<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
JULY 31, 1998
Date of Report (Date of earliest event reported)
FINE.COM INTERNATIONAL CORP.
Exact name of registrant as specified in its charter
<TABLE>
<S> <C> <C>
STATE OF WASHINGTON 0-22805 91-1657402
State or Other Jurisdiction Commission File Number IRS Employer Identification
of Incorporation Number
</TABLE>
1525 FOURTH AVENUE, SUITE 800
SEATTLE, WASHINGTON 98101-1648
Address of Principal Executive Offices
206-292-2888
Telephone Number
The registrant hereby amends Item 7 of its current report on Form 8-K dated July
31, 1998 (filed August 13, 1998) in its entirety to read as follows:
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
(i) Report of Ernst & Young LLP, Independent Auditors
(ii) Meta4 Digital Design, Inc. Balance Sheets as of December 31, 1996 and
1997, and June 30, 1998 (unaudited)
(iii) Meta4 Digital Design, Inc. Statements of Operations for the years
ended December 31, 1996 and 1997, and the six months ended June 30,
1997 and 1998 (unaudited)
(iv) Meta4 Digital Design, Inc. Statements of Shareholders' Deficiency for
the years ended December 31, 1996 and 1997, and the six months ended
June 30, 1998 (unaudited)
(v) Meta4 Digital Design, Inc. Statements of Cash Flows for the years
ended December 31, 1996 and 1997, and the six months ended June 30,
1997 and 1998 (unaudited)
(vi) Meta4 Digital Design, Inc. Notes to Financial Statements for the year
ended December 31, 1997, and the six months ended June 30, 1998
(unaudited)
(b) PRO FORMA FINANCIAL INFORMATION
(i) Unaudited Pro Forma Condensed Combined Balance Sheets reflecting
fine.com International Corp. as of July 31, 1998
(ii) Unaudited Pro Forma Condensed Combined Statement of Operations
reflecting fine.com International Corp. for the fiscal year ended
January 31, 1997 after giving effect to the Business Combination
(iii) Unaudited Pro Forma Condensed Combined Statement of Operations
reflecting fine.com International Corp. for the fiscal year ended
January 31, 1998 after giving effect to the Business Combination
(iv) Unaudited Pro Forma Condensed Combined Statement of Operations
reflecting fine.com International Corp. for the six months ended July
31, 1998 after giving effect to the Business Combination
(v) Notes to Unaudited Pro Forma Condensed Combined Financial Statements
(c) EXHIBITS
<TABLE>
<CAPTION>
Number Description
<S> <C>
+ 99.1 Press release dated July 30, 1998: "fine.com International Corp. to
Acquire Meta4 Digital Designs Inc."
+ 99.2 Agreement and Plan of Merger (exclusive of schedules and exhibits)
dated as of July 29, 1998 with Meta4 Digital Design, Inc.
</TABLE>
- ----------
+ Filed as an exhibit to Form 8-K dated July 31, 1998 (filed August 13, 1998)
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders
Meta4 Digital Design, Inc.
