1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported):
October 13, 1999 (July 29, 1999)
CNET, Inc.
----------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
Delaware 0-20939 13-3696170
-------- ------- ----------
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION)
150 Chestnut Street, San Francisco, California 94111
----------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code:
(415) 395-7800
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Effective July 29, 1999, CNET, Inc. (the "Registrant" or the "Company")
acquired Nordby International, Inc., a Colorado corporation ("Nordby"), for a
total purchase price of approximately $20 million, through a merger of Nordby
into the Company (the "Merger"). In connection with the Merger, the Registrant
issued 230,000 shares of its common stock, having a value of approximately $10
million, to Neil Nordby, the sole shareholder of Nordby (the "Shareholder"). The
number of shares issued was based on the average closing price of the
Registrant's common stock on the Nasdaq National Market, as reported in the West
Coast Edition of the Wall Street Journal for the five trading days immediately
prior to July 29, 1999. In addition, the Registrant paid the Shareholder $5
million in cash at the closing of the Merger from money market accounts
maintained by the Company and delivered a $5 million promissory note to the
Shareholder, payable on the two year anniversary of the closing. The purchase
price was agreed upon by negotiation among the parties. Nordby is a provider of
customized financial information to over 275 online and print media partners.
For more information with respect to the terms of the Nordby acquisition,
reference is made to the Agreement and Plan of Merger filed as Exhibit 2.2 to
the Report on Form 8-K filed on August 6, 1999, which is incorporated herein by
reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
Independent Auditors' Report.............................. 3
Balance Sheets as of June 30, 1999 and December 31,
1998 .................................................. 4
Statements of Operations for the Six Months Ended
June 30, 1999 and 1998 and the Year Ended December
31,
1998.................................................... 5
Statements of Stockholders' Equity for the Six Months
Ended June 30, 1999 and the Year Ended December 31,
1998.................................................... 6
Statements of Cash Flows for the Six Months Ended June
30, 1999 and 1998 and the Year Ended December
31, 1998................................................ 7
Notes to Financial Statements............................. 8
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3
(b) Proforma Financial Information.
Unaudited Pro Forma Condensed Financial
Statements.............................................. 16
Unaudited Pro Forma Condensed Balance Sheets
as of June 30, 1999..................................... 17
Unaudited Pro Forma Condensed Statements of
Operations for the Year ended December 31, 1998......... 18
Unaudited Pro Forma Condensed Statements of
Operations for the Six Month Period Ended
June 30, 1999........................................... 19
Notes to Unaudited Pro Forma Condensed
Financial Statements..................................... 20
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INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nordby International, Inc.:
We have audited the accompanying balance sheet of Nordby International, Inc.
(the Company) as of December 31, 1998 and the related statement of operations,
stockholder's equity, and cash flow for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1998 and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ KPMG LLP
San Francisco, California
September 24, 1999
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NORDBY INTERNATIONAL, INC.
Balance Sheets
DECEMBER 31, JUNE 30,
ASSETS 1998 1999
------------ --------
(UNAUDITED)
Current assets:
Cash $ 18,265 26,992
Accounts receivable, net of allowance for doubtful
accounts of $1,000 at December 31, 1998 and
$1,000 at June 30, 1999 136,642 159,902
Prepaid expenses 300 300
Deferred tax asset 1,106 --
-------- --------
Total current assets 156,313 187,194
Furniture, fixtures and equipment, net 61,088 80,566
Other assets 3,180 3,180
-------- --------
Total assets $220,581 270,940
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 64,050 81,626
Accrued liabilities 32,614 59,496
Deferred revenue 33,250 --
Line of credit 31,835 35,069
Note payable to bank 32,472 28,112
Capital lease obligation - current portion 895 6,289
Income tax payable 2,135 2,243
Deferred tax liability 10,209 12,495
-------- --------
Total current liabilities 207,460 225,330
Capital lease obligation - long-term portion -- 13,288
-------- --------
Total liabilities 207,460 238,618
Commitments
Stockholders' equity:
Common stock, no par value, 1,000,000 shares
authorized, 50,000 shares issued and outstanding 3,000 3,000
Retained earnings 10,121 29,322
-------- --------
Total stockholders' equity 13,121 32,322
-------- --------
Total liabilities and stockholders' equity $220,581 270,940
======== ========
See accompanying notes to financial statements.
