<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended April 30, 1996
Commission File Number 0-27830
___________
LYCOS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3277338
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
293 Boston Post Road West, Marlboro, Massachusetts 01752
(Address of principal executive offices, including Zip Code)
(508)-229-0717
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [_] No [X]
The Registrant has been subject to such filing requirements since March 28,
1996, the effective date of its Registration Statement on Form 8-A under the
Securities Exchange Act of 1934, which became effective simultaneously with its
Registration Statement on Form S-1 (File No. 333-1354) under the Securities Act
of 1933, as amended.
The number of shares outstanding of the registrant's Common Stock as of June 12,
1996 was 13,792,896.
================================================================================
<PAGE>
LYCOS, INC.
INDEX
Page
----
Part I. Financial Information
Item 1 Consolidated Financial Statements:
Consolidated Balance Sheets
July 31, 1995 and April 30, 1996............................3
Consolidated Statements of Operations
Three and nine months ended April 30, 1996..................4
Consolidated Statement of Cash Flows
Nine months ended April 30, 1996............................5
Notes to Consolidated Financial Statements...................7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................9
Part II. Other Information
Item 1 Legal Proceedings...........................................14
Item 2 Changes in Securities.......................................14
Item 3 Defaults Upon Senior Securities.............................14
Item 4 Submission of Matters to a Vote of Securities Holders.......14
Item 5 Other Information...........................................14
Item 6 Exhibits and Reports on Form 8-K............................14
Signature...................................................15
2
<PAGE>
LYCOS, Inc.
Consolidated Balance Sheets
Unaudited
<TABLE>
<CAPTION>
July 31, April 30,
1995 1996
----------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $446,447 $44,820,001
Accounts receivable, less allowance
for doubtful accounts of $100,000
at April 30, 1996 5,000 1,844,701
License fee receivable - 2,408,708
Prepaid expenses - 134,469
----------- -------------
Total current assets 451,447 49,207,879
----------- -------------
Property and equipment, less accumulated
depreciation 77,708 1,324,393
Long-term license fees receivable - 610,000
License agreement, net 787,500 1,621,875
Goodwill, net - 175,762
Other assets - 369,250
----------- -------------
Total assets $1,316,655 $53,309,159
=========== =============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $44,074 $988,360
Accrued expenses 6,355 1,283,418
Deferred revenues - 2,313,475
Billings in excess of revenues - 1,449,024
Due to related parties 71,607 934,642
----------- -------------
Total current liabilities 122,036 6,968,919
----------- -------------
Deferred taxes 50,000 100,000
Stockholders' equity:
Common stock, $.01 par value 100,000 137,929
Additional paid-in capital 1,237,000 49,555,891
Deferred compensation (87,000) (466,358)
Accumulated deficit (105,381) (2,987,222)
----------- -------------
Total stockholders' equity 1,144,619 46,240,240
----------- -------------
Commitments and contingencies
Total liabilities and
stockholders' equity $1,316,655 $53,309,159
=========== =============
</TABLE>
See accompanying notes.
3
<PAGE>
LYCOS, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
April 30, April 30,
1996 1996
--------------- ---------------
<S> <C> <C>
Revenues:
Advertising $1,305,865 $2,244,912
License and product 246,417 348,833
--------------- ---------------
Total revenues 1,552,282 2,593,745
Cost of revenues 1,472,012 2,139,094
--------------- ---------------
Gross profit 80,270 454,651
Operating expenses:
Research and development 226,112 514,176
In process research & development - 452,000
Sales and marketing 1,055,228 1,495,171
General and administrative 499,241 997,027
--------------- ---------------
Total operating expenses 1,780,581 3,458,374
--------------- ---------------
Operating loss (1,700,311) (3,003,723)
Interest income, net 111,937 121,883
--------------- ---------------
Net loss $(1,588,374) $(2,881,840)
=============== ===============
Net loss per share $(0.13) $(0.25)
=============== ===============
Shares used in computing net loss per share 11,973,097 11,328,202
=============== ===============
</TABLE>
See accompanying notes.
4
<PAGE>
LYCOS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
<TABLE>
<CAPTION>
Nine Months
Ended
April 30,
1996
------------
<S> <C>
Operating activities
Net loss $(2,881,840)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of deferred compensation 164,148
Depreciation and amortization 313,219
Allowance for doubtful accounts 100,000
In process research and development expense 452,000
Changes in operating assets and liabilities:
Accounts receivable (1,905,726)
License fees receivable (3,018,708)
Prepaid expenses (134,469)
Other assets (369,250)
Accounts payable 846,551
Accrued expenses 1,272,693
Deferred revenues 2,290,338
Billings in excess of revenues 1,449,024
Due to related parties 793,035
-----------
Net cash used in operating activities (628,985)
Investing activities
Purchase of equipment and improvements (1,288,412)
Payments under License Agreement (747,500)
Cash acquired through acquisition of
Point Communications 17,137
-----------
Cash used in investing activities (2,018,775)
Financing activities
Proceeds from issuance of common stock, net of
issuance costs 46,021,314
Proceeds from short-term borrowings 940,347
Repayment of short-term borrowings (940,347)
Proceeds from capital contribution 1,000,000
-----------
Net cash provided by financing activities 47,021,314
-----------
Increase in cash and cash equivalents 44,373,554
Cash and cash equivalents at beginning of year 446,447
-----------
Cash and cash equivalents at end of period $44,820,001
============
</TABLE>
5
<PAGE>
LYCOS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
Unaudited
<TABLE>
<S> <C>
Schedule of non-cash financing and investing activities:
Issuance of common stock for License Agreement $300,000
Recognition of deferred tax liability related to License
Agreement 50,000
Assets and liabilities recognized upon acquisition of Point
Communications:
Accounts receivable 33,975
Property and equipment 47,496
Goodwill 186,633
Accounts payable 97,734
Deferred revenues 23,137
Accrued expenses 4,370
Due to related parties 70,000
Supplementary disclosure of cash flow information:
Interest paid $8,942
</TABLE>
See accompanying notes.
