SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 8-K/A
AMENDMENT NO. 1
TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
December 17, 1999
-------------------------
(Date of Report)
SHOPNOW.COM INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
WASHINGTON 000-26707 91-1628103
- ------------------------------- ----------------------- ----------------------
(State or Other Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)
411 FIRST AVENUE SOUTH, SUITE 200 NORTH, SEATTLE, WA 98104
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices, including Zip Code)
(206) 223-1996
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
NONE
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
This Amendment No. 1 to the Current Report on Form 8-K dated December
17, 1999 of ShopNow.com Inc. ("ShopNow") relates to ShopNow's acquisition of
WebCentric, Inc., a Kansas corporation ("WebCentric"), pursuant to an Agreement
and Plan of Merger among ShopNow, Chiefs Acquisition, Inc., a Washington
corporation and wholly owned subsidiary of ShopNow, WebCentric, and the
stockholders of WebCentric. The purpose of this amendment is to provide the
financial statements of WebCentric required by Item 7(a) of Form 8-K and the pro
forma audited financial information required by Item 7(b) of Form 8-K, which
information was excluded from the original filing in reliance upon Item 7(a)(4)
of Form 8-K.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED (AUDITED, EXCEPT
WHERE OTHERWISE NOTED)
(i) Independent Auditor's Report of KPMG LLP, dated
November 5, 1999.
(ii) WebCentric, Inc. Balance Sheets as of September 30,
1999 and December 31, 1998 and 1997.
(iii) WebCentric, Inc. Statements of Operations for the
nine months ended September 30, 1999, the year ended
December 31, 1998 and the period August 15, 1997
(date of inception) to December 31, 1997.
(iv) WebCentric, Inc. Statements of Stockholders' Equity
(Deficit) for the nine months ended September 30,
1999, the year ended December 31, 1998 and the period
August 15, 1997 (date of inception) to December 31,
1997.
(v) WebCentric, Inc. Statements of Cash Flows for the
nine months ended September 30, 1999, the year ended
December 31, 1998 and the period August 15, 1997
(date of inception) to December 31, 1997.
(vi) WebCentric, Inc. Notes to Financial Statements for
the nine months ended September 30, 1999, the year
ended December 31, 1998 and the period August 15,
1997 (date of inception) to December 31, 1997.
(b) PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
(i) Pro Forma Combined Balance Sheet as of September 30,
1999.
(ii) Pro Forma Combined Statement of Operations for the
year ended December 31, 1998.
(iii) Pro Forma Combined Statement of Operations for the
nine months ended September 30, 1999.
(iv) Notes to Pro Forma Combined Financial Statements.
(c) EXHIBITS
2.1 Agreement and Plan of Merger dated as of December 16, 1999
among ShopNow.com Inc., Chiefs Acquisition, Inc., WebCentric,
Inc., and the Stockholders of WebCentric, Inc. (incorporated
by reference to ShopNow's Current Report on Form 8-K filed on
December 29, 1999).
23.1 Consent of KPMG LLP, independent public accountants.
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
WebCentric, Inc.:
We have audited the accompanying balance sheets of WebCentric, Inc. as of
September 30, 1999 and December 31, 1998 and 1997 and the related statements of
operations, stockholders' equity (deficit) and cash flows for the nine months
ended September 30, 1999, the year ended December 31, 1998 and the period August
15, 1997 (date of inception) to December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of WebCentric, Inc. as of
September 30, 1999 and December 31, 1998 and 1997 and the results of their
operations and their cash flows for the nine months ended September 30, 1999,
the year ended December 31, 1998, and the period August 15, 1997 (date of
inception) to December 31, 1997, in conformity with generally accepted
accounting principles.
KPMG LLP
November 5, 1999
Omaha, Nebraska
WEBCENTRIC, INC.
BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998 AND 1997
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
ASSETS 1999 1998 1997
---------------- ----------------- -----------------
CURRENT ASSETS:
Cash $ 460,189 46,795 7,087
Trade accounts receivable, net of allowance of $1,247,
$8,500 and $0 for 1999, 1998, and 1997, respectively 378,790 94,460 228
Other current assets 3,510 - -
Deferred tax asset 104,550
-------------- -------------- --------------
Total current assets 947,039 141,255 7,315
Certificate of deposit 31,469 30,000 -
PROPERTY AND EQUIPMENT, net 128,747 26,828 958
-------------- -------------- --------------
Total assets $ 1,107,255 198,083 8,273
--------------- -------------- --------------
--------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Trade accounts payable $ 57,448 49,680 -
Accrued liabilities 43,664 12,394 3,436
Capital lease - current portion 20,054 5,627 -
Long-term debt - current installments 18,269 6,853 -
-------------- -------------- --------------
Total current liabilities 139,435 74,554 3,436
Capital lease, net of current portion 31,446 18,150 -
Long-term debt, net of current installments 138,126 123,081 -
-------------- -------------- --------------
Total liabilities 309,007 215,785 3,436
-------------- -------------- --------------
Preferred stock 1,026,667 - -
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value; 1,000,000 shares
authorized; 276,000, 276,000 and 262,000 shares issued and
outstanding as of September 30, 1999 and December 31, 1998
and 1997, respectively 2,760 2,760 2,620
Additional paid-in capital - 110,028 29,380
Retained deficit: -
Stockholders (130,490) (27,163)
Corporate (230,999) - -
(228,239) (17,702) 4,837
Treasury stock (180) - -
--------------- -------------- --------------
Total stockholders' equity (deficit) (228,419) (17,702) 4,837
--------------- -------------- --------------
Total liabilities and stockholders' equity
(deficit) $ 1,107,255 198,083 8,273
--------------- -------------- --------------
--------------- -------------- --------------
See accompanying notes to financial statements.