We have audited the accompanying balance sheets of Meta4 Digital Design, Inc. as
of December 31, 1996 and 1997, and the related statements of operations,
shareholders' deficiency, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Meta4 Digital Design, Inc. at
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Seattle, Washington
September 4, 1998
1
<PAGE>
Meta4 Digital Design, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997 1998
<S> <C> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash $ - $ 152,270 $ 20,001
Accounts receivable, less allowances 299,458 155,111 127,205
Work-in-process 17,820 12,336 8,181
Prepaid expenses and other 7,640 9,329 17,670
Note receivable from shareholder 1,569 - -
---------------------------------------
Total current assets 326,487 329,046 173,057
Equipment and furniture, net 189,287 241,839 265,598
---------------------------------------
Other long-term assets 18,023 42,837 43,837
Total assets $ 533,797 $ 613,722 $ 482,492
=======================================
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 320,101 $ 222,599 $ 227,579
Accrued expenses 3,736 18,604 98,152
Deferred revenue 152,739 422,101 380,629
Note payable to bank 50,000 - -
Notes payable to shareholder, current 84,969 84,969 84,969
Capitalized lease obligations, current 55,536 67,302 73,056
---------------------------------------
Total current liabilities 667,081 815,575 864,385
Notes payable to shareholder, long-term - 100,000 100,000
Capitalized lease obligations, long-term 88,050 70,436 83,920
Commitments
Shareholders' deficiency:
Common stock, no par value:
Authorized shares 1,000
Issued and outstanding shares 100 at
December 31, 10,000 10,000 10,000
1996 and 1997 and June 30, 1998
Additional paid-in capital - 15,000 15,000
Accumulated deficit (231,334) (397,289) (590,813)
---------------------------------------
Total shareholders' deficiency (221,334) (372,289) (565,813)
---------------------------------------
Total liabilities and shareholders' $ 533,797 $ 613,722 $ 482,492
deficiency =======================================
</TABLE>
See accompanying notes.
2
<PAGE>
Meta4 Digital Design, Inc.
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1996 1997 1997 1998
-------------------------------------------------------
<S> <C> <C> <C> <C>
(Unaudited)
Gross revenue $2,376,704 $2,575,318 $1,153,222 $ 802,939
Direct salaries and costs 1,512,853 1,609,364 715,669 485,966
-------------------------------------------------------
Gross profit 863,851 965,954 437,553 316,973
Selling, general, and
administrative expenses 941,884 1,068,108 573,170 482,587
-------------------------------------------------------
Operating loss (78,033) (102,154) (135,617) (165,614)
Interest expense 25,153 63,801 41,807 27,910
-------------------------------------------------------
Net loss $ (103,186) $ (165,955) $ (177,424) $(193,524)
=======================================================
</TABLE>
See accompanying notes.
3
<PAGE>
Meta4 Digital Design, Inc.
Statements of Shareholders' Deficiency
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 100 $10,000 $ $(128,148) $(118,148)
1995
Net loss (103,186) (103,186)
------------------------------------------------------------------
Balance at December 31, 100 10,000 (231,334) (221,334)
1996
Contribution of
capital in
lieu of interest 15,000 15,000
related to
loans from
shareholder
Net loss (165,955) (165,955)
Balance at December 31, 100 10,000 15,000 (397,289) (372,289)
1997
Net loss (unaudited) (193,524) (193,524)
Balance at June 30,
1998 (unaudited) 100 $10,000 $15,000 $(590,813) $(565,813)
=================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
Meta4 Digital Design, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1996 1997 1997 1998
-------------------------------------------------------------
<S> <C> <C> <C> <C>
(Unaudited)
OPERATING ACTIVITIES
Net loss $(103,186) $(165,955) $(177,424) $(193,524)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 67,679 93,046 42,392 44,971
Interest expense related to loans from shareholder - 15,000 15,000 -
Net changes in operating assets and liabilities:
Accounts receivable (185,705) 144,347 (138,527) 27,906
Work-in-process 517 5,484 4,113 4,155
Prepaid expenses and other assets (7,640) (1,689) (565) (8,341)
Other long-term assets 18,316 (23,245) (19,804) (1,000)
Accounts payable 219,393 (97,502) 73,223 4,980
Accrued expenses (29,155) 14,868 26,634 79,549
Deferred revenue (14,911) 269,362 185,186 (41,472)
-------------------------------------------------------------
Net cash provided by (used in) operating activities (34,692) 253,716 10,228 (82,776)
INVESTING ACTIVITY purchases of equipment and (72,355) (86,394) (77,112) (13,013)
furniture
FINANCING ACTIVITIES
Decrease in note payable to bank - (50,000) - -
Proceeds from sales-leaseback agreement 95,613 - - -
Principle payments on capital lease obligations (41,061) (65,052) (22,511) (36,480)
Increase in notes payable to shareholder 50,222 100,000 100,000 -
-------------------------------------------------------------
Net cash provided by (used in) financing activities 104,774 (15,052) 77,489 (36,480)
-------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (2,273) 152,270 10,605 (132,269)
Cash at beginning of period 2,273 - - 152,270
-----------------------------------------------------------
Cash at end of period $ - $ 152,270 $ 10,605 $ 20,001
===========================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 22,762 $ 38,336 $ 11,892 $ 11,735
===========================================================
Equipment acquired through capitalized lease $135,417 $ 59,204 $ 0 $ 55,719
obligations ===========================================================
</TABLE>
See accompanying notes.