6
<PAGE>
LYCOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
1. The Company and Basis of Presentation
Lycos, Inc. ("the Company") provides among the most widely used online
navigational guides to the Internet's World Wide Web. The Company was
incorporated and commenced operations in June 1995. The Company operates in
one industry segment.
The accompanying unaudited consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary and have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. In the opinion of management, these
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of
these interim periods. Certain information and related footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission, although the Company believes the
disclosures in these financial statements are adequate to make the
information presented not misleading. These financial statements should be
read in conjunction with the Company's audited financial statements for the
six months ended January 31, 1996, included in the Company's Registration
Statement on Form S-1 as declared effective by the Securities and Exchange
Commission on March 28, 1996, as amended (Registration No. 333-1354) and
related Prospectus dated April 2, 1996 (the "Prospectus") for the Company's
initial public offering of its common stock. The results of operations for
the interim periods shown are not necessarily indicative of the results for
any future interim period or for the entire fiscal year.
2. Initial Public Offering
On April 2 1996, the Company completed an initial public offering of its
common stock in which 3,000,000 shares of common stock were issued at a
price of $16.00 per share. On April 8, 1996, pursuant to the exercise of an
over-allotment option granted to the underwriters of the Company's initial
public offering, the Company issued an additional 135,000 shares of its
common stock at a price of $16.00 per share. For further information, refer
to the financial statements and footnotes thereto included in the Company's
Registration Statement on Form S-1, declared effective by the Securities
and Exchange Commission on March 28, 1996, as amended.
3. Cash and Investments
The Company considers all highly liquid investments purchased with an
original maturity of three months or less as cash equivalents, and those
with maturities of greater than three months as short-term investments. At
April 30, 1996, the Company had no investments with maturities of greater
than three months.
7
<PAGE>
4. Commitments
In April 1996, the Company entered into a one year "Premier Provider"
agreement ("the Agreement") with Netscape Communications Corporation
("Netscape") pursuant to which the Company was designated one of five
"Premier Providers" of search and navigation services accessible from the
"Net Search" button on the Netscape browser. Under the terms of the
Agreement, the Company is obligated to make quarterly installment payments
totaling $5 million over the term of the Agreement. However, the Company
may, upon payment of $125,000 to Netscape (provided all scheduled payments
have been previously made), terminate the agreement for the third and
fourth calendar quarters of the term of the agreement by providing written
notice to Netscape no less than sixty days prior to the commencement of the
third calendar quarter of the agreement. For the three months ended April
30, 1996, the Company has recorded the related obligation incurred in "Cost
of Revenues" and "Accrued Expenses".
The Company leases its facilities and certain other equipment under
operating agreements expiring through 2001. Future noncancelable minimum
payments as of April 30, 1996 under these leases for each fiscal year ended
July 31 are as follows:
<TABLE>
<S> <C>
1996 $129,000
1997 437,000
1998 408,000
1999 263,000
2000 125,000
2001 26,000
----------
$1,388,000
----------
</TABLE>
5. Net Loss Per Share
Net loss per share is computed using the weighted average number of shares
of common stock and dilutive common stock equivalent shares outstanding
during the period. Pursuant to the Securities and Exchange Commission Staff
Accounting Bulletins, such computations include all common and common
equivalent shares issued within 12 months of the initial filing date of the
Company's initial public offering as if they were outstanding for all
periods presented using the treasury stock method. Common equivalent shares
consist of shares issuable upon the exercise of stock options. Fully
diluted net loss per share approximates primary net loss per share.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The matters discussed in this report contain forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed below in
"Additional Factors that May Affect Future Results" as well as those discussed
in this section and elsewhere in this Report, and the risks discussed in the
"Risk Factors" section included in the Company's Registration Statement on
Form S-1 declared effective by the Securities and Exchange Commission on
March 28, 1996 (Registration No. 33-1354) and in the Prospectus.
Results of Operations
The Company was incorporated in June 1995, thus no comparable periods in the
previous year exist.
Revenues Total revenues for the quarter ended April 30, 1996 were $1.6
million, an increase of 88% from total revenues of $826,000 in the previous
quarter. Total revenues for the nine-month period ended April 30, 1996 were $2.6
million. The increase in total revenues was due primarily to an increase in the
number of advertisers and, to a lesser extent, to new licensees of the Company's
products and services.
Advertising revenues Advertising revenues were $1.3 million for the
quarter ended April 30, 1996, an increase of 74% over the previous quarter.
Advertising revenues for the nine-months ended April 30, 1996 totaled $2.2
million. Six customers accounted for 31% of advertising revenues in the quarter
ended April 30, 1996 and six customers accounted for 59% of advertising revenues
in the preceding quarter.
The Company's advertising revenues are derived principally from the sale of
advertising on its Internet web sites. Advertising contracts vary in duration
from several days to five years. Advertising contracts are principally sold as
either: (1) a "general rotation" contract under which a customer is guaranteed a
minimum number of impressions; (2) a "key word" contract in which a customer
purchases the right to specified words and the customer's advertisement is shown
as those words are "searched"; and (3) a combination of general rotation and key
word contracts.
