<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: July 2, 1999
(Date of earliest event reported: May 3, 1999)
XOOM.COM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 000-25139 88-0361536
(State or other jurisdiction of (Commission File Number) (IRS Employer Identification No.)
incorporation)
300 Montgomery Street, Suite 300, San Francisco, California 94104
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(415) 288-2500
(Registrant's telephone number, including area code)
Not applicable.
(Former name or former address, if changed since last report)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
On May 5, 1999, XOOM.com, Inc. filed with the Securities and Exchange
Commission a Current Report on Form 8-K (the "Form 8-K") with respect to the
acquisition of MightyMail Networks, Inc. on May 3, 1999. This amendment is being
filed for the purpose of including financial statements and pro forma financial
information and should be read in conjunction with the Form 8-K.
(a) Financial Statements of MightyMail Networks, Inc.
The following documents appear as Exhibit 99.1 to this Current Report
on Form 8-K/A and are incorporated herein by reference:
(i) MightyMail Networks, Inc. audited financial statements as
of December 31, 1997 and 1998 and for the years ended December 31, 1997 and
1998.
(ii) MightyMail Networks, Inc. unaudited financial statements
as of March 31, 1999 and for the three months ended March 31, 1998 and March 31,
1999.
(b) Pro Forma Financial Information.
The following documents appear as Exhibit 99.2 to this Current Report
on Form 8-K/A and are incorporated herein by reference:
Unaudited Pro Forma Condensed Combined Financial Information as of
March 31, 1999 and for the three months ended March 31, 1999 and for the year
ended December 31, 1998.
(c) Exhibits
23.1 Consent of Ernst & Young LLP, Independent Auditors
99.1 Financial Statements of MightyMail Networks, Inc.
99.2 Unaudited Pro Forma Condensed Combined Financial Information.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
XOOM.COM, INC.
By: /s/ John Harbottle
---------------------------------------
John Harbottle
Vice President, Finance,
Chief Financial Officer and Secretary
Date: July 2, 1999
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the use of our report dated June 4, 1999 with respect to the
financial statements of MightyMail Networks, Inc. in this current report on
Form 8-K/A of Xoom.com, Inc dated July 2, 1999.
/s/ Ernst & Young LLP
Palo Alto, California
July 2, 1999
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
MightyMail Networks, Inc.
We have audited the accompanying balance sheets of MightyMail Networks, Inc.
as of December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity (deficit) 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 MightyMail Networks, Inc. at
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the periods then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young
Palo Alto, California
June 4, 1999
<PAGE>
MIGHTYMAIL NETWORKS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1997 1998 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................................... $ 9,553 $ 21,495 $ 38,719
Accounts receivable....................................................... 203,500 -- --
Stock subscription receivable............................................. -- 200,000 150,000
Prepaid expenses and other current assets................................. 6,500 3,015 2,500
---------- ---------- -----------
Total current assets........................................................ 219,553 224,510 191,219
Fixed assets, net........................................................... 65,999 29,562 76,348
---------- ---------- -----------
Total assets................................................................ $ 285,552 $ 254,072 $ 267,567
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................................... $ 152,123 $ 147,800 $ 206,663
Accrued compensation and related expenses................................. 24,145 31,790 39,081
Other accrued liabilities................................................. 15,065 876 200
Stock subscription payable................................................ -- 60,000 60,000
---------- ---------- -----------
Total current liabilities................................................... 191,333 240,466 305,944
Stockholders' equity (deficit):
Convertible preferred stock, $0.001 par value
Authorized shares--10,000,000
Issued and outstanding shares--none and 400,000 at December 31, 1997 and
1998, respectively, and 1,020,000 at March 31, 1999; aggregate
liquidation preference of $200,000 and $510,000 at December 31, 1998
and March 31, 1999 respectively....................................... -- 168,421 451,148
Common stock, $0.001 par value
Authorized shares--20,000,000
Issued and outstanding shares--2,480,000 and 2,555,000 at December 31,
1997 and 1998, respectively, and 2,767,000 at March 31, 1999.......... 10,000 41,579 2,392,822
Note receivable from stockholder............................................ -- -- (6,850)
Deferred compensation....................................................... -- -- (1,468,067)
Retained earnings (accumulated deficit)..................................... 84,219 (196,394) (1,407,430)
---------- ---------- -----------
Total stockholders' equity (deficit)...................................... 94,219 13,606 (38,377)
---------- ---------- -----------
Total liabilities & stockholders equity (deficit)......................... $ 285,552 $ 254,072 $ 267,567
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes.
