<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 3, 2000
Netcentives Inc.
(Exact name of Registrant as specified in its charter)
Delaware 0-27253 93-1213291
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
475 Brannan Street
San Francisco, CA 94107
(Address of principal executive offices) (Zip code)
(415) 538-1888
(Registrant's telephone number, including area code)
<PAGE>
Pursuant to Items 7(a)(4) and 7(b)(2) of the SEC's Instructions to Form 8-
K, Item 7 of the registrant's Report on Form 8-K dated March 3, 2000, filed with
the SEC on March 20, 2000, is amended and replaced in its entirety as set forth
below.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
-----------------------------------------
See Exhibit 99.1 for the audited financial statements of SHC Venture,
L.L.C. as of December 31, 1999 and 1998, and for the year ended December 31,
1999 and for the period from inception (August 25,1998) through December 31,
1998.
See Exhibit 99.2 for the audited financial statements of UVN Holdings,
Inc. and Subsidiary as of and for the year ended December 31, 1999.
(b) Pro Forma Financial Information.
-------------------------------
The unaudited pro forma condensed combined financial statements
attached as Exhibit 99.3, including the notes thereto, are qualified in their
entirety by reference to, and should be read in conjunction with, the historical
consolidated financial statements of Netcentives Inc. ("the Company"),
incorporated herein by reference, and UVN Holdings, Inc. and Subsidiary and SHC
Venture, L.L.C. (collectively referred to as "UVN"), including the notes
thereto.
The unaudited pro forma condensed combined financial statements assume
a business combination between the Company and UVN accounted for as a purchase
and are based on each company's respective historical consolidated financial
statements and notes thereto, which are incorporated herein by reference. The
unaudited pro forma condensed combined statements of operations combine the
Company's historical results for the twelve months ended December 31, 1999 and
for the quarter ended March 31, 2000, respectively, giving effect to the merger
as if it had occurred at the beginning of the earliest period presented.
The pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial position
that would have occurred if the merger had been consummated at the beginning of
the earliest period presented, nor is it necessarily indicative of future
operating results or financial position.
(c) Exhibits.
--------
2.1 Agreement and Plan of Merger dated March 3, 2000, among the
Company, Brown Dog Acquisition Corporation and UVN
(incorporated by reference to the exhibit with the same
numerical designation filed as an exhibit to the Company's
Report on Form 8-K dated March 3, 2000, filed with the SEC
on March 20, 2000).
23.1 Consent of BDO Seidman LLP, Independent Certified Public
Accountants'
23.2 Consent of McGladrey & Pullen, LLP, Independent Auditors
99.1 Audited financial statements of SHC Venture, L.L.C. as of
December 31, 1999 and 1998, and for the year ended December
31, 1999 and for the period from inception (August 25,1998)
through December 31, 1998.
99.2 Audited financial statements of UVN Holdings, Inc. and
Subsidiary as of and for the year ended December 31, 1999.
99.3 Unaudited pro forma condensed combined financial statements
that give effect to the merger between the Company and UVN.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
NETCENTIVES INC.
(Registrant)
Date: May 19, 2000 By: /s/ John F. Longinotti
----------------------
John F. Longinotti
Executive Vice President, Operations, and
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
23.1 Consent of BDO Seidman LLP, Independent Certified Public
Accountants'
23.2 Consent of McGladrey & Pullen, LLP, Independent Auditors
99.1 Audited financial statements of SHC Venture, L.L.C. as of
December 31, 1999 and 1998, and for the year ended
December 31, 1999 and for the period from inception
(August 25,1998) through December 31, 1998.
99.2 Audited financial statements of UVN Holdings, Inc. and
Subsidiary as of and for the year ended December 31,
1999.
99.3 Unaudited pro forma condensed combined financial
statements that give effect to the merger between
Netcentives Inc. and UVN.
<PAGE>
Exhibit 23.1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS'
We consent to the incorporation by reference in Registration Statement Nos. 333-
92205 and 333-34470 of Netcentives Inc. on Form S-8 of our report, with respect
to SHC Venture, L.L.C. dated February 22, 2000 except for Note 9, as to which
the date is March 3, 2000, appearing in this Current Report on Form 8-K/A of
Netcentives Inc.
/s/ BDO Seidman LLP
Chicago, Illinois
May 19, 2000
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in Registration Statement Nos. 333-
92205 and 333-34470 of Netcentives Inc. on Form S-8 of our report, with respect
to UVN Holdings, Inc. and Subsidiary dated February 16, 2000, appearing in this
Current Report on Form 8-K/A of Netcentives Inc.
