========================
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): November 30, 1999
----------------
About.com, Inc.
--------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 000-25525 13-4034015
-------------------------------------------------------------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
220 East 42nd Street, 24th Floor, New York, New York
------------------------------------------------------
(Address of Principal Executive Offices with Zip Code)
(Registrant's Telephone Number, Including Area Code): (212) 849-2000
------------------------
Not Applicable
-------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
===================
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired and About.com, Inc. Pro Forma
Condensed Consolidated Financial Information.
TABLE OF CONTENTS
PAGE
North Sky, Inc. Financial Statements
Report of Independent Public Accountants F-1
Balance Sheets as of December 31, 1998 and 1997 F-2
Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 F-3
Statements of Stockholders' Equity (Deficit) for the
years ended December 31, 1998, 1997 and 1996 F-4
Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 F-5
Notes to Financial Statements F-6
Balance Sheet as of September 30, 1999 (unaudited) F-13
Statements of Operations for the nine months ended
September 30, 1999 and 1998 (unaudited) F-14
Statements of Stockholders' Equity (Deficit) for the
nine months ended September 30, 1999 (unaudited) F-15
Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998 (unaudited) F-16
Notes to Unaudited Financial Statements F-18
(b) About.com, Inc. Pro Forma Condensed Consolidated
Financial Information
About.com, Inc.
Pro Forma Condensed Consolidated Financial Information F-24
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of September 30, 1999 F-26
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1998 F-27
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the nine months ended September 30, 1999 F-28
Notes to the Unaudited Pro Forma Condensed Consolidated
Financial Information F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of North Sky, Inc.:
We have audited the accompanying balance sheets of North Sky, Inc. (a Delaware
corporation) as of December 31, 1998 and 1997, and the related statements of
operations, stockholder's equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1998. 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 North Sky, Inc. as of December
31, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Salt Lake City, Utah
November 18, 1999
F - 1
<PAGE>
NORTH SKY, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS
1998 1997
-----------------------
<S> <C> <C>
Current assets:
Cash $ 416 $ 256
Accounts receivable, less allowance for doubtful
accounts of $1,000 and $200 in 1998 and 1997,
respectively 17,722 4,061
Prepaid expenses and other -- 749
-----------------------
Total current assets 18,138 5,066
-----------------------
Property and equipment 79,435 32,987
Less accumulated depreciation (24,851) (9,331)
-----------------------
Net property and equipment 54,584 23,656
-----------------------
$ 72,722 $ 28,722
=======================
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable $ 22,160 $ 369
Accounts payable to related parties 158,795 77,790
Accrued liabilities 8,970 --
-----------------------
Total current liabilities 189,925 78,159
-----------------------
Non-interest payable to related party 57,922 --
-----------------------
Commitments and contingencies (Note 6)
Stockholder's deficit:
Preferred stock, $0.0001 par value; 2,000,000
shares authorized, no shares issued -- --
Common stock, $0.0001 par value; 20,000,000 shares
authorized, 6,800,000 shares issued and outstanding 680 680
Additional paid-in capital 1,033 320
Accumulated deficit (176,838) (50,437)
-----------------------
Total stockholder's deficit (175,125) (49,437)
-----------------------
$ 72,722 $ 28,722
=======================
</TABLE>
See accompanying notes to financial statements.
F - 2
<PAGE>
NORTH SKY, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
-------------------------------------
Revenues $ 203,735 $ 136,601 $ 102,775
Cost of revenues 127,589 46,143 26,246
-------------------------------------
Gross profit 76,146 90,458 76,529
-------------------------------------
Operating expenses:
Product development 119,937 71,760 43,460
General and administrative 81,897 69,414 41,107
-------------------------------------
Total operating expenses 201,834 141,174 84,567
-------------------------------------
Loss from operations (125,688) (50,716) (8,038)
Interest expense 713 -- --
-------------------------------------
Net loss $(126,401) $ (50,716) $ (8,038)
=====================================
See accompanying notes to financial statements.
F - 3
<PAGE>
NORTH SKY, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Retained Total
Common Stock Additional Earnings Stockholder's
--------------------- Paid-in (Accumulated Equity
Shares Amount Capital Deficit) (Deficit)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 6,800,000 $ 680 $ 320 $ 8,317 $ 9,317
Net loss -- -- -- (8,038) (8,038)
----------------------------------------------------------------
Balance, December 31, 1996 6,800,000 680 320 279 1,279
Net loss -- -- -- (50,716) (50,716)
----------------------------------------------------------------
Balance, December 31, 1997 6,800,000 680 320 (50,437) (49,437)
Deemed contribution to
capital related to
non-interest bearing loan
from related party -- -- 713 -- 713
Net loss -- -- -- (126,401) (126,401)
----------------------------------------------------------------
Balance, December 31, 1998 6,800,000 $ 680 $ 1,033 $(176,838) $(175,125)
================================================================
</TABLE>
See accompanying notes to financial statements.
F - 4
<PAGE>
NORTH SKY, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(126,401) $ (50,716) $ (8,038)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 15,520 6,626 2,624
Imputed interest expense on non-interest bearing
loan from related party 713 -- --
Changes in operating assets and liabilities:
Accounts receivable (13,661) 3,543 260
Prepaid expenses and other 749 (225) (524)
Accounts payable 21,791 (185) (5,327)
Accounts payable to related parties 81,005 60,826 16,964
Accrued liabilities 8,970 -- --
-------------------------------------
Net cash provided by (used in) operating
activities (11,314) 19,869 5,959
-------------------------------------
Cash flows from investing activities:
Expenditures for property and equipment (46,448) (19,621) (10,437)
-------------------------------------
Cash flows from financing activities:
Cash advance from related party 57,922 -- --
-------------------------------------
Net increase (decrease) in cash 160 248 (4,478)
Cash, at beginning of year 256 8 4,486
-------------------------------------
Cash, at end of year $ 416 $ 256 $ 8
=====================================
</TABLE>
See accompanying notes to financial statements.
