Document/Exhibit Description Pages Size
1: 8-K/A Form 8-K/A for Period Ended 8/30/96 16 54K
2: EX-20.1 The McKinley Group, Inc. Audited Financial Stmts 19 96K
3: EX-23.1 Consent of Independent Auditors 1 5K
U.S. 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): AUGUST 30, 1996
EXCITE, INC.
--------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
CALIFORNIA
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(State or other jurisdiction of incorporation)
0-28064 77-0378215
--------------------------- -------------------------
(Commission (IRS Employer
File Number) Identification No.)
1091 N. Shoreline Boulevard, Mountain View, CA 94043
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(Address of principal executive offices) (Zip Code)
(415) 943-1200
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name or former address, if changed since last report)
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K dated
August 30, 1996, related to the Registrant's completion of the acquisition of
The McKinley Group, Inc. ("McKinley") by means of a merger (the "Merger") of
Excite Acquisition Company, a Delaware corporation and wholly-owned subsidiary
of the Registrant with and into McKinley, as set forth below and in the pages
attached hereto:
ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
See Exhibit 20.1 for the audited financial statements of McKinley
Condensed Financial Information for McKinley as of September 30, 1996
and for the nine month periods ended September 30, 1996 and 1995
(Unaudited)
(b) PRO FORMA FINANCIAL INFORMATION
Pro Forma Combined Condensed Financial Information (Unaudited)
The following unaudited Pro Forma Combined Condensed Financial
Statements assume a business combination between Excite, Inc. ("Excite" or the
"Company") and McKinley which was accounted for as a pooling of interests. The
Pro Forma Combined Condensed Financial Statements are based on the historical
financial statements and the notes thereto of Excite included in the
Registration Statement on Form SB-2 as declared effective by the Securities and
Exchange Commission on April 3, 1996 (Reg. No. 333-2328-LA), the quarterly
report on form 10-QSB for the quarter ended September 30, 1996, and the
historical financial statements and the notes thereto of McKinley included
herein. The Excite historical financial statement data for the nine months ended
September 30, 1996 and the McKinley historical financial statement data for the
nine months ended September 30, 1996 have been prepared on the same basis as the
audited financial statements of Excite and, in the opinion of management,
contain all adjustments necessary for the fair presentation of the results of
operations for such periods.
The Pro Forma Combined Condensed Balance Sheet combines Excite's
September 30, 1996 unaudited condensed balance sheet with McKinley's unaudited
condensed balance sheet, giving effect to the Merger as if it had occurred on
September 30, 1996.
The Pro Forma Combined Condensed Statements of Operations combine
Excite's historical condensed statements of operations for the period from
inception (June 9, 1994) through December 31, 1994, the year ended December 31,
1995 and the unaudited nine months ended September 30, 1996 with the
corresponding McKinley condensed statements of operations for the period from
inception (December 7, 1993) through December 31, 1994, the year ended December
31, 1995 and the unaudited nine months ended September 30, 1996.
-2-
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 if the Merger had been consummated at the beginning of
the periods presented, nor is it necessarily indicative of future operating
results or financial position. The unaudited Pro Forma Combined Condensed
Financial Statements do not incorporate any benefits from cost savings or
synergy of operations of the combined company.
Excite and McKinley incurred direct transaction costs of approximately
$2.2 million associated with the Merger which were charged to operations during
the quarter ended September 30, 1996. There can be no assurance that Excite will
not incur additional charges in subsequent quarters to reflect costs associated
with the Merger or that management will be successful in its efforts to
integrate the operations of the two companies.
These Pro Forma Combined Condensed Financial Statements should be read
in conjunction with the historical condensed financial statements and the
related notes thereto of Excite and the financial statements and the notes
thereto of McKinley included herein.