/s/ McGladrey & Pullen LLP
Phoenix, Arizona
May 19, 2000
<PAGE>
Exhibit 99.1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS'
SHC Venture, L.L.C.
Downers Grove, Illinois
We have audited the accompanying balance sheets of SHC Venture, L.L.C. as of
December 31, 1999 and 1998, and the related statements of operations, changes in
members' deficit and cash flows for the year ended December 31, 1999 and for the
period from inception (August 25, 1998) through 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 audits 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 SHC Venture, L.L.C. at December
31, 1999 and 1998, and the results of its operations and cash flows for the year
ended December 31, 1999 and for the period from inception (August 25, 1998)
through December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ BDO Seidman LLP
Chicago, Illinois
February 22, 2000, except for Note 9,
as to which the date is
March 3, 2000
<PAGE>
SHC Venture, L.L.C.
Balance Sheets
<TABLE>
<CAPTION>
December 31, 1999 1998
- -------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash $ 308,204 $ 12,773
Accounts receivable (Note 8) 422,567 -
Prepaid expenses and other 13,184 482
- -------------------------------------------------------------------
Total Current Assets 743,955 13,255
- -------------------------------------------------------------------
Property and Equipment, Net
(Note 2) 38,234 4,444
- -------------------------------------------------------------------
Other Asset 13,081 1,251
- -------------------------------------------------------------------
$ 795,270 $ 18,950
===================================================================
</TABLE>
See accompanying notes to financial statements
<PAGE>
SHC Venture, L.L.C.
Balance Sheets
<TABLE>
<CAPTION>
December 31, 1999 1998
- ------------------------------------------------------------------------------------------
Liabilities and Members' Deficit
Current Liabilities
<S> <C> <C>
Accounts payable $ 1,362,047 $ 66,941
Due to SHC Direct 598,292 615,900
Accrued expenses 125,357 4,250
Current portion of long-term debt (Note 3) 1,217,000 -
- ------------------------------------------------------------------------------------------
Total Current Liabilities 3,302,696 687,091
- ------------------------------------------------------------------------------------------
Long-Term Debt (Note 3) - 200,000
- ------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 4 and 7)
Members' Deficit (2,507,426) (868,141)
- ------------------------------------------------------------------------------------------
$ 795,270 $ 18,950
==========================================================================================
</TABLE>
See accompanying notes to financial statements
<PAGE>
SHC Venture, L.L.C.
Statements of Operations
<TABLE>
<CAPTION>
Period from
inception
(August 25,
1998
Year ended through
December 31, December 31,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales (Note 8) $ 1,773,251 $ -
Cost of Sales 2,158,830 -
- ------------------------------------------------------------------------------------------------------------------------
Gross Loss (385,579) -
- ------------------------------------------------------------------------------------------------------------------------
Operating Expenses
Selling 514,653 293,412
General and administrative (Notes 4 and 5) 1,683,626 621,604
- ------------------------------------------------------------------------------------------------------------------------
Total operating expenses 2,198,279 915,016
- ------------------------------------------------------------------------------------------------------------------------
Operating loss (2,583,858) (915,016)
- ------------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest expense, net (61,259) (3,125)
Other income 5,832 -
Gain on litigation settlement (Note 6) 900,000 -
- ------------------------------------------------------------------------------------------------------------------------
Total other income (expense) 844,573 (3,125)
- ------------------------------------------------------------------------------------------------------------------------
Net Loss $(1,739,285) $(918,141)
========================================================================================================================
</TABLE>
See accompanying notes to financial statements
<PAGE>
SHC Venture, L.L.C.
Statements of Changes in Member's Deficit
<TABLE>
<CAPTION>
- --------------------------------------------------
<S> <C>
Initial members' contributions $ 50,000
Net loss (918,141)
- --------------------------------------------------
Balance, at December 31, 1998 (868,141)
Members' contributions 100,000
Net Loss (1,739,285)
- --------------------------------------------------
Balance, at December 31, 1999 $ (2,507,426)
==================================================
</TABLE>
See accompanying notes to financial statements
<PAGE>
SHC Venture, L.L.C.