F - 5
<PAGE>
NORTH SKY, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
North Sky, Inc. (the "Company") was originally incorporated as Direct Connect,
Inc. in the state of Delaware on September 27, 1994. On July 28, 1999, the
Company reincorporated and changed its name to North Sky, Inc. The Company
offers web site hosting as well as programming and design support for its
customers. Subsequent to December 31, 1998, the Company also began offering
additional services centered around free web site hosting. The Company now
derives most of its revenues from sources related to the free web sites it
offers, such as advertising, e-commerce and fee-based premium services.
The Company is subject to certain risk factors frequently encountered by
companies lacking adequate capital and which are in the early stages of
developing a business that may impact its ability to become a profitable
enterprise. The Internet is an industry characterized by intense competition and
low barriers to entry. Many of the Company's competitors are substantially
larger than the Company with greater financial and other resources. The Company
had a net working capital deficiency of $171,787 and stockholder's deficit of
$175,125 at December 31, 1998. The Company has experienced net losses of
$126,401, $50,716 and $8,038 during the years ended December 31, 1998, 1997 and
1996, respectively. The net losses have been largely funded by related parties
owned and managed by the Company's sole stockholder. As described in Note 7,
management has secured additional debt financing subsequent to December 31, 1998
and has converted certain debt to equity. The Company has also obtained
additional revenue sources in 1999 and is pursuing other actions to fund
operations; however, if future additional financing cannot be secured, the
Company's ability to fund operations and achieve future profitability may be
affected.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Web site hosting revenues are recognized monthly as earned. Service revenues,
including programming and design fees, advertising and other fee-based premium
services are recognized as services are performed.
Product Development Costs
Product development costs are expensed as incurred. Statement of Financial
Accounting Standards ("SFAS") No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed requires capitalization of
certain software development costs subsequent to the establishment of
technological feasibility. Based upon the Company's product development process,
technological feasibility is established upon completion of a working model.
Costs incurred by the Company between completion of the working model and the
point at which the product is ready for general release have been insignificant.
F - 6
<PAGE>
NORTH SKY, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of three years. Maintenance
and repairs are charged to expense as incurred while renewals and improvements
are capitalized. When property and equipment are disposed of, the related cost
and accumulated depreciation are removed from the respective accounts, and any
gain or loss is included in the results of operations. The Company identifies
and records impairment losses on fixed assets when events and circumstances
indicate that such assets might be impaired. To date, no such impairment has
been recorded.
Property and equipment consisted of the following at December 31, 1998 and 1997:
1998 1997
-------------------
Office equipment $38,958 $ 15,960
Network equipment and software 40,477 17,027
-------------------
79,435 32,987
Accumulated depreciation (24,851) (9,331)
-------------------
$54,584 $ 23,656
===================
Income Taxes
The Company has elected, for federal and state income tax purposes, to include
its taxable income with that of its shareholder (an S Corporation election).
Accordingly, no provision for federal and state income taxes has been reflected
in the accompanying financial statements.
Stock-Based Compensation
The Company accounts for its stock option grants to employees under Accounting
Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to
Employees and provides the pro forma footnote disclosures required by SFAS No.
123, Accounting for Stock-Based Compensation. Under APB No. 25, compensation
cost, if any, is recognized over the respective vesting period based on the
difference, on the date of grant, between the fair value of the Company's common
stock and the grant price.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain 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 period. Actual results could differ from those estimates.
F - 7
<PAGE>
NORTH SKY, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, accounts
receivable and accounts payable. The carrying amounts of all financial
instruments approximate fair value, except for the non-interest payable to
related party. As discussed in Note 7, the payable to related party was
converted to common stock.
Concentration of Risk
Financial instruments that subject the Company to concentrations of credit risk
consist primarily of accounts receivable. The Company conducts business with
various companies and individuals over the Internet. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral. Reserves are maintained for potential credit losses.
For the year ended December 31, 1998, no single customer accounted for greater
than 10 percent of net revenues. For the years ended December 31, 1997 and 1996,
one customer accounted for 24 and 35 percent, respectively, of net revenues.
Additionally, one other customer accounted for 23 percent of net revenues for
the year ended December 31, 1997.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, which establishes guidelines
for the accounting for costs of all computer software developed or obtained for
internal use. The Company is required to adopt SOP 98-1 effective January 1,
1999. The adoption of SOP 98-1 is not expected to have a material impact on the
Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the statement of operations, and requires that a company formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. SFAS No. 133 must be applied to (a) derivative instruments and
(b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired, or substantively modified after December 31, 1997 (and, at the
Company's election before January 1, 1998). The adoption of SFAS No. 133 is not
expected to have a material impact on the Company's financial position or
results of operations.
F - 8
<PAGE>
NORTH SKY, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1998, 1997 and 1996, the Company entered
into various transactions with Maker LLC, Marketing Ally, Inc. and Stewardship
Financial, Inc., companies owned and managed by the Company's sole stockholder.
In management's opinion, these transactions were consummated at terms reflective
of those that could be obtained from an independent party.
Maker leased office space to the Company through August 1999, at which time the
Company moved to a new facility and entered into a new lease with an independent
party (see Note 7). The Company shared office space with another company owned
by the sole stockholder. As a result, Maker did not charge the Company for
office rent for any periods prior to January 1, 1998. During 1998, the Company
incurred $4,500 in lease expense to Maker.
