________________________________________________________________________________
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 7, 2000
The Knot, Inc.
(Exact Name of Registrant as Specified in Charter)
Delaware __________ 33-895178
(State or Other Jurisdiction (IRS Employer
of Incorporation) (Commission File Number) Identification No.)
462 Broadway, 6th Floor, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 219-8555
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
Item 7. Financial Statements and Exhibits
As reported in the Current Report on Form 8-K of The Knot, Inc. (the
"Company") filed with the Securities and Exchange Commission dated April 7,
2000, on March 29, 2000, the Company, through its Knot Acquisition Corporation
subsidiary, merged with and into Weddingpages, Inc. ("Weddingpages") pursuant to
an Agreement and Plan of Merger entered into on such date by and among, the
Company, Knot Acquisition Corporation, and Weddingpages. The Company is amending
such Current Report to include the financial statements required under Item 7(a)
of Form 8-K and the related pro forma financial information required under Item
7(b) of Form 8-K.
(a) Financial Statements of Business Acquired.
The following financial information is included in Annex A hereto: Balance
sheets of Weddingpages as of December 31, 1999 and June 30, 1999 and the related
statements of income, stockholders' equity and cash flows for the six months
ended December 31, 1999 and the year ended June 30, 1999.
(b) Pro forma financial information.
The following pro forma data is included in Annex B hereto: Pro forma
condensed consolidated balance sheet (unaudited) as of December 31, 1999, pro
forma consolidated statement of operations (unaudited) for the year ended
December 31, 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
The Knot, Inc.
Date: May 12, 2000
By: /S/ Richard Szefc
-----------------------------
Richard Szefc
Chief Financial Officer and Treasurer
<PAGE>
ANNEX A
Independent Auditors' Report
----------------------------
The Stockholders and Board of Directors
Weddingpages, Inc.:
We have audited the accompanying balance sheet of Weddingpages, Inc. and
subsidiary (formerly Wedding Information Network, Inc.) as of December 31, 1999
and June 30, 1999, and the related statements of income, stockholders' equity
and cash flows for the six months ended December 31, 1999 and the year ended
June 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Weddingpages, Inc. and
subsidiary at December 31, 1999 and June 30, 1999, and the results of their
operations and their cash flows for the six months ended December 31, 1999 and
the year ended June 30, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
March 3, 2000
<PAGE>
Weddingpages, Inc.
Balance Sheets
December 31, 1999
and June 30, 1999
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
Assets --------------------- -----------------------
------
<S> <C> <C>
Current Assets:
Cash $ 6,143 $ 3,546
Short Term Investments 117,559 115,715
Accounts Receivable
Current (net of allowance for doubtful
accounts of $553,500
for December 31, 1999 and $338,000 for
June 30, 1999) 4,784,008 4,052,469
Deferred 1,938,025 1,815,944
--------------------- -----------------------
Total Accounts Receivable 6,722,033 5,868,413
--------------------- -----------------------
Inventory 175,650 91,777
Deferred Market Costs 1,710,866 1,267,570
Deferred Income Taxes 209,771 -
Other current assets 197,711 207,349
--------------------- -----------------------
Total Current Assets 9,139,733 7,554,370
Property and equipment, at cost:
Furniture and Fixtures 94,483 93,064
Machinery and Equipment 892,001 860,858
--------------------- -----------------------
986,484 953,922
Less accumulated depreciation and
amortization 514,400 494,264
--------------------- -----------------------
Net property and equipment 472,084 459,658
Intangible Assets, net 959,057 394,657
Total assets $ 10,570,874 $ 8,408,685
===================== =======================
<PAGE>
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
Note Payable $ 1,624,811 $ 1,125,000
Current portion of long-term obligations 117,627 94,883
Accounts Payable 1,399,588 1,093,478
Accrued liabilities:
Payroll and related expenses 122,243 93,461
Distribution costs 32,402 46,806
Income taxes payable 75,366 -
-------------------- --------------------
Total accrued liabilities 230,011 140,267
-------------------- --------------------
Deferred market revenue 2,816,517 2,365,367
-------------------- --------------------
Total Current Liabilities 6,188,554 4,818,995
-------------------- --------------------
Long term obligations, excluding current portion 435,022 141,314
Deferred income taxes 181,771 -
Stockholders Equity:
Common stock, $0.01 par value. 20,000,000
shares authorized; 4,102,347 and 4,077,347
shares issued and outstanding 41,023 40,773
Class A Common Stock, $0.01 par value.
