SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): February 8, 2000
EARTHWEB INC.
(Exact Name of Registrant as Specified in Charter)
DELAWARE 000-25017 13-3899472
(State or Other Jurisdiction of (Commission File Number) (IRS Employer
Incorporation) Identification No.)
3 PARK AVENUE, NEW YORK, NEW YORK 10016
(Address of Principal Executive Offices) (Zip Code)
(212) 725-6550
(Registrant's telephone number, including area code)
ITEM 2. Acquisitions of Assets.
On January 13, 2000, EarthWeb Inc. ("EarthWeb") entered into a Securities
Purchase Agreement (the "Purchase Agreement") with Measure Up, Inc. ("Measure
Up"), Kevin R. Brice and Robert M. M. Holtackers (collectively, "Seller"). Also
on that date, EarthWeb entered into Option Holder Purchase Agreements with each
of Kenneth B. Williams, Jeffrey W. Adkisson, Jack R. Freeman, Melissa S. Stover,
Scott E. Hall, Chad A. Dorn and Deanne Brown (collectively, the "Option Holder
Agreements" and, together with the Purchase Agreement, the "Agreements").
Pursuant to the Agreements, EarthWeb acquired all of the capital stock of
Measure Up on February 8, 2000. A copy of the Purchase Agreement is attached as
Exhibit 2.1 and copies of each of the Option Holder Agreements are attached
hereto as Exhibit 10.1.
The consideration paid by EarthWeb to acquire all of the capital stock of
Measure Up consisted of (a) $10 million in cash, which was paid at closing, (b)
two additional payments payable in May 2000 and August 2000, of $2.5 million
each, $2.3 million of which is in the form of restricted stock and $0.2 million
in the form of cash, and (c) additional future "earnout" payments based on
performance of the business in the form of cash or restricted EarthWeb common
stock or both with an aggregate value of up to $10 million, of which such
amounts are payable over a period of three years based on achievement of certain
revenue targets. Under the terms of the Agreements and a related escrow
agreement, 134,127 restricted shares of stock (subject to future adjustments)
have been placed in escrow to secure the $2.3 million payable and an additional
58,207 restricted shares (also subject to future adjustments) have been placed
in escrow to secure potential obligations contingent on the achievement of
certain future performance targets. The amount of consideration was reached
through arm's length negotiations and was funded by the proceeds of EarthWeb's
January 2000 convertible debt offering and through the issuance of EarthWeb's
restricted common stock.
The acquisition of Measure Up will be accounted for as a purchase. The purchase
price will be allocated to assets based on their fair values, with the excess
allocated to goodwill. Results of Measure Up will be included with those of
EarthWeb for periods subsequent to the date of acquisition.
Measure Up provides online certification preparation for Microsoft, A+, Novell
and Cisco.
In accordance with a registration rights agreement executed and delivered as
part of the acquisition, EarthWeb granted certain rights to Kevin R. Brice and
Robert M. M. Holtackers with respect to the registration of EarthWeb common
stock. A copy of such registration rights agreement is attached as Exhibit 4.1.
2
ITEM 7. FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION.
(a) Financial Statements of Business Acquired.
Report of Independent Accountants
To the Board of Directors of
MeasureUp, Inc.:
In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of MeasureUp, Inc. at December 31,
1998 and 1997, and the results of their operations and their cash flows for the
year ended December 31, 1998 and for the period from August 25, 1997 (inception)
to December 31, 1997 in conformity with accounting principles generally accepted
in the United States. 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 of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
December 21, 1999
New York, New York
3
MEASUREUP, INC.
