<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
March 10, 2000
Date of Report
(Date of earliest event reported)
INFOSPACE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
0-25131 91-1718107
(Commission File No.) (IRS Employer Identification Number)
15375 N.E. 90/th/ Street
Redmond, Washington 98052
(Address of Principal Executive Offices)
425-602-0600
(Registrant's Telephone Number, Including Area Code)
<PAGE>
On March 10, 2000 InfoSpace, Inc. (formerly InfoSpace.com, Inc.), a
Delaware corporation, completed its acquisition of Saraide, Inc., a Delaware
corporation ("Saraide"). This transaction was initially reported on a Current
Report on Form 8-K dated March 10, 2000. This Amendment is being filed to amend
Item 7(a) and Item 7(b) thereto as set forth below.
Item 7. Financial Statements and Exhibits
- ------- ---------------------------------
(a) Financial Statements of Business Acquired.
The financial statements of Saraide required to be filed pursuant to Item
7(a) of Form 8-K are included as Exhibit 20.1 of this Current Report on Form
8-K.
(b) Pro Forma Financial Information.
The pro forma financial information required to be filed pursuant to Item
7(b) of Form 8-K is included as Exhibit 20.2 of this Current Report on Form 8-K.
(c) Exhibits.
2.1* Agreement and Plan of Reorganization, dated as of December
6, 1999, by and between the Registrant, IC Acquisition I
Corporation (a wholly-owned subsidiary of Registrant) and
Saraide.
20.1 Financial Statements of Saraide, including balance sheets of
Saraide as of December 31, 1999 and 1998 and the statements
of operations for the years ended December 31, 1999 and for
the period from June 30, 1998 (inception) to December 31,
1998, statements of stockholders' equity for the period from
June 30, 1998 (inception) to December 31, 1999, and
statements of cash flows for the years ended December 31,
1999 and for the period from June 30, 1998 (inception) to
December 31, 1999.
20.2 Unaudited Pro Forma Combined Consolidated Statement of
Operations of Registrant and Saraide for the year ended
December 31, 1999.
23.1 Consent of Deloitte & Touche LLP.
_____________
*Previously filed as an Exhibit to the Registrant's Current Report on Form
8-K filed with the Securities and Exchange Commission on March 29, 2000.
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.
Date: May 24, 2000 InfoSpace, Inc.
By: /s/ Tammy D. Halstead
---------------------
Tammy D. Halstead
Vice President, Acting Chief Financial
Officer and Chief Accounting Officer
3
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
2.1* Agreement and Plan of Reorganization, dated as of December 6,
1999, by and between the Registrant, IC Acquisition I Corporation
(a wholly-owned subsidiary of the Registrant) and Saraide.
20.1 Financial Statements of Saraide, including balance sheets of
Saraide as of December 31, 1999 and 1998, the statements of
operations for the years ended December 31, 1999 and for the
period from June 30, 1998 (inception) to December 31, 1998,
statements of stockholders' equity for the period from June 30,
1998 (inception) to December 31, 1998, and statements of cash
flows for the years ended December 31, 1999 and 1998 and for the
period from June 30, 1998 (inception) to December 31, 1998.
20.2 Unaudited Pro Forma Combined Consolidated Statement of Operations
of Registrant and Saraide for the year ended December 31, 1999.
23.1 Consent of Deloitte & Touche LLP.
_________________
* Previously filed as an exhibit to the Registrant's Current Report on Form 8-K
filed with the Securities and Exchange Commission on March 29, 2000.
4
<PAGE>
Exhibit 20.1
SARAIDE, INC. AND
SUBSIDIARIES
Consolidated Financial Statements
Year Ended December 31, 1999 and
Period From Inception (June 30, 1998)
Through December 31, 1998,
and Independent Auditors' Report
<PAGE>
SARAIDE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
INCEPTION (JUNE 30, 1998) THROUGH DECEMBER 31, 1998:
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and shareholders of
Saraide, Inc. and Subsidiaries
San Mateo, California
We have audited the accompanying consolidated balance sheets of Saraide, Inc.
and subsidiaries (collectively, the "Company") as of December 31, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity and
cash flows for the year ended December 31, 1999, and the period from inception
(June 30, 1998) to December 31, 1998. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the year ended December 31, 1999, and the period from inception (June 30,
1998) to December 31, 1998, in conformity with accounting principles generally
accepted in the United States of America.
The Company was in the development stage at December 31, 1998; during the year
ended December 31, 1999, the Company completed its development activities and
commenced its planned principal operations.
