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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A
AMENDMENT TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------------------------------
APRIL 9, 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)
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<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 April 23, 1999, as set forth in the pages attached hereto:
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
All information contained within Item 2 does not give effect to a 2 for 1
stock split effected by theglobe.com on May 14, 1999.
On April 9, 1999, Bucky Acquisition Corp. ("Merger Sub"), a Delaware
corporation and wholly-owned subsidiary of theglobe.com, inc. ("theglobe"),
a Delaware corporation, was merged with and into Attitude Network Ltd.
("Attitude"), a Delaware corporation, with Attitude as the surviving
corporation (the "Merger"). As a result of the Merger, Attitude became a
wholly-owned subsidiary of theglobe. The Merger was effected pursuant to an
Agreement and Plan of Merger, dated April 5, 1999, by and among theglobe,
Merger Sub, Attitude and certain stockholders of Attitude (the "Merger
Agreement"). The Merger Agreement was filed as an exhibit to the Current
Report on Form 8-K as filed on April 23, 1999. theglobe issued press
releases on April 6, 1999 and April 12, 1999 relating to the Merger. The
press releases were filed as exhibits to the Current Report on Form 8-K as
filed on April 23, 1999.
The consideration paid by theglobe in connection with the acquisition
consisted of the following:
Subject to the exercise of the appraisal rights available under Delaware
law, the issuance by theglobe of approximately 785,461 newly issued shares
of common stock, par value $.001 per share, of theglobe ("theglobe Common
Stock"), valued at $43.1 million, to the Attitude stockholders, with cash
to be paid in lieu of the issuance of fractional shares.
The assumption by theglobe of options to purchase shares of common stock,
par value $.001 per share, of Attitude ("Attitude Common Stock"), which
were exchanged for options to purchase approximately 42,380 shares of
theglobe Common Stock. The options were valued at $1.9 million. Such
options have an aggregate exercise price of approximately $905,605.
The assumption by theglobe of warrants to purchase shares of Attitude
Common Stock which were exchanged for warrants to purchase approximately
23,353 shares of theglobe Common Stock. The warrants were valued at $1.0
million. Such warrants have an aggregate exercise price of approximately
$400,000.
The Company also incurred $800,000 of acquisition costs. In addition, debt
with a present value of approximately $2.3 million was assumed in
connection with the Merger.
The consideration paid by theglobe was determined as a result of
negotiation between theglobe and Attitude. The number of shares of theglobe
Common Stock issued to the Attitude stockholders was determined based on an
exchange ratio of 0.0583831171 of a share of theglobe Common Stock for each
share of Attitude Common Stock. Cash will be paid in lieu of the issuance
of fractional shares. Funds for such payment will be provided from cash on
hand of theglobe. In connection with the merger, certain outstanding
convertible demand notes (the "notes") held by Attitude directors were
converted into approximately 339,000 shares of Attitude Common Stock and
included in the exchange of Attitude Common Stock for theglobe Common
Stock. The notes featured a conversion right at the option of the holder in
the event that Attitude was sold. The Attitude Common Stock issued to the
holders was determined based on a exchange ratio of 0.02329879041 of a
share of fully diluted Attitude Common Stock, which included outstanding
options and warrants to purchase Attitude Common Stock as well as the
shares issued in connection with the conversion of the notes. The exchange
ratio was based on the proportion of the face value of the notes to the
aggregate purchase price adjusted to exclude certain acquisition costs.
<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
- ---------------------------------------------------------------------------
Attitude Network Ltd. Financial Statements
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets at December 31, 1998 and 1997 F-2
Consolidated Statements of Operations for the years ended
December 31, 1998 and 1997 F-3
Consolidated Statements of Stockholders' Equity (Deficit) for
the years ended December 31, 1998 and 1997 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997 F-5
Notes to Consolidated Financial Statements F-6
theglobe.com, inc. Pro Forma Condensed Consolidated
Financial Information F-18
Unaudited Pro Forma Condensed Consolidated Balance Sheet
at December 31, 1998 F-20
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1998 F-21
Notes to the Unaudited Pro Forma Condensed Consolidated
Financial Information F-22
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Attitude Network Ltd.
