==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
FORM 8-K/A
AMENDMENT TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------------------------------
FEBRUARY 1, 1999
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
THEGLOBE.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-25053 14-1781422
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification
incorporation or Number)
organization)
120 BROADWAY
NEW YORK, NEW YORK 10271
(Address of principal executive offices)
(212) 894-3600
(Registrant's telephone number, including area code)
==============================================================================
<PAGE>
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of the Current Report on Form 8-K,
originally filed by the registrant with the Securities and Exchange
Commission on February 15, 1999, and amended by the Current Report on Form
8-K/A, filed by the registrant with the Securities and Exchange Commission
on April 1, 1999, as set forth in the pages attached hereto:
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired and theglobe.com, inc. Pro
Forma Condensed Consolidated Financial Information
TABLE OF CONTENTS
PAGE
----
factorymall.com, inc. Financial Statements
Independent Auditors' Report F-1
Balance Sheets at December 31, 1998 and 1997 F-2
Statements of Operations for the years ended
December 31, 1998 and 1997 and the period
from April 25, 1996 (inception) to December 31, 1996 F-3
Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1998 and
1997 and the period from April 25, 1996
(inception) to December 31, 1996 F-4
Statements of Cash Flows for the years ended
December 31, 1998 and 1997 and the period from
April 25, 1996 (inception) to December 31, 1996 F-5
Notes to Financial Statements F-6
theglobe.com, inc. Pro Forma Condensed Consolidated
Financial Information F-12
Unaudited Pro Forma Condensed Consolidated Balance
Sheet at December 31, 1998 F-14
Unaudited Pro Forma Condensed Consolidated Statement
of Operations for the year ended December 31, 1998 F-15
Notes to the Unaudited Pro Forma Condensed Consolidated
Financial Information F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
factorymall.com, inc.:
We have audited the accompanying balance sheets of factorymall.com, inc. as
of December 31, 1998 and 1997, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the years ended December
31, 1998 and 1997 and the period from April 25, 1996 (inception) to
December 31, 1996. 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 audits 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 factorymall.com, inc.
as of December 31, 1998 and 1997, and the results of its operations and its
cash flows for the years ended December 31, 1998 and 1997 and the period
from April 25, 1996 (inception) to December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Seattle, Washington
March 5, 1999
<PAGE>
<TABLE>
<CAPTION>
FACTORYMALL.COM, INC.
(dba azazz!)
Balance Sheets
December 31, 1998 and 1997
ASSETS 1998 1997
------------- -------------
<S> <C> <C>
Current assets:
Cash $ 258,438 $ 42,286
Inventory 34,113 6,608
Prepaid expenses and other current assets 6,913 38,136
------------- -----------
Total current assets 299,464 87,030
Computer equipment, furniture and office equipment, net 270,365 43,634
------------- -----------
Total assets $ 569,829 $ 130,664
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 299,210 $ 46,219
Accrued expenses 128,938 9,858
Current portion of capital lease obligations 22,258 17,917
Current portion of notes payable to related parties 64,767 --
------------- -----------
Total current liabilities 515,173 73,994
Capital lease obligations, net of current portion 16,502 20,533
Notes payable to related parties, net of current portion 103,271 --
------------- -----------
Total liabilities 634,946 94,527
------------- -----------
Stockholders' equity (deficit):
Preferred stock, no par value. Authorized
5,000,000 shares; no shares issued and
outstanding -- --
Common stock, no par value. Authorized 25,000,000
shares; issued and outstanding 11,315,671
shares in 1998 and 9,950,000 shares in 1997 1,494,551 546,000
Additional paid-in capital 562,825 --
Deferred stock compensation (292,163) --
Accumulated deficit (1,830,330) (509,863)
------------- -----------
Total stockholders' equity (deficit) (65,117) 36,137
------------- -----------
Total liabilities and stockholders'
equity (deficit) $ 569,829 $ 130,664
============= ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FACTORYMALL.COM, INC.
(dba azazz!)
