<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): MAY 28, 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>
The undersigned registrant hereby amends the following items,
financial statements, exhibits or other portions of its Current Report on
Form 8-K dated May 28, 1999, related to the Registrant's completion of the
acquisition of IQC Corporation ("IQC") by means of a merger (the "Merger") of
VA Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
the Registrant with and into IQC, 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 IQC
(b) UNAUDITED PRO FORMA FINANCIAL INFORMATION
Pro Forma Condensed Combined Financial Information (Unaudited)
The following unaudited Pro Forma Condensed Combined Financial
Statements give effect to previously reported acquisitions, which include
Haggle Online and USAOnline, Inc. and the business combination between Go2Net,
Inc. ("Go2Net" or the "Company") and IQC Corporation ("IQC"). The Go2Net pro
forma column represents the combined balances and results of operations for
Go2Net, Inc., Haggle Online and USAOnline, Inc. to reflect the impact of
previously reported acquisitions. 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 IQC have been
combined with the recorded values of the assets and liabilities of Go2Net in
the unaudited pro forma combined condensed consolidated 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,
Current Report on Form 8-K/A filed on July 2, 1999 and the historical
financial statements and the notes thereto of IQC included herein.
The unaudited pro forma condensed combined balance sheets have been
prepared to reflect the previously reported acquisitions and the IQC Merger as
if they occurred on 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, the previously reported acquisitions
and IQC for the year ended December 31, 1998 and the six months ended March
31, 1999 as if the previously reported acquisitions and the IQC Merger
occurred on October 1, 1997.
The proforma combined balance sheets and statements of operations are
provided for illustrative purposes only and should be read in conjunction with
the accompanying notes thereto, the audited financial statements and notes
thereto of Go2Net for the year ended September 30, 1998, the unaudited
financial statements and notes thereto for the six months ended March 31,
1999, Current Report on Form 8-K/A filed on July 2, 1999, and the audited
financial statements and notes thereto of IQC for the year ended December 31,
1998. The proforma data is not necessarily indicative of the operating results
or financial position that would have been achieved had the previously
reported acquisitions and 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 SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------------
GO2NET PRO FORMA PRO FORMA
PRO FORMA IQC ADJUSTMENTS COMBINED
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 129,899,794 $ - $ - $ 129,899,794
Short-term investments ......................... 44,294,249 - - 44,294,249
Trade account receivables, net ................. 2,061,140 - - 2,061,140
Other accounts receivable ...................... 1,046,105 - - 1,046,105
Loan receivable from shareholder ............... - 150,000 - 150,000
Prepaid expenses ............................... 498,308 2,600 - 500,908
------------- ------------- ------------- --------------
Total current assets ........................ 177,799,596 152,600 - 177,952,196
Property and equipment, net ...................... 1,292,136 59,636 - 1,351,772
Other assets, net ................................ 150,465 - - 150,465
Intangible assets, net ........................... 29,093,943 - 19,999,582 (c) 49,093,525
Long term investments ............................ 5,055,656 - - 5,055,656
Deposits ......................................... 250,000 - - 250,000
------------- ------------- ------------- --------------
Total assets ..................................... $ 213,641,796 $ 212,236 $ 19,999,582 $ 233,853,614
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses .......... $ 1,724,524 $ 2,718 $ - $ 1,727,242
Accrued compensation and benefits .............. 395,782 - - 395,782
Short term debt ................................ 13,229 - - 13,229
Deferred revenue ............................... 1,429,914 - - 1,429,914
------------- ------------- ------------- --------------
Total current liabilities ................... 3,563,449 2,718 - 3,566,167
Shareholders' equity:
Preferred stock .................................. 219,712,624 - - 219,712,624
Common stock ..................................... 47,343,435 880,000 (880,000) (a) 67,552,535
20,209,100 (c)
Accumulated deficit .............................. (56,977,712) (670,482) 670,482 (b) (56,977,712)
------------- ------------- ------------- --------------
Total shareholders' equity .................. 210,078,347 209,518 19,999,582 230,287,447
------------- ------------- ------------- --------------
Total liabilities and shareholders' equity .. $ 213,641,796 $ 212,236 $ 19,999,582 $ 233,853,614
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
</TABLE>
See accompanying notes.