Naples, Florida
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity
(deficit), and cash flows present fairly, in all material respects, the
financial position of Attitude Network Ltd. and its subsidiary (the
"Company") at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the two years ended 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.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note
15 to the consolidated financial statements, the Company has suffered
recurring losses from operations which raises substantial doubt about its
ability to continue as a going concern. As discussed in Note 16 to the
consolidated financial statements, on April 9, 1999 the Company merged with
a wholly-owned subsidiary of theglobe.com, inc. whereby the stockholders of
the Company exchanged their common stock for shares of common stock of
theglobe.com, inc. at a specified conversion rate. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
PricewaterhouseCoopers LLP
March 19, 1999, except for Note 16,
for which the date is April 9, 1999
<PAGE>
ATTITUDE NETWORK LTD.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
-------------------------------
ASSETS 1998 1997
- ------ ---- ----
Current assets:
Cash $2,161,513 $ 83,318
Accounts receivable, less allowance
for doubtful accounts of $200,000
and $96,473 at December 31, 1998
and 1997, respectively 406,412 546,993
---------- ----------
Total current assets 2,567,925 630,311
========== ==========
Property and equipment, net 382,277 453,081
Intangible assets, net 1,825,039 3,706,919
Deposits 24,308 13,799
---------- ----------
Total assets $4,799,549 $4,804,110
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 185,127 $ 647,784
Accrued expenses 358,668 1,680,636
Deferred revenue 346,775 300,000
Convertible notes payable to directors 950,000 -
Current portion of long-term debt 200,000 137,615
========== ==========
Total current liabilities 2,040,570 2,766,035
Long-term debt 2,343,171 2,293,536
========== ==========
Total liabilities 4,383,741 5,059,571
========== ==========
Commitments and contingencies (Note 14)
Stockholders' equity (deficit):
Preferred stock, $.0l par value, 5,000 shares
authorized, no shares
issued and outstanding - -
Common stock, $.001 par value, 20,000,000 shares
authorized, 13,114,457 and 11,446,352 shares
issued and outstanding at December 31, 1998
and 1997, respectively 13,115 11,446
Additional paid-in capital 17,542,540 10,683,250
Accumulated deficit (17,139,972) (10,950,467)
Accumulated other comprehensive income 125 310
---------- ----------
Total stockholders' equity (deficit) 415,808 (255,461)
========== ==========
Total liabilities and stockholders' equity $4,799,549 $4,804,110
========== ==========
<PAGE>
ATTITUDE NETWORK LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
DECEMBER 31, 1998 AND 1997
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1998 1997
---- ----
Sales $1,885,547 $2,474,537
Cost of sales 903,476 1,325,662
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Gross profit 982,071 1,148,875
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Operating expenses:
Selling and marketing 681,585 1,609,202
Product development 1,860,686 2,520,090
General and administrative 1,644,415 1,484,360
Amortization 1,883,137 1,320,098
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Total operating expenses 6,069,823 6,933,750
========== ==========
Operating loss (5,087,752) (5,784,875)
Nonoperating income (expense):
Gain on sale of website - 200,000
Interest expense (1,101,753) (250,076)
Litigation settlement - (1,395,000)
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Net loss $(6,189,505) $(7,229,951)
========== ==========
<PAGE>
<TABLE>
<CAPTION>
ATTITUDE NETWORK LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
DECEMBER 31, 1998 AND 1997
----------------------------------------------------------------------------------------------
ACCUMULATED
OTHER STOCK-
PREFERRED STOCK COMMON STOCK ADDITIONAL ACCUMU- COMPREHEN- HOLDERS'
====================== ====================== PAID-IN LATED SIVE EQUITY
SHARES PAR VALUE SHARES PAR VALUE CAPITAL DEFICIT INCOME (DEFICIT)
=========== ========== =========== ========== =========== ============ =========== ==========
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996 - $ - 9,447,520 $ 9,448 $ 4,914,342 $(3,720,516) $ - $1,203,274
Issuance of shares of
common stock
for acquisition - - 1,000,000 1,000 2,499,000 - - 2,500,000
Issuance of shares of
common stock - - 666,667 667 1,999,333 - - 2,000,000
Issuance of shares of
common stock - - 330,665 330 1,264,576 - - 1,264,906
Conversion of debt to
common stock - - 1,500 1 5,999 - - 6,000
Comprehensive income (loss)
Foreign currency
translation - - - - - - 310 310
Net loss - - - - - (7,229,951) - (7,229,951)
==========
Total comprehensive
income (loss) (7,229,641)
=========== ========== =========== ========== =========== ============ =========== ==========
Balances, December 31, 1997 - - 11,446,352 11,446 10,683,250 (10,950,467) 310 (255,461)
Issuance of shares of
common stock - - 250,000 250 999,750 - - 1,000,000
Issuance of shares of
common stock - - 259,939 260 999,750 - - 1,000,010
Exercise of common stock
options for shares - - 26,500 27 11,899 - - 11,926
Issuance of shares of
common stock for
legal settlement - - 465,000 465 1,394,535 - - 1,395,000
Issuance of shares of
common stock,
net of issue cost - - 666,666 667 1,909,326 - - 1,909,993
Issuance of 400,000 common
stock warrants - - - - 798,920 - - 798,920
Stock option expense - - - - 745,110 - - 745,110
Comprehensive income (loss)
Foreign currency
translation - - - - - - (185) (185)
Net loss - - - - - (6,189,505) - (6,189,505)
==========
Total comprehensive
income (loss) (6,189,690)
=========== ========== =========== ========== =========== ============ =========== ==========
Balances, December 31, 1998 - $ - 13,114,457 $13,115 $17,542,540$(17,139,972) $ 125 $ 415,808
=========== ========== =========== ========== =========== ============ =========== ==========
</TABLE>
<PAGE>
