<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): JULY 1, 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
AUTHORIZE.NET CORPORATION
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K
dated July 13, 1999, related to the Registrant's completion of the
acquisition of Authorize.Net Corporation ("Authorize") by means of a merger
of 31 Acquisition Corporation, a Utah corporation and a wholly-owned
subsidiary of the Registrant with and into Authorize, 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 Authorize
See Exhibit 20.2 for the unaudited condensed financial statements of
Authorize
(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. and IQC Corporation and the current business
combination between Go2Net, Inc. ("Go2Net" or the "Company") and Authorize.
The merger was 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 statements of operations. Such preliminary estimates
of the fair values of the assets and liabilities of Authorize have been
combined with the recorded values of the assets and liabilities of Go2Net in
the unaudited Pro Forma Condensed Combined Financial Statements. The recorded
values of Go2Net assets and liabilities included in the Go2Net pro forma
column represent the combined balances and results of operations for Go2Net,
Inc. and the previously reported pro forma impact of Haggle Online and
USAOnline, Inc., and IQC Corporation acquisitions. 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 previous acquisitions reported on Forms 8K/A dated July 2, 1999
and July 27, 1999 and the historical financial statements and the notes
thereto of Authorize included herein.
The unaudited pro forma condensed combined balance sheet has been
prepared to reflect the merger of Authorize as if it occurred on June 30,
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 Authorize for the year ended December 31, 1998 and
<PAGE>
the nine months ended June 30, 1999 as if the Merger occurred on October 1,
1997.
The proforma condensed combined consolidated 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 its Quarterly Report on Form 10-Q, Current Report on Form
8-K/A filed on July 2, 1999, Current Report on Form 8-K/A filed on July 27,
1999 and the audited financial statements and notes thereto of Authorize for
the year ended December 31, 1998, included herein. The proforma data is not
necessarily indicative of the operating results or financial position that
would have been achieved had the Merger been consummated at the dates
indicated, nor is it necessarily indicative of future operating results and
financial condition.
-2-
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------
AUTHORIZE.NET
GO2NET ------------- PRO FORMA PRO FORMA
PRO FORMA HISTORICAL ADJUSTMENTS COMBINED
--------- ---------- ----------- --------
<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........................... 39,522,480 - 102,335,118 (c) 141,857,598
Long term investments............................ 40,715,569 - - 40,715,569
Deposits......................................... 250,000 - - 250,000
-------------- ------------- -------------- -------------
Total assets..................................... $ 355,689,324 $ 4,772,316 $ 88,835,118 $ 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) (a) 72,434,214
77,100,000 (c) 77,100,000
Accumulated comprehensive deficit................ (362,940) - (362,940)
Retained earnings (accumulated deficit).......... (174,978,499) (42,188,868) 42,188,868 (b) (174,978,499)
-------------- ------------- -------------- -------------
Total shareholders' equity ................. 348,088,960 3,827,524 73,272,476 425,188,960
-------------- ------------- -------------- -------------
Total liabilities and shareholders' equity.. $ 355,689,324 $ 4,772,316 $ 88,835,118 $ 449,296,758
============== ============= ============== =============
</TABLE>
See accompanying notes.