-3-
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, YEAR ENDED
1998 DECEMBER 31, 1998
GO2NET PRO FORMA PRO FORMA
PRO FORMA IQC ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue ................................... $ 4,856,478 $ 251,215 $ - $ 5,107,693
Cost of revenue ........................... 1,810,597 111,207 - 1,921,804
------------ ------------ ------------ ------------
Gross profit .................... 3,045,881 140,008 - 3,185,889
Operating expenses:
Sales and marketing ..................... 1,299,150 71,070 - 1,370,220
Product development ..................... 1,124,623 79,008 - 1,203,631
General and administrative .............. 2,088,612 149,816 - 2,238,428
Amortization of intangible assets ....... 9,697,981 - 6,666,526(c) 16,364,507
Merger and acquisition costs ............ 1,035,494 - - 1,035,494
Impairment loss ......................... 398,126 - - 398,126
Stock compensation ...................... 16,443 - - 16,443
------------ ------------ ------------ ------------
Total operating expenses ........ 15,660,429 299,894 6,666,526 22,626,849
------------ ------------ ------------ ------------
Loss from operations ...................... (12,614,548) (159,886) (6,666,526) (19,440,960)
Interest income, net ...................... 508,405 - - 508,405
------------ ------------ ------------ ------------
Loss before taxes ........................ (12,106,143) (159,886) (6,666,526) (18,932,555)
Income taxes .............................. 1,327 - - 1,327
------------ ------------ ------------ ------------
Net loss .................................. $(12,107,470) $ (159,886) $ (6,666,526) $(18,933,882)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic and diluted net loss per share ...... $ (1.03) $ (1.60)
Number of shares used in computing
basic and diluted net
loss per share ............................ 11,754,874 113,313 11,868,187
</TABLE>
See accompanying notes.
-4-
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31, 1999
-------------------------------
GO2NET PRO FORMA PRO FORMA
PRO FORMA IQC ADJUSTMENTS COMBINED
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenue................................. $ 7,025,425 $ 281,195 $ - $ 7,306,620
Cost of revenue......................... 1,638,607 102,205 - 1,740,812
------------ ------------ ------------ -------------
Gross profit.................. 5,386,818 178,990 - 5,565,808
Operating expenses:
Sales and marketing................... 2,143,217 100,299 - 2,243,516
Product development................... 817,693 63,185 - 880,878
General and administrative 2,013,593 149,628 - 2,163,221
Amortization of intangible assets 4,848,991 - 3,333,263 (c) 8,182,254
Merger and acquisition costs 650,257 - - 650,257
Stock compensation.................... 77,267 - - 77,267
------------ ------------ ------------ -------------
Total operating expenses...... 10,551,018 313,112 3,333,263 14,197,393
------------ ------------ ------------ -------------
Loss from operations.................... (5,164,200) (134,122) (3,333,263) (8,631,585)
Interest income, net.................... 729,324 - - 729,324
------------ ------------ ------------ -------------
Loss before taxes ...................... (4,434,876) (134,122) (3,333,263) (7,902,261)
Income taxes ........................... 250 - - 250
------------ ------------ ------------ -------------
Loss before preferred stock dividend.... (4,435,126) (134,122) (3,333,263) (7,902,511)
Preferred stock dividend 52,930,286 - - 52,930,286
------------ ------------ ------------ -------------
Loss applicable to common
shareholders............................ $(57,365,412) $ (134,122) $ (3,333,263) $ (60,832,797)
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Basic and diluted net loss per share.... $ (4.47) $ (4.69)
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Number of shares used in computing
basic and diluted net loss per share ... 12,844,634 113,313 12,957,947
</TABLE>
See accompanying notes.
-5-
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. PERIODS COMBINED
The unaudited pro forma condensed combined balance sheets have been prepared
to reflect the previously reported acquisitions and the IQC Merger as if they
occurred on 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, the previously reported acquisitions
and IQC for the year ended December 31, 1998 and the six months ended March
31, 1999 as if the previously reported acquisitions and the IQC Merger
occurred on October 1, 1997.
2. BASIS OF PRESENTATION
The combined balances and results of operations as of and for the six month
period ended March 31, 1999, and for the period ended September 30, 1998, for
Go2Net, Inc. and previously reported acquisitions, which include Haggle
Online and USAOnline, Inc., are combined in the Go2Net pro forma column to
reflect the impact of the previously reported acquisitions, as reported on
the Current Report on Form 8-K/A filed on July 2, 1999.
The unaudited pro forma condensed combined financial statements reflect the
issuance of approximately 113,313 shares of Go2Net Common Stock for all of
the outstanding shares of IQC Common Stock in connection with the Merger at
an exchange ratio of 0.0161875 shares of Go2Net Common Stock for each share
of IQC 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 IQC 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 IQC incurred direct transaction costs of approximately $142,000
associated with the Merger, primarily for legal and accounting fees. These
costs are a component of the purchase price. There can be no assurance that
Go2Net will not incur additional charges in subsequent quarters to reflect
costs associated with the Merger or that management will be successful in
their efforts to integrate the operations of the two companies.