<PAGE>
MIGHTYMAIL NETWORKS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------- --------------------------
1997 1998 1998 1999
---------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue:
Consulting revenue....................................... $ 931,671 $ 351,042 $ 230,490 $ --
License fees and other................................... 225,000 4,408 -- --
---------- ----------- ----------- -------------
Total net revenue.......................................... 1,156,671 355,450 230,490 --
Cost of revenue............................................ 651,533 215,935 167,805 --
---------- ----------- ----------- -------------
Gross profit............................................... 505,138 139,515 62,685 --
Operating expenses:
Operating and development................................ 257,613 61,937 50,406 462,228
Sales and marketing...................................... 43,387 57,246 14,093 18,467
General and administrative............................... 298,439 296,311 103,554 205,401
Amortization of deferred compensation.................... -- -- -- 523,603
---------- ----------- ----------- -------------
Total operating expenses................................... 599,439 415,494 168,053 (1,209,699)
---------- ----------- ----------- -------------
Loss from operations....................................... (94,301) (275,979) (105,368) (1,209,699)
Other income (expense):
Interest income.......................................... 1,969 878 360 1,122
Interest expense......................................... (3,071) (5,512) (1,390) (2,459)
---------- ----------- ----------- -------------
Net loss................................................... $ (95,403) $ (280,613) $(106,398) $ (1,211,036)
---------- ----------- ----------- -------------
---------- ----------- ----------- -------------
</TABLE>
See accompanying notes.
<PAGE>
MIGHTYMAIL NETWORKS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A NOTE
PREFERRED STOCK COMMON STOCK RECEIVABLE
---------------------- ------------------------ FROM
SHARES AMOUNT SHARES AMOUNT STOCKHOLDER
---------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996.......................... -- $ -- 2,480,000 $ 10,000 $ --
Net income for the year.............................. -- -- -- -- --
---------- ---------- ---------- ------------ -----------
Balances at December 31, 1997.......................... -- -- 2,480,000 10,000 --
Issuance of Series A preferred stock in exchange for
stock subscription receivable...................... 400,000 168,421 -- -- --
Issuance of common stock in exchange for stock
subscription receivable............................ -- -- 75,000 31,579 --
Net loss for the year................................ -- -- -- -- --
---------- ---------- ---------- ------------ -----------
Balances at December 31, 1998.......................... 400,000 168,421 2,555,000 41,579 --
Issuance of Series A preferred stock
for cash (unaudited)............................... 320,000 132,727 -- -- --
Issuance of common stock for cash (unaudited)........ -- -- 75,000 27,273 --
Issuance of Series A preferred stock in exchange for
stock subscription receivable (unaudited).......... 300,000 150,000 -- -- --
Issuance of stock options to consultants
(unaudited)........................................ -- -- -- 325,450 --
Deferred compensation expense related to the issuance
of stock options to employees (unaudited).......... -- -- -- 1,991,670 --
Amortization of deferred compensation (unaudited).... -- -- -- -- --
Exercise of stock options in exchange for a note
receivable (unaudited)............................. -- -- 137,000 6,850 (6,850)
Net loss (unaudited)................................. -- -- -- -- --
---------- ---------- ---------- ------------ -----------
Balances at March 31, 1999 (unaudited)................. 1,020,000 $ 451,148 2,767,000 $ 2,392,822 $ (6,850)
---------- ---------- ---------- ------------ -----------
---------- ---------- ---------- ------------ -----------
<CAPTION>
RETAINED TOTAL
EARNINGS STOCKHOLDERS'
DEFERRED (ACCUMULATED EQUITY
COMPENSATION DEFICIT) (DEFICIT)
------------- ------------- ------------
<S> <C> <C> <C>
Balances at December 31, 1996.......................... $ -- $ 179,622 $ 189,622
Net income for the year.............................. -- (95,403) (95,403)
------------- ------------- ------------
Balances at December 31, 1997.......................... -- 84,219 94,219
Issuance of Series A preferred stock in exchange for
stock subscription receivable...................... -- -- 168,421
Issuance of common stock in exchange for stock
subscription receivable............................ -- -- 31,579
Net loss for the year................................ -- (280,613) (280,613)
------------- ------------- ------------
Balances at December 31, 1998.......................... -- (196,394) 13,606
Issuance of Series A preferred stock
for cash (unaudited)............................... -- -- 132,727
Issuance of common stock for cash (unaudited)........ -- -- 27,273
Issuance of Series A preferred stock in exchange for
stock subscription receivable (unaudited).......... -- -- 150,000
Issuance of stock options to consultants
(unaudited)........................................ -- -- 325,450
Deferred compensation expense related to the issuance
of stock options to employees (unaudited).......... (1,991,670) -- --
Amortization of deferred compensation (unaudited).... 523,603 -- 523,603
Exercise of stock options in exchange for a note
receivable (unaudited)............................. -- -- --
Net loss (unaudited)................................. -- (1,211,036) (1,211,036)
------------- ------------- ------------
Balances at March 31, 1999 (unaudited)................. $(1,468,067) $ (1,407,430) $ (38,377)
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
See accompanying notes.
