<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): APRIL 16, 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
HAGGLE ONLINE, INC.
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K
dated May 3, 1999, related to the Registrant's completion of the acquisition
of Haggle Online, Inc. ("HO") by means of a merger of Haggle Acquisition
Corp., a Delaware corporation and a wholly-owned subsidiary of the Registrant
with and into HO, as set forth below and in the pages attached
hereto:
USAONLINE, INC.
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K
dated May 3, 1998, related to the Registrant's completion of the acquisition
of USAOnline, Inc. ("USAOnline") by means of a merger of USAO Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of the
Registrant with and into USAOnline, 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 Haggle Online
See Exhibit 20.2 for the audited financial statements of USAOnline
See Exhibit 20.3 for the unaudited condensed financial statements of
Haggle Online
See Exhibit 20.4 for the unaudited condensed financial statements of
USAOnline
(b) UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited Pro Forma Condensed Combined Financial
Statements reflect the business combinations between Go2Net, Inc. ("Go2Net"
or the "Company") and HO and between Go2Net and USAOnline. These mergers were
accounted for under the purchase method of accounting in accordance with APB
Opinion No. 16. 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 contained herein are
preliminary in nature and may not be indicative of the final purchase price
allocation. 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 pro forma condensed combined balance sheet and
reduce the amount of amortization of goodwill reflected in the pro forma
condensed combined statement of operations. Such preliminary estimates of the
fair values of the assets and liabilities of HO and USAOnline have been
combined with the recorded values of the assets and liabilities of Go2Net in
the unaudited pro forma condensed combined financial statements. 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 29, 1998, and the
historical financial statements and the notes thereto of HO and USAOnline
included herein.
The unaudited pro forma condensed combined balance sheets have been
prepared to reflect the mergers of HO and USAOnline as if they occurred March
31, 1999. The unaudited pro forma condensed combined statements of operations
reflect the combined results of operations of Go2Net for the year ended
September 30, 1998 and HO and USAOnline for the year ended December 31, 1998
and the six months ended March 31, 1999 as if the Mergers occurred on October
1, 1997.
-2-
<PAGE>
The proforma condensed combined consolidated 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 financial statements and notes thereto of Go2Net included in its
annual report on 10-K for the year ended September 30, 1998, the unaudited
financial statements and notes thereto for the six months ended March 31,
1999, included in its Quarterly Report on 10-Q for the six month period then
ended and the audited financial statements and notes thereto of HO and
USAOnline for the year ended December 31, 1998, both 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 Mergers been consummated at the dates indicated, nor is it necessarily
indicative of future operating results and financial condition.
-3-
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
MARCH 31, 1999
<TABLE>
<CAPTION>
HAGGLE ONLINE
HAGGLE PRO FORMA
GO2NET ONLINE USA ONLINE ADJUSTMENTS
------ ------ -------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 129,882,994 $ 10,803 $ 5,997 $ --
Short-term investments ............................... 44,294,249 -- -- --
Trade account receivables, net ....................... 1,979,453 9,913 71,774 --
Other accounts receivable ............................ 1,046,105 -- -- --
Prepaid expenses ..................................... 491,272 593 6,443 --
------------- ------------- ------------- -------------
Total current assets ............................ 177,694,073 21,309 84,214 --
Property and equipment, net .............................. 1,277,384 2,400 12,352 --
Other assets, net ........................................ 150,465 -- -- --
Intangible assets, net ................................... -- -- -- 6,560,568 (c)
Long term investments .................................... 5,055,656 -- -- --
Deposits ................................................. 250,000 -- -- --
------------- ------------- ------------- -------------
Total assets ............................................. $ 184,427,578 $ 23,709 $ 96,566 $ 6,560,568
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses ................ $ 1,646,994 $ 25,117 $ 52,413 $ --
Accrued compensation and benefits .................... 395,782 -- -- --
Short term debt ...................................... 13,229 -- -- --
Deferred revenue ..................................... 1,429,914 -- -- --
------------- ------------- ------------- -------------
Total current liabilities ....................... 3,485,919 25,117 52,413 --
Shareholders' equity (deficit):
Preferred stock .......................................... 219,712,624 -- -- --
Common stock ............................................. 18,206,747 401 68,094 (401)(b)
.......................................................... 6,559,160 (a)
Retained earnings (accumulated deficit)................... (56,977,712) (1,809) (23,941) 1,809 (b)
------------- ------------- ------------- -------------
Total shareholders' equity (deficit) ............ 180,941,659 (1,408) 44,153 6,560,568
------------- ------------- ------------- -------------
Total liabilities and shareholders'