Balance Sheets
At September 30, 1999 (unaudited) and December 31, 1998 and 1997
- --------------------------------------------------------------------------------
At
September 30, At
1999 December 31,
(unaudited) 1998 1997
ASSETS
Current assets
Cash $ 217,826 $ 13,644 $ 4,771
Accounts receivable, net 261,241 163,015 -
Other current assets 2,050 7,637 3,844
------------- ----------- -----------
Total current assets 481,117 184,296 8,615
Fixed assets, net 21,655 9,455 3,380
------------- ----------- -----------
Total assets $ 502,772 $ 193,751 $ 11,995
============= =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 70,907 $ 45,366 $ 5,342
Accrued expenses 25,197 22,296 19,175
Deferred revenue 443,504 234,915 -
Short-term debt 215,500 204,600 -
Other current liabilities 30,000 - -
------------- ----------- -----------
Total current liabilities 785,108 507,177 24,517
Other 11,250 11,250 -
------------- ----------- -----------
Total liabilities 796,358 518,427 24,517
------------- ----------- -----------
Commitments and contingencies
Stockholders' deficit
Common stock, par value $.01 per share, 2,500,000 shares
authorized, 1,000,000 (1999) and 978,340 (1998 and 1997)
shares issued and outstanding 10,000 9,783 9,783
Additional paid-in capital 251,513 233,952 124,804
Accumulated deficit (555,099) (568,411) (147,109)
------------- ----------- -----------
Total stockholders' deficit (293,586) (324,676) (12,522)
------------- ----------- -----------
Total liabilities and stockholders' deficit $ 502,772 $ 193,751 $ 11,995
============= =========== ===========
The accompanying notes are an integral part of these financial statements.
4
MEASUREUP, INC.
Statements of Operations
For the nine months ended September 30, 1999 (unaudited) and
1998 (unaudited), for the year ended December 31, 1998 and for
the period from August 25, 1997 (inception) to December 31, 1997
- --------------------------------------------------------------------------------
Nine months ended Year ended Inception to
September 30, December 31, December 31,
1999 (unaudited) 1998 (unaudited) 1998 1997
----------------- ---------------- ------------ -------------
Revenues $ 944,045 $ 205,701 $ 402,687 $
-
Cost of revenues 412,875 316,966 441,773 -
---------- ---------- ----------- ----------
Gross profit (deficit) 531,170 (111,265) (39,086) -
Operating expenses
Sales and marketing 182,008 91,388 122,682 8,510
General and administrative 307,335 170,976 249,801 138,421
Depreciation and amortization 4,677 3,042 3,697 178
---------- ---------- ----------- ----------
Total operating expenses 494,020 265,406 376,180 147,109
---------- ---------- ----------- ----------
Operating income (loss) 37,150 (376,671) (415,266) (147,109)
Interest and other expense 13,156 2,568 6,036 -
---------- ---------- ----------- ----------
Income (loss) before income taxes 23,994 (379,239) (421,302) (147,109)
---------- ---------- ----------- ----------
Income tax provision 10,682 - - -
---------- ---------- ----------- ----------
Net income (loss) $ 13,312 $ (379,239) $ (421,302) $(147,109)
========== ========== =========== ==========
The accompanying notes are an integral part of these financial statements.
5
MEASUREUP, INC.
Statements of Cash Flows
For the nine months ended September 30, 1999 (unaudited) and 1998 (unaudited),
for the year ended December 31, 1998 and for the period from August 25, 1997
(inception) to December 31, 1997
- --------------------------------------------------------------------------------
Nine months ended
September 30, Year ended Inception to
1999 1998 December 31, December 31,
(unaudited) (unaudited) 1998 1997
----------- ----------- ------------ ------------
Cash flows from operating activities:
Net income (loss) $ 13,312 $ (379,239) $ (421,302) $ (147,109)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities
Depreciation 4,677 3,042 3,698 178
Changes in operating assets and liabilities:
Accounts receivable (98,226) (93,566) (163,015) -
Other current assets 5,587 1,794 (3,793) (3,844)
Accounts payable 25,541 41,162 40,024 5,342
Accrued expenses 20,678 18,271 3,121 19,175
Deferred revenue 208,589 154,710 234,915 -
Other - - 11,250 -
--------- ---------- ----------- -----------
Net cash provided by (used in) operating activities 180,158 (253,826) (295,102) (126,258)
--------- ---------- ----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (16,876) (9,029) (9,790) (3,557)
--------- ---------- ----------- -----------
Net cash used in investing activities (16,876) (9,029) (9,790) (3,557)
--------- ---------- ----------- -----------
Cash flows from financing activities:
Short-term debt, net 10,900 152,600 204,600 -
Capital contribution - 109,165 109,165 134,586
Loan from shareholder 30,000 - - -
--------- ---------- ----------- -----------
Net cash provided by financing activities 40,900 261,765 313,765 134,586
--------- ---------- ----------- -----------
Net increase (decrease) in cash for the period 204,182 (1,089) 8,873 4,771
Cash and cash equivalents, beginning of period 13,644 4,771 4,771 -
--------- ---------- ----------- -----------
Cash and cash equivalents, end of period $ 217,826 $ 3,682 $ 13,644 $ 4,771
========= ========== =========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 12,424 $ 2,568 $ 5,977 $ -
========= ========== =========== ===========
Supplemental disclosure of non-cash financing activity:
During 1999, the Company issued approximately 21,660 shares of common stock,
valued at approximately $17,800, for employee services rendered.
