<PAGE>
========================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 8-K/A
AMENDMENT TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 4, 1998
----------------
GeoCities
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 333-56659 95-4515867
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation File Number) Identification No.
4499 Glencoe Avenue, Marina del Rey, California 90292
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices with Zip Code)
(Registrant's Telephone Number, Including Area Code): (310) 827-3700
------------------------
Not Applicable
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
===================
<PAGE>
AMENDMENT
The undersigned Registrant hereby amends the following items,
financial statements, exhibits or other portions of its Current Report on Form
8-K, originally filed with the Securities Exchange Commission on December 18,
1998, as set forth in the pages attached hereto:
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS:
- ------ ------------------------------------------------------------------
The following financial statements and pro forma financial information
are filed as a part of this report.
(a) Financial Statements of Business Acquired. Starseed, Inc.
Report of Independent Accountants (KPMG Peat Marwick LLP) (Exhibit
99.1)
Balance Sheets at September 30, 1998 and 1997
Statement of Operations for the year ended September 30, 1998, and
the period October 8, 1996 (inception) to September 30, 1997
(Exhibit 99.1)
Statements of Stockholders' Equity (Deficiency) for the year ended
September 30, 1998, and the period October 8, 1996 (inception) to
September 30, 1997 (Exhibit 99.1)
Statements of Cash Flows for the year ended September 30, 1998,
and the period October 8, 1996 (inception) to September 30, 1997
(Exhibit 99.1)
Notes to Financial Statements (Exhibit 99.1)
(b) Pro Forma Financial Information. GeoCities and Starseed, Inc.
(on a consolidated basis)
Unaudited Pro Forma Condensed Balance Sheet at September 30, 1998
(Exhibit 99.2)
Unaudited Pro Forma Condensed Statement of Operations for the Nine
Months Ended September 30, 1998 (Exhibit 99.2)
Unaudited Pro Forma Condensed Statement of Operations for the Year
Ended December 31, 1997 (Exhibit 99.2)
Notes to the Unaudited Pro Forma Condensed Financial Statements
(Exhibit 99.2)
(c) Exhibits. See Index to Financial Statements
2
<PAGE>
SIGNATURES
----------
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.
GeoCities
---------
(Registrant)
Dated: February 16, 1999 By: /s/ Stephen L. Hansen
-------------------------------
Name: Stephen L. Hansen
Title: Chief Financial Officer and Chief
Operating Officer
3
<PAGE>
EXHIBIT 99.1
ITEM 7(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired
INDEX TO FINANCIAL STATEMENTS
Starseed, Inc. Financial Statements
- -----------------------------------
Report of Independent Accountant........................................... F-2
Balance Sheets at September 30, 1998 and 1997.............................. F-3
Statements of Operations for the year ended September 30, 1998, and the
period October 8, 1996 (inception) to September 30, 1997................ F-4
Statements of Stockholders' Equity (Deficiency) for the year ended to
September 30, 1998, and the period October 8,1996 (inception) to
September 30, 1997...................................................... F-5
Statements of Cash Flows for the year ended September 30, 1998, and the
period October 8, 1996 (inception) to September 30, 1997................ F-6
Notes to Financial Statements.............................................. F-7
F-1
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Starseed, Inc.:
We have audited the accompanying balance sheets of Starseed, Inc. (the Company)
as of September 30, 1998 and 1997, and the related statements of operations,
shareholders' deficit, and cash flows for the year ended September 30, 1998 and
for the period from October 8, 1996 (date of inception) to September 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Starseed, Inc. as of September
30, 1998 and 1997, and the results of its operations and its cash flow for the
year ended September 30, 1998 and for the period from October 8, 1996 (date of
inception) to September 30, 1997 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 9 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in note 9. The financial statements do not include any
adjustment that might result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
October 8, 1998, except as to note 9,
which is as of October 23, 1998.
F-2
<PAGE>
STARSEED, INC.
