<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
APRIL 26, 1999
DATE OF REPORT
(DATE OF EARLIEST EVENT REPORTED)
AMAZON.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 000-22513 91-1646860
- ---------------------------- ------------------------ -------------------
(State or Other Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)
1516 SECOND AVENUE, SEATTLE, WASHINGTON 98101
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(206) 622-2335
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
<PAGE> 2
ITEM 5. OTHER EVENTS
PENDING TRANSACTIONS
ALEXA INTERNET
On April 24, 1999, Amazon.com, Inc., a Delaware corporation ("Amazon.com"), AI
Acquisitions, Inc., a Washington corporation and wholly owned subsidiary of
Amazon.com, Alexa Internet, a California corporation ("Alexa"), and Brewster
Kahle, the President and Chief Executive Officer of Alexa, entered into a
definitive Agreement and Plan of Merger (the "Alexa Merger Agreement"). Pursuant
to the Alexa Merger Agreement, and subject to the terms and conditions thereof,
Amazon.com will acquire all of the capital stock and assume all outstanding
options of Alexa (the "Alexa Merger"). The Alexa Merger will be accounted for
under the purchase method of accounting.
Amazon.com will issue shares of its common stock, par value $.01 per share
("Amazon.com Common Stock"), totaling approximately $250 million.
EXCHANGE.COM
On April 24, 1999, Amazon.com, Amazon.com Auctions, Inc., a Delaware corporation
and wholly owned subsidiary of Amazon.com, e-Niche Incorporated, a Delaware
corporation ("e-Niche Incorporated" or "Exchange.com"), and all of the
stockholders of Exchange.com, entered into a definitive Agreement and Plan of
Merger (the "Exchange.com Merger Agreement"). Pursuant to the Exchange.com
Merger Agreement, and subject to the terms and conditions thereof, Amazon.com
will acquire all of the capital stock and assume all outstanding options of
Exchange.com (the "Exchange.com Merger"). The Exchange.com Merger will be
accounted for under the purchase method of accounting.
Amazon.com will issue shares of Amazon.com Common Stock and pay approximately $4
million of cash, with an aggregate value of approximately $200 million, assuming
that all conditions have been met and assuming that $50 million of contingent
consideration is paid to by stockholders and certain option holders as a result
of the continued employment of certain employees.
The Alexa Merger and Exchange.com Merger are subject to various conditions. It
is anticipated that the Alexa Merger and Exchange.com Merger will be consummated
in the second quarter of 1999.
FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses To Be Acquired
Alexa Audited Financial Statements:
(i) Report of PricewaterhouseCoopers LLP, dated
April 23, 1999
(ii) Alexa Internet (A Development Stage Company)
Balance Sheets as of December 31, 1998 and 1997
(iii) Alexa Internet (A Development Stage Company)
Statements of Operations for the years ended
December 31, 1998 and 1997 and for the cumulative
period from February 14, 1996 (inception) to
December 31, 1998
(iv) Alexa Internet (A Development Stage Company)
Statement of Stockholders' Equity (Deficit) for the
period from February 14, 1996 (inception) to
December 31, 1998
(v) Alexa Internet (A Development Stage Company)
Statements of Cash Flows for the years ended
December 31, 1998 and 1997 and for the cumulative
period from February 14, 1996 (inception) to
December 31, 1998
(vi) Alexa Internet (A Development Stage Company) Notes
to Financial Statements
e-Niche Incorporated Audited Financial Statements:
(i) Report of PricewaterhouseCoopers LLP, dated May 3,
1999
(ii) e-Niche Incorporated (a development stage
enterprise) Balance Sheet as of December 31, 1998
and 1997
(iii) e-Niche Incorporated (a development stage
enterprise) Statement of Operations for the year
ended December 31, 1998, for the period from
inception (July 29, 1997) through December 31, 1997
and for the period from inception (July 29, 1997)
through December 31, 1998
(iv) e-Niche Incorporated (a development stage
enterprise) Statement of Changes in Stockholders'
Equity (Deficit) for the period from inception
(July 29, 1997) through December 31, 1998
(v) e-Niche Incorporated (a development stage
enterprise) Statement of Cash Flows for the year
ended December 31, 1998, for the period from
inception (July 29, 1997) through December 31, 1997
and for the period from inception (July 29, 1997)
through December 31, 1998
(vi) e-Niche Incorporated (a development stage
enterprise) Notes to Financial Statements
<PAGE> 3
Alexa Internet Condensed Financial Statements
(unaudited):
(i) Alexa Internet (A Development Stage Company)
Condensed Balance Sheets as of March 31, 1999
(unaudited) and December 31, 1998
(ii) Alexa Internet (A Development Stage Company)
Condensed Statements of Operations for the three
month periods ended March 31, 1999 and 1998
(unaudited) and for the cumulative period from
February 14, 1996 (inception) to March 31, 1999
(unaudited)
(iii) Alexa Internet (A Development Stage Company)
Condensed Statements of Cash Flows for the three
month periods ended March 31, 1999 and 1998
(unaudited) and for the cumulative period from
February 14, 1996 (inception) to March 31, 1999
(unaudited)
(iv) Alexa Internet (A Development Stage Company)
Notes to Condensed Financial Statements
e-Niche Incorporated Condensed Consolidated Financial
Statements (unaudited):
(i) e-Niche Incorporated (a development stage
enterprise) Condensed Consolidated Balance Sheet
as of March 31, 1999 (unaudited) and December
31, 1998
(ii) e-Niche Incorporated (a development stage
enterprise) Condensed Consolidated Statement of
Operations for the three month periods ended
March 31, 1999 and 1998 (unaudited) and for the
period from inception (July 29, 1997) through
March 31, 1999 (unaudited)
(iii) e-Niche Incorporated (a development stage
enterprise) Condensed Consolidated Statement of
Cash Flows for the three month periods ended
March 31, 1999 and 1998 (unaudited) and for the
period from inception (July 29, 1997) through
March 31, 1999 (unaudited)
(iv) e-Niche Incorporated (a development stage
enterprise) Notes to Condensed Consolidated
Financial Statements (unaudited)
(b) Pro Forma Financial Information
Pro Forma Combined Condensed Consolidated Financial
Statements (unaudited):
(i) Pro Forma Combined Condensed Consolidated
Balance Sheet as of March 31, 1999 (unaudited)
(ii) Pro Forma Combined Condensed Consolidated
Statement of Operations for the three month
period ended March 31, 1999 (unaudited)
(iii) Pro Forma Combined Condensed Consolidated
Statement of Operations for the year ended
December 31, 1998 (unaudited)
(iv) Notes to Pro Forma Combined Condensed
Consolidated Financial Statements (unaudited)
(c) Exhibits
23.1 Consent of PricewaterhouseCoopers LLP,
Independent Accountants
23.2 Consent of PricewaterhouseCoopers LLP,
Independent Accountants
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Alexa Internet
In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of Alexa Internet (a
development stage company) as of December 31, 1998 and 1997, and the results of
its operations and its cash flows for the years then ended, and for the
cumulative period from February 14, 1996 (inception) to December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
San Francisco, California
April 23, 1999
<PAGE> 5
ALEXA INTERNET
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 147,392 $ 620,160
Marketable securities 3,841,059 2,598,867
Accounts receivable 164,267 --
Other assets 171,920 28,301
----------- -----------
Total current assets 4,324,638 3,247,328
Property and equipment, net 771,542 701,273
Other assets 15,608 27,827
----------- -----------
Total assets $ 5,111,788 $ 3,976,428
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 238,102 $ 80,796
Accrued liabilities 264,111 137,432
Deferred revenue 54,632 --
Notes payable, current portion 309,461 200,000
----------- -----------
Total current liabilities 866,306 418,228
Notes payable, less current portion 255,069 300,000
----------- -----------
Total liabilities 1,121,375 718,228
----------- -----------
Commitments (Note 6)
Stockholders' equity:
Convertible preferred stock, no par value: 10,524,792 shares
authorized; Series A, 10,524,792 shares
designated in 1998 and 1997; 10,524,792 and 5,277,396 9,880,527 4,828,072
shares issued and outstanding in 1998 and 1997, respectively;
liquidation preference $10,028,548
Common stock, no par value; 50,000,000 shares authorized;
16,175,086 and 16,037,794 shares issued and outstanding in 1998 2,018,723 1,484,154
and 1997, respectively
Treasury stock (308) (421)
Preferred stock warrants -- 52,474
Deferred stock compensation (502,602) (76,041)
Deficit accumulated during development stage (7,531,389) (3,074,045)
Accumulated other comprehensive income 125,462 44,007
----------- -----------
Total stockholders' equity 3,990,413 3,258,200
----------- -----------
Total liabilities and stockholders' equity $ 5,111,788 $ 3,976,428
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
ALEXA INTERNET
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND FOR THE CUMULATIVE PERIOD
FROM FEBRUARY 14, 1996 (INCEPTION) TO DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
February 14
1996
(inception) to
December 31,
1998 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenue $ 372,159 $ -- $ 372,159
----------- ----------- -----------
Operating expenses:
Cost of revenue 4,761 -- 4,761
Research and development 1,311,227 1,003,233 2,615,787
Sales and marketing 2,215,658 983,158 3,219,860
General and administration 1,023,720 495,488 1,667,393
Depreciation and amortization 383,389 186,819 588,978
----------- ----------- -----------
Total operating expenses 4,938,755 2,668,698 8,096,779
----------- ----------- -----------
Operating loss (4,566,596) (2,668,698) (7,724,620)
Interest income, net 110,852 78,073 188,931
Other income (expense), net (1,600) 6,700 4,300
----------- ----------- -----------
Net loss (4,457,344) (2,583,925) (7,531,389)
Other comprehensive income:
Change in unrealized gain on available-for-
sale marketable securities 81,455 44,007 125,462
----------- ----------- -----------
Comprehensive loss $(4,375,889) $(2,539,918) $(7,405,927)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
ALEXA INTERNET
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM FEBRUARY 14, 1996 (INCEPTION) TO DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Treasury Stock
--------------------- --------------------- --------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 14,
1996 (inception) -- $ -- -- $ -- -- $ --
Issuance of common stock
($0.0004 per share) for
cash in February 1996 -- -- 2,500,000 1,000 -- --
Net loss -- -- -- -- -- --
---------- ----------- ---------- ----------- ------- -----------
Balance, December 31, 1996 -- -- 2,500,000 1,000 -- --
Conversion of notes payable
to common stock in April
1997 -- -- 8,750,000 1,299,000 -- --
Issuance of employee stock
options at below fair
value during 1997 -- -- -- 154,911 -- --
Exercise of stock options
in April 1997 -- -- 4,110,710 2,611 -- --
Amortization of deferred
compensation related to
employee stock options
during 1997 -- -- -- -- -- --
Issuance of preferred stock
($0.94285 per share) and
warrant to purchase
additional preferred stock
($0.01 per warrant share)
for cash less issuance
costs of $85,131 in May 1997 5,247,396 4,862,395 -- -- -- --
Issuance of common stock
($0.095 per share) for services
rendered in connection with
the issuance of preferred
stock in May 1997 -- (64,323) 677,084 64,323 -- --
Issuance of preferred stock