equity (deficit)............................... $ 184,427,578 $ 23,709 $ 96,566 $ 6,560,568
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<CAPTION>
USA ONLINE
PRO FORMA PRO FORMA
ADJUSTMENTS BALANCE
----------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................ $ -- $ 129,899,794
Short-term investments ............................... -- 44,294,249
Trade account receivables, net ....................... -- 2,061,140
Other accounts receivable ............................ -- 1,046,105
Prepaid expenses ..................................... -- 498,308
------------- -------------
Total current assets ............................ -- 177,799,596
Property and equipment, net .............................. -- 1,292,136
Other assets, net ........................................ -- 150,465
Intangible assets, net ................................... 22,533,375 (f) 29,093,943
Long term investments .................................... -- 5,055,656
Deposits ................................................. -- 250,000
------------- -------------
Total assets ............................................. $ 22,533,375 $ 213,641,796
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses ................ $-- $ 1,724,524
Accrued compensation and benefits .................... -- 395,782
Short term debt ...................................... -- 13,229
Deferred revenue ..................................... -- 1,429,914
------------- -------------
Total current liabilities ....................... -- 3,563,449
Shareholders' equity (deficit):
Preferred stock .......................................... -- 219,712,624
Common stock ............................................. (68,094)(e) 18,206,747
.......................................................... 22,577,528 (d) 29,136,688
Retained earnings (accumulated deficit)................... 23,941 (e) (56,977,712)
------------- -------------
Total shareholders' equity (deficit)............. 22,533,375 210,078,347
------------- -------------
Total liabilities and shareholders'
equity (deficit)............................... $ 22,533,375 $ 213,641,796
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
-4-
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31 DECEMBER 31 HAGGLE ONLINE
------------ ----------- -----------
1998 1998 1998
---- ---- ----
PRO FORMA
GO2NET HAGGLE ONLINE USA ONLINE ADJUSTMENTS
------ ------------- -------------- -----------
<S> <C> <C> <C> <C>
Revenue ........................................... $ 4,830,882 $ 13,498 $ 12,098 $ --
Cost of revenue ................................... 1,803,895 4,171 2,531 --
------------ ------------ ------------ ------------
Gross profit ............................ 3,026,987 9,327 9,567 --
Operating expenses:
Sales and marketing ............................. 1,281,312 17,838 -- --
Product development ............................. 1,124,623 -- -- --
General and administrative ...................... 2,066,962 8,052 13,598 --
Amortization of intangible assets ............... -- -- -- 2,186,856 (c)
Merger and acquisition costs .................... 1,035,494 -- -- --
Impairment loss ................................. 398,126 -- -- --
Stock compensation .............................. -- -- 16,443 --
------------ ------------ ------------ ------------
Total operating expenses ................ 5,906,517 25,890 30,041 2,186,856
------------ ------------ ------------ ------------
Loss from operations .............................. (2,879,530) (16,563) (20,474) (2,186,856)
Interest income, net .............................. 508,405 -- -- --
------------ ------------ ------------ ------------
Loss before taxes ................................. (2,371,125) (16,563) (20,474) (2,186,856)
Income taxes ...................................... -- 1,127 200 --
------------ ------------ ------------ ------------
Net loss .......................................... $ (2,371,125) $ (17,690) $ (20,674) $ (2,186,856)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic and diluted net loss per share .............. $ (0.21)
Number of shares used in computing basic and
diluted net loss per share......................... 11,563,874 41,000
<CAPTION>
USA ONLINE
PRO FORMA PRO FORMA
ADJUSTMENTS BALANCE
----------- --------
<S> <C> <C>
Revenue ........................................... $ -- $ 4,856,478
Cost of revenue ................................... -- 1,810,597
------------ ------------
Gross profit ............................ -- 3,045,881
Operating expenses:
Sales and marketing ............................. -- 1,299,150
Product development ............................. -- 1,124,623
General and administrative ...................... -- 2,088,612
Amortization of intangible assets ............... 7,511,125 (f) 9,697,981
Merger and acquisition costs .................... -- 1,035,494
Impairment loss ................................. -- 398,126
Stock compensation .............................. -- 16,443
------------ ------------
Total operating expenses ................ 7,511,125 15,660,429
------------ ------------
Loss from operations .............................. (7,511,125) (12,614,548)
Interest income, net .............................. -- 508,405
------------ ------------
Loss before taxes ................................. (7,511,125) (12,106,143)
Income taxes ...................................... -- 1,327
------------ ------------
Net loss .......................................... $ (7,511,125) $(12,107,470)
------------ ------------
------------ ------------
Basic and diluted net loss per share .............. $ (1.03)
Number of shares used in computing basic and
diluted net loss per share......................... 150,000 11,754,874
</TABLE>
See accompanying notes.