ATTITUDE NETWORK LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 1998 AND 1997
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1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(6,189,505) $(7,229,951)
=========== ===========
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 120,594 84,790
Amortization 1,883,137 1,320,098
Amortization of discount on note payable 262,020 262,360
Noncash interest related to warrant valuation 798,920 -
Stock options expense 745,110 -
Provision for bad debts 103,527 253,521
Gain on sale of website - (200,000)
(Gain) loss on sale of property and equipment (4,316) 22,055
Changes in assets and liabilities:
Decrease in inventory - 7,047
Increase (decrease) in accounts receivable 37,054 (304,096)
Increase in other assets (11,766) (10,207)
Increase (decrease) in accounts payable (462,657) 403,378
Increase in accrued expenses 73,032 1,606,509
Increase in deferred revenue 46,775 297,517
----------- -----------
Total adjustments 3,591,430 3,742,972
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Net cash used in operating activities (2,598,075) (3,486,979)
=========== ===========
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (47,174) (341,047)
Cash received from sale of property and equipment 1,700 14,111
Cash received from sale of website - 200,000
Acquisition, net of cash acquired - (59,128)
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Net cash used in investing activities (45,474) (186,064)
=========== ===========
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 4,000,003 3,270,906
Stock issuance costs (90,000) -
Proceeds from exercise of stock option 11,926 -
Proceeds from directors notes 950,000 -
Payments on longterm debt (150,000) (179,100)
=========== ===========
Net cash provided by financing activities 4,721,929 3,091,806
=========== ===========
Effect of exchange rate changes on cash (185) 3,172
=========== ===========
Net increase (decrease) in cash 2,078,195 (578,065)
Cash at beginning of period 83,318 661,383
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Cash at end of period $2,161,513 $ 83,318
=========== ===========
<PAGE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
In 1997, common stock was issued in satisfaction of amounts payable to a
vendor in the amount of $6,000.
In 1997, 1,000,000 shares of common stock were issued to acquire
Kaleidoscope Network Ltd. (see Note 3).
In 1998, 465,000 shares of common stock were issued to settle litigation
accrued for at December 31, 1997 for $1,395,000.
<PAGE>
ATTITUDE NETWORK LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
----------------------------------------------
1. ORGANIZATION
Attitude Network Ltd. (the "Company") was formed in January 1995 to
establish, develop and deliver customized website programming to
narrowly defined target audiences. The Company seeks to support its
markets by providing advertising supported online entertainments. Its
audiences include but are not limited to the on-line games market.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of Attitude Network Ltd. and its wholly-owned subsidiary,
Kaleidoscope Network Ltd. All material intercompany transactions have
been eliminated in consolidation.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is provided on the straight-line basis over
the estimated useful lives of the related assets.
Major improvements and betterments of property are capitalized.
Maintenance, repairs and minor improvements are charged to expense in
the period incurred. Upon the sale or other disposition of property,
the cost and related accumulated depreciation are removed from the
accounts and any gain or loss is reflected in income.
INTANGIBLE ASSETS
The costs of web rights purchased by the Company are being amortized
on the straight-line method over the estimated useful life of three
years. 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 to
be 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. To date, no such
impairment has been recorded.
IMPLEMENTATION OF SFAS 130
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," effective for fiscal periods
beginning after December 15, 1997. The new standard requires that
comprehensive income, which includes net income, as well as certain
changes in assets and liabilities recorded in common equity, be
reported in the financial statements. The Company adopted SFAS No. 130
during the year ended December 31, 1998.
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of the Company's
foreign operations are measured using local currency as the functional
currency. Current assets and liabilities of these operations are
translated to the U.S. dollar at the exchange rate in effect at
year-end. Income statement accounts are translated at the average rate
of exchange prevailing during the year. Translation adjustments
arising from differences in exchange rates from period to period are
recorded in accumulated comprehensive income. Realized gains and
losses resulting from foreign currency transactions are included in
the statement of operations.
DEFERRED REVENUE
Deferred revenue represents amounts received by the Company related to
future services to be provided.
REVENUE RECOGNITION
Website advertising revenue is earned by providing advertisers with a
space on the Company's website to promote products. The Company's
advertising revenues are derived principally from short-term
advertising contracts in which the Company guarantees a minimum number
of impressions (a view of an advertisement by a consumer) for a fixed
fee. Advertising revenues are recognized ratably over the term of the
contract. Hotel discount revenue represents revenue earned by the
Company for reservations booked through their hotel discount web page
and is recognized in the month earned. Revenue received in connection
with an agreement between the Company and a telephone company, whereby
the Company has agreed to develop, deliver, install and operate a
computer-based games service designed for the telephone company is
recognized on a monthly basis in accordance with the agreement.
