<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-3
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 29, 1999
NBC INTERNET, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 000-27899 94-3333463
- ------------------------------- ------------ -------------------
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification No.)
300 Montgomery Street, Suite 300
SAN FRANCISCO, CALIFORNIA 94104
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 288-2500
N/A
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
On December 1, 1999, NBC Internet, Inc. filed with the Securities and
Exchange Commission a current report on Form 8-K, as subsequently amended on
December 14, 1999 (the "Form 8-K") with respect to the acquisition of Xoom.com,
SNAP! LLC, the businesses related to NBC.com, NBC-IN.com, VideoSeeker.com and a
10% ownership interest in CNBC.com. This amendment is being filed for the
purpose of including financial statements and pro forma financial information
and shall be read in conjunction with the Form 8-K.
(a) Financial Statements of Businesses Acquired
(1) The following documents appear as Exhibit 99.1 to
this Current Report on Form 8-K/A-2 and are incorporated herein
by reference:
(i) Snap! LLC audited financial statements as of
December 31, 1997 and 1998 and for the years ended December 31, 1997
and 1998.
(ii) Snap! LLC unaudited financial statements as of
September 30, 1999 and for the nine months ended September 30, 1999.
(2) The following documents appear as Exhibit 99.2 to this
Current Report on Form 8-K/A-2 and are incorporated herein by reference:
(i) NBC Multimedia Division audited financial
statements as of December 31, 1997 and 1998 and for the years ended
December 31, 1997 and 1998.
(ii) NBC Multimedia Division unaudited financial
statements as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999.
(3) The following documents appear as Exhibit 99.3 to
this Current Report on Form 8-K/A-2 and are incorporated herein
by reference:
(i) Xoom.com, Inc. unaudited pro forma condensed
combined financial information for the year ended December 31, 1998
and the nine months ended September 30, 1999.
(4) Xoom.com, Inc. audited financial statements as of
December 31, 1997 and 1998 and for the period from April 16, 1996
(inception) through December 31, 1996 and for the years ended
December 31, 1997 and 1998 (incorporated by reference from our
Registration Statement on Form S-4 (Commission File No. 333-82639)).
(5) Xoom.com, Inc. unaudited financial statements as
of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 (incorporated by reference from the
Xoom.com. Quarterly Report on Form 10-Q for the period ended
September 30, 1999 (Commission File No. 000-25139)).
(b) Pro Forma Financial Information.
The following documents appear as Exhibit 99.4 to this
Current Report on Form 8-K/A-2 and are incorporated herein by reference:
NBC Internet, Inc. unaudited pro forma condensed combined
financial information as of September 30, 1999 and for the nine months
ended September 30, 1999 and the year ended December 31, 1998.
(c) Exhibits
99.1 Financial Statements of Snap! LLC
99.2 Financial Statements of NBC Multimedia Division
99.3 Unaudited Condensed Combined Financial Information of
NBC Internet, Inc.
99.4 Unaudited Condensed Combined Financial Information of
Xoom.com, Inc.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NBC INTERNET, INC.
Date: January 12, 2000 /s/ John Harbottle
----------------------------------------
John Harbottle, Executive Vice President
Finance and Chief Financial Officer
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Managers
Snap! LLC:
We have audited the accompanying balance sheets of Snap! LLC as of December
31, 1997 and 1998, and the related statements of operations, members' deficit,
and cash flows for each of the years in the two-year period ended December 31,
1998. These financial statements are the responsibility of Snap! LLC's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
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 Snap! LLC as of December 31,
1997 and 1998, and the results of its operations and its cash flows for each of
the years in the two-year period ended December 31, 1998 in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
San Francisco, California
June 18, 1999
4
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30
1997 1998 1999
---------- ---------- ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ -- 865 542
Accounts receivable, net of allowance for doubtful accounts of $0 at
December 31 1997, $469 at December 31, 1998,
and $993 at September 30, 1999.......................................... 367 3,015 3,926
Due from CNET.............................................................. -- 655 --
Prepaid expenses and other current assets.................................. -- 1,778 4,838
---------- ---------- -----------
Total current assets..................................................... 367 6,313 9,306
Property and equipment, net.................................................. 1,127 4,674 10,225
Investments.................................................................. -- 605 32,607
Deposits and other assets.................................................... 36 42 2,502
---------- ---------- -----------
Total assets............................................................. $ 1,530 11,634 54,640
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................................... $ 312 2,721 5,450
Accrued and other liabilities.............................................. 216 2,846 5,249
Deferred revenue........................................................... 400 553 4,569
Due to CNET................................................................ -- -- 1,788
Due to NBC................................................................. -- -- 101
---------- ---------- -----------
Total current liabilities................................................ 928 6,120 17,157
Line of credit............................................................... -- 13,500 43,300
---------- ---------- -----------
Total liabilities........................................................ 928 19,620 60,457
---------- ---------- -----------
Commitments
Members' equity:
Members' equity............................................................ 16,170 48,972 94,358
Deferred compensation...................................................... -- (2,102) (7,705)
Other accumulated comprehensive income..................................... -- -- 22,731
Accumulated deficit........................................................ (15,568) (54,856) (115,201)
---------- ---------- -----------
Total members' equity (deficit).......................................... 602 (7,986) (5,817)
---------- ---------- -----------
Total liabilities and members' equity (deficit).......................... $ 1,530 11,634 54,640
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- ------------------------
1997 1998 1998 1999
---------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues..................................................... $ 817 7,317 3,310 23,000
Cost of net revenues............................................. 1,520 7,626 5,613 6,878
---------- --------- ----------- -----------
Gross profit (deficit)....................................... (703) (309) (2,303) 16,122
Operating expenses:
Product development............................................ 9,403 6,263 4,231 8,410
Sales and marketing............................................ 4,090 12,482 6,110 20,976
General and administrative..................................... 1,372 5,939 3,108 9,799
Amortization of deferred compensation.......................... -- 160 -- 3,207
Promotion and advertising provided by NBC...................... -- 14,060 3,484 32,950
---------- --------- ----------- -----------
Total operating expenses..................................... 14,865 38,904 16,933 75,342
---------- --------- ----------- -----------
Operating loss............................................... (15,568) (39,213) (19,236) (59,220)
Other (expense) income, net...................................... -- (75) 36 (1,125)
---------- --------- ----------- -----------
Net loss..................................................... $ (15,568) (39,288) (19,200) (60,345)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Other comprehensive income:
Unrealized gains on available-for-sale securities............ $ -- -- -- 22,731
---------- --------- ----------- -----------
Comprehensive net loss........................................... $ (15,568) (39,288) (19,200) (37,614)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Basic and diluted net loss per unit.............................. $ (1.33) (2.95) (1.49) (2.60)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Units used in per unit calculation............................... 11,700 13,301 12,920 14,494
---------- --------- ----------- -----------
---------- --------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER TOTAL
MEMBER UNITS DEFERRED ACCUMULATED MEMBERS'
-------------------- COMPENSATION COMPREHENSIVE ACCUMULATED EQUITY
UNITS AMOUNT EXPENSE INCOME DEFICIT (DEFICIT)
--------- --------- ------------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Contributed capital from CNET, Inc........ 11,700 16,170 -- -- -- 16,170
Net loss.................................. -- -- -- -- (15,568) (15,568)
--------- --------- ------ ------ ------------ -------------
Balances as of December 31, 1997.......... 11,700 16,170 -- -- (15,568) 602
Contributed capital from CNET, Inc........ -- 10,616 -- -- -- 10,616
Cash contribution from NBC................ 2,744 5,864 -- -- -- 5,864
Promotion and advertising provided by
NBC..................................... -- 14,060 -- -- -- 14,060
Grant of compensatory stock options....... -- 2,262 (2,262) -- -- --
Amortization of deferred compensation..... -- -- 160 -- -- 160
Net loss.................................. -- -- -- -- (39,288) (39,288)
--------- --------- ------ ------ ------------ -------------
Balances as of December 31, 1998.......... 14,444 $ 48,972 (2,102) -- (54,856) (7,986)
Promotion and advertising provided by NBC
(unaudited)............................. -- 32,950 -- -- -- 32,950
Grant of compensatory stock options
(unaudited)............................. -- 8,810 (8,810) -- -- --
Issuance of units in connection with
GlobalBrain transaction (unaudited)..... 75 2,989 -- -- -- 2,989
Unrealized gain on available-for-sale
securities (unaudited).................. -- -- -- 22,731 -- 22,731
Amortization of deferred compensation
(unaudited)............................. -- -- 3,207 -- -- 3,207
Contributed capital from NBC and
CNET, Inc (unaudited)................... -- 637 -- -- -- 637
Net loss (unaudited)...................... -- -- -- -- (60,345) (60,345)
--------- --------- ------ ------ ------------ -------------
Balances as of September 30, 1999
(unaudited)............................. 14,519 $ 94,358 (7,705) 22,731 (115,201) (5,817)
--------- --------- ------ ------ ------------ -------------
--------- --------- ------ ------ ------------ -------------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- ------------------------
1997 1998 1998 1999
---------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................................... $ (15,568) (39,288) (19,200) (60,345)
Adjustments to reconcile net loss to net cash used in operating
activities:
Receipt of stock in exchange for services provided........... -- (605) -- (7,268)
Depreciation and amortization................................ 329 929 469 2,456
Amortization of deferred compensation expense................ -- 160 -- 3,207
Promotion and advertising provided by NBC.................... -- 14,060 3,484 32,950
Legal indemnification by members............................. -- -- -- 637
Changes in operating assets and liabilities:
Accounts receivable........................................ (367) (2,648) (1,454) (911)
Prepaid expenses, deposits and other assets................ (36) (1,784) (1,768) (2,239)
Accounts payable........................................... 312 2,409 1,465 2,729
Accrued and other liabilities.............................. 216 2,630 1,227 2,403
Deferred revenue........................................... 400 153 231 4,016
Due to/(from) CNET......................................... -- (655) 756 2,443
Due to NBC................................................. -- -- -- 101
---------- --------- ----------- -----------
Net cash used in operating activities.................... (14,714) (24,639) (14,790) (19,821)
---------- --------- ----------- -----------
Cash flows used in investing activities:
Cash paid in connection with Global Brain transaction.......... -- -- (1,300)
Investment in Net2Phone........................................ -- -- (228) (1,000)
Purchases of fixed assets...................................... (1,456) (4,476) (2,983) (8,002)
---------- --------- ----------- -----------
Net cash used in investing activities.................... (1,456) (4,476) (3,211) (10,302)
---------- --------- ----------- -----------
Cash flows from financing activities:
Proceeds from line of credit................................... -- 13,500 2,300 29,800
Capital contribution........................................... 16,170 10,616 10,527 --
Cash contribution from NBC..................................... -- 5,864 5,864 --
---------- --------- ----------- -----------
Net cash provided by financing activities................ 16,170 29,980 18,691 29,800
---------- --------- ----------- -----------
Net increase (decrease) in cash and cash equivalents............. -- 865 690 (323)
Cash and cash equivalents at beginning of the period............. -- -- -- 865
---------- --------- ----------- -----------
Cash and cash equivalents at end of the period................... $ -- 865 690 542
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Supplemental non-cash transactions:
Cash paid for interest......................................... $ -- 13 -- 645
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Supplemental non-cash investing and financing activities:
Promotion and advertising provided by NBC...................... $ -- 14,060 3,484 32,950
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Issuance of member units in connection with Global Brain
transaction.................................................. $ -- -- -- 2,989
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Grant of compensatory stock options............................ $ -- 2,262 -- 8,810
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Unrealized gain on available-for-sale securities............... $ -- -- -- 22,731
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Services rendered in exchange for equity investments........... $ -- 605 -- 7,268
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Legal indemnification by members............................... $ -- -- -- 637
---------- --------- ----------- -----------
---------- --------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(1) ORGANIZATION AND BASIS OF PRESENTATION
(A) THE COMPANY
Snap! LLC (Snap or the Company) commenced operations in December 1996
(the Company had no significant operating results during 1996) and was
introduced as a service in September 1997. Snap is an Internet portal service
company that offers a branded network of comprehensive information, media,
ecommerce, communication, and navigation services to millions of users daily.