4. PRO FORMA LOSS PER SHARE
The pro forma combined basic and diluted net loss per share is based on the
combined weighted average number of common shares of Go2Net Common Stock and
IQC Common Stock outstanding during the periods using the exchange ratio. All
stock options and shares subject to repurchase rights have been excluded from
the computation of pro forma combined basic and diluted net loss per share
because all such securities are anti-dilutive for the periods presented.
-6-
<PAGE>
5. CONFORMING AND RECLASSIFICATION ADJUSTMENTS
There were no adjustments required to conform the accounting policies of
Go2Net and IQC. Certain amounts for IQC 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 113,313 shares of
Go2Net Common Stock and the assumption of all outstanding
options in connection with the IQC Merger, for an aggregate
purchase price of approximately $20 million, including
approximately $142,000 of transaction costs.
(b) To eliminate the historical accumulated deficit of IQC.
(c) To record the excess of the purchase price over the fair value
of assets and liabilities acquired in connection with the
Merger. 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:
<TABLE>
<S> <C>
20.1 IQC Corporation audited financial statements for the years
ended December 31, 1998 and 1997.
20.2 Unaudited condensed financial statements of IQC
20.3 Consent of Ernst & Young LLP, Independent Auditors
</TABLE>
-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: July 27, 1999 By: /s/ Russell C. Horowitz
Russell C. Horowitz
Chief Executive Officer,
Chief Administrative Officer and
Chief Financial Officer
-9-
<PAGE>
Report of Independent Auditors
To the Directors and Stockholders
IQC Corporation
We have audited the accompanying balance sheets of IQC Corporation as of
December 31, 1998 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for each of the two years in the period
ended December 31, 1998 and the period from June 11, 1996 (inception) through
December 31, 1996. 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 IQC Corporation at December
31, 1998 and 1997, and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1998 and the period
from June 11, 1996 (inception) through December 31, 1996, in conformity with
generally accepted accounting principles.
Los Angeles, California
June 25, 1999
<PAGE>
IQC Corporation
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,577 $ -
Prepaid expenses 2,600 -
-----------------------------
Total current assets 6,177 -
Equipment, net 39,808 29,933
-----------------------------
Total assets $ 45,985 $ 29,933
-----------------------------
-----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 34,048 $ 10,810
Loan payable - 10,300
-----------------------------
Total liabilities 34,048 21,110
Stockholders' equity:
Common stock, no par value:
Authorized shares - 100,000,000
Issued and outstanding shares - 6,400,000
in 1998 and 6,000,000 in 1997 640,000 600,000
Subscription receivable - (123,000)
Accumulated deficit (628,063) (468,177)
-----------------------------
Total stockholders' equity 11,937 8,823
-----------------------------
Total liabilities and stockholders' equity $ 45,985 $ 29,933
-----------------------------
-----------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
IQC Corporation
Statements of Operations
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 11, 1996
(INCEPTION)
YEARS ENDED THROUGH
DECEMBER 31 DECEMBER 31,
1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C>
Revenues $ 251,215 $ 19,416 $ -
Cost of revenues 111,207 59,299 4,440
-------------------------------------------------
Gross profit (loss) 140,008 (39,883) (4,440)
Operating expenses:
Selling and marketing 71,070 5,299 269
Research and development 79,008 49,666 21,917
Stock compensation - - 200,000
General and administrative 149,816 101,630 45,073
-------------------------------------------------
299,894 156,595 267,259
-------------------------------------------------
Net loss $(159,886) $(196,478) $(271,699)
-------------------------------------------------
-------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
IQC Corporation
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------------- SUBSCRIPTION ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT RECEIVABLE DEFICIT EQUITY
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at June 11, 1996 - $ - $ - $ - $ -
Sale of stock 4,000,000 400,000 (305,000) - 95,000
Issuance of stock for services rendered 2,000,000 200,000 - - 200,000
Net loss - - - (271,699) (271,699)
------------------------------------------------------------------
Balance at December 31, 1996 6,000,000 600,000 (305,000) (271,699) 23,301
Payments on subscription receivable - - 182,000 - 182,000
Net loss - - - (196,478) (196,478)
------------------------------------------------------------------
Balance at December 31, 1997 6,000,000 600,000 (123,000) (468,177) 8,823
Payments on subscription receivable - - 123,000 - 123,000
Exercise of stock options 400,000 40,000 - - 40,000
Net loss - - - (159,886) (159,886)
------------------------------------------------------------------
Balance at December 31, 1998 6,400,000 $ 640,000 $ - $(628,063) $ 11,937