/s/ Deloitte & Touche LLP
San Jose, California
May 10, 2000
<PAGE>
SARAIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,768,833 $2,319,678
Accounts receivable, net of allowance for
doubtful accounts of $18,203 619,560 -
Other receivables 291,713 37,220
Prepaid expenses and other current assets 814,762 46,623
----------- ----------
Total current assets 6,494,868 2,403,521
INTANGIBLE ASSETS, Net 13,031,596 1,800,000
PROPERTY AND EQUIPMENT, Net 7,694,196 672,933
OTHER LONG-TERM ASSETS 1,042,590 290,657
----------- ----------
TOTAL $28,263,250 $5,167,111
=========== ==========
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1999 1998
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 4,443,038 $ 1,871,711
Notes payable 18,950,332 -
Current portion of capital lease obligations 311,560 -
Deferred revenue 799,909 -
------------ ---------------
Total current liabilities 24,504,839 1,871,711
CAPITAL LEASE OBLIGATIONS, Net of current portion 909,957 -
------------ ---------------
Total liabilities 25,414,796 1,871,711
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY;
Series A convertible preferred stock, par value $0.01;
1999 and 1998, 25,000,000 shares and 20,000,000 shares
authorized, respectively; 1999 and 1998, 19,061,478 shares
and 6,751,078 shares issued and outstanding, respectively
(liquidation preference of $19,061,478) 190,615 67,511
Series B convertible preferred stock, par value $0.01; 1999,
2,166,667 shares authorized, 1,666,667 shares issued and outstanding,
none in 1998 (liquidation preference of $7,500,000) 16,667 -
Common stock, par value $0.01; 1999 and 1998, 43,833,333 and
20,010,000 shares authorized, respectively; 1999, 2,468,434 shares
issued and outstanding, none in 1998 24,684 -
Additional paid-in capital 37,637,463 6,683,567
Accumulated deficit (31,247,278) (3,411,379)
Unearned compensation - stock options (3,719,960) -
Accumulated other comprehensive loss (53,737) (44,299)
------------ ---------------
Total stockholders' equity 2,848,454 3,295,400
------------ ---------------
TOTAL $ 28,263,250 $ 5,167,111
============ ===============
</TABLE>
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<PAGE>
SARAIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
INCEPTION (JUNE 30, 1998) THROUGH DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
REVENUES:
Service revenue $ 1,662,066 $ -
Consulting revenue 150,000 -
----------- ----------
Total revenues 1,812,066 -
COST OF REVENUES 8,482,412 -
----------- ----------
GROSS LOSS 6,670,346 -
OPERATING EXPENSES:
Product development 2,098,887 1,335,430
Selling, general and administrative 10,279,438 2,161,603
Amortization of intangible assets 1,953,520 -
In-process research and development 3,460,000 -
Stock compensation expense 2,438,551 -
----------- ----------
Total operating expenses 20,230,396 3,497,033
----------- ----------
OPERATING LOSS 26,900,742 3,497,033
OTHER EXPENSE (INCOME):
Interest income (348,763) (85,654)
Interest expense 1,189,147 -
Other 94,773 -
----------- ----------
Total other expense (income) 935,157 (85,654)
----------- ----------
NET LOSS 27,835,899 3,411,379
CURRENCY TRANSLATION ADJUSTMENT 9,438 44,299
----------- ----------
COMPREHENSIVE LOSS $27,845,337 $3,455,678
=========== ==========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
SARAIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
INCEPTION (JUNE 30, 1998) THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
Series A Preferred Shares Series B Preferred Shares Common Stock
------------------------- ------------------------- ------------------------
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Preferred stock issued to founders
for cash in July 1998 4,751,078 $ 47,511 - $ - - $ -
Preferred stock issued to Northern
Telecom Ltd. in July 1998 for
developed technology 2,000,000 20,000 - - - -
Net loss - - - - - -
Currency translation adjustment - - - - - -
------------ ----------- ---------- ---------- ------------ ----------
BALANCE, DECEMBER 31, 1998 6,751,078 67,511 - - - -
Exercise of stock options - - - - 1,554,199 15,542
Common stock issued to employees - - - - 914,235 9,142
Warrants issued for technology - - - - - -
Warrants issued for loan facility - - - - - -
Preferred stock and warrants
issued for acquisition - - 1,666,667 16,667 - -
Preferred stock issued to investors 12,310,400 123,104 - - - -
Unearned compensation - stock
options - - - - - -
Compensation expense - stock
options - - - - - -
Net loss - - - - - -
Currency translation adjustment - - - - - -
------------ ----------- ---------- ---------- ------------ ----------
BALANCE, DECEMBER 31, 1999 19,061,478 $190,615 1,666,667 $ 16,667 2,468,434 $ 24,684
============ =========== ========== ========== ============ ==========
<CAPTION>
Accumulated
Additional Other Total
Paid-in Accumulated Unearned Comprehensive Stockholders'
Capital Deficit Compensation Loss Equity
<S> <C> <C> <C> <C> <C>
Preferred stock issued to founders
for cash in July 1998 $ 4,703,567 $ - $ - $ - $ 4,751,078
Preferred stock issued to Northern
Telecom Ltd. in July 1998 for
developed technology 1,980,000 - - - 2,000,000
Net loss - (3,411,379) - - (3,411,379)
Currency translation adjustment - - - (44,299) (44,299)