Balance Sheets
September 30, 1998 and 1997
<TABLE>
<CAPTION>
Assets 1998 1997
----------- ---------
<S> <C> <C>
Current assets:
Cash $ 47,810 $ 3,227
Accounts receivable, net 42,493 1,722
Prepaid expenses 3,721 458
----------- ---------
Total current assets 94,024 5,407
Property and equipment, net 105,604 64,101
Other assets, net 3,420 86,350
----------- ---------
Total assets $ 203,048 $ 155,858
=========== =========
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable and accrued expenses $ 210,505 $ 174,762
Current portion of notes payable 426,000 18,000
Current portion of capital lease obligations 15,091 --
Other current liabilities 130,000 --
----------- ---------
Total current liabilities 781,596 192,762
Notes payable (including notes to related parties),
net of current portion 41,700 45,200
Capital lease obligations, net of current portion 29,643 --
----------- ---------
Total liabilities 852,939 237,962
----------- ---------
Commitments and contingencies
Shareholders' deficit:
Common stock, no par value; 10,000,000 shares authorized;
1,201,175 and 1,100,042 shares issued and outstanding
on September 30, 1998 and 1997, respectively 2,192,059 410,834
Unearned compensation (261,374) --
Accumulated deficit (2,580,576) (492,938)
----------- ---------
Total shareholders' deficit (649,891) (82,104)
----------- ---------
Total liabilities and shareholders' deficit $ 203,048 $ 155,858
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
STARSEED, INC.
Statements of Operations
For the year ended September 30, 1998 and for the
period from October 8, 1996 (date of inception)
to September 30, 1997
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Revenues, net $ 155,651 $ 6,669
Cost of revenues 107,598 28,000
---------- --------
Gross profit (loss) 48,053 (21,331)
---------- --------
Operating costs and expenses:
Sales and marketing 452,475 97,259
Product development 1,016,400 139,793
General and administrative 497,763 215,478
---------- --------
1,966,638 452,530
---------- --------
Loss from operations 1,918,585 473,861
Other expense:
Interest expense 151,408 --
Other expense 17,645 19,077
---------- --------
Loss before provision for income taxes 2,087,638 492,938
Provision for income taxes -- --
---------- --------
Net loss $2,087,638 $492,938
========== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
STARSEED, INC.
Statement of Shareholders' Deficit
For the year ended September 30, 1998 and for the
period from October 8, 1996 (date of inception)
to September 30, 1997
<TABLE>
<CAPTION>
Common stock Total
----------------------- Accumulated Unearned shareholders'
Shares Amount deficit compensation deficit
--------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, October 8, 1996
(date of inception) -- $ -- $ -- $ -- $ --
Issuance of common stock in
exchange for fixed assets 1,000,000 49,624 -- -- 49,624
Issuance of common stock 75,042 248,100 -- -- 248,100
Issuance of common stock for
acquisition of purchased
technology 25,000 100,000 -- -- 100,000
Additional capital contributions -- 13,110 -- -- 13,110
Net loss -- -- (492,938) -- (492,938)
--------- ---------- ----------- --------- -----------
Balance, September 30, 1997 1,100,042 410,834 (492,938) -- (82,104)
Issuance of common stock 101,133 386,500 -- -- 386,500
Unearned compensation on
stock option grants -- 348,499 -- (348,499) --
Amortization of unearned
compensation -- -- -- 87,125 87,125
Compensation and consulting
expense on stock option grants -- 1,046,226 -- -- 1,046,226
Net loss -- -- (2,087,638) -- (2,087,638)
--------- ---------- ----------- --------- -----------
Balance, September 30, 1998 1,201,175 $2,192,059 $(2,580,576) $(261,374) $ (649,891)
========= ========== =========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
STARSEED, INC.
Statement of Cash Flows
For the year ended September 30, 1998 and for the
period from October 8, 1996 (date of inception)
to September 30, 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,087,638) $(492,938)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 131,370 51,955
Non-cash compensation and consulting
expense on stock option grants 1,046,226 --
Amortization of unearned compensation 87,125 --
Changes in assets and liabilities:
Accounts receivable (40,771) (1,722)
Prepaid expenses (3,263) (458)
Accounts payable and accrued expenses 35,743 174,762
Other current liabilities 130,000 --
----------- ---------
Net cash used in operating activities (701,208) (268,401)
----------- ---------
Cash flows from investing activities:
Purchase of equipment (36,614) (38,432)
Cash paid for purchased technology -- (12,000)
----------- ---------
Net cash used in investing activities (36,614) (50,432)
----------- ---------
Cash flows from financing activities:
Proceeds from notes payable 426,000 63,200
Proceeds from issuance of common stock 386,500 248,100
Capital contributions -- 13,110
Increase in other assets (1,070) (2,350)
Repayment of notes payable (21,500) --
Repayment of capital leases (7,525) --
----------- ---------
Net cash provided by financing activities 782,405 322,060
----------- ---------
Increase in cash 44,583 3,227
Cash at beginning of year 3,227 --
----------- ---------
Cash at end of year $ 47,810 $ 3,227
=========== =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ -- $ --
Income taxes -- --
Supplemental disclosures of non-cash transactions:
Issuance of common stock for acquisition of
purchased technology $ -- $ 100,000
Issuance of common stock in exchange for fixed assets -- 49,624
Equipment acquired under capital leases 52,259 --
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
STARSEED, INC.