------------------------------------------------------------------
------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
IQC Corporation
Statements of Cash Flows
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 11, 1996
(INCEPTION)
YEARS ENDED THROUGH
DECEMBER 31 DECEMBER 31,
1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(159,886) $(196,478) $(271,699)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 19,521 14,791 5,568
Stock compensation - - 200,000
Changes in operating assets and liabilities:
Prepaids (2,600) 859 (859)
Accounts payable 23,238 4,365 6,445
-------------------------------------------------
Net cash used in operating activities (119,727) (176,463) (60,545)
INVESTING ACTIVITIES
Purchases of equipment (29,396) (13,665) (36,627)
-------------------------------------------------
Net cash used in investing activities (29,396) (13,665) (36,627)
FINANCING ACTIVITIES
Sale of common stock - - 95,000
Exercise of stock options 40,000 - -
Proceeds from subscription receivable 123,000 182,000 -
Proceeds from loan payable - - 10,300
Payments on loan payable (10,300) - -
-------------------------------------------------
Net cash provided by financing activities 152,700 182,000 105,300
-------------------------------------------------
Net increase (decrease) in cash 3,577 (8,128) 8,128
Cash at beginning of period - 8,128 -
-------------------------------------------------
Cash at end of period $ 3,577 $ - $ 8,128
-------------------------------------------------
-------------------------------------------------
Supplemental cash flow information:
Cash paid for taxes $ 800 $ 1,664 $ -
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
IQC Corporation (the Company) was incorporated in the state of California on
June 11, 1996. The Company began operations under the name I.Q. Net, Inc. and
amended the articles of incorporation on August 11, 1998 to change the name of
the company to IQC Corporation. The Company provides web-based technical
analysis stock graphing software to individual investors. The Company earns
revenue from software license fees and from providing real time stock quotes.
The Company's customer base is located principally in United States.
EQUIPMENT
Equipment is stated at cost. Depreciation is computed using the straight-line
method over the estimated useful lives of three years.
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 licenses its software to customers on a month to month basis and
recognizes the revenue ratably over each month. The Company provides real
time stock quotes to its customers on a month to month basis and recognizes
the revenue ratably over each month. All software license and real time quote
fees are billed and collected in the month the service is provided.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense was
approximately $34,000, $4,000 and $0 for the years ended December 31, 1998
and 1997 and the period from June 11, 1996 through December 31, 1996,
respectively.
STOCK BASED COMPENSATION
The Company is subject to Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123). As allowed by SFAS
123, the Company accounts for stock based compensation to employees in
accordance with APB 25, "Accounting for Stock Issued to Employees." In cases
where exercise prices are less than the fair value as of the grant date,
compensation expense is recognized over the vesting period.
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 (SFAS 133), which the Company will be required to
adopt for the year ending December 31, 2000. Because the Company currently
holds no derivative financial instruments and does not currently engage in
hedging activities, adoption of SFAS 133 is expected to have no material
impact on the Company's financial statements.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE (SOP 98-1), which the Company will be
required to adopt for the year ending December 31, 1999. SOP 98-1 requires
that entities capitalize certain costs related to internal use software once
certain criteria have been met. Adoption of SOP 98-1 is not expected to have
a material impact on the Company's financial statements.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, REPORTING ON THE COSTS OF START-UP ACTIVITIES
(SOP 98-5), which the Company will be required to adopt in 1999. SOP 98-5
requires that the cost of start-up activities be expensed as incurred.
Adoption of SOP 98-5 is not expected to have a material impact on the
Company's financial statements.
2. EQUIPMENT
Equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
---------------------------
<S> <C> <C>
Computer hardware $ 79,688 $ 50,291
Accumulated depreciation (39,880) (20,358)
---------------------------
$ 39,808 $ 29,933
---------------------------
---------------------------
</TABLE>
3. STOCKHOLDERS' EQUITY
The Company issued 6,000,000 shares of common stock at inception of which,
4,000,000 shares were issued in exchange for $95,000 in cash and a
subscription receivable in the amount of $305,000. The remaining 2,000,000
shares were issued to employees for services rendered and compensation
expense of $200,000 associated with these grants was recorded during the
period ended December 31, 1996.