License and product revenues License and product revenues were $246,000
for the quarter ended April 30, 1996, an increase of 218% over the previous
quarter. License and product revenues for the nine-months ended April 30, 1996
totaled $349,000. This increase is attributable primarily to the addition of
eight new licensees during the quarter, including, among others, AT&T,
Compuserve, Simon & Schuster and Xaxon.
Cost of revenues Cost of revenues were $1.5 million for the quarter ended
April 30, 1996, representing 95% of total revenues, up from 58% from the
previous quarter. Cost of revenues for the nine-months ended April 30, 1996
totaled $2.1 million or 83% of total revenues. Cost of revenues consist
primarily of expenses associated with the ongoing enhancement, maintenance and
support of the Company's products and services, including compensation,
consulting fees, equipment, networking and other related indirect costs. Cost of
revenues also includes amortization costs associated with the Company's License
Agreement with Carnegie Mellon University.
9
<PAGE>
In April 1996, the Company entered into a one year "Premier Provider"
agreement ("the Agreement") with Netscape Communications Corporation
("Netscape") pursuant to which the Company was designated one of five "Premier
Providers" of search and navigation services accessible from the "Net Search"
button on the Netscape browser. Under the terms of the Agreement, the Company is
obligated to make quarterly installment payments totaling $5 million over the
term of the Agreement. However, the Company may, upon payment of $125,000 to
Netscape (provided all scheduled payments have been previously made), terminate
the agreement for the third and fourth calendar quarters of the term of the
agreement by providing written notice to Netscape no less than sixty days prior
to the commencement of the third calendar quarter of the agreement. The Company
recognizes the cost of this agreement ratably over the term of the agreement,
thus, included in Cost of revenues for the quarter ended April 30, 1996 is the
pro-rated portion of the contract since the service commenced in April 1996,
which is approximately $278,000. The Company anticipates that its Internet
connection charges will continue to increase in the future.
Operating expenses
Research and development Research and development expenses were
approximately $226,000 for the three months ended April 30, 1996, representing
15% of total revenues for the period. For the nine months ended April 30, 1996,
research and development expenses were $514,176, or 20% of total revenues for
the period. Reported research and development expenses consist primarily of
equipment and salary costs. The overall increase in research and development
spending was primarily due to increased engineering staffing required to
continue to develop and enhance the Company's product lines, including the A2Z
Directory which was released in February 1996. The Company believes that
significant investments in research and development are required to remain
competitive. As a consequence, the Company expects to continue to commit
substantial resources to research and development in the future.
Sales and marketing Sales and marketing expenses were approximately $1.1
million for the three months ended April 30, 1996, representing 68% of total
revenues for the period. For the nine months ended April 30, 1996, sales and
marketing expenses were $1.5 million, representing 58% of total revenues for the
period. The spending increases were due to the addition of sales and marketing
personnel, increased commissions and expenses associated with the Company's
expanded advertising, marketing and public relations campaign. The Company
expects continued increases in sales and marketing expenses.
General and administrative General and administrative expenses were
approximately $499,000 for the three months ended April 30, 1996, representing
32% of total revenues. For the nine months ended April 30, 1996, general and
administrative expenses were $997,000, representing 38% of total revenues. The
increases in spending were primarily due to the expansion of the Company's
corporate infrastructure, including the addition of finance and administrative
personnel, installation of information systems and increased costs for
professional services. Although general and administrative expenses have
increased, they have decreased as a percentage of total sales from the previous
quarter due to the more significant increase in revenues. In light of the
anticipated growth in the Company's corporate infrastructure, the Company
expects continued increase in general and administrative expenses.
Interest income, net Interest income, net, was approximately $112,000 and
$122,000 for the three and nine month periods ended April 30, 1996, resulting
primarily from the investment of proceeds received upon the closing of the
Company's initial public offering in April 1996.
10
<PAGE>
Liquidity and Capital Resources
Prior to its initial public offering, the Company financed its operations
primarily from proceeds of the private sale of equity securities and borrowings
under a bank revolving credit facility and, to a lesser extent, operating
leases. On April 2 1996, the Company completed an initial public offering of its
common stock in which 3,000,000 shares of common stock were issued at a price of
$16.00 per share. On April 8, 1996, pursuant to the exercise of an over-
allotment option granted to the underwriters of the Company's initial public
offering, the Company issued an additional 135,000 shares of its common stock at
$16.00 per share. Proceeds from the offering were approximately $46 million, net
of underwriting discounts and other related costs.
At April 30, 1996, the Company had cash and cash equivalents of
approximately $45 million. The Company regularly invests excess funds in short-
term money market funds, government securities, and commercial paper. At April
30, 1996, the Company also had available a bank revolving credit facility
providing for borrowings up to $1.0 million which expires June 1, 1997.
The Company used cash from operations of approximately $629,000 in the nine
months ended April 30, 1996, due primarily to the net loss, as well as increases
in accounts receivable and license fees receivable. The Company's primary
investing activity in the nine month period has been, and further expenditures
are anticipated to be, for the purchase of computers and office equipment to
support the Company's growth. During the nine months ended April 30, 1996, the
Company also used approximately $748,000 for payments under the License
Agreement with Carnegie Mellon University and approximately $940,000 for the
repayment of borrowings under its credit facility. From time to time the Company
expects to evaluate the acquisition of products, businesses and technologies
that complement the Company's business which would result in additional
expenditures.
The Company currently believes that existing cash and cash equivalents and
the existing credit facility will be sufficient to fund its working capital and
capital expenditures requirements for at least the next twelve months.
