,266) 9,724,753
Net loss of Dogpile LLC from April 20, 1999 to
July 31, 1999 -- (341,605) (341,605)
------------- ------------- ---------------
Balances as of July 31, 1999 9,800,945 (341,605) 9,459,340
------------- ------------- ---------------
------------- ------------- ---------------
See accompanying notes to financial statements.
</TABLE>
16
<PAGE>
DOGPILE LLC
AND PREDECESSORS
Statements of Cash Flows
Years ended July 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 14,694 (310,339)
Depreciation and amortization 9,942 923,771
Changes in certain assets and liabilities:
Accounts receivable (41,105) (608,945)
Accounts payable -- 203,522
Accrued payroll costs 32,175 78,570
---------------- ----------------
Net cash provided by operating activities 15,706 286,579
---------------- ----------------
Cash flows from investing activities:
Purchases of computer and office equipment (36,943) (32,395)
Other (1,706) --
---------------- ----------------
Net cash used in investing activities (38,649) (32,395)
---------------- ----------------
Cash flows from financing activities:
Cash retained by Pile, Inc. upon formation of Dogpile -- (25,005)
Cash contribution from owners 31,114 --
Cash distribution to owners -- (6,244)
---------------- ----------------
Net cash provided by (used in) financing activities
31,114 (31,249)
---------------- ----------------
Net increase in cash 8,171 222,935
Cash at beginning of year 1,893 10,064
---------------- ----------------
Cash at end of year $ 10,064 232,999
---------------- ----------------
---------------- ----------------
Supplemental schedule of noncash investing and financing transactions:
Contribution of computer and office equipment for common stock of Pile, Inc. $ -- 3,469
Contribution of assets from Thunderstone -- 9,767,830
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
DOGPILE LLC
AND PREDECESSORS
Notes to Financial Statements
July 31, 1998 and 1999
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Dogpile LLC provides leading Internet search and navigation
technology and other database-powered applications for the World
Wide Web. Dogpile LLC and its predecessors have operated
metasearch engines on the World Wide Web since January 1997.
Dogpile's primary Internet site/portal (Dogpile web site) is
amongst the leading portal/search engines in terms of traffic and
unique users. Dogpile LLC conducts is business primarily in one
industry segment operating in the United States.
(b) BASIS OF PRESENTATION
The financial statements include the accounts of Dogpile LLC, a
limited liability company and its predecessors (collectively as
Dogpile or Company). Dogpile LLC was formed on April 20, 1999
pursuant to the provisions of the Delaware Limited Liability
Company Act. The Company's primary business in all periods
presented consists of operating the Dogpile web site. Prior to
the formation of Dogpile LLC on April 20,1999, the Dogpile web
site business was operated by various entities, including
Unusual Solutions, a sole proprietorship until December, 31,
1997; the Flin Partnership, a general partnership, from January
1, 1998 to July 31, 1998; and Pile, Inc., a Delaware
corporation, from August 1, 1998 to April 19, 1999. Unusual
Solutions, the Flin Partnership, Pile, Inc. (collectively as
predecessor companies) and Dogpile LLC were under common
control for all periods presented.
As discussed further in note 6, on April 20, 1999, Pile, Inc.
contributed computer and office equipment, and intangible
assets critical to the operation of the Dogpile web site for a
51 percent membership interest in the Company. Thunderstone
Software LLC (Thunderstone) contributed assets for its 49
percent membership interest in Dogpile. Assets contributed by
Pile, Inc. were recorded at their historical cost due to the
continuity of ownership. Assets contributed by Thunderstone
were accounted for as a purchase and recorded at fair values.
The results of operations from August 1, 1997 to April 19, 1999
include the activities of the predecessor companies. The
results from operations from April 20, 1999 to July 31, 1999
include the activities of the Dogpile web site and activities
related to the assets contributed by Thunderstone.
18
<PAGE>
DOGPILE LLC
AND PREDECESSORS
Notes to Financial Statements
July 31, 1998 and 1999
(c) COMPUTER AND OFFICE EQUIPMENT
Computer and office equipment are recorded at cost less
accumulated depreciation and are depreciated using the
straight-line method over the estimated useful lives of three to
five years.
(d) INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill and the costs
associated with acquired and licensed technology and are recorded
at cost. Amortization of intangibles is recorded using the
straight-line method over the shorter of useful lives, generally
three years, or the term of the agreement. The recoverability of
the carrying values of intangible assets is evaluated on a
recurring basis based upon undiscounted cash flows and
adjustments, if any, are made at that time.
(e) REVENUE RECOGNITION
The Company derives its revenue from the sale of advertisements on
short-term contracts. Advertising revenues are recognized ratably
over the period in which the advertisements are displayed.