Marketing Ally is a telemarketing company that provided billing, collection and
customer support functions to the Company. The Company incurred $74,807, $21,380
and $19,774 in expenses to Marketing Ally during the years ended December 31,
1998, 1997 and 1996, respectively. Marketing Ally also made cash advances to the
Company of $57,922 during 1998. The advance was non-interest bearing and due on
demand. Interest has been imputed at 13 percent and reflected as interest
expense in the accompanying 1998 statement of operations. As discussed in Note
7, subsequent to December 31, 1998, the amount payable was converted to common
stock; accordingly, the $57,922 is reflected as a non-current liability in the
accompanying December 31, 1998 balance sheet.
Stewardship Financial, Inc. provided employee leasing services to the Company.
The Company incurred $207,966, $122,368 and $68,103 for labor and benefit
expenses to Stewardship Financial during the years ended December 31, 1998, 1997
and 1996, respectively.
4. COMMON STOCK TRANSACTIONS
On September 1, 1997, the Board of Directors approved a 6.8 for 1 stock split of
the Company's common stock. This stock split, along with the subsequent 1,000
for one stock split on August 27, 1999 discussed in Note 7, have been
retroactively reflected in the accompanying financial statements.
5. STOCK OPTIONS
On September 1, 1997, the Company established an incentive stock option plan.
The plan provides for the issuance of a maximum of 6,000,000 shares of common
stock to eligible employees of the Company. Incentive stock options are granted
at not less than 100 percent of the fair market value of the underlying common
stock on the date of the grant. Under the terms of the plan, the Company may, at
its discretion, accelerate the vesting date of option grants for any reason,
including a change of control, as defined in the option plan.
F - 9
<PAGE>
NORTH SKY, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
During September 1997, the Company issued stock options to employees to purchase
2,200,000 shares of common stock at an exercise price of $0.02 per share. During
January 1998, the Company issued stock options to employees to purchase
1,000,000 shares of common stock at an exercise price of $0.03 per share. During
September 1998, the Company issued stock options to an employee to purchase
300,000 shares of common stock at an exercise price of $0.04 per share. All
options vest equally over a four-year period and expire after five years. All
options have been granted at the estimated fair market value on the date of the
grant as determined by the Company's Board of Directors.
The following summarizes the outstanding stock options at December 31, 1998:
Outstanding as Weighted-Average Excercisable as
of December 31, Remaining of December 31,
Exercise Prices 1998 Contractual Life 1998
-----------------------------------------------------------------------
$ 0.02 2,200,000 2.7 550,000
$ 0.03 1,000,000 3.1 --
$ 0.04 300,000 3.7 --
-----------------------------------------------------
3,500,000 2.9 550,000
=====================================================
The Company applies APB No. 25 and related interpretations in accounting for its
stock option grants to employees. Accordingly, no compensation expense has been
recognized for these stock option grants. Had compensation expense for the
Company's employee stock option grants been determined in accordance with SFAS
No. 123, the Company's net loss for the years ended December 31, 1998 and 1997
would have been increased to the pro forma amounts indicated below:
1998 1997
---------------------
Net loss:
As reported $(126,401) $(50,716)
Pro forma (131,512) (51,744)
The fair value of each option grant has been estimated on the grant date using
the Black-Scholes option pricing model with the following assumptions used for
all grants; risk-free interest rate of 5.6 percent for 1998 grants and 6.6
percent for 1997 grants, expected price volatility of zero percent, annual
dividend yield of zero percent and an expected life of five years. The weighted
average fair value of options granted in 1998 and 1997 was $0.008 and $0.006 per
share, respectively.
6. COMMITMENTS AND CONTINGENCIES
Insurance Coverage
As of December 31, 1998 and for the three years then ended, the Company did not
maintain insurance coverage for general liability. Management is not aware of
any significant claims or losses incurred during the periods that the Company
was not covered by insurance. Effective August 13, 1999, the Company obtained
property and general liability insurance coverages.
F - 10
<PAGE>
NORTH SKY, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. SUBSEQUENT EVENTS (UNAUDITED)
Stock Split
On August 27, 1999, the Board of Directors approved a 1,000 for 1 stock split of
the Company's common stock. This stock split has been retroactively reflected in
the accompanying financial statements.
Stock Option Grants
Subsequent to December 31, 1998, the Company granted incentive stock options to
purchase 1,722,500 shares of common stock at exercise prices ranging from $0.18
per share to $0.43 per share (weighted-average exercise price of $0.28 per
share). Of these options, 535,000 vested immediately, with the remaining
1,187,500 shares vesting equally over a four-year period. All options expire
after five years.
Settlement of Related Party Payable for Common Stock
Subsequent to December 31, 1998, the Company continued to have cash advanced by
related parties at no interest cost to the Company. From January 1, 1999 to May
3, 1999, the Company received an additional $50,000 from related parties. On May
3, 1999, the Company settled its payable at that date of $107,922, in addition
to certain payables from transactions with related parties totaling $142,768, in
exchange for 583,000 shares of common stock valued at $0.43 per share, as
determined by the Board of Directors on the settlement date.
Conversion of Related Party Payable to Note Payable
On July 1, 1999, the Company converted $130,000 of payables to related parties
to a note payable. The note bears interest at 14 percent per annum and matures
on December 31, 2000. All principal and interest is due at maturity of the note.
Issuance of Debt
On July 1, 1999, the Company borrowed $250,000 from a finance company. The loan
bears interest at 12.75 percent per annum and matures in September 2004.
Principal and interest payments of $5,656 are due monthly. The loan is secured
by certain assets of the Company.
F - 11
<PAGE>
NORTH SKY, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
Private Placement Debt Financing
On November 18, 1999, the Company issued secured convertible promissory notes in
the amount of $775,000. The notes bear interest at 11 percent per annum and
mature on November 1, 2000. Upon the occurrence of certain events, including an
integrated offering of preferred stock or other financing as defined in the
notes, any unpaid principal and accrued interest will automatically be converted
to common stock of the Company at $1.50 per share (the fair value of the
Company's common stock as determined by the Board of Directors at the date of
the issuance of the notes). The holders of the notes have the option to convert
any unpaid principal and interest at $1.50 per share in the event of any
transaction or series of transactions that result in the transfer of 50 percent
or more of the outstanding voting power of the Company. The holders can also
convert any unpaid principal and interest at $1.50 per share at maturity of the
notes or at the Company's notice of intent to prepay the notes. The notes are
secured by certain tangible and intangible assets of the Company.
