-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Sjf83n3fA92qaqfIYrXxM5xN6MIZtEP9HRMADuh6aM9GE3nn/M3QvPoCD2z2x7jr jpZDYydE8cPbaXwh+v+N7Q== 0001045969-00-000205.txt : 20000323 0001045969-00-000205.hdr.sgml : 20000323 ACCESSION NUMBER: 0001045969-00-000205 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000107 ITEM INFORMATION: FILED AS OF DATE: 20000322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEBB INTERACTIVE SERVICES INC CENTRAL INDEX KEY: 0001011901 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 841293864 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-28462 FILM NUMBER: 575946 BUSINESS ADDRESS: STREET 1: 1800 GLENARM PLACE STREET 2: STE 800 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3032969200 MAIL ADDRESS: STREET 1: 1800 GLENARM PL STREET 2: SUITE 800 CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: ONLINE SYSTEM SERVICES INC DATE OF NAME CHANGE: 19960410 8-K/A 1 AMENDMENT NO. 1 TO FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (date of earliest event reported): January 7, 2000 --------------- WEBB INTERACTIVE SERVICES, INC. ------------------------------- (Exact name of registrant as specified in its charter) Colorado ------------------------------ (State or other jurisdiction of incorporation) 0-28462 84-1293864 ------- ---------- (Commission File Number) (IRS Employer Identification No.) 1800 Glenarm Place, Suite 700, Denver, CO 80202 - ------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (303) 296-9200 -------------- N/A ------------------------------------------------ (Former name or former address, if changed since last report) Item 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of Business Acquired. (1) Audited financial statements of Update Systems, Inc. from February 24, 1999 to December 31, 1999* (b) Pro Forma Financial Information. Pro forma combined financial information relative to the acquisition for the nine months ended September 30, 1999.* Pro forma financial information as of December 31, 1999 relative to the acquisition will be filed as soon as practicable after Webb files its 10KSB for the year ended December 31, 1999. (c) Exhibits: 10.1 Asset Purchase Agreement, including exhibits thereto, dated December 27, 1999, between Webb Interactive Services, Inc., Update Systems, Inc. and Kevin Schaff. (1) - ----------------- * Filed herewith. (1) Filed with our original current report on Form 8-K, filed January 14, 2000, Commission File No. 0-28462. 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: March 22, 2000 WEBB INTERACTIVE SERVICES, INC. By /s/ Lindley S. Branson ---------------------------------- Lindley S. Branson Its: Vice-President/General Counsel EX-10 2 ASSET PURCHASE AGREEMENT DATED DECEMBER 27, 1999 A. UPDATE SYSTEMS, INC. (A Development Stage Company) Financial Statements For The Period From Inception (February 24, 1999) To December 31, 1999 Together With Report Of Independent Public Accountants REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Update Systems, Inc.: We have audited the accompanying balance sheet of UPDATE SYSTEMS, INC. (a Delaware corporation in the development stage) ("Update") as of December 31, 1999, and the related statement of operations, shareholders' deficit and cash flows for the period from inception (February 24, 1999) through December 31, 1999. These financial statements are the responsibility of Update's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. 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 Update Systems, Inc. as of December 31, 1999, and the results of its operations and its cash flows for the period from inception (February 24, 1999) through December 31, 1999, in conformity with accounting principles generally accepted in the United States. Denver, Colorado, January 27, 2000. 1 UPDATE SYSTEMS, INC. (A Development Stage Company) BALANCE SHEET AS OF DECEMBER 31, 1999 ASSETS ------ CASH AND CASH EQUIVALENTS $ 83,565 ACCOUNTS RECEIVABLE 600 ------------ Total current assets 84,165 ------------ PROPERTY AND EQUIPMENT, NET (Note 3) 45,932 ------------ Total assets $ 130,097 ============ LIABILITIES AND SHAREHOLDERS' DEFICIT ------------------------------------- CURRENT LIABILITIES: Accounts payable and accrued expenses $ 35,877 Accrued payroll 9,362 Deferred revenue 6,032 Deferred compensation (Note 6) 83,333 ------------ Total current liabilities 134,604 ------------ COMMITMENTS AND CONTINGENCIES (Note 7) SHAREHOLDERS' DEFICIT: Common stock, $0.001 par value, 2,000,000 shares authorized 850,000 shares issued and outstanding 850 Additional paid-in capital 1,194,340 Deficit accumulated during development stage (1,199,697) ------------ Total shareholders' deficit (4,507) ------------ Total liabilities and shareholders' deficit $ 130,097 ============ The accompanying notes to the financial statements are an integral part of this balance sheet. 2 UPDATE SYSTEMS, INC. (A Development Stage Company) STATEMENT OF OPERATIONS FOR THE PERIOD FROM INCEPTION (FEBRUARY 24, 1999) THROUGH DECEMBER 31, 1999 REVENUE $ 4,373 ----------- OPERATING EXPENSES: Research and Development 966,579 Sales and Marketing 44,571 General and Administrative 200,807 ----------- 1,211,957 ----------- Net loss from operations (1,207,584) OTHER INCOME: Interest income 7,642 Other income, net 245 ----------- NET LOSS $(1,199,697) =========== The accompanying notes to the financial statements are an integral part of this statement. 3 UPDATE SYSTEMS, INC. (A Development Stage Company) STATEMENT OF SHAREHOLDERS' DEFICIT FOR THE PERIOD FROM INCEPTION (FEBRUARY 24, 1999) THROUGH DECEMBER 31, 1999