5
<PAGE>
Meta4 Digital Design, Inc.
Notes to Financial Statements
December 31, 1997
(Information as of June 30, 2998 and for the
six months ended June 30, 1997 and 1998 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Meta4 Digital Design, Inc. (the Company) was incorporated in the state of
Delaware on March 30, 1995. The Company plans, develops, maintains, and hosts
World Wide Web (Web) sites for major national and international corporate
clients and others, utilizing marketing expertise and state-of-the-art
interactive database compilation and dissemination techniques and technologies.
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information as of June 30, 1998 and for the six months ended June
30, 1997 and 1998 is unaudited, but includes all adjustments that the Company
considers necessary for a fair presentation of the financial position at such
dates and the operations and cash flows for the periods then ended. Operating
results for the six months ended June 30, 1998 are not necessarily indicative of
results that may be expected for the entire year.
REVENUE RECOGNITION
The Company accounts for contracts under the percentage-of-completion method.
Estimated contract earnings are reviewed periodically as work progresses. If
such estimates indicate a loss would be incurred on the contract, the estimated
amount of such loss would be recognized in the period the estimated loss was
determined. All other revenue is recorded on the basis of time and material for
the performance of services.
EQUIPMENT AND FURNITURE
Equipment and furniture are recorded at cost or, in the case of leased assets
under capital leases, at the lower of present value of the future lease payments
or fair market value. Deprecation and amortization are computed using the
straight-line method over the estimated useful lives of equipment, generally
three to seven years. Amortization of assets recorded under capital leases is
included with depreciation expense. Repairs and maintenance that do not improve
or extend the lives of the respective assets are expensed in the period
incurred.
6
<PAGE>
Meta4 Digital Design, Inc.
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES
The Company has elected to be taxed as an S corporation under the provisions of
the Internal Revenue Code. Under those provisions, the Company does not pay
federal corporate income taxes on its income. Instead, the shareholders are
liable for individual federal income taxes on the Company's taxable income.
ADVERTISING
Advertising costs are expensed as incurred. Advertising expense was $40,752 and
$13,087 in the fiscal years ended December 31, 1996 and 1997, respectively, and
$13,041 and $5,278 for the six months ended June 30, 1997 and 1998,
respectively.
RISKS AND UNCERTAINTIES
Financial instruments that potentially subject the Company to a concentration of
credit risk consist principally of accounts receivable. The Company's customer
base is concentrated in a few large customers. The Company does not require
collateral or other security to support credit sales, but provides an allowance
for bad debts based on historical experience and specific identification. The
following is a detail of customers that accounted for greater than 10% of gross
revenue in the respective years:
YEAR ENDED DECEMBER 31,
1996 1997
----------------------
GE Corporate 90% 60%
Fuji USA - 20%
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.
7
<PAGE>
Meta4 Digital Design, Inc.
