<PAGE>
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): March 12, 1999
EARTHWEB INC.
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<S> <C> <C>
DELAWARE 000-25017 13-3899472
(State or Other Jurisdiction (Commission File Number) (IRS Identification No.)
of Incorporation)
</TABLE>
3 PARK AVENUE, NEW YORK, NEW YORK 10016
(Address of Principal Executive Offices) (Zip Code)
(212) 725-6550
(Registrant's telephone number, including area code)
- 1 -
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION.
(a) Financial Statements of Business Acquired.
- 2 -
<PAGE>
Report of Independent Accountants
To the Board of Directors
MicroHouse International, Inc.:
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of MicroHouse International, Inc. (the
"Company") at December 31, 1998, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles. 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 audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Denver, Colorado
April 23, 1999
- 3 -
<PAGE>
Micro House International, Inc.
Balance Sheet
as of December 31, 1998
<TABLE>
<CAPTION>
ASSETS:
Current assets:
<S> <C>
Cash and cash equivalents $ 59,569
Accounts receivable, less allowances for doubtful accounts and returns of $317,105 933,583
Receivable-affiliates, net 475,320
Prepaid expenses and other current assets 60,546
--------------
Total current assets 1,529,018
Fixed assets, net 213,309
Goodwill, net 1,414,441
Other assets 21,239
--------------
Total assets $ 3,178,007
==============
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable $ 432,720
Payables-affiliates 125,000
Accrued expenses 324,574
Deferred revenue 1,918,100
Notes payable 409,038
Line of credit 221,290
Obligations under capital leases 9,370
--------------
Total current liabilities 3,440,092
Deferred revenue 202,891
Notes payable, less current portion 1,272,205
Obligations under capital leases, less current portion 15,349
--------------
Total liabilities 4,930,537
--------------
Stockholders' deficit:
Common stock, par value $1 per share (10,000 shares authorized,
204 shares issued and outstanding) 204
Additional paid in capital 620,939
Accumulated other comprehensive loss (9,976)
Accumulated deficit (2,363,697)
--------------
Total stockholders' deficit (1,752,530)
--------------
Total liabilities and stockholders' deficit $ 3,178,007
==============
The accompanying notes are an integral part of these financial statements.
</TABLE>
- 4 -
<PAGE>
Micro House International, Inc.
Statement of Operations and Comprehensive Loss
for the year ended December 31, 1998
- --------------------------------------------------------------------------------
Net revenues $ 4,005,589
Royalties and other revenue 187,823
--------------
Total revenue 4,193,412
Cost of revenues (1,185,440)
--------------
Gross profit 3,007,972
--------------
Operating expenses:
Selling and marketing 1,983,876
Research and development 106,833
General and administrative 1,938,534
Depreciation 173,304
Amortization 282,888
--------------
Total operating expenses 4,485,435
--------------
Loss from operations (1,477,463)
Interest expense, net (133,486)
--------------
Loss from continuing operations (1,610,949)
--------------
Discontinued operations:
Income from discontinued operations 567,735
Gain on disposal of discontinued operations 43,782
--------------
Total income from discontinued operations 611,517
--------------
Net loss (999,432)
Other comprehensive loss:
Unrealized loss on securities (9,976)
--------------
Comprehensive loss $ (1,009,408)
==============
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE>
Micro House International, Inc.
Statement of Stockholders' Deficit
for the year ended December 31, 1998
<TABLE>
<CAPTION>
Common Stock Additional Accumulated Other Accumulated Total
----------------------- Paid in Comprehensive Stockholders'
Shares Amount Capital Loss Deficit Deficit
-------- -------- -------------- ------------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1997 200 $ 200 $ 800 $ -- $ (1,330,982) $ (1,329,982)
Issuance of stock 4 4 199,996 -- -- 200,000
Capital contributions -- -- 420,143 -- -- 420,143
Comprehensive loss:
Net loss -- -- -- -- (999,432) (999,432)
Unrealized loss on
securities -- -- -- (9,976) -- (9,976)
Dividends -- -- -- -- (33,283) (33,283)
------ -------- -------------- --------------- ------------ ---------------
Balance at December 31,
1998 204 $ 204 $ 620,939 $ (9,976) $ (2,363,697) $ (1,752,530)
====== ======== ============== =============== ============ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 6 -
<PAGE>
Micro House International, Inc.