Thereafter, the Company may need to raise additional funds. The Company may need
to raise additional funds sooner in order to fund more rapid expansion, to
develop new or enhanced products and services, to respond to competitive
pressures or to acquire complementary businesses or technologies. If additional
funds are raised through the issuance of equity securities, the percentage
ownership of the stockholders of the Company will be reduced, stockholders may
experience additional dilution, and such equity securities may have rights,
preferences or privileges senior to those of the Company's common stock. There
can be no assurance that additional financing will be available when needed on
terms favorable to the Company or at all. If adequate funds are not available or
are not available on acceptable terms, the Company may be unable to develop or
enhance products or services, take advantage of future opportunities or respond
to competitive pressures, which could have a material adverse effect on the
Company's business, results of operations or financial condition.
11
<PAGE>
Additional Factors that May Affect Future Results
The Company has an extremely limited operating history upon which an
evaluation of the Company and its prospects can be based. The Company and its
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in their early stage of development,
particularly companies in new and rapidly evolving markets. To address these
risks, the Company must, among other things, respond to competitive
developments, continue to attract, retain and motivate qualified persons,
successfully implement its advertising program and continue to upgrade its
technologies and commercialize products and services incorporating such
technologies. There can be no assurance that the Company will be successful in
addressing such risks. Although the Company has experienced revenue growth in
recent periods, there can be no assurance that revenues of the Company will
continue to increase or continue at their current level. The limited operating
history of the Company makes the prediction of future results of operations
difficult or impossible, and therefore there can be no assurance that the
Company will sustain revenue growth or achieve profitability. The recent revenue
growth experienced by the Company should not be taken as indication of the rate
of revenue growth, if any, that can be expected in the future. The Company has
incurred significant net losses since inception and expects to continue to incur
significant losses on a quarterly and annual basis for the foreseeable future.
As a result of the Company's extremely limited operating history, the
Company does not have historical financial data for any significant period of
time on which to base planned operating expenses. The Company's expense levels
are based in part on its expectations as to future revenues and to a large
extent are fixed. Quarterly sales and operating results generally depend on the
advertising revenues, license fees and other revenues received within the
quarter, which are difficult to forecast. A significant portion of the Company's
revenues to date have been derived from relatively large sales to a limited
number of customers, and the Company currently anticipates that future quarters
will continue to reflect this trend. Accordingly, the cancellation or deferral
of a small number of advertising contracts or license agreements could have a
material adverse effect on the Company's business, results of operations or
financial condition. The Company may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. Accordingly, any
significant shortfall in relation to the Company's expectations would have an
immediate adverse impact on the Company's business, results of operations and
financial condition. In addition, the Company plans to significantly increase
its operating expenses to fund greater levels of research and development,
increase its sales and marketing operations, develop new distribution channels,
broaden its customer support capabilities and establish brand identity and
strategic alliances such as the Company's arrangement with Netscape. Under the
terms of the agreement with Netscape, the Company is required to make payments
of $5 million over the course of the one year term of this agreement, which
commenced in April 1996. In the future, other leading web sites, browser
providers and other distribution channels may also require payments or other
consideration for listing the Company's products and services. To the extent
that such expenses precede or are not subsequently followed by increased
revenues, the Company's business, results of operations and financial condition
will be materially adversely affected.
12
<PAGE>
The Company's operating results may fluctuate significantly in the future
as a result of a variety of factors, some of which are outside of the Company's
control. These factors include general economic conditions, specific economic
conditions in the Internet industry, usage of the Internet, demand for Internet
advertising, seasonal trends in advertising sales, the advertising budgeting
cycles of individual advertisers, capital expenditures and other costs relating
to the expansion of operations, the introduction of new products or services by
the Company or its competitors, the mix of services sold and the channels
through which those services are sold and pricing changes. As a strategic
response to a changing competitive environment, the Company may elect from time
to time to make certain pricing, service or marketing decisions or acquisitions
that could have a material adverse effect on the Company's business, results of
operations and financial condition. The Company believes that period to period
comparisons of its operating results are not meaningful and should not be relied
upon for an indication of future performance. The Company also expects that, in
the future, it may experience seasonality in its business, with advertising
impressions (and therefore revenues) being somewhat lower during the summer and
year-end vacation and holiday periods, when usage of the Company's products and
services may be expected to decline. Due to all of the foregoing factors, it is
likely that in some future quarter, the Company's operating results may be below
the expectations of public market analysts and investors. In such event, the
price of the Company's common stock would likely be materially adversely
affected.
The Company operates in a rapidly changing environment that involves a
number of risks and uncertainties, some of which are beyond the Company's
control. In addition to the factors discussed in this report, factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in the "Risk Factors" section included in the Company's Registration
Statement on Form S-1 and the Prospectus.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) On February 9, 1996, the Company's shareholders by written
consent approved (i) an amendment to Article Fourth of the
Certificate of Incorporation of the Company to increase the
number of authorized shares of common stock to 40,000,000,
(ii) an amendment to Article Eleventh of the Certificate of
Incorporation of the Company to authorize the taking of action by
the shareholders by less than unanimous consent, (iii) an
amendment to Article Twelfth of the Certificate of Incorporation
of the Company to modify Section 12.5 (c) thereof with respect to
preemptive rights, and (iv) an amendment to Section 3.8 of the
By-laws of the Company to authorize the taking of action by
shareholders by less than unanimous consent.
(b) On February 22, 1996, the Company's shareholders by written
consent approved (i) the Restated Certificate of Incorporation of
the Company, (ii) the Amended and Restated By-laws of the
Company, (iii) the 1996 Stock Option Plan, 1996 Employee Stock
Purchase Plan and 1996 Non-Employee Director Stock Option Plan,
(iv) an amendment to the 1995 Stock Option Plan of the Company;
and (v) the execution and delivery of Indemnity Agreements
between the Company and its directors and executive officers.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10: Premier Provider Agreement by and between
Lycos, Inc. and Netscape Communications Corporation.