<PAGE>
MIGHTYMAIL NETWORKS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------- ---------------------------
1997 1998 1998 1999
---------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $ (95,403) $ (280,613) $ (106,398) $ (1,211,036)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation.............................................. 39,521 41,193 12,471 6,381
Amortization of deferred compensation..................... -- -- -- 523,603
Issuance of stock options to consultants.................. -- -- -- 325,450
Loss (gain) on disposal of fixed assets................... 414 (850) -- --
Changes in operating assets and liabilities:
Accounts receivable..................................... (148,500) 203,500 203,500 --
Prepaid expenses and other current assets............... 6,876 3,485 (8,019) 515
Accounts payable........................................ 125,704 (4,323) 19,100 58,863
Accrued compensation and related expenses............... 13,127 7,645 3,149 7,291
Other accrued liabilities............................... 1,003 (14,189) (14,387) (676)
---------- ----------- ------------ -------------
Net cash provided by (used in) operating activities......... (57,258) (44,152) 109,416 (289,609)
INVESTING ACTIVITIES
Purchases of fixed assets................................... (13,904) (4,756) -- (53,167)
Proceeds from sale of fixed assets.......................... 1,750 850 -- --
---------- ----------- ------------ -------------
Net cash used in investing activities....................... (12,154) (3,906) -- (53,167)
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock................... -- -- -- 132,727
Proceeds from issuance of common stock...................... -- -- -- 27,273
Proceeds from repayment of stock subscription receivable.... -- -- -- 200,000
Proceeds from issuance of stock subscription payable........ -- 60,000 -- --
---------- ----------- ------------ -------------
Net cash provided by financing activities................... -- 60,000 -- 360,000
---------- ----------- ------------ -------------
Net increase (decrease) in cash............................. (69,412) 11,942 109,416 17,224
Cash at beginning of period................................. 78,965 9,553 9,553 21,495
---------- ----------- ------------ -------------
Cash at end of period....................................... $ 9,553 $ 21,495 $ 118,969 $ 38,719
---------- ----------- ------------ -------------
---------- ----------- ------------ -------------
SUPPLEMENTAL DISCLOSURES:
Non-cash transactions:
Issuance of preferred stock in exchange for stock
subscription receivable................................. $ -- $ 168,421 $ -- $ 150,000
---------- ----------- ------------ -------------
---------- ----------- ------------ -------------
Issuance of common stock in exchange for stock
subscription receivable................................. $ -- $ 31,579 $ -- $ --
---------- ----------- ------------ -------------
---------- ----------- ------------ -------------
Deferred compensation resulting from grant of stock
options................................................. $ -- $ -- $ -- $ 1,991,670
---------- ----------- ------------ -------------
---------- ----------- ------------ -------------
Exercise of stock option in exchange for notes receivable
from stockholder........................................ $ -- $ -- $ -- $ 6,850
---------- ----------- ------------ -------------
---------- ----------- ------------ -------------
</TABLE>
See accompanying notes.
<PAGE>
MIGHTYMAIL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
On October 16, 1998, MightyMail Networks LLC and Oompala, Inc. merged to
form MightyMail Networks, Inc. (the "Company"). MightyMail Networks LLC was
formed on June 15, 1998, in Delaware. Oompala, Inc. was incorporated on January
10, 1995, in California.