Statement of Cash Flows
for the year ended December 31, 1998
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (999,432)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 173,304
Amortization 282,888
Gain on disposal of discontinued operations (43,782)
Provision for losses on accounts receivable 206,996
Other 1,223
Changes in operating assets and liabilities:
Accounts receivable (622,417)
Receivable - affiliates, net 492,474
Inventory 27,973
Prepaid expenses 72,149
Other assets (8,016)
Accounts payable (57,087)
Accrued expenses 146,030
Payables - affiliates 125,000
Deferred revenue 583,680
--------------
Net cash provided by operating activities 380,983
--------------
Cash flows from investing activities:
Purchase of fixed assets (55,592)
Software development costs (246,400)
Acquisitions (2,084,604)
--------------
Net cash used in investing activities (2,386,596)
--------------
Cash flows from financing activities:
Proceeds from issuance of common stock 200,000
Dividends paid (33,283)
Capital contributions 420,143
Payments on line of credit (211,841)
Proceeds from issuance of debt 1,906,596
Repayment of debt (289,705)
--------------
Net cash provided by financing activities 1,991,910
--------------
Net decrease in cash and cash equivalents (13,703)
Cash and cash equivalents, beginning of year 73,272
--------------
Cash and cash equivalents, end of year $ 59,569
==============
Supplemental Disclosure of Non-cash
Investing and Financing Activities:
Cash paid for interest $ 126,613
==============
Fixed assets received in settlement of accounts
receivable $ 27,869
==============
Fixed assets acquired through capital leases $ 29,618
==============
The accompanying notes are an integral part of these financial statements.
- 7 -
<PAGE>
1. The Company
MicroHouse International, Inc. (the "Company") was incorporated under the
laws of the State of Florida in 1991. The Company writes, markets and
distributes technical support information.
2. Significant Accounting Policies and Procedures
Revenue Recognition
Revenue is recognized as technical support information is delivered. When a
product sale includes the right to receive updates, revenue is recognized
over the term of the total deliveries based on the relative value of each
delivered product. Accounts receivable allowances are provided for estimated
uncollectible accounts, sales discounts and returns.
Cash and Cash Equivalents
Cash and cash equivalents include cash on deposit and liquid investments
with original maturities of less than 90 days. The carrying amount
approximates fair value due to the short-term maturity of these instruments.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash
equivalents and trade accounts receivable. The majority of cash and cash
equivalents was held by one federally insured financial institution at
December 31, 1998. At various times, the Company maintains cash balances in
excess of federally insured limits.
The Company sells its products to customers in several industries worldwide.
Additionally, the Company sells through select resellers and distributors
worldwide. The Company does not require collateral on accounts receivable.
The Company maintains adequate reserves for potential credit losses.
As of December 31, 1998, one customer accounted for 12% of the accounts
receivable balance.
Marketable Securities
Marketable securities of $1,042, included in prepaid expenses and other
current assets, consist of investments held in preferred stock in exchange
for the forgiveness of certain trade receivables due the Company. The
Company has classified these investment securities as available-for-sale
under Statement of Financial Accounting Standards ("SFAS") No. 115,
Accounting for Certain Instruments in Debt and Equity Securities.
Accordingly, these securities are reported at fair market value with
unrealized gains and losses included in stockholders' deficit. The Company
recognized unrealized losses on investments of $9,976 in 1998.
Fixed Assets
Property and equipment primarily consists of computer hardware, computer
software and office furniture. Property and equipment is stated at cost and
depreciated using the straight-line method over their estimated useful
lives. Leasehold improvements are amortized over the lesser of the term of
the related lease or the estimated useful life of the improvement.
Maintenance and repair costs are expensed as incurred. Significant
renovations and improvements which improve assets and/or extend the life of
assets are capitalized. Gains and losses on the disposal of equipment are
included in income as they occur.
Goodwill
Goodwill recognized in connection with acquisitions accounted for under the
purchase method of accounting is amortized using the straight-line method
over 4.5 years. A total of $282,888 of goodwill has been amortized during
1998.
- 8 -
<PAGE>
2. Significant Accounting Policies and Procedures--(Continued)
Income Taxes
The financial statements do not include a provision for income taxes as the
Company is a Subchapter S Corporation. Under Internal Revenue Service
regulations, the income tax liability is borne by the stockholders of the
Subchapter S Corporation.
Risks and Uncertainties
The Company has a limited operating history and its prospects are subject to
the risks, expenses and uncertainties frequently encountered by companies in
the new and rapidly evolving markets for technical support information. The
Company's success will therefore depend in part on establishing and
maintaining a leadership position in the field of providing technical support
information, as well as providing related information technology products.