Deficit Accumulated Common Stock Additional During ------------------------- Paid-In Development Shares Amount Capital Stage Total ------- ------ ---------- ------------- ------------ Balances, inception (February 24, 1999) - $ - $ - $ - $ - Issuance of common stock to founders 500,000 500 714,500 - 715,000 Sale of common stock, net of offering costs of $19,810 350,000 350 479,840 - 480,190 Net loss - - - (1,199,697) (1,199,697) --------- ---- ---------- ----------- ----------- Balances, December 31, 1999 850,000 $850 $1,194,340 $(1,199,697) $ (4,507) ======= === ========== =========== ===========
The accompanying notes to the financial statements are an integral part of this statement. 4 UPDATE SYSTEMS, INC. (A Development Stage Company) STATEMENT OF CASH FLOWS FOR THE PERIOD FROM INCEPTION (FEBRUARY 24, 1999) THROUGH DECEMBER 31, 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,199,697) Adjustments to reconcile net loss to net cash used in operating activities- Stock based expenses 714,500 Depreciation 7,888 Increase in accounts receivable (600) Increase in accounts payable and accrued expenses 35,877 Increase in accrued payroll 9,362 Increase in deferred revenue 6,032 Increase in deferred compensation 83,333 ----------- Net cash used in operating activities (343,305) ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (53,820) ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 500,500 Costs related to issuance of common stock (19,810) ----------- Net cash provided by financing activities 480,690 ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 83,565 CASH AND CASH EQUIVALENTS, beginning of period - ----------- CASH AND CASH EQUIVALENTS, end of period $ 83,565 =========== The accompanying notes to the financial statements are an integral part of this statement. 5 UPDATE SYSTEMS, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS 1. Organization and DEVELOPMENT STAGE RISKS: Update Systems, Inc. (the "Company" or "Update"), was incorporated in the state of Delaware on February 24, 1999. The Company provides customer relation management ("CRM") solutions as an e-communication software and strategy provider for small to medium size businesses. The Company was formed out of the research and development activities of Wind River Visual Communications ("Wind River"), a Wyoming S corporation. The activities carried out at Wind River prior to the Company's formation were limited to the development of the Update product concept and involved minimal expenses. Accordingly, the accompanying financial statements do not include the activities of Wind River. Update is in the development stage and its activities to date have been primarily related to organization, raising capital, research and development related to its products and the development of its sales and marketing functions. The Company has incurred losses since inception and has an accumulated development stage deficit of $1,199,697 as of December 31, 1999. The Company's operations are subject to certain development stage risks and uncertainties. The Company was formed to develop a customer relationship management tool for small to medium size businesses. The development of such a product is complex and subject to significant risks. The Company believes it has developed a viable product that has been tested at beta sites, however, it must be able to demonstrate commercial acceptance of its product in the marketplace before the Company can attain successful and profitable operations. The Company expects to incur additional losses in the future as it continues to develop the commercialization of its product. There can be no guarantee that the Company will achieve or sustain significant revenues or profitability in the future. Effective January 5, 2000 the Company was acquired by Webb Interactive Services, Inc. ("Webb") through an asset purchase agreement whereby Webb acquired all the assets and certain liabilities of Update in exchange for 278,411 shares of Webb common stock and 49,704 options to purchase shares of Webb common stock with a total value of approximately $10,000,000. Webb also has significant risks associated with its operations. Webb has undertaken initiatives, including seeking additional capital, to ensure that adequate capital is available to its anticipated level of operations through the year ended December 31, 2000. If capital is not available, or the terms of available capital are not acceptable, Webb may have to delay planned expenditures and/or cut back on its current level of spending, among other actions. 