Statements of Cash Flows
<TABLE>
<CAPTION>
Period from
inception
(August 25,
1998
Year ended through
December 31, December 31,
1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $ (1,739,285) $ (918,141)
- -------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization 8,323 556
Changes in assets and liabilities
Increase in accounts receivable (422,567) -
Increase in prepaid expenses and other (12,702) (482)
Increase in other asset (11,830) (1,251)
Increase in accounts payable 1,295,106 66,941
Increase in accrued expenses 121,107 4,250
- -------------------------------------------------------------------------------------------------------------------------
Total adjustments 977,437 70,014
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (761,848) (848,127)
- -------------------------------------------------------------------------------------------------------------------------
Cash Flows Used in Investing Activities
Purchase of property and equipment (42,113) (5,000)
- -------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
(Decrease) increase in due to SHC Direct (17,608) 615,900
Borrowings from long-term debt 1,017,000 200,000
Capital contribution 100,000 50,000
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,099,392 865,900
- -------------------------------------------------------------------------------------------------------------------------
Net Increase in Cash 295,431 12,773
Cash, at beginning of period 12,773 -
- -------------------------------------------------------------------------------------------------------------------------
Cash, at end of period $ 308,204 $ 12,773
=========================================================================================================================
</TABLE>
See accompanying notes to financial statements
<PAGE>
SHC Venture, L.L.C.
Summary of Accounting Policies
<TABLE>
<S> <C>
Property and Equipment Property and equipment are stated at cost. Depreciation and amortization expense
is computed using the straight-line method over the estimated useful lives of the
assets (3 years), except for leasehold improvements, which are amortized over the
shorter of the useful life or remaining lease term.
Income Taxes As a limited liability company, the Company is not subject to federal income
taxes, and its income is allocated to and reported on the tax returns of its
members. Accordingly, no liability or provision for federal and deferred income
taxes is included in the accompanying financial statements. The taxable income
of the Company is, however, subject to state replacement tax.
Estimates Preparation of the accompanying financial statements in accordance with generally
accepted accounting principles requires management to make estimates, disclosures
and assumptions about future events. Actual results may differ from those
estimates.
Members' Equity (Deficit) A separate capital account shall be maintained for each member. To each member's
capital account there shall be credited such member's capital contributions.
Profit and loss allocations and cash distributions shall be allocated in
accordance with the Company's Operating Agreement.
Revenue Recognition The Company generally records revenues and provides for the cost of consumer
awards from its consumer loyalty programs at the time the transaction occurs.
</TABLE>
<PAGE>
SHC Venture, L.L.C.
Notes to Financial Statements
<TABLE>
<S> <C> <C>
1. Description of On August 25, 1998, SHC Venture, L.L.C. (the "Company"), with offices located
Business in Downers Grove, Illinois and Ft. Lauderdale, Florida, was formed as a
Delaware limited liability company to engage in the business of operating a
consumer loyalty program which enables consumers to register their credit cards
in the program and obtain rewards for purchases at participating merchants.
Through December 31, 1998, the Company was in the development stage with
minimal operations. During the year ended December 31, 1999, the Company
ceased to be a development stage enterprise. The L.L.C. shall exist in
perpetuity, unless dissolved and liquidated in accordance with the provisions
of the Operating Agreement.
2. Property and Property and equipment are summarized by major classification as follows:
Equipment
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999 1998
------------------------------------------------------------------------
<S> <C> <C>
Furniture and equipment $ 47,113 $ 5,000
------------------------------------------------------------------------
47,113 5,000
Less accumulated depreciation (8,879) (556)
------------------------------------------------------------------------
Total $ 38,234 $ 4,444
========================================================================
</TABLE>
<TABLE>
<C> <S> <C>
3. Long-Term Debt Long-term debt consists of the following:
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Note payable to a minority member of the Company, interest at the prime rate
(8.5% at December 31, 1999). Principal payments based upon available cash
of the Company. $ 700,000 $ 200,000
Note payable to the majority member of the Company, interest at the prime
rate (8.5% at December 31, 1999). Principal payments based upon available
cash of the Company. 517,000 -
- ------------------------------------------------------------------------------------------------------------------
Less current maturities 1,217,000 200,000
- ------------------------------------------------------------------------------------------------------------------
Long-term debt $ 1,217,000 $ 200,000
==================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Annual maturities of the Company's long-term debt are based upon
available cash flow. As all debt was paid in conjunction with the
change in control disclosed in Note 9, total outstanding notes
payable are classified as current at December 31, 1999.
Total interest expense related to these notes was $62,145 and
$4,250 in 1999 and 1998, respectively. All interest expense from
inception to date has been recorded as an accrued expense at
December 31, 1999 totaling $66,395.