Use of Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Financial Instruments
The recorded amounts of financial instruments approximate their fair values.
Long-Lived Assets
The carrying value of assets is reviewed on a regular basis for the existence
of facts or circumstances, both internally and externally, that suggest
impairment. The Company determines impairment by comparing recorded amounts
to the expected future cash flows from the asset under evaluation. The cash
flow estimates contain management's best estimates, using appropriate and
customary assumptions and projections.
3. Acquisitions
In March and April 1998, the Company purchased specified assets of White Star
and Ziff-Davis for total consideration of approximately $2,085,000. Both
acquisitions were accounted for as purchases and are included in the Company's
operations beginning on the date of acquisition.
The total consideration paid by the Company included cash of $250,000 and
promissory notes totaling $1,850,000. A promissory note for $1,500,000 was
issued with an interest rate of 10% and quarterly payments for 15 quarters.
Another promissory note for $350,000 was issued bearing no interest with
variable payments due monthly. A discount of $15,396 was recorded.
The allocations of the purchase prices for the 1998 acquisitions are
summarized as follows:
<TABLE>
<S> <C>
Property and equipment $ 52,671
Intangible assets 1,697,329
Capitalized software 335,000
--------------
$ 2,085,000
==============
See Note 4 for discussion of the discontinuation and sale of the ImageCast
Products Division acquired in this acquisition.
</TABLE>
- 9 -
<PAGE>
3. Acquisitions--(Continued)
The following unaudited pro forma information presents the Company's results
of operations for the year ended December 31, 1998, after giving effect to the
acquisition of specified assets of Ziff-Davis, as if the acquisition had been
consummated on January 1, 1998. Such unaudited pro forma information is based
on the historical financial information of the Company and Ziff-Davis and does
not include operational or other changes which might have been incurred by the
Company.
The unaudited pro forma information for the year ended December 31, 1998
presented below, exclusive of discontinued operations, is for illustrative
information purposes only and is not necessarily indicative of results which
would have been achieved or results which may be achieved in the future.
<TABLE>
<S> <C>
Net revenue $ 4,977,122
==============
Net loss from continuing operations $ (1,584,594)
==============
</TABLE>
4. Discontinued Operations
In November 1998, the Company formalized its plan to discontinue its ImageCast
Products Division and, in the same month, sold this product division to a
related party for $650,000. Accordingly, operating results have been
reclassified and reported in discontinued operations.
Operating results of the discontinued operations are as follows:
<TABLE>
<S> <C>
Revenues $ 1,291,189
Expenses (723,454)
--------------
Net income $ 567,735
==============
</TABLE>
In connection with the sale, the Company recorded a gain of approximately
$44,000.
5. Fixed Assets
The major classes of property and equipment and the related depreciation lives
at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Estimated
Useful Lives
--------------
<S> <C> <C>
Computer equipment and software $ 554,692 3 - 5 years
Furniture, fixtures and equipment 249,435 5 years
Leasehold improvements 15,475 3 years
------------
819,602
Less, accumulated depreciation and amortization 606,293
------------
$ 213,309
============
</TABLE>
- 10 -
<PAGE>
6. Commitments and Contingencies
Leases
The Company leases office space and equipment. The future payments under all
lease agreements are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------------- -------------
<S> <C> <C>
1999 $ 12,645 $ 187,211
2000 11,835 176,396
2001 5,530 28,112
------------- -------------
Total minimum lease payments 30,010 $ 391,719
=============
Less: Amounts representing interest 5,291
-------------
Present value of net minimum lease payments 24,719
Less: Current portion 9,370
-------------
Long-term portion $ 15,349
=============
</TABLE>
The Company recognized $254,067 of rent expense for the year ended December
31, 1998. The cost of equipment under capital lease included in property and
equipment was $29,618 at December 31, 1998.