6 2. Summary of SIGNIFICANT Accounting Policies: Use of Estimates The preparation 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 differ from those estimates. Cash and Cash Equivalents The Company considers investments in highly liquid instruments purchased with an original maturity of 90 days or less to be cash equivalents. Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company has no significant off-balance sheet concentrations of credit risk, such as foreign exchange contracts, option contracts or other foreign currency hedging arrangements. The Company maintains cash balances in the form of bank demand deposits and money market accounts with financial institutions that management believes are creditworthy. 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 from future undiscounted cash flows. If not fully recoverable, impairment losses are recorded for the difference between the carrying value and fair value of the long-lived assets. Revenue Recognition The Company generates revenue from two sources: (i) the sale of software licenses which are hosted on the Company's servers and (ii) consulting services. The Company recognizes revenues from the sale of software licenses over the term of the contract, generally one year, if there is persuasive evidence of an arrangement, collection is probable, the fee is fixed or determinable, and there are no acceptance criteria. If an acceptance periodis required, license revenues are deferred and recognized over the period from when acceptance occurs to the expiration of the license period. Services revenue is recognized as the services are provided. Research and Development Costs Research and development costs are expensed as incurred. These costs consist primarily of salaries, supplies and contract services relating to the development of new products and technologies. Capitalization of software development costs commences upon the establishment of technological feasibility of the product. Due to the complexity of the Company's software product, dynamic technology requirements and initial stage of the product, technological feasibility has not been established and accordingly, the Company has not capitalized any qualifying software development costs in the accompanying financial statements. 7 Income Taxes The current provision for income taxes represents actual or estimated amounts payable on tax return filings each year. 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 sheet, and for operating loss and tax credit carryforwards. The change in deferred tax assets and liabilities for the period measures the deferred tax provision or benefit for the period. 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. The Company's deferred tax assets have been reduced by a valuation allowance to the extent it is more likely than not, that some or all of the deferred tax assets will not be realized. Stock Compensation Plans The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion No. 25"), in accounting for its stock option and other stock-based plans for employees and directors. The Company has adopted the disclosure provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123") for such options and stock-based plans for employees and directors. Comprehensive Income Effective upon inception (February 24, 1999), the Company adopted the provisions of Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity during a period from non-owner sources. From its inception through the period ending December 31, 1999, the Company has not had any transactions that are required to be reported in comprehensive income as compared to its net loss. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). The Statement establishes accounting and reporting standards for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measures those instruments at fair value. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133-An amendment of FASB Statement No. 133 ("SFAS No. 137"). SFAS No. 137 delays the effective date of SFAS No. 133 to financial quarters and financial years beginning after June 15, 2000. The Company does not typically enter into arrangements that would fall under the scope of SFAS No. 133 and thus, management believes that SFAS No. 133 will not significantly affect its financial condition and results of operations. 3. PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost. Depreciation is computed using the straight-line method based on estimated useful lives ranging from three to five years. 