-5-
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
HAGGLE ONLINE
PRO FORMA
GO2NET HAGGLE ONLINE USA ONLINE ADJUSTMENTS
------ ------------- -------------- -----------
<S> <C> <C> <C> <C>
Revenue ........................................... $ 6,925,283 $ 18,945 $ 81,197 $ --
Cost of revenue ................................... 1,626,758 499 11,350 --
------------ --------- --------- -----------
Gross profit ............................ 5,298,525 18,446 69,847 --
Operating expenses:
Sales and marketing ............................. 2,137,303 5,914 -- --
Product development ............................. 817,693 -- -- --
General and administrative ...................... 1,946,725 22,064 44,804 --
Amortization of intangible assets ............... -- -- -- 1,093,428 (c)
Merger and acquisition costs .................... 650,257 -- -- --
Stock compensation .............................. 77,267 -- -- --
------------ --------- --------- -----------
Total operating expenses ................ 5,629,245 27,978 44,804 1,093,428
------------ --------- --------- -----------
Income (loss) from operations ..................... (330,720) (9,532) 25,043 (1,093,428)
Interest income, net .............................. 729,178 146 -- --
------------ --------- --------- -----------
Income/(loss) before taxes ........................ 398,458 (9,386) 25,043 (1,093,428)
Income taxes ...................................... -- -- 250 --
------------ --------- --------- -----------
Income/(loss) before preferred stock dividend...... 398,458 (9,386) 24,793 (1,093,428)
Preferred stock dividend .......................... 52,930,286 -- -- --
------------ --------- --------- -----------
Net income (loss) applicable to common
shareholders...................................... $(52,531,828) $ (9,386) $ 24,793 $(1,093,428)
------------ --------- --------- -----------
------------ --------- --------- -----------
Basic and diluted net loss per share............... $ (4.15)
------------
------------
Number of shares used in computing
basic and diluted net loss per share.............. 12,653,634 41,000
<CAPTION>
USA ONLINE
PRO FORMA PRO FORMA
ADJUSTMENTS BALANCE
----------- ---------
<S> <C> <C>
Revenue ........................................... $ -- $ 7,025,425
Cost of revenue ................................... -- 1,638,607
-------------- ------------
Gross profit ............................ -- 5,386,818
Operating expenses:
Sales and marketing ............................. -- 2,143,217
Product development ............................. -- 817,693
General and administrative ..................... -- 2,013,593
Amortization of intangible assets .............. 3,755,563 (f) 4,848,991
Merger and acquisition costs ................... -- 650,257
Stock compensation .............................. -- 77,267
-------------- ------------
Total operating expenses ................ 3,755,563 10,551,018
-------------- ------------
Income (loss) from operations ..................... (3,755,563) (5,164,200)
Interest income, net .............................. -- 729,324
-------------- ------------
Income/(loss) before taxes ........................ (3,755,563) (4,434,876)
Income taxes ...................................... -- 250
-------------- ------------
Income/(loss) before preferred stock dividend...... (3,755,563) (4,435,126)
Preferred stock dividend .......................... -- 52,930,286
-------------- ------------
Net income (loss) applicable to common
shareholders...................................... $ (3,755,563) $(57,365,412)
-------------- ------------
-------------- ------------
Basic and diluted net loss per share............... $ (4.47)
------------
------------
Number of shares used in computing
basic and diluted net loss per share ............. 150,000 12,844,634
</TABLE>
See accompanying notes.
-6-
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
CONSOLIDATED FINANCIAL STATEMENTS
1. PERIODS COMBINED
The unaudited pro forma combined condensed balance sheets have been prepared
to reflect the mergers of HO and USAOnline as if they occurred on March 31,
1999. The unaudited pro forma combined condensed consolidated statements of
operations reflect the combined results of operations of GO2Net for the year
ended September 30, 1998 and HO and USAOnline for the year ended December 31,
1998 and the six months ended March 31, 1999 as if the Mergers occurred on
October 1, 1997.
2. BASIS OF PRESENTATION
The unaudited pro forma condensed combined financial statements reflect the
issuance of approximately 41,000 shares of Go2Net Common Stock for all of the
outstanding shares of HO Common Stock in connection with the Merger at an
exchange ratio of 0.01025 shares of Go2Net Common Stock for each share of HO
Common Stock.
The unaudited pro forma condensed combined financial statements reflect the
issuance of approximately 150,000 shares of Go2Net Common Stock for all of the
outstanding shares of USAOnline Common Stock in connection with the Merger at an
exchange ratio of 1.11111 shares of Go2Net Common Stock for each share of
USAOnline Common Stock.
These mergers were accounted for under the purchase method of accounting in
accordance with APB Opinion No.16. Under the purchase method of accounting,
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 HO and USAOnline have been combined with the
recorded values of the assets and liabilities of Go2Net in the unaudited pro
forma combined condensed consolidated financial statements.
3. MERGER TRANSACTION COSTS
Go2Net and HO incurred direct transaction costs of approximately $65,000
associated with the Merger, primarily for legal and accounting fees. These costs
will be included with goodwill and amortized over three years. 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.
Go2Net and USAOnline incurred direct transaction costs of approximately $65,000
associated with the Merger, primarily for legal and accounting fees. These costs
will be included with goodwill and amortized over three years. 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, HO Common Stock and USAOnline Common Stock outstanding during the
periods using the exchange ratios. 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 periods presented.
-7-
<PAGE>
5. CONFORMING AND RECLASSIFICATION ADJUSTMENTS
There were no adjustments required to conform the accounting policies of Go2Net,
HO and USAOnline. Certain amounts for HO and USAOnline 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.
6. PRO FORMA ADJUSTMENTS
HAGGLE ONLINE
(a) To reflect the issuance of approximately 41,000 shares of Go2Net
Common Stock and the assumption of all outstanding options in
connection with the HO Merger, for an aggregate purchase price of
approximately $6.5 million, including approximately $65,000 of
transaction costs.
(b) To eliminate the historical shareholders' deficit of Haggle.