(b) Exhibit 11: Statement of Computation of Loss Per Share herein
included on page 16.
(c) No reports on Form 8-K were filed during the three-month period
ended April 30, 1996.
14
<PAGE>
SIGNATURE
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 thereunto duly authorized.
LYCOS, INC.
Date: June 14, 1996 By: _____________________________
Edward M. Philip
Chief Financial Officer
(Principal Financial and
Accounting Officer,
Authorized Officer)
15
<PAGE>
EXHIBIT 11
LYCOS, INC.
Computation of Net Loss Per Share (1)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
April 30, April 30,
1996 1996
----------------- -----------------
<S> <C> <C>
Common stock, beginning of period 10,526,316 10,000,000
Weighted average common shares issued
during the period 977,454 332,559
Cheap stock shares relating to
SAB No. 83(2) 560,640 1,086,956
Treasury stock buyback (2) (91,313) (91,313)
------------- -------------
11,973,097 11,328,202
============= =============
Net loss $(1,558,374) $(2,881,840)
Primary net loss per share $(0.13) $(0.25)
============= =============
</TABLE>
(1) Fully diluted net income per share has not been separately presented, as the
amounts would not be materially different from primary net income per share.
(2) In accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 83 ("SAB No. 83"), issuances of Common Stock equivalents
(common stock and stock options) during the twelve months immediately
preceding the initial filing of the registration statement relating to the
Company's initial public offering have been included in the calculation of
weighted average shares, using the treasury stock method and the initial
public offering price, as if these shares were outstanding for all periods
prior to the initial public offering.
16
<PAGE>
NETSCAPE COMMUNICATIONS CORPORATION
NET SEARCH PROGRAM--
PREMIER PROVIDER
OBJECTIVE: To enable users of the Netscape Navigator client software product
("Navigator") to find content on the Internet by providing them with access to
established Internet search and directory services.
TERMS AND CONDITIONS:
1. Premier Provider. The entity named on the signature page hereto is referred
to in this agreement ("Agreement") as the "Premier Provider" for the HTML page
("Page") on the Web site of Netscape Communications Corporation ("Netscape")
accessed by pressing or "clicking" on the Net Search Button of the Navigator.
(Netscape may, in the future, change the name of the Net Search Button. The Page
may also be accessed from other locations on Netscape's Web site referring to
the Net Search service.)
2. Premier Period. Netscape will maintain the Premier Graphic (as defined
below) on the Page for the following period ("Premier Period"):
From: April1, 1996
Until: March 31, 1997
(The parties may, upon mutual written agreement no less than thirty (30) days
prior to the end of the then current Premier Period, extend the term of this
Agreement for an additional six (6) month period upon terms and conditions
agreed to by the parties; provided, however, nothing contained herein shall
obligate either party to agree to extend the term of this Agreement.)
3. Exposure on Page.
a. The Premier Provider will supply Netscape with HTML and/or GIF
files which conform to the specifications in Exhibit A ("Premier Graphic") which
Netscape will place on the Page during the Premier Period. Premier Provider
shall retain all right, title and interest in and to the Premier Graphic
(including the copyright ownership thereof), and Premier Provider hereby grants
Netscape a worldwide license to use, display, perform reproduce and distribute
the Premier Graphic, and such other licenses with respect to the Premier Graphic
necessary to fulfill the intention of this Agreement. The Premier Graphic shall
contain a functional search field and/or directory tree. The specifications of
the Premier Graphic and its placement on the Page are set forth on Exhibit A
hereto. Netscape may, upon notice to Premier Provider, revise Exhibit A
(provided that the Premier Graphics for each of the participants in this Net
Search Program-- Premier Provider shall remain the largest and most prominent
search and directory graphics on the Page and shall remain equivalent in size
for each of the Premier Providers) and Premier Provider shall promptly (and in
any event, within no more than one (1) week following receipt of the notice)
supply Netscape with a revised Premier Graphic which conforms to the
specifications of the revised Exhibit A.
b. Netscape will produce the Page as set forth on Exhibit A
(which Exhibit Netscape may revise, from time to time). The Premier Graphic of
each of the Premier Providers will be overlapped in a stack (the "Stack") and
will be accessible by the end user by pressing or "clicking" on a tab for the
relevant Premier Provider's service. Initially, netscape will rotate the
Net Search Program
Premier Provider
<PAGE>
display of each of the Premier Graphics so that each Premier Graphic will appear
on the top of the Stack when the Page is served to an end user with
approximately the same frequency as any other Premier Graphic appears on top of
the Stack, Netscape may, in the future, produce the Page such that the Premier
Graphic last accessed by an end user will be served on the top of the Stack when
that end user is next served the Page. Alternatively, Netscape may, in the
future, produce the Page such that the end user may select which Premier Graphic
the end user would prefer to have served on the top of the Stack, and Netscape
will produce the Page such that the Premier Graphic selected by the end user is
served on top of the Stack. Further, Netscape will produce the Page such that
when an end user pressed or "clicks" on hypertext links ("Links") placed by
Premier Provider on the Premier Graphic, the end user's Navigator will access
Premier Provider's applicable HTML page located at the applicable Universal
Resource Locator for such page on Premier Provider's Web site ("Premier URLs").