----------- ------------ ------------ --------- -------------
BALANCE, DECEMBER 31, 1998 6,683,567 (3,411,379) - (44,299) 3,295,400
Exercise of stock options 279,622 - - - 295,164
Common stock issued to employees 212,634 - - - 221,776
Warrants issued for technology 62,500 - - - 62,500
Warrants issued for loan facility 2,795,000 - - - 2,795,000
Preferred stock and warrants
issued for acquisition 9,258,333 - - - 9,275,000
Preferred stock issued to investors 12,187,296 - - - 12,310,400
Unearned compensation - stock
options 6,158,511 - (6,158,511) - -
Compensation expense - stock
options - - 2,438,551 - 2,438,551
Net loss - (27,835,899) - - (27,835,899)
Currency translation adjustment - - - (9,438) (9,438)
----------- ------------ ------------ --------- -------------
BALANCE, DECEMBER 31, 1999 $37,637,463 $(31,247,278) $ (3,719,960) $ (53,737) $ 2,848,454
=========== ============ ============ ========= =============
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
SARAIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
INCEPTION (JUNE 30, 1998) THROUGH DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(27,835,899) $(3,411,379)
Reconciliation to net cash used in operating activities:
Depreciation of property and equipment 1,095,591 38,283
Amortization expense 1,953,520 200,000
In-process research and development 3,460,000 -
Non-cash compensation expense - stock options 2,438,551 -
Non-cash interest expense - warrants 745,332 -
Changes in operating assets and liabilities:
Accounts receivable (1,452,925) (37,220)
Other non-current assets (751,933) -
Prepaid expenses (1,059,446) (46,623)
Accounts payable and accrued liabilities 514,532 1,871,711
Deferred revenue 799,909 -
Other current liabilities 3,115,099 -
------------ -----------
Net cash used in operating activities (16,977,669) (1,385,228)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6,958,460) (711,216)
Internally developed software (1,345,661) -
Cash balances of acquired business - GSM Network 50,384 -
Acquisition of GSM Information Network (Note 3) (2,358,858)
Deposits (290,657)
------------ -----------
Net cash used in investing activities (10,612,595) (1,001,873)
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable to related parties 16,000,000 -
Proceeds from issuance of common stock 516,940 -
Net proceeds from capital leases 1,221,517 -
Proceeds from issuance of preferred stock 12,310,400 4,751,078
------------ -----------
Net cash provided by financing activities 30,048,857 4,751,078
IMPACT OF CHANGES IN CURRENT EXCHANGE RATES (9,438) (44,299)
------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,449,155 2,319,678
CASH AND CASH EQUIVALENTS:
Beginning of year 2,319,678 -
------------ -----------
End of year $ 4,768,833 $ 2,319,678
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Warrant for loan facility $ 2,795,000 $ -
============ ===========
Preferred stock and warrants issued for GSM Information
Network acquisition $ 9,275,000 $ -
============ ===========
Warrants issued for technology $ 62,500 $ -
============ ===========
Cash paid during the year for interest $ 58,308 $ -
============ ===========
Preferred stock issued for developed technology $ - $ 2,000,000
============ ===========
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
SARAIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
INCEPTION (JUNE 30, 1998) THROUGH DECEMBER 31, 1998
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUBSEQUENT EVENT
Business - Saraide, Inc. (a Delaware corporation) and its subsidiaries
(collectively, the "Company") develops processing and transmission engines
and establishes relationships with data or information providers for the
purposes of developing, improving and distributing services that enable
wireless carriers and internet content providers to create and deliver
wireless internet services via both Short Message Service ("SMS") and
Wireless Application Protocol ("WAP") technologies.
During the period from its inception (June 30, 1998) to December 31, 1998,
the Company devoted substantially all of its efforts to recruiting
personnel to conduct research, product development, and sales and marketing
and did not generate revenues from services. During the year ended December
31, 1999, the Company completed its development activities and commenced
its planned principal operations.
Subsequent Events - On March 10, 2000, the Company was acquired by
InfoSpace, Inc. (formerly InfoSpace.com, Inc.), a global Internet
information infrastructure services company. Under the terms of the
Reorganization Agreement, InfoSpace's wireless services were merged with
and into the Company, and InfoSpace issued 9,590,864 shares (or options to
purchase shares), as adjusted for a subsequent 2:1 stock split, of its
common stock in exchange for eighty-percent (80%) of the then outstanding
shares of the Company's common and preferred stock, and options to purchase
shares of common stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The consolidated financial statements include the
accounts of Saraide, Inc. and its wholly-owned subsidiaries Saraide.com
Ltd. (Canada), GSM Information Network, b.v. (GIN) and Saraide Sarl
(France). All intercompany balances and transactions have been eliminated.