Oompala, Inc. was previously a fee-for-service company whereby products were
developed on a contractual basis. After the merger, the Company began focusing
on an enhanced e-mail product which enables customization of e-mail according to
user preferences.
BASIS OF PRESENTATION
The Company experienced recurring losses and has an accumulated deficit
at December 31, 1998. The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. The
Company will require additional financing to fund operations in 1999.
Effective May 3, 1999, the Company agreed to be acquired by Xoom.com, Inc.
The financial statements do not include any adjustments to the recorded
amounts of assets and liabilities which may result from this transaction.
INTERIM FINANCIAL INFORMATION
The interim financial information for the three months ended March 31, 1998
and 1999, is unaudited but has been prepared on the same basis as the audited
financial statements and includes all adjustments, consisting only of normal
recurring adjustments, that the Company considers necessary for a fair
presentation of its financial position at such date and its results of
operations and cash flows for those periods. Operating results for the three
months ended March 31, 1999, are not necessarily indicative of results that may
be expected for any future periods.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported results of operations during the reporting period. Actual results
could differ from those estimates.
CASH
The Company maintains its cash in depository accounts with one financial
institution.
CONCENTRATIONS OF CREDIT RISK AND CREDIT EVALUATIONS
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of trade accounts receivable. The Company conducts
business with companies in various industries throughout the world and with
individuals over the Internet. The Company performs ongoing credit evaluations
of its corporate customers and generally does not require collateral. Sales to
individuals are principally paid for in cash. To date, the Company has not
experienced any credit losses.
<PAGE>
MIGHTYMAIL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FIXED ASSETS
Fixed assets are stated at cost less accumulated depreciation. Depreciation
is computed using the straight-line method over the estimated useful lives of
three years. Useful lives are evaluated regularly by management in order to
determine recoverability in light of current technological conditions. The
Company identifies and records impairment losses on fixed assets when events and
or circumstances indicate that such assets might be impaired. To date, no such
impairment has been recorded.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"), which requires the use of the liability method in accounting for income
taxes. Under FAS 109, deferred tax assets and liabilities are measured based on
differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and has adopted the disclosure-only alternative of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123").
REVENUE RECOGNITION
The Company's primary source of revenue during 1997 and 1998 was
fee-for-service on a contractual basis. These revenues were recognized as the
Company provided the services. There has been no revenue since July 1998 when
the Company changed its focus to develop its enhanced e-mail product.
LICENSE FEES
During 1997, the Company licensed software under non-cancelable license
agreements to end-users and non-cancelable sub-license agreements to resellers.
License fee revenues were recognized when a non-cancelable license agreement was
signed, the product was delivered, there were no uncertainties surrounding
product acceptance, the fees were fixed and determinable and collection was
probable.
EXPORT SALES
Export sales were to customers in Japan and totaled $303,900 and $4,408
which represent 26% and 1% of net revenue for the years ended December
31, 1997 and 1998, respectively.
<PAGE>
MIGHTYMAIL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130 ("SFAS 130"), "Reporting Comprehensive Income, which
establishes standards for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements. The Company
had no material components of comprehensive income. The adoption of this
standard has had no impact on the Company's financial position, stockholders'
equity, results of operations or cash flows. Accordingly, the Company's
comprehensive loss for the years ended December 31, 1997 and 1998 and the three
months ended March 31, 1998 and 1999, is equal to its reported loss.
2. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Computers and equipment................................ $ 143,500 $ 145,558 $ 198,725
Furniture and fixtures................................. 1,837 1,837 1,837
---------- ----------- -----------
145,337 147,395 200,562
Less accumulated depreciation.......................... (79,338) (117,833) (124,214)
---------- ----------- -----------
$ 65,999 $ 29,562 $ 76,348
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
3. INCOME TAXES
The Company's shareholders have previously elected to be treated as an S
Corporation for federal and state income tax purposes. As an S Corporation, the
current federal and state taxable income is allocated to the stockholders who
are responsible for the payment of taxes thereon. Accordingly, the accompanying
financial statements do not include a provision for federal or state income
taxes.
4. STOCKHOLDERS' EQUITY
The Company's Board of Directors authorized 10,000,000 shares of preferred
stock and 20,000,000 shares of common stock both with a par value of $0.001 per
share.