($1.00 per share) for services
rendered in July 1997 30,000 30,000 -- -- -- --
Repurchase of exercised but
nonvested stock and related
write-off of deferred
compensation during 1997 -- -- -- (37,691) 420,764 (421)
Change in unrealized gain on
available-for-sale
marketable securities -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ----------- ---------- ----------- ------- -----------
Balance, December 31, 1997 5,277,396 $ 4,828,072 16,037,794 $ 1,484,154 420,764 $ (421)
========== =========== ========== =========== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated Total
Preferred Other During Stockholders'
Stock Deferred Comprehensive Development Equity
Warrants Compensation Income Stage (Deficit)
-------- ------------ ------ ----- ---------
<S> <C> <C> <C> <C> <C>
--------- ----------- ----------- ----------- -----------
Balance, February 14,
1996 (inception) $ -- $ -- $ -- $ -- $ --
Issuance of common stock
($0.00-4 per share) for
cash in February 1996 -- -- -- -- 1,000
Net loss -- -- -- (490,120) (490,120)
---------- ----------- ---------- ----------- ------------
Balance, December 31, 1996 -- -- -- (490,120) (489,120)
Conversion of notes payable
to common stock in April
1997 -- -- -- -- 1,299,000
Issuance of employee stock
options at below fair
value during 1997 -- (154,911) -- -- --
Exercise of stock options
in April 1997 -- -- -- -- 2,611
Amortization of deferred
compensation related to
employee stock options
during 1997 -- 41,179 -- -- 41,179
Issuance of preferred stock
($0.94285 per share) and
warrant to purchase
additional preferred stock
($0.01 per warrant share)
for cash less issuance
costs of $85,131 in May 1997 52,474 -- -- -- 4,914,869
Issuance of common stock
($0.095 per share) for services
rendered in connection with
the issuance of preferred
stock in May 1997 -- -- -- -- --
Issuance of preferred stock
($1.00 per share) for services
rendered in July 1997 -- -- -- -- 30,000
Repurchase of exercised but
nonvested stock and related
write-off of deferred
compensation during 1997 -- 37,691 -- -- (421)
Change in unrealized gain on
available-for-sale
marketable securities -- -- 44,007 -- 44,007
Net loss -- -- -- (2,583,925) (2,583,925)
---------- ----------- ---------- ----------- -----------
Balance, December 31, 1997 $ 52,474 $ (76,041) $ 44,007 $(3,074,045) $ 3,258,200
========== =========== ========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
ALEXA INTERNET
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM FEBRUARY 14, 1996 (INCEPTION) TO DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Treasury Stock
----------------------- ------------------------ -----------------
Shares Amount Shares Amount Shares Amount
--------- ---------- ---------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1997
(from previous page) 5,277,396 $4,828,072 16,037,794 $1,484,154 420,764 $(421)
Exercise of preferred stock -- -- -- -- -- --
warrant ($0.94285 per
share) 5,247,396 5,052,455 -- -- -- --
Issuance of employee
stock options at below
fair value during 1998 -- -- -- 530,613 -- --
Exercise of common stock
options by employees -- -- 137,292 12,132 -- --
Repurchase of exercised
but nonvested stock
and related writeoff
of deferred compensation
during 1998 -- -- -- (8,176) 112,500 (112)
Issuance of treasury
stock on exercise of
options -- -- -- -- (225,000) 225
Amortization of deferred
compensation related to
employee stock options -- -- -- -- -- --
Change in unrealized gain
on available-for-sale
marketable securities -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ---------- ---------- ---------- ------- -----
Balances, December 31, 1998 10,524,792 $9,880,527 16,175,086 $2,018,723 308,264 $(308)
========== ========== ========== ========== ======= =====
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated Total
Preferred Other During Stockholders'
Stock Deferred Comprehensive Development Equity
Warrants Compensation Income Stage (Deficit)
---------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1997
(from previous page) $ 52,474 $ (76,041) $ 44,007 $(3,074,045) $3,258,200
Exercise of preferred stock
warrant ($0.94285 per
share) (52,474) -- -- -- 4,999,981
Issuance of employee
stock options at below
fair value during 1998 -- (530,613) -- -- --
Exercise of common stock
options by employees -- -- -- -- 12,132
Repurchase of exercised
but nonvested stock
and related writeoff
of deferred compensation
during 1998 -- 8,176 -- -- (112)
Issuance of treasury
stock on exercise of
options -- -- -- -- 225
Amortization of deferred
compensation related to
employee stock options -- 95,876 -- -- 95,876
Change in unrealized gain
on available-for-sale
marketable securities -- -- 81,455 -- 81,455
Net loss -- -- -- (4,457,344) (4,457,344)
-------- --------- -------- ----------- ----------
Balances, December 31, 1998 $ -- $(502,602) $125,462 $(7,531,389) $3,990,413
======== ========= ======== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
ALEXA INTERNET
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND FOR THE CUMULATIVE PERIOD
FROM FEBRUARY 14, 1996 (INCEPTION) TO DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 14, 1996
(INCEPTION) TO
DECEMBER 31,
1998 1997 1998
----------- ----------- -----------------
<S> <C> <C> <C>
Cash flows from operations:
Net loss $(4,457,344) $(2,583,925) $ (7,531,389)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 383,389 186,819 585,782
Amortization of deferred stock compensation 95,876 41,179 137,055
Gain on sale of marketable securities (127,939) (68,532) (196,471)
Expenses paid through issuance of preferred
stock -- 30,000 30,000
Changes in operating assets and liabilities:
Accounts receivable (164,267) -- (164,267)
Other assets (131,400) (45,828) (187,528)
Accounts payable 157,306 70,856 238,103
Accrued liabilities 126,679 115,056 264,111
Deferred revenue 54,632 -- 54,632
----------- ----------- ------------
Net cash used in operating activities (4,063,068) (2,254,375) (6,769,972)
----------- ----------- ------------
Cash flows from investing activities:
Payments for property and equipment (453,433) (787,330) (1,357,099)
Purchase of short-term investments (5,712,798) (5,486,328) (11,199,126)
Cash receipts on maturities of securities 4,680,000 3,000,000 7,680,000
----------- ----------- ------------
Net cash used in investment activities (1,486,231) (3,273,658) (4,876,225)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 12,132 2,611 15,743
Proceeds from issuance of preferred stock, net -- 4,862,395 4,862,395
Proceeds from issuance of warrants -- 52,474 52,474
Proceeds from exercise of warrant
for preferred stock 4,999,981 -- 4,999,981
Proceeds from notes payable 273,651 500,000 773,651
Payments for notes payable (209,121) -- (209,121)
Proceeds from convertible notes payable -- 688,654 1,298,999
Purchase of treasury stock (112) (421) (533)
----------- ----------- ------------
Net cash provided by financing activities 5,076,531 6,105,713 11,793,589
----------- ----------- ------------
Net increase (decrease) in cash (472,768) 577,680 147,392
Cash and cash equivalents - beginning of period 620,160 42,480 --
----------- ----------- ------------
Cash and cash equivalents - end of period $ 147,392 $ 620,160 $ 147,392
=========== =========== ============
</TABLE>
Supplemental disclosure of cash flow information (Note 13)
The accompanying notes are an integral part of these financial statements.
<PAGE> 10
ALEXA INTERNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
Alexa Internet (the Company), incorporated in California in April 1996 under
the name of the Internet Archive (subsequently changed to Alexa Internet in
May 1996), creates Internet navigation services. The Company's activities to
date have consisted of product development, raising capital, acquiring
equipment, and marketing its product. The Company has not generated
significant revenues to date and is considered a development stage company
at December 31, 1998.
As discussed in Note 14, the Board of Directors approved the sale of the
Company to Amazon.com on April 23, 1999.
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 that 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.
FACTORS THAT COULD AFFECT FUTURE RESULTS
The Internet industry is highly competitive. The success of the Company
in the Internet navigation business is dependent upon the Company's
ability to raise capital, complete development of its products, and to
generate significant customer usage and advertising revenues.
REVENUE RECOGNITION
The Company's revenues are derived primarily from the sale of banner
advertisements placed on the Alexa toolbar. To date, the duration of the
Company's banner advertising commitments has ranged from one week to six
months. Banner advertising revenues are recognized ratably over the
period in which the advertisement is displayed, provided that no
significant Company obligations remain and collection of the resulting
receivable is probable. Such revenue is recognized when the service is
provided.
Revenues from barter transactions are recognized during the period in
which the advertisements are displayed on the Alexa toolbar, and a
corresponding amount is charged to operations as applicable for the
value of the goods or services received by the Company in the barter
transaction. Barter transactions are recorded at the fair value of the
goods and services provided or received, whichever is more readily
determinable in the circumstances. For the year ended December 31, 1998,
revenues from barter transactions have accounted for
<PAGE> 11
ALEXA INTERNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
approximately 27% of revenues. These were no revenues from barter
transactions prior to 1998.
No one customer accounted for 10% or more of revenues during the years
ended December 31, 1998 and 1997, and during the cumulative period from
February 14, 1996 (inception) to December 31, 1998.
Deferred revenues is primarily comprised of payments received pursuant
to banner advertising contracts in advance of delivery of the
advertisements.
SOFTWARE DEVELOPMENT COSTS
Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,
requires that software development costs be capitalized once the
technological feasibility of the software product has been established.
As of December 31, 1998 all software development costs have been charged
to research and development expense in the period incurred, since the
deployment date occurred immediately following technological feasibility
of the products.
RESEARCH AND DEVELOPMENT COSTS
Costs related to other research and development activities are expensed
when incurred.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, which requires an asset and
liability approach to financial accounting and reporting for income
taxes. Accordingly, deferred tax assets and liabilities arise from the
differences between the tax basis of an asset or liability and its
reported amount in the financial statements, and net operating loss
carryforwards. Deferred tax amounts are determined using the tax rates
expected to be in effect when the taxes will actually be paid or refunds
received, as provided under currently enacted tax law. Valuation
allowances are established when necessary to reduce deferred tax assets
to the amount expected to be realized. Income tax expense or benefit is
the tax payable or refundable, respectively, for the period plus the net
change in deferred tax amounts during the period.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements
in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and complies
with the disclosure provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation.