-3-
PRO FORMA COMBINED CONDENSED BALANCE SHEETS
(In thousands, unaudited)
[Enlarge/Download Table]
SEPTEMBER 30, 1996
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PRO FORMA
EXCITE MCKINLEY ADJUSTMENTS COMBINED
-------- -------- -------- --------
ASSETS
Current assets:
Cash, cash equivalents and
short-term investments ......... $ 30,034 $ 381 $ -- $ 30,415
Accounts receivable .............. 2,120 394 -- 2,514
Intercompany receivable .......... 7,637 -- (7,637) --
Prepaid expenses and other
current assets ................. 2,842 54 -- 2,896
-------- -------- -------- --------
Total current assets ......... 42,633 829 (7,637) 35,825
Property and equipment, net ........... 7,263 1,096 -- 8,359
Other assets .......................... 1,958 51 -- 2,009
-------- -------- -------- --------
$ 51,854 $ 1,976 $ (7,637) $ 46,193
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
Current liabilities:
Notes payable, current portion ... $ -- $ 1,166 $ -- $ 1,166
Intercompany liability ........... -- 7,637 (7,637) --
Accounts payable ................. 4,716 226 -- 4,942
Accrued compensation ............. 146 164 -- 310
Distribution agreements .......... 2,038 1,837 -- 3,875
Capital lease obligations,
current portion ................ 2,889 367 -- 3,256
Deferred revenues ................ 1,557 1,166 -- 2,723
Other accrued liabilities ........ 2,508 1,280 -- 3,788
-------- -------- -------- --------
Total current liabilities .... 13,854 13,843 (7,637) 20,060
Notes payable ......................... 768 34 -- 802
Capital lease obligations ............. 3,123 446 -- 3,569
Commitments
Shareholders' equity (net capital
deficiency):
Common stock ..................... 55,357 4,433 -- 59,790
Deferred compensation ............ (428) (49) -- (477)
Unrealized gain (loss) on
available-for-sale
investments................... 23 (83) -- (60)
Accumulated deficit .............. (20,843) (16,648) -- (37,491)
-------- -------- -------- --------
Total shareholders' equity
(net capital deficiency) ... 34,109 (12,347) -- 21,762
-------- -------- -------- --------
$ 51,854 $ 1,976 $ (7,637) $ 46,193
======== ======== ======== ========
See accompanying notes.
-4-
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data; unaudited)
[Enlarge/Download Table]
PERIOD FROM DECEMBER 7, 1993 (INCEPTION)
THROUGH DECEMBER 31, 1994
---------------------------------------
PRO FORMA
EXCITE MCKINLEY COMBINED
-------- -------- --------
Revenues ..................................... $ 83 $ 210 $ 293
Cost of revenues ............................. 21 67 88
-------- -------- --------
Gross profit ................................. 62 143 205
Operating expenses:
Product development ...................... 76 339 415
Sales and marketing ...................... -- 37 37
General and administrative ............... 37 362 399
-------- -------- --------
Total operating expenses .............. 113 738 851
-------- -------- --------
Operating loss ............................... (51) (595) (646)
Interest and other expense ................... -- (4) (4)
-------- -------- --------
Net loss ..................................... $ (51) $ (599) $ (650)
======== ======== ========
Net loss per share ........................... $ (0.01) $ (1.52) $ (0.06)
======== ======== ========
Shares used in computing net loss per share... 10,181 395 10,576
======== ======== ========
See accompanying notes.
-5-
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data; unaudited)
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31, 1995
---------------------------------------
PRO FORMA
EXCITE MCKINLEY COMBINED
-------- -------- --------
Revenues .................................... $ 434 $ 518 $ 952
Cost of revenues ............................ 139 89 228
-------- -------- --------
Gross profit ................................ 295 429 724
Operating expenses:
Product development ..................... 1,682 1,129 2,811
Sales and marketing ..................... 867 781 1,648
General and administrative .............. 651 1,674 2,325
Merger and acquisition costs ............ 331 -- 331
-------- -------- --------
Total operating expenses ............. 3,531 3,584 7,115
-------- -------- --------
Operating loss .............................. (3,236) (3,155) (6,391)
Interest income ............................. 5 -- 5
Interest and other expense .................. (26) (24) (50)
-------- -------- --------
Net loss .................................... $ (3,257) $ (3,179) $ (6,436)
======== ======== ========
Net loss per share .......................... $ (0.31) $ (6.26) $ (0.58)
======== ======== ========
Shares used in computing net loss per share.. 10,562 508 11,070
======== ======== ========
See accompanying notes.