<PAGE>
4. INCOME TAXES
The Company did not provide an income tax benefit for any of the periods
presented because it has experienced operating losses since inception. As a
result of the net operating losses, the provision for income taxes consists
solely of minimum state taxes which has been recognized in general and
administrative expense.
The following is a reconciliation of the statutory federal income tax rate to
the Company's effective income tax rate.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
Statutory federal income tax benefit (34)%
State income tax benefit (6)
Valuation allowance 40
------------
-%
------------
------------
</TABLE>
The components of deferred tax assets and related valuation allowance are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 243,000
Other 9,000
------------
252,000
Less valuation allowance (252,000)
------------
Net deferred tax assets $ -
------------
------------
</TABLE>
Due to the uncertainty surrounding the timing of realizing the net deferred
tax assets in future tax returns, the Company has placed a valuation
allowance equal to its net deferred tax assets.
At December 31, 1998, the Company has net operating losses for both federal
and state income tax purposes of approximately $606,000, which are available
to offset future taxable income, if any, through 2019 and 2005, respectively.
Due to the change in ownership (see Note 7) the net operating losses are
likely to be subject to limitaions.
<PAGE>
5. STOCK BASED COMPENSATION
On June 11, 1996, the stockholders of the Company adopted the Stock Option
Plan (the Plan). Each grant of options under the Plan vest on a case-by-case
basis as approved by the administrator, generally over a range of immediately
vested to vesting over five years. Under the Plan, the Company has granted
options to employees and non-employees to purchase shares of the Company's
stock at a price equal to the fair market value of the common stock on the
date of grant.
Information with respect to the Plan during 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
EMPLOYEES NON-EMPLOYEES TOTAL
----------------------- --------------------- -----------------------
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- ------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
June 11, 1996 - $ - - $ - - $ -
Granted 2,020,000 0.10 - - 2,020,000 0.10
Exercised - - - - - -
Cancelled - - - - - -
--------- -------- ------- ------ --------- --------
Outstanding at
December 31, 1996 2,020,000 0.10 - - 2,020,000 0.10
Granted - - - - - -
Exercised - - - - - -
Cancelled - - - - - -
--------- -------- ------- ------ --------- --------
Outstanding at
December 31, 1997 2,020,000 0.10 - - 2,020,000 0.10
Granted 350,000 0.10 200,000 0.10 550,000 0.10
Exercised (400,000) 0.10 - - (400,000) 0.10
Cancelled - - - - - -
--------- -------- ------- ------ --------- --------
Outstanding at
December 31, 1998 1,970,000 $ 0.10 200,000 $ 0.10 2,170,000 $ 0.10
Options exercisable 1,010,000 200,000 1,210,000
--------- ------- ---------
--------- ------- ---------
</TABLE>
The weighted average fair value of options granted during 1998 was $0.10.
<PAGE>
5. STOCK BASED COMPENSATION (CONTINUED)
The weighted average exercise prices for options granted and exercisable at
December 31, 1998 and the weighted average remaining contractual life for
options outstanding at December 31, 1998, are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- -----------------------------
WEIGHTED AVERAGE WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE OF CONTRACTUAL EXERCISE OF EXERCISE
PRICE SHARES LIFE (YEARS) PRICE SHARES PRICE
------------- --------- ------------ ----- --------- ----------------
<S> <C> <C> <C> <C> <C>
Employees
$0.10 1,970,000 2.8 $0.10 1,010,000 $0.10
Non-employees
$0.10 200,000 4.4 $0.10 200,000 $0.10
</TABLE>
SFAS 123 requires disclosure of pro forma net loss based upon the fair value
of the options issued. The Company calculated the fair value of each options
granted on the date of the grant using the Black-Scholes options pricing
model as prescribed by SFAS 123 using the following assumptions.
<TABLE>
<S> <C>
Risk-free interest rate 5.59 %
Volatility 65.72%
Expected life (in years) 5
Dividend yield 0%
</TABLE>
The option pricing model requires the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's employee
stock options have characteristics significantly different from those of
traded options and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing model does not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma net loss for the years ended December 31, 1998, 1997 and
the period from June 11, 1996 through December 31, 1996 is $206,000,
$237,000 and $272,000, respectively.