The Company was incorporated on June 25, 1998 as a Delaware limited
liability company (LLC). Prior to that date, the Company was operated as a
wholly-owned and consolidated operation of CNET, Inc. (CNET). The
accompanying financial statements retroactively reflect the incorporation of
the Company as an LLC to the date of the inception of the Company's
operations. On or about June 30, 1998, as part of a contribution agreement
entered into between CNET and NBC, Inc. (NBC) (collectively, the Members),
CNET contributed its assets and liabilities used exclusively in the operation
of the Snap service to the LLC for an approximately 81% ownership interest,
while NBC contributed approximately $5.9 million in cash to the LLC for an
approximately 19% ownership interest (see Note 7). CNET's and NBC's
contributions were recorded at their respective historical carrying amounts.
The accompanying financial statements and related notes also reflect the
historical results of operations and cash flows of Snap while it was operated by
CNET. The statement of operations includes all revenues and costs directly
attributable to Snap, including costs for facilities, functions and services
used by the business and allocations of costs for certain administrative
functions and services performed by centralized departments of CNET. Costs have
been allocated to the Snap operation based on CNET management's estimate of
costs attributable to the Snap operation. Such costs are not necessarily
indicative of the costs that would have been incurred if Snap had been a
separate entity.
(B) LIQUIDITY
The Company has sustained losses and negative cash flows from operations
since inception and expects these conditions to continue into the foreseeable
future. As of September 30, 1999, the Company had accumulated losses from
inception of approximately $115 million. The implementation of the Company's
business plan is dependent upon obtaining additional equity or debt financing
through public or private financing, strategic partnerships or other
arrangements. There can be no assurance that such additional financing will
be available on terms attractive to the Company, or at all. Should additional
external financing not be available, management would curtail the Company's
current growth plans to enable the Company to continue operations through
1999.
9
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(1) ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
(C) XOOM/NBC/SNAP MERGER
On May 9, 1999, the Company, Xoom.com, Inc., NBC, Inc. and certain of its
affiliates (collectively, NBC), and CNET, Inc. entered into a series of
definitive agreements, (the Agreements) relating to the formation of a new
company to be named NBC Internet, Inc. (NBCi) upon consummation of all the
transactions contemplated by the Agreements. NBCi is expected to include the
businesses of the Company, Xoom.com, Inc., and certain of NBC's Internet
assets (including NBC.com, Videoseeker.com and NBC Interactive Neighborhood)
and a 10% interest in CNBC.com.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) REVENUE RECOGNITION
The Company's revenues are derived principally from the sale of banner
advertisements and sponsorships. Advertising revenues are recognized in the
period which the advertisement is displayed, provided that no significant
obligations remain at the end of the period. Company obligations typically
include the guarantee of a minimum number of "impressions" or times that an
advertisement appears in pages viewed by users of the Company's online
properties. To the extent the minimum guaranteed impressions are not
delivered, the Company defers recognition of the corresponding revenue until
the remaining guaranteed impression levels are achieved.
The Company also earns revenue on sponsorship contracts from fees
relating to the design, coordination, and integration of customers' content
and links into Snap's online media properties. Such developmental fees are
recognized as revenue once the related activities have been performed and the
customers' Web links are available on Snap's online properties. Snap also
derives revenues from development fees and electronic commerce which to date
have each comprised less than 10% of revenues.
Deferred revenue is primarily comprised of billings in excess of
recognized revenue relating to advertising contracts and payments received
pursuant to sponsorship agreements in advance of revenue recognition.
(B) PRODUCT DEVELOPMENT
Development expenses include expenses which were incurred in the
development of new or improved technologies that enhance the performance of
the Company's Internet service. Costs for development are expensed as
incurred. Costs related to specific products or services are no longer
recognized as development expenses when the specific product or service is
launched and incorporated into the Company's internet service.
(C) ADVERTISING COSTS
All advertising costs are expensed when incurred. Advertising expense,
including the value of advertising provided through barter transactions,
totaled approximately $1,007,000, $18,559,000, $5,408,000 and $36,066,000 for
the years ended December 31, 1997 and 1998, and the nine months ended
September 30, 1998 and 1999, respectively. These costs include the value of
promotion and advertising provided by NBC (see Note 7).
10
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) CONCENTRATIONS OF CUSTOMERS AND CREDIT RISK
One customer comprised 8% and 26% of net revenues for the year ended
December 31, 1998 and the nine-months ended September 30, 1999, respectively,
in conjunction with non-monetary transactions in which the Company received
equity as consideration for services sold by the Company. One separate
customer accounted for 18% of net revenues for the year ended December 31,
1997. During the years ended December 31, 1997 and 1998, and the nine months
ended September 30, 1998 and 1999 no other customer accounted for greater
than 10% of revenues.
During the quarter ended June 30, 1999, the Company received stock in a
private company currently valued at approximately $10 million in exchange for
future services of equivalent value to be rendered by the Company. Subsequent
to the fiscal quarter end, the Company and the private company issuer of the
stock completed an escrow arrangement under which the Company would earn the
release of the shares from escrow. The release of the shares from escrow
would be based on the Company's actual monthly performance during a two-year
term. As of September 30, 1999, the Company had earned the release of shares
valued at approximately $1,350,000, which has been recorded as revenue in the
nine months then ended.
No other significant revenues were recorded on non-monetary transactions
in which the Company received equity investments as consideration for
services.
Financial instruments which potentially expose the Company to a
concentration of credit risk consists primarily of trade accounts receivable.
Accounts receivable are typically unsecured and are derived from revenues
earned from customers primarily in the United States. The Company performs
ongoing credit evaluations of its customers and maintains reserves for
potential credit losses. At December 31, 1998 and September 30, 1999, no one
customer accounted for more than 10% of the accounts receivable balance.
(E) CASH, CASH EQUIVALENTS, AND INVESTMENTS
The Company considers investments in highly liquid instruments purchased
with remaining maturities of 90 days or less to be cash equivalents. Cash
equivalents are recorded at cost which approximates fair value. The Company
maintains its cash in two depository accounts with high credit quality
financial institutions.
Equity investments in private companies are recorded initially at fair
value when the Company's rights of ownership vest, and subsequently are
carried at the lower of cost or net realizable value. Equity investments in
publicly traded companies are initially recorded at market value when the
Company's rights of ownership vest and are assumed to be available-for-sale
securities which are carried at market value, with changes in market value
recorded as unrealized gains and losses in total member's equity.
(F) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets, generally three
11
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
to seven years. Property and equipment recorded under leasehold improvements are
amortized on a straight-line basis over the shorter of the lease terms or their
estimated useful lives.
(G) INCOME TAXES
Prior to June 25, 1998 the Company's taxable losses were included in the
consolidated tax returns of CNET, Inc. The Company did not receive any
benefit from CNET Inc.'s receipt of such operating losses or research and
development credits.
Upon the incorporation as a Delaware limited liability company on June
26, 1998, the Company's net operating losses inured to the benefit of the
Members. Accordingly, no provision for income taxes is recognized in the
accompanying financial statements as the net loss generated from the
Company's operations was "passed through" to the Members.
(H) SOFTWARE DEVELOPMENT COSTS
Statement of Financial Accounting Standard (SFAS) No. 86, ACCOUNTING FOR
THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED,
governs accounting for software development costs. This statement provides
for capitalization of certain software development costs once technological
feasibility has been established. The costs capitalized are then amortized on
a straight-line basis over the estimated product life, or on the ratio of
current revenue to total projected product revenues, whichever is greater. No
such costs have been capitalized to date.
(I) STOCK-BASED COMPENSATION
The Company accounts for its stock-based employee compensation plans
using the intrinsic value method. As such, compensation expense is recorded
on the date of grant if the current market price of the underlying membership
unit exceeded the exercise price.
(J) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. Actual results could differ from those estimates.
(K) COMPREHENSIVE LOSS
The Company has adopted the provisions of SFAS No. 130, REPORTING
COMPREHENSIVE INCOME, which established standards for reporting and
disclosures of comprehensive results and its components (revenues, expenses,
gains and losses) in a full set of general purpose financial statements.
During the first nine months of 1999 the Company reported unrealized holding
gains arising from investments classified as available-for-sale. The Company
has an investment in Mail.com, Inc., which completed an initial public
offering during the second quarter of 1999 and an investment in Net2Phone,
Inc. which completed an initial public offering during the third quarter of
1999. The Company's investments were
12
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recorded at market value based on the closing price of the stock on September
30, 1999, and the increase in value of the stock was recorded as an
unrealized holding gain in comprehensive loss.
(L) BARTER TRANSACTIONS
The Company trades advertisements on its online properties in exchange
for advertisements on the online properties of other companies. These
revenues and marketing expenses are recorded at the fair value of services
provided or the fair value of the services received, whichever is more
reliably determinable in the circumstances. Revenue from barter transactions
is recognized as income when advertisements are delivered on the Company's
online properties. Expense from barter transactions is recognized when
advertisements are provided to the Company. Barter revenues and expenses were
approximately $342,000, $636,000, $541,000 and $1,591,000 for the years ended
December 31, 1997 and 1998 and for the nine months ended September 30, 1998
and 1999, respectively.