c. Premier Provider will also supply Netscape with text describing
Premier Provider's search or directory service ("Distinguished Text"), which
shall be no more than fifty (50) words in length, and an HTML or GIF file which
conforms to the specifications in Exhibit A for Premier Provider's search or
directory service ("Distinguished Logo"). (The Distinguished Logo and
Distinguished Text are herein collectively referred to as the "Distinguished
Listing.") During the Premier Period, Netscape will place Premier Provider's
Distinguished Logo in the Distinguished Provider portion of the Page, and the
Distinguished Listing in the Alphabetical Listing portion of the Page as set
forth in Exhibit A. Premier Provider shall retain all right, title and interest
in and to the Distinguished Logo (including the copyright ownership thereof),
and Premier Provider hereby grants Netscape a worldwide license to use, display,
perform, reproduce and distribute the Distinguished Listing and Distinguished
Logo, and such other license with respect to the Distinguished Listing and
Distinguished Logo necessary to fulfill the intention of this Agreement. The
specifications of the Distinguished Listing and Distinguished Logo and their
placement on the Page are set forth on Exhibit A hereto. Netscape may, upon
notice to Premier Provider, (i) change the position of the Distinguished Logo or
the Distinguished Listing on the Page, or (ii) revise Exhibit A and Premier
Provider shall promptly (and in any event, within no more than one (1) week
following receipt of the notice) supply Netscape with a revised Distinguished
Logo and Distinguished Listing which conform to the specifications of the
revised Exhibit A.
d. Netscape will produce the Page such that when an end user presses
or "clicks" on the Distinguished Logo or a hypertext link embedded in the
Distinguished Listing, the end user's Navigator will access ("Distinguished
Link") Premier Provider's applicable HTML page located at the applicable
Universal Resources Locator (as supplied by Premier Provider) for such page on
Premier Provider's Web site ("Distinguished URI").
e. Netscape may in the future, but shall not be obligated to, design
its Web site such that an end user may customize certain features of the pages
of Netscape's Web site served to the end user. If, in connection with the
preceding sentence, Netscape provides a mechanism where an end user may select a
preferred search and directory service ("Preferred Service") to be served to the
end user, Netscape will include Premier Provider as a selection for the
Preferred Service.
f. Netscape will use reasonable commercial efforts to promptly remedy
any material malfunctioning of the tabbing mechanism for the Premier Graphics,
any material malfunctioning of the placement on the top of the Stack of the
Premier Graphic most recently accessed or selected by a particular end user (if
either of such mechanisms is developed by Netscape), any material failure to
include the service of Premier Provider as a selection for the Preferred Service
if a mechanism to select a Preferred Service is developed by Netscape, any
material misplacement of the Premier Graphic, Distinguished Listing or
Distinguished Logo on the Page or any material malfunctioning of the Links or
Distingusihed Link under the control of
Net Search Provider
Premier Provider
<PAGE>
Netscape, provided Premier Provider will fully cooperate with Netscape to remedy
any such material malfunctioning or misplacement and provided further that
Netscape shall not incur liability for any failure to remedy such material
malfunctioning or misplacement if such remedy is not within the reasonable
control of Netscape.
4. Compensation.
a. For the benefits provided to Premier Provider for the initial
one (1) year Premier Period, Premier Provider shall pay Netscape a total of
$5,000,000 (the "Payment") as follows:
(1) $1,250,000 within thirty (30) calendar days after full
execution of this Agreement;
(2) $375,000 within fifteen (15) calendar days after the
commencement of the first calendar quarter of the term of the Premier Period;
(3) $750,000 within fifteen (15) calendar days after the
commencement of the second calendar quarter of the term of the Premier Period;
(4) $1,125,000 within fifteen (15) calendar days after the
commencement of the third calendar quarter of the term of the Premier Period;
(5) $1,500,000 within fifteen (15) calendar days after the
commencement of the fourth calendar quarter of the term of the Premier Period.
b. Any portion of the Payment which has not been paid to Netscape
within the applicable time set forth above shall bear interest at the lesser of
(i) one percent (1%) per month, or (ii) the maximum amount allowed by law.
5. Additional Premier Provider Benefits.
a. Netscape will for a period of not less than three (3) days list
Premier Provider once on the HTML page of Netscape's Web site accessed by
pressing or "clicking" on the "What's New" virtual button of the Navigator.
b. Netscape will provide Premier Provider at no charge with one (1)
"Platinum Ad (Basic Service)" (or its equivalent, in Netscape's reasonable
discretion) during each calendar quarter of the Premier Period beginning on a
date designated by Netscape and ending no later than the end of the applicable
calendar quarter; provided Premier Provider supplies Netscape with the graphic
files and other materials and information within the timeframes and as set forth
in the specifications of the applicable Netscape advertising program and as
reasonably requested by Netscape to produce the advertisement; and provided,
further, that Netscape shall not be required to provide such Platinum Ad or its
equivalent if, in Netscape's reasonable discretion, such Platinum Ad is not
available during the applicable calendar quarter. Premier Provider and Netscape
shall schedule the placement of the Platinum Ad for the first, second, third and
fourth calendar quarters of the term of the Premier Period no later than March
15, June 15, September 15 and December 15, 1996, respectively.
c. During the Premier Period, Premier Provider may purchase
additional advertising on Netscape's Web site for advertising that will run
during the Premier Period for the service of Premier Provider at a discount of
twenty percent (20%) off Netscape's then standard rates for such advertising.