Statements of Operations
Years ended December 31, 1998 and 1997 and the period from
April 25, 1996 (inception) to December 31, 1996
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 473,563 $ 70,656 $ --
Cost of sales 349,563 53,314 --
------------- ------------- -------------
Gross profit 124,000 17,342 --
Sales and marketing expense 333,415 94,997 --
Research and development expense 223,957 82,852 8,500
General and administrative expense 673,530 211,062 131,462
------------- ------------- -------------
Loss from operations (1,106,902) (371,569) (139,962)
------------- ------------- -------------
Other income (expense):
Interest expense (213,573) -- --
Other income, net 8 1,668 --
------------- ------------- -------------
Total other income (expense) (213,565) 1,668 --
------------- ------------- -------------
Net loss $(1,320,467) $ (369,901) $ (139,962)
============= ============= =============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FACTORYMALL.COM, INC.
(dba azazz!)
Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1998 and 1997 and the period
from April 25, 1996 (inception) to December 31, 1996
Total
Common stock Additional Deferred stockholders'
------------------------- paid-in stock Accumulated equity
Shares Amount capital compensation deficit (deficit)
------------ ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at April 25, 1996
(inception) -- $ -- -- -- -- --
Issuance of common stock 9,000,000 100,000 -- -- -- 100,000
Net loss -- -- -- -- (139,962) (139,962)
------------ ----------- ----------- ------------ ----------- ------------
Balances at December 31, 1996 9,000,000 100,000 -- -- (139,962) (39,962)
Issuance of common stock 927,000 400,000 -- -- -- 400,000
Conversion of note payable 23,000 46,000 -- -- -- 46,000
Net loss -- -- -- -- (369,901) (369,901)
------------ ----------- ----------- ------------ ----------- ------------
Balances at December 31, 1997 9,950,000 546,000 -- -- (509,863) 36,137
Issuance of common stock 705,671 529,251 -- -- -- 529,251
Issuance of warrants in connection
with convertible debt -- -- 190,000 -- -- 190,000
Conversion of notes payable to
common stock 416,000 312,000 -- -- -- 312,000
Exercise of warrants 200,000 100,000 -- -- -- 100,000
Exercise of stock options 44,000 7,300 -- -- -- 7,300
Deferred stock compensation -- -- 372,825 (372,825) -- --
Amortization of deferred stock
compensation -- -- -- 80,662 -- 80,662
Net loss -- -- -- -- (1,320,467) (1,320,467)
------------ ----------- ----------- ------------ ----------- ------------
Balances at December 31, 1998 11,315,671 $ 1,494,551 562,825 (292,163) (1,830,330) (65,117)
============ =========== =========== ============ =========== ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FACTORYMALL.COM, INC.
(dba azazz!)
Statements of Cash Flows
Years ended December 31, 1998 and 1997 and the period
from April 25, 1996 (inception) to December 31, 1996
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,320,467) $ (369,901) $ (139,962)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 45,476 15,459 3,808
Stock compensation expense 80,662 -- --
Accrued interest expense converted
into common stock 190,000 -- --
Change in certain assets and liabilities:
Inventory (27,505) (4,628) (1,980)
Prepaid expenses and other current
assets 31,223 (28,799) (9,337)
Accounts payable 252,991 34,462 11,757
Accrued expenses 131,080 9,858 --
------------ ------------ -----------
Net cash used in operating
activities (616,540) (343,549) (135,714)
------------ ------------ -----------
Cash used in investing activities - purchase
of computer equipment, furniture and office
equipment (235,570) (2,627) (7,642)
------------ ------------ -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable 151,790 -- 46,000
Proceeds from issuance of convertible
notes payable 300,000 -- --
Repayment of capital lease obligations (20,079) (11,538) (2,644)
Proceeds from exercise of warrants 100,000 -- --
Proceeds from exercise of stock options 7,300 -- --
Proceeds from issuance of common stock 529,251 400,000 100,000
------------ ------------ -----------
Net cash provided by financing
activities 1,068,262 388,462 143,356
------------ ------------ -----------
Net increase in cash 216,152 42,286 --
Cash at beginning of period 42,286 -- --
------------ ------------ -----------
Cash at end of period $ 258,438 $ 42,286 $ --
============ ============ ===========
Supplemental schedule of cash flow
information - cash paid during the
period for interest $ 4,219 $ 3,108 $ 337
============ ============ ===========
Supplemental schedule of noncash investing
and financing activities:
Computer equipment acquired through
capital lease obligations $ 20,389 $ 17,606 $ 35,026
Notes payable and accrued interest
converted to common stock 312,000 46,000 --
============ ============ ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
FACTORYMALL.COM, INC.