-3-
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------ ------------
1998 1998
---- ----
GO2NET AUTHORIZE.NET PRO FORMA PRO FORMA
PRO FORMA HISTORICAL ADJUSTMENTS COMBINED
--------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenue............................... $ 5,107,693 $ 2,125,852 $ - $ 7,233,545
Cost of revenue....................... 1,921,804 96,794 - 2,018,598
------------- -------------- --------------- -------------
Gross profit................ 3,185,889 2,029,058 - 5,214,947
Operating expenses:
Sales and marketing................. 1,370,220 470,928 - 1,841,148
Product development................. 1,203,631 631,963 - 1,835,594
General and administrative.......... 2,238,428 1,124,695 - 3,363,123
Amortization of intangible assets... 17,530,211 - 34,111,706 (c) 51,641,917
Merger and acquisition costs........ 1,035,494 - - 1,035,494
Impairment loss..................... 398,126 - - 398,126
Stock compensation.................. 16,443 25,659,635 - 25,676,078
------------- -------------- --------------- -------------
Total operating expenses.......... 23,792,553 27,887,221 34,111,706 85,791,480
------------- -------------- --------------- -------------
Loss from operations.................. (20,606,664) (25,858,163) (34,111,706) (80,576,533)
Interest income, net.................. 508,405 4,144 - 512,549
------------- -------------- --------------- -------------
Loss before taxes..................... (20,098,259) (25,854,019) (34,111,706) (80,063,984)
Income taxes.......................... (1,164,377) - - (6,351,924)
------------- -------------- --------------- -------------
Net loss.............................. $ (18,933,882) $ (25,854,019) $ (34,111,706) $ (73,712,060)
============= ============== =============== =============
Basic and diluted net loss per share.. $ (.80) $ (2.99)
Number of shares used in computing
basic and diluted net loss per share.. 23,736,374 903,888 24,640,262
</TABLE>
See accompanying notes.
-4-
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
--------------------------
1999
----
GO2NET AUTHORIZE.NET PRO FORMA PRO FORMA
PRO FORMA PRO FORMA ADJUSTMENTS COMBINED
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenue.................................. $ 12,651,287 $ 4,251,678 $ - $ 16,902,965
Cost of revenue.......................... 2,832,068 170,842 - 3,002,910
------------- ------------ ------------ -------------
Gross profit................... 9,819,219 4,080,836 - 13,900,055
Operating expenses:
Sales and marketing.................... 3,618,551 1,045,989 - 4,664,540
Product development.................... 1,452,403 756,809 - 2,209,212
General and administrative............. 3,697,917 2,895,424 - 6,593,341
Amortization of intangible assets...... 13,174,160 - 25,583,780 (c) 38,757,940
Merger and acquisition costs........... 650,257 - - 650,257
Stock compensation..................... 960,708 15,606,080 - 16,566,788
------------- ------------ ------------ -------------
Total operating expenses................. 23,553,996 20,304,302 25,583,780 69,442,078
------------- ------------ ------------ -------------
Loss from operations..................... (13,734,777) (16,223,466) (25,583,780) (55,542,023)
Interest income, net..................... 3,151,426 10,656 - 3,162,082
------------- ------------ ------------ -------------
Loss before taxes........................ (10,583,351) (16,212,810) (25,583,780) (52,379,941)
Income taxes (benefit)................... 18,533 (2,447,687) (3,890,661) (6,319,815)
------------- ------------ ------------ -------------
Income (loss) before extraordinary
items.................................... (10,601,884) (13,765,123) (21,693,119) (46,060,126)
Loss on extinguishment of debt, net
of tax................................... - 3,018,046 - 3,018,046
------------- ------------ ------------ -------------
Net loss................................. (10,601,884) (16,783,169) (21,693,119) (49,078,172)
Preferred stock dividend................. 159,930,733 - - 159,930,733
------------- ------------ ------------ -------------
Net loss applicable to common
shareholders............................. $(170,532,617) $(16,783,169) $(21,693,119) $(209,008,905)
============= ============ ============ =============
Basic and diluted net loss per share..... $ (6.64) $ (7.87)
============= =============
Number of shares used in computing
basic and diluted net loss per
common share............................. 25,668,028 903,888 26,571,916
</TABLE>
See accompanying notes.
-5-
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
CONSOLIDATED FINANCIAL STATEMENTS
1. PERIODS COMBINED
The unaudited pro forma condensed combined balance sheets have been prepared
to reflect the merger of Authorize as if it occurred on June 30, 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 Authorize for the year ended December 31, 1998 and the nine months
ended June 30, 1999 as if the merger occurred on October 1, 1997.
2. BASIS OF PRESENTATION
The combined balances and results of operations as of and for the nine month
period ended June 30, 1999, and for the period ended September 30, 1998, for
Go2Net, Inc. and previously reported acquisitions, which include Haggle
Online, USAOnline, Inc. and IQC Corporation, are combined in the Go2Net pro
forma 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 and
July 27, 1999.