Business combinations - The acquisition of GIN (Note 3) was accounted for
under the purchase method of accounting in accordance with the provisions
of Accounting Principles Board Opinion ("APB") No. 16, "Business
Combinations", and the consolidated financial statements include the
results of operations of GIN from the date of acquisition. Net assets of
GIN were recorded at their fair value at the date of acquisition with the
excess of the purchase price over such fair values allocated to goodwill.
Use of Estimates in Preparation of Financial Statements - 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 disclosures of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Cash and cash equivalents include amounts held in bank demand
accounts and highly liquid money market funds. The carrying amount of money
market funds approximates fair value due to the short maturity of these
instruments. The Company's policy is
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<PAGE>
to place its cash and cash equivalents with high credit quality financial
institutions, government agencies and corporate entities.
Property and Equipment - Property and equipment are recorded at cost and
depreciated using the straight-line method over their estimated useful
lives. Computer equipment, computer software, computer licenses and other
property, plant and equipment are depreciated over periods ranging from 3
to 5 years. Leasehold improvements are amortized over the shorter of their
estimated lives, being 3 years, or the lease term, including option
periods, as appropriate.
Intangible Assets - Intangible assets, consisting of the rights and title
to Northern Telecom Ltd.'s DNSP developed software, goodwill and other
intangible assets associated with the acquisition of GIN (Note 3), are
amortized using the straight-line basis over their estimated useful lives
of five years. Accumulated amortization was $2,153,000 and $200,000 at
December 31, 1999 and 1998, respectively.
Long-Lived Assets - In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", the Company reviews
for the impairment of long-lived assets and certain identifiable
intangibles whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Under SFAS 121, an
impairment loss would be recognized when estimated future cash flows
expected to result from the use of the asset and its eventual disposition
is less than its carrying amount. No such impairment losses were identified
by the Company for the years ended December 31, 1999 and in the period from
inception to December 31, 1998.
Revenue Recognition - Revenue recognition policies for each revenue source
are as follows:
. Services - Service revenues are comprised of amounts earned for the
delivery of messaging services to wireless carriers. Revenue for these
services is recognized as incurred and billed. Fees billed to mobile
phone carriers for the set-up and integration of service agreements
are deferred and recognized ratably over the contract period.
. Consulting - Consulting revenues are recognized upon delivery of
services to end users.
Research and Development - Research and development expenses are charged to
operations as incurred.
Foreign Currency - The functional currencies of the foreign subsidiaries
are the local currencies. Assets and liabilities denominated in foreign
currencies are translated at the exchange rate at the balance sheet date.
Translation adjustments resulting from this process are charged or credited
to Other Comprehensive Income (Loss). Revenue and expenses are translated
at average rates of exchange prevailing during the period. Gains and losses
on foreign currency transactions are included in Other Expense (Income).
Comprehensive Income (Loss) - At December 31, 1999 and 1998, accumulated
other comprehensive loss consisted of unrealized exchange rate losses.
Concentration of credit risk - Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of
cash equivalents and trade receivables. These instruments are generally
unsecured and uninsured. Accounts receivables are typically unsecured and
are derived from revenues earned from wireless carriers located primarily
in the Netherlands. The Company performs ongoing credit evaluations of its
customers and maintains reserves for potential credit losses. For the years
ended December 31, 1999, four customers accounted for approximately 33%,
17%, 13%
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<PAGE>
and 10% of revenues. At December 31, 1999, three customers accounted for
approximately 20%, 18% and 16% of account receivables.
Stock-Based Compensation - As permitted by SFAS No. 123, "Accounting for
Stock-Based Compensation", the Company has elected to account for stock-
based awards to employees using the intrinsic value method in accordance
with Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees." Options granted to non-employees are accounted
for using the minimum value method prescribed by SFAS 123.
Unearned compensation - Unearned compensation represents the unamortized
difference between the option exercise price and the fair value of the
Company's common stock for shares subject to grant at the grant date, for
options issued under the Company's stock incentive plan (Note 7).
Amortization of unearned compensation is charged to operations over the
vesting period of the options.
Income Taxes - The Company accounts for income taxes using the asset and
liability approach for financial reporting purposes. Under SFAS No. 109
"Accounting for Income Taxes", deferred tax assets, including net operating
loss carryforwards, and liabilities are determined based on temporary
differences between the book and tax basis of assets and liabilities. The
Company has fully provided for its net operating loss carry forwards as
realization is not assured.