Notes to Financial Statements (continued)
2. ACCOUNTS RECEIVABLE
Accounts receivable are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997 1998
-----------------------------------------
<S> <C> <C> <C>
Receivables assigned to factor $ $ 452,785 $
Less advances from factor (398,491)
Due from factor 54,294
Unfactored accounts receivable 362,840 119,911 129,503
Allowance for bad debts (63,382) (19,094) (2,298)
$299,458 $ 155,111 $127,205
=========================================
</TABLE>
Pursuant to a factoring agreement, the Company sells certain receivables, with
full recourse, to an unrelated third party. The factoring charge amounts to 3%
of the receivables assigned. The Company's obligations to the purchaser are
collateralized by substantially all of the assets of the Company. As of April
30, 1998, all amounts under the factoring agreement had been collected and the
agreement was terminated.
3. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Activity in the allowance for doubtful accounts is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997 1998
-----------------------------------------
<S> <C> <C> <C>
Beginning balance $ 28,625 $ 63,382 $ 63,382
Additions charged to expense 63,382 19,094 2,298
Write-offs, net (28,625) (63,382) (63,382)
-----------------------------------------
Ending balance $ 63,382 $ 19,094 $ 2,298
=========================================
</TABLE>
8
<PAGE>
Meta4 Digital Design, Inc.
Notes to Financial Statements (continued)
4. EQUIPMENT AND FURNITURE
Equipment and furniture consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997 1998
<S> <C> <C> <C>
Computer equipment $ 257,830 $ 373,370 $ 441,302
Office furniture and equipment 37,827 59,862 60,661
295,657 433,232 501,963
Accumulated depreciation and (106,370) (191,393) (236,365)
amortization
$ 189,287 $ 241,839 $ 265,598
============================================
</TABLE>
5. NOTE PAYABLE TO BANK
At December 31, 1996, the Company had a $50,000 note payable bearing interest at
prime plus 1.5% (9.75% at December 31, 1996). The note was secured by
substantially all of the assets of the Company and a personal guarantee of one
shareholder, and was paid in full in October 1997.
6. NOTES PAYABLE TO SHAREHOLDER
The Company has various promissory notes payable to one shareholder totaling
$84,969 and $184,969 as of December 31, 1996 and 1997, respectively. The notes
bear interest at 8.5% 12.5%, and $84,969 of the notes are secured by
substantially all of the assets of the Company. As of December 31, 1997, four
notes totaling $84,969 were in default and are payable on demand; the remaining
$100,000 note matures on January 1, 1999. The Company recorded interest expense
related to these notes of $2,847 and $21,464 for the fiscal years ended December
31, 1996 and 1997, respectively, and $14,489 and $11,220 for the six months
ended June 30, 1997 and 1998, respectively. The principal and accrued interest
on these promissory notes were converted into fine.com International Corp.
(fine.com) common stock on July 31, 1998 (see Note 11).
9
<PAGE>
Meta4 Digital Design, Inc.
Notes to Financial Statements (continued)
7. LEASE COMMITMENTS
The Company leases certain computer and office equipment under capital and
operating leases, which expire at various dates through September 2002. The
Company also leases office space under an operating lease with an initial term
of five years, expiring in March 2002, which has an option to renew for an
additional five years. During the initial five-year lease period, lease
payments escalate at a rate of $3,550 per year. Rental expense for operating
leases was $152,779 and $181,230 for the fiscal years ended December 31, 1996
and 1997, respectively, and $85,213 and $109,840 for the six months ended June
30, 1997 and 1998, respectively.
In March 1996, the Company entered into a sales and leaseback agreement for
certain of its equipment and furniture for approximately $95,613. No gain or
loss was recognized on this transaction. For accounting purposes, the Company
has treated this transaction as a capital lease. Payments are due in
installments through the year 1999. Depreciation on the properties has been
reflected in accordance with the Company's normal accounting practices.