WEBCENTRIC, INC.
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999, THE YEAR ENDED
DECEMBER 31, 1998 AND THE PERIOD AUGUST 15,
1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------------ ------------------ ------------------
REVENUES:
Retailer referral compensation $ 598, 200 288,882 -
Advertising sales 452,675 98,467 -
International licensing/royalties 50,000 - -
Other 10,091 1,654 248
-------------- -------------- --------------
1,110,966 389,003 248
Costs of services 415,885 184,703 -
-------------- -------------- --------------
Gross profit 695,081 204,300 248
OPERATING EXPENSES:
Sales and marketing 346,266 44,499 12,985
General and administrative 414,361 129,512 14,426
Research and development 246,066 83,698 -
-------------- -------------- --------------
Total operating expenses 1,006,693 257,709 27,411
-------------- -------------- --------------
Operating loss (311,612) (53,409) (27,163)
Net interest expense 4,029 6,775 -
-------------- -------------- --------------
Loss before income taxes (315,641) (60,184) (27,163)
Income tax benefit 104,550 - -
-------------- -------------- --------------
Net loss $ (211,091) (60,184) (27,163)
-------------- -------------- --------------
-------------- -------------- --------------
See accompanying notes to financial statements.
WEBCENTRIC, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
NINE MONTHS ENDED SEPTEMBER 30, 1999, THE YEAR ENDED
DECEMBER 31, 1998 AND THE PERIOD AUGUST 15,
1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
RETAINED DEFICIT TOTAL
ADDITIONAL -------------------------- STOCKHOLDERS'
PAID-IN TREASURY EQUITY
COMMON STOCK CAPITAL STOCKHOLDERS CORPORATE STOCK (DEFICIT)
------------- ------------- --------------------------- ------------- -------------
Balance at August 15, 1997 (date of
inception) $ - - - - - -
Issuance of 20,000 shares of common
stock, $.01 par value 2,620 (620) - - - 2,000
Additional capital contributed by
stockholders - 30,000 - - - 30,000
Net loss - - (27,163) - - (27,163)
----------- ------------ -------- ------------ ------------ --------
Balance at December 31, 1997 2,620 29,380 (27,163) - - 4,837
Issuance of 1,053 shares of common
stock, $.01 par value 140 648 - - - 788
Additional capital contributed by
stockholders - 80,000 - - - 80,000
Distributions to stockholders - - (43,143) - - (43,143)
Net loss - - (60,184) - - (60,184)
----------- ------------ -------- ------------ ------------ --------
Balance at December 31, 1998 2,760 110,028 (130,490) - - (17,702)
Acquisition of treasury stock - 180 - - (180) -
Officer's compensation expense - 40,000 - - - 40,000
Distributions to stockholders - - (12,959) - - (12,959)
Elimination of stockholders' retained
deficit - (150,208) 177,427 (27,219) - -
Accumulation of dividends for preferred
stock - - - (26,667) - (26,667)
Net loss - - (33,978) (177,113) - (211,091)
----------- ------------ -------- ------------ ------------ --------
Balance at September 30, 1999 $ 2,760 - - (230,999) (180) (228,419)
----------- ------------ -------- ------------ ------------ --------
----------- ------------ -------- ------------ ------------ --------
See accompanying notes to financial statements.