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NORDBY INTERNATIONAL, INC.
Statements of Operations
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, -------------------------
1998 1999 1998
------------ --------- ---------
(UNAUDITED)
Revenue $ 931,619 594,148 514,295
Cost of revenues 447,229 301,944 212,092
--------- ------- -------
Gross margin 484,390 292,204 302,203
--------- ------- -------
Expenses:
Selling and marketing expenses 77,088 28,679 36,407
General and administrative 423,305 233,818 196,856
--------- ------- -------
Total expenses 500,393 262,497 233,263
--------- ------- -------
Operating income (loss) (16,003) 29,707 68,940
Interest and other expense (5,358) (4,871) (2,799)
--------- ------- -------
Income (loss) before income tax expense (21,361) 24,836 66,141
Income tax expense (benefit) (3,146) 5,635 9,630
--------- ------- -------
Net income (loss) $ (18,215) 19,201 56,511
========= ======= =======
See accompanying notes to financial statements.
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NORDBY INTERNATIONAL, INC.
Statements of Stockholder's Equity
Year ended December 31, 1998 and
and six months ended June 30, 1999 (unaudited)
Common stock
------------------- Retained
Shares Amount earnings Total
------- ------- -------- -------
Balance at December 31, 1997 50,000 $ 3,000 28,336 31,336
Net loss -- -- (18,215) (18,215)
------- ------- ------- -------
Balance at December 31, 1998 50,000 3,000 10,121 13,121
Net loss (unaudited) -- -- 19,201 19,201
------- ------- ------- -------
Balance at June 30, 1999 (unauditied) 50,000 $ 3,000 29,322 32,322
======= ======= ======= =======
See accompanying notes to financial statements.
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NORDBY INTERNATIONAL, INC.
Statements of Cash Flows
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, ------------------------
1998 1999 1998
------------ -------- --------
(UNAUDITED)
Cash flows from operating activities:
Net income (loss) $(18,215) 19,201 56,511
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 18,103 9,986 8,501
Changes in assets and liabilities:
Accounts receivable, net (33,434) (23,260) (33,662)
Income tax receivable 408 -- (3,592)
Prepaid expenses (182) -- (82)
Other assets 694 -- 2,094
Accounts payable 40,609 17,576 3,825
Accrued liabilities 20,071 26,882 2,702
Taxes payable 2,135 108 3,479
Deferred tax, net (5,281) 3,392 10,151
Deferred revenue 10,900 (33,250) (22,350)
-------- ------- -------
Net cash provided by operating activities 35,808 20,635 27,577
-------- ------- -------
Cash flows used in investing activities - purchase
of furniture, fixture, and equipment (44,235) (8,899) (19,073)
-------- ------- -------
Cash flows from financing activities:
Principal payments on capital lease obligation (5,066) (1,883) (2,533)
Net proceeds from line of credit 7,801 3,234 7,866
Proceeds from issuance of note payable 35,000 -- --
Principal payments on note payable (2,528) (4,360) --
-------- ------- -------
Net cash provided by (used in)
financing activities 35,207 (3,009) 5,333
-------- ------- -------
Net increase in cash 26,780 8,727 13,837
Cash at beginning of period (8,515) 18,265 (8,515)
-------- ------- -------
Cash at end of period $ 18,265 26,992 5,322
======== ======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 7,518 4,521 1,716
Cash paid for income taxes 11,637 -- --
Assets acquired under capital leases -- 20,565 --
======== ======= =======
See accompanying notes to financial statements.
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NORDBY INTERNATIONAL, INC.