Notes to Financial Statements
(1) Summary of Significant Accounting Policies
Description of Business
Starseed, Inc. (Starseed or the Company) was incorporated in Louisiana on
October 8, 1996, and began operations in Ashland, Oregon October 15, 1996.
The Company's focus revolves around innovations in internet communications
and information access.
In June 1997, the Company acquired "WebRing", an internet technology which
offers access to hundreds of thousands of member websites organized by
related interests into easy-to-travel rings.
Inherent in the Company's business are various risks and uncertainties,
including its limited operating history and the limited history of commerce
on the internet. Future revenues from online services are dependent on the
continued growth and acceptance of the internet, use of the internet for
information, publication, distribution and commerce, and acceptance of the
internet as an effective advertising medium.
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 periods. Actual results could differ from those estimates.
Revenue Recognition
The Company's revenues are derived primarily from advertising revenue based
on the number of visits to the Company's WebRing web-sites. Revenue is
recognized monthly as it is earned.
During 1998, the Company derived a portion of their revenues from assembling
computers from parts and selling them to a computer reseller.
Effective January 1, 1998, the Company adopted the Statement of Position 97-
2, "Software Revenue Recognition," ("SOP 97-2"). SOP 97-2 generally requires
revenue earned on software arrangements involving multiple elements to be
allocated to each element based on the relative fair values of the elements.
The revenue allocated to software products generally is recognized upon
delivery of the products. The revenue allocated to post-contract customer
support generally is recognized ratably over the term of the support and
revenue allocated to service elements generally is recognized as the
services are performed. The adoption of SOP 97-2 did not have a significant
impact on the Company's financial statements.
F-7
<PAGE>
STARSEED, INC.
Notes to Financial Statements, Continued
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method based
upon the estimated useful lives of the assets, ranging from three to five
years. Equipment under capital leases are amortized over the shorter of the
estimated useful life or the life of the lease. Useful lives are evaluated
regularly by management in order to determine recoverability in light of
current technological conditions. Maintenance and repairs are charged to
expense as incurred while renewals and improvements are capitalized. Upon
the sale or retirement of property and equipment, the accounts are relieved
of the cost and the related accumulated depreciation or amortization, with
any resulting gain or loss included in the Statement of Operations.
Long-Lived Assets
The Company identifies and records impairment losses on long-lived assets
when events and circumstances indicate that such assets might be impaired.
To date, no such impairment has been recorded.
Income Taxes
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences of events that have been included in the financial statements
and tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to be recovered or settled.
Valuation allowances are established to reduce deferred tax assets to the
amount expected to be realized.
Capitalized Software
Under Statement of Financial Accounting Standards No. 86, software
development costs are to be capitalized beginning when a product's
technological feasibility has been established and ending when a product is
made available for general release to customers. The establishment of
technological feasibility of the Company's products has occurred shortly
before general release and, accordingly, no costs have been capitalized.
Other Assets
Other assets consisted of the WebRing Technology purchased in July 1997.
This asset is amortized using the straight-line method over an estimated
useful life of one year. For the year ended September 30, 1998 and for the
period from October 8, 1996 (date of inception) to September 30, 1997
amortization for the WebRing Technology was $84,000 and $28,000. At
September 30, 1998 and 1997 accumulated amortization was $112,000 and
$28,000, respectively.
F-8
<PAGE>
STARSEED, INC.
Notes to Financial Statements, Continued
Stock-Based Compensation
The Company accounts for stock-based compensation using the Financial
Accounting Standard Board's Statement of Financial Accounting Standards No.