(M) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash and cash equivalents, accounts
receivable, equity investments, accounts payable and long-term debt
approximate their respective fair values.
(N) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews its long-lived assets and certain identifiable
intangibles whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured as the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell.
(O) RECENT ACCOUNTING PRONOUNCEMENTS
The FASB recently issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. For a
derivative not designated as a hedging instrument, changes in the fair value
of the derivative are recognized in earnings in the period of change. The
Company must adopt SFAS No. 133 by January 1, 2001. Management does not
believe the adoption of SFAS No. 133 will have a material effect on the
financial position or operations of the Company.
13
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(P) NET LOSS PER UNIT
Basic and diluted loss per unit is computed using the weighted average
number of outstanding units at the end of each period. The following
potentially dilutive units have been excluded from the determination of net
loss per unit for all periods because the effect of such units would have
been anti-dilutive:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ ------------
<S> <C> <C>
Units issuable under unit option plan............................ 986,662 2,904,832
Units issuable under option to NBC (see Note 7).................. 14,805,556 14,805,556
------------ ------------
15,792,218 17,710,388
------------ ------------
------------ ------------
</TABLE>
As of December 31, 1998 and September 30, 1999, the weighted average
exercise price of unit options was $2.47 and $23.19, respectively.
(Q) INTERIM FINANCIAL DATA
The accompanying financial statements as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999, are unaudited. In the opinion of
management, these interim statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, necessary for the fair presentation of the results
of the interim periods. The financial data disclosed in these notes to the
financial statements for these periods are also unaudited. The results of
operations for the interim periods are not necessarily indicative of the results
to be expected for any future periods.
(3) GLOBALBRAIN INVESTMENT
In April 1999, the Company entered into a series of agreements with
GlobalBrain.net, Inc. (GlobalBrain). In aggregate, the Company committed to
provide GlobalBrain with $2 million in cash and 75,000 membership units (valued
at $3 million) in exchange for (i) a seven-year (with an option to extend an
additional five years) exclusive right to utilize certain GlobalBrain technology
(the Technology) within a portal service, (ii) non-exclusive rights to utilize
the Technology in other Snap products and to sublicense the Technology, (iii) a
commitment from GlobalBrain to provide a minimum of five dedicated GlobalBrain
engineers working full time under the discretion of Snap on custom research and
development work for three years, (iv) a 10% ownership interest in GlobalBrain,
and (v) warrants to purchase an additional 41% of GlobalBrain in three separate
tranches over a five year period. The Company accounted for this transaction as
the acquisition of certain tangible and intangible assets, and allocations of
the consideration surrendered by the Company were made to the following:
purchased technology of approximately $2 million, prepaid development fees of
approximately $2 million, and an equity investment in a private company of
approximately $1 million.
14
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(4) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Furniture, fixtures, leasehold improvements and equipment......... $ 102 1,763 2,024
Purchased software................................................ 159 242 1,277
Computer equipment................................................ 1,195 3,927 10,633
--------- --------- -----------
1,456 5,932 13,934
Less accumulated depreciation and amortization.................... 329 1,258 3,709
--------- --------- -----------
$ 1,127 4,674 10,255
--------- --------- -----------
--------- --------- -----------
</TABLE>
(5) CREDIT FACILITIES AND COMMITMENTS
(A) LINE OF CREDIT
As of December 31, 1998, the Company has a revolving line of credit for
$27,000,000 which is secured by substantially all of the Company's assets,
guaranteed by General Electric, parent company of the Company's principal
shareholders, and bears interest at various rates which ranged from 5.40% to
6.86% during the year ended December 31, 1998. Extensions of credit are
available until June 15, 2001. Advances made under the facility shall mature
no later than July 15, 2001. At December 31, 1998, $13,500,000 was
outstanding and $10,170,000 was available under the line of credit. The
outstanding balance is comprised of multiple individual borrowings, which are
due between April 6, 1999 and June 28, 1999. The borrowings are classified as
long-term on the face of the balance sheet because the Company has the
ability and intent to extend the due dates beyond December 31, 1999. The due
dates on these borrowings have been extended to between October 1, 1999 and
December 7, 1999, respectively.
On September 14, 1999, the Company's revolving line of credit, guaranteed by
General Electric, was increased to $55,000,000. At September 30, 1999,
$43,300,000 was outstanding and $7,820,000 was available under the line of
credit. The outstanding balance is comprised of multiple individual borrowings,
due between October 1, 1999, and December 7, 1999, and bear interest at various
rates ranging from 5.22% to 8.25%. These borrowings are classified as long-term
on the face of the balance sheet because the Company has the ability and intent
to extend the due dates beyond twelve months.
In both periods, a total of $3,330,000 of the line of credit was reserved in
accordance with the requirements of the Company's facilities lease.
(B) COMMITMENTS
The Company is obligated under a noncancelable operating lease for office
space, expiring in 2008. Rent expense was $200,000, $1,923,000, $1,235,000, and
$2,205,000 for the years ended December 31, 1997 and 1998, and for the nine
months ended September 30, 1998 and 1999, respectively. The Company subleases
portions of its facilities under noncancelable operating sublease agreements
which expire over the next three years. Rental income from these subleases was
$0, $360,000, $250,000, and $618,000 for the years ended
15
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(B) COMMITMENTS (CONTINUED)
December 31, 1997 and 1998, and for the nine months ended September 30, 1998 and
1999, respectively. The Company has no capital lease obligations.
As of December 31, 1998, future minimum lease payments for the Company's
operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ------------------------------------------------------------------------------------
<S> <C>
1999............................................................................. $ 2,540
2000............................................................................. 2,540
2001............................................................................. 2,540
2002............................................................................. 2,540
2003............................................................................. 2,926
Thereafter....................................................................... 11,503
---------
$ 24,589
---------
---------
</TABLE>
The minimum operating lease payments have not been reduced by any future
minimum sublease rentals totalling $1,614,000 due under noncancelable subleases
over the next three years.
(6) OPTION PLAN
A summary of the Company's option activity and related information through
September 30, 1999 follows:
<TABLE>
<CAPTION> WEIGHTED
AVERAGE
NUMBER OF EXERCISE
UNITS PRICES
---------- -----------
<S> <C> <C>
Options outstanding, December 31, 1997....................................... -- $ --
Granted...................................................................... 1,012,572 7.79
Canceled..................................................................... (25,910) 7.79
---------- -----
Options outstanding, December 31, 1998....................................... 986,662 7.79
Granted (unaudited).......................................................... 1,976,432 30.94
Canceled (unaudited)......................................................... (58,262) 25.23
---------- -----
Options outstanding, September 30, 1999 (unaudited).......................... 2,904,832 23.19
---------- -----
---------- -----
Options exercisable, December 31, 1998....................................... 31,107 7.79
---------- -----
---------- -----
Options exercisable, September 30, 1999 (unaudited).......................... 217,891 11.02
---------- -----
---------- -----
</TABLE>
16
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(6) OPTION PLAN (CONTINUED)
The following summarizes information about options outstanding as of
September 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
RANGE OF NUMBER OF REMAINING CONTRACTUAL WEIGHTED AVERAGE
EXERCISE PRICES UNITS LIFE (YRS.) EXERCISE PRICE
- ------------------ ---------- ----------------------- -----------------
<S> <C> <C> <C>
$ 7.79 - $ 7.79 1,103,695 8.80 $ 7.79
$ 30.19 - $41.00 1,626,210 9.79 $ 30.84
$ 42.00 - $59.81 174,927 9.80 $ 49.17
---------- --- ------
$ 7.79 - $59.81 2,904,832 9.41 $ 23.19
---------- --- ------
---------- --- ------
</TABLE>
As of December 31, 1998 and September 30, 1999, options available for grant
under the Company's option plan totaled 618,276 and 345,168, respectively.
For the year ended December 31, 1998 and the nine months ended September 30,
1999, the Company recorded $2,262,000 and $8,810,000 respectively, of deferred
compensation charges representing the difference between the deemed fair value
of the membership unit on the date of grant and the option exercise price on the
date of grant. Deferred compensation will be amortized over the four-year
vesting period of the options using an accelerated method. During the year ended
December 31, 1998 and the nine months ended September 30, 1999, $160,000 and
$3,207,000 of amortization of deferred compensation was recognized as expense.
If compensation cost for the Company's option plan had been determined based
on the fair value at the grant date for awards issued in the year ending
December 31, 1998, consistent with the provisions of SFAS No. 123 ACCOUNTING FOR
STOCK-BASED COMPENSATION, then the Company's net loss would have been increased
to the pro forma amounts indicated below (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Net loss--as reported............................................. $ 39,288
Net loss--pro forma............................................... $ 39,646
</TABLE>
The weighted average fair value at date of grant for options granted for the
year ending December 31, 1998 was $3.88. The fair value of each option grant was
estimated on the date of grant using the minimum value option pricing model with
the following assumptions:
<TABLE>
<CAPTION>
<S> <C>
Risk free interest rate............................................ 6%
Weighted-average expected life of the options...................... 4 years
Dividend rate...................................................... --
</TABLE>
(7) RELATED PARTY TRANSACTIONS
Prior to June 30, 1998, all of the expenditures of the Company were incurred
by CNET and charged to the Company. These expenditures included allocations for
accounting, legal, network operations, facilities, certain product development
efforts, and other general expenses. Such allocations were generally allocated
17
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(7) RELATED PARTY TRANSACTIONS (CONTINUED)
to the Company based on headcount, estimates on the percentage usage by the
Company, or estimates of the time spent by CNET employees on the business of the
company. The following table summarizes direct and indirect expenses of the
Company prior to June 30, 1998 (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1998
1997 TO JUNE 30, 1998
--------- -----------------
<S> <C> <C>
COST OF NET REVENUES
Direct expenses paid by CNET on behalf of the Company.............. $ 1,055 3,066
Expenses allocated by CNET to the Company.......................... 465 868
--------- -----
1,520 3,934
--------- -----
--------- -----
PRODUCT DEVELOPMENT
Direct expenses paid by CNET on behalf of the Company.............. $ 8,471 884
Expenses allocated by CNET to the Company.......................... 932 1,418
--------- -----
9,403 2,302
--------- -----
--------- -----
SALES AND MARKETING
Direct expenses paid by CNET on behalf of the Company.............. $ 1,806 1,862
Expenses allocated by CNET to the Company.......................... 2,284 1,507
--------- -----
4,090 3,369
--------- -----
--------- -----
GENERAL AND ADMINISTRATIVE
Direct expenses paid by CNET on behalf of the Company.............. $ 73 133
Expenses allocated by CNET to the Company.......................... 1,299 1,274
--------- -----
1,372 1,407
--------- -----
--------- -----
</TABLE>
Such allocations are not necessarily indicative of the costs that would have
been incurred if the Company had been a separate entity. However, management
believes the differences between the allocated costs and the cost to obtain such
services from an outside third party would not be significant.