Future minimum lease payments by year and in the aggregate under all
noncancelable operating and capital leases with terms in excess of one year at
December 31, 1997 are as follows:
OPERATING CAPITAL
YEARS ENDING LEASES LEASES
- ------------------------------------------------------------------
1998 $206,524 $ 86,748
1999 172,378 59,387
2000 163,310 13,344
2001 143,113 6,830
2002 35,500 5,123
-------------------------
$720,825 171,432
===========
Less amount representing interest (33,694)
--------
Present value of net minimum lease payments $137,738
========
The present value of net minimum lease payments is calculated based on interest
rates that were determined to be applicable at the inception of the leases.
10
<PAGE>
Meta4 Digital Design, Inc.
Notes to Financial Statements (continued)
7. LEASE COMMITMENTS (CONTINUED)
The capital leases are for computer and office equipment, which are included in
property and equipment as follows:
DECEMBER 31, JUNE 30,
1996 1997 1998
--------------------------------------
Computer equipment $159,499 $ 218,703 $ 274,422
Office furniture and equipment 33,464 33,464 33,464
--------------------------------------
192,963 252,167 307,886
Less accumulated amortization (51,506) (107,568) (135,178)
$141,457 $ 144,599 $ 172,708
======================================
8. SHAREHOLDERS' DEFICIENCY
On January 23, 1997, the Company had a sole shareholder who sold one-third of
his ownership in the Company to another individual in exchange for continued
financial support of the Company through below-market interest rates on loans.
The Company has accounted for this incremental interest of $15,000 as a
contribution of capital and related interest expense.
9. EMPLOYEE BENEFIT PLAN
The Company provides a defined contribution 401(k) plan covering employees
meeting certain eligibility requirements (generally, 21 years of age and six
months of service). Participants of the plan may contribute from 1% to 15% of
their annual compensation. Company contributions are discretionary. Employee
contributions and earnings on such contributions vest immediately. Employer
contributions and earnings on such contributions vest proportionate to the
employee's years of service, with 100% vesting occurring at three years of
service. There were no employer contributions during 1996 or 1997.
11
<PAGE>
Meta4 Digital Design, Inc.
Notes to Financial Statements (continued)
10. CONTINGENCIES
The Company is a defendant in a lawsuit in the Superior Court of New Jersey (Law
Division) Essex County titled Sheryl A. Goldstein vs. Meta4 Digital Design, Inc.
The plaintiff alleges nonpayment of sales commissions claimed to be due to her
under her employment agreement. Damages are currently claimed against Meta4 in
the amount of $123,375 plus unspecified compensatory damages and attorney fees.
Although the ultimate outcome of this case cannot be determined at this time,
the Company does not believe the case has merit and no provision for loss has
been recorded.
11. SUBSEQUENT EVENT BUSINESS COMBINATION WITH FINE.COM INTERNATIONAL CORP.
On July 29, 1998, the Company and fine.com International Corp. (fine.com)
entered into a definitive merger agreement, pursuant to which the Company became
a wholly owned subsidiary of fine.com as of July 31, 1998. According to the
agreement, the Company's shareholders received 2,167.49 shares of fine.com
common stock for each share of the Company's common stock (a total of 216,749
shares were issued) valued at $1,100,000. Additionally, at the effective date
of the merger, the then-outstanding notes payable to shareholder of $187,300
were converted into 36,906 shares of fine.com common stock. The transaction was
a tax-free reorganization and was accounted for as a pooling of interests.
Additionally, by the terms of the merger agreement, the selling shareholders
have agreed to indemnify the Company for up to $75,000 in the event that the
lawsuit referenced in note 10 above is settled unfavorably.
12. YEAR 2000 (UNAUDITED)
The Company's services and products are designed to be Year 2000 compliant and
do not contain any date- or time-dependent code strings, fields, variables, or
other mechanisms that inhibit their use or reliability following the turn of the
century. In addition, the Company believes that its internal systems are Year
2000 compliant. However, there can be no guarantee that the systems of other
companies on which the Company relies or does business with are Year 2000
compliant and would not have an adverse effect on the Company's business.
12
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
REFLECTING FINE.COM INTERNATIONAL CORP.