Recent Accounting Pronouncements - In June 1998, the FASB issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. The Company is
required to adopt SFAS No. 133 for its fiscal year ending December 31,
2001. Management anticipates the adoption of SFAS No. 133 will not have a
significant effect, if any, on the Company's financial position or results
of operations.
Effective January 1, 1999, the Company adopted Statement of Position No.
98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." Accordingly, in 1999 the Company capitalized
direct payroll costs totaling $1,345,661. No depreciation of such costs was
recorded in fiscal 1999 as the projects were in progress at year-end. Prior
to adoption of SOP 98-1, such software development costs were expensed as
incurred.
3. PURCHASE BUSINESS COMBINATIONS
On May 25, 1999, the Company acquired all of the common stock of GIN, a
privately held company, for a purchase consideration of $16,775,000,
consisting of $7,500,000 in cash ($2,500,000 paid in September 1999 and
$5,000,000 to be paid in May 2000); and $9,275,000 representing 1,666,667
shares of Series B Preferred Stock at $4.50 per share, and warrants to
purchase a total of 500,000 shares of Series B Preferred Stock, at $1.00
per share.
-8-
<PAGE>
The purchase price was allocated to the assets acquired and liabilities
assumed based on their estimated fair values as follows:
Goodwill $ 7,972,617
Developed technology 3,800,000
In-process research and development 3,460,000
Customer list 1,200,000
Assembled workforce 150,000
Other net assets 192,383
-----------
Fair value of net assets acquired $16,775,000
===========
Accounting principles generally accepted in the United States of America
require purchased in-process research and development with no alternative
future use to be recorded and charged to expense in the period acquired.
Accordingly, the results of operations for the year ended December 31,
1999, include the write-off of $3,460,000 of purchased in-process research
and development.
The operating results of GIN have been included in the consolidated
statements of operations from the date of acquisition. Unaudited pro forma
results of operations, assuming the acquisition had taken place at January
1, 1999, would be as follows:
1999
Revenue $ 2,939,000
============
Operating loss (28,012,000)
============
Net loss (28,947,000)
============
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consists of:
1999 1998
Computer hardware $ 2,795,099 $484,650
Computer software 4,027,459 143,907
Office equipment 543,396 82,659
Leasehold improvements 1,459,244 -
Other 4,374 -
----------- --------
8,829,572 711,216
Accumulated depreciation and amortization (1,135,376) (38,283)
----------- --------
$ 7,694,196 $672,933
=========== ========
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<PAGE>
5. ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31 consist of:
1999 1998
Accounts payable $2,908,523 $1,076,625
Accrued payroll and related benefits 526,958 489,712
Accrued interest 385,507 -
Accrued rent 320,270 303,822
Taxes payable 181,412 -
Other accrued liabilities 120,368 1,552
---------- ----------
$4,443,038 $1,871,711
========== ==========
6. NOTES PAYABLE
Notes Payable at December 31, 1999 consists of:
Bridge loan from shareholders $16,000,000
Discount on bridge loan (2,049,668)
Note payable for the GIN Acquisition (Note 3) 5,000,000
-----------
$18,950,332
===========
On September 1, 1999 and November 9, 1999, the Company entered into bridge
loan agreements with its shareholders by issuing convertible promissory
notes (Promissory Notes), bearing interest at prime (8.50% at December 31,
1999) in exchange for $10 million and $6 million in cash, respectively.
Principal and any accrued but unpaid interest were due and payable on
December 31, 2000.
In connection with the first bridge loan, the Company granted the
shareholders warrants ("Warrants") expiring December 31, 2004 or on the
occurrence of a liquidity event, as defined, and exercisable for shares of
Series A at a rate of 50,000 shares per $1 million of principal amount of
the applicable Promissory Note, at a purchase price of either (i) $10.00
per share if the Next Financing were not to have occurred on or prior to
December 31, 1999 or (ii) the price per share of the Company's most senior
equity securities issued and sold at the Next Financing if this event were
to have occurred on or prior to December 31, 1999. No beneficial conversion
feature was attributed to the warrants as the $10 per share represent
management's best estimate of the fair value of the Next Financing. The
estimated value of the warrants was $2,795,000 when issued. Such amount was
recognized as an addition to shareholders equity with an offsetting
discount against the $10,000,000 face amount of the first bridge loan. The
discount is being amortized to interest expense over the term of the loan
agreements. Such amortization totaled approximately $745,000 for the year
ended December 31, 1999.
On December 13, 1999, the Company entered into an Election and Termination
Agreement in which the shareholders elected not to convert the Promissory
Notes into equity and to terminate the Warrants in exchange for the
Company's promise to repay the bridge loans as soon as practicable
following the closing of the transactions contemplated by the
Reorganization Agreement (Note 1). As a result, the
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<PAGE>
bridge loans were repaid immediately following the acquisition of the
Company by InfoSpace, Inc., on March 10, 2000.