Notes to Financial Statements
December 31, 1998
(Information as of and for the six months ended June 30, 1999 and
for the six months ended June 30, 1998 is unaudited)
(1) ORGANIZATION AND NATURE OF BUSINESS
Nordby International, Inc. (the Company) was incorporated in Colorado on
January 29, 1985. The Company provides customized financial data on
publicly owned companies through print media and the Internet. The
Company's services include monthly financial information, Top 100 lists,
and executive compensation studies.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
(a) REVENUE RECOGNITION
The Company recognizes revenue over the periods that the services
are provided. Cost of revenues is primarily comprised of labor
costs for personnel accumulating financial research on companies.
(b) CASH
The Company considers all liquid investments with original
maturities of three months or less to be cash.
(c) FURNITURE, FIXTURES, AND EQUIPMENT
Furniture, fixtures, and equipment is stated at cost and
depreciation is provided using the straight-line method over
estimated useful lives of three to five years. Maintenance and
repairs are expensed as incurred and major additions,
replacements, and improvements are capitalized. Furniture,
fixtures, and equipment are comprised of the following:
JUNE 30,
DECEMBER 31, 1998 1999
----------------- -----------
COMPUTER EQUIPMENT $ 112,681 141,295
FURNITURE AND FIXTURES 10,239 11,089
ACCUMULATED DEPRECIATION (61,832) (71,818)
----------------- -----------
Net furniture, fixtures, and
equipment $ 61,088 80,566
================= ===========
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NORDBY INTERNATIONAL, INC.
Notes to Financial Statements
December 31, 1998
(Information as of and for the six months ended June 30, 1999 and
for the six months ended June 30, 1998 is unaudited)
(d) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The presentation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions. These estimates and assumptions
may affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
materially differ from those estimates in the near term.
(e) CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMER
Financial instruments that subject the Company to credit risk
principally consist of accounts receivable. The Company performs
periodic credit evaluations of its customers' financial
conditions. For the year ended December 31, 1998 and for the six
months ended June 30, 1999 and 1998, sales to one customer
approximated 15%, 13%, and 13% of revenues, respectively.
Additionally, one customer aggregated approximately 10% and 14% of
accounts receivable at December 31, 1998 and June 30, 1999,
respectively.
(f) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, short-term
accounts receivable and payable, capital lease obligations, line
of credit, and a note payable. The carrying values of cash,
accounts receivable, and accounts payable approximate their fair
values. Based on borrowing rates currently used by the Company for
financing, the carrying value of the capital lease obligations,
line of credit, and the note payable approximates their estimated
fair value.
(g) IMPAIRMENT OF LONG-LIVED ASSETS
The Company 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. The Company evaluates
the recoverability of its long-lived assets based on estimated
undiscounted future cash flows, and provides for impairment if
such undiscounted cash flows are insufficient to recover the
carrying amount of the long-lived asset.
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NORDBY INTERNATIONAL, INC.
Notes to Financial Statements
December 31, 1998
(Information as of and for the six months ended June 30, 1999 and
for the six months ended June 30, 1998 is unaudited)
(h) INCOME TAXES
Deferred tax assets and liabilities are recorded for the estimated
future tax effects of temporary differences between the tax basis
of assets and liabilities and amounts reported in the accompanying
balance sheets and for operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. Effects of changes in enacted tax laws on
deferred tax assets and liabilities are reflected as adjustments
to the tax provision or benefit in the period of enactment.
(i) COMPREHENSIVE INCOME
The Company has no significant components of comprehensive income
and, accordingly, comprehensive income (loss) is the same as net
income (loss) for all periods.
(j) OTHER RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position (SOP) No. 98-1,
Accounting for the Costs of Computer Software Development or
Obtained for Internal Use, which provides guidance on accounting
for the cost of such software. SOP No. 98-l is effective for
financial statements for fiscal years beginning after December 15,
1998. Management does not believe that the adoption of SOP 98-1
will have a material effect on the financial position or
operations of the Company.
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. The Company is
required to adopt SFAS No. 133 in the year ending December 31.
2000. SFAS No. 133 establishes methods of accounting for
derivative financial instruments and hedging activities related to
those instruments as well as other hedging activities. The Company
does not believe that adoption of SFAS No. 133 will have a
material effect on the financial position or operations of the
Company.