The accompanying notes are an integral part of these financial statements.
6
MEASUREUP, INC.
Statements of Stockholders' Deficit
For the nine months ended September 30, 1999 (unaudited), for the year ended
December 31, 1998 and for the period from
August 25, 1997 (inception) to December 31, 1997
- --------------------------------------------------------------------------------
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
----------- ----------- ------------ ----------- -----------
Stock issuance at August 25, 1997 (inception) $ 978,340 $ 9,783 $ - $ - $ 9,783
Capital contribution - - 124,804 - 124,804
Net loss - - - (147,109) (147,109)
----------- ----------- ------------ ----------- -----------
Balance at December 31, 1997 978,340 9,783 124,804 (147,109) (12,522)
Capital contribution - - 109,148 - 109,148
Net loss - - - (421,302) (421,302)
----------- ----------- ------------ ----------- -----------
Balance at December 31, 1998 978,340 9,783 233,952 (568,411) (324,676)
Stock issuance (unaudited) 21,660 217 17,561 - 17,778
Net income (unaudited) - - - 13,312 13,312
----------- ----------- ------------ ----------- -----------
Balance at September 30, 1999 (unaudited) $ 1,000,000 $ 10,000 $ 251,513 $ (555,099) $ (293,586)
=========== =========== ============ =========== ===========
The accompanying notes are an integral part of these financial statements.
7
MEASUREUP, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. The Company
MeasureUp, Inc. (the "Company"), founded on August 25, 1997 (inception),
provides training and assessment preparation products for information
technology ("IT") professional certifications. The Company uses a testing
system to deploy individually licensed preparation products over the
Internet to a worldwide channel of distributors and individuals. In
addition to single user licenses for preparation products, MeasureUp offers
private labeling and multi-user licensing. MeasureUp is headquartered in
Atlanta, Georgia and its customers are located throughout the United
States. The Company was considered a development stage enterprise for the
period from inception through December 31, 1997 as substantially all of the
Company's efforts through December 31, 1997 were devoted to organizing the
Company, establishing its management team, raising capital, developing its
website, and building its sales and marketing function.
2. Significant Accounting Policies
Revenue recognition
Revenue from sales to certification preparation resellers and direct sales
is recognized ratably over the performance period, which is the period the
Company has agreed to allow usage and maintain its website. Deferred
revenue represents amounts received prior to being earned over the
performance period. Revenue from sales of test preparation content on CD-
ROM is recognized when the product is shipped. For software license sales
where no significant contractual obligations remain outstanding, the
Company recognizes revenue upon shipment.
Concentration of credit risk
The Company maintains allowances for credit losses and such losses have
been within management's expectations. Four customers accounted for
approximately 64% of the gross accounts receivable balance at December 31,
1998. One customer accounted for approximately 17% of gross revenues for
the year ended December 31, 1998.
Financial instruments
The recorded amounts of financial instruments approximate their fair value.
Fixed assets
Fixed assets are stated at cost less accumulated depreciation. Depreciation
of computer equipment, furniture and fixtures, and office equipment is
provided for by the straight-line method over the estimated useful life of
three years. Repairs and maintenance costs are charged to operations in the
periods incurred.
Income taxes
The Company qualified as a Subchapter S corporation in the U.S. for federal
and state income tax purposes from inception through June 30, 1999.
Accordingly, no provision has been made for income tax purposes during
those periods. Individual stockholders report their share of the U.S.
taxable income or loss on their respective individual income tax returns.
Such U.S. taxable income or loss allocated to the stockholders differs from
book income primarily due to revenue recognition. Effective July 1, 1999,
the Company elected Subchapter C corporation status.
8
MEASUREUP, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Risks and uncertainties
The Company has a limited operating history and its prospects are subject
to the risks, expense and uncertainties frequently encountered by companies
in the new and rapidly evolving markets for Internet products and services.