Operating Lease Commitments
Subsequent to December 31, 1998, the Company entered into various lease
agreements for office space and equipment under noncancelable operating leases.
The leases expire at various dates from May 2001 through July 2004. The lease
terms call for total payments of $717,441 over the life of the leases
F - 12
<PAGE>
NORTH SKY, INC.
BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(Unaudited)
ASSETS
Current assets:
Cash $ 27,179
Accounts receivable, less allowance for doubtful
accounts of $1,000 166,693
Prepaid expenses and other 10,482
---------
Total current assets 204,354
---------
Property and equipment 306,593
Less accumulated depreciation (79,466)
---------
Net property and equipment 227,127
---------
$ 431,481
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 38,181
Accounts payable 198,642
Accounts payable to related parties 81,023
Accrued liabilities 4,550
---------
Total current liabilities 322,396
---------
Note payable to related party 130,000
---------
Long-term debt, net of current portion 211,819
---------
Commitments and contingencies (Note 7)
Stockholders' deficit:
Preferred stock, $0.0001 par value; 2,000,000
shares authorized, no shares issued --
Common stock, $0.0001 par value; 20,000,000 shares
authorized, 7,383,000 shares issued and outstanding 738
Additional paid-in capital 347,542
Deferred compensation (89,300)
Accumulated deficit (491,714)
---------
Total stockholders' deficit (232,734)
---------
$ 431,481
=========
See accompanying notes to unaudited financial statements.
F - 13
<PAGE>
NORTH SKY, INC.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
1999 1998
---------------------------
Revenues:
Advertising $ 587,452 $ --
Hosting 165,535 157,558
E-commerce and other 128,430 --
---------------------------
Total revenues 881,417 157,558
---------------------------
Cost of revenues:
Advertising 205,670 --
Hosting 131,679 73,484
E-commerce and other 87,786 --
---------------------------
Total cost of revenues 425,135 73,484
---------------------------
Gross profit 456,282 84,074
---------------------------
Operating expenses:
Sales and marketing 149,746 --
Product development 240,815 83,700
General and administrative 354,348 60,593
---------------------------
Total operating expenses 744,909 144,293
---------------------------
Loss from operations (288,627) (60,219)
Interest expense 26,249 --
---------------------------
Net loss $(314,876) $ (60,219)
===========================
See accompanying notes to unaudited financial statements.
F - 14
<PAGE>
NORTH SKY, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-in Deferred Accumulated Stockholders'
Shares Amount Capital Compensation Deficit Deficit
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 6,800,000 $ 680 $ 1,033 $ -- $(176,838) $(175,125)
Issuance of common stock in exchange
for settlement of payables to
related parties 583,000 58 250,632 -- -- 250,690
Deemed contribution to capital
related to non-interest bearing
loan from related party -- -- 4,677 -- -- 4,677
Deferred compensation in connection
with granting stock options -- -- 91,200 (91,200) -- --
Amortization of deferred compensation -- -- -- 1,900 -- 1,900
Net loss -- -- -- -- (314,876) (314,876)
--------------------------------------------------------------------------------------
Balance, September 30, 1999 7,383,000 $ 738 $ 347,542 $ (89,300) $(491,714) $(232,734)
======================================================================================
</TABLE>
See accompanying notes to unaudited financial statements.
F - 15
<PAGE>
NORTH SKY, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
1999 1998
-----------------------
Cash flows from operating activities:
Net loss $(314,876) $ (60,219)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 54,615 14,732
Amortization of deferred compensation 1,900 --
Imputed interest expense on non-interest bearing
loan from related party 4,677 --
Changes in operating assets and liabilities:
Accounts receivable (148,971) (7,026)
Prepaid expenses and other (10,482) 749
Accounts payable 176,482 112,662
Accounts payable to related parties 194,996 (49,639)
Accrued liabilities (4,420) --
-----------------------
Net cash provided by (used in) operating
activities (46,079) 11,259
-----------------------
Cash flows from investing activities:
Expenditures for property and equipment (227,158) (11,367)
-----------------------
Cash flows from financing activities:
Proceeds from issuance of debt 250,000 --
Cash advance from related party 50,000 --
-----------------------
Net cash provided by financing activities 300,000 --
-----------------------
Net increase (decrease) in cash 26,763 (108)
Cash, at beginning of period 416 256
-----------------------
Cash, at end of period $ 27,179 $ 148
=======================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 17,022 $ --
See accompanying notes to unaudited financial statements.
F - 16
<PAGE>
NORTH SKY, INC.
STATEMENTS OF CASH FLOWS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
Supplemental disclosure of non-cash financing activities:
On May 3, 1999, the Company settled $250,690 of payables to related parties in
exchange for 583,000 shares of common stock valued at $0.43 per share, as
determined by the Board of Directors on the settlement date.
On July 1, 1999, the Company converted $130,000 of payables to related parties
to a note payable. The note bears interest at 14 percent per annum and matures
on December 31, 2000. All principal and interest is due at the maturity date.
See accompanying notes to unaudited financial statements.
F - 17
<PAGE>
NORTH SKY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
North Sky, Inc. (the "Company") was originally incorporated as Direct Connect,
Inc. in the state of Delaware on September 27, 1994. On July 28, 1999, the
Company reincorporated and changed its name to North Sky, Inc. The Company
offers web site hosting as well as programming and design support for its
customers. The Company derives most of its revenues from sources related to the
free web sites it offers, such as advertising, e-commerce and fee-based premium
services.