-6-
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data; unaudited)
[Enlarge/Download Table]
NINE MONTHS ENDED SEPTEMBER 30, 1996
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PRO FORMA
EXCITE MCKINLEY ADJUSTMENT(1) COMBINED
-------- -------- ------------- --------
Revenues ........................... $ 6,083 $ 2,156 $ -- $ 8,239
Cost of revenues ................... 1,611 370 -- 1,981
-------- -------- -------- --------
Gross profit ....................... 4,472 1,786 -- 6,258
Operating expenses:
Product development ............ 3,154 2,369 -- 5,523
Sales and marketing ............ 9,458 2,538 -- 11,996
Distribution license fees ...... 6,878 5,000 -- 11,878
General and administrative ..... 2,633 3,043 -- 5,676
Merger and acquisition costs ... 842 1,523 (2,222) 143
-------- -------- -------- --------
Total operating expenses .... 22,965 14,473 (2,222) 35,216
-------- -------- -------- --------
Operating loss ..................... (18,493) (12,687) 2,222 (28,958)
Interest income .................... 1,031 3 -- 1,034
Interest and other expense ......... (73) (187) -- (260)
======== ======== -------- --------
Net loss ........................... $(17,535) $(12,871) $ 2,222 $(28,184)
======== ======== ======== ========
Net loss per share ................. $ (1.60) $ (15.72) $ 0.19 $ (2.40)
======== ======== ======== ========
Shares used in computing net loss
per share ...................... 10,938 819 11,757 11,757
======== ======== ======== ========
(1) See Note 2 of Notes to Pro Forma Combined Condensed Financial Statements for
information regarding the non-recurring charges recorded at the time of the
business combination.
See accompanying notes.
-7-
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. PERIODS COMBINED
The Excite unaudited pro forma combined condensed statements of operations
for the years ended December 31, 1994 and 1995 and the nine months ended
September 30, 1996 have been combined with the McKinley condensed
statements of operations for each of the same periods giving effect to the
Merger as if it had occurred at the beginning of the earliest period
presented.
The Excite unaudited pro forma combined condensed balance sheet as of
September 30, 1996 has been combined with the McKinley condensed balance
sheet as of the same date giving effect to the Merger as if it had occurred
on September 30, 1996.
2. BASIS OF PRESENTATION
Pro Forma Basis of Presentation
The pro forma combined condensed financial statements reflect the issuance
of approximately 850,000 shares of Excite Common Stock for all of the
outstanding shares of McKinley Common Stock in connection with the Merger
which resulted in an exchange ratio of 0.0817633 shares of Excite Common
Stock for each share of McKinley Series A Common Stock, and 2.6626477
shares of Excite Common Stock for each share of McKinley Series B Common
Stock.
Merger Transaction Costs
Excite and McKinley incurred direct transaction costs of approximately $2.2
million associated with the Merger, including $1.0 million for legal and
other professional consulting fees, $901,000 for personnel severance and
outplacement expenses and $345,000 for termination of contracts and
discontinuation of duplicate operations and facilities, which was charged
to operations during the quarter ending September 30, 1996. There can be no
assurance that Excite will not incur additional charges in subsequent
quarters to reflect costs associated with the Merger or that management
will be successful in their efforts to integrate the operations of the two
companies.
3. PRO FORMA LOSS PER SHARE
The pro forma combined loss per share is based on the combined weighted
average number of common and dilutive common equivalent shares of Excite
Common Stock and McKinley Common Stock outstanding for each period using
the exchange ratio based on the issuance of approximately 850,000 shares of
Excite Common Stock for all of the outstanding shares of McKinley Common
Stock as of August 30, 1996. Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletins, for the periods prior to the
Company's initial public offering, such computations include all common and
common equivalent shares issued within twelve months of the initial public
offering date as if they were outstanding for all periods presented. Common
equivalent shares consist of the incremental common shares issued upon
conversion of the redeemable convertible preferred stock (using the
if-converted method) and shares issuable upon the exercise of stock options
and warrants (using the treasury stock method).