4. Leases The Company leases office space and equipment under noncancellable operating
leases through 2004. Total rent expense for 1999 and 1998 was $58,963 and
$847, respectively. The future minimum rental payments required under these
leases over the next five years are as follows:
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
<S> <C>
2000 $ 93,775
2001 93,878
2002 73,037
2003 71,730
2004 5,978
-------------------------------------------------------------------------------
Total $ 338,398
===============================================================================
</TABLE>
<TABLE>
<S> <C> <C>
5. Related Party Transaction The Company entered into a limited liability company agreement with SHC Direct,
L.L.C. ("SHC Direct"), Universal Value Network, L.L.C. ("UVN") and Vital
Processing Services, L.L.C. on September 25, 1998, forming a joint venture to
engage in the business of consumer loyalty programs which enables consumers to
register their credit cards in the program and obtain rewards for purchases at
participating merchants. SHC Direct, as the managing member, will be performing
certain functions related to finance, human resources, administration and
information services for the Company with staff at SHC Direct. SHC Direct is
entitled to a monthly administrative fee for such services. In addition, SHC
Direct charges the Company for costs related to the Company President, as
stipulated in the agreement. Total charges to the Company during 1999 and 1998
related to these services were $513,192 and $155,548, respectively.
In 1999, the Company paid fees of approximately $400,000 to UVN. In addition, an
affiliate of UVN also provided data processing services to the Company. Total
charges to the Company for such services were approximately $200,000 in 1999.
6. Gain on Litigation On May 17, 1999, the Company entered into a settlement agreement in conjunction
Settlement with litigation related to a breach of contract with respect to promotion and
participation in the Company's program, which resulted in a net settlement gain
of $900,000.
7. Purchase Commitments At December 31, 1999, the Company was committed to make future purchases under
certain vendor contracts with minimum purchase provisions. Based on contracts in
effect at that date, such commitments are estimated to be approximately $2
million, $3 million and $4 million for the years ending December 31, 2000 through
2002, respectively.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
In the event the Company elects to terminate such contracts during the term of
these agreements, the remaining purchase obligation will be calculated on a pro
rata basis in the year of termination, as defined in the contracts.
8. Customer Concentration Three customers represented 41%, 15%, and 13% of the Company's revenues in 1999.
At December 31, 1999, amounts due from these customers included in accounts
receivable were $156,879, $65,763 and $38,975, respectively.
9. Change in Control On March 3, 2000, UVN entered into a merger agreement with a third party. In
conjunction with this transaction, SHC Direct and Vital sold their interests in
the Company to UVN and all amounts payable to SHC Direct and Vital were paid.
10. Year 2000 (Unaudited) Like other companies, the Company could be adversely affected if the computer
systems of the Company, its suppliers or customers do not properly process and
calculate date-related information and data from the period surrounding and
including January 1, 2000. This is commonly known as the "Year 2000" issue. At
this time, because of the complexities involved in the issue, management cannot
provide assurances that the Year 2000 issue will not have an impact on the
Company's operations.
</TABLE>
<PAGE>
Exhibit 99.2
Independent Auditor's Report
To the Board of Directors
UVN Holdings, Inc. and Subsidiary
Tempe, Arizona
We have audited the accompanying consolidated balance sheet of UVN Holdings,
Inc. and Subsidiary as of December 31, 1999, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of UVN Holdings, Inc.