6. RELATED PARTY TRANSACTIONS
The Company shares and leases office space from a related party under a month
to month operating lease. Rent expense was approximately $16,000, $12,000 and
$900 for the years ended December 31, 1998 and 1997 and the period from June
11, 1996 through December 31, 1996, respectively. The Company also reimburses
the related party for office supplies, telecommunication fees and certain
employee benefits. The total amount of these other related party transactions
approximated $6,000, $4,000 and $300 for the years ended December 31, 1998
and 1997 and the period from June 11, 1996 through December 31, 1996,
respectively.
<PAGE>
7. SUBSEQUENT EVENT (UNAUDITED)
In February 1, 1999, the Company issued 600,000 shares of common stock
raising proceeds of $240,000.
In April 1999, the Company issued 1,600,000 shares of common stock as a
result of the exercise of stock options.
In May 1999, the stockholders of the Company signed an agreement to exchange
all of the common stock of the Company for 113,313 shares of Go2Net, Inc., an
unrelated publicly traded entity. All outstanding options of the Company will
be assumed by Go2Net in conjunction with the transaction. Included in the
agreement is a provision for the Company to extend the office space lease and
the arrangement for office supplies, telecommunication fees and certain
employee benefits for twelve months.
8. 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.
<PAGE>
IQC
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31,
(UNAUDITED) 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $ 3,577
Loan receivable from shareholder 150,000 -
Prepaid expenses 2,600 2,600
--------- ---------
Total current assets 152,600 6,177
Property and equipment, net 59,636 39,808
--------- ---------
Total assets $ 212,236 $ 45,985
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,718 $ 34,048
Shareholders' equity:
Common stock 880,000 640,000
Accumulated deficit (670,482) (628,063)
--------- ---------
Total shareholders' equity 209,518 11,937
--------- ---------
Total liabilities and shareholders' equity $ 212,236 $ 45,985
--------- ---------
--------- ---------
</TABLE>
See notes to condensed financial statements.
<PAGE>
IQC
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1999 MARCH 31, 1998
<S> <C> <C>
Revenue $ 185,958 $ 40,039
Cost of revenue 45,093 15,953
--------- ---------
Gross profit 140,865 24,086
Operating expenses:
Sales and marketing 66,527 -
Product development 37,798 14,654
General and administrative 78,959 25,610
--------- ---------
Total operating expenses 183,284 40,264
--------- ---------
Net loss $ (42,419) $ (16,178)
--------- ---------
--------- ---------
</TABLE>
See notes to condensed financial statements.
<PAGE>
IQC
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 loss $ (42,419) $ (16,178)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 8,196 4,879
Changes in operating assets and liabilities:
Loan receivable from shareholder (150,000) -
Accounts payable (31,330) (3,701)
--------- ---------
Net cash used in operating activities (215,553) (15,000)
INVESTING ACTIVITIES - purchases of equipment (28,024) -
FINANCING ACTIVITIES:
Sale of common stock 240,000 -
Payments on subscription receivable - 15,000
--------- ---------
Net cash provided by financing activities 240,000 15,000
--------- ---------
Net increase (decrease) in cash (3,577) -
Cash at beginning of period 3,577 -
--------- ---------
Cash at end of period $ - $ -
--------- ---------
--------- ---------
</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 and 1997 and notes thereto included herein.
SUBSEQUENT EVENTS
In February 1999, the Company issued 600,000 shares of common stock for
$240,000.
In April 1999, the Company issued 1,600,000 shares of common stock as a
result of the exercise of stock options.
In May 1999, the stockholders of the Company signed an agreement to exchange
all of the common stock of the Company for 113,313 shares of Go2Net, Inc., an
unrelated publicly traded corporation. All outstanding options of the Company
will be assumed by Go2Net in conjunction with the transaction.
RECLASSIFICATION ADJUSTMENTS
Certain amounts for IQC have been reclassified to conform to Go2Net's
financial statement presentation.
<PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in (i) the Registration
Statement (Form S-8 No. 333-82765) pertaining to the Authorize.Net
Corporation Stock Incentive Plan, the Haggle Online, Inc. Stock Option
Agreement and the IQC Corporation Stock Option Agreement; (ii) 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; (iii)
the Registration Statement (Form S-3 No. 333-63725) pertaining to the
registration of 1,295,536 shares of Common Stock of Go2Net, Inc.; (iv) the
Registration Statement (Form S-3 No. 333-76069) pertaining to the
registration of 717,390 shares of Common Stock of Go2Net, Inc.; and (v) 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 report dated
June 25, 1999 with respect to the financial statements of IQC Corporation
included in this Current Report (Form 8-K/A) of Go2Net, Inc. filed July 27,
1999.
ERNST & YOUNG LLP
Los Angeles, California
July 23, 1999