(c) To record the excess of the purchase price over the fair value of
assets and liabilities acquired in connection with the Haggle
Merger, and the related amortization. The purchase price allocation
is based on management's estimates of the fair values of the
tangible assets, intangible assets and technology. The book value
of tangible assets and liabilities acquired are assumed to
approximate fair value. The goodwill and substantially all other
purchased intangible assets will be amortized on a straight line
basis over approximately 3 years.
USAONLINE
(d) To reflect the issuance of 150,000 shares of Go2Net Common Stock in
connection with the USAOnline Merger, for an aggregate purchase
price of approximately $22.5 million, including approximately
$65,000 of transaction costs.
(e) To eliminate the historical shareholders' equity of USAOnline.
(f) To record the excess of the purchase price over the fair value of
assets and liabilities acquired in connection with the USAOnline
Merger, and the related amortization. The purchase price allocation
is based on management's estimates of the fair values of the
tangible assets, intangible assets and technology. The book value
of tangible assets and liabilities acquired are assumed to
approximate fair value. The goodwill and substantially all other
purchased intangible assets will be amortized on a straight line
basis over approximately 3 years.
-8-
<PAGE>
(c) EXHIBITS.
The following exhibits are filed herewith:
20.1 Haggle Online, Inc. audited financial statements for the year
ended December 31, 1998 and period since inception to December
31, 1997.
20.2 USAOnline, Inc. audited financial statements for the years
ended December 31, 1998, 1997 and 1996
20.3 Unaudited condensed financial statements of Haggle Online
20.4 Unaudited condensed financial statements of USAOnline
23.1 Consent of Ernst & Young LLP, Independent Auditors
-9-
<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: July 2, 1999 By: /s/ Russell C. Horowitz
Russell C. Horowitz
Chief Executive Officer,
Chief Administrative Officer and
Chief Financial Officer
-10-
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
To the Directors and Stockholders
Haggle Online, Inc.
We have audited the accompanying balance sheets of Haggle Online, Inc. (the
Company) as of December 31, 1998 and 1997, and the related statements of
operations, stockholders' equity (deficit), and cash flows for the year ended
December 31, 1998 and the period from June 6, 1997 (date of inception) to
December 31, 1997. 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 Haggle Online, Inc. at December
31, 1998 and 1997, and the results of its operations and its cash flows for the
year ended December 31, 1998 and the period from June 6, 1997 (date of
inception) to December 31, 1997, in conformity with generally accepted
accounting principles.
Seattle, Washington ERNST & YOUNG LLP
June 18, 1999
1
<PAGE>
HAGGLE ONLINE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 12,420 $ 8,708
Accounts receivable 1,145 --
Rental deposits 593 --
------------------------------------
Total current assets 14,158 8,708
Equipment, net 2,841 4,001
------------------------------------
Total assets $ 16,999 $ 12,709
------------------------------------
------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Amount due to stockholders $ 10,436 $ 7,641
Accrued expenses 17,658 --
Income taxes payable 2,049 886
------------------------------------
Total current liabilities 30,143 8,527
Deferred income taxes 221 257
Stockholders' equity (deficit):
Common stock, $0.001 par value:
Authorized shares - 4,800,000
Issued and outstanding shares - 4,000,0000 in 1998
and 3,600,000 in 1997 401 1
Retained earnings (accumulated deficit) (13,766) 3,924
------------------------------------
Total stockholders' equity (deficit) (13,365) 3,925
------------------------------------
Total liabilities and stockholders' equity (deficit) $ 16,999 $ 12,709
------------------------------------
------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
HAGGLE ONLINE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6, 1997
DATE OF
YEAR ENDED INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1998 1997
---------------------------------------
<S> <C> <C>
Revenue:
Advertising $ 4,335 $ 1,433
Licensing 7,182 7,975
Transaction fees 1,981 40
---------------------------------------
Total revenue 13,498 9,448
Cost of revenue 4,171 2,589
---------------------------------------
Gross profit 9,327 6,859
Operating expenses:
Sales and marketing 17,838 --
General and administrative 8,052 1,792
---------------------------------------
25,890 1,792
---------------------------------------
Operating income (loss) (16,563) 5,067
Income tax expense 1,127 1,143
----------------------------------------
Net income (loss) $ (17,690) $ 3,924
----------------------------------------
----------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
HAGGLE ONLINE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED EARNINGS/ TOTAL
---------------------------------- (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT DEFICIT) EQUITY (DEFICIT)
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at date of inception, stock issued
to founder 3,600,000 $ 1 $ - $ 1
Net income - - 3,924 3,924
--------------------------------------------------------------------------
Balance at December 31, 1997 3,600,000 1 3,924 3,925
Sale of stock 400,000 400 - 400
Net loss - - (17,690) (17,690)
--------------------------------------------------------------------------
Balance at December 31, 1998 4,000,000 $ 401 $ (13,766) $ (13,365)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
HAGGLE ONLINE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM JUNE 6,
1997 (DATE OF
YEAR ENDED INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1998 1997
-------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (17,690) $ 3,924
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 1,525 270
Deferred income taxes (36) 257
Changes in operating assets and liabilities:
Accounts receivable (1,145) -
Amounts due to stockholders 2,795 7,641
Accrued expenses 17,658 -
Income taxes payable 1,163 886
Rental deposits (593) -
-------------------------------------------
Net cash provided by operating activities 3,677 12,978
INVESTING ACTIVITY - purchases of equipment (365) (4,271)
FINANCING ACTIVITY - proceeds from sale of
common stock 400 1
-------------------------------------------
Net increase in cash 3,712 8,708
Cash at beginning of period 8,708 -
-------------------------------------------
Cash at end of period $ 12,420 $ 8,708
-------------------------------------------
-------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
Haggle Online, Inc.