7. SHAREHOLDERS' EQUITY
Significant terms of the Series A and B preferred shares, which are not
redeemable, are as follows:
Conversion Rights - Each share of Series A and B is convertible (1) at the
option of the holder into a number of common shares determined by dividing
the Conversion Price, as defined, by the $1.00 and $4.50 Issue Prices,
respectively, and (2) will automatically convert into shares of common
stock upon the closing of a firmly underwritten public offering by the
Company resulting in gross proceeds to the Company of not less than
$25,000,000 at a price per share equal to at least $10.00, as adjusted for
dilution, provided that the valuation of the Company prior to such offering
is not less than $75,000,000 ("Qualified Public Offering"). The Conversion
Price is subject to adjustments for certain dilutive issuances, splits and
combinations, as defined.
Liquidation Preferences - Upon any dissolution, liquidation or winding up
of the Company, whether voluntary or involuntary, Series A and B holders
are entitled to receive a distribution in the amount per share equal to the
Issue Price as adjusted for stock splits, combinations, recapitalizations
or Preferred Dividends, prior and in preference to any payments to common
stockholders. After payment of these preferences, any remaining assets
shall be distributed ratably to common stock holders.
Dividend Rights - No dividends or other distributions on common stock
unless the Series A and B holders simultaneously receive a distribution at
least equal to the per share amount to be declared, paid or set aside for
the common stock, multiplied by the number of shares of common stock into
which such Series A and B shares is then convertible.
Voting Rights - The Series A and B holders have the number of votes equal
to the number of shares of common stock into which such Series A and B
shares are then convertible, and vote together with the common stock
holders as a single class.
Stock Option Plans
In December 1998, the Board of Directors approved the 1998 Equity Incentive
Plan (the Plan). The Plan provides employees (including officers and
directors who are employees) of the Company an opportunity to purchase
shares of stock pursuant to options which may qualify as incentive stock
options under Section 422 of the Internal Revenue Code of 1986, as amended
(the Code), and employees, officers, directors, independent contractors and
consultants of the Company an opportunity to purchase shares of stock
pursuant to options which are not described in Section 422 of the Code
(nonqualified stock options). Not more than 4,185,000 shares of stock shall
be available for the grant of options under the Plan. If an option is
surrendered or for any other reason ceases to be exercisable in whole or in
part, the shares which were subject to option but on which the options have
not been exercised shall continue to be available under the Plan. The Plan
is administered by a committee appointed by the Board of Directors. This
committee has the authority to determine the employees, officers,
independent contractors and consultants (excluding member(s) of the
committee) to whom awards will be made, the amount of the awards, and the
other terms and conditions of the awards. Options granted under the Plan
typically vest over four years, ratably on a quarterly basis.
If the continuous service of a participant in the Plan terminates due to an
involuntary termination without cause or due to a constructive termination,
as defined, within one month before, or eighteen months after a Change of
Control, as defined, the vesting and exercisability of all stock option
awards of
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<PAGE>
the participant are accelerated in full. The transaction with InfoSpace
described in Note 1 resulted in a Change in Control.
The following transactions have occurred in the Plan from its adoption
through December 31, 1999:
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
<S> <C> <C>
Granted (fair value of $0.24 per share) 612,235 $0.24
Exercised - -
Canceled - -
-----------
Outstanding, December 31, 1998 (612,235 options exercisable) 612,235 0.24
Granted (fair value of $1.27 per share) 2,281,650 0.19
Exercised (1,554,199) 0.19
Canceled (198,343) 0.13
-----------
Outstanding, December 31, 1999 (1,141,343 options exercisable) 1,141,343 0.22
===========
</TABLE>
At December 31, 1999, a total of 1,489,458 shares were available for future
grants under the Plan.
The following table summarizes information as of December 31, 1999
concerning options outstanding:
Options Outstanding
---------------------------------------------------
Weighted
Average
Ranges of Remaining
Exercise Number Contractual
Prices Outstanding Life (Yrs.)
---------------------------------------------------
$0.10 753,931 7.95
$0.45 387,412 9.71
---------------------------------------------------
$0.10 - $0.45 1,141,343 8.53
===================================================
Additional Stock Plan Information
As discussed in Note 1, the Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25,
"Accounting for Stock Issued to Employees," and its related
interpretations. Accordingly, no compensation expense has been recognized
in the financial statements for employee stock awards granted at fair
market value.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net income as if the Company had adopted the fair
value method. Under SFAS No. 123, the fair value of stock-based awards to
employees is calculated through the use of the minimum value method, which
requires subjective assumptions, including the expected time to exercise,
which affect the calculated values. The Company's calculations were made
using the minimum value method with the following weighted average
assumptions for 1999 and 1998, respectively: no dividends during the
expected term;
-12-
<PAGE>
risk-free interest rates ranging from 4.80% to 5.82%, and expected life of
five years. The Company's calculations are based on a multiple option
valuation approach and forfeitures are recognized as they occur. If the
computed fair value of the employee awards had been amortized to expense
over the vesting period of the employee awards, pro forma net loss would
have been $28,566,000 for the fiscal year ended December 31, 1999 and would
not have been materially different from the net loss for the period from
inception through December 31, 1998.