1,000,000 shares authorized;
397,653 shares issued and outstanding 3,977 3,977
Additional Paid in Capital 3,660,889 3,649,389
Retained earnings (deficit) 191,077 (114,324)
-------------------- --------------------
3,896,966 3,579,815
Treasury stock 435,425 shares at cost (131,439) (131,439)
Total stockholders equity 3,765,527 3,448,376
Total stockholders' equity $ 10,570,874 $ 8,408,685
==================== ====================
See Accompanying Notes
</TABLE>
<PAGE>
Weddingpages, Inc.
Statements of Income
For Six Months Ended December 31, 1999
and Year Ended June 30, 1999
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
-------------------- -------------------
<S> <C> <C>
Revenue $ 5,534,924 $ 10,328,319
Costs and expenses:
Selling, marketing and production 4,374,967 8,417,995
General and administrative 739,843 1,386,538
-------------------- -------------------
Total costs and expenses 5,114,810 9,804,533
-------------------- -------------------
Operating income 420,114 523,786
-------------------- -------------------
Other income (deduction):
Interest income 1,845 5,439
Interest expense (67,558) (78,378)
-------------------- -------------------
(65,713) (72,939)
-------------------- -------------------
Income before income taxes 354,401 450,847
Income tax expense (49,000) -
-------------------- -------------------
Net income $ 305,401 $ 450,847
==================== ===================
Income per common and Class A common shares:
Basic $ 0.08 $ 0.11
Diluted $ 0.06 $ 0.10
==================== ===================
Weighted average common shares outstanding:
Basic 4,047,184 4,039,575
Diluted 4,787,186 4,311,293
==================== ===================
See Accompanying Notes
</TABLE>
<PAGE>
Weddingpages, Inc.
Statement of Stockholders' Equity
For Six Months Ended December 31, 1999
and Year Ended June 30, 1999
<TABLE>
<CAPTION>
Class A Additional Retained Total
Common Stock Common Stock Paid In Earnings Treasury Stock Stockholders'
------------ ------------
Shares Amount Shares Par value Capital (deficit) Shares Amount Equity
_______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998 4,077,347 $40,773 397,653 $3,977 $3,649,389 ($565,171) 435,425 ($131,439) $2,997,529
Net Income - - - - - 450,847 - - 450,847
--------- ------- ------- ------- ---------- --------- ------- --------- ----------
Balance at June 30, 1999 4,077,347 40,773 397,653 3,977 3,649,389 (114,324) 435,425 (131,439) 3,448,376
Common stock issued 25,000 250 - - 11,500 - - - 11,750
Net income - - - - - 305,401 - - 305,401
_______________________________________________________________________________________________
Balance at March 31, 2000 4,102,347 $41,023 397,653 $3,977 3,660,889 $ 191,077 435,425 $(131,439) 3,765,527
================================================================================================
See Accompanying Notes
</TABLE>
<PAGE>
Weddingpages, Inc.