4. CONFORMING AND PRO FORMA ADJUSTMENTS
There were no adjustments required to conform the accounting policies of
Excite and McKinley. Certain amounts for McKinley have been reclassified to
conform with Excite's financial statement presentation. Intercompany
transactions consisting of short-term loans by Excite to McKinley are
eliminated in the adjustments column of the combined condensed balance
sheet as of September 30, 1996. There have been no other significant
intercompany transactions.
-8-
THE MCKINLEY GROUP, INC.
INDEX TO CONDENSED FINANCIAL STATEMENTS
[Enlarge/Download Table]
Page
----
Balance Sheet as of September 30, 1996.................................................................... 10
Statements of Operations for the nine months ended September 30, 1996 and 1995............................ 11
Statements of Cash Flows for the nine months ended September 30, 1996 and 1995............................ 12
Notes to Condensed Financial Statements................................................................... 13
-9-
THE MCKINLEY GROUP, INC.
CONDENSED BALANCE SHEET
(In thousands, unaudited)
[Download Table]
SEPTEMBER 30,
1996
--------
ASSETS
Current assets:
Cash, cash equivalents and short-term investments .............. $ 381
Accounts receivable ............................................ 394
Prepaid expenses and other current assets ...................... 54
--------
Total current assets ....................................... 829
Property and equipment, net ......................................... 1,096
Other assets ........................................................ 51
--------
$ 1,976
========
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Notes payable, current portion ................................ $ 1,166
Intercompany liability ........................................ 7,637
Accounts payable .............................................. 226
Accrued compensation .......................................... 164
Distribution agreement ........................................ 1,837
Capital lease obligations, current portion .................... 367
Deferred revenues ............................................. 1,166
Other accrued liabilities ..................................... 1,280
--------
Total current liabilities .................................. 13,843
Notes payable ....................................................... 34
Capital lease obligations ........................................... 446
Commitments
Shareholders' equity (net capital deficiency)
Common stock ................................................... 4,433
Deferred compensation .......................................... (49)
Unrealized losses on available-for-sale investments ............ (83)
Accumulated deficit ............................................ (16,648)
--------
Total shareholders' equity (net capital deficiency) ........ (12,347)
--------
$ 1,976
========
See notes to condensed financial statements.
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THE MCKINLEY GROUP, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, unaudited)
[Download Table]
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
-------- --------
Revenues ....................................... $ 2,156 $ 129
Cost of revenues ............................... 370 69
-------- --------
Gross profit ................................... 1,786 60
Operating expenses:
Product development ........................ 2,369 583
Sales and marketing ........................ 2,538 426
Distribution license fees .................. 5,000 --
General and administrative ................. 3,043 753
Merger and acquisition costs ............... 1,523 --
-------- --------
Total operating expenses ................ 14,473 1,762
-------- --------
Operating loss ................................. (12,687) (1,702)
Interest income ................................ 3 --
Interest expense and other ..................... (187) (3)
-------- --------
Net loss ....................................... $(12,871) $ (1,705)
======== ========
See notes to condensed financial statements.
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THE MCKINLEY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
[Enlarge/Download Table]
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ............................................ $(12,871) $ (1,705)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ..................... 338 28
Loss on disposal of fixed assets and other assets . 90 --
Provision for loan impairment ..................... 629 --
Equity securities issued for services ............... (123) 161
Changes in assets and liabilities:
Accounts receivable ............................ (240) (29)
Other current assets ........................... 72 17
Other assets ................................... 8 (31)
Accounts payable ............................... 7,205 311
Accrued liabilities ............................ 2,735 259
Deferred revenues .............................. 1,061 60
-------- --------
Net cash used in operating activities ...... (1,096) (929)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ............... (215) (237)
Purchase of investments .......................... -- (356)
Notes receivable ................................. (629) --
Sale of investments .............................. 475 --
-------- --------
Net cash used in investing activities ...... (369) (593)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock ............... 1,400 1,696
Proceeds from issuance of notes payable .......... 1,074 270
Repayment of margin account borrowings ........... (1,257) --
Proceeds from bank borrowings .................... 450 --
Principal payments on notes payable .............. -- (262)
Principal payments on capital lease obligations .. (191) --
-------- --------
Net cash provided by financing activities... 1,476 1,704
-------- --------
Net increase in cash and cash equivalents... 11 182
Cash and cash equivalents at beginning of period ........ 153 1
-------- --------
Cash and cash equivalents at end of period .............. $ 164 $ 183
======== ========
See notes to condensed financial statements.