123 (SFAS 123), Accounting for Stock-Based Compensation. This statement
permits a company to choose either a fair-value based method of accounting
for its stock-based compensation arrangements or to comply with the current
Accounting Principles Board Opinion 25 (APB Opinion 25) intrinsic-value-based
method adding pro forma disclosures of net loss computed as if the fair-
value-based method had been applied in the financial statements. The Company
applies SFAS No. 123 by retaining the APB Opinion 25 method of accounting for
stock-based compensation for employees with annual pro forma disclosures of
net loss. Stock-based compensation for non-employees is accounted for using
the fair-value-based method.
Advertising
The Company expenses the costs of advertising when the costs are incurred.
Advertising expense was approximately $200 and $-0- for the year ended
September 30, 1998 and for the period from October 8, 1996 (date of
inception) to September 30, 1997, respectively.
Product Development
Expenditures for research and development are expensed as incurred.
Effect of Recent Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130), which establishes
requirements for disclosure of comprehensive income. The objective of SFAS
130 is to report all changes in equity that result from transactions and
economic events other than transactions with owners. Comprehensive income is
the total of net income and all other non-owner changes in equity. SFAS 130
is effective for fiscal years beginning after December 15, 1997.
Reclassification of earlier financial statements for comparative purposes is
required. The Company does not expect implementation to have a significant
impact on its financial statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information." SFAS 131 requires public
companies to report certain information about their operating segments in a
complete set of financial statements to shareholders. It also requires
reporting of certain enterprise-wide information about the Company's products
and services, its activities in different geographic areas and its reliance
on major customers. The basis for determining the Company's operating
segments is the manner in which management operates the business. SFAS 131
is effective for fiscal years beginning after December 15, 1997. The Company
does not expect implementation to have a significant impact on its financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 standardizes the accounting
for derivative instruments by requiring that an entity recognize those items
as assets or liabilities in the financial statements and measure them at fair
value. SFAS 133 is required to be adopted for fiscal years beginning after
June 15, 1999. Since the Company does not hold any derivative instruments,
SFAS 133 is not expected to impact the Company.
F-9
<PAGE>
STARSEED, INC.
Notes to Financial Statements, Continued
(2) Property and Equipment
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
------------ ------------
<S> <C> <C>
Computer equipment, including assets under
capital leases of $52,259 and $-0- for
1998 and 1997, respectively $167,045 $ 80,242
Furniture and fixtures 9,884 7,814
-------- --------
176,929 88,056
Less accumulated depreciation and amortization,
including amounts related to assets under
capital leases of $8,632 and $-0- for
1998 and 1997, respectively (71,325) (23,955)
-------- --------
Total $105,604 $ 64,101
======== ========
</TABLE>
(3) Income Taxes
The Company incurred a loss for both financial reporting and tax return
purposes and, as such, there was no current or deferred tax provision for
the year ended September 30, 1998 and for the period from October 8, 1996
(date of inception) through September 30, 1997.
The difference between the expected tax expense, computed by applying the
federal statutory rate of 34% to loss before taxes, and the actual tax
expense of $-0- is primarily due to the increase in the valuation allowance
for deferred tax assets.
F-10
<PAGE>
STARSEED, INC.
Notes to Financial Statements, Continued
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liability at September 30, 1998 is
approximately as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Federal and state operating loss carryforwards $ 432,000 $ 169,500
Research and experimentation credits 52,000 11,000
Unearned compensation 501,500 --
Property and equipment, due to differences
in depreciation and amortization 42,500 12,500
----------- ---------
1,028,000 193,000
Less valuation allowance (1,028,000) (193,000)
----------- ---------
Net deferred tax assets $ -- $ --
=========== =========
</TABLE>
The total valuation allowance for deferred tax assets as of September 30, 1998
and 1997 was $1,028,000 and $193,000, respectively. The net change in the total
valuation allowance for the year ended September 30, 1998 was an increase of
$835,000.
At September 30, 1998, the Company has federal and state net operating loss and
research and experimentation credit carryforwards of approximately $432,000 and
$52,000, respectively. These carryforwards will expire between 2002 and 2012 if
not used by the Company to reduce income taxes payable in future periods. These
carryforwards will be subject to further limitations upon closing of the
proposed transaction discussed in note 9.
F-11
<PAGE>
STARSEED, INC.