AFTER GIVING EFFECT TO THE BUSINESS COMBINATION
AS OF JULY 31, 1998
<TABLE>
<CAPTION>
Pro Forma Pro Forma
fine.com Meta4 Adjustments Combined
---------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 598,294 $ 12,683 $ 610,977
Marketable securities 365,195 0 365,195
Accounts receivable, net 1,265,595 245,239 1,510,834
Work-in-progress 293,929 6,796 300,725
Other 321,427 15,225 336,652
---------------------------------------------------------------
Total current assets 2,844,440 279,943 3,124,383
Marketable securities 1,825,236 0 1,825,236
Equipment & furniture, net 1,180,777 277,264 1,458,041
Other 107,761 43,837 151,598
Total assets $ 5,958,214 $ 601,044 $ 0 $ 6,559,258
===============================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 462,508 $ 241,277 $ 703,785
Accrued expenses 48,972 84,370 $ (29,600) 103,742
Deferred revenue 81,645 479,798 561,443
Other 1,293 239,277 (84,969) 155,601
---------------------------------------------------------------
Total current liabilities 594,418 1,044,722 (114,569) 1,524,571
Long term obligations 0 196,321 (100,000) 96,321
Shareholders' equity:
Common stock 6,686,440 10,000 184,969 6,881,409
Accumulated deficit (1,240,335) (649,999) 29,600 (1,860,734)
Other comprehensive loss (82,309) 0 (82,309)
---------------------------------------------------------------
Total shareholders' equity 5,363,796 (639,999) 214,569 4,938,366
Total liabilities and
shareholders' equity $ 5,958,214 $ 601,044 $ 0 $ 6,559,258
===============================================================
</TABLE>
See accompanying notes.
<PAGE>
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
REFLECTING FINE.COM INTERNATIONAL CORP.
AFTER GIVING EFFECT TO THE BUSINESS COMBINATION
FISCAL YEAR ENDED JANUARY 31, 1997
<TABLE>
<CAPTION>
fine.com Meta4
Year Ended Year Ended
January 31, December 31, Pro Forma Pro Forma
1997 1996 Adjustments Combined
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross revenue $1,485,869 $2,376,704 $3,862,573
Direct salaries and costs 774,242 1,512,853 2,287,095
-------------------------------------------------------------
Gross profit 711,627 863,851 1,575,478
Selling, general and
administrative expenses 514,059 941,884 $ (664) 1,455,279
-------------------------------------------------------------
Operating income (loss) 197,568 (78,033) 664 120,199
Interest income 0 0 0
Interest expense (8,840) (25,153) 2,847 (31,146)
-------------------------------------------------------------
Income (loss) before
income taxes 188,728 (103,186) 3,511 89,053
Provision for income taxes 64,454 0 64,454
Net income (loss) $ 124,274 $ (103,186) $3,511 $ 24,599
=============================================================
Diluted net income (loss)
per share $0.12 $(1,031.86) $0.02
Shares used in computation
of diluted net income
(loss) per share: 1,072,788 100 1,306,739
</TABLE>
See accompanying notes.
<PAGE>
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
REFLECTING FINE.COM INTERNATIONAL CORP.
AFTER GIVING EFFECT TO THE BUSINESS COMBINATION
FISCAL YEAR ENDED JANUARY 31, 1998
<TABLE>
<CAPTION>
fine.com Meta4
Year Ended Year Ended
January 31, December 31, Pro Forma Pro Forma
1998 1997 Adjustments Combined
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross revenue $3,448,084 $2,575,318 $6,023,402
Direct salaries and costs 2,292,206 1,609,364 3,901,570
--------------------------------------------------------------
Gross profit 1,155,878 965,954 2,121,832
Selling, general and
administrative expenses 1,168,776 1,068,108 $ 6,596 2,243,480
--------------------------------------------------------------
Operating loss (12,898) (102,154) (6,596) (121,648)
Interest income 176,535 0 176,535
Interest expense (36,388) (63,801) 36,464 (63,725)
--------------------------------------------------------------
Income (loss) before
income taxes 127,249 (165,955) 29,868 (8,838)
Provision for income taxes 46,567 0 46,567
Net income (loss) $ 80,682 $ (165,955) $29,868 $ (55,405)
=============================================================
Diluted net income (loss)
per share $0.05 $(1,659.55) $(0.03)
Shares used in computation
of diluted net income
(loss) per share: 1,763,975 100 2,017,630
</TABLE>
See accompanying notes.