Under APB No. 25, compensation expense is based on the difference, if
any, on the date of the grant, between the fair value of the Company's
stock and the exercise price of the option. The Company accounts for
equity instruments issued to nonemployees in accordance with the
provisions of SFAS No. 123 and Emerging Issues Task Force ("EITF")
96-18.
<PAGE> 12
ALEXA INTERNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
COMPREHENSIVE INCOME
The Company adopted the provisions of SFAS No. 130, Reporting
Comprehensive Income. This statement requires companies to classify
items of other comprehensive income by their nature in the financial
statements and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital
in the equity section of a statement of financial position. Accordingly,
the Company has reported unrealized gains on available-for-sale
marketable securities in comprehensive loss.
CASH EQUIVALENTS
All cash and cash equivalents are held in checking, money market
accounts or short-term investments with original maturities of 90 days
or less. Cash equivalents are recorded at cost, which approximates fair
value. As of December 31, 1998, the balance exceeded existing Federally
insured limits.
MARKETABLE SECURITIES
The Company's marketable securities are categorized as
available-for-sale securities, as defined by the Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt
and Equity Securities. Unrealized holding gains and losses are reflected
as a net amount in a separate component of stockholders' equity until
realized. For the purpose of computing realized gains and losses, cost
is identified on a specific identification basis.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and
amortization are computed on the straight-line basis over the estimated
useful lives of the assets, as follows:
<TABLE>
<S> <C>
Computer and network equipment and software 3 years
Furniture and office equipment 5 years
</TABLE>
Leasehold improvements are amortized on a straight-line basis over the
life of the lease, or the useful life of the assets; whichever is
shorter.
Maintenance and repairs are charged to expense as incurred. When assets
are sold or retired, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is included in
operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, Accounting for the
Cost of Computer Software Developed or Obtained for Internal Use ("SOP
98-1"). SOP 98-1 is effective for financial statements for years
beginning after December 15, 1998. SOP 98-1 provides guidance over
accounting for computer software developed or obtained for internal use
including the requirement to capitalize specified costs and amortization
of such costs. The Company does not expect the adoption of this standard
to have a material impact on its results of operations, financial
position or cash flows.
<PAGE> 13
ALEXA INTERNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of
Start-up Activities ("SOP 98-5"). SOP 98-5, which is effective for
fiscal years beginning after December 15, 1998, provides guidance on the
financial reporting of start-up costs and organization costs. It
requires costs of start-up activities and organization costs to be
expensed as incurred. As the Company has historically expensed these
costs, the adoption of SOP 98-5 is not expected to have significant
impact on its results of operations, financial position or cash flows.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"), which establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters for fiscal years beginning after June
15, 1999. The Company is assessing the potential impact of this
pronouncement on its financial statements; however, the Company does not
expect any significant impact since it currently does not have any
derivative instruments and does not anticipate acquiring any.
3. MARKETABLE SECURITIES
All outstanding securities classified as available for sale mature in less
than one year. The following is a summary of marketable securities at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
UNREALIZED FAIR
COST HOLDING GAINS VALUE
---------- ------------- -----------
<S> <C> <C> <C>
Government Bonds
1998 $3,715,597 $125,462 $3,841,059
1997 $2,554,860 $ 44,007 $2,598,867
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
Computer and network equipment and software $ 1,255,699 $ 840,774
Furniture and office equipment 74,160 53,150
Leasehold improvements 27,240 9,742
----------- ---------
Total assets 1,357,099 903,666
Less accumulated depreciation and amortization (585,557) (202,393)
----------- ---------
$ 771,542 $ 701,273
=========== =========
</TABLE>
<PAGE> 14
ALEXA INTERNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. NOTES PAYABLE
The Company entered into a line of credit agreement with a bank which
provides for borrowings up to $500,000 to purchase capital equipment.
Borrowings bear interest at the bank's prime rate plus 1% and are
collateralized by all assets of the Company, including intellectual
property. As of December 31, 1998, the Company has $564,530 notes payable
outstanding under this agreement bearing interest at 9.5%. Borrowings are
repayable in monthly installments of principal plus accrued interest.
According to the terms of the agreement, the Company is required to meet
certain financial covenants including minimum net worth and working capital
levels. In conjunction with the line of credit, the Company issued warrants
to purchase 18,817 shares of the Company's preferred stock at an exercise
price of $0.93 per share (see Note 7). No value was assigned to the warrants
as the fair value was determined to be insignificant.
Scheduled repayments of notes payable principal subsequent to December 31,
1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1999 $309,461
2000 200,000
2001 55,069
--------
564,530
Less current portion (309,461)
--------
$255,069
========
</TABLE>
6. COMMITMENTS
LEASE OBLIGATIONS
The Company has entered into two separate cancelable operating lease
agreements for office space. The contracts provide for adjustments or
escalations based upon changes in consumer price indices or operating
expenses. Either party may terminate the agreements providing thirty
days written notice.
Rent expense under operating lease agreements was $139,191, $44,388 and
$194,676 for the year ended December 31, 1998, December 31, 1997 and for
the period from February 14, 1996 (inception) to December 31, 1998,
respectively.
7. STOCKHOLDERS' EQUITY
COMMON STOCK
The Company is authorized to issue 50,000,000 shares of common stock. At
December 31, 1998, 16,175,086 shares of common stock are issued and
outstanding.
<PAGE> 15
ALEXA INTERNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK
As of December 31, 1998, the Company is authorized to issue 10,524,792
shares of convertible preferred stock, all of which are designated
Series A Convertible Preferred Stock (Series A preferred stock). At
December 31, 1998, 10,542,792 shares of Series A preferred stock are
issued and outstanding.
DIVIDENDS
The holders of Series A preferred stock are entitled to receive
dividends in preference to any dividend on common stock, at an annual
rate equal to $0.0572 per share, when and if declared by the Company's
Board of Directors. Such dividends are noncumulative and no dividends
have been declared or paid to date.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution, or winding up of the
Company, either voluntary or involuntary, the holders of Series A
preferred stock are entitled to receive, in preference to the holders of
common stock, an amount equal to $0.95285 per share of Series A
preferred stock ($10,028,548 in total) plus all declared but unpaid
dividends, if any. Once such liquidation preference has been paid,
holders of Series A preferred stock are entitled to receive assets and
funds of the Company in proportion to the number of shares of common
stock as if converted pursuant to the following paragraph.
CONVERSION RIGHTS
Each share of Series A preferred stock shall be convertible at the
option of the holder, at any time, into shares of common stock. The
number of shares of common stock into which each share of Series A
preferred stock may be converted shall be determined by dividing
$0.95285 by the conversion price in effect on the date the stock
certificate is surrendered for conversion. The initial conversion price
per share shall be $0.95285. Series A preferred stock will automatically
convert into common stock, at the then applicable rate, (i) at the time
the consent of at least a majority of the outstanding Series A preferred
stock to such conversion is obtained, or (ii) upon the sale of the
Company's securities pursuant to a firm commitment underwritten public
offering with a public offering price of not less than $4.00 per share
and with aggregate gross proceeds to the Company of not less than
$12,000,000.
The Series A preferred stock also carries provisions which protect the
holders of such securities from dilution caused by capital
reorganization, stock splits, or other such capital changes.
VOTING RIGHTS
The holders of Series A preferred stock are entitled to vote on all
matters and are entitled to the number of votes equal to the number of
shares of common stock into which the preferred stock could be converted
pursuant to the conversion rights. Except as otherwise required by law,
the holders of the Series A preferred stock shall have voting rights
equal to those of the common stockholders.
<PAGE> 16
ALEXA INTERNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The holders of Series A preferred stock have the right to elect at least
one member of the Board of Directors and additional members determined
by multiplying the number of directors authorized to serve by a fraction
calculated from the number of convertible shares divided by the total
common shares on a fully converted basis.
PREFERRED STOCK WARRANTS ISSUED TO NON-EMPLOYEES
In 1997, the Company issued a warrant to a creditor to purchase 18,817
shares of Series A preferred stock at an exercise price of $0.93 per
share. The warrant expires in June 2004 and remains outstanding at
December 31, 1998.
8. EMPLOYEE STOCK OPTION PLAN
In 1997, the Company established an employee stock option plan. Under this
plan, the Company may grant options for 5,000,000 shares of common stock to
its employees, directors, and consultants either as incentive stock options
or nonstatutory options. The exercise price of each option is determined by
the Board of Directors and an option's maximum term is 10 years. Options are
exercisable upon grant. However, upon exercise, shares of common stock are
issued under a restriction agreement and generally vest over a four-year
period. Upon termination of employment, the Company has the right to
repurchase unvested shares at the original exercise price. At December 31,
1998, 675,000 shares of common stock issued upon exercise of stock options
during 1997 and 1998 remain restricted.
<PAGE> 17
ALEXA INTERNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table summarizes activity under the Company's stock option
plan for the years ended December 31, 1997 and 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
--------------------------------------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE NUMBER PRICE AGGREGATE EXERCISE
FOR GRANT OF SHARES PER SHARE PRICE PRICE
---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 -- -- $ -- $ -- $ --
Options authorized 2,500,000 -- -- -- --
Options granted (2,291,462) 2,291,462 .001 - .09 62,879 0.0274
Options exercised -- (1,610,710) 0.001 (1,611) 0.001
Cancelled and repurchased
exercised options 435,764 -- -- -- --
---------- ---------- ---------- -------- -------
Balance, December 31, 1997 644,302 680,752 0.090 61,268 0.090
Options authorized 2,500,000 -- -- -- --
Options granted (566,000) 566,000 0.090 50,940 0.090
Options exercised -- (137,292) 0.090 (12,132) 0.090
Options cancelled 329,708 (329,708) 0.090 (29,674) 0.090
Cancelled and repurchased
exercised options 112,500 -- -- -- --
Adjustment to authorized
shares (338,542) -- -- -- --
---------- ---------- ---------- -------- -------
Balance December 31, 1998 2,681,968 779,752 $ 0.090 $ 70,402 $ 0.090
========== ========== ========== ======== =======
</TABLE>
At December 31, 1998, employee options to purchase 779,752 shares of common
stock are outstanding and exercisable at $.09 per share, with a weighted
average remaining contractual life of 9.22 years. A total of 2,681,968
common shares remain available for issuance.