Following June 30, 1998, the Company began direct procurement and payment of
all of its expenses, with the exception of certain services it contracted with
CNET to provide or maintain. Such services include creative services, human
resources, accounting, facilities, technology support, bandwidth and hosting
support, and sales and marketing, and the Company recorded expenses totaling
$3.7 million and $3.2 million for the year ended December 31, 1998 and for the
nine months ended September 30, 1999, respectively, for amounts due to CNET for
such services.
NBC has provided certain promotional and other services to the Company since
its investment date. NBC has provided advertising and promotion services to the
Company which have been recorded as capital contributions at the time the
services were provided based on the average CPM value for commercial air time
during the period the services were provided. The Company has recorded
advertising
18
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(7) RELATED PARTY TRANSACTIONS (CONTINUED)
and promotion expenses of approximately $14.1 million and $33.0 million for the
year ended December 31, 1998 and the nine months ended September 30, 1999,
respectively, at the average CPM value for commercial air time during the period
the services were provided. NBC is not committed to provide such services to the
Company. NBC has provided other services to the Company related to advertising
production and legal support and the Company has recorded expenses totaling $0.2
million and $1.6 million for the year ended December 31, 1998 and for the nine
months ended September 30, 1999, respectively, for amounts due to NBC for such
services.
During the years ended December 31, 1997 and 1998 and the nine months ended
September 30, 1998 and 1999, the Company has recorded no significant revenues
from CNET, General Electric, NBC or any of their affiliates.
The Company's credit facility is guaranteed by General Electric, parent
company of NBC (see Note 5).
As defined in the contribution agreement, NBC has an option to purchase
14,805,556 membership units for an aggregate price of $31,365,802. The option
expires in June, 2001.
(8) DEFINED CONTRIBUTION PLAN
The Company has a defined contribution plan pursuant to Section 401(k) of
the Internal Revenue Code covering all eligible employees. Under the plan,
participating employees may defer a portion of their pretax earnings up to the
Internal Revenue Service annual contribution limit. For the year ended December
31, 1998, the Company did not contribute to the plan.
(9) SEGMENT INFORMATION
The Company has adopted the provisions of SFAS No. 131, DISCLOSURE ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes
standards for the reporting by public business enterprises of information about
operating segments, products and services, geographic areas and major customers.
The method for determining what information to report is based on the way that
management organizes the operating segments within the Company for making
operating decisions and assessing financial performance.
The Company's chief operating decision maker is considered to be the
Company's Chief Executive Officer ("CEO"). The information reviewed by the CEO
for purposes of making operating decisions and assessing financial performance
is identical to the information presented in the accompanying financial
statement of operations. The Company operates in one segment, Internet
operations. The Company has had no international revenues to date.
(10) LEGAL PROCEEDINGS
The Company was involved in a dispute with SNAP Technologies, Inc. (SNAP
Tech) which claimed to own the SNAP trademark. SNAP Tech filed a lawsuit against
CNET on November 19, 1998, alleging trademark infringement and related statutory
violations, to which the Company filed an answer on November 24, 1998. On July
15, 1999, the lawsuit with SNAP Tech was settled. Pursuant to the settlement
19
<PAGE>
SNAP! LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(10) LEGAL PROCEEDINGS (CONTINUED)
agreement, the Company shall pay $200,000, grant an advertising credit of
$1,000,000, and provide certain other promotions to SNAP Tech in exchange for
all worldwide rights to all names, trademarks, and service marks previously
used by SNAP Tech. NBC and CNET will indemnify the Company for this legal
settlement. Accordingly, the amounts paid by NBC and CNET have been included
in the accompanying financial statements as contributed capital.
In March 1999 the Company filed a complaint against CityAuction, Inc. in
connection with an agreement entered into between the Company and CityAuction
to promote CityAuction's online auction site in exchange for monetary
compensation and warrants to purchase shares of CityAuction. The Company is
claiming that CityAuction breached the agreement by refusing to honor the
Company's exercise in February 1999 of its CityAuction warrants, failing to
make a $125,000 payment due to the Company and failing to provide the Company
with notice of CityAuction's pending acquisition by Ticketmaster
Online-CitySearch, Inc. The Company is also claiming that Ticketmaster
induced CityAuction to breach it contractual obligations to the Company. This
matter is in the discovery stage. An unfavorable outcome in this litigation
would deny the Company the economic benefit of the claimed payments and stock
ownership of CityAuction. No amounts contingent upon a favorable outcome in
this litigation have been recorded in the Company's financial statements.
20
<PAGE>
NBC MULTIMEDIA DIVISION
INDEPENDENT AUDITORS' REPORT
The Board of Directors
National Broadcasting Company, Inc.
We have audited the accompanying combined balance sheets of NBC Multimedia
Division as of December 31, 1997 and 1998, and the related combined statements
of operations and changes in parent company's investment and net advances and
cash flows for the years then ended. These combined financial statements are the
responsibility of NBC Multimedia Division's management. Our responsibility is to
express an opinion on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of NBC Multimedia
Division as of December 31, 1997 and 1998, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
New York, New York
June 24, 1999
21
<PAGE>
NBC MULTIMEDIA DIVISION
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1997 1998 1999
---------- ----------- --------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Trade accounts receivable, less allowance for doubtful
accounts of $59,000 in 1997, $125,440 in 1998 and
$161,000 in 1999.................................... $1,348,082 2,274,240 536,357
Other receivables..................................... 56,848 11,852 34,944
---------- ----------- -----------
Total current assets................................ 1,404,930 2,286,092 571,301
Property and equipment, net of accumulated depreciation
of $243,501 in 1997, $339,570 in 1998, and $408,984 in
1999.................................................. 916,513 622,561 447,389
---------- ----------- -----------
Total assets........................................ $2,321,443 2,908,653 1,018,690
========== =========== ===========
LIABILITIES AND PARENT COMPANY'S INVESTMENT
AND NET ADVANCES
Current liabilities:
Accounts payable...................................... $ 637,044 1,464,743 1,750,601
Accrued expenses and liabilities (note 2)............. 418,227 414,402 239,501
---------- ----------- -----------
Total current liabilities........................... 1,055,271 1,879,145 1,990,102
Deferred revenue (note 1(d))............................ 1,695,637 14,639,258 17,878,162
Parent Company's investment and net advances............ (429,465) (13,609,750) (18,849,574)
Commitments and contingencies (note 5)
---------- ----------- -----------
Total liabilities and Parent Company's investment
and net advances.................................. $2,321,443 2,908,653 1,018,690
========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
22
<PAGE>
NBC MULTIMEDIA DIVISION
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN
PARENT COMPANY'S INVESTMENT AND NET ADVANCES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Revenue (note 1(d)):
Advertising, sponsorship, and license
fees................................... $ 3,232,384 6,921,250 3,563,449 5,891,755
Other revenue............................ -- 4,693,300 3,365,197 6,598,175
----------- ----------- ----------- -----------
Total revenue........................ 3,232,384 11,614,550 6,928,646 12,489,930
Cost of revenue............................ 4,398,846 5,248,928 3,512,590 4,573,624
----------- ----------- ----------- -----------
Gross (loss) profit.................. (1,166,462) 6,365,622 3,416,056 7,916,306
Operating expenses:
Operating and development................ 677,055 938,295 775,117 390,691
Sales and marketing...................... 2,355,519 3,988,810 2,862,153 1,042,224
General and administrative............... 3,540,408 4,488,756 3,723,533 2,098,784
----------- ----------- ----------- -----------
Total operating expenses............. 6,572,982 9,415,861 7,360,803 3,531,699
----------- ----------- ----------- -----------
(Loss) income from operations........ (7,739,444) (3,050,239) (3,944,747) 4,384,607
----------- ----------- ----------- -----------
Net (loss) income.................... (7,739,444) (3,050,239) (3,944,747) 4,384,607
Parent Company's investment and net
advances, beginning of period............ 428,008 (429,465) (429,465) (13,609,750)
Advances from (distributions to) Parent
Company, net............................. 6,881,971 (10,130,046) (11,477,710) (9,624,431)
----------- ----------- ----------- -----------
Parent Company's investment and net
advances, end of period.................. $ (429,465) (13,609,750) (15,851,922) (18,849,574)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
23
<PAGE>
NBC MULTIMEDIA DIVISION
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ -----------------------
1997 1998 1998 1999
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net (loss) income.......................... $(7,739,444) (3,050,239) (3,944,747) 4,384,607
Adjustments to reconcile net (loss) income
to net cash used in operating activities:
Provision for doubtful accounts.......... 59,000 66,440 52,980 35,560
Depreciation and amortization............ 156,995 176,287 129,489 105,694
Loss on disposal of property and
equipment.............................. 109,840 220,576 220,576 109
Noncash revenue related to partner
agreements (note 1(d))................. (33,305) (5,101,895) (3,324,470) (8,644,073)
Advertising provided by NBC.............. -- 2,015,400 1,395,500 --
Changes in operating assets and liabilities:
Accounts receivable........................ (1,335,482) (992,598) (577,465) 1,702,323
Other receivables.......................... 541,604 44,996 34,003 (23,092)
Accounts payable........................... (465,351) 827,699 1,060,493 285,858
Accrued expenses and liabilities........... 247,054 (3,825) (65,266) (174,901)
Deferred revenue........................... 1,462,499 (67,085) 75,142 (537,082)
----------- ---------- ---------- ----------
Net cash used in operating
activities........................... (6,996,590) (5,864,244) (4,943,765) (2,864,997)
----------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property and equipment...... (151,823) (102,911) (98,621) --
----------- ---------- ---------- ----------
Cash flows from financing activities:
Advances received from parent, net......... 7,148,413 5,967,155 5,042,386 2,864,997
----------- ---------- ---------- ----------
Net change in cash and cash
equivalents.......................... -- -- -- --
Cash and cash equivalents at beginning of
period..................................... -- -- -- --
----------- ---------- ---------- ----------
Cash and cash equivalents at end of period... -- -- -- --
=========== ========== ========== ==========
Summary of noncash transactions:
Equity instruments received and transferred
to parent (note 4)....................... 266,442 18,112,601 17,915,595 12,420,060
</TABLE>
See accompanying notes to combined financial statements.