The unaudited pro forma condensed combined financial statements reflect the
issuance of approximately 903,888 shares of Go2Net Common Stock and
$13,500,000 in cash for all of the outstanding shares of Authorize Common
Stock in connection with the merger at an exchange ratio of 1.052 shares of
Go2Net Common Stock for each share of Authorize Common Stock.
This merger was 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 Authorize have been combined with the recorded
values of the assets and liabilities of Go2Net in the unaudited pro forma
condensed combined financial statements.
3. MERGER TRANSACTION COSTS
Go2Net and Authorize incurred direct transaction costs of approximately
$100,000 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 COMMON SHARE
The pro forma combined basic and diluted net loss per common share are based
on the combined weighted average number of common shares of Go2Net common
stock and Authorize common stock outstanding during the periods using the
exchange ratio. All stock options and shares subject to repurchase rights
have been excluded from the computation of pro forma combined basic and
-6-
<PAGE>
diluted net loss per common share because all such securities are
anti-dilutive for the periods presented.
5. CONFORMING AND RECLASSIFICATION ADJUSTMENTS
There were no adjustments required to conform the accounting policies of
Go2Net and Authorize. Certain amounts for Authorize 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
(a) To reflect the issuance of approximately 903,888 shares of Go2Net
common stock, $13,500,000 in cash and the assumption of all
outstanding options in connection with the Authorize Merger, for an
aggregate purchase price of approximately $90.6 million, including
approximately $100,000 of transaction costs.
(b) To eliminate the historical accumulated deficit of Authorize.
(c) To record the excess of the purchase price over the fair value of
assets and liabilities acquired in connection with the Authorize
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.
-7-
<PAGE>
(c) EXHIBITS.
The following exhibits are filed herewith:
20.1 Authorize.Net Corporation audited financial statements for
the year ended December 31, 1997 and 1998.
20.2 Unaudited condensed financial statements of Authorize.Net
Corporation
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: September 10, 1999 By: /s/ Russell C. Horowitz
Russell C. Horowitz
Chief Executive Officer,
Chief Administrative Officer and
Chief Financial Officer
-9-
<PAGE>
EXHIBIT 20.1
Independent Auditors' Report
The Directors and Stockholders
Authorize.Net Corporation:
We have audited the accompanying balance sheets of Authorize.Net Corporation
(the Company) as of December 31, 1997 and 1998, and the related statements of
operations, stockholders' equity (deficit) and cash flows for each of the
years in the two year 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 Authorize.Net Corporation as
of December 31, 1997 and 1998, and the results of their operations and their
cash flows for each of the years in the two year period ended December 31,
1998 in conformity with generally accepted accounting principles.
Seattle, Washington KPMG LLP
August 31, 1999
1
<PAGE>
AUTHORIZE.NET CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31 JUNE 30,
1997 1998 1999
--------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 12,376 $ 155,179 $ 1,621,738
Accounts receivable, net of allowance for
doubtful accounts of $0, $0, and $12,150 at
December 31, 1997, 1998 and June 30, 1999
(unaudited), respectively. 5,368 199,271 418,770
Deferred tax assets - - 2,473,495
Other current assets - 11,994 11,500
--------------------------------------------------------
Total current assets 17,744 366,444 4,525,503
Equipment, net 6,235 99,894 241,513
Other assets - 5,300 5,300
--------------------------------------------------------
Total assets $ 23,979 $ 471,638 $ 4,772,316
========================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 1,603 $ 3,815 $ 18,220
Accrued expenses 813 4,438 143,115
Accrued compensation and benefits 28,562 468,621 217,693
Merchant funds 6,964 200,131 473,260
Income taxes payable - - 92,504
--------------------------------------------------------
Total current liabilities 37,942 677,005 944,792
Stockholders' equity (deficit):
Common stock, $0.001 par value
Authorized shares - 100,000,000
Issued and outstanding shares - 931,850
shares at December 31, 1997, 687,850
shares at December 31, 1998 and 859,295
shares at June 30, 1999 (unaudited) 932 688 859
Additional paid in capital 124,718 25,795,842 46,015,533
Accumulated deficit (139,613) (26,001,897) (42,188,868)
--------------------------------------------------------