STOCK SPLIT
In October 1998, the Company completed a 2.48-to-1 stock split of the
outstanding shares of common stock. All share information and per share amounts
in the accompanying financial statements have been retroactively adjusted to
reflect the effect of this stock split.
CONVERTIBLE PREFERRED STOCK
The Company is authorized to issue 1,620,000 shares of Series A preferred
stock, of which 1,020,000 shares were issued and outstanding at March 31, 1999
at prices ranging from $0.36 to $0.50 per share. The holders of the outstanding
Preferred Stock are entitled to receive, when and as declared by the Board of
<PAGE>
MIGHTYMAIL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
Directors, dividends at the rate of $0.04 per share per annum, payable in
preference and priority to any payment of any dividend on Common Stock of the
Company.
In the event of any liquidation, dissolution, or winding up of the Company,
either voluntary or involuntary, the holders of the Preferred Stock will be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the Company to the holders of the Common Stock by
reason of their ownership of such stock, the amount of $0.50 per share for each
share of Preferred Stock then held by them.
Each share of Preferred Stock is convertible, at the option of the holder
into such number of fully paid and non assessable shares of Common Stock as is
determined by dividing $0.50 by the conversion price in effect at the time of
conversion.
An additional 200,000 shares of Series A preferred shares were issued for
cash on April 5, 1999.
WARRANTS
In connection with the issuance of Series A preferred stock in the year
ended December 31, 1998 and the three months ended March 31, 1999, the Company
issued warrants to purchase a total of 350,000 shares of Series A preferred
stock at a price of $0.50 per share. These warrants are immediately exercisable
and expire on December 31, 1999.
COMMON SHARES
The Company issued 150,000 shares of common stock in conjunction with
subscriptions of Series A preferred stock in the period December 1998 through
January 1999 at prices ranging from $0.36 to $0.42 per share.
STOCK OPTION PLAN
The Company has reserved 1,017,125 shares of common stock under the
Company's 1999 Stock Option Plan (the "Plan"). The Plan provides for incentive
stock options, as defined by the Internal Revenue Code, to be granted to
employees and certain non-employee consultants, at an exercise price not less
than 100% of the fair value at the grant date as determined by the Board of
Directors. The Plan also provides for nonqualified stock options to be issued to
non-employee officers, directors and consultants at an exercise price of not
less than 85% of the fair value at the grant date unless optionee is a 10%
shareholder in which case option price will not be less than 110% of such fair
value. Option vesting schedules are determined by the Board of Directors at the
time of issuance. Stock options generally vest over different periods ranging
from immediately to 50% at the end of the first year and monthly thereafter up
to a maximum of three years. Upon a change of control, as defined in the Plan,
50% of unvested options become immediately vested.
<PAGE>
MIGHTYMAIL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
----------- -----------------
<S> <C> <C>
Balance at December 31, 1998.................................... -- $ --
Options granted (unaudited)................................... 392,000 0.05
Options exercised (unaudited)................................. (137,000) 0.05
Options cancelled (unaudited)................................. -- --
----------- -----
Balance at March 31, 1999 (unaudited)........................... 255,000 $ 0.05
----------- -----
----------- -----
</TABLE>
At March 31, 1999, there are 762,125 shares available for future grant under
the Plan.
The following table summarizes information about options outstanding and
exercisable as at March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
PRICE SHARES LIFE (IN YEARS) PRICE SHARES PRICE
- ------------------------------- ----------- ----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$0.05 255,000 9.92 $ 0.05 255,000 $ 0.05
</TABLE>
The Company granted options for 674,926 shares of common stock under the
1999 Stock Option Plan to employees and certain non-employee consultants on
April 30, 1999. These options vest over a period of 3 years and are immediately
exercisable at $2.00 per share.
DEFERRED COMPENSATION
The Company has recorded deferred compensation charges of $0 and $1,468,067
for the year ended December 31, 1998 and for the three months ended March 31,
1999, respectively, for the difference between the exercise price and the deemed
fair value of certain stock options granted by the Company. These amounts are
being amortized by charges to operations, using the graded method, over the
vesting periods of the individual stock options, which range from immediately to
three years.