The Company is subject to certain risk factors frequently encountered by
companies lacking adequate capital and which are in the early stages of
developing a business that may impact its ability to become a profitable
enterprise. The Internet is an industry characterized by intense competition and
low barriers to entry. Many of the Company's competitors are substantially
larger than the Company with greater financial and other resources. The Company
had a net working capital deficiency of $118,042 and a stockholders' deficit of
$232,734 at September 30, 1999. The Company has experienced net losses of
$314,876 and $126,401 during the nine months ended September 30, 1999 and the
year ended December 31, 1998, respectively. The net losses have been largely
funded by related parties owned and managed by the Company's stockholders.
Management has converted certain debt to equity and, as described in Note 8,
management has secured additional debt financing subsequent to September 30,
1999. The Company has also obtained additional revenue sources in 1999 and is
pursuing other actions to fund operations; however, if future additional
financing cannot be secured, the Company's ability to fund operations and
achieve future profitability may be affected.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Web site hosting revenues are recognized monthly as earned. Service revenues,
including programming and design fees, advertising and other fee-based premium
services are recognized as services are performed.
Product Development Costs
Product development costs are expensed as incurred. Statement of Financial
Accounting Standards ("SFAS") No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed requires capitalization of
certain software development costs subsequent to the establishment of
technological feasibility. Based upon the Company's product development process,
technological feasibility is established upon completion of a working model.
Costs incurred by the Company between completion of the working model and the
point at which the product is ready for general release have been insignificant.
F - 18
<PAGE>
NORTH SKY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(Continued)
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of three years. Maintenance
and repairs are charged to expense as incurred while renewals and improvements
are capitalized. When property and equipment are disposed of, the related cost
and accumulated depreciation are removed from the respective accounts, and any
gain or loss is included in the results of operations. The Company identifies
and records impairment losses on fixed assets when events and circumstances
indicate that such assets might be impaired. To date, no such impairment has
been recorded.
Property and equipment consisted of the following at September 30, 1999:
Office equipment $ 144,827
Network equipment and software 161,766
---------
306,593
Accumulated depreciation (79,466)
---------
$ 227,127
=========
Income Taxes
The Company has elected, for federal and state income tax purposes, to include
its taxable income with that of its shareholders (an S Corporation election).
Accordingly, no provision for federal and state income taxes has been reflected
in the accompanying financial statements.
Stock-Based Compensation
The Company accounts for its stock option grants to employees under Accounting
Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to
Employees and provides the pro forma footnote disclosures required by SFAS No.
123, Accounting for Stock-Based Compensation. Under APB No. 25, compensation
cost, if any, is recognized over the respective vesting period based on the
difference, on the date of grant, between the fair value of the Company's common
stock and the grant price.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain 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 period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, accounts
receivable and accounts payable. The carrying amounts of all financial
instruments approximate fair value.
F - 19
<PAGE>
NORTH SKY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(Continued)
Concentration of Risk
Financial instruments that subject the Company to concentrations of credit risk
consist primarily of accounts receivable. The Company conducts business with
various companies and individuals over the Internet. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral. Reserves are maintained for potential credit losses.
3. RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 1999 and 1998, the Company entered
into various transactions with Maker LLC, Marketing Ally, Inc. and Stewardship
Financial, Inc., companies owned and managed by the Company's stockholders. In
management's opinion, these transactions were consummated at terms reflective of
those that could be obtained from an independent party.
Maker LLC leased office space to the Company through August 1999, at which time
the Company moved to a new facility and entered into a new lease with an
independent party. During the nine months ended September 30, 1999 and 1998, the
Company incurred $2,782 and $3,375, respectively, in lease expense to Maker LLC.
Stewardship Financial, Inc. provided employee leasing services to the Company.
The Company incurred $588,237 and $144,842 for labor and benefit expenses to
Stewardship Financial during the nine months ended September 30, 1999 and 1998,
respectively.
Marketing Ally is a telemarketing company that provided billing, collection and
customer support functions to the Company. The Company incurred $49,208 and
$18,691 in expenses to Marketing Ally during the nine months ended September 30,
1999 and 1998, respectively.
Marketing Ally made a cash advance to the Company of $50,000 during the nine
months ended September 30, 1999. Cumulative cash advances to the Company from
related parties totaled $107,929. The advances were non-interest bearing and due
on demand. Interest has been imputed at 13 percent and reflected as interest
expense in the accompanying statement of operations for the nine months ended
September 30, 1999. On May 3, 1999, the Company settled its payable from cash
advances of $107,929, as well as other trade payables from related parties of
$142,761 in exchange for 583,000 shares of common stock valued at $0.43 per
share, as determined by the Board of Directors on the settlement date.
On July 1, 1999, the Company converted $130,000 of payables to related parties
to a note payable. The note bears interest at 14 percent per annum and matures
on December 31, 2000. All principal and interest is due at the maturity date.
4. COMMON STOCK TRANSACTIONS
On August 27, 1999, the Board of Directors approved a 1,000 for 1 stock split of
the Company's common stock. This stock split has been retroactively reflected in
the accompanying unaudited financial statements.
F - 20
<PAGE>
NORTH SKY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(Continued)
5. LONG-TERM DEBT
Long-term debt consists of a loan payable to a finance corporation. The loan
bears interest at 12.75 percent per annum and is payable in monthly installments
of $5,656 through September 2004. The loan is secured by certain assets of the
Company. The following are scheduled principal maturities of long-term debt as
of September 30, 1999:
Twelve Months Ending September 30,
----------------------------------
2000 $ 38,181
2001 43,344
2002 49,203
2003 55,859
2004 63,413
----------
$ 250,000
==========
6. STOCK OPTIONS
On September 1, 1997, the Company established an incentive stock option plan.