The Company trades advertisements on its website in exchange for
advertisements on the internet sites of other companies. Barter
revenues and expenses are recorded at the fair market value of
services provided or received, whichever is more determinable in the
circumstances. Revenue from barter transactions is recognized as
advertisements are delivered on the Company's website. Barter expense
is recognized as cost of sales when the Company's advertisements are
run on other companies web sites, which is typically in the same
period when the barter revenue is recognized.
COST OF SALES
Cost of sales includes communication/on-line costs associated with
connecting the Company's website with servers, costs incurred for
website audits, barter expense and other direct costs.
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
PRODUCT DEVELOPMENT
The costs to develop and maintain the Company's websites are being
expensed as incurred.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
MANAGEMENT'S 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.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
1998 presentation.
3. ACQUISITION
In February 1997, the Company acquired all of the issued and
outstanding shares of Kaleidoscope Network Ltd., a company registered
in England, for an aggregate purchase price of approximately $2.6
million. The purchase consisted primarily of an internet worldwide
games website including all software, documentation, licenses,
contracts and contract rights, and property rights necessary to
operate the website. The acquisition was funded through the issuance
of 1,000,000 shares of the Company's common stock, stock options for
the purchase of an additional 100,000 shares of common stock and cash
payments of approximately $106,000. The acquisition has been accounted
for using the purchase method of accounting. Substantially all of the
purchase price was allocated to the website intangible asset.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1998
and 1997:
1998 1997
---- ----
Computers and office equipment $ 612,962 $ 571,276
Furniture and fixtures 17,165 16,480
Leasehold improvements 3,200 3,200
========= =========
633,327 590,956
Less accumulated depreciation (251,050) (137,875)
========= =========
$ 382,277 $ 453,081
========= =========
5. INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31, 1998 and
1997:
1998 1997
---- ----
Website rights $ 5,119,515 $ 5,119,515
Organization costs 15,326 15,326
Other 1,257 -
============= ==============
5,136,098 5,134,841
Accumulated amortization (3,311,059) (1,427,922)
============= ==============
$ 1,825,039 $ 3,706,919
============= ==============
<PAGE>
6. LEASES
The Company leases certain equipment and office space under operating
type leases. Future minimum payments under these leases are as
follows:
1999 $ 62,085
2000 60,876
2001 63,311
2002 26,809
=========
$ 213,081
=========
Rental expense for the years ended December 31, 1998 and 1997 was
approximately $132,000 and $193,000, respectively.
7. CONVERTIBLE NOTES PAYABLE TO DIRECTORS
During 1998, the Company borrowed $950,000 from various directors of
the Company. These notes are due on demand and accrue interest at
8.5%. The notes feature a conversion right at the option of the
holder, which may be exercised in the event the Company is sold. The
conversion right allows the holder to convert the note into stock of
the new or surviving entity at a price equal to the per share
transaction price. Most of the notes include detachable warrants for a
total of 400,000 shares of common stock at an exercise price of $1.00
per share. The warrants expire in 2003. A value of approximately
$800,000 was assigned to the warrants (additional paid-in capital)
based on the difference between the fair market value of the stock at
date of issuance ($3.00) and the exercise price of $1.00. Since the
notes are demand notes, the entire value assigned to the warrants was
charged to interest expense in 1998.
8. LONG-TERM DEBT
The Company's long-term debt consisted of the following at December
31:
1998 1997
---- ----
Non-interest bearing obligation payable
to a corporation related to the purchase
of an internet worldwide website $ 2,543,171 $ 2,431,151
=========== ===========
The obligation is to be repaid based on 5% of the Company's gross
revenues related to the website, less certain costs directly
associated with the website. The payments required by the agreement
are also subject to specific minimum amounts payable per year. In the
event of an initial public offering by the Company, the total unpaid
amount of the obligation would become due and payable. The $5.6
million obligation has been recorded at its present value, assuming a
9% interest rate, and has been reduced by $150,000 and $179,000 of
payments made by the Company in 1998 and 1997, respectively. The
unamortized discount was $2,556,829 and $2,818,849 as of December 31,
1998 and 1997, respectively.
The minimum principal amounts payable over the next five years under
this agreement are as follows:
1999 $ 200,000
2000 250,000
2001 300,000
2002 300,000
2003 300,000
Thereafter 3,750,000
-------------
5,100,000
Less Discount (2,556,829)
-------------
2,543,171
Less current portion (200,000)
-------------
$ 2,343,171
=============
9. INCOME TAXES
No provision for federal or state income taxes has been made for the
years ended December 31, 1998 and 1997, since the Company reported a
loss for both financial reporting and income tax purposes.
The Company had available approximately $10,556,000 of net operating
loss carryforwards to reduce future taxable income as of December 31,
1998. The utilization of the net operating loss carryforwards, which
begin to expire in the year 2012, will be subject to limitations as a
result of a more than 50% change in ownership of the Company in 1997
(See Note 10).