Total stockholders' equity (13,963) (205,367) 3,827,524
--------------------------------------------------------
Total liabilities and stockholders' equity (deficit) $ 23,979 $ 471,638 $ 4,772,316
========================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
2
<PAGE>
AUTHORIZE.NET CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED)
YEARS ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31
1997 1998 1998 1999
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 62,748 $ 2,125,852 $ 562,042 $ 3,276,783
Cost of revenues 10,847 96,794 19,761 92,582
--------------------------------------------------------------------
Gross profit 51,901 2,029,058 542,281 3,184,201
Operating expenses:
Selling and marketing - 470,928 98,760 738,249
Product development 95,274 631,963 65,202 204,791
General and administrative 93,810 1,124,695 186,945 2,195,653
Stock compensation - 25,659,635 - 15,606,080
--------------------------------------------------------------------
Total operating expenses 189,084 27,887,221 350,907 18,744,773
--------------------------------------------------------------------
Operating income (loss) (137,183) (25,858,163) 191,374 (15,560,572)
Interest income - 4,144 - 10,656
--------------------------------------------------------------------
Income (loss) before taxes and
extraordinary items (137,183) (25,854,019) 191,374 (15,549,916)
Income tax expense (benefit) - - 103,002 (2,380,991)
--------------------------------------------------------------------
Income (loss) before
extraordinary items (137,183) (25,854,019) 88,372 (13,168,925)
Loss on extinguishment of debt, net of tax - - - (3,018,046)
--------------------------------------------------------------------
Net income (loss) $ (137,183) $ (25,854,019) $ 88,372 $ (16,186,971)
====================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
AUTHORIZE.NET CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK, $0.001
PAR TOTAL
----------------------------- ADDITIONAL STOCKHOLDERS'
NUMBER OF PAID IN ACCUMULATED EQUITY
SHARES DOLLARS CAPITAL DEFICIT (DEFICIT)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 300,000 $ 300 $ 5,700 $ (2,430) $ 3,570
Issuance of stock 631,850 632 119,018 - 119,650
Net loss for the year ended December 31,
1997 - - - (137,183) (137,183)
----------------------------------------------------------------------------------
Balance at December 31, 1997 931,850 932 124,718 (139,613) (13,963)
Issuance of stock 15,000 15 14,985 - 15,000
Repurchase of stock (75,000) (75) - (11,925) (12,000)
Relinquishment of stock (184,000) (184) (3,496) 3,660 (20)
Capital contributed by shareholders
for stock compensation expense - - 25,659,635 - 25,659,635
Net loss for the year ended December 31,
1998 - - - (25,854,019) (25,854,019)
----------------------------------------------------------------------------------
Balance at December 31, 1998 687,850 688 25,795,842 (26,001,897) (205,367)
Issuance of stock (unaudited) 49,533 49 4,417,997 - 4,418,046
Stock compensation expense (unaudited) - - 15,606,080 - 15,606,080
Proceeds from exercise of stock options
(unaudited) 121,912 122 195,614 - 195,736
Net loss for the six months ended June 30,
1999 (unaudited) - - - (16,186,971) (16,186,971)
----------------------------------------------------------------------------------
Balance at June 30, 1999 (unaudited) 859,295 $ 859 $46,015,533 $(42,188,868) $ 3,827,524
==================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
AUTHORIZE.NET CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1997 1998 1998 1999
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (137,183) (25,854,019) $ 88,372 $ (16,186,971)
Depreciation 1,948 27,349 7,033 31,066
Stock compensation expense - 25,659,635 - 15,606,080
Common stock issued for services provided 300 - - -
Loss on extinguishment of debt - - - 3,018,046
Deferred income tax expense (benefit) - - - (2,473,495)
Changes in certain assets and liabilities:
Accounts receivable (5,368) (193,903) (297,396) (219,499)
Other current assets - (11,994) - 494
Other assets - (5,300) (2,324) -
Accounts payable 1,603 2,212 4,879 14,405
Accrued compensation and payroll related 28,562 440,059 58,358 (250,928)
liabilities
Merchants funds 6,964 193,167 119,977 273,129
Income tax payable - - 103,002 92,504
Accrued expenses 813 3,625 55,029 138,677
----------------------------------------------------------------------------
Net cash provided by (used in) (102,361) 260,831 136,930 43,508
operations
Cash flows from investing activities -
purchases of property, plant and equipment (4,985) (121,008) (42,484) (72,685)
Cash flows from financing activities:
Proceeds from issuance of note payable - - - 900,000