The plan provides for the issuance of a maximum of 6,000,000 shares of common
stock to eligible employees of the Company. Under the terms of the plan, the
Company may, at its discretion, accelerate the vesting date of option grants for
any reason, including a change of control, as defined in the option plan.
During the nine months ended September 30, 1999 and 1998, the Company granted
stock options to employees to purchase 1,649,000 and 1,300,000 shares of common
stock, respectively, at weighted average exercise prices of $0.27 and $0.03 per
share, respectively. All options vest equally over a four-year period, except
for 535,000 options issued in 1999, which vested immediately. All options expire
after five years.
The following summarizes the outstanding stock options at September 30, 1999:
Outstanding as Weighted-Average Excercisable as
of September 30, Remaining of September 30,
Exercise Prices 1999 Contractual Life 1999
-------------------------------------------------------------------------
$ 0.02 2,200,000 2.9 1,100,000
$ 0.03 1,000,000 3.3 375,000
$ 0.04 300,000 3.9 75,000
$ 0.18 970,000 4.5 475,000
$ 0.35 216,000 4.8 --
$ 0.43 463,000 4.9 60,000
-----------------------------------------------------
5,149,000 3.6 2,085,000
=====================================================
F - 21
<PAGE>
NORTH SKY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(Continued)
The Company applies APB No. 25 and related interpretations in accounting for its
stock option grants to employees. Accordingly, compensation expense, if any, is
recognized over the respective vesting period based on the difference, on the
date of the grant, between the fair value of the Company's common stock and the
grant price. Had compensation expense for the Company's employee stock option
grants been determined in accordance with SFAS No. 123, the Company's net loss
for the nine months ended September 30, 1999 and 1998 would have been increased
to the pro forma amounts indicated below:
1999 1998
---------------------
Net loss:
As reported $(314,876) $(60,219)
Pro forma (342,571) (64,052)
The fair value of each option grant has been estimated on the grant date using
the Black-Scholes option pricing model with the following assumptions used for
all grants; risk-free interest rate of 5.7 percent for 1999 grants and 5.6
percent for 1998 grants, expected price volatility of zero percent, annual
dividend yield of zero percent and an expected life of five years. The weighted
average fair value of options granted in 1999 and 1998 was $0.12 and $0.008 per
share, respectively.
7. COMMITMENTS AND CONTINGENCIES
Insurance Coverage
Prior to August 13, 1999, the Company did not maintain insurance coverage for
general liability. Management is not aware of any significant claims or losses
incurred during the periods that the Company was not covered by insurance.
Effective August 13, 1999, the Company obtained property and general liability
insurance coverages.
Operating Leases
The Company leases certain equipment and office space under non-cancelable
operating leases. Lease expense for the nine months ended September 30, 1999 and
1998 was $21,776 and $0, respectively. Future minimum lease payments under these
leases are as follows:
Twelve Months Ending September 30,
----------------------------------
2000 $ 144,335
2001 147,089
2002 149,287
2003 150,134
2004 104,820
----------
$ 695,665
==========
F - 22
<PAGE>
NORTH SKY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(Continued)
8. SUBSEQUENT EVENTS
Merger with About.com
On December 15, 1999, the Company executed an agreement and plan of
reorganization whereby the Company was merged into a wholly-owned subsidiary of
About.com, Inc. ("About.com"). Under the terms of the agreement, About.com
issued approximately 0.0635 shares of About.com common stock in exchange for
each share of the Company's common stock. In addition, all options to purchase
the Company's common stock were converted into options to purchase About.com
common stock at the same conversion rate.
Stock Options
Subsequent to September 30, 1999, the Company granted incentive stock options to
purchase 73,500 shares of common stock at an exercise price of $0.43 per share.
These options vest over a four-year period and expire after five years.
Additionally, on November 30, 1999, the Company granted incentive stock options
to purchase 1,327,187 shares of common stock at an exercise price of $2.71 per
share. These options vest over a four-year period and expire after ten years.
On December 9, 1999, the Board of Directors increased the number of options
reserved for issuance under the Company's stock option plan from 6,000,000
shares to 6,500,000 shares.
On December 14, 1999, the Company's Board of Directors authorized the
acceleration of the vesting dates of 1,270,875 options to purchase common stock
whereby these options became immediately exercisable.
Private Placement Debt Financing
On November 18, 1999, the Company issued secured convertible promissory notes in
the amount of $775,000. The notes bear interest at 11 percent per annum and
mature on November 1, 2000. Upon the occurrence of certain events, including an
integrated offering of preferred stock or other financing as defined in the
notes, any unpaid principal and accrued interest will automatically be converted
to common stock of the Company at $1.50 per share (the fair value of the
Company's common stock as determined by the Board of Directors at the date of
the issuance of the notes). The holders of the notes have the option to convert
any unpaid principal and interest at $1.50 per share in the event of any
transaction or series of transactions that result in the transfer of 50 percent
or more of the outstanding voting power of the Company. The holders can also
convert any unpaid principal and interest at $1.50 per share at maturity of the
notes or at the Company's notice of intent to prepay the notes. The notes are
secured by certain tangible and intangible assets of the Company.
On December 14, 1999, all holders of the $775,000 convertible notes exercised
their option to convert all unpaid principal and accrued interest into North
Sky, Inc. common stock at $1.50 per share. As a result, the Company issued
520,556 shares of common stock in exchange for cancellation of the notes.
Cancellation of Related Party Note
On December 14, 1999, and in connection with the agreement and plan or
reorganization through which North Sky, Inc. merged with About.com, related
party creditors cancelled the Company's $130,000 note payable obligation.