Statements of Cash Flow
For Six Months Ended December 31, 1999
and Year Ended June 30, 1999
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
___________________________________________
<S> <C> <C>
Cash flows from operating activities:
Net income $ 305,401 $ 450,847
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 83,524 196,358
Deferred income taxes (28,000) -
Changes in operating assets and liabilities:
Accounts receivable (853,620) (1,531,237)
Inventories (83,873) 31,694
Deferred market costs (443,296) (343,218)
Other current assets 9,638 57,647
Accounts payable 306,110 (34,932)
Accrued liabilities 89,744 14,095
Deferred market revenue 451,150 846,576
___________________________________________
Net cash used by operating activities (163,222) (312,170)
_________________ __________________
Cash flows from investing activities:
Increase in short-term investments (1,844) (5,440)
Additions to property and equipment (74,950) (123,820)
Proceeds from sale of equipment - 11,581
Increase in intangible assets (222,000) (157,302)
_________________ __________________
Net cash used in investing activities (298,794) (274,981)
_________________ __________________
Cash flows from financing activities:
Proceeds from note payable to bank 499,811 545,000
Repayment of long-term obligations (46,948) (87,926)
Proceeds from issuance of common stock 11,750 -
_________________ __________________
Net cash provided by financing activities 464,613 457,074
_________________ __________________
Net increase (decrease) in cash 2,597 (130,077)
Cash at beginning of period 3,546 133,623
_________________ __________________
Cash at end of period $ 6,143 $ 3,546
================= ==================
See Accompanying Notes
</TABLE>
<PAGE>
Weddingpages, Inc.
Notes to Financial Statements
For Six Months Ended December 31, 1999
And Year Ended June 30, 1999
(1). Nature of Business
------------------
Weddingpages, Inc. (the "Company") is engaged in providing local
businesses, serving the market, with several means of direct marketing
to newly-engaged couples, such as the bridal " Weddingpages" book and
lists of prospective brides. The Company operates exclusive geographic
territories throughout the United States by itself or through
franchisees.
(2). Summary of Significant Accounting Policies
------------------------------------------
(a) Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its subsidiary. All significant intercompany accounts
and transaction have been eliminated in consolidation.
(b) Revenue and Costs
-----------------
Service fee revenue and royalty fees from producing the
"Weddingpages" book for franchisees is recognized upon the book's
publication at which time all material services relating thereto
have been substantially performed. Company-owned market revenue
billed and related costs which are incurred prior to publication
are deferred until publication. Costs associated with assembly and
distribution of the book incurred subsequent to publication are
accrued as distribution costs when revenue is recorded.
Selling, marketing and production costs directly related to
franchise markets and Company-owned markets are charged to those
categories. Indirect costs are allocated based on the number of
books published in each category.
(c) Deferred Accounts Receivable
----------------------------
Deferred accounts receivable consists of receivables related to
markets that have yet to publish. The receivable becomes current at
the time of publication.
(d) Short-term Investments
----------------------
Short-term investments consist primarily of certificates of deposit
with maturities of one year or less. Short-term investments are
carried at cost, which approximates market.
(e) Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out)
or market.
(f) Property and Equipment
----------------------
Depreciation of property and equipment is being calculated using
straight-line and accelerated methods over the estimated useful
lives of the assets. Average useful life of property and equipment
is five-to-seven years.
(2). Continued
<PAGE>
(g) Software Capitalization
-----------------------
Until a project reaches the application development stage, both
internal and external costs are expensed as incurred. After that
time, costs of upgrades and enhancements are capitalized only if it
is probable that the expenditures will result in added
functionality for the software. The Company is amortizing such
costs over a five-year period. Unamortized software costs included
in property and equipment at December 31, 1999 and June 30, 1999
were $100,419 and $80,037, respectively. Amortization of
capitalized costs during the six month period ended December 31,
1999 and the year ended June 30, 1999 were $14,086 and $17,229,
respectively.
(h) Intangible Assets
-----------------
Intangible assets consist of former franchises purchased by the
Company. Franchises are stated at cost and amortized on the
straight-line method over seven years.
The Company monitors events and changes in circumstances which may
require a review of the carrying value of the assets to assess
recoverability based on estimated undiscounted future operating
cash flows. Impairments would be recognized in operating results if
a permanent diminution in value were to occur based on fair value.
There was no impairment recognized during the six months ended
December 31, 1999 and the year ended June 30, 1999.
(i) Income Per Share
----------------
Basic income per share is based on the weighted average number of
common shares outstanding, including contingently issuable shares.
Diluted income per share is based on the weighted number of common
shares outstanding, including contingently issuable shares, plus
dilutive potential common shares outstanding (representing
outstanding stock options).