Proceeds from issuance of common stock 119,350 15,000 - 695,736
Relinquishment of common stock - (20) - -
Repurchase of common stock - (12,000) - -
----------------------------------------------------------------------------
Net cash provided by financing
activities 119,350 2,980 - 1,595,736
----------------------------------------------------------------------------
Net increase in cash 12,004 142,803 94,446 1,466,559
Cash at beginning of period 372 12,376 12,376 155,179
----------------------------------------------------------------------------
Cash at end of period $ 12,376 $ 155,179 $ 106,822 $ 1,621,738
============================================================================
Supplemental schedule of noncash
transations:cash flow information:
Conversion of note payable to common stock $ - $ - $ - $ 900,000
============================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
AUTHORIZE.NET CORPORATION
Notes to Financial Statements
December 31, 1997 and 1998
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 are unaudited)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Authorize.Net Corporation, a Utah Corporation incepted November
26, 1996, develops, markets and sells a line of products and
services that provide solutions for authorizing, processing and
managing credit card and electronic check transactions in a
real-time on-line environment. The Company serves traditional
businesses, e-businesses and financial institutions within the
United States.
(b) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
1997 1998 June 30, 1999
------ ------ -------------
<S> <C> <C> <C>
Furniture and fixtures $ - $ 31,395 $ 45,389
Computers, equipment and software 8,824 98,437 200,844
Vehicles - - 56,284
------ ------- --------
8,824 129,832 302,517
Less Accumulated Depreciation 2,589 29,938 61,004
------ -------- --------
$6,235 $ 99,894 $241,513
====== ======== ========
</TABLE>
Property, plant and equipment are stated at cost.
Depreciation is provided using a straight-line method over the
following estimated useful lives:
<TABLE>
<S> <C>
Furniture and fixtures 7 years
Computers, equipment and software 3 years
Vehicles 5 years
</TABLE>
(c) MERCHANT FUNDS
The Company receives cash from processing certain end user
transactions and acts as an agent for merchants pending payment
settlement. These funds are included in the Company's cash
balance with a corresponding liability entitled Merchant funds.
(d) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and to operating loss
and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
6
<PAGE>
AUTHORIZE.NET CORPORATION
Notes to Financial Statements
December 31, 1997 and 1998
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 are unaudited)
(e) STOCK-BASED COMPENSATION
The Company accounts for its stock option plans for employees in
accordance with the provisions of Accounting Principles Board
(APB) Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES,
and related interpretations. As such, compensation expense
related to employee stock options is recorded only if, on the
date of grant, the fair value of the underlying stock exceeded
the exercise price. The Company has also adopted the
disclosure-only requirements of Statement of Financial Accounting
Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which allows entities to continue to apply the
provisions of APB Opinion No. 25 for transactions with employees
and provide pro forma net income (loss) disclosures as if the
fair-value based method of accounting in SFAS No. 123 had been
applied to employee stock option grants.
(f) REVENUE RECOGNITION
The Company recognizes transaction processing revenues, merchant
set-up fees, and technology licensing fees as the related
services are performed assuming collectibility is probable, fees
are fixed and persuasive evidence of an arrangement exist as
provided under AICPA Statement of Position 97-2, Software Revenue
Recognition (as amended by SOP 98-4 and SOP 98-9). Certain
revenues are generated through reseller arrangements. The
reseller arrangements call for revenue sharing, the impact of
which is included within selling, general and administrative.
(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 general
resale have been insignificant. All product development costs
have been expensed as incurred.
(h) CONCENTRATION OF RISK
The Company acts as an intermediary and facilitator for automated
clearing house and credit card transactions. The Company is
exposed to risks associated with returned transactions, merchant
fraud and transmission of erroneous information related to these
transactions. The Company incurred approximately $904,000 in
losses for these risks to date.