These risks include the failure to develop and extend the Company's online
products, the rejection of the Company's products by Web consumers and
vendors, the inability of the Company to maintain and increase the levels
of use of its online products, as well as other risks and uncertainties. In
the event that the Company does not successfully implement its business
plan, certain assets may not be recoverable.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expense during
the reporting period. Actual results could differ from these estimates. The
Company's significant estimates include the useful lives of fixed assets
and the accounts receivable allowance for doubtful accounts.
Long lived assets
The carrying value of assets is reviewed on a regular basis for the
existence of facts or circumstances, both internally and externally, that
suggest impairment. To date, no such impairment has been indicated. Should
there be an impairment in the future, the Company will determine the
impairment based on comparison of recorded amounts to the expected future
cash flows from the impaired assets. The cash flow estimates will contain
management's best estimates using appropriate and customary assumptions and
projections at the time.
Interim financial information (unaudited)
Interim financial statements have been prepared on a basis consistent with
the preparation of annual financial statements and reflect all adjustments
necessary for a fair presentation of the information for the periods
presented.
Stock split
On June 30, 1999 the Company authorized and implemented a stock split at
1.95668-for-1, and on October 12, 1999 the Company authorized and
implemented a 10-for-1 stock split. An amount equal to the par value of the
common stock issued was transferred from additional paid-in capital to the
common stock account. All references to the numbers of shares of common
stock, except shares authorized, have been adjusted in the financial
statements and related footnotes to reflect the stock splits on a
retroactive basis.
Comprehensive income
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income" in 1998. SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net
assets) during a period from non-owner sources. To date, the Company has
not had any transactions that are required to be reported in comprehensive
income.
9
MEASUREUP, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
3. Fixed Assets
Property and equipment consist of the following:
December 31,
1998 1997
Computer equipment $ 10,656 $ 3,558
Furniture, fixtures and office equipment 2,675 -
---------- ----------
Subtotal 13,331 3,558
Less: accumulated depreciation (3,876) (178)
---------- ----------
Fixed assets, net $ 9,455 $ 3,380
========== ==========
Depreciation expense for the years ended December 31, 1998 and 1997
totaled $3,698 and $178, respectively.
4. Commitments and Contingencies
The Company leases office space and office equipment under non-cancelable
operating leases expiring at various dates through 2003.
Future minimum lease payments under non-cancelable operating leases at
December 31, 1998 are as follows:
1999 $ 45,060
2000 35,123
2001 3,837
2002 2,293
2003 1,720
Thereafter -
----------
$ 88,033
==========
Rent expense was approximately $42,500 and $1,100 for the years ended
December 31, 1998 and 1997, respectively.
5. Short-Term Debt
The Company has a $250,000 line-of-credit agreement with a bank. Interest
on outstanding borrowings currently accrues at 8% per annum. The facility
is collateralized by the majority shareholder's personal assets. At
December 31, 1998, there was approximately $204,600 of outstanding
borrowings under this agreement, and $45,400 was available for borrowing.
All amounts loaned under the agreement, including the accrued interest, are
payable upon demand.
10
MEASUREUP, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
6. Stockholders' Equity
Common stock
On August 25, 1997, the Company issued 978,340 shares of $.01 par value
common stock to initially set up the organization.
On November 18, 1997, the Company awarded 21,660 shares of $.01 par value
common stock to an employee in exchange for services rendered. The common
stock award had a fair value at the date of grant of approximately $17,800.
These shares were subsequently issued on July 1, 1999. The Company applied
Accounting Principles Board No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for the issuance of
this stock.
For the year ended December 31, 1998 and for the period from inception to
December 31, 1997, the majority shareholder contributed $109,165 and
$134,586, respectively.
On October 12, 1999, the Company amended the articles of incorporation to
increase the number of authorized shares of $.01 par value common stock
from 100,000 to 2,500,000.