The tax effects of the temporary differences that gave rise to the
deferred tax balances at December 31, 1998 and 1997 were the
following:
1998 1997
---- ----
Deferred tax assets
Net operating loss carryforwards $ 3,972,000 $2,719,000
Allowance for doubtful accounts 81,000 130,000
Start-up expenditures 193,000 280,000
Amortization of intangible assets 524,000 --
Other 136,000 131,000
Valuation allowance (4,906,000) (3,222,600)
=============== =============
-- 37,400
Deferred liability:
Amortization of intangible assets -- (37,400)
--------------- -------------
Net deferred tax asset $ -- $ --
=============== =============
The Company provides for a valuation allowance on deferred tax assets
since utilization is uncertain.
10. STOCKHOLDERS' EQUITY
In February 1997, Maricopa Investment Corporation, an unaffiliated
company, purchased all the outstanding shares held by a shareholder of
the Company and subscribed to the Company for an additional 666,667
shares of common stock at $3.00 per share. In total, these purchases
represent approximately 42% of the shares outstanding.
In February 1997, the Company also issued 1,000,000 shares of common
stock to acquire Kaleidoscope Network Ltd. (see Note 3). As part of
this acquisition agreement, the Company entered into an additional
agreement with the sellers whereby, upon notice from the sellers at
any time in the five-year period following the 18th month from the
date of the agreement, the Company shall be required to purchase up to
500,000 shares of common stock owned by the sellers at a purchase
price of $2.50 per share. Five years following the 36th month from the
date of this agreement, the sellers may give notice and the Company
may be required to purchase up to an additional 500,000 shares of
common stock owned by the seller at a purchase price of $2.50 per
share. This agreement shall terminate upon the ninth anniversary from
the date of this agreement.
The above transactions exceeded 50% of the outstanding shares of the
Company.
During 1997, the Company issued to certain directors and unrelated
parties 330,665 shares of common stock at $4.00 per share. In November
1997, the Company issued 1,500 shares of common stock in exchange for
forgiveness of a $6,000 payable to a vendor.
During 1998, the Company sold 1,166,666 shares to various investors at
prices ranging from $3.00 - $4.00 per share for total proceeds of
approximately $4,000,000. The sale of 666,666 shares included
anti-dilution provisions, as well as a shareholder rights agreement,
which provides for certain future registration rights.
In September 1998, the Company issued 465,000 shares in connection
with the settlement of a lawsuit filed in December 1997. The lawsuit
related to claims for a 10.75% equity interest in the Company and
unspecified other damages by a media service and editorial management
company who had previously been party to a memorandum of understanding
with certain of the Company's stockholders, officers, and directors.
The settlement was accrued for at December 31, 1997.
11. STOCK OPTION PLAN
Effective July 1, 1996, the Company adopted the 1996 Stock Option Plan
(the "Plan") available for grant to eligible employees and eligible
participants to purchase up to 1,200,000 shares of the Company's
common stock. The Plan is administered by a committee appointed by the
Board of Directors or by the Board of Directors if each member of the
committee is eligible to receive stock options or if the members of
the committee have been eligible to receive stock options for a period
of one year prior to their services on the committee. The Board of
Directors or a committee shall administer the Plan, select the
eligible employees and eligible participants to whom options will be
granted, determine the number of shares subject to any such options
and interpret, construe and implement the provisions of the Plan. The
Board of Directors or the committee shall also determine the price to
be paid for the shares upon exercise of each option, the period within
which each option may be exercised, and the terms and conditions of
each option.
The option exercise price will be equal to 100% of market value on the
day the option is granted (110% in the case of a 10% owner of the
Company), as determined by the Board of Directors or the committee. No
option shall be exercisable after ten years from the date of the grant
of the option, and shares subject to the option granted to a 10% owner
shall not be exercisable after five years from the date of grant of
the option. The Plan expires on July 1, 2006.
Compensation expense resulting from stock options is measured at the
grant date based upon the difference between the exercise price and
the market value of the common stock. All stock options granted in
1997 were granted at an exercise price equal to the market value at
the date of grant. During 1998, the Company granted 292,200 stock
options at an exercise price of $0.45 per share to both employees and
non-employees that were not in accordance with the 1996 stock option
plan as they were not granted at fair market value. The aggregate
compensation cost related to the 176,200 stock options granted to
employees of the Company amounted to $449,310 for the year ended
December 31, 1998. Compensation cost was determined based on the
difference between the fair market value of the stock on the date of
grant, as determined by recent cash sales of the stock, and the $0.45
per share exercise price. Additionally, in March 1998, three
non-employees who performed services for the Company were granted
116,000 options, which vested immediately, at an exercise price of
$0.45 per share. These options expire in May 2003. The Company
recognized compensation expense of $295,800 in the 1998 financial
statements for the difference between the market value of the stock on
the date of grant, as determined by recent cash sales of the stock,
and the exercise price. The calculation of fair value of these options
granted using the Black Scholes Option Pricing Model approximated the
compensation cost recognized by the Company.