The following data show the amounts used in computing earnings per
share and the effect on the weighted average number of shares of
dilutive potential common stock.
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
--------------------- --------------------
<S> <C> <C>
Weighted average number of shares outstanding
used in basic income per share 4,047,184 4,039,575
Net additional common equivalent shares
outstanding after assumed exercise of stock
options 740,002 271,718
--------------------- --------------------
Weighted average number of shares outstanding
used in diluted income per share 4,787,186 4,311,293
===================== ====================
</TABLE>
(2). Continued
(j) Income Taxes
------------
Deferred tax assets and liabilities are recognized for the
<PAGE>
estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates in effect for
the year 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.
(k) 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 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
periods. Actual results could differ from those estimates.
(3). Supplemental Cash Flow Information
----------------------------------
Interest paid was $67,558 and $78,378 for the six months ended December
31, 1999 and the year ended June 30 1999, respectively.
(4). Long-Term Obligations
---------------------
Long-term obligations for the six months ended December 31, 1999 and
the year ended June 30, 1999:
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
---------------- ---------------
<S> <C> <C>
Due in annual installments of $60,000 through
October 2008, based on imputed interest of 8.75% $ 363,400 $ -
9.0% equipment installment note, due in monthly
installments of $4,566 through December 2002,
secured by short-term investments of $34,054. 143,403 160,292
8.0% lease obligation, due in monthly installments
of $4,885 through November 2000 45,846 75,905
---------------- ---------------
Total long-term obligations 552,649 236,197
Less current portion of long-term obligations 117,627 94,883
Long-term obligations, excluding
current portion $ 435,022 $ 141,314
================ ===============
</TABLE>
(4). Continued
Maturities of long-term obligations for the five years ending December
31, 2004 are as follows: 2000, $117,627; 2001, $78,315; 2002, $85,534;
2003, $36,276; 2004, $39,446; and $195,451 thereafter.
The Company has a $2,500,000 line of credit with a bank that expires
December 2000 and bears interest at .50 percentage points over the
<PAGE>
banks index. There were outstanding balances of $1,624,811 and
$1,125,000 as of December 31, 1999 and June 30, 1999, respectively. The
Company intends to renew this line of credit upon expiration.
(5). Income Taxes
------------
The actual tax expense differs from the "expected" tax expense computed
by applying the U.S. Federal corporate tax rate to net income before
income taxes as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
--------------- ------------------
<S> <C> <C>
"Expected" tax expense $ 120,496 $ 153,288
State tax, net of Federal tax effect 11,880 15,180
Net operating loss carry forwards utilized (99,000) (170,000)
Other 15,624 1,532
--------------- ------------------
Total income tax expense $ 49,000 $ -
=============== ==================
Components of income tax expense are as follows:
December 31, June 30,
1999 1999
--------------- ------------------
Current:
Federal $ 68,000 $ -
State 9,000 -
$ 77,000
Deferred:
Federal (24,000) -
State (4,000)
--------------- ------------------
(28,000) -
Total income tax expense $ 49,000 -
================ ==================
</TABLE>
(5). Continued
Tax effects of temporary differences that give rise to significant
portions of the deferred assets and deferred tax liabilities for the
six months ended December 31, 1999 and tax year ended June 30, 1999 are
presented below.
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
--------------- ------------------
<S> <C> <C>
Deferred tax assets:
Lease obligation $ 16,046 $ 26,567
Allowance for doubtful accounts 193,725 118,300
Net operating loss carry forwards - 90,315
--------------- ------------------
Total gross deferred tax assets 209,771 235,182
Less valuation allowance - 63,295
--------------- ------------------
Net deferred tax assets 209,771 171,887
--------------- ------------------
<PAGE>
Deferred tax liabilities:
Intangible assets 138,136 138,130
Property and equipment 43,635 33,757
--------------- ------------------
Total deferred tax liabilities 181,771 171,887
--------------- ------------------
Net deferred tax assets $ 28,000 $ -
================ ==================
</TABLE>
(6). Lease Commitments
-----------------
The Company has entered into operating leases for certain office and
production space. Rent expense for the six months ended December 31,
1999 and year ended June 30, 1999 was $89,790 and $110,844,
respectively.