8 Property and equipment consisted of the following at December 31, 1999: Computer equipment and software $52,300 Furniture and fixtures 1,520 ------- 53,820 Less - Accumulated depreciation (7,888) ------- $45,932 ======= Depreciation expense for the period from inception (February 23, 1999) through December 31, 1999 was $7,888. 4. SHAREHOLDERS' EQUITY: 1999 Performance Stock Options Plan In April 1999, the Company adopted the 1999 Performance Stock Option Plan (the "Plan") that provides officers and employees options to purchase an aggregate of 150,000 (amended to 425,000 in September 1999) shares of the common stock of the Company. Under the terms of the Plan, the Board of Directors may grant officers and employees either nonqualified or incentive options, as defined by the Internal Revenue Service. The exercise price of the shares subject to incentive stock options will be the fair market value of the common stock on the date of grant. If the grantee owns more than 10% of the voting power of all classes of stock on the date of grant, the purchase price of the shares subject to an incentive stock option shall be at least 110% of the fair market value at the date of grant and the exercise term will be up to five years from the date of grant. All incentive options granted under the Plan are exercisable up to 10 years from the date of grant and shall be exercisable as determined by the Board of Directors. A summary of option activity for the period ended December 31, 1999 is as follows: 1999 ---------------------- Weighted Average Exercise Options Price ------- ------- Outstanding at beginning of year - $ - Granted 154,114 1.43 Cancelled (3,500) 1.43 ------- ----- Outstanding at end of year 150,614 $1.43 ======= ===== Exercisable at end of year - $ - ======= ===== Weighted average fair value at date of grant $0.15 ==== Weighted average remaining contractual life (in years) $9.49 ==== 9 Other Options In July 1999, the Company issued 600 options to various consultants for providing services. These options are fully vested and are exercisable at $1.43 per share. The estimated fair value of these options was immaterial to the overall financial statements. Common Stock Issued to Founders Upon inception, the Company issued it's founders 500,000 shares of the Company's common stock for $500. The fair value of the common stock issued to the founders was $715,000. As the fair value of the common stock issued to the founders exceeded the amount paid, the Company recorded additional compensation expense of $714,500. Statement of Financial Accounting Standards No. 123 SFAS No. 123 defines a fair value-based method of accounting for employee stock options or similar equity instruments. However, SFAS No. 123 allows the continued measurement of compensation cost for such plans using the intrinsic value based method prescribed by APB Opinion No. 25, provided that pro forma disclosures are made of net income or loss, assuming the fair value based method of SFAS No. 123 had been applied. The Company has elected to account for its employee stock-based compensation plans under APB No. 25; accordingly, for purposes of the pro forma disclosures presented below, the Company has computed the fair values of all options granted during 1999, using the Black-Scholes pricing model and the following weighted average assumptions. 1999 ------- Risk-free interest rate 6.0% Expected lives 2 years Expected volatility 0.001% Expected dividend yield 0% To estimate the expected lives of options for this valuation, it was assumed that all options will be exercised upon becoming fully vested. Options granted during the period from inception (February 24, 1999) through December 31, 1999 vest at various periods ranging from one to a two year period from the date of grant. Cumulative compensation cost recognized in pro forma net loss with respect to options that are forfeited prior to vesting is adjusted as a reduction of pro forma compensation expense in the period of forfeiture. 10 The total fair value of options granted was computed to be $23,517 for the year ended December 31, 1999. This amount is amortized ratably over the vesting periods of the options. Pro forma stock-based compensation, net of the effect of forfeitures, was $6,064 for the period from inception (February 24, 1999) through December 31, 1999. If the Company had accounted for its stock-based compensation plans in accordance wit SFAS No. 123, the Company's net income would have been reported as follows: Period from Inception through December 31, 1999 ----------------- Net Loss: As reported $1,199,697 ========= Pro forma $1,205,761 ========= 5. INCOME TAXES: The provision for income taxes includes the following: Period from Inception (February 24, 1999) Through December 31, 1999 Current- Federal $ - State - --------- Total current provision - --------- Deferred- Federal (407,897) State (38,953) Valuation allowance 446,850 --------- Total deferred provision (benefit) - --------- Total provision $ - ========= The statutory federal income tax rate was 34% for the period from inception (February 24, 1999) through December 31, 1999. 