7. Debt
The following describes the Company's outstanding debt:
<TABLE>
<CAPTION>
<S> <C>
Line of credit with a bank which provides for borrowings up to $225,000; due
January 15, 1999; interest at prime plus 1.0% (8.75% at December 31, 1998);
monthly interest payments only, collateralized by all business assets $ 221,290
Fixed rate note; due January 1, 2002; interest at 10%, quarterly payments of
interest only beginning July 1, 1998; quarterly payments of principal and interest
beginning April 1, 1999 of $146,231, collateralized by all assets purchased 1,500,000
Noninterest bearing note; due February 1, 1999; monthly payments of varying
amounts, collateralized by all assets purchased 60,065
Variable rate note to stockholder; due February 1, 2018; interest at prime plus
1.75% (9.5% at December 31, 1998); monthly principal and interest payments of 74,089
varying amounts
Fixed rate note to stockholder; due February 1, 2009; interest at 9.71% 15,000
Fixed rate note to stockholder; due February 1, 2009; interest at 8.0%; annual
interest payments only 15,000
Fixed rate note; due April 3, 2000; interest at 9.65%; monthly payments of
principal and interest of $1,164, collateralized by automobile 17,089
-----------
1,902,533
Less: Current portion (630,328)
-----------
$ 1,272,205
===========
</TABLE>
- 11 -
<PAGE>
7. Debt--(Continued)
Debt repayments are as follows:
<TABLE>
<S> <C>
1999 $ 630,328
2000 492,073
2001 538,303
2002 144,231
2003 1,532
Thereafter 96,066
---------------
$ 1,902,533
===============
</TABLE>
The line of credit was extended for an additional three-month period after
December 31, 1998. All balances relating to the line of credit, the
noninterest-bearing note due February 1999 and the fixed rate note due April
3, 2000, were fully paid off in April 1999.
8. Employee Savings Plan
The Company has a savings plan (the "Savings Plan") that qualifies as a
deferred salary arrangement under Internal Revenue Section 401(k). Under the
Savings Plan, participating employees may defer a portion of their pretax
earnings, up to the Internal Revenue Service annual contribution limit. For
the year ended December 31, 1998, the Company did not contribute to the
Savings Plan.
9. Related Party Transactions
The Company enters into transactions with Micro House Development ("MHD") and
Micro House Solutions ("MHS"). The major stockholders of the Company have a
majority ownership in MHD and MHS.
The Company provides technical and management advisory services to MHD and
MHS. The Company invoices MHD and MHS for associated costs. MHD and MHS sell
Company products and are paid an up-front agreed royalty amount.
Additionally, the Company sells products on behalf of MHD and MHS and receive
an agreed royalty amount. These transactions are summarized below as follows:
<TABLE>
<CAPTION>
MHD MHS Total
------------- ------------- -------------
<S> <C> <C> <C>
Notes receivable from $ 450,000 $ 168,801 $ 618,801
Purchases from (31,459) -- (31,459)
Accounts payable to -- (424,707) (424,707)
Accounts receivable from -- 145,128 145,128
Royalties paid to (145,652) (34,825) (180,477)
Expenses reimbursed from 197,240 -- 197,240
Sales of products for (32,981) -- (32,981)
Royalties received from -- 35,000 35,000
</TABLE>
Additional related party transactions include receivables totaling $11,098 at
December 31, 1998. The amounts are primarily due from stockholders.
10. Subsequent Event
In March 1999, the Company was sold to EarthWeb Inc.
- 12 -
<PAGE>
(b) Unaudited Pro Forma Condensed Consolidated Financial Information
In March 1999, EarthWeb Inc. ("EarthWeb") acquired MicroHouse International,
Inc. ("MHI") for approximately $9 million. In addition, EarthWeb assumed
approximately $1.7 million in MHI debt as part of the acquisition. The
consideration paid by EarthWeb to acquire all of the capital stock of MHI
consisted of (a) $1.6 million in cash, $1.0 million of which was paid at
closing, with $500,000 and $95,000 of the balance payable on July 19, 1999 and
April 1, 2000 respectively, (b) 50,856 shares of EarthWeb common stock delivered
at closing, valued at $2.2 million based upon a stock price of $43.14 of which
48,314 shares were delivered to the sellers and the balance were delivered to
Ascent Partners, Inc. as a fee in connection with the acquisition and (c)
promissory note in the aggregate amount of approximately $5.0 million
convertible into 126,475 shares of common stock on March 20, 2000 (
the "Promissory Note"). The beneficial conversion feature related to the
convertible note payable of approximately $482,000, represents the difference
between the average share price from March 17, 1999 to March 23, 1999 of $43.14
and their negotiated conversion price of $39.33. This beneficial conversion
feature will be amortized over the one-year life of the note payable as a non-
cash interest expense. The note is not convertible prior to March 20, 2000. The
amount of consideration paid by EarthWeb was funded through the issuance of
EarthWeb common stock and the Promissory Note, and from the proceeds of
EarthWeb's initial public offering.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
year ended December 31, 1998 gives effect to the acquisition of MHI as if it
occurred on January 1, 1998 and is based on the historical results of operations
of EarthWeb and MHI for the year ended December 31, 1998. The Unaudited Pro
Forma Condensed Consolidated Balance Sheet gives effect to the acquisition of
MHI as if it had occurred on December 31, 1998. The Unaudited Pro Forma
Condensed Consolidated Balance Sheet and the Unaudited Pro Forma Condensed
Consolidated Statement of Operations and the accompanying notes should be read
in conjunction with the historical financial statements of EarthWeb and MHI
and notes thereto.