WEBCENTRIC, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999, THE YEAR ENDED
DECEMBER 31, 1998 AND THE PERIOD AUGUST 15,
1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
--------------- --------------- ---------------
Cash flows from operating activities:
Net loss $ (211,091) (60,184) (27,163)
------------ ------------ ------------
Adjustments to reconcile net loss to net cash
used in operating activities: 7,003 1,060 42
Depreciation and amortization 40,000 - -
Officer's compensation expense
(Increase) decrease in:
Trade accounts receivable (284,330) (94,232) (228)
Other current assets (3,510) - -
Deferred tax asset (104,550) - -
(Increase) decrease in:
Trade accounts payable 7,768 49,680 -
Accrued liabilities 31,270 8,958 3,436
------------ ------------ ------------
Total adjustments (306,349) (34,534) 3,250
------------ ------------ ------------
Net cash used in operating activities (517,440) (94,718) (23,913)
------------ ------------ ------------
Cash flows from investing activities:
Acquisition of equipment (75,362) (1,859) (1,000)
Certificate of deposit (1,469) (30,000) -
------------ ------------ ------------
Net cash used in investing activities (76,831) (31,859) (1,000)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt 34,941 132,000 -
Payments on long-term debt and capital leases (14,317) (3,360) -
Proceeds from issuance of capital 1,000,000 80,788 32,000
S Corporation distributions (12,959) (43,143) -
------------ ------------ ------------
Net cash provided by financing activities 1,007,665 166,285 32,000
------------ ------------ ------------
Net increase in cash 413,394 39,708 7,087
Cash at beginning of period 46,795 7,087 -
------------ ------------ ------------
Cash at end of period $ 460,189 46,795 7,087
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 12,825 8,426 -
------------ ------------ ------------
------------ ------------ ------------
Capital lease obligations incurred $ 33,560 25,071 -
------------ ------------ ------------
------------ ------------ ------------
See accompanying notes to financial statements.
WEBCENTRIC, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998 AND 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The WebCentric, Inc. (the "Company") has developed proprietary data
integration technology and an application of that technology through
its Bottom Dollar shopping search engine capability. It is one of the
first firms to deploy what is know as "agent" or "bot" virtual search
assistant technology which offers a comprehensive, easy to use and
access way for consumers to shop the Web by enabling them to quickly
and easily compare key decision factors such as price and availability
on an extensive selection of products from the top Internet merchants.
Consumers utilize the Bottom Dollar shopping search engine capability
to find merchants that sell specific products and to find competitive
prices on those products. They access the Bottom Dollar shopping search
engine capability by the Company's web site at
"http://www.bottomdollar.com" or by visiting one of the 1,000+ partner
sites which have implemented the Bottom Dollar shopping search engine
capabilities content on their sites.
PROPERTY AND EQUIPMENT
The Company's equipment is depreciated using primarily the
straight-line method. The Company has various items of equipment under
capital lease that are more specifically identified in note 4. The
leased property under capital lease is amortized over the expected
useful life of the property.
REVENUE RECOGNITION
Retailer referral compensation revenue is earned over the terms of the
contract, which is generated on a "click-thru" or commission basis.
Advertising sales revenue is earned each time an advertisement is
displayed on a web site. International licensing/royalties revenues are
recognized as earned under the terms of the contract.
ADVERTISING COSTS
The Company expenses advertising costs as they are incurred.
Advertising expenses for the years ended September 30, 1999 and
December 31, 1998 and 1997 were $39,954, $28,377, and $6,221,
respectively.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred and
amounted to $246,066 for the nine months ended September 30, 1999;
$83,698 for the year ended December 31,1998; and $0 for the period
August 15, 1997 (date of inception) to December 31, 1997.
INCOME TAXES
Effective May 1, 1999, the Company became a "C Corporation" in which
the Company uses the asset and liability method to account for income
taxes. Under this method, deferred income taxes are recognized at
enacted tax rates for the tax consequences of temporary differences
between financial statement carrying amounts and the tax bases of
existing assets and liabilities. Provisions are made for the U. S.
income tax liability on earnings of foreign subsidiaries, except for
those locations that the Company considers such earnings to be
permanently invested.
Prior to May 1, 1999, the Company had elected to be taxed as an "S
Corporation" under Code Section 1362 of the Internal Revenue Code.
Consequently, with limited exceptions, the Company is not taxed at the
corporate level. The Company does not anticipate any of the limited
exceptions to create a corporate-level tax and, therefore, no income
taxes have been accrued for the Company.
USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
reported amounts of revenues and expenses to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(2) EQUIPMENT AND LEASED PROPERTY UNDER CAPITAL LEASE
Equipment and leased property under capital lease consist of the
following at September 30, 1999 and December 31, 1998 and 1997:
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
DESCRIPTION 1999 1998 1997
- ------------------------------------------------ -------------- -------------- ------------
Furniture and fixtures $ 5,130 1,788 1,000
Equipment 83,127 1,071 -
Computer equipment 48,595 25,071 -
-------------- -------------- ------------
136,852 27,930 1,000
Accumulated depreciation and amortization (8,105) (1,102) (42)
-------------- -------------- ------------
$ 128,747 26,828 958
============== ============== ============
(3) DEBT
The Company's long-term debt consists of the following at September 30,
1999 and December 31, 1998 and 1997:
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
-------------- ------------ ------------
Variable notes payable carrying an interest rate of 2.25% over prime (10.5% at
September 30, 1999), interest only payable monthly and is due in one lump
sum payment of all outstanding principal plus all accrued interest at March
1, 2003 $ 100,000 100,000 -
9.75% note payable, due in monthly installments of $312.96, including interest,
final payment plus interest due August 2003 12,128 13,982 -
9.75% note payable, due in monthly installments of $328.25, including interest,
final payment plus interest due August 2001 6,805 9,164 -
9.25% note payable, due in monthly installments of $145.60, including interest,
final payment plus interest due October 2003 5,922 6,788 -
9.5% note payable, due in monthly installments of $1,119.73, including interest,
final payment plus interest due May 2002 31,540 - -
-------------- ----------- --------
Total long-term debt 156,395 129,934 -
Less current installments of long-term debt 18,269 6,853 -
-------------- ----------- --------
Long-term debt, excluding current installments $ 138,126 123,081 -
-------------- ----------- --------
-------------- ----------- --------
The $100,000 note is secured by a real estate mortgage on property
owned by two of the Company's shareholders and a $30,000 certificate of
deposit. This note is insured by the Small Business Administration.
The remaining three notes, above, are secured by all inventory, chattel
paper, accounts, equipment, and general intangibles.
The following is a summary of principal maturities of long-term debt
during the next five years:
2000 $ 18,269
2001 19,704
2002 13,404
2003 104,870
2004 148
------------
$ 156,395
------------
------------
(4) COMMITMENTS
The Company leases computer equipment under a capital lease. The
economic substance of the lease is that the Company is financing the
acquisition of the asset through the lease, and accordingly, it is
recorded in the Company's assets and liabilities. The Company also
leases facilities under operating lease agreements. The following is a
summary of future minimum lease payments under capitalized leases and
under operating leases that have initial or remaining noncancelable
lease terms in excess of one year at September 30, 1999:
CAPITALIZED OPERATING
LEASES LEASES
------------- -------------
Year ending September 30, 1999:
2000 $ 24,823 $ 14,949
2001 22,462 13,142
2002 11,788 6,298
------------ ------------
Total minimum lease payments 59,073 $ 34,389
------------
------------
Inputed interest, at rates ranging from 10.0%
to 17.1% (7,573)
------------
Present value of minumum
capitalized lease payments 51,500
Current portion 20,054
Long-term capitalized lease
obligations $ 31,446
------------
------------
Assets recorded under capital leases are included in property and
equipment as follows:
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
-------------- -------------- ------------
Computer equipment $ 23,524 25,071 -
Office equipment 10,036 - -
-------------- -------------- ------------
33,560 25,071 -
Accumulated depreciation (5,409) (835) -
-------------- -------------- ------------
$ 28,151 24,236 -
-------------- -------------- ------------
-------------- -------------- ------------
Rental expense for operating leases amounted to $19,642, $7,176, and $0
for the nine months ended September 30, 1999, and years ended December
31, 1998 and 1997.
(5) INCOME TAXES
Income tax benefit for September 30, 1999 consisted of the following
components:
CURRENT DEFERRED TOTAL
-------------------- -------------------- --------------------
Federal $ 82,800 10,300 93,100
State 10,150 1,300 11,450
-------------------- -------------------- --------------------
Total $ 92,950 11,600 104,550
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
The difference between the Company's income tax benefit as reported in
the accompanying financial statements for September 30, 1999 and that
which would be calculated applying the U. S. federal income tax rate of
34% on pretax loss is as follows:
Expected federal income tax benefit $ 99,519
State income taxes, net of federal benefit 7,557
Meals and entertainment (3,375)
Other 849
------------
Total $ 104,550
------------
------------
Deferred tax assets at September 30, 1999 were comprised of the
following:
Deferred tax assets:
Allowance for doubtful accounts $ 500
Accrued expenses 9,900
Net operating loss carryforward 92,950
Deferred income 1,200
------------
Total $ 104,550
------------
------------
There was no valuation allowance for deferred tax assets as of
September 30, 1999. Based upon the projected future taxable income,
management believes it is more likely than not the Company will realize
the benefits of deferred tax assets as of September 30, 1999.
(6) STOCKHOLDERS' EQUITY (DEFICIT)
On May 19, 1999, the Company effected a 13.12-to-1 stock split, which
has been given retroactive effect in the accompanying financial
statements.
(7) CAPITAL STOCK
As of September 30, 1999, 24,000 shares of preferred stock with a par
value of $.01 were authorized, issued, and outstanding. The cumulative
preferred stock pays 8% preferential dividends and is convertible to
common stock at the holder's option at a price of $41.66. The preferred
stock is redeemable after five years at either the holder's or
Company's option. The holder can redeem the stock at a price per share
equal to the original cost plus all accumulated dividends plus a
default premium. The Company can redeem at the original cost plus all
accrued and unpaid dividends. Accumulated dividends are immediately due
and payable upon conversion into common stock or if the Company is
sold.