OPTIONS ISSUED TO CONSULTANTS
The Company granted options to purchase 55,000 shares of common stock to
consultants at exercise price of $0.05 per share on March 1, 1999. These options
were granted in exchange for consulting services performed. The Company valued
these options (using the Black-Scholes valuation method) at $325,450, for the
three months ended March 31, 1999. This amount was charged to operations in the
three months ended March 31, 1999.
PRO FORMA DISCLOSURE OF THE EFFECT OF STOCK-BASED COMPENSATION
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123
<PAGE>
MIGHTYMAIL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
requires the use of option valuation models that were not developed for use in
valuing employee stock options. Pro forma information regarding net income
(loss) and net income (loss) per share is required by FAS 123. This information
is required to be determined as if the Company has accounted for its employee
stock options under the fair value method of FAS 123. Under this method, the
estimated fair value of the options is amortized to expense over the options'
vesting period. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted-
average assumptions:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
------------------------
<S> <C> <C>
NON-QUALIFIED ISO
------------- ---------
Risk-free interest rate............................................ 5.50% 5.73%
Expected life of the option........................................ 5 years 10 years
Expected volatility................................................ 100% 100%
Expected dividend yield............................................ 0% 0%
</TABLE>
Because FAS 123 is applicable only to options granted since inception, its
adjusted effect will not be fully reflected until 2000.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimates, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
The weighted-average fair value of options granted to employees during the
three months ended March 31, 1999 was $0.04.
5. COMMITMENTS
The Company leases its facilities under noncancelable leases for varying
periods through May 1999. The following are the minimum lease obligations under
these leases at December 31, 1998:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
1999............................................................................... $ 12,500
Less current portion............................................................... (12,500)
-----------
Long-term portion.................................................................. $ --
-----------
-----------
</TABLE>
Rent expense under operating lease arrangements for the years ended December
31, 1997 and 1998 and the three months ended March 31, 1998 and 1999 totaled
$82,740, $66,250, $21,306 and $8,583, respectively.
<PAGE>
MIGHTYMAIL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
6. RELATED PARTY TRANSACTIONS
During the period from December 23, 1998 through March 31, 1999, the Company
issued stock subscriptions receivable to investors in exchange for shares of
preferred and common stock. These subscriptions receivable are due upon demand
and bear no interest. As of March 31, 1999, there were no outstanding amounts
due under subscriptions receivable.
7. YEAR 2000 (UNAUDITED)
The Year 2000 Issue is the result of computer programs being written using
two-digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This situation could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company believes that it will not be required to modify or replace any
portion of its software so that its computer system will function properly with
respect to dates in the year 2000 and thereafter.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information of
XOOM.com, Inc. ("XOOM.com") gives effect to the acquisition of MightyMail
Networks, Inc. ("MightyMail Networks"). The historical financial information
has been derived from the historical financial statements of XOOM.com and
MightyMail Networks, and should be read in conjunction with such financial
statements and the notes thereto included in or incorporated by reference in
this Form 8-K/A.
The unaudited pro forma condensed combined balance sheet as of March 31, 1999
has been prepared assuming the MightyMail Networks acquisition took place as
of that date and includes the allocation of the total purchase consideration
to the fair values of the assets and liabilities of MightyMail Networks.
The unaudited pro forma condensed combined statements of operations combine
XOOM.com's and MightyMail Networks' historical statements of operations for the
year ended December 31, 1998 and the three months ended March 31, 1999 and give
effect to the merger, including the amortization of goodwill and other
intangible assets, as if it occurred on January 1, 1998 and 1999, respectively.
The unaudited pro forma condensed combined information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the transactions had
been consummated as of the dates indicated, nor is it necessarily indicative of
future operating results or financial condition of XOOM.com.