11 Reasons for the difference between the income tax expense reported in the statements of operations and the amount computed by applying the statutory federal income tax rate to earnings before income taxes are as follows: Period from Inception (February 24, 1999) Through December 31, 1999 ----------------- Benefit at statutory rate $ (407,897) Increase (decrease) due to- State income taxes (38,953) Valuation allowance 446,850 ---------- Income tax provision $ - ========== Components of net deferred tax assets (liabilities) as of December 31, 1999 are as follows: 1999 --------- Current- Accrued liabilities $ 5,742 Valuation allowance (5,742) --------- Net current deferred tax assets $ - ========= Non-current- Depreciation $ (373) Net operating losses 441,481 Valuation allowance (441,108) --------- Net non-current deferred tax assets $ - ========= For income tax reporting purposes, the Company has approximately $1,152,000 of net operating loss carryforwards that expire at various dates through 2019. The Tax Reform Act of 1986 contains provisions that may limit the net operating loss carryforwards available to be used in any given year in the event of a significant change in ownership interests. Realization of deferred tax assets is dependent on generating sufficient taxable income prior to the expiration dates of the respective tax assets. During 1999, the Company increased its valuation allowance by $446,850 due mainly to uncertainty relating to the realizability of the 1999 net operating loss carryforward. The amount of the deferred tax assets considered realizable could be adjusted in the near term if future taxable income materializes. 12 6. EMPLOYMENT AGREEMENT: The Company has entered into an employment agreement with an individual to serve as the Company's Chief Executive Officer. The term of this agreement began on August 1, 1999 and will continue through December 31, 2000. As compensation for these services, the Company will pay the individual $200,000 annually, however, this salary will be deferred until the Company receives an additional capital contribution, as defined, in excess of $1,000,000. As of December 31, 1999 the Company had not received any additional capital contribution in excess of $1,000,000 and thus has accrued the deferred compensation of $83,333. The Company also granted this individual 136,364 stock options that vest 30% on August 1, 2000, 3% per month for twenty-three months and the remainder on August 1, 2002. The options are subject to antidilution protection which will allow the individual to maintain 12% interest in all issues and outstanding classes and series of stock. Additional options granted under this provision of the agreement shall be issued at the then fair market value of the Company's common stock and will vest in one year. The individual is also entitled to the continuation of his salary and certain benefits for six months should he be terminated without cause, as defined. 7. COMMITMENTS AND CONTINGENCIES: The Company leases office space under a lease that expires in April 2000. Future minimum annual rental payments due under this lease is $5,200 for the year ending December 31, 2000. 13 UNAUDITED PRO FORMA FINANCIAL INFORMATION Basis of Presentation 14 Unaudited Condensed Combined Pro Forma Statement of Operations for the nine months ended September 30, 1999 15 Unaudited Condensed Combined Pro Forma Balance Sheet as of September 30, 1999 16 Notes to Unaudited Condensed Pro Forma Financial Information 17 Basis of Presentation The unaudited condensed combined pro forma financial data as of September 30, 1999 and for the nine months ended September 30, 1999 gives effect to the acquisition by Webb Interactive Services, Inc. (the "Company" or "WEBB") of the assets of Update Sytems, Inc. ("UPDATE") using the purchase method of accounting. These statements are based on the historical financial statements of WEBB and UPDATE and assumptions set forth below and in the notes to the unaudited condensed combined pro forma financial statements. The unaudited condensed combined pro forma balance sheet data assumes that the UPDATE acquisition was consummated on September 30, 1999 and the unaudited condensed combined pro forma statements of operations assumes the UPDATE acquisition was consummated on February 24, 1999, the date UPDATE began operations. The Company has not presented the condensed combined pro forma statements of operations for the year ended December 31, 1998 as UPDATE did not commence operations until February 24, 