The Unaudited Pro Forma Condensed Consolidated Financial Information is intended
for informational purposes only and is not necessarily indicative of the future
financial position or future results of operations of the consolidated company
after the acquisition of MHI or of the financial position or results of
operations of the consolidated company that would have actually occurred had the
acquisition of MHI been effected on January 1, 1998. In addition, the Unaudited
Pro Forma Condensed Consolidated Financial Information does not include the
impact of the acquisition of D&L Online, Inc. which was acquired in February
1999. The impact of that acquisition was presented in EarthWeb's Form 8-K/A
filed on April 15, 1999.
- 13 -
<PAGE>
<TABLE>
<CAPTION>
EarthWeb Inc
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of December 31, 1998
Pro Forma Pro Forma
EarthWeb Microhouse Adjustments Total
------------------ ------------------ ----------------- ----------------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $25,292,229 $ 59,569 $(1,000,080) 1(a) $24,351,718
Accounts receivable, net 1,143,681 933,583 2,077,264
Other current assets 828,686 535,866 (345,807) 1(d) 1,018,745
------------------ ------------------ ---------------- -----------------
Total current assets $27,264,596 1,529,018 (1,345,887) $27,447,727
Fixed assets, net 2,068,752 213,309 ---- 2,282,061
Goodwill and intangible assets, net 1,069,220 1,414,441 11,772,216 1(b) 14,255,877
Other assets 74,816 21,239 ---- 96,055
------------------ ------------------ ---------------- -----------------
Total assets $30,477,384 $ 3,178,007 $10,426,329 $44,081,720
================== ================== ================ =================
Liabilities and stockholders' equity
Accounts payable and accrued expenses $ 3,324,883 $ 757,294 $ 600,000 1(g) 4,682,177
Other current liabilities 234,410 2,273,760 (892,345) 1(c) 2,115,825
500,000 1(e)
Notes payable ------ 409,038 ------ 409,038
------------------ ------------------ ---------------- -----------------
Total current liabilities 3,559,293 3,440,092 207,655 7,207,040
Other liabilities 65,686 1,490,445 95,000 1(e) 1,651,131
Convertible note payable, ------ ------ 4,491,849 1(h) 4,491,849
net
Stockholders' equity 26,852,405 (1,752,530) 5,631,825 1(f) 30,731,700
------------------ ------------------ ---------------- -----------------
Total liabilities and stockholders'
equity $30,477,384 $ 3,178,007 $10,426,329 $44,081,720
================== ================== ================ =================
The accompanying notes are an integral part of these financial statements
</TABLE>
- 14 -
<PAGE>
<TABLE>
<CAPTION>
EarthWeb Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the year ended December 31, 1998
Pro Forma Pro Forma
EarthWeb Microhouse Adjustments Total
-------------------- ---------------- -------------- ------------------
<S> <C> <C> <C> <C>
Revenues $ 3,349,165 $ 4,193,412 $ ----- $ 7,542,577
Cost of revenues 2,131,593 1,185,440 ----- 3,317,033
----------- ----------- ------------ -------------
Gross profit 1,217,572 3,007,972 4,225,544
Operating expenses
Product development 1,475,665 106,833 ----- 1,582,498
Sales & marketing 4,546,839 1,983,876 ----- 6,530,715
General and administrative 3,356,567 1,938,534 750,000 2(c) 6,045,101
Depreciation & amortization 1,115,698 456,192 2,943,054 2(a) 4,514,944
----------- ----------- ------------ -------------
Total operating expenses 10,494,769 4,485,435 3,693,054 18,673,258
----------- ----------- ------------ -------------
Operating (loss) income (9,277,197) (1,477,463) (3,693,054) (14,447,714)
Interest and other income, net 307,409 (143,462) (482,000) 2(b) (318,053)
----------- ----------- ------------ -------------
Loss from continuing operations (8,969,788) (1,620,925) (4,175,054) (14,765,767)
----------- ----------- ------------ -------------
Discontinued operations:
Income from discontinued operations - 567,735 - 567,735
Gain on disposal of discontinued operations
- 43,782 - 43,782
----------- ----------- ------------ -------------
Total income from discontinued operations - 611,517 - 611,517
----------- ----------- ------------ -------------
Net (loss) income $(8,969,788) $(1,009,408) $(4,175,054) $(14,154,250)
=========== =========== ============ =============
Basic net loss per
share from continuing operations $(2.37) $(3.85)
=========== =============