(dba azazz!)
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
factorymall.com, inc. (Company) (d/b/a azazz!) is a retailer on
the Internet. The Company was incorporated in the State of
Washington on April 25, 1996. Through its Internet web site
(www.azazz.com), the Company allows customers to purchase various
consumer goods.
Inherent in the Company's business are various risks and
uncertainties, including its limited operating history and the
limited history of commerce on the Internet. Future revenues from
the Company's services are dependent on the continued growth and
acceptance of the Internet and use of the Internet for various
commercial transactions.
(b) 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, 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.
(c) INVENTORIES
Inventories consist of finished goods which are valued at the
lower of cost or market (net realizable value) on a first-in,
first-out basis.
(d) COMPUTER EQUIPMENT, FURNITURE AND OFFICE EQUIPMENT
Computer equipment, furniture and office equipment are stated at
cost. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets. Computer equipment
is depreciated over an estimated useful life of three years.
Furniture and office equipment is depreciated over an estimated
useful life of five years.
(e) REVENUE RECOGNITION
The Company recognizes revenue from product sales, net of any
discounts, when the products are shipped to customers. Outbound
shipping and handling charges are included in net sales. The
Company provides an allowance for sales returns, which has been
insignificant, based on historical experience.
(f) ADVERTISING COSTS
The cost of advertising is expensed as incurred. In 1998 and
1997, the Company incurred advertising expense of $93,066 and
$17,739, respectively, which is included in sales and marketing
expense. The Company incurred no advertising costs in 1996.
(g) INCOME TAXES
The Company is an S corporation for Federal income tax purposes.
Consequently, taxable income or loss of the Company is attributed
to the Company's stockholders and no provision for income taxes
has been reflected in the accompanying financial statements. Pro
forma income tax information has not been provided. Had the
Company been taxed as a C corporation, any income tax benefit as
a result of the losses incurred by the Company would have been
fully offset by the establishment of a valuation allowance for
deferred tax assets.
(h) STOCK-BASED COMPENSATION
The Company accounts for its stock option plans for employees in
accordance with the provisions of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations. As such, compensation expense
related to employee stock options is recorded only if, on the
date of grant, the fair value of the underlying stock exceeds the
exercise price. The Company follows the disclosure-only
requirements of Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, which
allows entities to continue to apply the provisions of APB
Opinion No. 25 for transactions with employees and provide pro
forma disclosures of operating results as if the fair value based
method of accounting in SFAS No. 123 had been applied to employee
stock option grants.
(i) IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported
at the lower of their carrying amount or fair value less costs to
sell.
(j) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for the Company's cash, accounts payable,
notes payable and capital lease obligations approximate fair
value.
(2) COMPUTER EQUIPMENT, FURNITURE AND OFFICE EQUIPMENT
Computer equipment, furniture and office equipment consist of the
following at December 31:
1998 1997
------------ --------------
Computer equipment $ 309,269 $ 57,651
Furniture and office equipment 25,839 5,250
------------ --------------
335,108 62,901
Less accumulated depreciation 64,743 19,267
------------ --------------
Net computer equipment,
furniture and office
equipment $ 270,365 $ 43,634
============ ==============
(3) COMMITMENTS
(a) OPERATING LEASES
The Company leases its offices under an operating lease agreement
expiring in February 1999. Minimum lease payments required in
1999 under this lease total $4,000. The Company also rents
warehouse space under a month-to-month arrangement. Rent expense
totaled $27,056, $24,000 and $5,772 for the years ended December
31, 1998 and 1997 and the period from April 25, 1996 (inception)
to December 31, 1996, respectively.