24
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(a) SUMMARY OF OPERATIONS
The accompanying combined financial statements include the assets and
operations of NBC.com, NBC Interactive Neighborhood (NBC-IN) and VideoSeeker
(collectively, the Division), all of which are operating divisions of NBC
Multimedia, Inc., a wholly owned subsidiary of National Broadcasting Company,
Inc. (NBC), which is a wholly owned subsidiary of General Electric Company
(GE). NBC has agreed to merge the operations and certain defined net assets
of the NBC.com and NBC-IN divisions with Xoom.com, Inc. (Xoom), under an
agreement dated May 9, 1999 and amended on June 11, 1999, which also provides
that NBC will contribute its ownership interests in SNAP! LLC to the merged
entity, NBC Internet, Inc. (NBCi). Upon completion of these transactions, NBC
will own approximately 48.5% of the common stock of NBCi. In addition, NBC
will purchase from NBCi zero coupon convertible subordinated debentures due
2006 with an aggregate principal amount at maturity of approximately $487
million in exchange for the net assets of VideoSeeker and a note payable in
the amount of $340 million. The aforementioned transactions were consummated
on November 30, 1999.
The principal activities of the Division are as follows:
NBC.com, launched in August 1995, is the Internet venue for the NBC
television network offering content about NBC on-air programming, providing
show descriptions, episode updates, actor biographies, schedule information
and program trivia for NBC entertainment programming. NBC.com also maintains
direct links to NBC's news, finance and sports sources, MSNBC News, CNBC, and
MSNBC Sports, as well as links to local news and weather through NBC's local
station affiliates via NBC-IN.
NBC-IN, launched in October 1997, is a Web-based network of local news
and information sites developed with certain participating NBC owned and
affiliated television stations throughout the United States. Through
NBC-IN.com, Internet users can access local news, sports and weather as well
as services such as job search, local advertising for real estate and
automobiles, restaurant reviews and telephone directories.
VideoSeeker, launched in May 1998, is a full-service video aggregator,
licensing content from NBC's media properties as well as from third parties to
offer users free online access to topical and archival news video from MSNBC,
clips from NBC television programming, movie trailers, music video and
interviews.
The Division generates revenues primarily through advertising, sponsorship
and licensing agreements.
(b) BASIS OF PRESENTATION
The accompanying combined financial statements include certain corporate
general and administrative expenses incurred on a consolidated basis by NBC
for all periods presented that have been allocated to the Division. Such
allocations are included in general and administrative expenses in the
Division's combined statements of operations and changes in parent company's
investment and net advances. In management's opinion, the basis for the
allocation of such costs is reasonable and is based upon the ratio of the
total direct operating costs incurred by the Division to total NBC direct
operating costs. However, the expenses allocated to the Division, although
made on a basis management believes to be reasonable, may not necessarily be
representative of what the Division would have incurred on a stand-alone
basis.
25
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Allocated costs are as follows:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- ---------------------
<S> <C> <C> <C> <C>
1997 1998 1998 1999
---------- --------- --------- ---------
NBC Corporate.................... $ 913,000 1,059,000 794,250 700,056
Rent............................. 684,209 851,833 652,374 757,798
---------- --------- --------- ---------
$1,597,209 1,910,833 1,446,624 1,457,854
========== ========= ========= =========
</TABLE>
NBC corporate overhead expenses consist primarily of senior management
salaries and benefits, financial, legal, information technology, and other
administrative costs.
(c) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(d) REVENUE RECOGNITION
The Division derives revenue from the sale of banner advertisements under
short-term contracts. To date, the duration of the Division's advertising
commitments has generally averaged from one to six months. Advertising
revenues are recognized ratably in the period in which the advertisement is
displayed, provided that no significant Division obligations remain and
collection of the resulting receivable is probable. Division obligations
typically include the guarantee of a minimum number of "impressions" or times
that an advertisement appears in pages viewed by the users of the Division's
websites. To the extent minimum guaranteed impressions are not met, the
Division defers recognition of the corresponding revenue until the remaining
guaranteed impression levels are achieved.
The Division (primarily through NBC-IN) also derives revenues from license
fees from various service providers who pay a fee to furnish content, e-commerce
or services in a particular category of the Division's websites. These fees are
deferred and recognized ratably over the term of the related agreement, which is
generally two to three years.
The Division also earns revenue on sponsorship contracts for fees relating
to the design, coordination and integration of the customer's contents and links
to the Division's websites. These development fees are recognized as revenue
once the related activities have been performed. Revenues from electronic
commerce revenue sharing arrangements within the Division's websites are
recognized upon notification from its partners of sales attributable to the
Division's site, and were insignificant in all periods presented.
26
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Division receives equity instruments (common or preferred stock, options
and warrants) under certain agreements with service providers and under
certain outsourcing agreements. When the measurement date for such equity
instruments is fixed and there is a sufficient disincentive to breach the
contract in accordance with Emerging Issues Task Force Abstract No. 96-18,
"Accounting for Equity Instruments That are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services," the
Division records the receipt of the equity instruments and corresponding
deferred revenue. When equity instruments are contingent upon the achievement
of certain targets, the Company records the benefit of the equity instruments
at the time the targets are achieved at the then fair market value of the
equity instrument. Such amounts are amortized ratably to revenue over the
length of the contract commencing on the measurement date.
Such equity instruments are transferred to NBC and upon measurement are
charged to Parent company's investment and net advances. Changes in value
subsequent to the measurement date are not reflected in the Division's combined
financial statements.
Revenues recognized under agreements whereby the Division receives equity
instruments in the service provider's stock as described above, in consideration
for the advertising and customer acquisition opportunities, are recorded as
Advertising, sponsorship, and license fee revenue and aggregated $33,305,
$1,408,595, $709,273, and $2,795,898 in the years ended December 31, 1997, and
1998, and the nine months ended September 30, 1998 and 1999, respectively.
Revenue from the receipt of equity instruments in connection with
outsourcing agreements, recorded as Other revenue, aggregated $--0-, $3,693,300,
$2,615,197, and $5,848,175 in the years ended December 31, 1997 and 1998, and
the nine months ended September 30, 1998 and 1999, respectively.
(e) BARTER TRANSACTIONS
The Division trades advertisements on its Web properties in exchange for the
loan of computer equipment. Barter revenues and expenses are recorded at the
fair market value of services provided or received, whichever is more
determinable in the circumstances. Revenue from barter transactions is
recognized as income when advertisements are delivered on the Division's
websites. Barter expense is recognized over the period the equipment is in use,
which is typically in the same period when the barter revenue is recognized.
Advertising barter revenues and expenses were approximately $393,000, $77,000,
$74,500 and $--0- for the years ended December 31, 1997 and 1998, and the nine
months ended September 30, 1998 and 1999, respectively.
(f) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the related assets,
generally five to seven years. Leasehold improvements are amortized using the
straight-line method over the estimated useful lives of the assets or the term
of the leases, whichever is shorter.
27
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) INCOME TAXES
For all periods, the Division has been included in the consolidated
federal, state and local income tax returns of NBC. Income taxes are
calculated and provided for on a consolidated basis, and the Division has not
been allocated any income tax expense (benefit) by NBC. For purposes of these
financial statements, federal, state and local income taxes are provided as
if the Division had filed a separate return on a stand-alone basis for all
periods presented.
The Division accounts for income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities are
recognized, to the extent realizable, for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in results of operations in the period that
the tax change occurs. Such tax assets and liabilities are not a part of the
merger transaction. Accordingly, all current and deferred tax assets and
liabilities are included as part of Parent Company's investment and net
advances, and are not reflected in the combined balance sheets of the
Division.
(h) IMPAIRMENT OF LONG-LIVED ASSETS
The Division reviews its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets.
(i) ADVERTISING EXPENSES
The Division expenses the cost of advertising and promoting its services as
incurred. Such costs are included in sales and marketing on the combined
statements of operations and totaled $425,166, $2,569,844, $1,869,398 and
$288,172 for the years ended December 31, 1997 and 1998 and the nine months
ended September 30, 1998 and 1999, respectively. These costs include the value
of advertising provided by NBC of $0, $2,015,400, $1,395,500, and $0 for the
years ended December 31, 1997 and 1998 and the nine months ended September 30,
1998 and 1999, respectively, which have been recorded based on average values
for commercial air time sold by NBC during the period the services were
provided.
(j) PRODUCT DEVELOPMENT COSTS
Product development costs consist principally of salaries and related
costs, and are charged to expense as incurred.
28
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Division to significant
concentrations of credit risk consist of accounts receivable and accounts
payable. At December 31, 1997 and 1998, the fair value of these instruments
approximated their financial statement carrying amount because of the short-term
maturity of these instruments. The Division has not experienced any significant
credit loss to date. Revenue from the Division's five largest customers
accounted for approximately 53% and 27% of the Division's advertising,
sponsorship and license fee revenue for the years ended December 31, 1997 and
1998, respectively.
No single customer exceeded 10% of the Division's advertising, sponsorship
and license fee revenue for the year ended December 31, 1998. Two customers
accounted for 42% of the Division's accounts receivable at December 31, 1998.
Three customers exceeded 10% of revenue for the year ended December 31,
1997. Three customers accounted for approximately 74% of accounts receivable at
December 31, 1997.
(l) COMPREHENSIVE INCOME (LOSS)
There were no differences between the Division's comprehensive loss and its
net loss as reported.
(m) SEGMENT INFORMATION
The Division operates in a single segment in the United States.
(n) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The Division has not yet determined the impact of adopting SFAS No. 133.
(o) INTERIM RESULTS
The accompanying interim combined financial statements as of September 30,
1999 and for the nine months ended September, 1998 and 1999 are unaudited. In
the opinion of management, the unaudited interim financial statements have been
prepared on the same basis as the annual financial statements and reflect all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the financial position as of September 30, 1999 and the results
of the Division's operations and its cash flows for the nine months ended
September 30, 1998 and 1999. The financial data and other information disclosed
in these notes to combined financial statements related to these periods are
unaudited. The results for the nine months ended September 30, 1999 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1999.
29
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(2) BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------- 1999
1997 1998 (UNAUDITED)
---------- -------- -------------
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT, NET
Machinery and equipment................................. $ 955,184 762,458 656,700
Leasehold improvements.................................. 204,830 199,673 199,673
---------- -------- --------
1,160,014 962,131 856,373
---------- -------- --------
Less accumulated depreciation and amortization.......... (243,501) (339,570) (408,984)
---------- -------- --------
$ 916,513 622,561 447,389
========== ======== ========
ACCRUED EXPENSES AND LIABILITIES
Accrued salaries, incentive compensation and related
benefits.............................................. $ 381,802 414,402 239,501
Other................................................... 36,425 -- --
---------- -------- --------
$ 418,227 414,402 239,501
========== ======== ========
</TABLE>
(3) INCOME TAXES
The Division has generated net losses for all periods through December 31,
1998, and has no net income tax expense in any period on a stand-alone basis.