Notes to Financial Statements, Continued
(4) 1998 Stock Option Plan
In 1998, the Company adopted the 1998 Stock Option/Stock Issuance Plan (the
Plan) whereby a total of 525,000 shares of common stock have been reserved
for the grant of stock options to selected employees, officers, directors,
consultants and advisors. Options granted pursuant to the Plan are non-
qualified stock options.
Under the Plan, options generally vest annually over four years. Options
granted under the Plan must be exercised within ten years of the date of
the grant. Option prices are generally not less than the fair market value
of the shares at the date of grant. At the time of the exercise of the
option, all optionee's must grant the Company or its designee a right of
first refusal with respect to all transfers.
During 1998, the Company granted to certain key employees and consultants
options to purchase 258,500 shares of the Company's common stock for $1.00
per share. These options were fully-vested on the grant date and were
issued at a price below the fair market value of the Company's stock on the
date of grant. The difference between the stock option grant price and the
fair market value on the date of grant has been included as compensation or
consulting expense in the accompanying statement of operations.
The Company has elected to account for its stock-based compensation plans
under APB Opinion 25; however, the Company has computed, for proforma
disclosure purposes, the value of all options granted during 1998 using the
minimum value option-pricing model as prescribed by SFAS 123 using the
following assumptions used for grants:
<TABLE>
<CAPTION>
<S> <C>
Risk-free interest rate 6.50%
Expected dividend yield $ --
Expected lives 5 years
Weighted average grant date
fair value per option $5
</TABLE>
If the Company had accounted for these options in accordance with SFAS 123,
the Company's net loss for the year ended September 30, 1998 would have
increased to the following pro forma amounts:
<TABLE>
<CAPTION>
Net loss:
<S> <C>
As reported $(2,087,638)
Proforma (2,181,902)
</TABLE>
F-12
<PAGE>
STARSEED, INC.
Notes to Financial Statements, Continued
A summary of the status of the Company's Plan at September 30, 1998 and
changes during the year then ended is presented in the following table:
<TABLE>
<CAPTION>
Weighted
average
exercise
Options price
----------- --------
<S> <C> <C>
Outstanding September 30, 1997 -- $ --
Granted 475,000 2.89
Exercised -- --
Canceled -- --
--------- -----
Outstanding September 30, 1998 475,000 $2.89
========= =====
</TABLE>
The outstanding stock options have a weighted average remaining contractual
life of 10 years. At September 30, 1998, a total of 295,000 non-qualified
stock options were exercisable at a weighted average exercise price of
$1.86 share and with a weighted average remaining contractual live in years
of 10.
(5) Commitments and Contingencies
Leases
The Company leases its facilities and certain computer and office equipment
under noncancelable leases for varying periods through 2002. The Company's
lease obligations are collateralized by certain assets at September 30,
1998. The following are the minimum lease obligations under these leases at
September 30, 1998:
<TABLE>
<CAPTION>
Capital Operating
leases leases
--------- ---------
<S> <C> <C>
1999 $ 19,188 $11,136
2000 18,595 11,136
2001 9,980 6,392
2002 4,020 --
-------- -------
51,783 $28,664
=======
Less: amount representing interest (7,049)
--------
Present value of minimum lease payments 44,734
Less: current portion (15,091)
--------
Long-term portion $ 29,643
========
</TABLE>
F-13
<PAGE>
STARSEED, INC.
Notes to Financial Statements, Continued
Rental expense pertaining to operating leases for the year ended September
30, 1998 and the period October 8, 1996 (date of inception) to September 30,
1997 was approximately $35,000 and $46,000, respectively.
Consulting Agreement
The Company has entered into a consulting agreement with an individual
through June 1999. Under this agreement, the Company is to pay a consulting
fee of $2,000 a month.
Contingencies
From time to time, the Company has been party to various litigation and
administrative proceedings relating to claims arising from its operations in
the normal course of business. Management believes that the resolution of
these matters will not have a material adverse effect on the Company's
business, results of operations, financial condition and cash flows.
Year 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000
problem" is pervasive and complex as virtually every computer operation will
be affected in some way by the rollover of the two-digit year value to 00.
The issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
The Company has conducted a review of the Company's exposure to the year 2000
problem, including working with computer systems and software vendors to
assure that they are prepared for the year 2000. Based on this review and
discussions with such vendors, the Company currently believes that its
internal systems are year 2000 compliant. The Company does not expect to
incur any significant operating expenses or invest in additional computer
systems to resolve issues relating to the year 2000 problem, with respect to
both its information technology and product and service functions.