The Company accounts for the plan in accordance with APB No. 25, Accounting
for Stock Issued to Employees, and related Interpretations. For certain
options granted in 1998 and 1997, the exercise price was less than the fair
value of common stock on the grant date. In accordance with APB No. 25, for
the period ended December 31, 1998, the Company recorded compensation
expense in relation to employee stock options totaling $95,876.
The following information concerning the Company's stock option plan is
provided in accordance with SFAS No. 123 Accounting for Stock-Based
Compensation. The fair value of each option grant is estimated on the date
of grant using the minimum value method with the following weighted-average
assumptions used for grants in 1998: average risk-free interest rate of
5.48% and expected life of 5 years. Volatility and dividend yields are not
factors in the Company's minimum value
<PAGE> 18
ALEXA INTERNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
calculation. The weighted average fair value of options granted in 1998 and
1997 was $1.05 and $.07, respectively. Using the above method and
assumptions, had the Company accounted for compensation expense according to
SFAS No. 123, the pro forma net loss would be as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net loss - as reported $4,439,345 $2,583,925
Net loss - proforma $4,439,971 $2,586,072
</TABLE>
These pro forma effects may not be representative of the effects on reported
net income for future years as options vest over several years and
additional awards are generally made each year.
9. 401(k) PLAN
In June 1997, the Company established a 401(k) Plan (the 401(k) Plan). All
employees of the Company are eligible to participate in the 401(k) Plan. The
Company may make discretionary contributions to the 401(k) Plan. No
contributions were made by the Company during the years ended December 31,
1997 and 1998 and during the period from February 14, 1996 (inception) to
December 31, 1998.
10. INCOME TAXES
TAX PROVISION
The Company recognizes no income tax provision due to net operating
losses incurred since inception and a full valuation allowance against
deferred tax assets.
The Company's deferred tax assets as of December 31, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Capitalized start-up costs $ 330,682 $ 731,428
Research & development credits 216,020 62,955
Net operating loss carryforward 2,020,317 177,919
Other, including nondeductible accruals 37,152 43,547
----------- -----------
Gross deferred tax assets 2,604,171 1,015,849
Valuation allowance (2,604,171) (1,015,849)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
</TABLE>
Due to uncertainty of realization, a full valuation allowance has been
provided against deferred tax assets at December 31, 1998 and 1997.
<PAGE> 19
ALEXA INTERNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At December 31, 1998, the Company has net operating loss carryforwards
of $5,387,183 and $3,236,269, respectively, for federal and state income
tax purposes. These carryforwards begin to expire in years 2012 and
2005, respectively. The Company's research and development credits begin
to expire in 2002 for both federal and state income tax purposes.
Due to changes in the Company's ownership during 1997 and 1998, the
amount of loss available to offset future federal and state taxable
income or tax may be limited by IRS Code Section 382. The amount of such
limitation, if any, has not been determined.
CONVERSION TO "C" CORPORATION STATUS
On May 13, 1997, the Company issued Series A Convertible Preferred Stock
to a corporate investor, which caused the Company's S corporation status
to terminate at that date. The Company elected under IRC Section
1362(e)(2) to allocate the net income or loss for the entire fiscal year
on a pro rata basis between the period before the S corporation
termination and the period following the termination.
11. RELATED PARTY TRANSACTIONS
In May and July 1996, the Company issued convertible notes payable to one of
the Company's shareholders in the amounts of $400,000 and $600,000 and to
one of the Company's directors in the amount of $300,000. Under the terms of
these notes, the Company was allowed to borrow any sum up to the full amount
of the notes. Interest accrued at 5.76%, 6.04%, and 6.04%, respectively, on
the outstanding balances. The Company borrowed a total of $610,346 against
the convertible notes in 1996 and an additional $688,654 during 1997. In
April 1997, the total balances outstanding on the notes were converted into
8,750,000 shares of the Company's common stock, and all related interest was
forgiven by the holders of the notes.
In 1996, the Company issued an option to purchase 2,500,000 shares of common
stock to one of the Company's founders at an exercise price of $0.0004 per
share. This option was exercised and the 2,500,000 shares of common stock
issued are subject to a restriction agreement and vest over a four-year
period. Upon termination of employment, the Company has the right to
repurchase unvested shares at the original exercise price. At December 31,
1998, 765,625 shares remain subject to repurchase.
12. NONMONETARY TRANSACTIONS
The Company entered into an arrangement with two strategic partners under
which access to each partner's unique Web content is included as a feature
in the Alexa toolbar. The purpose of these arrangements is to enhance the
content offered by the Company to users and the Company's partners obtain
higher visibility for their Web content. These arrangements are nonmonetary
in nature and no accounting recognition has been given to them as their fair
value was not determinable.
<PAGE> 20
ALEXA INTERNET
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FEBRUARY 14,
1996
YEAR ENDED YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998
------------ ------------ --------------
<S> <C> <C> <C>
Cash payments for interest $ 32,258 $ 19,325 $ 51,583
======== ========== ==========
Noncash investing and financing activities:
Conversion of notes payable to
common stock $ -- $1,299,000 $1,299,000
======== ========== ==========
Change in unrealized gain on marketable
securities $ 81,455 $ 44,007 $ 125,455
======== ========== ==========
Common stock issued for services
rendered in connection with the
issuance of preferred stock $ -- $ 64,323 $ 64,323
======== ========== ==========
Preferred stock issued for services $ -- $ 30,000 $ 30,000
======== ========== ==========
</TABLE>
14. SUBSEQUENT EVENTS
In February 1999, the Company purchased a certificate of deposit ("CD") in
the amount of $60,000. The Company pledged the CD to a financial institution
as collateral against credit cards the financial institution issued to
certain of the Company's employees.
In March and April 1999, the Company entered into four non-cancelable
operating leases for computer and network equipment. The term of the leases
is two years and the lease payments totals $59,550.
On April 23, 1999, the Board of Directors approved the sale of the Company
to Amazon.com for approximately $250 million in Amazon.com stock. The sale
is subject to approval by the Company's stockholders.
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of e-Niche Incorporated
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of e-Niche
Incorporated (a development stage enterprise) at December 31, 1998 and 1997, and
the results of its operations and its cash flows for the year ended December 31
1998, for the period from inception (July 29, 1997) through December 31, 1997
and for the period from inception (July 29, 1997) through December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 3, 1999
<PAGE> 22
E-NICHE INCORPORATED
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,605,616 $ 16,001
Prepaid expenses and other current assets 56,136 --
----------- -----------
Total current assets 1,661,752 16,001
----------- -----------
Fixed assets, net 184,388 4,369
Other assets 18,382 --
----------- -----------
$ 1,864,522 $ 20,370
=========== ===========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 25,000 $ --
Accounts payable 81,518 949
Accrued professional services fees 30,000 --
Other accrued expenses 8,401 --
----------- -----------
Total current liabilities 144,919 949
----------- -----------
Long-term debt 125,000 --
----------- -----------
Series A redeemable convertible preferred stock, $0.01 par value;
2,000,000 shares authorized, issued and outstanding at December 31, 1998 1,973,561 --
----------- -----------
Stockholders' equity (deficit):
Series B convertible preferred stock, $0.01 par value; 1 share authorized,
issued and outstanding at December 31, 1998 18,681 --
Common stock, $0.01 par value; 5,000,001 shares authorized;
2,250,000 and 1,386,809 shares issued and outstanding at
December 31, 1998 and 1997, respectively 22,500 13,868
Additional paid-in capital 39,119 36,132
Deficit accumulated during the development stage (459,258) (30,579)
----------- -----------
Total stockholders' equity (deficit) (378,958) 19,421
----------- -----------
Commitments (Note 9)
$ 1,864,522 $ 20,370
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 23
E-NICHE INCORPORATED
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(JULY 29, (JULY 29,
YEAR ENDED 1997) THROUGH 1997) THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Costs and expenses:
Research and development $ 129,484 $ 3,901 $ 133,385
Selling and marketing 57,396 471 57,867
General and administrative 241,363 25,648 267,011
--------- --------- ---------
Loss from operations (428,243) (30,020) (458,263)
Other expense (240) (559) (799)
Interest expense, net (196) -- (196)
--------- --------- ---------
Net loss $(428,679) $ (30,579) $(459,258)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 24
E-NICHE INCORPORATED
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (JULY 29, 1997) THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
DEFICIT
SERIES B ACCUMULATED
CONVERTIBLE ADDITIONAL DURING THE
PREFERRED STOCK COMMON STOCK PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES PAR VALUE CAPITAL STAGE TOTAL
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital contributed by founder -- $ -- -- $ -- $ 49,000 $ -- $ 49,000
Issuance of restricted stock -- -- 1,386,809 13,868 (12,868) -- 1,000
Net loss -- -- -- -- -- (30,579) (30,579)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 -- -- 1,386,809 13,868 36,132 (30,579) 19,421
Issuance of restricted stock 500,000 5,000 300 -- 5,300
Return of capital -- -- -- -- (30,000) -- (30,000)
Conversion of notes
payable to Series B
convertible preferred
stock and common stock 1 18,681 363,191 3,632 32,687 -- 55,000
Net loss -- -- -- -- -- (428,679) (428,679)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 1 $ 18,681 2,250,000 $ 22,500 $ 39,119 $ (459,258) $ (378,958)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 25
E-NICHE INCORPORATED
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(JULY 29, (JULY 29,
YEAR ENDED 1997) THROUGH 1997) THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998
----------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (428,679) $ (30,579) $ (459,258)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation 9,383 485 9,868
Compensation expense associated with the issuance
of restricted stock 5,300 -- 5,300
Changes in assets and liabilities:
Prepaid expenses and other current assets (56,136) -- (56,136)
Accounts payable 80,569 949 81,518
Accrued professional services fees 30,000 30,000
Other accrued expenses 8,401 -- 8,401
----------- ----------- -----------
Net cash used for operating activities (351,162) (29,145) (380,307)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (189,402) (4,854) (194,256)
Increase in other assets (18,382) -- (18,382)
----------- ----------- -----------
Net cash used for investing activities (207,784) (4,854) (212,638)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable to stockholder 80,000 -- 80,000
Repayments of notes payable to stockholder (25,000) -- (25,000)
Borrowing from line of credit 150,000 -- 150,000
Proceeds from Series A redeemable convertible preferred
stock, net of issuance costs 1,973,561 -- 1,973,561
Proceeds from issuance of common stock -- 1,000 1,000
Capital contribution -- 49,000 49,000
Return of capital (30,000) -- (30,000)
----------- ----------- -----------
Net cash provided by financing activities 2,148,561 50,000 2,198,561
----------- ----------- -----------
Net increase in cash and cash equivalents 1,589,615 16,001 1,605,616
Cash and cash equivalents, beginning of period 16,001 -- --
----------- ----------- -----------
Cash and cash equivalents, end of period $ 1,605,616 $ 16,001 $ 1,605,616
----------- ----------- -----------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
In September 1998, the Company converted notes payable to a stockholder of
$55,000 into 1 share of Series B convertible preferred stock and 363,191 shares
of common stock.