(b) CAPITAL LEASES
The Company leases computer equipment under capital leases.
Future minimum lease payments under capital leases are as
follows:
1999 $ 25,678
2000 12,994
2001 4,821
-------------
43,493
Less amounts representing interest at 9.3%
to 14.0% 4,733
-------------
38,760
Less current portion 22,258
=============
$ 16,502
=============
(c) PORTAL COMMITMENTS
The Company has agreements with certain Internet portal companies
to purchase advertising on their Internet web sites in 1999.
Total commitments under these contracts are approximately
$85,000.
(4) NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties include the following:
Note payable to stockholder, payable monthly in
installments of $4,896, including interest at 12%,
secured by computer equipment $ 147,449
Note payable to officer, payable monthly in
installments of $969, including interest at 12%,
secured by computer equipment 20,589
-------------
168,038
Less current portion 64,767
-------------
$ 103,271
=============
Subsequent to December 31, 1998, the notes were repaid as part of the
sale of the Company.
(5) STOCKHOLDERS' EQUITY
(a) CONVERTIBLE NOTES PAYABLE
In March 1998, the Company issued $300,000 of convertible notes
payable. The notes carried an annual interest rate of 12% and
matured in July 1998. In addition, the Company issued the
noteholders warrants to purchase 600,000 shares of common stock
at $0.50 per share. The fair value of the warrants was $190,000
which was determined using a Black-Scholes pricing model with the
following assumptions--fair market value of the underlying stock
of $0.50 per share, expected life of five years, expected
volatility of 70%, and a risk-free interest rate of 5.6%. The
value of the warrants was recorded as a discount on the
convertible notes payable and amortized to interest expense in
1998. In 1998, 200,000 warrants were exercised. At December 31,
1998, 400,000 warrants remained outstanding.
In July 1998, the noteholders elected to convert the notes
payable to common stock. The total principal and accrued interest
of $312,000 outstanding was converted into 416,000 shares of
common stock at $0.75 per share.
In 1996, the Company issued a $46,000 convertible note payable.
This note was converted into 92,000 shares of common stock in
1997 at $0.50 per share.
(b) STOCK OPTION PLAN
In 1998, the Company adopted a stock option plan (the Plan) that
provides for the issuance of incentive and nonqualified stock
options to officers, directors, employees, and consultants to
acquire 1,500,000 shares of the Company's common stock.
The Board of Directors determines the terms and conditions of
options granted under the Plan, including the exercise price and
vesting schedule. The exercise price for qualified incentive
stock options shall not be less than the fair market value of the
underlying stock at the date of grant, and have terms no longer
than ten years from the date of grant. Options granted generally
vest over periods ranging from 18 months to four years.
Under APB 25, compensation expense is measured as the excess of
the fair value of the underlying stock over the exercise price on
the date of grant. Had stock compensation expense for the
Company's stock option plan been determined based on the fair
value methodology under SFAS 123, the Company's 1998 net loss
would have increased to the following pro forma amount:
Net loss:
As reported $ (1,320,407)
Pro forma (1,327,492)
The weighted average fair value of options granted in 1998 was
$0.36. The fair value for these options was estimated at the date
of grant using the minimum value method which takes into account
(1) the fair value of the underlying stock at the grant date, (2)
the exercise price, (3) an expected life of five years, (4) no
dividends, and (5) a risk-free interest rate of 5.4%.
Compensation expense recognized in providing pro forma
disclosures may not be representative of the effects on net
income or loss for future years.
A summary of stock option activity under the Plan is as follows:
OUTSTANDING OPTIONS
----------------------------
SHARES WEIGHTED
AVAILABLE NUMBER AVERAGE
FOR GRANT OF SHARES EXERCISE
PRICE
------------- ------------- -------------
Balances at December 31,
1997 -- -- $ --
Plan adoption 1,500,000 -- --
Options granted (1,500,000) 1,500,000 0.50
Options exercised -- (44,000) 0.16
------------- ------------- -------------
Balances at December 31,
1998 -- 1,456,000 $ 0.51
============= ============= =============
The Company issued additional options to acquire 183,900 shares
of the Company's common stock during 1998. Subsequent to
year-end, the Board of Directors approved the issuance of these
options and amended the Plan to provide for the issuance of
incentive and nonqualified stock options to acquire an additional
500,000 shares of the Company's common stock.