F-14
<PAGE>
STARSEED, INC.
Notes to Financial Statements, Continued
(6) Notes Payable
At September 30, 1998 and 1997 notes payable consists of the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Notes payable to GeoCities, payable in a
lump-sum plus accrued interest at 9%
per annum payable upon the earlier
of January 29, 1999 or upon the
Company obtaining equity financing
in excess of $1,000,000 $200,000 $ --
Note payable to Keyline Investments,
payable in a lump-sum November 1998 226,000 --
Notes payable to shareholders, payable in
a lump-sum plus accrued interest at 12%
per annum due October 1, 2000 41,700 45,200
Note payable to individual payable in a
lump-sum no interest, due
December 31, 1997 -- 18,000
-------- -------
467,700 63,200
Less-current portion 426,000 18,000
-------- -------
$ 41,700 $45,200
======== =======
</TABLE>
The Note payable to shareholders is payable upon the earlier of October 1,
2000 or upon a corporate transaction. Corporate transaction means any of
the following: 1) a merger or consolidation in which the Company is not the
surviving entity; 2) the sale, transfer or other disposition of all or
substantially all of the assets of the Company and 3) any reverse merger in
which the Company is the surviving entity but in which fifty percent or
more of the Company's outstanding voting stock is transferred to holders
different from those who held the stock immediately prior to such merger.
The combined aggregate amount of debt maturities for the five years
subsequent to September 30, 1998 follows:
<TABLE>
<CAPTION>
Year ending September 30:
<S> <C>
1999 $426,000
2000 41,700
--------
$467,700
========
</TABLE>
F-15
<PAGE>
STARSEED, INC.
Notes to Financial Statements, Continued
(7) Customer Information
The Company had three significant customers in 1998 that each account for
greater than 10% of the Company's revenues. These customers accounted for
97% of the Company's accounts receivable at September 30, 1998.
(8) Warrants
During 1998, the Company issued warrants to purchase 92,105 shares of the
Company's common stock at $11.43 per share exercisable at anytime until
September 1, 2000, in connection with the note payable to GeoCities. The
warrants will terminate by mutual agreement upon the closing of GeoCities
purchasing the Company. (See note 9)
(9) Subsequent Events
The Company obtained an additional note payable from GeoCities of $100,000
payable in a lump-sum plus accrued interest at 9% per annum, payable upon
the earlier of January 29, 1999 or upon the Company obtaining equity
financing in excess of $1,000,000.
In October 1998, the Company entered into a non-binding letter of intent
with GeoCities. Pursuant to the agreement; among other things all the
issued and outstanding shares of the Company shall be converted into the
right to receive shares of common stock of GeoCities and cash.
Additionally, all outstanding options under the Company's 1998 stock
option/stock issuance plan, whether vested or unvested, will be assumed by
GeoCities.
This acquisition is expected to provide the Company with the additional
financial resources to continue operations. If the acquisition is not
completed, there is substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
The Company entered into a settlement agreement with Keyline Investments.
The agreement requires the repayment of the outstanding loan to the Company
of $226,000 and the issuance of 20,000 shares. The fair market value of the
20,000 shares is $130,000 which has been accrued as other current
liabilities in the balance sheet at September 30, 1998.
F-16
<PAGE>
EXHIBIT 99.2
ITEM 7(b) PRO FORMA FINANCIAL INFORMATION
INDEX TO PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
GeoCities Pro Forma Consolidated Financial Statements
- -----------------------------------------------------
Unaudited Pro Forma Condensed Balance Sheet at September 30, 1998........... F-3
Unaudited Pro Forma Condensed Statement of Operations for the
Nine Months Ended September 30, 1998....................................... F-4
Unaudited Pro Forma Condensed Statement of Operations for the
Year Ended December 31, 1997............................................... F-5
Notes to the Unaudited Pro Forma Condensed Financial Statements............. F-6
</TABLE>
F-1
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(b) Pro forma Financial Information
The following unaudited pro forma condensed financial statements give
effect to the acquisition of Starseed Inc. ("Starseed") by GeoCities
("GeoCities") in a transaction to be accounted for as a purchase in accordance
with APB Opinion No. 16 (the "Acquisition"). The acquisition was closed on
December 4, 1998; accordingly the results of operations subsequent to September
30, 1998 will affect the allocation of the final purchase price. Under the
purchase method of accounting, the purchase price is allocated to the assets
acquired and liabilities assumed based on their estimated fair values at the
date of the Acquisition. Estimates of the fair values of the assets and
liabilities of Starseed have been combined with the recorded values of the
assets and liabilities of GeoCities in the unaudited pro forma condensed
financial statements.