Notes to Financial Statements
December 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Haggle Online, Inc. (the Company) is a Delaware company which was incorporated
on June 6, 1997. The Company operates an online person-to-person trading
community (auction service). The Company's service permits sellers to list
items for sale, buyers to bid on items of interest, and all users to browse
through listed items in a fully automated, topically arranged on-line
environment. Furthermore, the Company offers web-hosting services and
licensing of its auction service software.
PROPERTY AND EQUIPMENT
Equipment is stated at cost. Depreciation is calculated using the straight-line
method over a three-year life.
INCOME TAXES
The Company accounts for income taxes using the liability method. Deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
REVENUE RECOGNITION
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. Transaction revenues are
derived primarily from success fees calculated as a percentage of the final
sales transaction value.
6
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company's licensing revenues are derived principally from product licensing
fees and fees from maintenance and support of its products. Licensing revenues
are generally recognized upon delivery provided that no significant Company
obligations remain and collection of the receivable is probable. In cases where
there are significant remaining obligations, the Company defers such revenue
until those obligations are satisfied. Fees from maintenance and support of the
Company's products, including revenues bundled with the initial licensing fees,
are deferred and recognized ratably over the service period, which is typically
six months. No deferred revenue existed at the balance sheet dates.
CONTRIBUTED SERVICES
The Company's founder has contributed various services to the Company since its
inception. No amounts have been recorded in the accompanying financial
statements related to these contributed services, as their fair value is not
objectively determinable or measurable.
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.
RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES (FAS 133), which the Company will be required to adopt
for the year ending December 31, 2000. This Statement establishes a new model
for accounting for derivatives and hedging activities. FAS 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities.
Because the Company currently holds no derivative financial instruments and does
not currently engage in hedging activities, adoption of FAS 133 is expected to
have no material impact on the Company's financial condition or results of
operations.
7
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In March 1998, the American Institute of Certified Public Accountants issued SOP
98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE (SOP 98-1). SOP 98-1 requires that entities capitalize certain
costs related to internal use software once certain criteria have been met. The
Company is required to implement SOP 98-1 for the year ending December 31, 1999.
Adoption of SOP 98-1 is not expected to have a material impact on the Company's
financial condition or results of operations.
In April 1998, the Accounting Standards Executive Committee issued SOP 98-5,
REPORTING ON THE COSTS OF START-UP ACTIVITIES (SOP 98-5). Start-up activities
are defined broadly as those one-time activities related to the opening of a new
facility, introducing a new product or service, conducting business in a new
territory, conducting business with a new class customer, commencing some new
operation, or organizing a new entity. SOP 98-5 requires that the cost of
start-up activities be expensed as incurred. SOP 98-5 is effective for the
Company beginning in fiscal 1999. Adoption of SOP 98-5 is not expected to have a
material impact on the Company's financial condition or results of operations.
2. EQUIPMENT
Equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------------------------------
<S> <C> <C>
Computer equipment $ 4,636 $ 4,271
Accumulated depreciation (1,795) (270)
------------------------------------
$ 2,841 $ 4,001
------------------------------------
------------------------------------
</TABLE>
3. INCOME TAXES
Deferred tax liabilities represent depreciation temporary differences which
arise from differences in the methods used to depreciate such assets.
8
<PAGE>
3. INCOME TAXES (CONTINUED)
The income tax provision consists of the following (state tax current amounts
relate to minimum tax amounts):
<TABLE>
<CAPTION>
PERIOD FROM JUNE 6,
1997 (DATE OF
YEAR ENDED INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1998 1997
------------------------------------------
<S> <C> <C>
Current:
Federal $ 363 $ 86
State 800 800
------------------------------------------
1,163 886
Deferred:
Federal (82) 257
State 46 -
------------------------------------------
(36) 257
------------------------------------------
$ 1,127 $ 1,143
------------------------------------------
------------------------------------------
</TABLE>
4. LEASE COMMITMENT
The Company leases office space under a month to month operating lease agreement
that commenced in 1998. Rental expense was $3,048 for the year ended December
31, 1998. Prior to 1998, the Company's operations were run out of the founders'
home and no consideration was received by the founders for this service.
9
<PAGE>
5. SUBSEQUENT EVENTS
In March 1999, the Board of Directors amended the Company's Articles of
Incorporation to authorize two million shares of preferred stock with a par
value of $0.001 and to increase the authorized shares of common stock to six
million shares.
The Company granted a right for 3,200 common shares at an exercise price of
$1.22 per share to a consultant in March 1999.
In March 1999, the Company effected a 3,200-for-1 stock split. Accordingly,
the accompanying financial statements have been restated to reflect this stock
split.
In April 1999, the stockholders of the Company signed an agreement to exchange
all of the common stock of the Company for 41,000 shares of Go2Net, Inc., an
unrelated publicly traded corporation.