1999. For purposes of presenting the unaudited condensed combined pro forma balance sheet data, the tangible assets and assumed liabilities of UPDATE have been adjusted to their estimated fair market value and the excess purchase price has been preliminarily been allocated to developed technologies, goodwill and other intangible assets, all of which are being amortized over a three year period. The fair value of UPDATE'S assets and liabilities is based on preliminary estimates and may change from those estimates due to changes in the fair value of tangible assets and assumed liabilities based on management's valuation of such assets and liabilities. The unaudited condensed combined pro forma statements of operations data exclude any benefit that may result due to synergies that may be derived and elimination of duplicative efforts resulting for the acquisition of UPDATE. The pro forma adjustments included herein are based upon estimates, currently available information and certain assumptions that management believes appropriate and factually supportable. In management's opinion, the estimates regarding allocation of the purchase price of the UPDATE are not expected to materially differ from the final adjustments. The unaudited condensed combined pro forma financial data presented herein are not necessarily indicative of the results that WEBB would have obtained had such events occurred at the beginning of the year, as assumed, or of the future results of WEBB. The unaudited condensed combined pro forma financial statements should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Form 8-K/A, together with the audited financial statements and the notes thereto included in the WEBB Form 10-KSB for the year ended December 31, 1998. 14 WEBB INTERACTIVE SERVICES, INC. AND SUBSIDIARIES UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
WEBB Historical Pro Forma Pro Forma ------------------------------------- WEBB UPDATE Adjustments Combined ----------------- ---------------- -------------- ---------------- Net revenues $ 1,126,908 $ 3,061 - $ 1,129,969 Cost of revenues 1,143,397 - - 1,143,397 ----------------- ---------------- -------------- ------------ Gross margin (16,489) 3,061 - (13,428) Operating expenses 8,631,940 1,062,870 - 9,694,810 Amortization of goodwill 1,298,396 - 1,996,082 (1) 3,294,478 ----------------- ---------------- -------------- ------------- Loss from operations (9,946,825) (1,059,809) (1,996,082) (13,002,716) Other income (expense), net (675,076) 5,521 - (669,555) ----------------- ---------------- -------------- ------------- Net loss from continuing operations (10,621,901) (1,054,288) (1,996,082) (13,672,271) Expenses allocable to common stockholders (4,420,468) - - (4,420,468) ----------------- ---------------- -------------- ------------- Loss available to common stockholders $(15,042,369) $ (1,054,288) $ (1,996,082) $(18,092,739) ================= ================ ============== ============= Loss from continuing operations per common share, basic and diluted (Note 4) $ (2.41) N/A N/A $ (2.78) ================= ================= ============== ============= Weighted average shares outstanding 6,228,731 N/A 278,411 (2) 6,507,142 ================= ================= ============== =============
The accompanying Notes to Unaudited Condensed Combined Pro Forma Financial Statements are an integral part of these financial statements. 15 WEBB INTERACTIVE SERVICES, INC. AND SUBSIDIARIES UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHHETS SEPTEMBER 30, 1999
WEBB Historical Pro Forma Pro Forma ------------------------------------- WEBB UPDATE Adjustments Combined ----------------- ---------------- ---------------- ---------------- ASSETS Current assets: Cash $ 6,445,206 $ 102,773 $ (102,773)(3) $ 6,380,206 (65,000)(4) Current assets 474,653 600 (600)(3) 474,653 ------------ ----------- ----------- ------------ Total current assets 6,919,859 103,373 (168,373) 6,854,859 Property and equipment, net 2,250,726 34,224 - 2,284,950 Intangible assets, net 13,728,002 - 10,026,193 (5) 23,754,195 Deferred financing costs and other assets 251,492 - - 251,492 ------------ ----------- ----------- ------------ Total assets $ 23,150,079 $ 137,597 $ 9,857,820 $ 33,145,496 ============ =========== =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities $ 2,440,265 $ 46,695 $ (46,695)(3) $ 2,440,265 Capital leases payable 39,557 - - 39,557 10% convertible note payable 2,635,045 - 2,635,045 Stockholders equity 10% preferred stock 998,871 - 998,871 Common stock 46,129,934 850 8,630,741 (5) 54,760,675 (850)(5) Additional paid-in capital - 1,194,340 (1,194,340)(5) - Warrants and options 6,722,905 - 1,364,676 (5) 8,087,581 Accumulated deficit (35,816,498) (1,104,288) 1,104,288 (5) (35,816,498) ------------ ----------- ----------- ------------ Total stockholders' equity 18,035,212 90,902 9,904,515 28,030,629 ------------ ----------- ----------- ------------ Total liabilities and stockholders' equity $ 23,150,079 $ 137,597 $ 9,857,820 $ 33,145,496 ============ =========== =========== ============