The accompanying notes are an integral part of these financial statements.
<PAGE> 26
E-NICHE INCORPORATED
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS
e-Niche Incorporated (the "Company") was incorporated in the State of
Delaware on July 29, 1997. The Company was formed to design and develop
marketplaces on the Internet that bring together buyers and sellers of
rare and hard-to-find items. Since its inception, the Company has
devoted substantially all of its efforts to business planning, research
and development, recruiting management and technical staff, acquiring
operating assets and raising capital. Accordingly, the Company is
considered to be in the development stage as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7.
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 that affect the reported amounts of assets and liabilities
and the 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
All highly liquid investments with an initial maturity of three months
or less are considered to be cash equivalents. The Company invests
excess cash primarily in money market funds of major financial
institutions. Accordingly, these investments are subject to minimal
credit and market risk. At December 31, 1998, the Company's cash
equivalents are classified as available-for-sale and include $1,400,000
in money market funds. These investments are stated at cost plus accrued
interest, which approximates fair market value.
FIXED ASSETS
Fixed assets are recorded at cost and depreciated using the
straight-line method over their estimated useful lives. Repair and
maintenance costs are expensed as incurred.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the
intrinsic value method as prescribed in Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations and has adopted the provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," through disclosure only (Note 7).
COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
effective January 1, 1998. This statement requires a full set of general
purpose financial statements to be expanded to include the reporting of
"comprehensive income." Comprehensive income is comprised of two
components, net income and other comprehensive income. During the year
ended December 31, 1998 and the period from inception (July 29, 1997)
through December 31, 1997, the Company had no items qualifying as other
comprehensive income; accordingly, the adoption of SFAS No. 130 had no
impact on the Company's financial statements.
<PAGE> 27
E-NICHE INCORPORATED
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities.
SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company does not expect SFAS No. 133
to have a material effect on its financial position or results of
operations.
In February 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SoP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SoP 98-1
establishes the accounting for costs of software products developed or
purchased for internal use, including when such costs should be
capitalized. SoP 98-1 will be effective for the Company beginning in
fiscal 1999, and the Company does not expect adoption of this SoP to
have a material effect on its financial position or results of
operations.
In April 1998, the AcSEC issued SoP 98-5, "Reporting on the Costs of
Start-Up Activities." Start-up activities are defined broadly as those
one-time activities related to the opening of a new facility,
introducing a new product or service, conducting business in a new
territory, conducting business with a new class of customer, commencing
some new operation or organizing a new entity. SoP 98-5 requires that
the cost of start-up activities be expensed as incurred. SoP 98-5 is
effective for the Company beginning in fiscal 1999, and the Company does
not expect adoption of this SoP to have a material effect on its
financial position or results of operations.
3. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE DECEMBER 31,
(YEARS) 1998 1997
<S> <C> <C> <C>
Computer equipment and software 3 $ 172,639 $ -
Office equipment 3 14,271 -
Furniture and fixtures 5 7,346 4,854
----------- ---------
194,256 4,854
Less - accumulated depreciation (9,868) (485)
----------- ---------
$ 184,388 $ 4,369
=========== ==========
</TABLE>
<PAGE> 28
E-NICHE INCORPORATED
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
4. LINE OF CREDIT
In October 1998, the Company entered into an agreement with a bank under
which it may borrow up to $350,000 for working capital purposes
("Working Capital Line") and $150,000 for purchases of fixed assets
("Equipment Line"). Outstanding borrowings under the agreement are
collateralized by the Company's assets and bear interest at the lender's
prime rate plus 1.0% for the Working Capital Line and the lender's prime
rate plus 0.5% for the Equipment Line (8.75% and 8.25% at December 31,
1998, respectively). The Working Capital Line expires on October 8,
1999, at which time all outstanding interest and principal is due. The
Equipment Line expires on July 8, 1999, at which time all outstanding
interest and principal will convert to a thirty month term loan payable
in thirty monthly installments of principal and interest. Under the
terms of the agreement, the Company is required to comply with certain
restrictive covenants, including the maintenance of a minimum tangible
net worth of $250,000 and limitations on indebtedness, liens, mergers
and payments of dividends.
As of December 31, 1998, there are no outstanding borrowings under the
Working Capital Line and future minimum principal payments under the
Equipment Line are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
<S> <C>
1999 $ 25,000
2000 60,000
2001 60,000
2002 5,000
---------
$ 150,000
=========
</TABLE>
In April 1999, all outstanding borrowings and interest under the
Equipment Line were repaid in full.
5. PREFERRED STOCK
On September 4, 1998, the Company authorized and issued 2,000,000 shares
of Series A redeemable convertible preferred stock (the "Series A
stock") at a price of $1.00 per share and converted $55,000 of notes
payable to a stockholder into 1 share of Series B convertible preferred
stock (the "Series B stock") and 363,191 shares of common stock. The
Series A and Series B stock has the following characteristics.
VOTING RIGHTS
Holders of Series A stock are entitled to the number of votes equal to
the number of shares of the Company's common stock into which such
holder's shares are convertible at the record date for such vote. The
holder of Series B stock is entitled to one vote on the affairs of the
Company.
<PAGE> 29
E-NICHE INCORPORATED
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
DIVIDEND RIGHTS
The holders of Series A stock are not entitled to receive dividends
unless declared by the Company's Board of Directors. Any dividends
declared must be distributed and paid in full to the holders of Series A
stock prior to payments to common stockholders. The holder of Series B
stock is not entitled to dividends. From the date of issuance of Series
A stock through December 31, 1998, no dividends have been declared or
paid by the Company.
LIQUIDATION PREFERENCES
In the event of any liquidation, dissolution, winding up or
reorganization (including certain mergers or asset sales) of the
Company, the holders of Series A stock and Series B stock shall be
entitled to receive an amount equal to $1.00 per share plus any declared
but unpaid dividends and $75,000 per share, respectively. If the assets
of the Company are insufficient to pay these amounts in full, the
liquidation distribution shall be made ratably based upon these amounts.
Any assets remaining following any liquidation distribution to the
holders of Series A stock and Series B stock will be distributed ratably
among the common stockholders.
CONVERSION RIGHTS
Each share of Series A stock is convertible at any time at the option of
the holder into one share of common stock, subject to certain
adjustments. Upon the closing of an initial public offering in which net
proceeds equal or exceed $20,000,000 and in which the price per common
share to the public is at least $5.00, all outstanding shares of Series
A stock and Series B stock automatically convert into shares of common
stock at the then effective conversion rate (one share of common stock
for each share of Series A stock and each share of Series B stock at
December 31, 1998). Series A stock shall also convert into shares of
common stock at the then effective conversion rate upon the election of
more than 66 2/3% of the holders of Series A stock.
At December 31, 1998, 2,000,001 shares of the Company's common stock
have been reserved for issuance upon conversion of Series A stock and
Series B stock.
REDEMPTION RIGHTS
At the request of the majority of the holders of Series A stock, the
Company will redeem all outstanding shares of Series A stock in three
equal annual installments beginning September 4, 2003 at a redemption
price of $1.00 per share, plus any declared but unpaid dividends,
subject to certain anti-dilution adjustments.
6. COMMON STOCK
Each share of common stock entitles the holder to one vote on all
matters submitted to a vote of the Company's stockholders. Common
stockholders are entitled to receive dividends, if any, as may be
declared by the Board of Directors, subject to the preferential
dividend rights of the holders of Series A stock.
<PAGE> 30
E-NICHE INCORPORATED
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
In September 1998, the Company entered into a recapitalization agreement
whereby the common stock was split at a ratio of 1,386.809 to 1. All
shares of common stock and options included in the accompanying
financial statements have been retroactively adjusted to reflect the
stock split for all periods presented.
RESTRICTED STOCK AGREEMENTS
The Company has entered into stock restriction agreements with certain
stockholders. The agreements provide that, in the event these
individuals are no longer employed by the Company, the Company has the
right to repurchase any or all unvested shares at their original
issuance price. The repurchase option rights lapse at various dates
through February 2003. At December 31, 1998, 1,443,002 shares of common
stock were subject to repurchase by the Company.
At December 31, 1998, the Company's outstanding common stock is subject
to certain restrictions as to sale or transfer. The Company and its
stockholders are entitled to a right of first refusal on shares offered
for sale at the then-current fair market value.
7. STOCK OPTION PLAN
In 1998, the Company adopted the 1998 Stock Plan (the "1998 Plan") which
provides for the grant of incentive stock options and non-qualified
stock options, stock awards and stock purchase rights for the purchase
of up to 750,000 shares of the Company's common stock by officers,
employees, consultants and directors of the Company. The Board of
Directors is responsible for administration of the 1998 Plan. The Board
determines the term of each option, the option exercise price, the
number of shares for which each option is granted and the rate at which
each option is exercisable. Incentive stock options may be granted to
any officer or employee at an exercise price per share of not less than
the fair value per common share on the date of the grant (not less than
110% of fair value in the case of holders of more than 10% of the
Company's voting stock) and with a term not to exceed ten years from the
date of the grant (five years for grants to holders of more than 10% of
the Company's voting stock). Non-qualified stock options may be granted
to any officer, employee, consultant or director at an exercise price
per share of not less than the book value per share.
No compensation cost has been recognized for employee stock options from
inception (July 29, 1997) through December 31, 1998. Had compensation
cost been determined based on the fair value at the grant dates for
options granted in 1998 consistent with the provisions of SFAS No. 123,
the Company's net loss for the year ended December 31, 1998 would have
been approximately $430,000. Because options vest over several years and
additional option grants are expected to be made in future years, the
above pro forma results are not representative of the pro forma results
for future years.
For purposes of pro forma disclosure, the fair value of each option
grant was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions for grants in 1998:
no dividend yield; no volatility; risk-free interest rate of 5% and
expected lives of 5 years.