A summary of the stock option activity is presented below:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
========== ========
Outstanding as of December 31, 1996 790,000 $ 1.02
Options granted 305,000 2.90
Forfeited (145,000) 2.86
========== ========
Outstanding as of December 31, 1997 950,000 1.46
Options granted 377,200 1.65
Exercised (26,500) 0.45
Forfeited (295,350) 1.59
========== ========
Outstanding as of December 31, 1998 1,005,350 $ 1.52
========== ========
The Company applies APB Opinion No. 25 and related interpretation in
accounting for its Plan. Statement of Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation" (SFAS No. 123),
requires compensation expense measured as the excess of the fair value
of the underlying stock over the exercise price on the date of grant.
Pro forma disclosures as if the Company had adopted the cost
recognition requirements under SFAS No. 123 are not presented as the
effects were immaterial.
The weighted average fair value of options-granted in 1998 was $1.79.
The fair value for these options was estimated at the date of granting
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) weighted average expected life of 5.70 years, (4) no
dividends, and (5) a weighted average risk-free interest rate of
5.76%. Compensation expense recognized in providing pro forma
disclosures may not be representative of the effects on net income or
loss for future years.
The following table summarizes information about stock options
outstanding under the Plan at December 31, 1998:
Weighted
average
remaining
Exercise Number contractual Number
prices outstanding life exercisable
-------------- ----------- ----------- -----------
$ 0.45 254,100 3.1 years 254,100
0.70 510,000 7.5 years 385,000
2.50 100,000 7.5 years 100,000
3.00 81,250 7.5 years 22,000
4.00 50,000 7.5 years
5.00 10,000 7.5 years 10,000
-------------- ----------- -----------
1,005,350 771,100
=========== ===========
12. RISKS AND UNCERTAINTIES
The Company has derived revenues of approximately $300,000 and
$256,000 in 1998 and 1997, respectively, from one customer, which
approximates 16% and 10%, respectively, of total revenue. The
Company's accounts receivable also includes $200,000 and $87,850
receivable from this customer, which represents 49% and 16% of total
accounts receivable as of December 31, 1998 and 1997, respectively.
The Company maintains cash balances at a financial institution located
in Southwest Florida in excess of the $100,000 insured by the Federal
Deposit Insurance Corporation. The Company has not experienced any
losses in such accounts and believes it is not exposed to any
significant credit risk on cash balances.
13. RELATED PARTY TRANSACTIONS
Accounts payable as of December 31, 1998 and 1997 includes $29,396 and
$64,346, respectively, which is payable to employees, individuals and
organizations related to the Company.
The Company has an agreement under which total payments of $155,000
have been made each year to the chief executive officer in 1998 and
1997, which includes a bonus of $35,000 for 1998 and 1997. The
agreement extends through July 1999 and provides for monthly payments
of $10,000 with a provision for a discretionary bonus to be determined
by the Company's Board of Directors.
The Company had a consulting agreement with one of its directors,
under which $105,000 was paid in 1997. The consulting agreement
expired in October 1997.
The Company rents its office space in Florida on a month-to-month
basis as a subtenant of a Company controlled by a member of its Board
of Directors. It also receives certain office support services. These
rents and support services are priced on a pass-through basis without
mark-up, and totaled approximately $13,000 and $15,000 in 1998 and
1997, respectively.
14. COMMITMENTS AND CONTINGENCIES
In March 1998, the Company entered into an agreement with MacMillan
Digital Publishing USA ("MacMillan") to create and operate a website
designed to serve as an on-line resource for the gaming market. The
Company is primarily responsible for the operation of the website and
MacMillan will pay the Company a commission on product sales related
to the website. The terms of the agreement commenced upon execution.
The agreement will terminate May 31, 1999, and is renewable for
successive one-year terms.
As discussed in Note 10, the Company has issued a put option to the
former owners of Kaleidoscope Network Ltd.
The Company is a defendant in various legal proceedings, which
occurred in the ordinary course of business. In the opinion of
management, the ultimate settlement of such legal proceedings will not
have a material adverse impact on the Company's financial statements.
15. GOING CONCERN
Since inception, the Company has incurred significant operating
losses. These losses have been financed primarily through the issuance
of common stock and loans from directors. The ability of the Company
to continue as a going concern is dependent upon additional funding
and/or attaining profitable operations. The financial statements do
not include any adjustments that might be necessary if the Company is
unable to continue as a going concern. See Note 16.
16. SUBSEQUENT EVENT
On April 9, 1999 the Company merged with a wholly-owned subsidiary of
theglobe.com, inc. whereby the stockholders of the Company exchanged
their common stock for shares of common stock of theglobe.com, inc. at
a specified conversion rate. Management believes the merger will
result in sufficient funds to continue operating activities. The
shares issued in connection with the Kaleidoscope Network Ltd.
acquisition, subject to a put option, were exchanged as part of the
merger and thus the put option terminated.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(b) Pro Forma Condensed Consolidated Financial Information
All information contained within Item 7(b) does not give effect to a 2 for
1 stock split effected by theglobe.com on May 14, 1999.