The Company has minimum rental commitments under all noncancelable
operating leases through 2002 as follows:
2000 $ 161,106
2001 68,736
2002 28,640
======================
It is expected that in the normal course of business, leases that
expire will be renewed or replaced by other leases.
(7). Capital Stock - Common and Class A Common Stock
-----------------------------------------------
The Company is authorized to issue 20,000,000 shares of $.01 par value
common stock and 1,000,000 shares of $.01 par value Class A common
stock. The Class A common stock is entitled to 16 votes per share and
is automatically converted to an equal number of shares of common stock
upon sale or transfer to any person who is not a holder of Class A
common stock or at any time at the option of the holder. The common
stock has one vote per share. Holders of common stock and Class A
common stock have equal rights to receive dividends when, as and if
declared by Board of Directors. Holders of common stock and Class A
common stock are entitled upon liquidation of the Company to share
ratably in the net assets available for distribution.
(8). Stock Option Plan
-----------------
Effective September 24, 1997 the Company adopted a new stock option
plan (the "Plan") covering 1,000,000 shares of the Company's common
stock, $.01 par value, pursuant to which officers, directors and key
employees of the Company are eligible to receive incentive and/or non
qualified stock options. The Plan which expires in September 2007, will
be administered by the Board of Directors or a committee designated by
the Board of Directors.
Incentive stock options granted under the Plan are exercisable in whole
or in part one year from the date of grant and expire ten years after
the date of grant at an exercise price which is not less than the fair
market value of the common stock on the date of the grant, except that
<PAGE>
the term of an incentive stock option granted under the Plan to a
stockholder owning more than 10% of the outstanding common stock must
not exceed five years and the exercise price of an incentive stock
option granted to such a stockholder must not be less than 110% of the
fair market value of the common stock on the date of grant.
For the six months ended December 31, 1999 and the year ended June 30,
1999, the Company granted options to purchase 260,000 and 75,000 shares
of common stock with exercise prices of $1.38 and $.58 per share,
respectively. No compensation expense was recorded on this grant. Had
compensation cost on shares exercisable under the Plan been determined
using the fair value method, the Company's net income and net income
per share would have been reduced to the pro forma amounts indicated
below:
(8). Continued
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
------------------- ------------------
<S> <C> <C>
Pro Forma:
Net income, as reported $ 305,401 $ 450,847
Net income, adjusted for the fair value method 249,201 373,347
Basic:
Income per share, as reported 0.08 0.11
Income per share, adjusted for the fair
value method 0.06 0.09
Diluted:
Income per share, as reported 0.06 0.10
Income per share, adjusted for the fair
value method 0.05 0.09
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense
over the vesting period, and additional options may be granted in
future years. The fair value for these options was estimated at the
date of grant using the Black-Scholes model with the following
assumptions:
Expected dividend yield at date of grant 0 0
Expected stock price volatility 84% 87%
Risk-free interest rate 6.0% 6.0%
Expected life of options 3 3
The following information relates to options to purchase stock under
the Plan for the six months ended December 31, 1999 and year ended June
30, 1999.
Number
of Shares
----------------------------------------
December 31, June 30,
1999 1999
---------------- ---------------
<S> <C> <C>
Outstanding at June 30 at $.10 to $.73 per share 980,000 905,000
Granted at $1.38 to $.58 per share 260,000 75,000
Exercised at $.47 per share (25,000) -
Canceled at $.47 per share (5,000) -
---------------- ---------------
Outstanding at $.10 to $1.38 per share 1,210,000 980,000
================ ===============
<PAGE>
Exercisable at $.10 to $.73 per share 740,002 671,668
================ ================
Available for grant - 260,000
================ ================
</TABLE>
(9) Savings Plan
------------
Employee who meet certain eligibility requirements can participate in
the Company's employees retirement plan. Under the plan, the Company
matches up to 25% of the first 7% of employee contributions. The
Company recorded expenses related to its matching contributions of
$8,066 and $14,259 for the six months ended December 31, 1999 and the
year ended June 30, 1999, respectively.