(8) STOCK COMPENSATION PLAN
During May 1999, the Company adopted a stock option plan (the "Plan").
A total of 18,000 shares of common stock have been reserved for
issuance pursuant to the Plan at September 30, 1999. In September 1999,
the Company's shareholders granted options to employees of the Company.
At September 30, 1999, the number of shares available for issuance was
2,145 shares.
At inception, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
which permits entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of Accounting Principal Board (APB) No. 25 and provide
pro forma net earnings and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
Options to purchase shares of common stock have been granted in 1999
with exercise price of $1.00 which was below the fair value of the
common stock on the date of grant. The related compensation expense was
minimal and not recorded for these grants. Had compensation cost for
the stock option grants been determined using the fair value method,
the Company's net loss would have been unaffected.
The weighted average fair value of options granted in 1999 was $3.21.
Pro forma net income reflects the allocation of compensation cost for
stock option grants using the fair value method. Compensation cost is
allocated between periods based upon the vesting period of the options.
Therefore, the full impact of calculating compensation cost using the
fair value method is not reflected in pro forma net income amounts
presented above because compensation cost is amortized to expense over
the vesting period, and additional options may be granted in future
years. The fair value of these options was estimated at the date of
grant using the Black-Scholes model with the following assumptions:
Expected dividend yield at date of grant 0
Expected stock price volatility 0%
Risk-free interest rate 5%
Expected life of options 5 years
The following information related to options to purchase common stock:
NUMBER OF EXERCISE
SHARES PRICE FAIR VALUE
------------- ---------- ------------
Balance at December 31, 1998 -
Granted 15,855 $ 1.00 $ 3.21
-----------
Balance at September 30, 1999 15,855 1.00 3.21
-----------
-----------
Exercisable at September 30, 1999 -
-----------
-----------
At September 30, 1999, the exercise prices for outstanding stock
options was $1.00 and the weighted average remaining contractual life
of outstanding stock options was five years.
(9) OFFICER COMPENSATION
During the nine months ended September 30, 1999, an officer of the
Company was given stock by shareholders in lieu of compensation for his
services. Compensation expense of $40,000 has been incurred by the
Company during the nine months ended September 30, 1999.
(10) CONCENTRATION OF CREDIT RISK
The Company's customers, while concentrated in the United States, are
spread across diverse market sectors. For the nine months ended
September 30, 1999, sales to one customer accounted for 12% of the
Company's total sales including an accounts receivable balance of
$65,714. For the year ended December 31, 1998, sales to three customers
accounted for 38% of sales with accounts receivable balances totaling
$5,004 and no customers meeting the 10% threshold for the period August
15, 1997 (date of inception) to December 31, 1997. The Company's
accounts receivable are unsecured and the Company
is at risk to the extent such amounts become uncollectible. The Company
establishes its allowance for doubtful accounts based upon the credit
risk of specific customers, historical trends, and other information.
(11) SUBSEQUENT EVENTS
During the month of October 1999, the Company entered into a nonbinding
letter of intent with a third party for the potential acquisition of
all outstanding stock of the Company.
The Company is also pursuing a financing arrangement for the purchase
of additional computer equipment totaling approximately $128,200 with
payments being made over a three year period. The financing arrangement
is guaranteed by two shareholders of the Company.