Net Search Program
Premier Provider
<PAGE>
d. Netscape will use reasonable efforts to advise Premier
Provider of new Netscape advertising campaigns prior to announcing such new
campaigns on Netscape's Web site; provided, however, Netscape shall not incur
liability for failure so to advise Premier Provider.
e. Netscape may in the future, but shall not be obligated to,
include a set of bookmarks ("Bookmarks") with the Navigator. If Netscape
includes such a set of Bookmarks with a version of the Navigator first released
during the initial term of the Premier Period, Netscape will use reasonable
efforts, subject to technical, marketing and promotional considerations, in
Netscape's discretion, to include a Bookmark for the service of Premier Provider
in the first release of such Navigator and may, but shall not be obligated to,
include a Bookmark for the service of Premier Provider in subsequent releases of
the Navigator. The placement, presentation, functionality and other features of
the Bookmarks, and the URL of the Bookmark for the service of Premier Provider,
shall be determined by Netscape in its sole discretion.
6. Premier Provider Obligations. In addition to the other obligations
set forth herein, Premier Provider will:
a. Display the "Netscape Now" button prominently above the fold
of Premier Provider's home page on its Web site and/or on each page of Premier
Provider's Web site which may be accessed directly from the home page of Premier
Provider's Web site and use best efforts to include the following statement (or
a statement designated by Netscape and generally used by Netscape as a successor
to the following statement or in connection with any successor program to
Netscape's Netscape Now program) next to the Netscape Now button; "This site is
best viewed with Netscape Navigator 2.0. Download Netscape Now!" (or such higher
non-beta version as is then available), and Premier Provider will produce the
page such that when an end user presses or "clicks" on the Netscape Now button,
the end user's Internet client software will access the applicable HTML page
located at a URL supplied by Netscape. Premier Provider will use reasonable
commercial efforts to promptly remedy any misplacement of the Netscape Now
button on its home page or any malfunctioning of the button, provided Netscape
will fully cooperate with Premier Provider to remedy any such misplacement or
malfunctioning, and provided further that Premier Provider shall not incur
liability for any failure to remedy such misplacement or malfunctioning if such
remedy is not within the reasonable control of Premier Provider.
b. Use at least one (1) Netscape core Web server software
product (currently comprised of Netscape Commerce Server and Netscape
Communications Server) to maintain Premier Provider's Web site.
c. Implement HTML Frames and/or Java or JavaScript (or
subsequent features displayable by the Navigator, within thirty (30) days after
written notice from Netscape of the availability of such features) ("Site
Features") for display with those Internet software clients capable of
displaying the Site Features on (i) the home page of Premier Provider's Web
site, and (ii) at least one (1) HTML page located at each Premier URL (or on an
HTML page located further down the directory tree from the page located at the
Premier URL; provided Premier Provider will use reasonable efforts to implement
the Site Features as high in such directory tree structure as possible), and
where appropriate, on all other HTML pages of Premier Provider's primary Web
site; provided Premier Provider shall not be required to implement the Site
Features on pages of any secondary Web site of Premier Provider that Premier
Provider is required to construct to satisfy Premier Provider's obligations
under any third party contract existing as of the date of this Agreement.
Net Search Program
Premier Provider
<PAGE>
d. Premier Provider will include in the Premier Graphic, the home page
of Premier Provider's Web site, and in each page located at each Premier URL a
"mailto" link which users of Premier Provider's service can use to direct
questions or help requests to Premier Provider. Premier Provider will use
reasonable efforts to reply promptly, but in any event within one (1) week, to
any such question or help request.
7. Usage Reports.
a. Netscape and Premier Provider will each provide the other, via
email to the email address set forth below, with usage reports ("Usage Reports")
containing the information and in the format set forth in Exhibit B hereto. The
Usage Reports shall cover a one (1) calendar quarter time period and shall be
delivered within fifteen (15) days following the end of the applicable quarter.
The parties may, by mutual written agreement, alter the content and format of
the Usage Reports.
b. NETSCAPE AND PREMIER PROVIDER WILL USE REASONABLE EFFORTS TO
ENSURE THE ACCURACY OF THE USAGE REPORTS, BUT NEITHER PARTY WARRANTS THAT THE
USAGE REPORTS WILL CONFORM TO ANY PUBLISHED NUMBERS AT ANY GIVEN TIME. NEITHER
PARTY SHALL BE HELD LIABLE FOR ANY CLAIMS AS THEY RELATE TO SAID USAGE REPORTS.
8. Termination. Either party may terminate this Agreement if the other
party materially breaches its obligations hereunder and such breach remains
uncured for fifteen (15) days following notice to the breaching party of the
breach or as otherwise provided in Section 9.
9. Right to Refuse. Netscape will have the right to review the contents
and format of the Premier Graphic, the Distinguished Logo and the Distinguished
Listing. If Netscape, in its sole discretion, at any time determines that the
Premier Graphic, the Distinguished Logo or Distinguished Listing contains any
material, or presents any material in a manner, that Netscape deems
inappropriate for any reason, Netscape will inform Premier Provider of the
reason Netscape has made such determination and may (i) refuse to include the
Premier Graphic, the Distinguished Logo or the Distinguished Listing, in the
Page, and/or (ii) immediately terminate this Agreement if Premier Provider has
not revised to Netscape's reasonable satisfaction the Premier Graphic,
Distinguished Logo or Distinguished Listing within one (1) business day of
written notice from Netscape. If Netscape, in its sole discretion, at any time
determines that the Premier Provider's Web site contains any material, or
presents any material in a manner, that Netscape deems inappropriate for any
reason, Netscape may immediately terminate this Agreement upon notice to Premier
Provider. Netscape reserves the right to refuse to include in the Page any
Premier Graphic, Distinguished Logo or Distinguished Listing that does not
completely conform to the specifications set forth in Exhibit A.