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NORDBY INTERNATIONAL, INC.
Notes to Financial Statements
December 31, 1998
(Information as of and for the six months ended June 30, 1999 and
for the six months ended June 30, 1998 is unaudited)
(k) INTERIM FINANCIAL DATA
The accompanying financial statements as of and for the six months
ended June 30, 1999 and for the six months ended June 30, 1998 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) NOTE PAYABLE TO BANK AND LINE OF CREDIT
The Company had a note payable due to a bank, bearing interest at 10.25%
per annum, outstanding for $32,472 and $28,112 as of December 31, 1998
and June 30, 1999, respectively. The entire note payable was subsequently
repaid on August 11, 1999.
The Company has a $45,000 line of credit with a bank, of which $13,165
and $9,931 was available as of December 31, 1998 and June 30, 1999,
respectively. Borrowings under the line of credit bear interest at the
bank's prime rate plus 2% (10.5% at December 31, 1998). Substantially all
the assets of the Company collaterize the line of credit. The entire line
of credit was subsequently repaid on August 11, 1999.
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NORDBY INTERNATIONAL, INC.
Notes to Financial Statements
December 31, 1998
(Information as of and for the six months ended June 30, 1999 and
for the six months ended June 30, 1998 is unaudited)
(4) CAPITAL LEASE OBLIGATIONS
The Company has entered into capital leases for computer equipment. The
leases are for 36 months, expiring in 1999 and 2002. Interest on the
Company's capital lease obligation is at a rate of 10%. The capital lease
obligation is collateralized by the related equipment.
Computer equipment purchased under the capital lease is included in the
cost of furniture, fixtures and equipment. The following is a summary of
equipment purchased under the capital leases:
DECEMBER 31, JUNE 30,
1998 1999
----------------- ----------
COMPUTER EQUIPMENT $ 14,025 34,590
LESS ACCUMULATED DEPRECIATION (7,948) (10,037)
----------------- ----------
Net book value $ 6,077 24,553
================= ==========
Future minimum lease payments under the capitalized lease obligations as
of June 30, 1999 are as follows:
SIX MONTHS ENDING DECEMBER 31, 1999 $ 3,981
YEAR ENDING DECEMBER 31:
2000 7,963
2001 7,963
2002 2,654
Less amounts representing interest (2,984)
--------
Total obligation 19,577
Less current portion (6,289)
--------
Total long-term portion $ 13,288
========
Interest expense under these leases was $371, $350, and $185 for the year
ended December 31, 1998, and the six months ended June 30, 1999 and 1998,
respectively.
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NORDBY INTERNATIONAL, INC.
Notes to Financial Statements
December 31, 1998
(Information as of and for the six months ended June 30, 1999 and
for the six months ended June 30, 1998 is unaudited)
(5) INCOME TAXES
The benefit for income taxes as of December 31, 1998 consists of the
following:
CURRENT:
Federal $ 1,606
State 529
--------
2,135
--------
DEFERRED
Federal (3,972)
State (1,309)
--------
(5,281)
--------
Total income tax benefit $ (3,146)
========
The benefit for income taxes differs from the federal statutory rate of
34% for the following reasons:
COMPUTED EXPECTED TAX BENEFIT $ (7,263)
NONDEDUCTIBLE EXPENSES 721
STATE TAXES, NET OF FEDERAL DEDUCTION (663)
GRADUATED TAX RATE EFFECT 4,059
--------
Total income tax benefit $ (3,146)
========
The provision (benefit) for income taxes at interim periods has been
determined using an estimated annual effective tax rate.
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NORDBY INTERNATIONAL, INC.