(10) Subsequent Event
----------------
During February, 2000, the Company entered into a merger agreement,
whereby The Knot, Inc. would purchase all outstanding shares of the
Company for $1.78 per share in cash or a total of approximately $8.5
million.
<PAGE>
ANNEX B
The following unaudited pro forma financial information are based on the
historical financial statements of The Knot, Inc., adjusted to give effect to
the acquisition of Weddingpages, Inc. All amounts are in thousands, except share
and per share information.
All unaudited pro forma financial information includes adjustments to historical
results (consisting only of normal recurring entries) necessary for a fair
presentation and, in our opinion, have been prepared on the same basis as the
audited financial statements. These adjustments include the reduction of
deferred accounts receivable and deferred revenue. Certain Weddingpages, Inc.
financial information has been reclassified to conform with The Knot
presentation. The unaudited pro forma statement of operations gives effect to
the acquisition as if it had occurred as of January 1, 1999 and the unaudited
pro forma balance sheet gives effect to the acquisition as if it had occurred on
December 31, 1999.
The unaudited pro forma financial information reflects the Weddingpages, Inc.
acquisition using the purchase method of accounting. The purchase accounting
adjustments made in connection with the development of the pro forma financial
statements are preliminary and have been made solely for purposes of developing
the pro forma combined financial information. However, The Knot management
believes that the pro forma adjustments and the underlying assumptions
reasonably present the significant effects of the acquisition. The actual
financial position and results of operations of the combined entity will differ,
perhaps significantly, from the pro forma amounts reflected herein because of a
variety of factors, including changes in value and changes in operating results
between the dates of the Pro Forma Financial Statements and the date on which
the acquisition takes place. The pro forma financial statements are not
necessarily indicative of actual operating results or financial position had the
acquisition occurred as of the dates indicated above, nor do they purport to
indicate operating results or financial position which may be attained in the
future. The unaudited pro forma condensed consolidated financial statements have
been included as required by the rules of the Securities and Exchange Commission
and are provided for comparative purposes only.
<PAGE>
The Knot, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of December 31, 1999 (amounts in thousands)
<TABLE>
<CAPTION>
The Knot Weddingpages Consolidated
December 31, December 31, Proforma December 31,
1999 1999 Adjustments 1999
------------ ----------- ----------- ------------
Assets
------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 40,006 $ 6 (9,188) a $ 30,824
Short term investments 501 117 618
Accounts receivable, net
Current 1,333 4,784 6,117
Deferred - 1,938 (1,938) e -
------------ ----------- ------------
Total accounts receivable 1,333 6,722 6,117
Inventory 478 176 (176) g 478
Deferred market costs - 1,711 208 g 1,919
Deferred income taxes - 210 (210) f -
Other current assets 672 198 870
------------ ----------- ------------
Total current assets 42,990 9,140 40,826
------------ ----------- ------------
Net property and equipment 1,554 472 2,026
Intangible assets, net 542 959 6,294 b 7,795
Other assets 400 - 400
------------ ----------- ------------
Total assets $ 45,486 $ 10,571 $ 51,047
============ =========== ============
Liabilities and stockholders' equity
------------------------------------
Current liabilities:
Note payable - 1,625 $ 1,625
Current portion of long-term obligations - 118 118
Accounts payable and accrued expenses 1,445 1,629 876 d 3,950
Deferred revenue 409 2,816 (1,938) e 1,287
------------ ----------- ------------
Total current liabilities 1,854 6,188 6,980
Other liabilities 57 - 57
Long term obligations, excluding current portion - 435 435
Deferred income taxes - 182 (182) f -
Stockholders equity:
Common stock 145 41 (41) c 145
Class A common stock 4 (4) c -
Additional paid in capital 60,207 3,661 (3,661) c 60,207
Deferred compensation (2,263) - (2,263)
Deferred sales and marketing (1,960) - (1,960)
Retained earnings (deficit) (12,554) 191 (191) c (12,554)
------------ ----------- ------------
43,575 3,897 43,575
Treasury stock - (131) 131 c -
------------ ----------- ------------
Total stockholders equity 43,575 3,766 43,575
Total liabilities and stockholders' equity $ 45,486 $ 10,571 $ 51,047
============ =========== ============
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS)
1. The pro forma adjustments to the unaudited pro forma condensed consolidated
balance sheet as of December 31, 1999 are as follows:
a) Adjustment to cash, for the cash portion of the acquisition price for
Weddingpages, of approximately $9,188, including cash of $8,488 for stock and
$700 for the covenant not to compete.