Although no net deferred tax assets with respect to net operating loss benefits
would have been established due to uncertainty of utilization, net operating
loss benefits would have been available to offset net income in the six months
ended June 30, 1999 on a stand-alone basis. Other deferred tax assets
aggregating approximately $3.2 million and $5.2 million at December 31, 1997 and
1998, respectively, arising principally from temporary differences in the
recognition of revenue related to equity instruments also would have been offset
by a valuation allowance on a stand-alone basis.
(4) PARENT COMPANY'S INVESTMENT AND NET ADVANCES
Operations are funded through advances from NBC. Such advances have no
defined repayment terms.
During the years ended December 31, 1997 and 1998, and the nine months ended
September 30, 1998 and 1999, respectively, net advances were reduced by
$266,442, $18,112,601, $17,915,595, and $12,420,060, representing the value of
equity instruments received under partner agreements by the Division and
transferred to NBC.
(5) OUTSOURCING AGREEMENTS
In May 1998, the Division entered into a four year strategic alliance with
USWeb whereby USWeb would perform production and hosting services for the
Division's Web sites. The Division is committed to pay approximately
$2.6 million per year for these services under the agreement. NBC has the right
to
30
<PAGE>
NBC MULTIMEDIA DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(5) OUTSOURCING AGREEMENTS (CONTINUED)
extend the agreement unilaterally for an additional four-year term at a fixed
increase in the annual fee. NBC may terminate the agreement with three months
prior written notice to USWeb. Beginning in November 1999, USWeb may terminate
the agreement with six months prior written notice to NBC. In connection with
the strategic alliance, USWeb issued warrants to the Division to purchase
1,600,000 and 500,000 shares of USWeb Common Stock at $22.14 and $25.03 per
share, respectively. If the agreement had been cancelled by the Division before
May 1999, USWeb could have cancelled the warrants to purchase 1,050,000 shares
or, if the warrants had been previously exercised, could have repurchased them.
In October 1997, NBC signed a two year strategic alliance agreement with
InterVU, Inc. ("InterVU") whereby InterVU is the exclusive provider, subject to
certain limitations, of technology and services for VideoSeeker. In exchange for
entering into the agreement, InterVU issued 1,280,000 shares of series G
preferred stock to the Division. In addition, InterVU agreed to pay the Division
$2 million in a series of non-refundable payments for promotional value and the
cost of producing and operating VideoSeeker, which is recognized as Other
revenue ratably over the two-year period.
In March 1999, NBC-IN entered into an exclusive three-year agreement under
which 24/7 Media, Inc. will sell advertising on participating NBC television
stations and their associated websites. As part of the agreement, 24/7
Media, Inc. issued to the Division warrants to purchase up to 150,000 shares of
24/7 Media, Inc.'s common stock for $26.05 per share. These warrants vest and
expire on specified dates and in specified amounts between March 11, 1999 and
March 11, 2002. The value of the warrants received is recorded on each vesting
date at the then fair market value and recognized as Other revenue ratably over
the term of the agreement.
These agreements are accounted for as described in note 1(d).
31
<PAGE>
NBC INTERNET, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial
information for NBCi gives effect to the transactions among Xoom.com, NBC and
the NBC Multimedia Division, which consists of NBC.com, NBC-IN.com and
VideoSeeker, CNET and SNAP. The following unaudited pro forma condensed
combined financial statements reflect the combination of the following:
- NBC.com;
- Xoom.com;
- NBC-IN.com;
- VideoSeeker;
- CNET's ownership interest in SNAP;
- NBC's ownership interest in SNAP; and
- 10% equity interest in CNBC.com LLC.
The total purchase costs of the transactions have been calculated with
Xoom.com treated as the accounting acquiror and give effect to the purchase
of the NBC Multimedia Division and to NBCi's acquisition of CNET's and NBC's
ownership interests in SNAP. The historical financial information has been
derived from the respective historical and/or pro forma financial statements
of Xoom.com, SNAP, and the NBC Multimedia Division, and should be read in
conjunction with those financial statements and the related notes contained
in this Form 8-K/A-2.
The unaudited pro forma condensed combined balance sheet as of September
30, 1999 has been prepared assuming the transactions took place as of that
date and includes the allocation of the total purchase consideration to the
fair values of the assets and liabilities of SNAP and the NBC Multimedia
Division, based on a preliminary valuation.
The unaudited pro forma condensed combined statements of operations
combine the Xoom.com pro forma historical statements of operations and the
historical statements of operations of SNAP and the NBC Multimedia Division
for the year ended December 31, 1998 and the nine months ended September 30,
1999 and give effect to the transactions, including the amortization of
goodwill and other intangible assets, as if they had occurred at the
beginning of each period presented.
The final purchase price allocation will be calculated based on NBC
Multimedia's and SNAP's balance sheets and SNAP's stock options outstanding
at November 30, 1999, the date the transactions were consummated.
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 occurred if the transaction had
been consummated at the dates indicated, nor is it necessarily indicative of
future operating results or financial position of the combined companies and
should not be construed as representative of these amounts for any future
dates or periods.
As set forth in the pro forma condensed combined statements of
operations, NBCi experienced net losses for the nine months ended September
30, 1999 and the year ended December 31, 1998. We believe that we have the
financial resources needed to meet the presently anticipated business
requirements of NBCi, including capital expenditure and strategic operating
programs, for at least the next 12 months. Thereafter, if cash generated by
operations is insufficient to satisfy our liquidity requirements, we may need
to sell additional equity or debt securities or obtain additional credit
facilities. The sale of additional equity or convertible debt securities may
result in additional dilution to our stockholders. We may not be able to
raise any such capital on terms acceptable to us or at all.
32
<PAGE>
NBC INTERNET, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------------------------------------------------------------------
PRO FORMA
NBC BUSINESS
MULTIMEDIA COMBINATION
XOOM.COM SNAP DIVISION COMBINED ADJUSTMENTS PRO FORMA
---------------- -------- ---------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 75,409 $ 20 $ -- $ 75,429 $ (43,300)(F) $ 32,129
Short-term investments..................... 123,516 522 -- 124,038 -- 124,038
Accounts receivable, net................... 4,032 3,926 571 8,529 -- 8,529
Note receivable from NBC................... -- -- -- -- 78,288 (D) 78,288
Inventories................................ 518 -- -- 518 -- 518
Other current assets....................... 3,747 4,838 -- 8,585 -- 8,585
-------- -------- ---------- --------- -------------- -------------
Total current assets......................... 207,222 9,306 571 217,099 34,988 252,087
Fixed assets, net.......................... 7,643 10,225 448 18,316 -- 18,316
Goodwill, net.............................. 70,167 -- -- 70,167 1,567,427 (B) 1,637,594
Intangible assets, net..................... 25,370 -- -- 25,370 86,400 (B) 111,770
Investments................................ 69,780 32,607 -- 102,387 69,000 (B) 171,387
Note receivable from NBC, less current
portion.................................. -- -- -- -- 261,712 (D) 261,712
Other assets............................... 8,890 2,502 -- 11,392 -- 11,392
-------- -------- ---------- --------- -------------- -------------
Total assets................................. $389,072 $ 54,640 $ 1,019 $444,731 $2,019,527 $2,464,258
-------- -------- ---------- --------- -------------- -------------
-------- -------- ---------- --------- -------------- -------------
LIABILITIES, STOCKHOLDERS' EQUITY,
MEMBERS' EQUITY AND PARENT
COMPANY'S INVESTMENT AND NET ADVANCES
Current liabilities:
Accounts payable........................... $ 5,115 $ 5,450 $ 1,751 $12,316 $ 23,500 (B) $ 35,816
Accrued compensation and related
expenses................................. 1,355 5,249 240 6,844 -- 6,844
Other accrued liabilities.................. 2,747 -- -- 2,747 -- 2,747
Deferred revenue........................... 2,409 4,569 17,878 24,856 (20,163)(E) 4,693
Notes payable.............................. 241 -- -- 241 -- 241
Due to CNET................................ -- 1,788 -- 1,788 -- 1,788
Due to NBC................................. -- 101 -- 101 -- 101
Capital lease obligations.................. 84 -- -- 84 -- 84
Contingency accrual........................ 1,000 -- -- 1,000 -- 1,000
-------- -------- ---------- --------- -------------- -------------
Total current liabilities.................... 12,951 17,157 19,869 49,977 3,337 53,314
Convertible notes payable to NBC and its
affiliates, less current portion........... -- -- -- -- 370,000 (A) 370,000
Deferred revenue less current portion........ 2,380 -- -- 2,380 -- 2,380
Other notes payable, less current portion.... 292 -- -- 292 -- 292
Capital lease obligations, less current
portion.................................... 164 -- -- 164 -- 164
Line of credit............................... -- 43,300 -- 43,300 (43,300)(F) --
Stockholders' equity, Members' equity and
Parent Company's investment and net advances:
Common stock............................... 407,669 -- -- 407,669 1,664,823 (A) 2,072,492
Members' equity............................ -- 94,358 -- 94,358 (94,358)(C) --
Parent Company's investment and net
advances................................. -- -- (18,850) (18,850) 18,850 (C) --
Notes receivable from stockholders......... (995) -- -- (995) -- (995)
Deferred compensation...................... (409) (7,705) -- (8,114) 7,705 (C) (409)
Unrealized gain............................ -- 22,731 -- 22,731 (22,731)(C) --
Accumulated deficit........................ (32,980) (115,201) -- (148,181) 115,201 (C) (32,980)
-------- -------- ---------- --------- -------------- -------------
Total stockholders' equity................... 373,285 (5,817) (18,850) 348,618 1,689,490 2,038,108
-------- -------- ---------- --------- -------------- -------------
Total liabilities and stockholders' equity... $389,072 $ 54,640 $ 1,019 $444,731 $2,019,527 $2,464,258
-------- -------- ---------- --------- -------------- -------------
-------- -------- ---------- --------- -------------- -------------
</TABLE>
33
<PAGE>
NBC INTERNET, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------------------------------
PRO FORMA
NBC BUSINESS
XOOM.COM MULTIMEDIA COMBINATION
PRO FORMA(1) SNAP DIVISION COMBINED ADJUSTMENTS PRO FORMA
---------------- -------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue.................................. $ 9,200 $ 7,317 $11,615 $ 28,132 $ -- $ 28,132
Cost of net revenue.......................... 3,857 7,626 5,249 16,732 -- 16,732
---------------- -------- ---------- --------- ------------- -------------
Gross profit (loss).......................... 5,343 (309) 6,366 11,400 -- 11,400
Operating expenses:
Operating and development.................. 4,339 6,263 938 11,540 -- 11,540
Sales and marketing........................ 3,160 12,482 3,989 19,631 -- 19,631
General and administrative................. 4,110 5,939 4,489 14,538 -- 14,538
Purchased in-process research and
development.............................. 330 -- -- 330 460(G) 790
Amortization of deferred compensation...... 1,605 160 -- 1,765 -- 1,765
Amortization of goodwill and other
intangible assets........................ 27,620 -- -- 27,620 243,590(H) 271,210
Promotion and advertising provided by
NBC...................................... -- 14,060 -- 14,060 -- 14,060
---------------- -------- ---------- --------- ------------- -------------
Total operating expenses..................... 41,164 38,904 9,416 89,484 244,050 333,534
---------------- -------- ---------- --------- ------------- -------------
Loss from operations......................... (35,821) (39,213) (3,050) (78,084) (244,050) (322,134)
Other income (expense):
Interest income............................ 192 -- -- 192 16,793(I) 16,985
Interest expense........................... (145) -- -- (145) (14,998)(J) (15,143)
Interest expense related to warrant........ (1,494) -- -- (1,494) -- (1,494)
Other expense.............................. -- (75) -- (75) -- (75)
---------------- -------- ---------- --------- ------------- -------------
Net loss..................................... $(37,268) $(39,288) $(3,050) $(79,606) $(242,255) $ (321,861)
---------------- -------- ---------- --------- ------------- -------------
---------------- -------- ---------- --------- ------------- -------------
Basic and diluted net loss per share......... (K) $ (7.74)
-------------
-------------
Shares used in per share calculation--basic
and diluted................................ (K) 41,595
-------------
-------------
</TABLE>
- ------------------------
(1) Represents pro forma combination of Xoom.com, Paralogic Corporation, Global
Bridges Technologies, Inc., PageCount, Inc., MightyMail Networks, Inc.,
Paralogic Software Corporation and LiquidMarket, Inc., as set forth in
Exhibit 99.4 of this form 8-K/A-2.