SHOPNOW.COM INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(IN THOUSANDS)
SHOPNOW.COM SPEEDYCLICK, WEBCENTRIC,
INC. CORP. INC. ADJUSTMENTS (g) TOTAL
--------------- ---------------- --------------- ---------------- ---------------
CURRENT ASSETS:
Cash and cash equivalents $ 2,913 $ 20 $ 460 $ (4,545) $ (1,152)
Short-term investments 6,098 - - - 6,098
Accounts receivable, net 7,911 177 379 - 8,467
Unbilled services 1,288 - - - 1,288
Prepaid expenses and other 2,794 - 108 (105) 2,797
-------- --------- --------- ------------ -----------
Total current assets 21,004 197 947 (4,650) 17,498
PROPERTY AND EQUIPMENT, net 12,746 166 129 - 13,041
GOODWILL AND OTHER INTANGIBLE ASSETS, net 19,438 - - 100,792 120,230
INVESTMENT IN MARKETABLE EQUITY
SECURITIES 20,764 - 31 - 20,795
OTHER ASSETS, net 7,048 2 - - 7,050
-------- --------- --------- ------------ -----------
Total assets $ 81,000 $ 365 $ 1,107 $ 96,142 $ 178,614
-------- --------- --------- ------------ -----------
-------- --------- --------- ------------ -----------
CURRENT LIABILITIES:
Accounts payable $ 7,801 $ 223 $ 57 $ - $ 8,081
Accrued liabilities 6,505 52 44 - 6,601
Line of credit 1,000 - - - 1,000
Current portion of notes and leases 8,110 44 38 - 8,192
Customer deposits 6,185 - - - 6,185
Deferred revenue 6,047 46 - - 6,093
-------- --------- --------- ------------ -----------
Total current liabilities 35,648 365 139 36,152
NOTES AND LEASES PAYABLE, less current
portion 5,802 220 170 (138) 6,054
PUT WARRANT LIABILITY 1,369 - - - 1,369
REDEEMABLE PREFERRED STOCK - - 1,026 (1,026) -
SHAREHOLDERS' EQUITY:
Convertible preferred stock 89,351 535 - (535) 89,351
Common stock 23,414 114 3 96,741 120,272
Common stock warrants 7,968 - - - 7,968
Deferred compensation (3,179) - - - (3,179)
Accumulated other comprehensive loss (2,762) - - - (2,762)
Accumulated deficit (76,611) (869) (231) 1,100 (76,611)
-------- --------- --------- ------------ -----------
Total shareholders' equity 38,181 (220) (228) 97,306 135,039
-------- --------- --------- ------------ -----------
Total liabilities and shareholders'
equity $ 81,000 $ 365 $ 1,107 $ 96,142 $ 178,614
-------- --------- --------- ------------ -----------
-------- --------- --------- ------------ -----------
See notes to unaudited pro forma combined financial statements.
SHOPNOW.COM INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
FOR THE PERIOD
FROM INCEPTION
(1/1/98 TO (1/1/98 TO (9/1/98) TO
8/8/98) 9/17/98) 12/31/98
SHOPNOW.COM THE INTERNET MEDIA ASSETS, GO SOFTWARE, SPEEDYCLICK,
INC. MALL, INC. INC. INC. CORP.
------------- ------------ ------------- -------------- ----------------
REVENUES $ 7,154 $ 175 $ 4,833 $ 1,346 $ -
COST OF REVENUES 5,849 24 2,808 55 -
----------- --------- ------- -------- ---------
Gross margin 1,305 151 2,025 1,291 -
----------- --------- ------- -------- ---------
OPERATING EXPENSES:
Sales and marketing 12,183 56 1,365 143 4
General and administrative 3,549 275 318 1,006 3
Research and development 4,370 114 - 253 28
Amortization of intangible assets 730 - 1 - -
Stock-based compensation 182 - - - -
Unusual item - impairment of acquired
technology 5,207 - - - -
----------- --------- ------- -------- ---------
Total operating expenses 26,221 445 1,684 1,402 35
----------- --------- ------- -------- ---------
(Loss) income from operations (24,916) (294) 341 (111) (35)
OTHER INCOME (EXPENSE), net 171 (13) 17 41 -
----------- --------- ------- -------- ---------
(Loss) income before provision for income
taxes (24,745) (307) 358 (70) (35)
Provision for income taxes - - - 17 -
----------- --------- ------- -------- ---------
Net (loss) income $ (24,745) $ (307) $ 358 $ (53) $ (35)
----------- --------- ------- -------- ---------
----------- --------- ------- -------- ---------
BASIC AND DILUTED NET LOSS PER SHARE (h) $ (7.01)
-----------
-----------
Weighted average shares outstanding used to
compute basic and diluted net loss per share 3,532,054
-----------
-----------
BASIC AND DILUTED PRO FORMA NET LOSS PER
SHARE (h) $ (1.92)
-----------
-----------
Weighted average shares used to compute basic
and diluted pro forma net loss per share 12,857,745
-----------
-----------
WEBCENTRIC, PRO FORMA COMBINED
INC. ADJUSTMENTS TOTAL
----------- -------------- -------------
REVENUES $ 389 $ (4,458) (c) $ 9,439
COST OF REVENUES 185 (4,452) (c) 4,469
--------- -------- -----------
Gross margin 204 (6) 4,970
--------- --------- -----------
OPERATING EXPENSES:
Sales and marketing 44 (2,956) (c) 10,839
General and administrative 130 (955) (c)(f) 4,326
Research and development 84 (1,061) (c) 3,788
Amortization of intangible assets - 39,242 (a) 39,973
Stock-based compensation - - 182
Unusual item - impairment of acquired
technology - - 5,207
--------- -------- -----------
Total operating expenses 258 34,270 64,315
--------- -------- -----------
(Loss) income from operations (54) (34,276) (59,345)
OTHER INCOME (EXPENSE), net (6) (125) (b) 85
---------- -------- -----------
(Loss) income before provision for income
taxes (60) (34,401) (59,260)
Provision for income taxes - (17) (d) -
--------- -------- -----------
Net (loss) income $ (60) $(34,418) $ (59,260)
--------- -------- -----------
--------- -------- -----------
BASIC AND DILUTED NET LOSS PER SHARE (h) $ (5.17)
----------
----------
Weighted average shares outstanding used to
compute basic and diluted net loss per share 11,467,022
----------
----------
BASIC AND DILUTED PRO FORMA NET LOSS PER
SHARE (h) $ (2.85)
----------
----------
Weighted average shares used to compute basic
and diluted pro forma net loss per share 20,792,713
----------
----------
See notes to unaudited pro forma combined financial statements.