Stock option plan
In August 1998, the Company implemented its Stock Incentive Plan (the
"Plan") under which incentive stock options or non-qualified stock options
to purchase the Company's common stock, par value $.01 per share, may be
granted to eligible employees. A summary of the status of the Plan at
December 31, 1998 and changes during the year then ended is presented
below:
Weighted
Option Average
Shares Exercise Price
Options outstanding since inception
Granted 42,500 $ 0.60
----------
Options outstanding - December 31, 1998 42,500 $ 0.60
==========
Options exercisable at December 31, 1998 15,000
Weighted average fair value of options granted during 1998 $ 0.11
The following table summarizes information about stock options outstanding
at December 31, 1998:
Options Outstanding Options Exercisable
------------------------------------ ------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Shares Remaining Exercise Shares Exercise
Price Outstanding Contractual Life Price Exercisable Price
- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
$ 0.60 42,500 9.7 $ 0.60 15,000 $ 0.60
11
MEASUREUP, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Options granted are either immediately vested or vest over a period of four
years; however, the remaining unvested options automatically vest upon a
substantial change in ownership of the Company, which is defined as either
50% of the Company's stock or 80% of the Company's assets. At December 31,
1998, the Company had reserved 50,000 shares of common stock for the
exercise of options.
The option plan also provides for the issuance of stock appreciation rights
and restricted stock awards under which shares of common stock may be
issued to eligible employees. No such awards have been made.
Stock-based compensation
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock-Issued to Employees" and related interpretations in accounting
for its stock option issuances. The Company has adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Had
compensation cost for the Company's stock option issuances been determined
based on the fair value at the grant date for awards in 1998 consistent
with the provisions of SFAS No. 123, the Company's net loss would have been
adjusted to the pro forma amount indicated below.
December 31,
1998
Net loss - as reported $ (421,302)
Net loss - pro forma (423,221)
The fair value of each option grant is estimated on the date of the grant
using the "Black-Scholes option-pricing model" with the following weighted
average assumptions used for the grant for the year ended December 31,
1998: zero dividend yield; no volatility; a weighted average risk-free
interest rate of 5.14%; and expected lives of 4 years.
7. Subsequent Events
On March 24, 1999, the principal stockholder loaned to the Company $30,000
for the purpose of providing to the Company additional operating funds. It
is the Company's intent to make full payment on this obligation by December
31, 2000. The liability has been classified in Other current liabilities.
On October 31, 1999, the Company entered into a letter of intent with a
provider of Internet-based online services to the IT industry for the
acquisition of all of the common stock of the Company from its
stockholders. The transaction is expected to be completed in early 2000.
12
(b) Unaudited Pro Forma Condensed Consolidated Financial Information
The valuations and other studies required to determine the fair value of the
Measure Up assets acquired and liabilities assumed have not been performed and,
accordingly, the related adjustments reflected in the unaudited pro forma
condensed consolidated financial information are preliminary and subject to
further revisions and adjustments. For purposes of this presentation, the
carrying amounts of the Measure Up net assets acquired were assumed to
approximate fair value. Therefore, the excess of purchase price over the
historical net book value of the net assets of Measure Up has been classified on
the pro forma balance sheet as "Goodwill and Intangibles". The final valuation
could result in different allocations of the purchase price compared to the
amounts presented in the following pro forma information, resulting in
corresponding changes in depreciation and amortization amounts.
The unaudited pro forma condensed consolidated statements of operations for the
year ended December 31, 1998 and the nine months ended September 30, 1999 give
effect to the acquisition of Measure Up as if the transaction occurred on
January 1, 1998 and are based on the historical results of operations of
EarthWeb and Measure Up. The unaudited pro forma condensed consolidated balance
sheet and the unaudited pro forma condensed consolidated statements of
operations and the accompanying notes should be read in conjunction with the
historical financial statements of EarthWeb and Measure Up and notes thereto.
The unaudited pro forma condensed consolidated financial statements are based on
the preliminary estimates and assumptions set forth in the notes to these
statements that have been made solely for the purposes of developing this pro
forma information. The unaudited pro forma condensed consolidated financial
statements are not necessarily an indication of the results that would have been
achieved had this transaction been consummated as of the dates indicated or that
may be achieved in the future. In addition, the Unaudited Pro Forma Condensed
Consolidated Financial Information does not include the pro forma impact of the
acquisitions of D&L Online, Inc. and Micro House International, Inc. which was
acquired in February 1999 and March 1999 respectively. The impact of these
acquisitions was presented in EarthWeb's forms 8-K/A filed on April 15, 1999 and
May 26, 1999, respectively.