The accompanying Notes to Unaudited Condensed Combined Pro Forma Financial Statements are an integral part of these financial statements. 16 NOTES TO UNAUDITED CONDENSED PRO FORMA FINANCIAL INFORMATION NOTE 1 - BACKGROUND On January 7, 2000, the Company completed an acquisition of UPDATE by exchanging 278,411 of the Company's common stock valued at $8,630,741 for the assets of UPDATE and options to purchase 49,704 shares of common stock valued at $1,364,676. The acquisition of the assets was recorded using the purchase method of accounting whereby the consideration paid of $10,060,417 was allocated based on the relative fair values of the assets and liabilities acquired with the excess consideration over the fair market value of tangible assets of $10,026,193 recorded as intangible assets. Total consideration for the merger is as follows: Value of common stock issued $ 8,630,741(a) Value of warrants and options issued 1,364,676(b) Acquisition expenses 65,000 ------------ Total purchase price $ 10,060,417 ============ The purchase price was allocated to the assets acquired based on their fair market values as follows: Property and equipment, net $ 34,224 Developed technologies, goodwill and other intangibles 10,026,193 ----------- Total assets acquired $10,060,417 =========== (a) 278,411 shares issued multiplied by $31.00, the average closing price of the Webb stock the two days prior to and the two days subsequent to the closing of the UPDATE transaction (January 7, 2000). (b) 49,704 warrants and options issued valued using the Black-Scholes option pricing model using the following assumptions: Exercise prices $4.33 Fair market value of common stock on measurement date $29.50 Option lives 5 years Volatility rate 104% Risk free rate of return 5.0% Dividend rate 0% The following table indicates the preliminary allocation of excess purchase price and expected amortization periods: Intangible Asset Assigned Value Amortization Period - ------------------------------------- ------------- ------------------- Developed technologies $ 4,500,000 3 Years Goodwill 5,526,193 3 Years ----------- Total intangible assets and goodwill $10,026,193 =========== NOTE 2 - HISTORICAL The unaudited condensed combined pro forma statements of operations include the historical results of WEBB for the nine months ended September 30, 1999 and of UPDATE for the period from inception (February 24, 1999) through September 30, 1999. 17 The Company has not presented the condensed combined pro forma statements of operations for the year ended December 31, 1998 as UPDATE did not commence operations until February 24, 1999. NOTE 3 - PRO FORMA ADJUSTMENTS The condensed combined pro forma statements of operations have been adjusted to reflect the following pro forma adjustments: 1. Reflects the amortization of intangible assets and goodwill over a three year period assuming the transaction occurred February 24, 1999, the date UPDATE began operations. 2. Reflects the issuance of 278,411 shares of Webb common stock issued in accordance with the Asset Purchase Agreement. 3. Reflects certain assets and liabilities not acquired in the acquisition in accordance with the Asset Purchase agreement. 4. Reflects the estimated acquisition costs consisting principally of transaction fees for attorneys and accountants. 5. Reflects the issuance of 278,411 shares of the Company's common stock to the stockholders of UPDATE; the value of the replacement options issued to UPDATE employees; and the recording of the excess purchase over the tangible assets and liabilities recorded as developed technologies, goodwill and other intangibles which are being amortized over three years. NOTE 4 - LOSS FROM CONTINUING OPERATIONS PER COMMON SHARE The combined Company has presented its loss from continuing operations per common share for the nine months ended September 30, 1999 pursuant to Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share." Basic loss per common share was computed by dividing loss from continuing operations available to common shareholders by the weighted average number of shares of common stock outstanding during the nine months ended September 30, 1999. The loss from continuing operations available to common shareholders is equal to the loss from continuing operations less the accretion of Preferred Stock to redemption value and Preferred Stock dividends of $4,420,468 for the nine months ended September 30, 1999. Diluted loss per common share has not been presented, since the impact on loss per share using the treasury stock method is anti-dilutive due to the combined Company's losses. 18 -----END PRIVACY-ENHANCED MESSAGE-----