and Subsidiary as of December 31, 1999, and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ McGladrey & Pullen, LLP
Phoenix, Arizona
February 16, 2000
<PAGE>
UVN HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31, 1999
<TABLE>
<CAPTION>
ASSETS
- -------------------------------------------------------------------------
CURRENT ASSETS
<S> <C>
Cash $ 42,774
Related party receivable (Note 9) 26,065
Other assets 3,831
-----------
Total current assets 72,670
-----------
PROPERTY AND EQUIPMENT, less accumulated depreciation
and amortization of $82,154 (Note 2) 257,621
-----------
INVESTMENT IN GOLDEN RETRIEVER SYSTEMS, LLC
(Note 3) 644,037
-----------
$ 974,328
LIABILITIES AND STOCKHOLDERS' DEFICIT ===========
- -------------------------------------------------------------------------
CURRENT LIABILITIES
Line of credit (Note 4) 300,000
Current maturities of related party note payable (Note 6) 34,102
Accounts payable 41,429
Accrued expenses and other liabilities 361,852
-----------
Total current liabilities 737,383
-----------
RELATED PARTY NOTE PAYABLE, less current portion (Note 6) 1,949,846
-----------
CONVERTIBLE NOTE PAYABLE (Note 7) 2,000,000
-----------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' DEFICIT
Common stock, no par value, 10,000 shares authorized,
9,600 shares issued and outstanding 9,600
Accumulated deficit (3,722,501)
-----------
(3,712,901)
-----------
$ 974,328
===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
UVN HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
<S> <C>
Revenue (Note 9) $ 359,852
Operating expenses 1,156,438
-----------
(Loss) from operations (796,586)
-----------
Other income (expense):
Interest expense (287,649)
Equity in earnings of unconsolidated subsidiary (Note 3) 452,282
Interest income 3,567
Miscellaneous income 507
-----------
168,707
-----------
Net (loss) $ (627,879)
===========
Basic loss per common share $ (65.40)
===========
Average number of shares outstanding 9,600
===========
</TABLE>
See Notes to Consolidated Financial Statements.
UVN HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
Year ended December 31, 1999
<TABLE>
<CAPTION>
Common stock
---------------------------
Accumulated
Shares Amount deficit Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 8,600 $ 8,600 $ (286,377) $ (277,777)
Issuance of common stock 1,000 1,000 - 1,000
Distribution to stockholders (Note 3) - - (2,808,245) (2,808,245)
Net (loss) - - (627,879) (627,879)
------------------------------------------------------------------
Balance, December 31, 1999 9,600 $ 9,600 $ (3,722,501) $ (3,712,901)
==================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
UVN HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C>
Net (loss) $ (627,879)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation and amortization 76,974
Equity in earnings of unconsolidated subsidiary (452,282)
Issuance of common stock for services 1,000
Changes in assets and liabilities:
Prepaid expenses and other assets 4,459
Related party receivable 6,902
Accounts payable 9,869
Accrued expenses and other liabilities 299,441
-----------
Net cash (used in) operating activities (681,516)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment, including $61,710
from related party (321,226)
Investment in unconsolidated subsidiary (191,755)
-----------
Net cash (used in) investing activities (512,981)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on line of credit 599,000
Payments on line of credit (547,900)
Proceeds from issuance of convertible note payable 2,000,000
Payments on related party note payable (16,052)
Distribution to shareholders (808,245)
-----------
Net cash provided by financing activities 1,226,803
-----------
Net increase in cash 32,306
Cash, beginning of period 10,468
-----------
Cash, end of period $ 42,774
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash payments for interest $ 340,600
===========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Issuance of note payable in exchange for equity investment
in GRS, LLC (Note 3) $ 2,000,000
===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
UVN HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
UVN Holdings, Incorporated and Subsidiary (the Company) are involved in
processing data related to loyalty and reward marketing programs in connection
with credit card transactions. Company revenue relates primarily to the
granting of licenses to other companies throughout the world, to use the loyalty
and reward marketing system the Company has developed.
A summary of the Company's significant accounting policies follows:
Principals of consolidation:
The consolidated financial statements include the amounts of UVN Holdings, Inc.
and its majority owned subsidiary UVN, LLC. All material intercompany accounts
and transactions have been eliminated in consolidation.
Property and equipment:
Property and equipment are stated at cost. The equipment is being depreciated
over its useful life, which is estimated to be between three and seven years.
Leasehold improvements are amortized over the shorter of the lease term or the
estimated useful lives of the improvements. Depreciation and amortization is
computed using an accelerated depreciation method for furniture and equipment
and straight line for leasehold improvements, computer hardware and software.
Investment in common stock of Golden Retriever Systems, LLC and SHC Venture,
LLC:
The Company is accounting for its investment in Golden Retriever Systems, LLC
(GRS), a 49% owned affiliate, and SHC Venture, LLC, a 22.5% owned affiliate,
using the equity method of accounting under which the Company's share of the net
income or loss of the affiliates is recognized as income or loss in the
Company's income statement and added or deducted from the investment account,
and dividends received from the affiliate are treated as a reduction of the
investment account. Once the Company's share of the investee's losses exceed
the carrying amount of the investment plus advances, recognition of such losses
is suspended.
Income taxes:
The Company, with the consent of its stockholders, has elected to be taxed under
sections of federal and state income tax law, which provide that, in lieu of
corporation income taxes, the stockholders separately account for their pro rata
shares of the Company's items of income, deductions, losses and credits. As a
result of this election, no income taxes have been recognized in the
accompanying consolidated financial statements.