6. YEAR 2000 (UNAUDITED)
The Company is currently conducting an assessment of all its computer equipment
to verify its year 2000 readiness. The cost of year 2000 initiatives is not
expected to be material to the Company's results of operations or financial
position. The Company has yet to initiate discussions with all of its
third-party relationships to ensure that those parties have appropriate plans in
place to correct all of their year 2000 issues. While the Company believes its
planning efforts are adequate to address its year 2000 concerns, there can be no
assurance that the systems and products of other companies on which the
Company's operations rely will be converted on a timely basis and will not have
a material adverse effect on the Company's results of operations.
10
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Directors and Stockholders
USAOnline, Inc.
We have audited the accompanying balance sheets of USAOnline, Inc. (doing
business as Virtual Avenue) as of December 31, 1998, 1997 and 1996, and the
related statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended 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 USAOnline, Inc. at December
31, 1998, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Seattle, Washington ERNST & YOUNG LLP
June 18, 1999
1
<PAGE>
USAONLINE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ - $ 185
Accounts receivable 8,989 -
------------------------------------
Total current assets 8,989 185
Equipment, net 11,136 859
------------------------------------
Total assets $ 20,125 $ 1,044
------------------------------------
------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 623 $ 177
State income taxes 400 200
------------------------------------
Total liabilities 1,023 377
Stockholders' equity
Common stock, no par value:
Authorized shares - 5,000,000
Issued and outstanding shares 131,760
in 1998 and 50,400 in 1997 62,487 23,378
Accumulated deficit (43,385) (22,711)
------------------------------------
Total stockholders' equity 19,102 667
------------------------------------
Total liabilities and stockholders' equity $ 20,125 $ 1,044
------------------------------------
------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
USAONLINE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1998 1997 1996
------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 12,098 $ 159 $ 885
Cost of revenues 2,531 1,392 1,557
------------------------------------------------------
Gross profit (loss) 9,567 (1,233) (672)
Operating expenses:
Stock compensation 16,443 - -
General and administrative 13,598 4,617 10,949
------------------------------------------------------
30,041 4,617 10,949
------------------------------------------------------
Net loss before taxes (20,474) (5,850) (11,621)
Provision for state income taxes (200) (200) -
------------------------------------------------------
Net loss $ (20,674) $ (6,050) $ (11,621)
------------------------------------------------------
------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
USAONLINE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------ ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT DEFICIT EQUITY
--------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 50,400 $ 5,040 $ (5,040) $ -
Capital contribution - 13,200 - 13,200
Net loss - - (11,621) (11,621)
--------------------------------------------------------
Balance at December 31, 1996 50,400 18,240 (16,661) 1,579
Capital contribution - 5,138 - 5,138
Net loss - - (6,050) (6,050)
--------------------------------------------------------
Balance at December 31, 1997 50,400 23,378 (22,711) 667
Stock issued to stockholders for services rendered 81,360 16,443 - 16,443
Capital contribution - 22,666 - 22,666
Net loss - - (20,674) (20,674)
--------------------------------------------------------
Balance at December 31, 1998 131,760 $ 62,487 $ (43,385) $ 19,102
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
USAONLINE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1998 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (20,674) $ (6,050) $ (11,621)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,108 225 189
Stock compensation 16,443 - -
Changes in operating assets and liabilities:
Accounts receivable (8,989) - -
Accounts payable 446 177 -
State income taxes 200 200 -
---------------------------------------------------------------
Net cash used in operating activities (11,466) (5,448) (11,432)
INVESTING ACTIVITY - purchases of equipment (11,385) (212) (1,061)
FINANCING ACTIVITY - proceeds from
contributed capital 22,666 5,138 13,200
---------------------------------------------------------------
Net increase (decrease) in cash (185) (522) 707
Cash at beginning of year 185 707 -
---------------------------------------------------------------
Cash at end of year $ - $ 185 $ 707
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
USAOnline, Inc.
Notes to Financial Statements
December 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
USAOnline, Inc., doing business as Virtual Avenue (the Company) was incorporated
in the state of New Jersey on December 6, 1995. No material business activity
occurred until January 1, 1996. The Company provides free web hosting for small
businesses. The Company earns revenue from advertising on the small business
sites hosted by the Company. The Company's advertising base is principally the
United States.
PROPERTY AND EQUIPMENT
Equipment is stated at cost. Depreciation for financial reporting purposes is
calculated using the straight-line method over the useful lives of the assets of
five to seven years.
INCOME TAXES
The Company has elected S Corporation status for federal income tax purposes. As
an S Corporation, the Company is not subject to federal income tax, rather the
Company's income is included in the tax returns of the stockholders.
Accordingly, no provision for federal income tax has been reflected in the
accompanying financial statements.
The provision for state income taxes is determined by applying minimum state
statutory rates to financial statement income after adjustment for items
excluded for state income tax purposes. The Company does not provide for
deferred state taxes because such amounts are immaterial to the financial
statements.
REVENUE RECOGNITION
The Company recognizes advertising revenues based on contracted rates over the
course of the contract term.
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.
6
<PAGE>
USAOnline, Inc.