34
<PAGE>
NBC INTERNET, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
-----------------------------------------------------------------------------------
PRO FORMA
NBC BUSINESS
XOOM.COM MULTIMEDIA COMBINATION
PRO FORMA(1) SNAP DIVISION COMBINED ADJUSTMENTS PRO FORMA
---------------- -------- ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue.................................. $ 20,194 $ 23,000 $12,490 $ 55,684 $ -- $ 55,684
Cost of net revenue.......................... 7,657 6,878 4,574 19,109 -- 19,109
-------- -------- ---------- -------- ------------- -------------
Gross profit................................. 12,537 16,122 7,916 36,575 -- 36,575
Operating expenses:
Operating and development.................. 7,180 8,410 391 15,981 -- 15,981
Sales and marketing........................ 13,960 20,976 1,042 35,978 -- 35,978
General and administrative................. 7,727 9,799 2,099 19,625 -- 19,625
Purchased in-process research and
development.............................. -- -- -- -- 2,603 (G) 2,603
Amortization of deferred compensation...... 3,441 3,207 -- 6,648 -- 6,648
Amortization of goodwill and other
intangible assets........................ 21,500 -- -- 21,500 182,692 (H) 204,192
Promotion and advertising provided by
NBC...................................... -- 32,950 -- 32,950 -- 32,950
-------- -------- ---------- -------- ------------- -------------
Total operating expenses..................... 53,808 75,342 3,532 132,682 185,295 317,977
-------- -------- ---------- -------- ------------- -------------
(Loss) income from operations................ (41,271) (59,220) 4,384 (96,107) (185,295) (281,402)
Other income (expense):
Interest income............................ 6,228 -- -- 6,228 12,990 (I) 19,218
Interest expense........................... (93) -- -- (93) (11,199)(J) (11,292)
Other expense.............................. -- (1,125) -- (1,125) -- (1,125)
-------- -------- ---------- -------- ------------- -------------
Net loss..................................... $(35,136) $(60,345) $ 4,384 $ (91,097) $(183,504) $ (274,601)
-------- -------- ---------- -------- ------------- -------------
-------- -------- ---------- -------- ------------- -------------
Basic and diluted net loss per share......... (K) $ (5.77)
-------------
-------------
Shares used in per share calculation--basic
and diluted................................ (K) 47,616
-------------
-------------
</TABLE>
- ------------------------
(1) Represents pro forma combination of Xoom.com, MightyMail Networks Inc.,
Paralogic Software Corporation and LiquidMarket, Inc., as set forth in
Exhibit 99.4 of this form 8-K/A-2.
35
<PAGE>
NBC INTERNET, INC.
NOTES TO THE SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The total estimated purchase cost has been allocated on a preliminary
basis to assets and liabilities based on management's estimate of their fair
values, with Xoom.com treated as the accounting acquiror. The excess of the
purchase cost over the fair value of the net assets acquired has been
allocated to goodwill. The final purchase price allocation will be calculated
based on NBC Multimedia's and SNAP's balance sheets and SNAP's stock options
outstanding at November 30, 1999, the date the transaction was consummated.
The adjustments to the unaudited pro forma condensed combined balance
sheet as of September 30, 1999, have been calculated as if the transactions
occurred on September 30, 1999 and are as follows:
(A)(1) To reflect the acquisition by NBCi of NBC.com, NBC-IN.com and
VideoSeeker, NBC Multimedia's ownership interest in SNAP, and a 10%
ownership interest in CNBC.com for an estimated purchase price of
$2,058,323,000. The purchase consideration consists of the following:
- Issuance of 23,590,680 shares of NBCi Class B common stock with a fair
value of $1,103,336,000. The fair value per share of Xoom.com's common
stock is being used to determine the purchase price, as Xoom.com is
treated as the accounting acquiror. Therefore, the fair value per share of
NBCi's common stock issued is based on the average closing price of
Xoom.com's common stock on June 14, 1999 (the date of the announcement of
the stock purchase agreement between Xoom.com and NBC) and the three days
prior and subsequent to such date.
- Issuance of (i) a zero coupon convertible note of NBCi with a principal at
maturity of $39,447,953; and (ii) a zero coupon convertible note of NBCi
with a principal at maturity of $447,416,805. The convertible notes
payable have been recorded at their present value of approximately
$370,000,000, with an effective interest rate of 4% per annum.
(2) To reflect the issuance of 7,245,063 shares of NBCi's Class A common
stock with a fair value per share of $46.77 for an aggregate amount of
$338,852,000 or approximately 81% (39% on a fully diluted basis) of SNAP.
The fair value per share of NBCi's common stock issued is based on the
average closing price of Xoom.com's common stock on June 14, 1999 (the
announcement date of the stock purchase agreement between Xoom.com and
NBC) and the three days prior and subsequent to such date.
(B)(1) To reflect the additional estimated purchase price of $246,135,000
related to (i) the assumption of SNAP's options and (ii) estimated merger
costs. This additional estimated purchase price of $246,135,000 consists
of the following:
- Assumption of options to purchase 3,407,558 shares of NBCi's Class A
common stock with a fair value of $222,635,000. The fair value of the
options assumed is based on the Black-Scholes model using the following
assumptions:
- Fair market value of the underlying shares is based on the average
closing price of Xoom.com's common stock on June 14, 1999 and the three
days prior and subsequent to such date.
- Expected life of 3 to 4 years
- Expected volatility of 1.0
- Risk free interest rate of 5.96%
- Expected dividend rate of 0%
- Estimated related merger costs consisting of the following:
<TABLE>
<S> <C>
- Investment banking fees $17,250,000
- Attorney, accountant and printing fees 4,250,000
- Filing and registration costs 400,000
- Merger-related restructuring costs 1,600,000
-----------
$23,500,000
-----------
-----------
</TABLE>
36
<PAGE>
NBC INTERNET, INC.
NOTES TO THE SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
(2) To allocate the total purchase price of the transaction $(2,058,323,000)
and recognize the excess purchase cost of $1,722,827,000 over the fair
value of the net assets acquired, which has been recorded as goodwill and
other intangible assets as follows:
- Purchased technology $ 18,900,000
- Investment in CNBC.com LLC 69,000,000
- Affiliate and other contracts 31,400,000
- Acquired workforce 1,900,000
- License agreement to NBC brand name and
content, and other brand name 34,200,000
- Goodwill 1,567,427,000
--------------
$1,722,827,000
==============
(C) To reflect the elimination of (i) the historical members' equity
accounts of SNAP and (ii) the historical parent company investment and
net advances of the NBC Multimedia Division.
(D) To record the assignment to NBCi of a note of NBC in the amount of $340
million ($78,288,000 current portion and $261,712,000 long-term portion),
with a term of 4 years and an interest rate of 5.4% per annum.
(E) To eliminate the gross margin associated with the SNAP deferred revenue
and to eliminate the deferred revenue of the NBC Multimedia Division.
(F) To record the repayment by NBCi of SNAP's revolving line of credit.
The adjustments to the unaudited pro forma condensed combined statements
of operations for the year ended December 31, 1998 and the nine months ended
September 30, 1999, assume that the transaction occurred as of January 1,
1998 and January 1, 1999, respectively and are as follows:
(G) To reinstate charges for in-process research and development related
to Xoom.com's acquisitions of Paralogic Corporation and Pagecount, Inc.
in the year ended December 31, 1998 and MightyMail Networks and
Paralogic Software Corporation in the nine months ended September 30,
1999.
(H) To reflect the amortization of goodwill and other intangible assets
resulting from the transactions. The goodwill and other intangible assets
are being amortized over periods ranging from 3 to 7 years.
(I) To reflect interest income in connection with the note receivable
assigned to NBCi by NBC.
(J) To reflect interest charges in connection with the two zero coupon
convertible notes issued to NBC and its affiliates using an effective
interest rate of 4% per annum.
(K) Basic and diluted net loss per share has been adjusted to reflect the
issuance of (i) 7,245,063 shares of Class A common stock to CNET and an
unaffiliated third party; and (ii) 23,590,680 shares of NBCi's Class B
common stock to an affiliate of NBC, as if the shares had been
outstanding for the entire period. The effect of stock options assumed
in the transactions has not been included, as its inclusion would be
anti-dilutive.