F - 23
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(b) Pro Forma Condensed Consolidated Financial Information
On December 6, 1999, About.com, Inc. (the "Company") announced a
definitive agreement to acquire North Sky, Inc. ("North Sky") for
approximately $37.6 million pursuant to the terms of an Agreement
and Plan of Reorganization (the "Agreement") dated as of November
30, 1999, by and among the Company, North Sky and About.com
Acquisition Corp., a wholly owned subsidiary of the Company ("Merger
Sub"). Subject to the conditions set forth in the Agreement, Merger
Sub will be merged with and into North Sky, with North Sky surviving
the merger as a wholly owned subsidiary of the Company (the
"Merger").
The acquisition will be accounted for as a purchase business
combination. The consideration payable by the Company in connection
with the acquisition of North Sky consisted of the following:
501,585 shares of the Company's common stock valued at approximately
$22.9 million and the assumption by the Company of options to
purchase shares of common stock of North Sky which were exchanged
for options to purchase approximately 330,166 shares of the
Company's common stock. The options were valued at $14.6 million.
Such options have an aggregate exercise price of approximately
$564,000. The Company also incurred acquisition costs of
approximately $80,000.
The consideration payable by the Company was determined as a result
of negotiation between the Company and North Sky. The number of
shares of common stock to be issued to North Sky shareholders, was
determined based on the exchange ratio of approximately 0.0635 of a
share of the Company's common stock for each share of North Sky
common stock.
The Company has allocated a portion of the purchase price to the net
book value of the acquired assets and liabilities of North Sky as of
the date of acquisition. The excess of the purchase price over the
net book value of the acquired assets and liabilities of North Sky
has preliminarily been allocated to goodwill and other intangible
assets. Goodwill and other intangible assets will be amortized over
a period of 3 years, the expected period of benefit. The allocation
is preliminary and may be subject to change upon evaluation of the
fair value of the acquired assets and liabilities of North Sky at
the date of acquisition as well as the potential identification of
certain intangible assets.
F - 24
<PAGE>
The unaudited Pro Forma Condensed Consolidated Statement of
Operations (the "Pro Forma Statements of Operations") for the year
ended December 31, 1998 and nine months ended September 30, 1999
gives effect to the acquisition of North Sky as if it had occurred
on January 1, 1998. The Pro Forma Statements of Operations are based
on historical results of operations of the Company and North Sky for
the year ended December 31, 1998 and nine months ended September 30,
1999. The unaudited Pro Forma Condensed Consolidated Balance Sheet
(the "Pro Forma Balance Sheet") gives effect to the acquisition of
North Sky as if the acquisition had occurred on September 30, 1999.
The Pro Forma Statements of Operations and Pro Forma Balance Sheet
and accompanying notes (the "Pro Forma Financial Information")
should be read in conjunction with and are qualified by the
historical financial statements of the Company and notes thereto.
The Pro Forma 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 North Sky, or of the
financial position or results of operations of the consolidated
Company that would have actually occurred had the acquisition of
North Sky been effected on January 1, 1998.
F - 25
<PAGE>
About.com, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, 1999
-------------------------------- Pro Forma Pro Forma
About.com, Inc. North Sky, Inc. Adjustments As Adjusted
--------------- --------------- ------------ ------------
Assets
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 47,766,900 $ 27,200 $ -- $ 47,794,100
Accounts receivable, net 5,648,500 166,700 -- 5,815,200
Prepaid and other current assets 1,196,200 10,500 -- 1,206,700
------------ ------------ ------------ ------------
Total current assets 54,611,600 204,400 -- 54,816,000
------------ ------------ ------------ ------------
Property and equipment, net 7,682,600 227,100 -- 7,909,700
Goodwill, net 2,235,900 -- 37,834,700(a) 40,070,600
Deferred offering costs -- -- -- --
Other assets, net 1,027,800 -- -- 1,027,800
------------ ------------ ------------ ------------
Total assets $ 65,557,900 $ 431,500 $ 37,834,700 $103,824,100
============ ============ ============ ============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued expenses $ 12,472,400 $ 284,200 $ -- $ 12,756,600
Accrued compensation 623,900 -- -- 623,900
Guide fees payable 650,500 -- -- 650,500
Deferred revenue 447,500 -- -- 447,500
ESPP deductions withheld 532,100 -- -- 532,100
Current portion of notes payable 398,500 38,200 -- 436,700
Current installments of obligations under
capital leases 183,400 -- -- 183,400
------------ ------------ ------------ ------------
Total current liabilities 15,308,300 322,400 -- 15,630,700
------------ ------------ ------------ ------------
Notes payable, excluding current portion 562,300 341,800 -- 904,100
Deferred rent 28,300 -- -- 28,300
Obligations under capital leases, excluding
current installments 26,200 -- -- 26,200
37,602,000(a)
Total stockholders' equity (deficit) 49,632,800 (232,700) 232,700(a) 87,234,800
------------ ------------ ------------ ------------
Commitments and contingencies
Total liabilities and stockholders' equity (deficit) $ 65,557,900 $ 431,500 $ 37,834,700 $103,824,100
============ ============ ============ ============
</TABLE>
F - 26
<PAGE>
About.com, Inc.