b) Adjustment to intangible assets to reflect the excess of the purchase price
over the fair value of net assets acquired of Weddingpages, calculated as
follows:
Cash paid for acquisition $9,188
Acquisition costs 876
---------------
Purchase price $10,064
Fair value of net tangible assets acquired 2,811
Total intangible assets acquired * $7,253
===============
Pro forma adjustment to intangible assets has been reduced to offset the net of
existing Weddingpages goodwill.
* Amount composed of goodwill of $6,553 to be amortized over a ten year
period and a covenant not to compete of $700 to be amortized over a seven
year period.
c) Adjustment to reflect the elimination of all of the stockholders' equity
balances of Weddingpages.
d) Adjustment to record the estimated acquisition expenses incurred of
approximately $876.
e) Adjustment to reduce deferred accounts receivable and deferred revenue for
unbilled advertising contracts related to magazines not yet published.
f) Adjustment to eliminate deferred tax assets and liabilities.
g) Adjustment to reclassify inventory and prepaid expenses to conform with The
Knot presentation.
<PAGE>
<TABLE>
<CAPTION>
The Knot, Inc.
Consolidated Statements of Operations (Unaudited)
Amounts in thousands (except share and per share information)
Year Ended December 31, 1999
-----------------------------------------------------------------
Proforma Proforma
The Knot Weddingpages Adjustments Consolidated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 5,126 $ 11,638 $ (711) a $ 16,053
Cost of revenues 1,441 3,275 4,716
------------ ------------ ------------ ------------
Gross profit 3,685 8,363 (711) 11,337
Operating expenses:
Product and content development 2,678 829 3,507
Sales and marketing 5,148 4,741 (711) a 9,178
General and administrative 3,629 1,681 5,310
Non cash compensation 1,072 - 1,072
Non cash sales and marketing 290 - 290
Depreciation and amortization 547 156 755 b 1,458
------------ ------------ ------------ ------------
Total operating expenses 13,364 7,407 44 20,815
Loss from operations (9,679) 956 (755) (9,478)
Interest income (expense) 483 (100) (288) c 95
------------ ------------ ------------ ------------
Net loss before income taxes $ (9,196) $ 856 (1,043) $ (9,383)
============ ============ ============ ============
Income taxes - 49 (49) d -
------------ ------------ ------------ ------------
Net loss $ (9,196) $ 807 (994) $ (9,383)
============ ============ ============ ============
Loss per share - basic and diluted
Net loss $ (2.31) $ (2.36)
============ ============
Weighted average number of shares used in
calculating basic and diluted net loss per share 3,982,358 3,982,358
============= =============
</TABLE>
<PAGE>
1. The pro forma adjustments to the unaudited pro forma condensed
consolidated statement of operations for the year ended December 31, 1999 are as
follows:
a) Adjustment to revenues and sales and marketing expenses to
eliminate the intercompany amounts arising from the Alliance Agreement between
the Knot and Weddingpages, effective July 6, 1999 of approximately $711 for
Weddingpages.
b) Adjustments to reflect the incremental amortization expense of
$755 related to the intangible assets using estimated lines ranging from seven
to ten years.
c) Adjustment to reflect additional interest expense of $288
related to cash required to consummate the acquisition.
d) Adjustment to reflect the elimination of federal income taxes.