Notes to Financial Statements
December 31, 1998
(Information as of and for the six months ended June 30, 1999 and
for the six months ended June 30, 1998 is unaudited)
The components of the net deferred income tax liability as of December
31, 1998 are as follows:
CURRENT DEFERRED TAX ASSETS:
Accrued expenses $ 20,995
Deferred revenue 6,320
Accounts receivable (26,209)
---------
Total current deferred tax assets $ 1,106
=========
LONG-TERM DEFERRED TAX LIABILITY:
Accumulated depreciation $ 10,209
---------
Total long-term deferred tax liability $ 10,209
=========
(6) OPERATING LEASE COMMITMENTS
The Company leases certain facilities and equipment under operating
leases that expire at various times through 2000. Future minimum lease
payments for such operating leases are as follows:
SIX MONTHS ENDING DECEMBER 31, 1999 $ 11,214
YEAR ENDING DECEMBER 31, 2000 20,559
---------
$ 31,773
=========
Rental expense related to these leases was $20,237, $15,582, and $10,283
for the year ended December 31, 1998, and the six months ended June 30,
1999 and 1998, respectively.
(7) DEFINED CONTRIBUTION PLAN
The Company has a Simplified Employee Pension Plan (the SEP Plan).
Eligible employees may receive contributions as voluntarily made by the
Company under the terms of the SEP Plan. The amount of employer
contributions is limited as specified in the SEP Plan. The Company may,
at its discretion, make additional contributions to the SEP Plan. The
Company did not make contributions for the year ended December 31, 1998
and for the six-month periods ended June 30, 1999 and 1998.
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NORDBY INTERNATIONAL, INC.
Notes to Financial Statements
December 31, 1998
(Information as of and for the six months ended June 30, 1999 and
for the six months ended June 30, 1998 is unaudited)
(8) BONUS SHARING PLAN
The Company has a bonus sharing plan (the Plan) in which eligible
employees participate in the net profits of the Company based on a
formula as defined by the Plan. Bonus expense as recognized under the
Plan was $23,000 for the year ended December 31, 1998 and $12,500 and
$14,500 for the six-month periods ended June 30, 1999 and 1998,
respectively.
(9) SEGMENT REPORTING
Effective January 1, 1998 the Company adopted SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. SFAS No. 131
establishes standards for the way in which public business enterprises
report information about operating segments in annual financial
statements, and requires that those enterprises report selected
information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and
services, geographic areas, and major customers. The Company has one
operating segment. The chief operating decision maker assesses
performance and makes resource allocation decisions based on financial
data consistent with the presentation in the accompanying financial
statements. All of the Company's revenue from external customers is
attributable to customers located in the United States. All of the
Company's long-lived assets are located in the United States.
(10) SUBSEQUENT EVENT
On July 30, 1999, the Company's outstanding stock was acquired by CNET,
Inc., a media company that produces branded Internet network and
television programming.
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UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements
including the notes thereto, give effect to the July 30, 1999 acquisition of
Nordby International, Inc. ("Nordby") by CNET, Inc. ("CNET") for approximately
$20 million in a transaction accounted for as a purchase. In connection with the
acquisition, CNET paid $5 million in cash, issued a note payable due July 29,
2001 for $5 million, and issued 230,000 shares of its common stock, having a
value of approximately $10 million, to the shareholder of Nordby. The condensed
financial statements are based on and are qualified in their entirely by
reference to, and should be read in conjunction with, the consolidated financial
statements of CNET, as previously filed, and Nordby, included herein.
The unaudited pro forma condensed statements of operations for the year
ended December 31, 1998 give effect to the acquisition of Nordby as if it had
occurred on January 1, 1998. The unaudited pro forma condensed statements of
operations for the six months ended June 30, 1999 give effect to the acquisition
of Nordby as if it had occurred on January 1, 1999. The unaudited pro forma
condensed balance sheet as of June 30, 1999 gives effect to the acquisition of
Nordby as if the acquisition had occurred on that date.
The pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial position
that would have occurred had the acquisition been consummated as of the
beginning of the periods presented, nor is it necessarily indicative of future
operating results or financial position.