Revenue recognition:
The Company recognizes license fee revenue over the life of the contract.
Fair value of financial instruments:
The carrying values of cash, related party receivables, line of credit, related
party note payable and other current liabilities approximate fair values due to
the short-term maturities or current rates of interest.
<PAGE>
Use of estimates:
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Income (loss) per share:
Basic earnings (loss) per share (EPS) is computed as net income (loss) divided
by the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur from common shares
issuable through stock options, warrants, and other convertible securities and
includes shares issuable upon exercise of stock options when dilutive. Due to
the loss any convertible securities would be anti-dilutive and as such, no
diluted EPS is presented.
Note 2. Property and Equipment
Property and equipment as of December 31, 1999 consists of the following:
<TABLE>
<S> <C>
Computer equipment, software and furniture $ 325,254
Leasehold improvements 14,521
------------------
339,775
Less accumulated depreciation and amortization 82,154
------------------
$ 257,621
==================
</TABLE>
<PAGE>
Note 3. Investments in Equity Investments
Investment in Golden Retriever Systems, LLC:
- --------------------------------------------
In April 1999, the Company acquired a 49% equity interest in GRS, LLC for
$1,000,000 in cash and a $2,000,000 note payable (see Note 4). The ownership
interest was acquired from Golden Retriever Systems Holding, LLC (GRSH) which is
under common control with the Company. The investment was valued on the date of
transfer at the GRSH's equity basis, which was $191,755. The difference between
the basis transferred and consideration given has been treated as a distribution
to the shareholders.
Condensed financial information of Golden Retriever Systems, LLC (GRS) as of and
for the year ended December 31, 1999, is as follows:
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets $ 2,008,336
Equipment, net 509,562
Software licenses, net 852,216
------------------
$ 3,370,114
==================
LIABILITIES AND MEMBERS' EQUITY
Current liabilities $ 1,280,550
Members' equity 2,089,564
------------------
$ 3,370,114
==================
Net sales $ 3,571,390
Operating, general and administrative expenses 3,013,166
------------------
Net income $ 558,224
==================
</TABLE>
The Company did not receive dividends from Golden Retriever Systems, LLC during
1999.
Investment in SHC Venture, LLC:
- -------------------------------
The Company has a 22.5% ownership interest in SHC Venture, LLC. The Company did
not make an initial capital contribution. SHC has had recurring losses since
its inception, therefore, the equity investment is zero at December 31, 1999.
Note 4. Line of Credit
The Company has borrowings available under terms of a line of credit with Bank
One, Arizona expiring May 2000, with maximum available borrowings of $500,000.
Borrowings under this agreement bear interest at the prime rate announced by
Bank One, Arizona (8.5% at December 31, 1999). The line of credit is guaranteed
by a shareholder.
<PAGE>
Note 5. Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<S> <C>
Accrued interest $ 173,776
Accrued payroll 179,500
Other 8,576
------------------
$ 361,852
==================
</TABLE>
Note 6. Related Party Debt
<TABLE>
<S> <C>
Note payable to a related party,
interest rate of prime plus 2.25%;
payments of principal and interest of
$58,385 due on the first day of each
calendar quarter with a balloon payment
of outstanding balance due April 1, 2000. $ 1,983,948
==================
</TABLE>
Aggregate maturities required as of December 31, 1999, are due as follows:
<TABLE>
<CAPTION>
Year ended:
- -----------
<S> <C>
2000 $ 34,102
2001 38,427
2002 1,911,419
------------------
$ 1,983,948
==================
</TABLE>
Note 7. Convertible Note Payable
At December 31, 1999, the Company has a convertible note payable in the amount
of $2,000,000 to an unrelated individual. The note bears interest on principal
of 8.875% with interest payable annually beginning on April 1, 2000. The note
is due on April 1, 2002. The lender has the option to receive 2% of the common
stock of UVN, which is outstanding on the date of exercise of the option in lieu
of receiving payment of the principal balance, and then accrued interest of the
note. The conversion option expires on April 1, 2000. The lender must give UVN
written notice of the exercise of the option 30 days prior to the expiration
date. If the Company intends to prepay or make a public offering of its common
stock prior to the expiration of the option, the lender must exercise their
option within 10 days of such event or it expires.