10. Responsibility. Premier Provider is solely responsible for any legal
liability arising out of or relating to (i) the Premier Graphic, the
Distinguished Logo or the Distinguished Listing, and/or (ii) any material to
which users can link through the Premier Graphic, Distinguished Logo or
Distinguished Listing. Premier Provider represents and warrants that it holds
the necessary rights to permit the use of the Premier Graphic, the Distinguished
Logo, the Distinguished Listing, the Premier URLs, the Distinguished URL, the
Links and the Distinguished Links by Netscape for the purpose of this Agreement;
and that the permitted use, reproduction, distribution, or transmission of the
Premier Graphic, the Distinguished Logo and Distinguished Listing and any
material to which users can link through the Premier Graphic, Distinguished Logo
and Distinguished Listing will not violate any criminal laws or any rights of
any third parties, including, but not limited to, infringement or
misappropriation of any copyright, patent, trademark, trade secret, music,
image, or other proprietary or property right, false advertising,
Net Search Program
Premier Provider
<PAGE>
unfair competition, defamation, invasion of privacy or rights of celebrity,
violation of any antidiscrimination law or regulation, or any other right of any
person or entity, Premier Provider agrees to indemnify Netscape and to hold
Netscape harmless from any and all liability, loss, damages, claims, or causes
of action, including reasonable legal fees and expenses that may be incurred by
Netscape, arising out of or related to Premier Provider's breach of any of the
foregoing representations and warranties.
11. Limitation of Liability. IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE
OTHER FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON
BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE, AND WHETHER OR
NOT THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE, THE LIABILITY
OF EITHER PARTY FOR DAMAGES OR ALLEGED DAMAGES HEREUNDER (EXCEPT FOR DAMAGES OR
ALLEGED DAMAGES ARISING UNDER SECTION 10) WHETHER IN CONTRACT OR TORT OR ANY
OTHER LEGAL THEORY IS LIMITED TO AND SHALL NOT EXCEED THE PAYMENT DUE FROM
PREMIER PROVIDER HEREUNDER.
12. Assignment. Premier Provider may not assign this Agreement by operation
of law or otherwise, in whole or 1n part, without Netscape's written consent.
Any attempt to assign this Agreement without such consent will be null and
void.
13. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of California without regard to its
conflicts of laws principles.
14. Notice. Any notice or reports required or permitted to be given under
this Agreement shall be in English and given in writing and shall be delivered
by personal delivery, by nationally recognized express courier, by facsimile
transmission confirmed by telephone, by confirmed email, or by certified or
registered mail, postage prepaid, return receipt requested, and shall be deemed
given upon personal delivery, two (2) days after deposit with express courier,
five (5) days after deposit in the mail, or upon acknowledgment of receipt of
facsimile or email. Notice shall be sent to a party at its address set forth
below or such other address as that party may specify in writing pursuant to
this Section.
15. Confidentiality. All disclosures of proprietary and/or confidential
information in connection with this Agreement shall be governed by the terms of
the Mutual Confidential Disclosure Agreement either previously entered into by
the parties, or entered into by the parties concurrently with this Agreement, a
copy of which is attached hereto as Exhibit C. The information contained in the
Usage Reports provided by each party hereunder shall be deemed the Proprietary
Information of the disclosing party.
16. No Agency. The parties hereto are independent contractors and shall
have no power or authority to bind the other party or to assume or create any
obligation or responsibility, expressed or implied, on behalf of the other party
or in the other party's name. This Agreement shall not be construed to create or
imply any partnership, agency, joint venture, or any other form of legal
association between the parties.
17. Entire Agreement. This Agreement together with Exhibits A through C
hereto are the complete and exclusive agreement between the parties with respect
to the subject matter hereof, superseding any prior agreements and
communications (both written and oral) regarding such subject matter. The
parties acknowledge that, with respect to the participation of Premier Provided
in the Net Search Program during the Premier Period described herein, this
Agreement shall supersede any agreement between Netscape and Premier Provider
regarding Premier Provider's participation in any comparable program for any
period prior to the commencement of
Net Search Program
Premier Provider
<PAGE>
the Premier Period described herein. This Agreement may only be modified, or
any rights under it waived, by a written document executed by both parties.
The parties have duly executed this Agreement as of the later of the two (2)
dates set forth below.
Premier Provider: Netscape:
NETSCAPE COMMUNICATIONS
Lycos, Inc. CORPORATION
- - --------------------------------
By: By:
---------------------------- ---------------------------------
Print Name: Print Name:
-------------------- -------------------------
Title: Title:
------------------------- ------------------------------
Date: Date:
-------------------------- -------------------------------
Premier Provider Address: Netscape Address:
293 Boston Post Road 501 East Middlefield Road
- - --------------------------------
Marlboro, MA 01752 Mountain View, CA 94043
- - --------------------------------
- - --------------------------------
Attention: Attention: Barbara Gore
---------------------
Facsimile: Facsimile: (413) 528-4120
---------------------
Email: Email: [email protected]
-------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LYCOS, INC.
AND SUBSIDIARY APRIL 30, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> APR-30-1996
<CASH> 44,820,001
<SECURITIES> 0
<RECEIVABLES> 1,844,701
<ALLOWANCES> 100,000
<INVENTORY> 0
<CURRENT-ASSETS> 49,207,879
<PP&E> 1,324,393
<DEPRECIATION> 0
<TOTAL-ASSETS> 53,309,159
<CURRENT-LIABILITIES> 6,968,919
<BONDS> 0
0
0
<COMMON> 137,929
<OTHER-SE> 46,102,311
<TOTAL-LIABILITY-AND-EQUITY> 53,309,159
<SALES> 2,593,745
<TOTAL-REVENUES> 2,593,745
<CGS> 2,139,094
<TOTAL-COSTS> 5,597,468
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,881,840)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,881,840)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,881,840)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