13
EarthWeb Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
-----------------------------------------------------------------------
As of September 30, 1999
------------------------------
Pro forma Pro forma
Assets: EarthWeb Measure Up Adjustments Total
------------ ------------ --------------- ---------------
Current Assets:
Cash and Restricted Cash $ 29,370,012 $ 217,826 $ (10,000,000) 1(a) $ 19,587,838
Accounts receivable, net 3,660,837 261,241 -- 3,922,078
Prepaid expenses and other current assets 1,482,169 2,050 -- 1,484,219
------------ ------------ -------------- ---------------
Total current assets 34,513,018 481,117 (10,000,000) 24,994,135
Fixed assets, net 4,865,174 21,655 -- 4,886,829
Goodwill Intangible assets, net 57,258,051 -- 15,456,414 (1b) 72,714,465
Other assets 532,760 -- -- 532,760
------------ ------------ -------------- ---------------
Total assets $ 97,169,003 $ 502,772 $ 5,456,414 $ 103,128,189
============ ============ ============== ===============
Liabilities And Stockholders' Equity:
Current Liabilities:
Accounts payable $ 3,608,005 $ 70,907 $ 381,000 1(a) $ 4,059,912
Accrued expenses 7,619,099 25,197 750,000 1(c) 8,394,296
Short-term debt -- 215,500 -- 215,500
Other current liabilities 7,670,102 473,504 -- 8,143,606
------------ ------------ -------------- ---------------
Total current liabilities 18,897,206 785,108 1,131,000 20,813,314
Convertible note payable 5,622,509 -- -- 5,622,509
Other liabilities 4,691,253 11,250 -- 4,702,503
------------ ------------ -------------- ---------------
Total liabilities 29,210,968 796,358 1,131,000 31,138,326
------------ ------------ -------------- ---------------
Stockholders' equity: 67,958,035 (293,586) 4,325,414 1(d) 71,989,863
------------ ------------ -------------- ---------------
Total liabilities and stockholders equity $ 97,169,003 $ 502,772 $ 5,456,414 $ 103,128,189
============ ============ ============== ===============
The accompanying notes are an integral part of these financial statements.
14
EarthWeb Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
---------------------------------------------------------------------------------
For the year ended December 31, 1998
-------------------------------------------------------------
Pro forma Pro forma
EarthWeb Measure Up Adjustments Total
------------ ------------ --------------- ---------------
Revenues $ 3,349,165 $ 402,687 $ -- $ 3,751,852
Cost of Revenues 2,131,593 441,773 -- 2,573,366
------------ ------------ --------------- ---------------
Gross Profit 1,217,572 (39,086) -- 1,178,486
------------ ------------ --------------- ---------------
Operating expenses:
Product development 1,475,665 -- -- 1,475,665
Sales & marketing 4,546,839 122,682 -- 4,669,521
General & administrative 3,356,567 249,801 -- 3,606,368
Depreciation & Amortization 1,115,698 3,697 3,864,104 2(a) 4,983,499
------------ ------------ --------------- ---------------
Total operating expenses 10,494,769 376,180 3,864,104 14,735,053
------------ ------------ --------------- ---------------
Operating loss (9,277,197) (415,266) (3,864,104) (13,556,567)
Interest and other income (expense), net 307,409 (6,036) -- 301,373
Net loss $ (8,969,788) $ (421,302) $ (3,864,104) $ (13,255,194)
============ ============ =============== ===============
Basic and diluted net loss per share $ (2.37) $ (3.38)
============ ===============
Weighted average shares
used in computing basic and diluted net
loss per share 3,782,575 134,127 2(b) 3,916,702
============ ================= ===============
Supplemental pro forma basic and diluted
net loss per share $ (1.53) $ (2.20)
============ ===============
Weighted average shares used in
supplemental pro forma basic and
diluted net loss per share 2(c) 5,880,467 134,127 6,014,594
============ ================= ===============
The accompanying notes are an integral part of these financial statements.