SHOPNOW.COM INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(1/1/99 TO (1/1/99 TO (1/1/99 TO
6/15/99) 9/30/99) 9/30/99)
SHOPNOW.COM GO SOFTWARE, SPEEDYCLICK, WEBCENTRIC, PRO FORMA COMBINED
INC. INC. CORP. INC. ADJUSTMENTS TOTAL
------------ ------------- ------------ ----------- ----------------- ------------
REVENUES $ 23,537 $ 728 $ 328 $ 1,111 $ (9,948) (c)(e) $ 15,756
COST OF REVENUES 19,494 45 - 416 (11,190) (c) 8,765
---------- --------- --------- --------- --------- ----------
Gross margin 4,043 683 328 695 1,242 6,991
---------- --------- --------- --------- --------- ----------
OPERATING EXPENSES:
Sales and marketing 33,545 172 777 346 (2,911) (c)(e) 31,929
General and administrative 5,493 514 212 415 (148) (c)(f) 6,486
Research and development 5,367 182 171 246 (10) (c) 5,956
Amortization of intangible assets 3,734 - - - 27,253 (a) 30,987
Stock-based compensation 2,547 - - - - 2,547
---------- --------- --------- --------- --------- ----------
Total operating expenses 50,686 868 1,160 1,007 24,184 77,905
---------- --------- --------- --------- --------- ----------
(LOSS) INCOME FROM OPERATIONS (46,643) (185) (832) (312) (22,942) (70,914)
OTHER (EXPENSE) INCOME, net (605) 12 (2) (4) (50) (b) (649)
---------- --------- --------- --------- --------- ----------
(LOSS) INCOME BEFORE PROVISION FOR
INCOME TAXES (47,248) (173) (834) (316) (22,992) (71,563)
PROVISION FOR INCOME TAXES - 12 - 105 (117) (d) -
---------- --------- --------- --------- --------- ----------
Net (loss) income $ (47,248) $ (161) $ (834) $ (211) $ (23,109) $ (71,563)
---------- --------- --------- --------- --------- ----------
---------- --------- --------- --------- --------- ----------
BASIC AND DILUTED NET LOSS PER SHARE (h) $ (9.03) $ (5.81)
---------- ----------
---------- ----------
WEIGHTED AVERAGE SHARES OUTSTANDING
USED TO COMPUTE BASIC AND DILUTED
NET LOSS PER SHARE 5,230,394 12,315,286
---------- ----------
---------- ----------
BASIC AND DILUTED PRO FORMA NET LOSS
PER SHARE (h) $ (2.16) $ (2.57)
---------- ----------
---------- ----------
WEIGHTED AVERAGE SHARES USED TO
COMPUTE BASIC AND DILUTED PRO FORMA
NET LOSS PER SHARE 21,859,604 27,820,745
---------- ----------
---------- ----------
See notes to unaudited pro forma combined financial statements.
SHOPNOW.COM INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION:
The unaudited pro forma combined balance sheet as of September 30, 1999
gives effect to the acquisitions of SpeedyClick, Corp. and WebCentric, Inc. as
if these transactions had occurred on September 30, 1999. The unaudited pro
forma combined statements of operations for the year ended December 31, 1998 and
for the nine months ended September 30, 1999 gives effect to the acquisitions of
Media Assets, Inc.; The Internet Mall, Inc.; GO Software, Inc.; SpeedyClick,
Corp.; and WebCentric, Inc. and the disposition of BuySoftware.com as if these
transactions had occurred January 1, 1998.
The pro forma combined financial statements are presented for
illustrative purposes only and should not be construed to be indicative of the
actual combined results of operations as may exist in the future. The pro forma
adjustments are based on the cash and common stock consideration exchanged by
ShopNow.com Inc. for the fair value of the assets acquired and liabilities
assumed.
2. PRO FORMA ADJUSTMENTS:
(a) To record amortization of intangible assets based on the excess
purchase price. As Media Assets, Inc. and The Internet Mall, Inc. were acquired
during 1998 and GO Software was acquired on June 15, 1999, amortization is based
on the actual purchase price allocation and computed for the period from January
1, 1998 to the respective date of acquisition. As SpeedyClick, Corp. and
WebCentric, Inc. were acquired after September 30, 1999, the amortization is
based on the estimated purchase price allocation and computed for the period
from January 1, 1998 to the respective date of acquisition. Intangible assets
acquired are assumed to have a three-year life.