The following table summarizes information about stock options
outstanding under the Plan at December 31, 1998:
<PAGE>
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------ OPTIONS EXERCISABLE
WEIGHTED ------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 0.50 1,371,000 4.5 years $ 0.50 223,250 $ 0.50
0.75 85,000 4.7 years 0.75 2,313 0.75
----------- ----------- ----------- ----------- -----------
1,456,000 4.6 years 0.51 225,563 0.50
=========== =========== =========== =========== ===========
</TABLE>
(7) SUBSEQUENT EVENT
In February 1999, the Company entered into an agreement to merge
the Company with Nirvana Acquisition Corporation (a wholly-owned
subsidiary of theglobe.com). All issued and outstanding options
to purchase common stock of the Company vested fully on the
acquisition date and were converted into options to purchase
common stock of theglobe.com at a specified conversion rate. As a
result of the acquisition, certain employees received a
percentage of the sale proceeds, as provided for under the terms
of their employment contracts.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(b) Pro forma Condensed Consolidated Financial Information
All information contained in Item 7(b) does not give effect to a 2 for 1
stock split effected by theglobe.com on May 14, 1999.
In February 1999, theglobe.com, inc. ("theglobe" or "the Company") acquired
factorymall.com, inc. ("factorymall"), for approximately $22.8 million
including acquisition costs. The acquisition will be accounted for as a
purchase business combination. The consideration payable by theglobe in
connection with the acquisition of factorymall consists of:
o Subject to the exercise of dissenter's rights, the issuance by theglobe
of approximately 307,000 newly issued shares of common stock, par value
$.001 per share, of theglobe ("theglobe Common Stock"), valued at $17.4
million, to the factorymall shareholders, with cash to be paid in lieu
of the issuance of fractional shares.
o The assumption by theglobe of options to purchase shares of
factorymall's common stock, without par value ("factorymall Common
Stock"), which were exchanged for options to purchase approximately
41,017 shares of theglobe Common Stock. The options were valued at $1.7
million. Such options have an aggregate exercise price of approximately
$928,950.
o The assumption by theglobe of warrants to purchase shares of factorymall
Common Stock which were exchanged for warrants to purchase approximately
9,405 shares of theglobe Common Stock. The warrants were valued at
$403,000. Such warrants have an aggregate exercise price of
approximately $200,000.
o The retention of certain bonus obligations of factorymall triggered in
connection with the acquisition of factorymall which will result in the
issuance by theglobe of approximately 36,864 shares of theglobe Common
Stock and the payment by theglobe of approximately $451,000 in cash. The
shares issued in connection with the assumption of certain bonus
obligations were valued at $2.0 million.
In addition, the Company incurred $800,000 of acquisition costs.
The consideration payable by theglobe was determined as a result of
negotiation between theglobe and factorymall. The number of shares of
theglobe Common Stock to be issued to the factorymall shareholders, and
cash to be paid in lieu of the issuance of fractional shares, was
determined based on the exchange ratio of 0.023513329 of a share of
theglobe Common Stock for each share of factorymall Common Stock. Funds
payable in connection with the acquisition of factorymall will be provided
from theglobe's cash on hand.
The Company has allocated a portion of the purchase price to the net book
value of the acquired assets and liabilities of factorymall as of the date
of acquisition. The excess of the purchase price over the net book value of
the acquired assets and liabilities of factorymall has been preliminarily
allocated to goodwill and other intangible assets. Goodwill and other
intangible assets will be amortized over a period of 3 years, the expected
period of benefit. This allocation is preliminary and may be subject to
change upon the evaluation of the fair value of the acquired assets and
liabilities of factorymall at the date of acquisition as well as the
potential identification of certain intangible assets.