<PAGE> 31
E-NICHE INCORPORATED
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
A summary of the status of the Company's stock options as of
December 31, 1998, and changes during the year then ended is presented
below:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
<S> <C> <C>
Granted 369,500 $ 0.10
Outstanding at end of year 369,500 $ 0.10
========
Options exercisable at end of year -
Weighted-average fair value of
options granted during the year $ 0.03
Options available for future grant 380,500
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL
LIFE SHARES
EXERCISE PRICE SHARES (YEARS) EXERCISABLE
<S> <C> <C> <C>
$0.10 369,500 9.92 -
</TABLE>
8. INCOME TAXES
During the period from July 29, 1997 (inception) through September 4,
1998, the Company qualified under Section 1362 of the Internal Revenue
Code as an S Corporation and was not required to pay income taxes. S
Corporation stockholders are required to report their respective share
of the Company's taxable income or loss on their individual tax returns
and are personally liable for any related tax. During 1998, the
Company's S Corporation status was terminated and it qualified as a C
Corporation. The net loss incurred while the Company qualified as an S
Corporation remains with its stockholders. The loss incurred by the
Company as a C Corporation is to be carried forward by the Company.
<PAGE> 32
E-NICHE INCORPORATED
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
At December 31, 1998, net deferred tax assets are comprised of the
following:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 168,976
Other 2,884
---------
Gross deferred tax assets 171,860
Deferred tax liabilities (11,934)
---------
Net deferred tax assets 159,926
Deferred tax asset valuation allowance (159,926)
---------
$ -
=========
</TABLE>
Realization of net deferred tax assets is dependent upon the generation
of future taxable income. The Company has provided a valuation allowance
for the full amount of its deferred tax assets, since realization of
these future benefits is not sufficiently assured.
At December 31, 1998, the Company has federal and state net operating
loss carryforwards of approximately $410,000 available to reduce future
taxable income which expire at various dates through 2018.
Under the provisions of the Internal Revenue Code, certain substantial
changes in the Company's ownership may limit the amount of net operating
loss carryforwards and research and development credit carryforwards
which could be utilized annually to offset future taxable income and
taxes payable.
9. COMMITMENTS
The Company leases office space and off-site facilities for certain
computer equipment under noncancelable operating leases. Total rent
expense under these operating leases was approximately $17,600 and
$2,600 for the year ended December 31, 1998 and the period from
inception (July 29, 1997) through December 31, 1997, respectively.
Future minimum lease payments at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1999 150,000
2000 108,000
2001 108,000
----------
$ 366,000
==========
</TABLE>
<PAGE> 33
E-NICHE INCORPORATED
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
10. SUBSEQUENT EVENTS
On January 8, 1999, the Company issued convertible notes payable (the
"Notes") to new and existing Company investors for total proceeds of
$4,000,000. The Notes bore interest at 4.75% per annum and on February
25, 1999, the Notes were canceled. In return for the cancellation of the
Notes, the Company issued 881,640 shares of Series C redeemable
convertible preferred stock ("Series C stock").
Additionally, on February 25, 1999, the Company issued 1,322,442 shares
of Series C stock at a price of $4.54 per share to existing and new
investors for cash proceeds of $6,000,000. Each share of Series C stock
is convertible into one share of common stock subject to certain
anti-dilution adjustments. The holders of Series C stock will
participate on an as-converted basis in any dividends paid on common
stock and are entitled to one vote on all matters. The liquidation
preference of Series C stock is equal to its issue price. At the request
of the majority of the holders of Series C stock, the Company will
redeem all outstanding shares of Series C stock in three equal annual
installments beginning September 4, 2003 at a redemption price of $4.54
per share, plus any declared but unpaid dividends, subject to certain
anti-dilution adjustments.
On January 11, 1999, the Company acquired all of the outstanding stock
of Bibliofind, Inc. in an acquisition accounted for as a purchase in
accordance with APB No. 16 "Business Combinations." The Company paid
$4,000,000 in cash and issued $2,000,000 of promissory notes payable to
the shareholders of Bibliofind. In March 1999, the Company repaid in
full the promissory notes payable issued in connection with the
acquisition.
On April 24, 1999, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Amazon.com, Inc. and Amazon.com
Auctions (collectively referred to as Amazon.com) and the stockholders
of the Company. Under the terms of the Merger Agreement, Amazon.com will
acquire all of the outstanding shares of the Company's stock and assume
all outstanding options in exchange for shares of Amazon.com, Inc.
common stock. Additionally, on or about the first anniversary of the
closing date of this transaction (the "Anniversary Date"), Amazon.com,
Inc. will issue additional shares of Amazon.com, Inc. common stock to
stockholders and pay cash to certain option holders of the Company
subject to certain conditions, including the employment of certain
employees of the Company at Amazon.com on the Anniversary Date. Prior to
the closing of the merger, the Company's Series A and Series C stock
will be converted to common stock at a 1-to-1 ratio. The holder of
Series B stock will be paid $75,000 for cancellation of the Series B
stock.
<PAGE> 34
ALEXA INTERNET
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 628 $ 147
Marketable securities 1,839 3,841
Accounts receivable 352 164
Prepaid expenses and other 28 172
------- -------
Total current assets 2,847 4,324
Property and equipment, net 790 772
Other assets 83 16
------- -------
Total assets $ 3,720 $ 5,112
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 162 $ 238
Accrued advertising 107 --
Accrued liabilities 169 264
Deferred revenue 74 55
Note payable, current portion 309 309
------- -------
Total current liabilities 821 866
Note payable, less current portion 178 255
------- -------
Total liabilities 999 1,121
------- -------
Stockholders' equity:
Convertible preferred stock 9,881 9,881
Common stock 7,761 2,019
Deferred compensation (5,971) (503)
Accumulated other comprehensive income 100 125
Deficit accumulated during the development stage (9,050) (7,531)
------- -------
Total stockholders' equity 2,721 3,991
------- -------
Total liabilities and stockholders' equity $ 3,720 $ 5,112
======= =======
</TABLE>
See notes to condensed financial statements.
<PAGE> 35
ALEXA INTERNET
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(FEBRUARY 14, 1996)
THREE MONTHS ENDED THREE MONTHS ENDED THROUGH
MARCH 31, 1999 MARCH 31, 1998 MARCH 31, 1999
------------------ ------------------ -------------------
<S> <C> <C> <C>
Revenue $ 382 $ 2 $ 754
------- ------- ------
Operating expenses:
Cost of revenue 66 -- 71
Research and development 384 313 3,000
Sales and marketing 1,013 465 4,233
General and administrative 370 153 2,037
Depreciation and amortization 122 79 711
------- ------- ------
Total operating expenses 1,955 1,010 10,052
Operating loss (1,573) (1,008) (9,298)
Interest income, net 54 24 243
Other income (expense), net -- -- 4
------- ------- ------
Net loss (1,519) (984) (9,051)
Other comprehensive income:
Change in unrealized gain on
available-for-sale marketable
securities (25) -- 100
------- ------- ------
Comprehensive loss $(1,544) $ (984) $(8,951)
======= ======= =======
</TABLE>
See notes to condensed financial statements.
<PAGE> 36
ALEXA INTERNET
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(FEBRUARY 14, 1996)
THREE MONTHS THREE MONTHS ENDED THROUGH
ENDED MARCH 31, 1999 MARCH 31, 1998 MARCH 31, 1999
-------------------- ------------------ ------------------
<S> <C> <C> <C>
Cash flows from operations:
Net loss $ (1,519) $ (984) $ (9,051)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 396 79 982
Amortization of deferred stock compensation -- -- 137
Gain on sale of marketable securities (57) (30) (253)
Expenses paid through issuance of preferred stock -- -- 30
Changes in operating assets and liabilities:
Accounts receivable (93) -- (257)
Other current assets 48 (66) 48
Other assets (67) -- (255)
Accounts payable -- -- 238
Accrued liabilities (45) 124 219
Deferred Revenue -- -- 55
-------- -------- --------
Net cash used in operating activities (1,337) (877) (8,107)
-------- -------- --------
Cash flows from investing activities:
Payments for property and equipment (140) (173) (1,497)
Purchase of short-term investments -- -- (11,199)
Cash receipts on maturities of securities 2,035 1,000 9,715
-------- -------- --------
Net cash provided by (used in) investing activities 1,895 827 (2,981)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock -- -- 16
Proceeds from issuance of preferred stock, net -- -- 4,862
Proceeds from issuance of warrants -- -- 52
Proceeds from exercise of warrant for preferred stock -- -- 5,000
Proceeds from notes payable -- -- 774
Proceeds from convertible notes payable -- -- 1,299
Purchase of treasury stock -- -- (1)
Payments for term loan (77) (50) (286)
-------- -------- --------
Net cash provided by (used in) financing activities (77) (50) 11,716
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 481 (100) 628
Cash and cash equivalents - beginning of period 147 620 --
-------- -------- --------
Cash and cash equivalents - end of period $ 628 $ 520 $ 628
-------- -------- --------
</TABLE>
See notes to condensed financial statements.
<PAGE> 37
NOTES TO CONDENSED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three
month period ended March 31, 1999 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1999. For further
information, refer to the consolidated financial statements for the years ended
December 31, 1998 and 1997 and for the cumulative period from February 14, 1996
(inception) to December 31, 1998 and notes thereto included herein.
During the first quarter of 1999, the Company issued employee stock options at
below fair value and recorded deferred stock compensation of approximately
$5.7 million in connection with these grants.
SUBSEQUENT EVENT
On April 24, 1999, Amazon.com, Inc. ("Amazon.com"), AI Acquisitions, Inc., a
wholly owned subsidiary of Amazon.com, Alexa Internet ("Alexa"), and Brewster
Kahle, the President and Chief Executive Officer of Alexa, entered into a
definitive Agreement and Plan of Merger (the "Alexa Merger Agreement"). Pursuant
to the Alexa Merger Agreement, and subject to the terms and conditions thereof,
Amazon.com will acquire all of the capital stock and assume all outstanding
options of Alexa. The Alexa Merger will be accounted for under the purchase
method of accounting.
Amazon.com will issue Amazon.com common stock, par value $.01 per share,
totaling approximately $250 million.
RECLASSIFICATION ADJUSTMENTS
Certain amounts for Alexa have been reclassified to conform to Amazon.com's
financial statement presentation.