Note 8. Operating Leases
The Company leases certain facilities and equipment under noncancelable
operating lease agreements, which expire through February 2002. The total
minimum rental commitments are as follows:
<TABLE>
<CAPTION>
Years ending December 31:
- -------------------------
<S> <C> <C>
2000 $ 47,754
2001 50,347
2002 4,214
------------------
$ 102,315
==================
</TABLE>
Total rent expense for the period ended December 31, 1999 approximated $42,200.
<PAGE>
Note 9. Related Party Transactions
Transactions with related parties consist of the following:
<TABLE>
<S> <C>
Fees received from SHC Direct, LLC (member of SHC Venture, LLC) $ 25,000
==================
Fees paid to GRS, LLC for software rights $ 46,000
==================
Purchase of computer hardware from GRS, LLC $ 61,710
==================
Revenue from SHC Venture, LLC $ 324,100
==================
</TABLE>
Amounts receivable from or payable to related parties consist of the following:
<TABLE>
<S> <C>
Trade accounts receivable from SHC Venture, LLC $ 26,065
==================
Accounts payable due GRS, LLC $ 2,400
==================
</TABLE>
Note 10. Management's Plans and Subsequent Event
The Company has incurred operating losses since its inception and its total
liabilities exceed its total assets. The Company has signed a letter of intent
to sell the outstanding stock of the Company (see below). If the Company is
unable to sell their stock, a stockholder has committed to provide working
capital to the Company through January 2001.
On January 14, 2000, the Company signed a letter of intent stating that it would
sell the outstanding capital stock of the Company. The agreement is subject to
due diligence.
<PAGE>
Exhibit 99.3
Netcentives Inc.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements give
effect to the acquisition by Netcentives Inc. (Netcentives) of all outstanding
shares of UVN Holdings, Inc. and Subsidiary and SHC Venture, L.L.C.
(collectively referred to as "UVN") in a transaction accounted for as a
purchase.
The pro forma condensed combined statements of operations of Netcentives Inc.
for the year ended December 31, 1999 assume that the acquisition of UVN took
place as of the beginning of the earliest period presented. The statements
combine Netcentive's and UVN's statements of operations for the year ended
December 31, 1999 and the quarter ended March 31, 2000. The financial results
of UVN Holdings, Inc. and SHC Venture, L.L.C. for the quarter ended March 31,
2000 are for the period from January 1, 2000 to March 3, 2000 (date of
acquisition). The financial results from March 4 to March 31, 2000 for UVN
Holdings, Inc. and SHC Venture, L.L.C. are included in the results presented for
Netcentives Inc.
The unaudited pro forma condensed combined information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have actually occurred if the
acquisition had been consummated as of the dates indicated, nor is it
necessarily indicative of future operating results or financial position. The
pro forma adjustments are based on the information available at the date of this
filing and are subject to change based on completion of the final purchase price
allocation, including completion of third-party appraisals.
Netcentive's condensed financial information included in these pro forma
financial statements is derived from its December 31, 1999 audited financial
statements included in its Form 10-K for the period ended December 31,1999 filed
on March 30, 2000 and its March 31, 2000 unaudited financial statements included
in its Form 10-Q for the period ended March 31, 2000 filed on May 15, 2000.
UVN's condensed financial information included in these pro forma financial
statements is derived from its December 31, 1999 audited financial statements
included elsewhere in this filing.
<PAGE>
PRO FORMA UNAUDITED CONDENSED COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SHC UVN
Netcentives Venture, Holdings, Pro Forma Pro Forma
Inc. L.L.C. Inc. Adjustments Combined
<S> <C> <C> <C> <C> <C>
Revenues:
Product $ 859 $ 1,773 $ - $ - $ 2,632
Program related services 2,672 - 360 (324) (A) 2,708
Technical consulting services 4,310 - - - 4,310
---------------------------------------------- --------
Total revenues 7,841 1,773 360 (324) 9,650
---------------------------------------------- --------
Costs and expenses:
Cost of product revenues 968 2,159 - (324) 2,803
Program-related services, marketing
and support costs 23,425 - - - 23,425
Cost of technical consulting 3,056 - - - 3,056
services revenues
Research and development 5,321 - - 75 (B) 5,396
Selling, general 9,139 2,198 - 1,081 (A), (B) 12,418
and administrative
Operating expenses - - 1,156 (1,156) (B) -
Amortization of deferred 4,105 - - - 4,105
stock compensation
Amortization of supplier
stock and other stock
arrangements 8,551 - - - 8,551
Amortization of intangibles 1,777 - - 5,112 (C) 6,889
---------------------------------------------- --------
Total costs and expenses 56,342 4,357 1,156 4,788 66,643
---------------------------------------------- --------
Loss from operations (48,501) (2,584) (796) (5,112) (56,993)
Interest income 1,978 6 4 (240) (D) 1,748
Other income - 900 452 - 1,352
Interest expense (305) (61) (288) - (654)
---------------------------------------------- --------
Net Loss $(46,828) $(1,739) $ (628) $(5,352) $(54,547)
============================================== ========
Net Loss per share $ (4.99) $ (5.60)
======== ========
Shares used in computing per
share amounts-
basic and diluted 9,376 9,748
======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined
financial statements.