The unaudited Pro Forma Condensed Consolidated Statement of Operations (the
"Pro Forma Statement of Operations") for the year ended December 31, 1998
gives effect to the acquisition of factorymall as if it had occurred on
January 1, 1998. The Pro Forma Statement of Operations is based on
historical results of operations of the Company and factorymall for the
year ended December 31, 1998. The unaudited Pro Forma Condensed
Consolidated Balance Sheet (the "Pro Forma Balance Sheet") gives effect to
the acquisition of factorymall as if the acquisition had occurred on that
date. The Pro Forma Statement of Operations and Pro Forma Balance Sheet and
the accompanying notes (the "Pro Forma Financial Information") should be
read in conjunction with and are qualified by the historical financial
statements of the Company and notes thereto.
The Pro Forma Financial Information is intended for informational purposes
only and is not necessarily indicative of the future financial position or
future results of operations of the consolidated company after the
acquisition of factorymall, or of the financial position or results of
operations of the consolidated company that would have actually occurred
had the acquisition of factorymall been effected on January 1, 1998.
<PAGE>
<TABLE>
<CAPTION>
theglobe.com, inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
December 31, 1998
----------------------------------------- Pro Forma Pro Forma
theglobe.com,inc. factorymall.com, inc. Adjustments As Adjusted
----------------- --------------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $29,250,572 $258,438 - $29,509,010
Short-term investments 898,546 - - 898,546
Accounts receivable, net 2,004,875 - - 2,004,875
Inventory - 34,113 - 34,113
Prepaids and other current assets 678,831 6,913 - 685,744
----------- ------------- ----------- -----------
Total current assets 32,832,824 299,464 - 33,132,288
Property and equipment, net 3,562,559 270,365 3,832,924
Restricted investments 1,734,495 - - 1,734,495
Goodwill and intangible assets - - 22,841,666(a) 22,841,666
----------- ------------- ----------- -----------
Total assets $38,129,878 $569,829 $22,841,666 $61,541,373
=========== ============= =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 2,614,445 $299,210 - $2,913,655
Accrued expenses 817,463 128,938 - 946,401
Accrued compensation 691,279 - - 691,279
Deferred revenue 673,616 - - 673,616
Current portion of notes payable to
related party - 64,767 - 64,767
Current installments of obligations
under capital leases 1,026,728 22,258 - 1,048,986
----------- ------------- ----------- -----------
Total current liabilities 5,823,531 515,173 - 6,338,704
Notes payable to related party, net
of current portion - 103,271 - 103,271
Obligations under capital leases,
excluding current installments 2,005,724 16,502 - 2,022,226
----------- ------------- ----------- -----------
Total liabilities 7,829,255 634,946 - 8,464,201
22,776,549(a) 22,776,549
Stockholders' equity (deficit) 30,300,623 (65,117) 65,117(a) 30,300,623
----------- ------------- ----------- -----------
Total liabilities and stockholders'
equity (deficit) $38,129,878 $569,829 $22,841,666 $61,541,373
=========== ============= =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
theglobe.com, inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 1998
----------------------------------------- Pro Forma Pro Forma
theglobe.com,inc. factorymall.com, inc. Adjustments As Adjusted
----------------- --------------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $5,509,818 $473,563 - $5,983,381
Cost of revenues 2,238,871 349,563 - 2,588,434
----------- ------------- ----------
Gross profit 3,270,947 124,000 3,394,947
Operating expenses:
Sales and marketing 9,298,683 333,415 - 9,632,098
Product development 2,632,613 223,957 - 2,856,570
General and administrative 6,828,134 673,530 - 7,501,664
Non-recurring charge 1,370,250 - - 1,370,250
Amortization of intangible assets - - 7,613,889(a) 7,613,889
----------- ------------- ----------- ----------
Loss from operations (16,858,733 (1,106,902) (7,613,889) (25,579,524)
Other income (expense):
Interest and dividend income 1,083,400 8 - 1,083,408
Interest and other expense (191,389) (213,573) - (404,962)
----------- ------------- ----------- -----------
Total other income (expense), net 892,011 (213,565) - (678,446)
----------- ------------- ----------- -----------
Loss before provision for income