<PAGE> 38
E-NICHE INCORPORATED
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------- -------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,659 $ 1,606
Prepaid expenses and other current assets 45 56
------- -------
Total current assets 4,704 1,662
Fixed assets, net 407 184
Goodwill and other assets, net 5,732 18
------- -------
Total assets $10,843 $ 1,864
======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 126 $ 25
Accounts payable 185 82
Other accrued expenses 69 38
------- -------
Total current liabilities 380 145
------- -------
Long-term debt 125 125
------- -------
Redeemable convertible preferred stock 11,936 1,974
------- -------
Stockholders' deficit:
Convertible preferred stock 19 18
Common stock 23 22
Additional paid-in capital 39 39
Deficit accumulated during the development stage (1,679) (459)
------- -------
Total stockholders' deficit (1,598) (380)
------- -------
Total liabilities and stockholders' deficit $10,843 $ 1,864
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 39
E-NICHE INCORPORATED
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
THREE MONTHS THREE MONTHS (JULY 29, 1997)
ENDED ENDED THROUGH
MARCH 31, 1999 MARCH 31, 1998 MARCH 31, 1999
-------------- -------------- ----------------
<S> <C> <C> <C>
Net sales $ 173 $ -- $ 173
Cost of sales 5 -- 5
------- ----- -------
Gross profit 168 -- 168
Operating expenses:
Selling and marketing 157 -- 215
Research and development 308 -- 441
General and administrative 625 1 892
Merger and acquisition related
costs, including amortization
of goodwill and other purchased
intangibles 262 -- 262
------- ---- -------
Total operating expenses 1,352 1 1,810
Loss from operations (1,184) (1) (1,642)
Interest expense, net (36) -- (37)
------- ---- -------
Net loss $(1,220) $ (1) $(1,679)
======= ==== =======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 40
\ E-NICHE INCORPORATED
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
Inception
(July 29, 1997)
Three Months Ended Three Months Ended through
March 31, 1999 March 31, 1998 March 31, 1999
-------------- -------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,219) $ (1) $ (1,679)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 297 -- 307
Compensation expense exercised with the
issuance of restricted stock -- -- 5
Changes in assets and liabilities
Accounts receivable and prepaid expenses 13 -- (43)
Accounts payable and accrued expenses 93 -- 215
------------ ------------ -------------
(816) (1) (1,195)
------------ ------------ -------------
Cash flows from investing activities:
Purchases of fixed assets (172) -- (367)
Acquisition of Bibliofind, net of cash received (5,996) -- (5,996)
Increase in other assets (26) -- (44)
------------ ------------ -------------
Net cash used by investing activities (6,194) -- (6,407)
------------ ------------ -------------
Cash flows from financing activities:
Borrowings from line of credit -- -- 150
Proceeds from notes payable, including notes to
stockholders 6,000 -- 6,055
Repayment of notes payable, including notes to
stockholders (5,900) -- (5,900)
Proceeds from issuance of preferred stock 9,962 -- 11,936
Other changes in capital, including issuance
of common stock -- -- 20
------------ ------------ -------------
Net cash provided by financing activities 10,062 -- 12,261
------------ ------------ -------------
Net increase (decrease) in cash and cash
equivalents 3,052 (1) 4,659
Cash and cash equivalents at beginning of period 1,606 16 --
------------ ------------ -------------
Cash and cash equivalents at end of period $ 4,658 $ 15 $ 4,659
------------ ------------ -------------
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 41
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
---------------------------------------------------------------
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999. For further information, refer to the consolidated financial statements
for the period from inception (July 29, 1997) through December 31, 1998 and
notes thereto included herein.
SERIES C PREFERRED STOCK
On January 8, 1999, the Company issued convertible notes payable to new and
existing Company investors for total proceeds of $4 million. On February 25,
1999, the Notes were canceled. In return for the cancellation of the Notes, the
Company issued 881,640 shares of Series C redeemable convertible preferred stock
("Series C stock"). Additionally, on February 25, 1999, the Company issued
1,322,442 shares of Series C stock at a price of $4.54 per share to existing and
new investors for cash proceeds of $6 million.
ACQUISITION OF BIBLIOFIND, INC.
On January 11, 1999, Exchange.com acquired all of the outstanding stock of
Bibliofind, Inc. in an acquisition accounted for as a purchase in accordance
with APB No. 16 "Business Combinations." Exchange.com paid $4 million in cash
and issued $2 million of promissory notes payable to the shareholders of
Bibliofind. Exchange.com recorded approximately $6 million in goodwill and will
amortize this goodwill over approximately five years. In March 1999,
Exchange.com repaid in full the promissory notes payable issued in connection
with the acquisition. Had Bibliofind's results of operations been included with
Exchange.com's results of operations, Exchange.com's pro forma combined revenues
and combined net loss would have been $507,000 and $(1,463,000), respectively,
for the year ended December 31, 1998. Pro forma combined revenues and combined
net loss would not have been materially different than reported results for the
period ended March 31, 1999.
SUBSEQUENT EVENT
On April 24, 1999, Amazon.com, Inc. ("Amazon.com"), Amazon.com Auctions, Inc., a
wholly owned subsidiary of Amazon.com, e-Niche Incorporated ("e-Niche
Incorporated" or "Exchange.com"), and all of the stockholders of Exchange.com,
entered into a definitive Agreement and Plan of Merger (the "Exchange.com Merger
Agreement"). Pursuant to the Exchange.com Merger Agreement, and subject to the
terms and conditions thereof, Amazon.com will acquire all of the capital stock
and assume all outstanding options of Exchange.com. The Exchange.com Merger will
be accounted for under the purchase method of accounting.
Amazon.com will issue shares of its common stock, par value $.01 per share, and
pay approximately $4 million of cash, with an aggregate value of approximately
$200 million, assuming that all conditions have been met and assuming that
$50 million of contingent consideration is paid to stockholders and certain
option holders subject to the continued employment of certain employees.
RECLASSIFICATION ADJUSTMENTS
Certain amounts for Exchange.com have been reclassified to conform to
Amazon.com's financial statement presentation.
<PAGE> 42
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed consolidated financial
statements give effect to the Alexa Merger and the Exchange.com Merger. The
Alexa Merger and the Exchange.com Merger will be accounted for under the
purchase method of accounting in accordance with APB Opinion No. 16. Under the
purchase method of accounting, the purchase price is allocated to the assets
acquired and liabilities assumed based on their estimated fair values. The
estimated fair values contained herein are preliminary in nature, and may not be
indicative of the final purchase price allocation, which will be based on an
assessment of fair value to be performed by an independent appraiser. Any
amounts that may be allocable to in process research and development would be
recorded as one time charges that would reduce the goodwill reflected in the pro
forma combined condensed consolidated balance sheet and reduce the amount of
amortization of goodwill reflected in the pro forma combined condensed
consolidated statements of operations. Such preliminary estimates of the fair
values of the assets and liabilities of Alexa and Exchange.com have been
combined with the recorded values of the assets and liabilities of Amazon.com in
the unaudited pro forma combined condensed consolidated financial statements.
The unaudited pro forma combined condensed consolidated balance sheet has been
prepared to reflect the acquisitions as if they occurred on March 31, 1999. The
unaudited pro forma combined condensed consolidated statements of operations
reflect the combined results of operations of Amazon.com, Alexa and Exchange.com
for the year ended December 31, 1998 and the three months ended March 31, 1999
as if the acquisitions occurred on January 1, 1998.
The unaudited pro forma combined condensed consolidated financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the combined condensed consolidated financial position or results of operations
in future periods or the results that actually would have been realized had
Amazon.com, Alexa and Exchange.com been a combined company during the specified
periods. The unaudited pro forma combined condensed consolidated financial
statements, including the notes thereto, are qualified in their entirety by
reference to, and should be read in conjunction with, the historical
consolidated financial statements of Amazon.com, included in its Annual Report
on Form 10-K for the year ended December 31, 1998 and its Current Reports on
Form 8-K filed August 27, 1998 and April 29, 1999.
PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ALEXA EXCHANGE.COM
PROFORMA PROFORMA PROFORMA
AMAZON.COM ALEXA EXCHANGE.COM ADJUSTMENTS ADJUSTMENTS BALANCE
------------ -------- ------------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 5,248 $ 628 $4,659 $ -- $ (1,075)d $ 9,460
Marketable securities 1,437,717 1,839 -- -- -- 1,439,556
Inventories 45,236 -- -- -- -- 45,236
Prepaid expenses and other 37,077 380 45 -- 1,000 d 38,502
---------- -------- ------- -------- -------- ----------
Total current assets 1,525,278 2,847 4,704 -- (75) 1,532,754
Fixed assets, net 60,600 790 407 -- -- 61,797
Goodwill and other, net 187,194 83 5,732 248,230 c 124,291 f 565,530
Deferred charges 39,912 -- -- -- -- 39,912
---------- -------- ------- -------- -------- ----------
Total assets $1,812,984 $ 3,720 $10,843 $248,230 $124,216 $2,199,993
========== ======== ======= ======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 133,018 $ 162 $ 185 $ -- $ -- $ 133,365
Accrued advertising 16,187 107 -- -- -- 16,294
Other liabilities and accrued expenses 45,194 243 69 1,000 a 1,250 d 47,756
Current portion of long-term debt
and capital lease obligation 7,186 309 126 -- -- 7,621
---------- -------- ------- -------- -------- ----------
Total current liabilities 201,585 821 380 1,000 1,250 205,036
Long-term debt and capital lease obligation 1,533,862 178 125 -- -- 1,534,165
Redeemable convertible preferred stock -- -- 11,936 -- (11,936)e
Stockholders' equity:
Convertible preferred stock -- 9,881 19 (9,881)b (19)e --
Common stock 1,614 7,761 23 (7,761)b (23)e
12 a 7 d 1,633
Additional paid-in capital 306,414 -- 39 249,939 a 145,332 d 701,724
Deferred compensation and other (2,374) (5,971) 5,971 b (12,074)g (14,448)
Accumulated other comprehensive income (4,390) -- -- -- -- (4,390)
Accumulated deficit and other
stockholders' equity (223,727) (8,950) (1,679) 8,950 b 1,679 e (223,727)
---------- -------- ------- -------- -------- ----------
Total stockholders' equity 77,537 2,721 (1,598) 247,230 134,902 460,792
---------- -------- ------- -------- -------- ----------
Total liabilities and
stockholders' equity $1,812,984 $ 3,720 $10,843 $248,230 $124,216 $2,199,993
========== ======== ======= ======== ======== ==========
</TABLE>
See notes to pro forma combined condensed consolidated financial statements.