Transactions are recorded at the lower of the estimated fair value
of advertisements received or the estimated fair value of the
advertisements given. Barter revenue and the related advertising
is recorded based on impressions delivered and received. Barter
revenue was $0 and $45,000 for the years ended July 31, 1998 and
1999, respectively. Revenues derived from data services contracts
are recognized over the term of such contracts.
(f) ADVERTISING AND MARKETING EXPENSE
The Company expenses costs associated with advertising and
marketing as they are incurred. Advertising expense was $0 and
$48,344 for the years ended July 31, 1998 and 1999, respectively.
(g) PRODUCT DEVELOPMENT COSTS
Based on the Company's product development process, technological
feasibility is established upon completion of a working model.
Costs incurred by the Company between completion of the working
model and the point at which the product is ready for revenue
generating activities have been insignificant. All product
development costs have been expensed as incurred.
(h) COMPREHENSIVE INCOME
During the year ended July 31, 1998, Dogpile adopted Statement of
Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE
19
<PAGE>
DOGPILE LLC
AND PREDECESSORS
Notes to Financial Statements
July 31, 1998 and 1999
INCOME (Statement 130). Statement 130 establishes rules for
reporting and displaying comprehensive income or comprehensive net
loss. Dogpile's total comprehensive income was the same as its net
income (loss) for each of the years ended July 31, 1998 and 1999.
(i) SEGMENT INFORMATION
During the year ended July 31, 1998, Dogpile adopted Statement of
Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION (Statement 131).
Statement 131 requires Dogpile to use the "management approach" in
disclosing segment information. Dogpile conducts its business
predominately within one industry segment for all periods
presented. Management assesses Dogpile's performance, measures
Dogpile's income (loss) and assets on a single segment basis. The
single segment generates revenue primarily from the United States
for all periods presented.
(j) INCOME TAXES
The Company is not directly subject to income taxes as its members
are taxed on their proportionate share of Dogpile's taxable
income. Therefore, no provision or liability for federal or state
income taxes has been reflected in the financial statements.
Except for the period from August 1, 1998 to March 31, 1999, the
predecessor entities were also not directly subject to income
taxes as income and losses attributable to these entities were
taxable to their owners.
From August 1, 1998 to March 31, 1999, Pile, Inc. elected to be
taxed as a C corporation under federal and state income tax
regulations and accordingly was subject to federal and state
income taxes during this period.
During this period, income taxes were computed using the asset and
liability method, in accordance with Statement of Financial
Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES.
(k) USE OF ESTIMATES
The preparation of the 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 amounts of
20
<PAGE>
DOGPILE LLC
AND PREDECESSORS
Notes to Financial Statements
July 31, 1998 and 1999
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(2) CONCENTRATIONS OF CREDIT RISK AND FINANCIAL INSTRUMENTS
The Company performs ongoing credit evaluations of its customers'
financial condition and generally does not require collateral with
regards to its accounts receivable. The Company maintains reserves for
credit losses and such losses have been within management's expectations.
The Company markets its products directly to customers or through
advertising agencies. Customers accounting for more than 10 percent of
revenues for the year ended July 31, 1999 and 10 percent of accounts
receivable as of July 31, 1999 are as follows:
<TABLE>
<CAPTION>
ACCOUNTS
REVENUES RECEIVABLE
------------ --------------
<S> <C> <C>
Customer A $ 303,248 96,025
Customer B 284,137 84,600
Customer C 280,943 104,136
</TABLE>
Revenues related to customers accounting for more than 10 percent
of revenues for the year ended July 31, 1998 were not significant.
The Company's financial instruments include cash, accounts receivable and
accounts payable. The Company believes the carrying value of these
financial instruments approximates book value given market indicators
such as prevailing interest rates and their short maturity.
21
<PAGE>
DOGPILE LLC
AND PREDECESSORS
Notes to Financial Statements
July 31, 1998 and 1999
(3) COMPUTER AND OFFICE EQUIPMENT
Computer and office equipment consist of the following:
<TABLE>
<CAPTION>
JULY 31,
----------------------------------
1998 1999
----------- ------------
<S> <C> <C>
Computer equipment $ 37,253 70,133
Office equipment 1,740 10,254
----------- ------------
38,993 80,387
Less accumulated depreciation 9,942 30,651
----------- ------------
$ 29,051 49,736
----------- ------------
----------- ------------
</TABLE>
(4) OTHER ASSETS
Other assets include the following at July 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Software license agreements $ 240,000
Goodwill 9,522,830
Other 700
------------
9,763,530
Less accumulated amortization 903,062
------------
$ 8,860,468
------------
------------
</TABLE>
(5) INCOME TAXES
Dogpile was not directly subject to income taxes as of July 31, 1998 and
1999. Accordingly, no provision for income taxes has been recorded in the
accompanying financial statements.