7
<PAGE>
AUTHORIZE.NET CORPORATION
Notes to Financial Statements
December 31, 1997 and 1998
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 are unaudited)
The Company performs ongoing credit evaluations of its customers'
financial conditions 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 merchants or through
a reseller network. Two such resellers accounted for more than
10% of revenues. Revenues generated as a result of these
resellers are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------- --------------------------------------
1997 1998 1998 1999
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Reseller A $ 25,000 266,990 137,014 50,448
Reseller B 6,399 266,833 74,982 284,974
</TABLE>
(i) 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 revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(j) UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of the Company's management, the June 30, 1998 and
1999 unaudited interim financial statements include all
adjustments, consisting of normal recurring adjustments,
necessary for fair presentation.
8
<PAGE>
AUTHORIZE.NET CORPORATION
Notes to Financial Statements
December 31, 1997 and 1998
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 are unaudited)
(z) INCOME TAXES
Income tax expense (benefit) was $0 for the years ended December
31, 1997 and 1998. Income tax expense (benefit) for the six months
ended June 30, 1998 and 1999, consists of:
<TABLE>
<CAPTION>
CHANGE IN
VALUATION
CURRENT DEFERRED ALLOWANCE TOTAL
------------- --------------- ---------------------------------
<S> <C> <C> <C> <C>
Six months ended June
30, 1998:
Federal $ 92,160 -- -- 92,160
State and local 10,842 -- -- 10,842
------------- ------------- ------------ -------------
$ 103,002 -- -- 103,002
============= ============= ============ =============
Six months ended June 30, 1999:
Federal $ - (2,017,369) (112,973) (2,130,342)
State and local - (237,358) (13,291) (250,649)
------------- ------------- ------------ -------------
$ - (2,254,727) (126,264) (2,380,991)
============= ============= ============ =============
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities are as follows:
9
<PAGE>
AUTHORIZE.NET CORPORATION
Notes to Financial Statements
December 31, 1997 and 1998
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 are unaudited)
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1997 DECEMBER 31, 1998 1999
------------------ ------------------ ------------------
<S> <C> <C> <C>
Deferred tax assets:
Current:
Stock compensation $ -- -- 2,277,720
Trust reserve -- 9,880 100,320
Accrued bonus and reseller commissions -- 41,459 90,838
Allowance for doubtful accounts -- -- 4,617
Federal net operating loss carryforward 47,373 67,038 --
State net operating loss carryforward 5,573 7,887 --
------------------ ------------------ ------------------
Gross deferred tax assets 52,946 126,264 2,473,495
Less valuation allowance (52,946) (126,264) --
------------------ ------------------ ------------------
Net deferred tax assets $ -- -- 2,473,495
================== ================== ==================
</TABLE>
The provision for income taxes differs from the amount of income tax
determined by applying the applicable 34% U.S. statutory federal income
tax rate to pretax as a result of the following
10
<PAGE>
AUTHORIZE.NET CORPORATION
Notes to Financial Statements
December 31, 1997 and 1998
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 are unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1997 1998 JUNE 30, 1998 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Taxes at the U.S. statutory rate $ (46,642) (8,790,366) 65,067 (6,313,107)
Increases (decreases) in taxes resulting from:
Change in the valuation allowance for
deferred tax assets allocated to income
tax expense 52,023 73,318 30,280 (126,264)
State and local taxes (5,476) (7,718) 7,655 (237,361)
Non-deductible expenses, including
certain stock compensation charges -- 8,724,276 -- 4,294,243
Other 95 490 -- 1,498
-------------- -------------- -------------- --------------
$ -- -- 103,002 (2,380,991)
============== ============== ============== ==============
</TABLE>
There was a $52,023, $73,318, $30,280 and $(126,264) change in the
valuation allowance for the years ended December 31, 1997 and 1998 and
for the six months ended June 30, 1998 and June 30, 1999, respectively.