-12-
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. THE COMPANY AND BASIS OF PRESENTATION
The McKinley Group, Inc. ("McKinley" or the "Company") was incorporated in
Delaware on December 7, 1993. The Company's principal business activities
include Internet advertising, licensing of Internet directory technology
and publishing Internet directory content. Advertising services are offered
primarily to corporate entities seeking to expand their market presence
through the Internet's Worldwide Web. Domestic and international Internet
service providers comprise the principal market for the Company's Internet
directory technology. Internet directory content, in both paper and digital
formats, is marketed to individual and corporate Internet users.
The unaudited condensed financial statements included herein have been
prepared by the Company in accordance with generally accepted accounting
principles and reflect all adjustments, consisting only of normal recurring
adjustments which in the opinion of management are necessary to fairly
state the Company's financial position, results of operations, and cash
flows for the periods presented. The results of operations for the nine
months ended September 30, 1996 are not necessarily indicative of the
results to be expected for any subsequent quarter or for the entire fiscal
year ending December 31, 1996.
2. REVENUE RECOGNITION
The Company's advertising revenues are derived principally from short-term
advertising contracts which guarantee a minimum number of "impressions" or
times that any advertisement is delivered by the Company's Internet
directory server and viewed by an Internet user. Advertising revenues are
recognized over the contract term using the percentage of completion method
based on the number of impressions delivered as a percentage of the
guaranteed minimum or recognized ratably over the contract term once the
minimum guaranteed impressions are met. Revenues from the sale of certain
advertising space are shared with third parties pursuant to the terms of
certain agreements. The Company records advertising revenues, net of
amounts allocable to third parties under the terms of such agreements. To
date, amounts allocable to third parties have not been significant.
Revenues from the license of Internet directory content and technology are
recognized at the time of delivery provided that no significant obligations
remain and collection of the resulting receivable is considered probable.
Any insignificant vendor obligations are accrued at the time of sale.
3. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Management determines the appropriate classification of its investments at
the time of purchase and reevaluates the classification at each reporting
date. Investment securities classified as trading are reported at fair
value and the net unrealized gains and losses are included as part of
results from operations. Investments classified as available-for-sale are
recorded at fair value and net unrealized gains and losses are recognized
as a separate component of stockholders' deficit.
4. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash equivalents,
short-term investments, and trade accounts receivable which are generally
not collateralized. The Company limits its exposure to credit loss by
placing its cash, cash equivalents, and investments with high credit
quality financial institutions. Concentrations of credit risk with respect
to accounts receivable are considered to be limited due to the quality of
customers comprising the Company's customer base
-13-
and their dispersion across varying business segments and geographic
regions. The Company performs ongoing credit evaluations of its customers'
financial condition to determine the need for an allowance for doubtful
accounts.
5. PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three years or less. Leasehold improvements are amortized over
the shorter of their estimated useful lives or the remaining lease terms.
Repair and maintenance costs are charged to expense as incurred.
6. INITIAL PUBLIC OFFERING COSTS
During the nine months ended September 30, 1996, general and administrative
expenses include approximately $594,000 of costs associated with the
Company's unsuccessful efforts to raise equity capital through an initial
public offering.
-14-
(c) EXHIBITS.
The following exhibits are filed herewith:
20.1 The McKinley Group, Inc. audited financial statements as of
December 31, 1994 and 1995 and June 30, 1996.
23.1 Consent of Price Waterhouse LLP, independent accountants.
-15-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, Registrant has duly caused this amendment to be signed on its behalf by
the undersigned thereunto duly authorized.
EXCITE, INC.
Date: November 8, 1996 By: /s/ Richard B. Redding
----------------------
Richard B. Redding
Vice President of Finance and
Administration, Secretary
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Dates Referenced Herein and Documents Incorporated by Reference
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