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CNET AND NORDBY
UNAUDITED PRO FORMA CONDENSED BALANCE SHEETS
JUNE 30, 1999
CNET Nordby Adjustments Pro Forma
Assets
Current Assets
Cash and cash equivalents 99,081,000 26,992 (5,000,000) (a) 94,107,992
Trade accounts receivable 18,945,000 159,902 19,104,902
Other current assets 334,714,000 300 334,714,300
----------- ------- ---------- -----------
Total current assets 452,740,000 187,194 (5,000,000) 447,927,194
----------- ------- ---------- -----------
Property, plant, and equipment, net 18,816,000 80,566 18,896,566
Other long-term assets 31,250,000 3,180 19,967,678 (C) 51,220,858
----------- ------- ---------- -----------
Total assets 502,806,000 270,940 14,967,678 518,044,618
=========== ======= ========== ===========
Liabilities and stockholders' equity
Current liabilities
Trade accounts payable 6,250,000 81,626 6,331,626
Accrued and other liabilities 67,315,000 143,704 67,458,704
----------- ------- ---------- -----------
Total current liabilities 73,565,000 225,330 73,790,330
----------- ------- ---------- -----------
Long-term debt 178,665,000 13,288 5,000,000 (b) 183,678,288
----------- ------- ---------- -----------
Total liabilities 252,230,000 238,618 5,000,000 257,468,618
----------- ------- ---------- -----------
Stockholders' equity
Common stock 7,000 3,000 (3,000) (d) 7,023
23 (e)
Additional paid in capital 131,878,000 -- 9,999,977 (e) 141,877,977
Other comprehensive income 137,564,000 -- 137,564,000
Accumulated earnings (deficit) (18,873,000) 29,322 (29,322) (d) (18,873,000)
----------- ------- ---------- -----------
Total shareholders' equity 250,576,000 32,322 9,967,678 260,576,000
----------- ------- ---------- -----------
Total liabilities and shareholders' equity 502,806,000 270,940 14,967,678 518,044,618
=========== ======= ========== ===========
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CNET AND NORDBY
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
CNET Nordby Adjustments Pro Forma
Revenues
Internet Revenue 49,374,195 931,619 50,305,814
Television 7,057,885 -- 7,057,885
----------- ------- ---------- -----------
Total operating revenue 56,432,080 931,619 57,363,699
----------- ------- ---------- -----------
Cost of revenue
Internet 23,291,215 447,229 23,738,444
Television 6,741,133 -- 6,741,133
----------- ------- ---------- -----------
Total cost of revenue 30,032,348 447,229 30,479,577
Gross Profit (Deficit) 26,399,732 484,390 26,884,122
----------- ------- ---------- -----------
Operating expenses
Sales and marketing 14,530,355 77,088 14,607,443
Development 3,454,387 -- 3,454,387
General and administrative 6,806,886 420,159 6,656,221 (f) 13,883,266
Unusual items (921,839) -- (921,839)
----------- ------- ---------- -----------
Total operating expenses 23,869,789 497,247 6,656,221 31,023,257
----------- ------- ---------- -----------
Operating income (loss) 2,529,943 (12,857) (6,656,221) (4,139,135)
----------- ------- ---------- -----------
Other income (expenses)
Equity losses (11,795,944) -- (11,795,944)
Gain on sale of equity investment 10,450,342 -- 10,450,342
Interest income (expense), net 1,415,616 (5,358) (350,000) (g) 1,060,258
----------- ------- ---------- -----------
Total other income, net 70,014 (5,358) (350,000) (285,344)
----------- ------- ---------- -----------
Net income (loss) 2,599,957 (18,215) (7,006,221) (4,424,479)
=========== ======= ========== ===========
Basic net income (loss) per share 0.08 (0.14)
Diluted net income (loss) per share 0.07 (0.14)
Shares used in calculating basic per share data 31,932,530 230,000 32,162,530
Shares used in calculating diluted per share data 34,852,938 230,000 32,162,530
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CNET AND NORDBY
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
SIX MONTH PERIOD ENDED JUNE 30, 1999
CNET Nordby Adjustments Pro Forma
Revenues
Internet Revenue 42,203,000 594,148 42,797,148
Television 3,424,000 -- 3,424,000
---------- ------- ---------- ----------
Total operating revenue 45,627,000 594,148 46,221,148