The change in the valuation allowance for the years ended December 31,
1997 and 1998 and six months ended June 30, 1998 related to creating a
100% valuation allowance for the periods at hand. The change in
valuation allowance for the six months ended June 30, 1999 was due to
expected future profitability.
Management believes that the Company's net deferred tax assets at June
30, 1999 are more likely than not to be realized based on future
profitability expectations. Failure to meet such profitability
expectations could result in increases to the valuation allowance for
deferred tax assets.
(3) COMMON STOCK
During 1998, the Company repurchased 75,000 shares of common stock for
$12,000. Also during 1998, two original founders of the Company
relinquished 184,000 shares of common stock back to the Company for
minimal consideration, and five original founders sold 324,800 shares
of common stock to the current officers of the Company, who were also
among the original founders. The sale of the common stock shares among
shareholders resulted in a benefit to the purchasing shareholders and as
11
<PAGE>
AUTHORIZE.NET CORPORATION
Notes to Financial Statements
December 31, 1997 and 1998
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 are unaudited)
a result, the Company recorded $25,659,635 of stock compensation
expense.
(4) STOCK OPTION PLAN (UNAUDITED)
In 1999, the Company adopted the 1999 Employee Stock Incentive Plan
(the Plan). Under the Company's Plan, the Company may grant options
to its employees for up to 250,000 shares of common stock. The
following summarizes activity under the plan:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-------------------- ----------------------
<S> <C> <C>
Outstanding at December 31, 1998 -- $ --
Granted 202,912 1.36
Exercised (121,912) 1.61
Canceled -- --
-------------------- ----------------------
Outstanding at June 30, 1999 81,000 $ 1.00
==================== ======================
</TABLE>
The stock options granted are immediately vested upon grant and
terminate ten years from grant date. Remaining shares available for
grant under this plan were 47,088 as of June 30, 1999.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans and, accordingly, compensation cost is
recognized only for those options in which the fair value of the
underlying common stock exceeds the exercise price at the date of
grant. For the six months ended June 30, 1999, the Company recognized
stock compensation expense of $15,606,080 related to the grant of
options where the estimated market value of the Company's common stock
at the time of grant exceeded the options' exercise price.
12
<PAGE>
AUTHORIZE.NET CORPORATION
Notes to Financial Statements
December 31, 1997 and 1998
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 are unaudited)
The following table summarizes information about stock options
outstanding and exercisable at June 30, 1999:
<TABLE>
Caption
WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICE NUMBER OF SHARES EXERCISE PRICE CONTRACTUAL LIFE
-------------------------- ------------------ ------------------ --------------------
<S> <C> <C> <C>
$ 1.00 81,000 $ 1.00 9.6 years
</TABLE>
(5) LEASE COMMITMENTS
The Company has two operating leases for office space which expire over
the next three years. Future minimum lease payments under the operating
leases (with initial or remaining lease terms in excess of one year)
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
----------------------------------------------------
<S> <C>
1999 $ 64,221
2000 65,790
2001 22,248
---------------------
Total minimum lease payments $ 152,259
=====================
</TABLE>
Rent expense under noncancelable operating leases amounted to $8,475
and $27,109 for the years ended December 31, 1997 and 1998,
respectively and $8,329 and $32,010 for the six months ended June 30,
1998 and 1999, respectively.
13
<PAGE>
AUTHORIZE.NET CORPORATION
Notes to Financial Statements
December 31, 1997 and 1998
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 are unaudited)
(6) EXTRAORDINARY ITEM (UNAUDITED)
In April 1999, the Company obtained $900,000 through a note facility.
In June 1999, the note, along with additional cash of $500,000, was
exchanged for 49,533 shares of the Company's common stock at $28.31
per share. The fair value of the stock exchanged exceeded the carrying
amount of the note, and as a result of settling the note with common
stock, the Company recorded an extraordinary loss of $3,018,046 net of
tax expense of $0.
(7) SUBSEQUENT EVENTS
On July 1, 1999, Go2Net, Inc. acquired 100% of the outstanding shares
of the Company in exchange for $13,500,000 in cash and common stock of
Go2Net, Inc. valued at $77,000,000. The purchase agreement also
provides for an earn-out provision, of up to $55,000,000 if revenues
and net income meet specified levels.