8. INCOME TAXES
Deferred tax assets (liabilities) are comprised of the following at
December 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Net operating loss carryforwards - US $ 5,758,000 $ 1,284,000
Net operating loss carryforwards - Foreign 3,007,000 -
Depreciation and amortization 183,000 263,000
Stock compensation 449,000 -
Deferred revenue 259,000 -
Other 329,000 66,000
----------- -----------
Total gross deferred tax assets 9,985,000 1,613,000
Valuation allowance (9,985,000) (1,613,000)
----------- -----------
Net deferred tax assets $ - $ -
=========== ===========
</TABLE>
At December 31, 1999, the Company has available federal and California
state net operating loss carryforwards of approximately $16,934,000 and
$2,625,000, respectively, to offset future taxable income through 2019 and
2003, respectively. The Company also has net operating loss carryforwards
for Canadian tax purposes of approximately $6,834,000 which will begin to
expire in 2005. In addition, the Company has Canadian investment tax
credits of approximately $170,000 available to be carried forward. The
investment tax credits will expire beginning in 2008. At December 31, 1999,
the deferred tax assets have been fully reserved due to the uncertainty
surrounding the realization of such benefits.
Current tax laws impose substantial restrictions on the utilization of net
operating loss and credit carryforwards in the event of an "ownership
change," as defined by the Internal Revenue Code. The events described
under Note 1 may limit the Company's ability to utilize its carryforwards.
-13-
<PAGE>
9. COMMITMENTS AND CONTINGENCIES
Leases and Third Party Service Agreements - The Company's offices are
leased under various noncancelable operating lease arrangements. The
agreements expire at various dates through May 2004, and certain of the
leases contain renewal options. The Company also leases certain equipment
under various capital and operating lease agreements. Future minimum lease
payments under capital and operating leases were as follows at December 31,
1999:
Capital Operating
Leases Leases
Fiscal year ending:
2000 $ 515,287 $1,823,361
2001 507,735 1,296,366
2002 320,661 749,870
2003 - 369,150
2004 - 153,813
---------- ----------
Total minimum lease payments 1,343,683 $4,392,560
==========
Amount representing interest 122,166
----------
Present value of minimum lease payments 1,221,517
Current portion 311,560
----------
Long-term obligations $ 909,957
==========
Capital lease obligations are collateralized by equipment with a cost of
$1,572,982 (net book value of $1,482,587) at December 31, 1999.
Rent expense related to operating leases was $1,672,538 in fiscal 1999.
10. EMPLOYEE BENEFIT PLAN
During 1999, the Company adopted a 401(k) Profit Sharing Plan. Qualified
employees as defined under the Plan are eligible to participate and may
make voluntary contributions subject to the limitation set forth by the
Plan or applicable tax laws. Employee salary contributions are fully
vested. The Company may make discretionary contributions as determined by
the Company's management. There were no contributions made during 1999.
* * * * * *
-14-
<PAGE>
EXHIBIT 20.2
INFOSPACE, INC. AND SARAIDE
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
InfoSpace Saraide Adjustments (1) Combined
------------- ------- --------------- --------
<S> <C> <C> <C> <C>
Revenues $ 36,907,171 $ 1,812,066 $ 38,719,237
Cost of revenues 5,259,043 8,482,412 13,741,455
----------------------------------------------- -------------
Gross profit 31,648,128 (6,670,346) 0 24,977,782
Operating expenses:
Product development 3,189,279 2,098,887 5,288,166
Sales, General & Administrative 33,383,051 10,279,438 43,662,489
Amortization of intangibles 3,223,031 1,953,520 58,368,629 63,545,180
Acquisition and related charges 13,249,533 3,460,000 16,709,533
Stock compensation expense 2,438,551 2,438,551
Other - non-recurring charges 11,359,500 11,359,500
----------------------------------------------- -------------
Total operating expenses 64,404,394 20,230,396 58,368,629 143,003,419
----------------------------------------------- -------------
Loss from operations (32,756,266) (26,900,742) (58,368,629) (118,025,637)
Other income (expense), net 11,074,008 (935,157) 10,138,851
Equity in loss from joint venture (11,517) (11,517)
----------------------------------------------- -------------
Net Loss (21,693,775) (27,835,899) (58,368,629) (107,898,303)
Currency Translation Adjustment (9,438) (9,438)
----------------------------------------------- -------------
Comprehensive Loss ($21,693,775) ($27,845,337) ($58,368,629) ($107,907,741)
=============================================== =============
Basic and diluted net loss per share ($ 0.23) ($ 1.10)
=============================================== =============
Shares used in computing basic and
diluted net loss per share calculations 93,565,780 4,436,313 98,002,093
=============================================== =============
</TABLE>
(1) - refers to relevant notes in Note 4 to the Unaudited Pro Forma
Combined Consolidated Financial Statements
Weighted Average Share Capital
- ------------------------------
Preferred Stock 20,728,145
Common Stock 2,468,434
-------------------
Total 23,196,579
===================
Exchange Ratio 5.228797114
InfoSpace Common Stock 4,436,313
===================
<PAGE>
INFOSPACE, INC. AND SARAIDE, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONSOLIDATED FINANCIAL STATEMENTS
1. The Periods Combined
The InfoSpace, Inc. consolidated statements of operations for the year
ended December 31, 1999 has been combined with the Saraide, Inc. statements of
operations for the year ended December 31, 1999, as if the merger had occurred
as of the beginning of the period under the purchase method of accounting.