Notes to Financial Statements
December 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES (FAS 133), which the Company will be required to adopt
for the year ending December 31, 2000. This Statement establishes a new model
for accounting for derivatives and hedging activities. FAS 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities.
Because the Company currently holds no derivative financial instruments and does
not currently engage in hedging activities, adoption of FAS 133 is expected to
have no material impact on the Company's financial condition or results of
operations.
In March 1998, the American Institute of Certified Public Accountants issued SOP
98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE (SOP 98-1). SOP 98-1 requires that entities capitalize certain
costs related to internal use software once certain criteria have been met. The
Company is required to implement SOP 98-1 for the year ending December 31, 1999.
Adoption of SOP 98-1 is not expected to have a material impact on the Company's
financial condition or results of operations.
In April 1998, the Accounting Standards Executive Committee issued SOP 98-5,
REPORTING ON THE COSTS OF START-UP ACTIVITIES (SOP 98-5). Start-up activities
are defined broadly as those one-time activities related to the opening of a new
facility, introducing a new product or service, conducting business in a new
territory, conducting business with a new class customer, commencing some new
operation, or organizing a new entity. SOP 98-5 requires that the cost of
start-up activities be expensed as incurred. SOP 98-5 is effective for the
Company beginning in fiscal 1999. Adoption of SOP 98-5 is not expected to have a
material impact on the Company's financial condition or results of operations.
7
<PAGE>
USAOnline, Inc.
Notes to Financial Statements
December 31, 1998
2. EQUIPMENT
Equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-----------------------------------
<S> <C> <C>
Computer hardware $ 12,658 $ 1,273
Accumulated depreciation (1,522) (414)
-----------------------------------
$ 11,136 $ 859
-----------------------------------
-----------------------------------
</TABLE>
3. STOCKHOLDERS' EQUITY
At the date of inception of the Company in 1995, a stockholder received 50,400
shares of common stock for services rendered under a consulting agreement at a
price of $.10 per share. In 1998, stockholders received 81,360 shares of common
stock in exchange for services rendered under a consulting agreement at prices
ranging from $.15 to $.30 per share. The fair value of the price per share was
set by the Board of Directors at the date of issuance.
In 1998, 1997, and 1996, stockholders contributed $22,666, $5,138, and $13,200,
respectively, to the Company as capital contributions in the form of payments
of expenditures on behalf of the Company.
4. LEASE COMMITMENT
The Company entered into a noncancelable operating lease for equipment in 1998.
Rental expense related to the lease was $1,274.
Future minimum lease payments at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year ending December 31
-----------------------
<S> <C>
1999 $ 7,641
2000 7,641
2001 6,378
--------------
$ 21,660
--------------
--------------
</TABLE>
8
<PAGE>
USAOnline, Inc.
Notes to Financial Statements
December 31, 1998
5 SUBSEQUENT EVENT
In April 1999, the stockholders of the Company signed an agreement to exchange
all of the common stock of the Company for 150,000 shares of Go2Net, Inc., an
unrelated publicly traded entity.
6 YEAR 2000 (UNAUDITED)
The Company is currently conducting an assessment of all its computer equipment
to verify its year 2000 readiness. The cost of year 2000 initiatives is not
expected to be material to the Company's results of operations or financial
position. The Company has yet to initiate discussions with all of its
third-party relationships to ensure that those parties have appropriate plans in
place to correct all of their year 2000 issues. While the Company believes its
planning efforts are adequate to address its year 2000 concerns, there can be no
assurance that the systems and products of other companies on which the
Company's operations rely will be converted on a timely basis and will not have
a material adverse effect on the Company's results of operations.
9
<PAGE>
EXHIBIT 20.3
UNAUDITED CONDENSED FINANCIAL STATEMENTS
HAGGLE ONLINE
<PAGE>
HAGGLE ONLINE
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1999 DECEMBER 31,
(unaudited) 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 10,803 $ 12,420
Accounts receivable .............................. 9,913 1,145
Prepaid expenses ................................. 593 593
------------ ------------
Total current assets ........................ 21,309 14,158
Property and equipment, net .......................... 2,400 2,841
------------ ------------
Total assets ......................................... $ 23,709 $ 16,999
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses ............ $ 25,117 $ 30,143
Deferred income taxes................................. -- 221
Shareholders' deficit:
Common stock ......................................... 401 401
Accumulated deficit .................................. (1,809) (13,766)
------------ ------------
Total shareholders' deficit ................. (1,408) (13,365)
------------ ------------
Total liabilities and shareholders' deficit .. $ 23,709 $ 16,999
------------ ------------
------------ ------------
</TABLE>
See notes to condensed financial statements.
<PAGE>
HAGGLE ONLINE
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
------------ ------------
ENDED ENDED
----- -----
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Revenue ............................. $ 16,665 $ 1,339
Cost of revenue ..................... 43 806
------------ ------------
Gross profit .............. 16,622 533
Operating expenses:
Sales and marketing ............... -- --
Product development ............... -- --
General and administrative ........ 4,665 125
------------ ------------
Total operating expenses .. 4,665 125
------------ ------------
Net income .......................... $ 11,957 $ 408
------------ ------------
------------ ------------
</TABLE>
See notes to condensed financial statements.