The net loss of approximately $10,067, recognized during the period from
August 1, 1998 to March 31, 1999 when the Company was taxed as a C
corporation is not available to offset the Company's taxable income in
other periods.
The effects of the changes of the tax status of Dogpile were not
significant in the periods presented.
(6) FORMATION OF COMPANY
Upon formation of Dogpile on April 20, 1999, Pile, Inc. contributed all
assets essential to the operation of the Dogpile web site business and
search engine at http://www.dogpile.com, computer and office equipment
with a net book value of $50,836, seven domain names with a book value of
$700 and trademark rights to the Dogpile trademark and to the Dogpile
22
<PAGE>
DOGPILE LLC
AND PREDECESSORS
Notes to Financial Statements
July 31, 1998 and 1999
design mark, in exchange for a 51 percent membership interest in Dogpile.
Net current assets of $24,656 including cash of $25,005 were not
contributed to Dogpile.
23
<PAGE>
Concurrently, Thunderstone, an unrelated party, contributed the search
engine previously known as search.thunderstone.com, but not the name,
three data services agreements, and nonexclusive, royalty free perpetual
software licenses, including Texis, a database management system, and
application software for stock quotes, auctions and classified ads, and a
differential news crawler. Additionally, Thunderstone, contributed
computer equipment and agreed to provide technical support and data
services to Dogpile for specified periods. In exchange, Thunderstone
received a 49 percent membership interest in Dogpile.
The assets contributed by Thunderstone were recorded at their estimated
fair value of $9,767,830 representing goodwill of $9,522,830, software
license agreements of $240,000, and computer equipment of $5,000.
(7) RELATED PARTY TRANSACTIONS
Substantially all of accrued payroll costs as of July 31, 1998 and 1999
was payable to owners.
During the year ended July 31, 1999, Dogpile paid $62,104 to Thunderstone
for data services which are included in cost of services.
(8) LIMITED LIABILITY COMPANY AGREEMENT
As of July 31, 1999, Pile, Inc. and Thunderstone had a 51 percent and 49
percent voting membership interest in Dogpile LLC, respectively. There
were no nonvoting membership interests outstanding.
Under a limited liability company agreement, Dogpile will distribute cash
to members on a quarterly basis for the members' income tax obligation.
Through July 31, 1999, no cash had been distributed under this agreement.
Members are generally not liable for the debts, obligations or
liabilities of Dogpile. In addition, Pile, Inc. and Thunderstone have
agreed to certain restrictions on their ability to transfer their
membership interests in Dogpile and to restrictions on changes in
ownership of Pile, Inc. and Thunderstone.
(9) SUBSEQUENT EVENT
On August 4, 1999, Go2Net, Inc. acquired 100 percent of the outstanding
membership interest of the Company in exchange for $15,000,000 of cash
and 682,156 shares of Go2Net, Inc. common stock
Under certain circumstances, Go2Net, Inc. may pay additional
consideration consisting of cash and/or shares of Go2Net, Inc. common
stock valued at an aggregate of up to $15,000,000 pursuant to the terms
of the purchase agreement.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Go2Net, Inc.:
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-63729) pertaining to the Go2Net, Inc. 1996 Stock Option
Plan and Silicon Investor, Inc. 1996 Stock Plan, the Registration Statement
(Form S-3 No. 333-63725) pertaining to the registration of 1,295,536 shares
of Common Stock of Go2Net, Inc., the Registration Statement (Form S-3 No.
333-76069) pertaining to the registration of 717,390 shares of Common Stock
of Go2Net, Inc., the Registration Statement (Form S-8 No. 333-76071)
pertaining to the Go2Net, Inc. 1996 Stock Option Plan and Web21 Stock Option
Plan, the Registration Statement (Form S-8 No. 333-82765) pertaining to the
Authorize.Net Corporation 1999 Stock Incentive Plan, the Haggle Online, Inc.
Stock Option Agreement, and the IQC Corporation Stock Option Agreement, the
Registration Statement (Form S-3 No. 333-82773) pertaining to the
registration of 1,512,514 shares of Common Stock of Go2Net, Inc. and the
Registration Statement (Form S-3 No. 333-86529) pertaining to registration of
686,900 shares of Common Stock of Go2Net, Inc. of our report dated October 7,
1999 with respect to the balance sheets of Dogpile LLC and Predecessors as of
July 31, 1998 and 1999 and the related statements of operations, owners' equity
and cash flows for each of the years in the two-year period ended July 31, 1999,
included herein.
Seattle, Washington KPMG LLP
October 15, 1999