The unaudited pro forma condensed balance sheet has been prepared to
reflect the Acquisition as if it occurred on September 30, 1998. The unaudited
pro forma condensed statements of operations reflect the results of operations
of GeoCities and Starseed for the nine months ended September 30, 1998 and the
year ended December 31, 1997, as if the combination had occurred at the
beginning of each of these periods.
The unaudited pro forma condensed financial statements are presented for
illustrative purposes only and are not necessarily indicative of the combined
financial position or results of operations in future periods or the results
that actually would have been realized had GeoCities and Starseed been a
combined company during the specified periods. The unaudited pro forma
condensed financial statements, including the notes thereto, are qualified in
their entirety by reference to, and should be read in conjunction with, the
historical consolidated financial statements of GeoCities, included in the
Company's Final Prospectus dated August 10, 1998, as part of its Registration
Statement on Form S-1 (No 333-56659), and quarterly report on Form 10-Q for the
nine months ended September 30, 1998, filed with the Securities and Exchange
Commission, and the audited financial statements of Starseed included elsewhere
in this Form 8-K/A.
F-2
<PAGE>
GeoCities
Pro Forma Condensed Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
GeoCities Starseed
September 30, September 30, ProForma ProForma
1998 1998 Adjustments As Adjusted
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short-term investments............. $ 99,907,000 $ 48,000 $ 99,955,000
Accounts receivable, net .................................... 3,254,000 42,000 (200,000) (b) 3,096,000
Other current assets ........................................ 820,000 4,000 -- 824,000
------------ ----------- ----------- ------------
Total current assets ...................................... 103,981,000 94,000 (200,000) 103,875,000
Property and equipment, net ................................. 5,787,000 106,000 5,893,000
Other assets ................................................ 1,444,000 3,000 25,232,000 (a) 26,679,000
------------ ----------- ----------- ------------
Total assets .............................................. $111,212,000 $ 203,000 $25,032,000 $136,447,000
============ =========== =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................ $ 555,000 $ 210,000 $ 765,000
Accrued expenses and other liabilities ...................... 5,069,000 571,000 (200,000) (b) 5,440,000
Deferred revenue ............................................ 567,000 -- -- 567,000
------------ ----------- ----------- ------------
Total current liabilities ................................. 6,191,000 781,000 (200,000) 6,772,000
Other liabilities ........................................... 1,700,000 72,000 1,772,000
------------ ----------- ----------- ------------
Total liabilities............................................ 7,891,000 853,000 (200,000) 8,544,000
Stockholders' equity (deficiency):
Common stock and paid-in capital .............................. 135,800,000 2,192,000 22,390,000 (a) 160,382,000
Unearned deferred compensation ................................ (8,735,000) (261,000) 261,000 (c) (8,735,000)
Accumulated deficit ........................................... (23,744,000) (2,581,000) 2,581,000 (c) (23,744,000)
------------ ----------- ----------- ------------
Total stockholders' equity (deficiency) ................... 103,321,000 (650,000) 25,232,000 127,903,000
------------ ----------- ----------- ------------
Total liabilities and stockholders' equity (deficiency) ... $111,212,000 $ 203,000 $25,032,000 $136,447,000
============ =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
GeoCities
Pro Forma Condensed Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
GeoCities Starseed
Nine Months Ended Year Ended Pro Forma Pro Forma
September 30, 1998 September 30, 1998 Adjustments As Adjusted
------------------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $ 10,833,000 $ 156,000 -- $ 10,989,000
Cost of revenues........................... 6,070,000 108,000 -- 6,178,000
------------ ----------- ----------- ------------
Gross profit.......................... 4,763,000 48,000 -- 4,811,000
Operating expenses:
Sales and marketing...................... 9,559,000 453,000 -- 10,012,000
Product development...................... 2,556,000 1,016,000 -- 3,572,000
General and administrative............... 5,315,000 498,000 -- 5,813,000
Amortization of intangibles.............. -- -- $ 6,903,000 (a) 6,903,000
------------ ----------- ----------- ------------