<PAGE>
PRO FORMA UNAUDITED CONDENSED COMBINED STATEMENTS OF OPERATIONS
QUARTER ENDED MARCH 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Netcentives SHC Venture, UVN Pro Forma Pro Forma
Inc. L.L.C. Holdings, Inc. Adjustments Combined
<S> <C> <C> <C> <C> <C>
Revenues:
Product $ 487 $ 240 $ - $ - $ 727
Program related services 3,215 - 12 (12) (A) 3,215
Technical consulting services 936 - - - 936
---------------------------------------------------------- ------------
Total revenues 4,638 240 12 (12) 4,878
---------------------------------------------------------- ------------
Costs and expenses:
Cost of product revenues 408 370 - (12) 766
Program-related services, marketing and
support costs 7,910 - - - 7,910
Cost of technical consulting services
revenues 454 - - - 454
Research and development 1,653 - - - 1,653
Selling, general and administrative 4,786 451 561 - (A) 5,798
Amortization of deferred stock
compensation 1,092 - - - 1,092
Amortization of supplier stock and other
stock arrangements 1,077 - - - 1,077
Amortization of intangibles 1,524 - - 852 (C) 2,376
---------------------------------------------------------- ------------
Total costs and expenses 18,904 821 561 840 21,126
---------------------------------------------------------- ------------
Loss from operations (14,266) (581) (549) (852) (16,248)
Interest income 1,272 2 - (40) (D) 1,234
Other income (expense) - - 96 - 96
Interest expense (95) (16) (73) - (184)
---------------------------------------------------------- ------------
Net Loss $(13,089) $(595) $(526) $(892) $(15,102)
========================================================== ============
Net Loss per share $ (0.40) $(0.46)
============= ============
Shares used in computing per
share amounts- basic and diluted 32,590 32,848
============= ============
</TABLE>
See accompanying notes to unaudited pro forma condensed combined
financial statements.
<PAGE>
NETCENTIVES INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The total purchase price of UVN reflects a cash payment of $2,788,000 as well
as the issuance of 371,532 shares of Netcentives' common stock. The total
purchase price was determined as follows (in thousands):
<TABLE>
<S> <C>
Value of Netcentive's common stock $18,027
Cash payment 2,788
Liabilities assumed 4,631
Other direct acquisition expenses 2,077
-------
$27,523
=======
</TABLE>
The valuation of our common stock is based on its closing price for the five
calendar days ending on the trading day immediately prior to the date of
"Agreement and Plan of Reorganization" referenced in the Form 8-K filed March
20, 2000.
The total purchase price of the UVN acquisition will be allocated to acquired
assets based on estimates of their fair values. The purchase price of
approximately $27,523,000 in excess of identifiable assets acquired of
$25,548,000 have been preliminarily classified as intangible assets. The
Company expects to complete the purchase price allocation during the second
quarter of 2000.
The adjustments to the pro forma condensed combined statements of operations for
the year ended December 31, 1999 and March 31, 2000 assume the acquisition
occurred as of January 1, 1999 and are as follows:
(A) To eliminate intercompany charges to revenues recognized by UVN Holdings,
Inc. related to fees paid by SHC Venture, L.L.C.
(B) To reflect the presentation of operating expenses related to UVN on a basis
consistent with Netcentives Inc. financial statements.
(C) To reflect the amortization of approximately $25,548,000 of estimated
intangible assets resulting from the acquisition. The intangible assets
will be amortized ratably over an estimated useful life of five years. The
Company expects to complete the purchase price allocation during the second
quarter of 2000.
(D) To reflect the reduction of interest income as of result of the $4,865,000
of cash paid for the acquisition of UVN.