15
EarthWeb Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
------------------------------------------------------------------------
January 1, 1999 - September 30, 1999
--------------------------------------------------------
Pro forma Pro forma
EarthWeb Inc. Measure Up Adjustments Total
--------------- ------------ --------------- ---------------
Revenues $ 19,583,679 $ 944,045 $ -- $ 20,527,724
Cost of Revenues 7,143,911 412,875 -- 7,556,786
------------- ------------ --------------- ---------------
Gross Profit 12,439,768 531,170 -- 12,970,938
------------- ------------ --------------- ---------------
Operating expenses:
Product development 3,001,232 -- -- 3,001,232
Sales & marketing 18,929,870 182,008 -- 19,111,878
General & administrative 7,032,100 307,335 -- 7,339,435
Depreciation & Amortization 9,066,524 4,677 2,898,078 2(a) 11,969,279
------------- ------------ --------------- ---------------
Total operating expenses 38,029,726 494,020 2,898,078 41,421,824
------------- ------------ --------------- ---------------
Operating loss (25,589,958) 37,150 (2,898,078) (28,450,886)
Interest and other income (expense), net 651,233 (23,838) -- 627,395
------------- ------------ --------------- ---------------
Net loss $ (24,938,725) $ 13,312 $ (2,898,078) $ (27,823,491)
============= ============ =============== ===============
Basic and diluted net loss per share $ (2.78) $ (3.06)
============= ===============
Weighted average shares
used in computing basic and diluted
net loss per share 8,964,930 134,127 9,099,057
============= =============== ===============
The accompanying notes are an integral part of these financial statements.
16
Pro Forma Adjustments and Assumptions
The pro forma adjustments to the unaudited pro forma condensed consolidated
balance sheet, assuming the acquisition occurred on September 30, 1999, are as
follows:
1(a) Adjustments to record cash payment of $10,000,000 issuance of restricted
share valued at $4,619,000 and payable of $381,000 in connection with the
acquisition.
1(b) Adjustments to calculate goodwill and other intangible assets and to
allocate the purchase price over the estimated fair value of the Measure Up
assets acquired calculated as follows:
Cash portion of purchase price.............................. $ 10,000,000
Value of stock portion of purchase price.................... 4,619,000
Payable portion of purchase price........................... 381,000
Transaction costs........................................... 750,000
------------
Purchase price.............................................. 15,750,000
Add: estimated fair value of net liabilities acquired....... (293,586)
------------
Goodwill and other intangibles.............................. $ 15,456,414
============
1(c) Adjustment to record approximately $750,000 of transaction costs incurred
with the acquisition.
1(d) Adjusted to reflect the issuance of an estimated 134,127 shares of common
stock valued at $4,619,000 payable in May 2000 and August 2000 (based on the
average stock price from February 1, 2000 through February 7, 2000).
The pro forma adjustments to the unaudited pro forma condensed consolidated
statements of operations, assuming the acquisition occurred on January 1, 1998
are as follows:
2(a) Adjustment to amortization to reflect the amortization of goodwill and
intangible assets of approximately $3.9 million and $2.9 million for the year
ended December 31, 1998 and nine months ended September 30, 1999, respectively,
resulting from the acquisition of Measure Up over an approximate four year
period, the expected period of benefit.
2(b) Adjustment of weighted average shares of common stock outstanding of
134,127 used in computing basic and diluted net loss per share to reflect the
issuance of 134,127 shares as of January 1, 1998.
2(c) The supplemental pro forma net loss per share amount is computed by using
the sum of the weighted average number of shares of common stock and the
2,439,833 shares of common stock issued in November 1988 upon conversion of
preferred stock as if it had been converted on January 1, 1998.
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(c) Exhibit Index
Exhibit No. Description
----------- -----------
2.1 Securities Purchase Agreement, dated as of January 13, 2000
among EarthWeb Inc., Kevin R. Brice and Robert M. M.
Holtackers. #
4.1 Registration Rights Agreement, dated as of January 13, 2000
between EarthWeb Inc., Kevin R. Brice and Robert M. M.
Holtackers.
10.1 Option Holder Purchase Agreements with each of Kenneth B.
Williams, Jeffrey W. Adkisson, Jack R. Freeman, Melissa S.
Stover, Scott E. Hall, Chad A. Dorn and Deanne Brown, dated
as of January 13, 2000. #
# Confidential treatment has been requested with respect to certain
portions of this Exhibit. Omitted portions will be filed separately with
the Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EarthWeb Inc.
Dated: February 11, 2000 By: /s/ Jack D. Hidary
-----------------------------
Jack D. Hidary
President and Chief Executive
Officer
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