37
<PAGE>
XOOM.COM, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial
information for Xoom.com, Inc. gives effect to the mergers of Paralogic
Corporation, Global Bridges Technologies, Inc., Pagecount, Inc., Paralogic
Software Corporation, MightyMail Networks, Inc. and LiquidMarket, Inc. into
Xoom.com, Inc. The historical financial information has been derived from the
respective historical financial statements of Xoom.com, Inc., Paralogic
Corporation, Global Bridges Technologies, Inc., Pagecount, Inc., Paralogic
Software Corporation, MightyMail Networks, Inc., and LiquidMarket, Inc. and
should be read in conjunction with those financial statements and the related
notes which were previously filed. The MightyMail Networks, Inc., Paralogic
Software Corporation and LiquidMarket, Inc. acquisitions occurred on May 3,
1999, June 16, 1999, and August 3, 1999, and therefore are already reflected
in Xoom.com, Inc.'s unaudited condensed consolidated balance sheet as of
September 30, 1999 in the Xoom.com, Inc. Form 10-Q. As a result, a Xoom.com,
Inc. unaudited pro forma condensed combined balance sheet as of September 30,
1999 is not needed.
The unaudited pro forma condensed combined statement of operations for
the year ended December 31, 1998, combines historical statements of
operations for Xoom.com, Inc., Paralogic Corporation, Global Bridges
Technologies, Inc., Pagecount, Inc., Paralogic Software Corporation,
MightyMail Networks, Inc. and LiquidMarket, Inc. and gives effect to the
mergers, including the amortization of goodwill and other intangible assets,
as if they had occurred on January 1, 1998. The unaudited pro forma condensed
combined statement of operations for the nine months ended September 30,
1999, combines historical statements of operations for Xoom.com, Inc.,
Paralogic Software Corporation, MightyMail Networks, Inc. and LiquidMarket,
Inc., and gives effect to the mergers, including amortization of goodwill and
other intangible assets, as if they had occurred on January 1, 1999.
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 occurred if the transactions
had been consummated at the dates indicated, nor is it necessarily indicative
of future operating results or financial position of the combined companies.
38
<PAGE>
XOOM.COM, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------
PARALOGIC
CORPORATION GLOBAL
FOR THE BRIDGES
TWO TECHNOLOGIES PAGECOUNT, INC.
MONTHS FOR THE FIVE FOR THE SIX
ENDED MONTHS ENDED MONTHS ENDED
FEBRUARY MAY 31, JUNE 30, MIGHTYMAIL
XOOM.COM 28, 1998 1998 1998 NETWORKS, INC.
-------- -------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Net revenue....................................... $ 8,318 $ 80 $ -- $ 208 $ 355
Cost of net revenue............................... 3,584 31 -- 14 215
-------- --- ----- ----- -----
Gross margin...................................... 4,734 49 -- 194 140
Operating expenses:
Operating and development....................... 3,841 12 11 -- 62
Sales and marketing............................. 2,834 2 -- 2 57
General and administrative...................... 3,366 13 4 184 297
Purchased in-process research and development... 790 -- -- -- --
Amortization of deferred compensation........... 1,416 -- -- -- --
Amortization of goodwill and other intangible
assets........................................ 1,843 -- -- -- --
-------- --- ----- ----- -----
Total operating expenses.......................... 14,090 27 15 186 416
-------- --- ----- ----- -----
Income (loss) from operations..................... (9,356) 22 (15) 8 (276)
Other income (expense):
Interest income................................. 187 -- -- 1 1
Interest expense................................ (135) -- -- (2) (6)
Interest expense related to warrant............. (1,494) -- -- -- --
-------- --- ----- ----- -----
Net income (loss)................................. $(10,798) 22 $ (15) $ 7 $(281)
-------- --- ----- ----- -----
-------- --- ----- ----- -----
Basic and diluted net loss per share..............
Shares used in per share calculation--basic and
diluted.........................................
<CAPTION>
PRO FORMA
PARALOGIC LIQUID- BUSINESS
SOFTWARE MARKET, COMBINATION
CORPORATION INC. COMBINED ADJUSTMENTS PRO FORMA
----------- ----------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Net revenue....................................... $ 239 $ -- $ 9,200 $ -- $ 9,200
Cost of net revenue............................... 13 -- 3,857 -- 3,857
----- ----- --------- -------------- ---------
Gross margin...................................... 226 -- 5,343 -- 5,343
Operating expenses:
Operating and development....................... 145 268 4,339 -- 4,339
Sales and marketing............................. 73 192 3,160 -- 3,160
General and administrative...................... 35 211 4,110 -- 4,110
Purchased in-process research and development... -- -- 790 (460)(A) 330
Amortization of deferred compensation........... 182 7 1,605 -- 1,605
Amortization of goodwill and other intangible
assets........................................ -- -- 1,843 25,777(B) 27,620
----- ----- --------- -------------- ---------
Total operating expenses.......................... 435 678 15,847 (25,317) 41,164
----- ----- --------- -------------- ---------
Loss from operations.............................. (209) (678) (10,504) (25,317) (35,821)
Other income (expense):
Interest income................................. -- 3 192 -- 192
Interest expense................................ (1) (1) (145) -- (145)
Interest expense related to warrant............. -- -- (1,494) -- (1,494)
----- ----- --------- -------------- ---------
Net loss.......................................... $(210) $(676) $(11,951) $(25,317) $(37,268)
----- ----- --------- -------------- ---------
----- ----- --------- -------------- ---------
Basic and diluted net loss per share.............. (C) $ (3.80)
---------
---------
Shares used in per share calculation--basic and
diluted......................................... (C) 9,799
---------
---------
</TABLE>
39
<PAGE>
XOOM.COM, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
---------------------------------------------------------------------------------
PARALOGIC LIQUID-
XOOM.COM SOFTWARE MARKET,
FOR THE CORPORATION INC.
NINE MIGHTYMAIL FOR THE FOR THE
MONTHS NETWORKS, INC. PERIOD PERIOD PRO FORMA
ENDED FOR THE PERIOD ENDED ENDED BUSINESS
SEPTEMBER 30, ENDED MAY 3, JUNE 16, AUGUST 3, COMBINATION
1999 1999 1999 1999 COMBINED ADJUSTMENTS
----------- -------------- ----------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue..................................... $19,903 $ -- $ 291 $ -- $20,194 $ --
Cost of net revenue............................. 7,645 -- 12 -- 7,657 --
-------- ------- ----------- -------- -------- --------------
Gross margin.................................... 12,258 -- 279 -- 12,537 --
Operating expenses:
Operating and development..................... 5,708 634 319 519 7,180 --
Sales and marketing........................... 13,507 24 160 269 13,960 --
General and administrative.................... 6,846 296 79 506 7,727 --
Purchased in-process research and
development................................. 2,603 -- -- -- 2,603 (2,603)(A)
Amortization of deferred compensation......... 495 1,283 962 701 3,441 --
Amortization of goodwill and other intangible
assets...................................... 7,836 -- -- -- 7,836 13,664(B)
-------- ------- ----------- -------- -------- --------------
Total operating expenses........................ 36,995 2,237 1,520 1,995 42,747 11,061
-------- ------- ----------- -------- -------- --------------
Loss from operations............................ (24,737) (2,237) (1,241) (1,995) (30,210) (11,061)
Other income (expense):
Interest income............................... 6,213 1 2 12 6,228 --
Interest expense.............................. (90) (2) -- (1) (93) --
-------- ------- ----------- -------- -------- --------------
Net loss........................................ $(18,614) $(2,238) $(1,239) $(1,984) $(24,075) $(11,061)
-------- ------- ----------- -------- -------- --------------
-------- ------- ----------- -------- -------- --------------
Basic and diluted net loss per share............ (C)
Shares used in per share calculation--basic and
diluted....................................... (C)
<CAPTION>
PRO FORMA
---------
<S> <C>
Net revenue..................................... $20,194
Cost of net revenue............................. 7,657
---------
Gross margin.................................... 12,537
Operating expenses:
Operating and development..................... 7,180
Sales and marketing........................... 13,960
General and administrative.................... 7,727
Purchased in-process research and
development................................. --
Amortization of deferred compensation......... 3,441
Amortization of goodwill and other intangible
assets...................................... 21,500
---------
Total operating expenses........................ 53,808
---------
Loss from operations............................ (41,271)
Other income (expense):
Interest income............................... 6,228
Interest expense.............................. (93)
---------
Net loss........................................ $(35,136)
---------
---------
Basic and diluted net loss per share............ $ (2.09)
---------
---------
Shares used in per share calculation--basic and
diluted....................................... 16,780
---------
---------
</TABLE>
40
<PAGE>
XOOM.COM, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The adjustments to the unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1998 and the nine months ended
September 30, 1999, have been calculated assuming that the mergers occurred
as of January 1, 1998 and January 1, 1999, respectively and are as follows:
(A) The purchased in-process research and development charges of $1,082,000 and
$1,542,000 related to the MightyMail Networks, Inc. and Paralogic Software
Corporation acquisitions, respectively, have been excluded from the net
loss for the year ended December 31, 1998 and the nine months ended
September 30, 1999, as they represent non-recurring charges. Additionally,
purchased in-process research and development charges of $330,000 and
$130,000 related to the Paralogic Corporation and Pagecount, Inc.
acquisitions, respectively, have been excluded from the net loss for the
year ended December 31, 1998. No purchased in-process research and
development charges were incurred in connection with the LiquidMarket, Inc.
merger.
(B) To reflect the amortization of goodwill and other intangible assets
resulting from the MightyMail Networks, Inc., Paralogic Software
Corporation, and LiquidMarket, Inc. acquisitions. During the year ended
December 31, 1998, this amount also reflects the amortization of goodwill
and other intangible assets resulting from the Paralogic Corporation, Global
Bridges Technologies, Inc. and Pagecount, Inc. acquisitions. The goodwill
and other intangible assets are being amortized over periods of twenty-four
to forty-eight months.
(C) Basic and diluted net loss per share reflects the issuance of 682,410,
200,731, 335,947, 748,816 and 930,426 shares of Xoom.com's common stock
related to the Paralogic Corporation, Global Bridges Technologies, Inc.,
MightyMail Networks, Inc., Paralogic Software Corporation and LiquidMarket,
Inc. acquisitions, respectively, as if the shares had been outstanding for
the entire period. The effect of stock options assumed in the merger
has not been included as their inclusion would be anti-dilutive. The shares
issued to the shareholders of MightyMail Networks, Inc., and LiquidMarket,
Inc. include 33,593 and 106,101 shares, respectively, held in escrow which
will be released upon the achievement of specific performance obligations.
41