14
<PAGE>
EXHIBIT 20.2
UNAUDITED CONDENSED FINANCIAL STATEMENTS
AUTHORIZE.NET CORPORATION
<PAGE>
AUTHORIZE.NET
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, 1999 1998
------------- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 1,621,738 $ 155,179
Accounts receivable.................................. 418,770 199,271
Deferred tax assets.................................. 2,473,495 -
Other current assets................................. 11,500 11,994
------------------ ---------------
Total current assets.............................. 4,525,503 366,444
Property and equipment, net............................ 241,513 99,894
Other assets........................................... 5,300 5,300
------------------ ---------------
Total assets........................................... $ 4,772,316 $ 471,638
================== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................ $ 161,335 $ 8,253
Accrued compensation and benefits.................... 217,693 468,621
Merchant funds....................................... 473,260 200,131
Income taxes payable................................. 92,504 -
------------------ ---------------
Total Current Liabilities............................ 944,792 677,005
Shareholders' equity:
Common stock........................................... 46,016,392 25,796,530
Accumulated deficit.................................... (42,188,868) (26,001,897)
------------------ ---------------
Total shareholders' equity........................ 3,827,524 (205,367)
------------------ ---------------
Total liabilities and shareholders' deficit.......
$ 4,772,316 $ 471,638
================== ===============
</TABLE>
See notes to condensed financial statements.
1
<PAGE>
AUTHORIZE.NET
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
------------------- ----------------
<S> <C> <C>
Revenue.................................................... $ 4,251,678 $ 601,599
Cost of revenue............................................ 170,842 24,922
------------------- ----------------
Gross profit............................................... 4,080,836 576,677
Operating expenses:
Sales and marketing...................................... 1,045,989 149,084
Product development...................................... 756,809 159,688
General and administrative............................... 2,895,424 176,620
Stock compensation....................................... 15,606,080 -
------------------- ----------------
Total operating expenses................................... 20,304,302 485,392
Loss from operations....................................... (16,223,466) 91,285
Interest income............................................ 10,656 -
------------------- ----------------
Loss before taxes.......................................... (16,212,810) 91,285
Income taxes (benefit) .................................... (2,447,687) 103,002
------------------- ----------------
Income (loss) before extraordinary items................... (13,765,123) (11,717)
Loss on extinguishment of debt, net of tax................. 3,018,046 -
------------------- ----------------
Net loss.................................................... $ (16,783,169) $ (11,717)
=================== ================
</TABLE>
See notes to condensed financial statements.
2
<PAGE>
AUTHORIZE.NET
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
--------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (16,783,169) $ 47,766
Adjustments to reconcile net loss to net cash
provided by operating activities:
Loss on extinguishment of debt 3,018,046 -
Stock Compensation 15,606,080 -
Depreciation 66,355 8,982
Changes in operating assets and liabilities:
Accounts receivable (164,332) (295,676)
Deferred tax asset (2,473,495) -
-
Other assets (14,476) (2,324)
Accounts payable and accrued expenses 42,523 62,324
Accrued compensation and benefits 189,788 76,273
Other current liabilities - 103,002
Merchant funds 476,447 123,918
--------------- -----------
Net cash used in operating activities (36,233) 124,265
INVESTING ACTIVITIES - purchases of equipment (254,043) (42,939)
--------------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 900,000 -
Sale of common stock 512,000 -
Cash received for options 195,736 -
--------------- -----------
Net cash provided by financing activities 1,607,736 -
--------------- -----------
Net increase (decrease) in cash 1,317,460 81,326
Cash at beginning of period 304,278 25,496
--------------- -----------
Cash at end of period $ 1,621,738 $ 106,822
=============== ===========
</TABLE>
See notes to condensed financial statements.
3
<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 August 31,
1999 with respect to the balance sheets of Authorize.Net Corporation as of
December 31, 1997 and 1998 and the related statements of operations,
shareholders' equity (deficit) and cash flows for each of the years in the
two-year period ended December 31, 1998, included herein.
Seattle, Washington KPMG LLP
September 10, 1999
1