taxes (15,966,722) (1,320,467) (7,613,889) (24,901,078)
----------- ------------- ----------- -----------
Provision for income taxes 78,918 - 78,918
----------- ------------- ----------- -----------
Net loss $(16,045,640) $(1,320,467) $(7,613,889) $(24,979,996)
=========== ============= =========== ===========
Basic and diluted net loss per share $(6.74) $(9.17)(b)
=========== ===========
Weighted average basic and
diluted shares outstanding 2,381,140 343,864(b) 2,725,056(b)
=========== ============= =========== ===========
</TABLE>
<PAGE>
theglobe.com, inc.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(1) Pro Forma Adjustments and Assumptions
(a) In February 1999, the Company acquired factorymall in a stock
transaction for $22.8 million, including acquisition costs. The
components of the purchase price were as follows: 307,000 shares
of theglobe Common Stock, valued at $17.4 million, issued to the
factorymall shareholders with cash paid in lieu of fractional
shares, warrants to purchase approximately 9,405 shares of
theglobe Common Stock valued at $403,000, options to purchase
approximately 41,017 shares of theglobe Common Stock valued at
$1.7 million, 36,864 shares of theglobe Common Stock, valued at
$2.0 million, issued in connection with the assumption of certain
factorymall bonus obligations triggered in connection with the
acquisition of factorymall and $451,000 in cash. The Company also
incurred acquisition costs amounting to $800,000.
The following represents the allocation of the purchase price
over the historical net book values of the acquired assets and
liabilities of factorymall at December 31, 1998 and is for
illustrative pro forma purposes only. Actual fair values will be
based on financial information as of the acquisition date
(February 1, 1999). Assuming the transaction had occurred on
December 31, 1998, the allocation would have been as follows:
Factorymall.com
---------------------
Assets acquired;
Cash $ 258,438
Inventory 34,113
Other assets 6,913
Computer equipment, office equipment and furniture 270,365
Goodwill and intangible assets 22,841,666
Liabilities assumed (634,946)
-------------------
Purchase price $ 22,776,549
===================
This allocation is preliminary and may be subject to change upon
evaluation of the fair value of factorymall's acquired assets and
liabilities as of the acquisition date as well as the potential
identification of certain intangible assets.
The Pro Forma adjustment reconciles the historical balance sheet
of factorymall at December 31, 1998 to the allocated purchase
price assuming the transaction had occurred on December 31, 1998.
Goodwill and other intangible assets will be amortized over a
period of 3 years, the expected period of benefit. The Pro Forma
adjustments to the statement of operations reflect twelve months
of amortization expense for the year ended December 31, 1998,
assuming the transaction occurred on January 1, 1998. The value
of the intangible assets as of January 1, 1998 would have been
approximately $22.8 million.
(b) In connection with the acquisition of factorymall, the Company
issued 343,864 shares of theglobe Common Stock, par value $.001
per share, to the factorymall shareholders and the assumption of
certain bonus obligations triggered in connection with the
acquisition. The pro forma basic net loss per common share is
computed by dividing the net loss by the weighted average number
of common shares outstanding. The calculation of the weighted
average number of shares outstanding assumes that the shares
issued in connection with the acquisition were outstanding for
the entire period.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
23.1 Consent of KPMG LLP, independent auditors.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the
undersigned hereunto duly authorized.
Dated: October 20, 1999
theglobe.com,inc.
By: /s/ Francis T. Joyce
Name: Francis T. Joyce
Title: Chief Financial Officer
Exhibit 23.1
CONSENT OF KPMG LLP, INDEPENDENT AUDITORS
We consent to the use of our report dated March 5, 1999, with respect to
the financial statements of factorymall.com, inc. as of December 31, 1998
and 1997 and for the period from inception (April 15, 1996) to December 31,
1996 and for each of the two years in the period ended December 31, 1998
included in the Amendment to Current Report (Form-8K/A) of theglobe.com,
inc.
/s/ KPMG LLP
Seattle, Washington
October 15, 1999