<PAGE> 43
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ALEXA EXCHANGE.COM
PROFORMA PROFORMA PROFORMA
AMAZON.COM ALEXA EXCHANGE.COM ADJUSTMENTS ADJUSTMENTS BALANCE
------------ ----- ------------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 293,643 $ 382 $ 173 $ -- $ -- $ 294,198
Cost of sales 228,852 66 5 -- -- 228,923
--------- ------ -------- ---------- --------- ---------
Gross profit 64,791 316 168 -- -- 65,275
Operating expenses:
Marketing and sales 60,744 1,013 157 -- -- 61,914
Product development 23,477 506 308 -- -- 24,291
General and administrative 11,165 370 625 -- -- 12,160
Merger and acquisition related costs,
including amortization
of goodwill and other
purchased intangibles 25,309 -- 262 20,686 c 10,831 f
906 g
(262)h 57,732
--------- ------ -------- ---------- --------- ---------
Total operating expenses 120,695 1,889 1,352 20,686 11,475 156,097
Loss from operations (55,904) (1,573) (1,184) (20,686) (11,475) (90,822)
Interest income 10,925 54 -- -- -- 10,979
Interest expense (16,688) -- (36) -- -- (16,724)
--------- ------ -------- ---------- --------- ---------
Net interest expense (5,763) 54 (36) -- -- (5,770)
Net loss $ (61,667) $(1,519) $ (1,220) $ (20,686) $ (11,475) $ (96,567)
========== ====== ======== ========== ========= =========
Basic and diluted loss per share $ (0.39) $ (0.61)
========== =========
Shares used in computation of basic
and diluted loss per share 156,897 1,176 661 158,734
========== ========== ========= =========
</TABLE>
See notes to pro forma combined condensed consolidated financial statements.
<PAGE> 44
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ALEXA EXCHANGE.COM
PROFORMA PROFORMA PROFORMA
AMAZON.COM ALEXA EXCHANGE.COM ADJUSTMENTS ADJUSTMENTS BALANCE
----------- --------- ------------ ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 609,996 $ 372 $ -- $ $ -- $610,368
Cost of sales 476,155 5 -- -- 476,160
--------- --------- ----- --------- --------- ---------
Gross profit 133,841 367 -- -- 134,208
Operating expenses:
Marketing and sales 133,023 2,216 57 -- 135,296
Product development 46,807 1,693 130 -- 48,630
General and administrative 15,799 1,024 241 -- 17,064
Merger and acquisition related costs,
including amortization
of goodwill and other
purchased intangibles 50,172 82,743 c 43,327 f
7,244 g
1,000 g 184,486
--------- --------- ----- --------- --------- ---------
Total operating expenses 245,801 4,933 428 82,743 51,571 385,476
Loss from operations (111,960) (4,566) (428) (82,743) (51,571) (251,268)
Interest income 14,053 111 14,164
Interest expense (26,639) (2) (26,641)
--------- --------- ----- --------- --------- ---------
Net interest expense (12,586) 109 -- -- -- (12,477)
Net loss $(124,546) (4,457) $(428) (82,743) $ (51,571) $(263,745)
========= ========= ===== ========= ========= =========
Basic and diluted loss per share $ (0.84) $ (1.76)
========= =========
Shares used in computation of basic
and diluted loss per share 148,172 1,176 661 150,009
========= ========= ========= =========
</TABLE>
See notes to pro forma combined condensed consolidated financial statements.
<PAGE> 45
NOTES TO PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The pro forma combined condensed consolidated financial statements reflect the
issuance of Amazon.com common stock, par value $.01 per share ("Amazon.com
Common Stock") and the issuance of Amazon.com replacement options for all
outstanding shares of Alexa and Exchange.com. The Alexa Merger and Exchange.com
Merger will be accounted for under the purchase method of accounting in
accordance with APB Opinion No. 16.
Subject to the satisfaction of all conditions precedent, the purchase price for
Alexa is approximately $250 million and will be comprised of an estimated 1.176
million shares of Amazon.com Common Stock and replacement options, including
approximately $1 million of acquisition costs. The ultimate number of shares of
Amazon.com Common Stock to be issued at closing will vary from this estimate
based upon the fair value of Amazon.com Common Stock as defined in the Alexa
Merger Agreement upon consummation of this transaction.
Substantially all of the approximate $250 million purchase price will be
allocated to goodwill and other purchased intangibles. Preliminary estimates of
the fair value of assets and liabilities of Alexa have been combined with the
recorded values of the assets and liabilities of Amazon.com in the unaudited pro
forma combined condensed consolidated financial statements.
Subject to the satisfaction of all conditions precedent, the purchase price for
Exchange.com is approximately $150 million and is comprised of an estimated 661
thousand shares of Amazon.com Common Stock and replacement options, including
approximately $1.25 million of acquisition costs. The ultimate number of shares
of Amazon.com Common Stock to be issued at closing will vary from this estimate
based upon the fair value of Amazon.com Common Stock as defined in the
Exchange.com Merger Agreement upon consummation of this transaction.
Substantially all of the approximate $150 million purchase price will be
allocated to goodwill and other purchased intangibles. Preliminary estimates of
the fair value of assets and liabilities of Exchange.com have been combined with
the recorded values of the assets and liabilities of Amazon.com in the unaudited
pro forma combined condensed consolidated financial statements.
On January 11, 1999, Exchange.com acquired all of the outstanding stock of
BiblioFind, Inc. in an acquisition accounted for under the a purchase method of
accounting in accordance with APB No. 16. Exchange.com paid $4 million in cash
and issued $2 million of promissory notes payable to the shareholders of
BiblioFind. Exchange.com recorded approximately $6 million of goodwill and
intended to amortize the goodwill over approximately five years. In March 1999,
Exchange.com repaid in full the promissory notes payable issued in connection
with the acquisition. The Exchange.com portion of the Pro forma Combined
Condensed Consolidated Statement of Operations for the year ended December 31,
1998 does not reflect the results of operations of BiblioFind as if it had been
acquired by Exchange.com on January 1, 1998, as required under APB No. 16. Had
BiblioFind's results of operations been included with Exchange.com's results of
operations, Exchange.com's pro forma combined revenues and combined net loss
would have been $507,000 and $(1,463,000), respectively, for the year ended
December 31, 1998. Pro forma combined revenues and combine net loss would not
have been materially different than reported results for the period ended March
31, 1999.
PRO FORMA ADJUSTMENTS FOR ALEXA
(a) To reflect the issuance of Amazon Common Stock and the
assumption of all outstanding options, having an aggregate value
of approximately $250 million, including approximately $1
million of transaction costs, to consummate the Alexa Merger
Agreement.
(b) To eliminate the historical stockholders' equity of Alexa.
(c) To record the excess of the purchase price over the estimated
fair value of assets and liabilities acquired in connection with
the Alexa Merger Agreement and the related amortization. The
purchase price allocation is based on management's preliminary
estimates of the fair values of the tangible assets and
intangible assets. The book value of tangible assets acquired
and liabilities are assumed to approximate fair value. The
estimated useful life of the goodwill and other purchased
intangible assets averages approximately 3 years.
PRO FORMA ADJUSTMENTS FOR EXCHANGE.COM
(d) To reflect the issuance of Amazon Common Stock, assumption of
all outstanding options and payment of approximately $1 million
of cash having an aggregate value of approximately $150 million,
including approximately $1 million of transaction costs, to
consummate the Exchange.com Merger Agreement.
(e) To eliminate the historical redeemable preferred stock and
stockholders' equity of Exchange.com.
(f) To record the excess of the purchase price over the estimated
fair value of assets and liabilities acquired in connection with
the Exchange.com Merger Agreement and the related amortization.
The purchase price allocation is based on management's
preliminary estimates of the fair values of the net tangible
assets and intangible assets and will be adjusted based on an
independent assessment of fair value. The book value of tangible
assets acquired and liabilities are assumed to approximate fair
value. The estimated useful life of the goodwill and other
purchased intangible assets averages approximately 3 years.
<PAGE> 46
(g) To record deferred compensation associated with the acquisition.
(h) To eliminate amortization of goodwill associated with
Exchange.com's acquisition of BiblioFind, Inc.
CONTINGENT CONSIDERATION
In addition to the approximate $150 million purchase price for all of
the outstanding capital stock and assumption of all outstanding options of
Exchange.com, approximately $47 million of Amazon.com Common Stock and
approximately $3 million cash may be paid to stockholders and certain option
holders of Exchange.com subject to the continued employment of certain employees
of Exchange.com at Amazon.com for a period of one year after closing. This
contingent consideration has not been reflected in the pro forma combined
condensed consolidated financial statements.
PRO FORMA LOSS PER COMMON SHARE
Basic pro forma earnings per share is computed using the weighted average
number of Amazon.com common shares outstanding during the period plus shares of
Amazon.com Common Stock issued in connection with the Alexa Merger and the
Exchange.com Merger, excluding Amazon.com Common Stock subject to repurchase.
Diluted pro forma earnings per share is computed using the weighted average
number of common and common equivalent shares outstanding during the period plus
shares of Amazon.com Common Stock and common equivalent shares assumed as part
of the acquisition. Common equivalent shares consist of the incremental common
shares issuable upon the exercise of stock options and warrants (using the
treasury stock method). Common equivalent shares are excluded from the
computation if their effect is antidilutive. Shares, options and warrants issued
in connection with the Exchange.com Merger Agreement are assumed outstanding at
the beginning of the period.
CONFORMING AND RECLASSIFICATION ADJUSTMENTS
There were no material adjustments required to conform the accounting
policies of Amazon.com, Alexa and Exchange.com. Certain amounts for Exchange.com
have been reclassified to conform to Amazon.com's financial statement
presentation. There have been no significant intercompany transactions.
<PAGE> 47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMAZON.COM, INC.
(Registrant)
Dated: May 12, 1999 By: /s/JOY D. COVEY
----------------------------------
Joy D. Covey
Chief Financial Officer and Vice
President of Finance and
Administration
<PAGE> 48
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Nos. 333-94435 and 333-65091), the Registration
Statement on Form S-4 (No. 333-55943) and the Registration Statements on Form
S-8 (Nos. 333-74419, 333-63311 and 333-28763) of Amazon.com, Inc. of our report
dated April 23, 1999 relating to the financial statements of Alexa Internet
which appears in the Current Report on Form 8-K of Amazon.com, Inc. dated
May 11, 1999.
PricewaterhouseCoopers LLP
San Francisco, California
May 11, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Nos. 333-94435 and 333-65091), the Registration
Statement on Form S-4 (No. 333-55943) and the Registration Statements on Form
S-8 (Nos. 333-74419, 333-63311 and 333-28763) of Amazon.com, Inc. of our report
dated May 3, 1999 relating to the financial statements of e-Niche Incorporated,
which appears in the Current Report on Form 8-K of Amazon.com, Inc. dated
May 11, 1999.
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 11, 1999