2. Pro Forma Basis of Presentation
These Unaudited Pro Forma Combined Consolidated Financial Statements are
based on estimates and assumptions. The pro forma adjustments made in connection
with the development of the pro forma information are preliminary and have been
made solely for purposes of developing such pro forma information as necessary
to comply with the disclosure requirements of the Securities Exchange
Commission. The Unaudited Pro Forma Combined Consolidated Financial Statements
do not purport to be indicative of the combined financial position or results of
operations of future periods or indicative of the results of operations of
future periods or indicative of the results that actually would have been
realized had the entities been a single entity during these periods.
The Unaudited Pro Forma Combined Statement of Operations for the year ended
December 31, 1999 reflects the issuance of shares of InfoSpace, Inc. Common
Stock in exchange for all of the outstanding stock, warrants, and options of
Saraide, Inc. The pro forma adjustments reflect the additional shares that would
be used in computing basic and diluted earnings per share as if the Merger had
occurred at the beginning of the period.
3. Pro Forma Earnings Per Share
The Unaudited Pro Forma Combined Consolidated Financial Statements for
InfoSpace, Inc. have been prepared as if the merger was completed at the
beginning of the periods presented. The pro forma basic net loss per share is
based on the combined weighted average number of shares of InfoSpace, Inc.
Common Stock outstanding during the period and the number of InfoSpace, Inc.
Common Stock to be issued in exchange as discussed in Note 2.
The Pro Forma diluted loss per share is computed using the weighted average
number of InfoSpace, Inc. Common Stock and dilutive common equivalent shares
outstanding during the period and the number of shares of InfoSpace.com, Inc.
Common Stock to be issued in exchange. Common equivalent shares consist of the
incremental common shares issuable upon conversion of the exercise of stock
options and warrants using the treasury stock method. Common equivalent shares
are excluded from the computation if their effect is antidilutive. The combined
Company had a pro forma net loss for all periods presented herein; therefore,
none of the options and warrants outstanding during each of the periods
presented were included in the computation of pro forma dilutive earnings per
share as they were antidilutive.
4. Pro Forma Statements of Operations Adjustments
The objective of the pro forma information is to show what the significant
effects on the historical financial information might have been had the
Companies been merged for the periods presented.
Additionally, under the purchase method of accounting, the purchase price
is allocated to the net assets acquired based upon their estimated fair value.
The following represents the purchase price allocation of Saraide, Inc.:
Book value of net liabilities acquired $ (16,180,448)
Purchased technology, including in process
research and development 97,000,000
Contract list 16,000,000
Assembled workforce 2,100,000
--------------
Fair value of net assets acquired 98,919,552
Fair value of shares and options issued 347,022,206
Acquisition costs 340,489
--------------
Excess of purchase price over net assets acquired $ 248,443,143
==============
Goodwill represents the excess of the purchase price over the fair value of
the assets acquired. The goodwill will be capitalized and amortized over a
period of five years.
Purchased technology, contract list, and assembled workforce will be
capitalized and amortized over a period of five years. The Unaudited Pro
Forma Combined Consolidated Statement of Operations reflects adjustments
for such amortization.
Detail of the specific pro forma adjustments are as follows:
(1) Pro forma adjustment represents the amortization of purchased
technology, contract list, assembled workforce and goodwill. For the
year ended December 31, 1999, the expense would have been $58,368,628.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-93167 and 333-94279 of InfoSpace, Inc. (formerly InfoSpace.com, Inc.) on
Form S-3 of our report dated May 10, 2000 with respect to Saraide, Inc.
appearing in this Current Report on Form 8-K/A of InfoSpace, Inc.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
May 22, 2000