Basic net loss per share $(2.37) $(3.69)
=========== =============
Weighted average shares
used in computing basic net loss per
share 3,782,575 50,856 2(d) 3,833,431
=========== ============ =============
Supplemental pro forma basic net loss
per share from continuing operations
$(1.53) $(2.49)
=========== =============
Weighted average shares used in
computing supplemental pro forma basic
net loss per share (2e)
5,880,467 50,856 2(d) 5,931,323
=========== ============ =============
The accompanying notes are an integral part of these financial statements
</TABLE>
- 15 -
<PAGE>
Notes to the Unaudited Pro Forma Condensed
Consolidated Financial Information
(1) Pro Forma Adjustments and Assumptions
The pro forma adjustments to the unaudited pro forma condensed consolidated
balance sheet, assuming the acquisition of MHI occurred on December 31, 1998,
are as follows:
1(a) Adjustment to record cash payment of $1,000,080 in connection with the
MHI acquisition.
1(b) Adjustment to calculate goodwill and intangible assets and to allocate
the purchase price over the estimated fair value of net assets acquired of MHI,
calculated as follows:
Cash portion of purchase price 1,000,080
Value of stock portion of purchase price 2,193,928
Convertible promissory note payable 4,973,719
Payable portion of purchase price 595,000
Transaction costs 600,000
-----------
Purchase price 9,362,727
Add: fair value of net liabilities acquired 2,409,489
-----------
Goodwill $11,772,216
===========
The value of the common stock issued to MHI was determined to be $43.14 a share.
1(c) Adjustment to deferred revenue to record the balance of the future
obligation of existing subscriptions at its fair value.
1(d) Adjustment to remove MHI net related party receivables settled upon
the acquisition.
1(e) Adjustment to record current and long-term portion of the note payable
to MHI stockholders as part of the total consideration paid.
1(f) Adjustment to reflect the issuance of 50,856 shares of common stock
issued in connection with the MHI acquisition and the additional paid in capital
of $482,000 recorded in connection with the beneficial conversion feature of the
convertible note payable.
1(g) Adjustment to record approximately $600,000 of transaction costs
incurred in connection with the acquisition of MHI.
1(h) Adjustment to record the issuance of the convertible note of
$4,973,719 to MHI stockholders. The note has been recorded net of a discount of
$482,000, which will be amortized as interest expense over the one-year life of
the note. The beneficial conversion feature represents the difference between
the average share price from March 17, 1999 to March 23, 1999 of $43.14 and
their negotiated conversion price of $39.33.
The pro forma adjustments to the unaudited pro forma condensed consolidated
statement of operations, assuming the acquisition occurred on January 1, 1998,
are as follows:
2(a) Adjustment to depreciation and amortization to reflect the
amortization of goodwill and intangible assets of approximately $2.9 million
resulting from the acquisition of MHI, over an approximate four year period, the
expected period of benefit.
- 16 -
<PAGE>
2(b) Adjustment to non cash interest expense of $482,000 to reflect the
accretion of the discount on the convertible note issued in connection with the
acquisition of MHI.
2(c) Adjustment to record compensation expense of approximately $750,000
related to options issued to MHI employees to purchase shares of EarthWeb common
stock at an exercise price below the fair market value of the EarthWeb common
stock at the date of grant.
2(d) Adjustment of weighted average shares of common stock outstanding of
50,856 used in computing basic and diluted net loss per share to reflect the
issuance of 50,856 shares of common stock as of January 1, 1998.
2(e) The supplemental pro forma net loss per share amount is computed by
using the sum of the weighted average number of shares of common stock and the
2,439,833 shares of common stock issued in November 1998 upon conversion of
preferred stock as if it had been converted on January 1, 1998.
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<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.
EarthWeb Inc.
By: /s/ Jack D. Hidary
-----------------------------
Jack D. Hidary
President and Chief Executive
Officer
Dated: May 26, 1999
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