Seven months of The Internet Mall, Inc. $ 422
Eight months of Media Assets, Inc. 347
Twelve months of GO Software, Inc. 4,798
Twelve months of SpeedyClick, Corp. 20,295
Twelve months of WebCentric, Inc. 13,380
----------
Total 1998 pro forma amortization $ 39,242
----------
----------
Five months of GO Software, Inc. $ 1,999
Nine months of SpeedyClick, Corp. 15,219
Nine months of WebCentric, Inc. 10,035
----------
Total 1999 pro forma amortization $ 27,253
----------
----------
(b) To record eight months of interest expense associated with the
note issued as consideration for Media Assets, Inc., totaling $25, and to record
12 and six months of interest expense associated with the GO Software, Inc.
convertible promissory note totaling $100 and $50, respectively.
(c) To eliminate the results of operations of BuySoftware.com.
Given the Company's continued involvement in certain retailing activities, the
results of BuySoftware.com have been reflected in continuing operations through
June 1999. However, the Company believes that it is meaningful to present the
disposal as if it had occurred as of January 1, 1998. As BuySoftware.com was run
as a separate business segment, the revenues, cost of revenues and operating
expenses directly attributable to the business segment were removed.
(d) To eliminate tax benefits recorded by GO Software, Inc. and
WebCentric, Inc., which may not be realized by the Company.
(e) To eliminate revenues recognized by SpeedyClick, Corp. related
to advertising received from ShopNow.com Inc. As the pro forma statements of
operations are prepared as if the merger had occurred on January 1, 1998, these
revenues and the related expense have been eliminated.
(f) To record compensation of SpeedyClick, Corp. executives per
employment agreements as follows (these amounts represent compensation at
historical levels):
1998 - Four months of compensation expense $128
1999 - Nine months of compensation expense $288
(g) To record the acquisitions of: 1) SpeedyClick, Corp. for cash
of $3 million, 3,799,237 shares of common stock and 157,537 options to purchase
shares of common stock, representing consideration of approximately $57.4
million; and 2) WebCentric, Inc. for cash of $1.4 million, 2,161,904 shares of
common stock and 121,544 options to purchase shares of common stock,
representing non-cash consideration of approximately $39.5 million. The excess
purchase price of these acquisitions has been determined as follows:
SPEEDYCLICK, WEBCENTRIC,
CORP. INC.
--------------- -------------
Purchase price $ 60,440 $ 40,825
Net (liabilities assumed) assets acquired 220 (694)
---------- ----------
Excess purchase price $ 60,660 $ 40,131
---------- ----------
---------- ----------
(h) Basic and diluted net loss per share is computed by dividing
net loss by the weighted average number of share outstanding during the period
assuming that shares issued for acquisitions were outstanding for the entire
period. Pro forma basic and diluted net loss per share is computed based on the
weighted average number of shares outstanding giving effect to shares issued in
acquisitions as if they were outstanding for the entire period and to the
conversion of convertible preferred stock on an as-if converted basis from the
original issuance date.
3. RECONCILIATION OF HISTORICAL WEIGHTED AVERAGE SHARES TO PRO FORMA
WEIGHTED AVERAGE SHARES:
DECEMBER 31, SEPTEMBER 30,
1998 1999
-------------- ----------------
Historical 3,532,054 5,230,394
Internet Mall, January 1, 1998 - August 8, 1998 426,024 -
Media Assets, January 1, 1998 - September 17, 1998 424,052 -
GO Software, January 1, 1998 - December 31, 1998; January 1, 1999 -
September 30, 1999 1,123,751 1,123,751
SpeedyClick, Corp., January 1, 1998 - December 31, 1998; January 1, 1999 -
September 30, 1999 3,799,237 3,799,237
WebCentric, Inc., January 1, 1998 - December 31, 1998; January 1, 1999 -
September 30, 1999 2,161,904 2,161,904
----------- -----------
Pro forma 11,467,022 12,315,286
----------- -----------
----------- -----------
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
SHOPNOW.COM INC.
Dated: January 7, 2000 By: /s/ Alan D. Koslow
--------------------------------------
Alan D. Koslow
Executive Vice President, Chief
Financial Officer and General Counsel
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
2.1 Agreement and Plan of Merger dated as of December 16, 1999,
among ShopNow.com Inc., Chiefs Acquisition, Inc., WebCentric,
Inc. and the stockholders of WebCentric Inc. (incorporated by
reference to ShopNow's Current Report on Form 8-K filed
December 29, 1999).
23.1 Consent of KPMG LLP, independent public accountants.