<PAGE>
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
REFLECTING FINE.COM INTERNATIONAL CORP.
AFTER GIVING EFFECT TO THE BUSINESS COMBINATION
SIX MONTHS ENDED JULY 31, 1998
<TABLE>
<CAPTION>
fine.com Meta4
6 Months Ended 6 Months Ended Pro Forma Pro Forma
July 31, 1998 June 30, 1998 Adjustments Combined
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross revenue $ 1,925,470 $ 802,939 $ 2,728,409
Direct salaries and costs 1,511,433 485,966 1,997,399
------------------------------------------------------------------
Gross profit 414,037 316,973 731,010
Selling, general and
administrative expenses 2,139,352 482,587 2,621,939
------------------------------------------------------------------
Operating loss (1,725,315) (165,614) (1,890,929)
Interest income 146,669 0 146,669
Interest expense (2,007) (27,910) $11,221 (18,696)
------------------------------------------------------------------
Income (loss) before
income taxes (1,580,653) (193,524) 11,221 (1,762,956)
Benefit for income taxes (120,000) 0 (120,000)
Net income (loss) $(1,460,653) $ (193,524) $11,221 $(1,642,956)
==================================================================
Diluted net income (loss)
per share $(0.61) $(1,935.24) $(0.62)
Shares used in computation
of diluted net income
(loss) per share: 2,413,557 100 2,667,212
</TABLE>
See accompanying notes.
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. PERIODS COMBINED
The unaudited pro forma condensed combined statement of operations is based
upon the respective historical financial statements of fine.com
International Corp. ("fine.com") and Meta4 Digital Design, Inc. ("Meta4")
and should be read in conjunction with such historical financial statements
and the notes thereto. The historical financial statements of fine.com for
the fiscal years ended January 31, 1997 and 1998 and the six months in the
period ended July 31, 1998, have been combined with the historical financial
statements of Meta4 for its fiscal year ended December 31, 1996 and 1997 and
the six months in the period ended June 30, 1998.
2. BASIS OF PRESENTATION
The unaudited pro forma combined condensed financial statements reflect the
issuance of 253,655 shares of fine.com common stock, which were exchanged
for all of the outstanding shares and promissory notes payable to
shareholder of Meta4 on July 31, 1998. The transaction has been accounted
for on a "pooling of interests" basis.
3. PRO FORMA INCOME (LOSS) PER SHARE
The pro forma combined diluted income (loss) per share is based on the
combined weighted average number of common shares of fine.com and Meta4
outstanding during the periods using the exchange ratio. All stock options
have been excluded from the computation of pro forma combined diluted net
loss per share because all such securities are anti-dilutive for the period
presented.
4. CONFORMING AND PRO FORMA ADJUSTMENTS
There were no transactions between fine.com International Corp. and Meta4
Digital Design, Inc. during any period prior to the merger. Pro forma
adjustments have been made to the historical statements of operations to
reflect the reversal of certain fees earned and interest expense incurred by
Meta4 related to transactions with one of its shareholders. In addition, the
impact of conforming accounting policies is not material.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: October 9, 1998
FINE.COM INTERNATIONAL CORP.
By: /s/ James P. Chamberlin
----------------------------------------
James P. Chamberlin
Chief Financial Officer