Loss from operations....................... (12,667,000) (1,919,000) (6,903,000) (21,489,000)
Interest income............................ 1,324,000 (169,000) -- 1,155,000
------------ ----------- ----------- ------------
Net loss................................... $(11,343,000) $(2,088,000) $(6,903,000) $(20,334,000)
============ =========== =========== ============
Pro forma diluted net loss per share....... $ (0.42) $ (0.74) (d)
Weighted average shares outstanding
used in pro forma per-share calculation... 26,804,000 546,000 (d) 27,350,000 (d)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
GeoCities
Pro Forma Condensed Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
GeoCities Starseed
Year Ended Year Ended Pro Forma Pro Forma
December 31, 1997 September 30, 1997 Adjustments As Adjusted
------------------- ------------------- ------------- --------------
<S> <C> <C> <C> <C>
Net revenues ............................... $ 4,582,000 $ 7,000 -- $ 4,589,000
Cost of revenues ........................... 3,789,000 28,000 -- 3,817,000
----------- --------- ----------- ------------
Gross profit .......................... 793,000 (21,000) -- 772,000
Operating expenses:
Sales and marketing ...................... 5,837,000 97,000 -- 5,934,000
Product development ...................... 1,045,000 140,000 -- 1,185,000
General and administrative ............... 2,930,000 216,000 -- 3,146,000
Amortization of intangibles .............. -- -- $ 9,203,000 (a) 9,203,000
----------- --------- ----------- ------------
Loss from operations ....................... (9,019,000) (474,000) $(9,203,000) (18,696,000)
Interest income............................. 116,000 (19,000) -- 97,000
----------- --------- ----------- ------------
Net loss.................................... $(8,903,000) $(493,000) $(9,203,000) $(18,599,000)
=========== ========= =========== ============
Pro forma diluted net loss per share........ $(0.36) $(0.73) (d)
Weighted average shares outstanding
used in pro forma per-share calculation .. 24,850,000 546,000 (d) 25,396,000 (d)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
GeoCities
NOTES TO FINANCIAL STATEMENTS
1. Pro Forma Adjustments and Assumptions
(a) In December 1998, the Company acquired Starseed for total consideration of
approximately $24,800,000, including $2,000,000 in cash, $16,200,000 in common
stock valued at $29.63 per share, $6,000,000 in compensation related to assumed
outstanding options to purchase common stock, and forgiveness of $600,000 in
debt. Based upon the purchase price, which is the assets acquired and
liabilities assumed based on their estimated fair values at the date of the
Acquisition, the fair value of intangible assets was $25,200,000. Goodwill and
other intangibles will be amortized over a period of three years and purchased
technology will be amortized over one year. The Pro Forma adjustments reflect
nine months of amortization expense for the nine months ended September 30,
1998, assuming the transaction had occurred on January 1, 1998, and twelve
months of amortization expense for the year ended December 31, 1997, assuming
the transaction had occurred on January 1, 1997, respectively.
The following represents the allocation of the purchase price over the
historical net book values of the acquired assets and liabilities of Starseed at
September 30, 1998, and is for illustrative pro forma purposes only. Actual fair
values will be based on financial information as of the acquisition date
(December 4, 1998). Assuming the transaction had occurred on September 30, 1998,
the allocation would have been as follows:
<TABLE>
<S> <C>
Purchased technology................................ $ 1,189,000
Goodwill and other intangible assets................ 24,043,000
Other assets........................................ 203,000
Liabilities assumed................................. (653,000)
-----------
Total purchase price................................ $24,782,000
===========
</TABLE>
The Pro Forma adjustment reconciles the historical balance sheet of Starseed at
September 30, 1998 to the allocated purchase price assuming the transaction had
occurred on September 30, 1998.
(b) Retirement of note due to the Company immediately upon closing of Merger.
(c) To eliminate the historical stockholders' deficit of Starseed.
(d) The pro forma basic net loss per common share is computed by dividing the
net loss by the weighted average number of common shares outstanding. The
calculation of the weighted average number of shares outstanding assumes that
the 545,527 shares of the Company's common stock issued in its acquisition were
outstanding for the entire period.
F-6