In April 1999, theglobe.com ("theglobe" or the "Company") acquired Attitude
Network, Ltd. ("Attitude") for approximately $46.8 million, including
acquisition costs (the "acquisition"). The acquisition will be accounted
for as a purchase business combination. The consideration paid by theglobe
in connection with the acquisition consisted of the following:
o Subject to the exercise of the appraisal rights available under
Delaware law, the issuance by theglobe of approximately 785,461 newly
issued shares of common stock, par value $.001 per share, of theglobe
("theglobe Common Stock"), valued at $43.1 million, to the Attitude
stockholders, with cash to be paid in lieu of the issuance of
fractional shares.
o The assumption by theglobe of options to purchase shares of common
stock, par value $.001 per share, of Attitude ("Attitude Common
Stock"), which were exchanged for options to purchase approximately
42,380 shares of theglobe Common Stock. The options were valued at
$1.9 million. Such options have an aggregate exercise price of
approximately $905,605.
o The assumption by theglobe of warrants to purchase shares of Attitude
Common Stock which were exchanged for warrants to purchase
approximately 23,353 shares of theglobe Common Stock. The warrants
were valued at $1.0 million. Such warrants have an aggregate exercise
price of approximately $400,000.
The Company also incurred $800,000 of acquisition costs. In addition, debt
with a present value of approximately $2.3 million was assumed in
connection with the Merger.
The consideration paid by theglobe was determined as a result of
negotiation between theglobe and Attitude. The number of shares of theglobe
Common Stock issued to the Attitude stockholders was determined based on an
exchange ratio of 0.0583831171 of a share of theglobe Common Stock for each
share of Attitude Common Stock. Cash will be paid in lieu of the issuance
of fractional shares. Funds for such payment will be provided from cash on
hand of theglobe. In connection with the merger, certain outstanding
convertible demand notes (the "notes") held by Attitude directors were
converted into approximately 339,000 shares of Attitude Common Stock and
included in the exchange of Attitude Common Stock for theglobe Common
Stock. The notes featured a conversion right at the option of the holder in
the event that Attitude was sold. The Attitude Common Stock issued to the
holders was determined based on a exchange ratio of 0.02329879041 of a
share of fully diluted Attitude Common Stock, which included outstanding
options and warrants to purchase Attitude Common Stock as well as the
shares issued in connection with the conversion of the notes. The exchange
ratio was based on the proportion of the face value of the notes to the
aggregate purchase price adjusted to exclude certain acquisition costs.
The Company has allocated a portion of the purchase price to the net book
value of the acquired assets and liabilities of Attitude as of the date of
acquisition. The excess of the purchase price over the net book value of
the acquired assets and liabilities of Attitude has preliminarily been
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. The allocation is preliminary and may be subject to
change upon evaluation of the fair value of the acquired assets and
liabilities of Attitude 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 Attitude 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 Attitude 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 Attitude 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 Attitude, or of the financial position or results of
operations of the consolidated company that would have actually occurred
had the acquisition of Attitude been effected on January 1, 1998.
<PAGE>
<TABLE>
<CAPTION>
THEGLOBE.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
- -----------------------------------------------------------------------------------------------------
December 31, 1998
----------------------------------
Attitude Pro Forma Pro Forma
theglobe.com, inc Network, Ltd. Adjustments As Adjusted
----------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $29,250,572 $2,161,513 - $31,412,085
Short-term investments 898,546 - - 898,546
Accounts receivable, net 2,004,875 406,412 - 2,411,287
Prepaids and other current assets 678,831 - - 678,831
----------- ---------- ----------- -----------
Total current assets 32,832,824 2,567,925 - 35,400,749
Property and equipment, net 3,562,559 382,277 - 3,944,836
Other assets 1,734,495 24,308 - 1,758,803
Goodwill and intangible assets - 1,825,039 $45,461,828(a) 47,286,867
----------- ---------- -------------- -----------
Total assets $38,129,878 $4,799,549 $45,461,828 $88,391,255
=========== ========== ============== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts payable $2,614,445 $185,127 - $2,799,572
Accrued expenses 817,463 358,668 - 1,176,131
Accrued compensation 691,279 - - 691,279
Deferred revenue 673,616 346,775 - 1,020,391
Current portion of notes payable
to related party - 950,000 (950,000)(c) -
Current portion of long-term debt - 200,000 - 200,000
Current installments of
obligations under capital leases 1,026,728 - - 1,026,728
----------- ---------- -------------- -----------
Total current liabilities 5,823,531 2,040,570 (950,000) 6,914,101
Long-term debt - 2,343,171 - 2,343,171
Obligations under capital leases,
excluding current installments 2,005,724 - - 2,005,724
----------- ---------- -------------- -----------
Total liabilities 7,829,255 4,383,741 (950,000) 11,262,996
46,827,636(a) 46,827,636
Stockholders' equity 30,300,623 415,808 (415,808)(a) 30,300,623
----------- ---------- -------------- -----------
Total liabilities and
stockholders' equity $38,129,878 $4,799,549 $45,461,828 $88,391,255
=========== ========== ============== ===========
<PAGE>
THEGLOBE.COM, INC.