---------- ------- ---------- ----------
Cost of revenue
Internet 14,456,000 301,944 14,757,944
Television 3,375,000 -- 3,375,000
---------- ------- ---------- ----------
Total cost of revenue 17,831,000 301,944 18,132,944
Gross Profit 27,796,000 292,204 28,088,204
---------- ------- ---------- ----------
Operating expenses
Sales and marketing 12,117,000 28,679 12,145,679
Development 3,165,000 -- 3,165,000
General and administrative 3,995,000 239,453 3,334,147 (h) 7,568,600
Unusual items 1,237,000 -- 1,237,000
---------- ------- ---------- ----------
Total operating expenses 20,514,000 268,132 3,334,147 24,116,279
---------- ------- ---------- ----------
Operating income 7,282,000 24,072 (3,334,147) 3,971,925
---------- ------- ---------- ----------
Other income (expenses)
Gain on sale of equity investment 24,575,000 -- 24,575,000
Interest income (expense), net 425,000 (4,871) (175,000) (i) 245,129
---------- ------- ---------- ----------
Total other income, net 25,000,000 (4,871) (175,000) 24,820,129
---------- ------- ---------- ----------
Net income (loss) 32,282,000 19,201 (3,509,147) 28,792,054
========== ====== ========== ==========
Basic net income per share 0.46 0.41
Diluted net income per share 0.41 0.37
Shares used in calculating basic per share data 70,556,000 230,000 70,786,000
Shares used in calculating diluted per share data 78,534,000 230,000 78,764,000
19
21
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(1) Basis of Presentation
The unaudited pro forma condensed statement of operations for the year
ended December 31, 1998 gives effect to the acquisition of Nordby as if it had
occurred on January 1, 1998. The unaudited pro forma condensed statement of
operations for the six months ended June 30, 1999 gives effect to the
acquisition of Nordby as if it had occurred on January 1, 1999. The unaudited
pro forma condensed balance sheet as of June 30, 1999 gives effect to the
acquisition of Nordby as if it had occurred on that date. The condensed
financial statements, including the notes thereto, should be read in conjunction
with the consolidated financial statements of CNET, as previously filed on Form
10K and 10-Q, and Nordby, included herein.
(2) Pro Forma Adjustments
(a) Reflects the cash paid by CNET for the acquisition of Nordby.
(b) Reflects $5 million promissory note issued for the acquisition of
Nordby. The promissory note is due on July 29, 2001 with 7% annual
compounded interest.
(c) Reflects the purchase price that is allocated to goodwill, which will
be amortized over 3 years.
The purchase price was allocated based on the estimated fair value of
the acquired assets and liabilities. The preliminary allocation is as follows at
June 30,1999 (in thousands):
Purchase Price $ 20,000
Assets Acquired
Cash $ 27
Accounts receivable, net 160
Property, plant, and equipment, net 81
Other assets 3
Liabilities Assumed (239)
------
Net Assets Acquired 32 (32)
--------
Goodwill 19,968
(d) Reflects the elimination of Nordby common stock and accumulated
deficit.
(e) Reflects the 230,000 shares of CNET's common stock issued for the
acquisition of Nordby valued at $43.48 per share.
(f) Reflects one-year amortization of goodwill.
(g) Reflects one-year interest expense on the $5 million promissory note
issued.
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22
(h) Reflects six-months amortization of goodwill.
(i) Reflects six-months interest expense on the $5 million promissory note
issued.
(3) Pro Forma Income/(Loss) Per Share
The pro forma basic and diluted net income/(loss) per share calculation
assumes that the 230,000 shares of CNET's common stock issued in the acquisition
were outstanding for the entire year in 1998 and the entire period of six months
ended June 30, 1999.
21
23
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.
Dated: October 13, 1999 CNET, INC.
By: /s/ DOUGLAS N. WOODRUM
--------------------------
Douglas N. Woodrum
Chief Financial Officer
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24
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
23.1 Consent of KPMG LLP