Unaudited Pro Forma Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31, 1998
--------------------------------- Pro Forma Pro Forma
About.com, Inc. North Sky, Inc. Adjustments As Adjusted
-------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 3,721,600 $ 203,700 $ -- $ 3,925,300
Cost of revenues 4,188,300 127,600 -- 4,315,900
Non-cash compensation 27,000 -- -- 27,000
------------ ------------ ------------ ------------
Gross profit (loss) (493,700) 76,100 -- (417,600)
------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing 7,889,700 -- -- 7,889,700
General and administrative 2,943,900 81,900 -- 3,025,800
Product development 3,113,500 119,900 -- 3,233,400
Amortization of goodwill -- -- 12,550,500(a) 12,550,500
Non-cash compensation 451,000 -- -- 451,000
------------ ------------ ------------ ------------
Total operating expenses 14,398,100 201,800 12,550,500 27,150,400
------------ ------------ ------------ ------------
Loss from operations (14,891,800) (125,700) (12,550,500) (27,568,000)
------------ ------------ ------------ ------------
Other income (expense), net (686,000) (700) -- (686,700)
------------ ------------ ------------ ------------
Net loss (15,577,800) (126,400) (12,550,500) (28,254,700)
------------ ------------ ------------ ------------
Cumulative dividends and accretion (1,230,500) -- -- (1,230,500)
------------ ------------ ------------ ------------
Net loss attributable to common stockholders $(16,808,300) $ (126,400) $(12,550,500) $(29,485,200)
============ ============ ============ ============
Net loss per common share - basic
and diluted $ (9.71) $ (13.20)
============ ============
Weighted average shares outstanding 1,731,598 501,585(b) 2,233,183
============ ============ ============
</TABLE>
F - 27
<PAGE>
About.com, Inc.
Unaudited Pro Forma Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine months ended September 30,
--------------------------------- Pro Forma Pro Forma
About.com, Inc. North Sky, Inc. Adjustments As Adjusted
--------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 13,958,200 $ 881,400 $ -- $ 14,839,600
Cost of revenues 9,336,100 425,100 -- 9,761,200
Non-cash compensation 3,625,900 -- -- 3,625,900
------------ ------------ ------------ ------------
Gross profit 996,200 456,300 -- 1,452,500
------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing 36,289,700 149,800 -- 36,439,500
General and administrative 5,703,700 354,300 -- 6,058,000
Product development 5,191,500 240,800 -- 5,432,300
Amortization of goodwill 240,100 -- 9,412,900(a) 9,653,000
Non-cash compensation 857,200 -- -- 857,200
------------ ------------ ------------ ------------
Total operating expenses 48,282,200 744,900 9,412,900 58,440,000
------------ ------------ ------------ ------------
Loss from operations (47,286,000) (288,600) (9,412,900) (56,987,500)
------------ ------------ ------------ ------------
Other income (expense), net 1,498,700 (26,300) -- 1,472,400
------------ ------------ ------------ ------------
Net loss (45,787,300) (314,900) (9,412,900) (55,515,100)
------------ ------------ ------------ ------------
Cumulative dividends and accretion (659,600) -- -- (659,600)
------------ ------------ ------------ ------------
Net loss attributable to common stockholders $(46,446,900) $ (314,900) $ (9,412,900) $(56,174,700)
============ ============ ============ ============
Net loss per common share - basic
and diluted $ (5.08) $ (5.83)
============ ============
Weighted average shares outstanding 9,139,091 501,585(b) 9,640,676
============ ============ ============
</TABLE>
F - 28
<PAGE>
(1) Pro Forma Adjustments and Assumptions
(a) In December 1999, the Company acquired North Sky in a stock transaction
for $37.6 million, including acquisition costs. The components of the
purchase price were as follows: 501,585 shares of the Company's common
stock, valued at $22.9 million, issued to North Sky and options to
purchase approximately 330,166 shares of the Company's common stock valued
at $14.6 million. The remaining amounts were the result of acquisition
costs amounting to $80,000.
The following represents the allocation of the purchase price over the
historical net book value of the acquired assets and liabilities of North
Sky at September 30, 1999 and is for illustrative pro forma purposes only.
Actual fair values will be based on financial information as of the
acquisition date (December 6, 1999). Assuming the transaction occurred on
September 30, 1999, the allocation would have been as follows:
North Sky
------------
Assets acquired:
Cash and cash equivalents $ 27,200
Accounts receivable, net 166,700
Other assets 10,500
Property and equipment 227,100
Goodwill and intangible assets 37,834,700
Liabilities assumed (664,200)
------------
Purchase price $ 37,602,000
============
This allocation is preliminary and may be subject to change upon the
evaluation of the fair value of the acquired assets and liabilities of
North Sky as of the acquisition date as well as the potential
identification of certain intangible assets.
The pro forma adjustment reconciles the historical balance sheet of North
Sky at September 30, 1999 to the allocated purchase price assuming the
transaction had occurred on September 30, 1999.
Goodwill and intangibles will be amortized over a period of 3 years, the
expected period of benefit. The pro forma adjustments to the statement of
operations reflect twelve months of amortization expense for the year
ended December 31, 1998 and nine months of amortization expenses for the
nine months ended September 30, 1999, assuming the transaction occurred on
January 1, 1998. The value of the intangible assets acquired in this
transaction as of January 1, 1998 would have been approximately $37.7
million.
F - 29
<PAGE>
(b) In connection with the acquisition of North Sky, the Company issued
501,585 shares of the Company's common stock, par value $.001 per
share, to the North Sky shareholders. The pro forma basic and
diluted net loss per common share is computed by dividing the net
loss attributable to common stockholders by the weighted average
number of common shares outstanding. The calculation of the weighted
average number of shares outstanding assumes that the shares issued
in connection with the acquisition were outstanding for the entire
period. Diluted net loss per common share equals basic net loss per
common share, as common stock equivalents are anti dilutive for all
pro forma periods presented.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the undersigned
hereunto duly authorized.
Dated: February 14, 2000
About.com, Inc.
By: /s/ Scott P. Kurnit
Name: Scott P. Kurnit
Title: Chairman and
Chief Executive Officer
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
23.1 Consent of Independent Public Accountants
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accounts, we hereby consent to the incorporation of
our report included in this Form 8-K/A, into About.com, Inc.'s previously
filed Registration Statements on Form S-8, File Nos. 333-93303, 333-91555
and 333-74931.
/s/ Arthur Andersen LLP
Salt Lake City, Utah
February 11, 2000