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------
Year Ended
December 31, 1998
----------------------------------
Attitude Pro Forma Pro Forma
theglobe.com, inc Network, Ltd. Adjustments As Adjusted
----------------- ------------- ----------- -----------
Revenues $5,509,818 $1,885,547 - $7,395,365
Cost of revenues 2,238,871 903,476 - 3,142,347
----------- ---------- -------------- -----------
Gross profit 3,270,947 982,071 4,253,018
Operating expenses:
Sales and marketing 9,298,683 681,585 - 9,980,268
Product development 2,632,613 1,860,686 - 4,493,299
General and
administrative 6,828,134 1,644,415 - 8,472,549
Non-recurring charge 1,370,250 - - 1,370,250
Amortization of
intangible assets - 1,883,137 $15,153,943(a) 17,037,080
----------- ---------- -------------- -----------
Loss from
operations (16,858,733) (5,087,752) (15,153,943) (37,100,428)
Other income (expense):
Interest and dividend
income 1,083,400 - - 1,083,400
Interest and other
expense (191,389) (1,101,753) - (1,293,142)
----------- ---------- -------------- -----------
Total other
income (expense),
net 892,011 (1,101,753) - (209,742)
----------- ---------- -------------- -----------
Loss before
provision for
income taxes (15,966,722) (6,189,505) (15,153,943) (37,310,170)
----------- ---------- -------------- -----------
Provision for income taxes 78,918 - - 78,918
----------- ---------- -------------- -----------
Net loss $(16,045,640) $(6,189,505) $(15,153,943 $(37,389,088)
=========== ========== ============== ===========
Basic and diluted net loss per
share $(6.74) $(11.81)(b)
=========== ===========
Weighted average basic and
diluted shares outstanding 2,381,140 785,461(b) 3,166,601(b)
=========== ============== ===========
</TABLE>
<PAGE>
THEGLOBE.COM, INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
- ---------------------------------------------------------------------------
(1) Pro Forma Adjustments and Assumptions
(a) In April 1999, the Company acquired Attitude in a stock
transaction for $46.8 million including acquisition costs. The
components of the purchase price were as follows: 785,461 shares
of theglobe Common Stock, valued at $43.1 million, issued to
Attitude shareholders with cash paid in lieu of fractional
shares, warrants to purchase approximately 23,353 shares of
theglobe Common Stock valued at $1.0 million and options to
purchase approximately 42,380 shares of theglobe Common Stock
valued at $1.9 million. The remaining amounts were the result of
acquisition costs amounting to $800,000.
The following represents the allocation of the purchase price
over the historical net book value of the acquired assets and
liabilities of Attitude 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 (April
5, 1999). Assuming the transaction occurred on December 31, 1998,
the allocation would have been as follows:
Attitude Network, Ltd.
----------------------
Assets acquired
Cash $ 2,161,513
Accounts receivable, net 406,412
Other assets 24,308
Computer equipment, office equipment and 382,277
furniture
Goodwill and intangible assets 47,286,867
Liabilities assumed (3,433,741)
-----------
Purchase price $ 46,827,636
======================
This allocation is preliminary and may be subject to change upon the
evaluation of the fair value of the acquired assets and liabilities of
Attitude 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
Attitude at December 31, 1998 to the allocated purchase price assuming
the transaction had occurred on December 31, 1998.
Goodwill and intangibles 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
acquired in this transaction as of January 1, 1998 would have been
approximately $45.5 million.
(b) In connection with the acquisition of Attitude, the Company issued
785,461 shares of theglobe Common Stock, par value $.001 per share, to
the Attitude shareholders. 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.
(c) In connection with the merger, certain outstanding convertible demand
notes (the "notes") held by Attitude directors were converted into
shares of Attitude Common Stock and included in the exchange of
Attitude Common Stock for theglobe Common Stock. The notes featured a
conversion right at the option of the holder in the event that
Attitude was sold. The pro forma adjustment reflects the conversion of
the notes into shares of theglobe Common Stock.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
(c) Exhibits
23.1 Consent of PricewaterhouseCoopers LLP, Independent Certified Public
Accountants.
<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: Vice President and Chief
Financial Officer
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Form S-8 (No.
333-79677) of theglobe.com, inc. of our report dated March 19, 1999, except
for Note 16, for which the date is April 9, 1999, relating to the
consolidated financial statements of Attitude Network, Ltd., which appear
in the Amendment to Current Report on Form 8-K/A of theglobe.com, inc.
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
Tampa, Florida
October 15, 1999