<PAGE>
HAGGLE ONLINE
CONDENSED STATEMENTS OF CASH FLOWS
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
------------ ------------
ENDED ENDED
----- -----
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 11,957 $ 408
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 441 373
Changes in operating assets and liabilities:
Accounts receivable (8,768) --
Accounts payable (5,247) 1,202
---------- ---------
Net cash provided by (used in) operating activities (1,617) 1,983
INVESTING ACTIVITIES - purchases of equipment -- (740)
---------- ---------
Net increase (decrease) in cash (1,617) 1,243
Cash at beginning of period 12,420 8,708
---------- ---------
Cash at end of period $ 10,803 $ 9,951
---------- ---------
---------- ---------
</TABLE>
See notes to condensed financial statements.
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1999. For further information, refer to the financial statements for the
year ended December 31, 1998 and for the cumulative period from June 6, 1997
(inception) to December 31, 1997 and notes thereto included herein.
SUBSEQUENT EVENTS
In March 1999, the Board of Directors amended HO's Articles of
Incorporation to authorize two million shares of preferred stock with a par
value of $0.001 and to increase the authorized shares of common stock to six
million shares.
HO granted a right for 3,200 shares at an exercise price of $1.22 per
share to a consultant in March 1999.
In March 1999, HO effected a 3,200-for-1 stock split. Accordingly, the
unaudited condensed financial statements have been restated to reflect this
stock split.
In April 1999, the stockholders of HO signed an agreement to exchange
all of the common stock of HO for 41,000 shares of Go2Net, Inc., an
unrelated publicly traded corporation.
RECLASSIFICATION ADJUSTMENTS
Certain amounts for HO have been reclassified to conform to Go2Net's
financial statement presentation.
<PAGE>
EXHIBIT 20.4
UNAUDITED CONDENSED FINANCIAL STATEMENTS
USAONLINE
<PAGE>
USAONLINE
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1999 DECEMBER 31,
(Unaudited) 1998
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 5,997 $ --
Accounts receivable ............................ 71,774 8,989
Prepaid expenses ............................... 6,443 --
------------ ------------
Total current assets ........................ 84,214 8,989
Property and equipment, net ...................... 12,352 11,136
------------ ------------
Total assets ..................................... $ 96,566 $ 20,125
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses .......... $ 52,413 $ 1,023
Shareholders' equity:
Common stock ..................................... 68,094 62,487
Retained earnings (accumulated deficit)........... (23,941) (43,385)
------------ ------------
Total shareholders' equity .................. 44,153 19,102
------------ ------------
Total liabilities and shareholders' equity .. $ 96,566 $ 20,125
------------ ------------
------------ ------------
</TABLE>
See notes to condensed financial statements.
<PAGE>
USAONLINE
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
------------ ------------
ENDED ENDED
----- -----
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Revenue .............................. $69,099 $ --
Cost of revenue ...................... 9,964 --
------- ---------
Gross profit ............... 59,135 --
Operating expenses:
Sales and marketing ................ -- --
Product development ................ -- --
General and administrative ......... 39,691 2,681
------- ---------
Total operating expenses ... 39,691 2,681
------- ---------
Income/(loss) before taxes ........... 19,444 (2,681)
Income taxes ......................... 200 --
------- ---------
Net income (loss) .................... $19,444 $ (2,681)
------- ---------
------- ---------
</TABLE>
See notes to condensed financial statements.
<PAGE>
USAONLINE
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
------------ ------------
ENDED ENDED
----- -----
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 19,444 $ (2,681)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 7,499 1,397
Changes in operating assets and liabilities:
Accounts receivable (62,785) --
Accounts payable 51,390 --
Prepaids (6,443) --
--------- --------
Net cash provided/(used) by operating activities 9,105 (1,284)
INVESTING ACTIVITIES - purchases of equipment (8,715) --
FINANCING ACTIVITIES - capital contribution 5,607 1,099
--------- --------
Net increase (decrease) in cash 5,997 (185)
Cash at beginning of period -- 185
--------- --------
Cash at end of period $ 5,997 --
--------- --------
--------- --------
</TABLE>
See notes to condensed financial statements.
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1999. For further information, refer to the financial statements for the
years ended December 31, 1998, 1997 and 1996 and notes thereto included herein.
SUBSEQUENT EVENT
In April 1999, the stockholders of USAOnline signed an agreement to exchange
all of the common stock of USAOnline for 150,000 shares of Go2Net, Inc., an
unrelated publicly traded entity.
RECLASSIFICATION ADJUSTMENTS
Certain amounts for USAOnline have been reclassified to conform to Go2Net's
financial statement presentation.
<PAGE>
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
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., and in the Registration Statement (Form S-8 No. 333-76071)
pertaining to the Go2Net, Inc. 1996 Stock Option Plan and Web21 Stock Option
Plan, of our reports dated June 18, 1999 with respect to the financial
statements of USAOnline, Inc. and Haggle Online, Inc. included in this
Current Report (Form 8-K/A) of Go2Net, Inc. filed July 2, 1999.
ERNST & YOUNG LLP
Seattle, Washington
June 30, 1999