<PAGE>
Xoom.com
UNAUDITED PRO FORMA
CONDENSED COMBINED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
As of March 31, 1999
---------------------------------------------------------------------------
Historical
----------------------------------------- Pro Forma
Business
MightyMail Combination
Xoom.com, Inc. Networks Combined Adjustments Pro Forma
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 43,381 $ 39 $ 43,420 $ - $ 43,420
Short-term investments 9,290 - 9,290 - 9,290
Accounts receivable, net 1,610 - 1,610 - 1,610
Inventories 282 - 282 - 282
Other current assets 477 153 630 - 630
---------------------------------------------------------------------------
Total current assets 55,040 192 55,232 - 55,232
Fixed assets, net 3,248 76 3,324 - 3,324
Goodwill, net 3,165 - 3,165 18,604 (2) 21,769
Intangibles, net 1,490 - 1,490 3,459 (2) 4,949
Investments 1,004 - 1,004 1,004
Other assets 843 - 843 - 843
---------------------------------------------------------------------------
Total assets $ 64,790 $ 268 $ 65,058 $ 22,063 $ 87,121
---------------------------------------------------------------------------
---------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,097 $ 207 $ 2,304 $ 300 (1) $ 2,604
Accrued compensation and related expenses 863 39 902 - 902
Other accrued liabilities 1,303 - 1,303 - 1,303
Deferred revenue 411 - 411 - 411
Notes payable 1,191 60 1,251 - 1,251
Contingency accrual 1,000 - 1,000 - 1,000
---------------------------------------------------------------------------
Total current liabilities 6,865 306 7,171 300 7,471
Notes payable, less current portion 370 - 370 - 370
Capital lease obligations, less current portion 105 - 105 - 105
Stockholders' equity:
Preferred stock - 451 451 (451) (3) -
Common stock 75,801 2,393 78,194 20,421 (1),(3) 98,615
Note receivable from shareholder - (7) (7) - (7)
Deferred compensation (674) (1,468) (2,142) 1,468 (3) (674)
Accumulated deficit (17,677) (1,407) (19,084) 325 (3),(4) (18,759)
---------------------------------------------------------------------------
Total stockholders' equity 57,450 (38) 57,412 21,763 79,175
---------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 64,790 $268 $ 65,058 $ 22,063 $ 87,121
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
<PAGE>
Xoom.com
UNAUDITED PRO FORMA CONDENSED COMBINED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(In thousands, except per share data) For the Year Ended December 31, 1998
----------------------------------------------------------------
Historical
------------------------------------ Pro Forma
Business
MightyMail Combination
Xoom.com, Inc. Networks Combined Adjustments Pro Forma
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenue $ 8,318 $ 355 $ 8,673 $ - $ 8,673
Cost of net revenue 3,584 215 3,799 - 3,799
---------------------------------------------------------------
Gross profit 4,734 140 4,874 - 4,874
Operating expenses:
Operating and development 3,840 62 3,902 - 3,902
Sales and marketing 2,835 57 2,892 - 2,892
General and administrative 3,366 297 3,663 - 3,663
Purchased in-process research and development 790 - 790 - (A) 790
Amortization of deferred compensation 1,416 - 1,416 1,416
Amortization of goodwill and other intangible assets 1,843 - 1,843 5,245 (B) 7,088
---------------------------------------------------------------
Total operating expenses 14,090 416 14,506 5,245 19,751
Loss from operations (9,356) (276) (9,632) (5,245) (14,877)
Other Income (expense):
Interest income 187 1 188 - 188
Interest expense (135) (6) (141) - (141)
Interest expense related to warrant (1,494) - (1,494) - (1,494)
---------------------------------------------------------------
Net loss $ (10,798) $ (281) $ (11,079) $ (5,245) $(16,324)
---------------------------------------------------------------
---------------------------------------------------------------
Basic and diluted net loss per share (C) $ (1.83)
-----------------
-----------------
Shares used in per share calculation (C) 8,930
-----------------
-----------------
</TABLE>
<PAGE>
Xoom.com
UNAUDITED PRO FORMA CONDENSED COMBINED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(In thousands, except per share data) For the Three Months Ended March 31, 1999
-----------------------------------------------------------------------------
Historical
------------------------------------------- Pro Forma
Business
MightyMail Combination
Xoom.com, Inc. Networks Combined Adjustments Pro Forma
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenue $ 4,422 $ - $ 4,422 $ - $ 4,422
Cost of net revenue 2,042 2,042 - 2,042
-----------------------------------------------------------------------------
Gross profit 2,380 - 2,380 - 2,380
Operating expenses:
Operating and development 1,149 462 1,611 - 1,611
Sales and marketing 2,434 19 2,453 - 2,453
General and administrative 1,623 205 1,828 - 1,828
Purchased in-process research and development - - - - (A) -
Amortization of deferred compensation 230 524 754 - 754
Amortization of goodwill and other intangible
assets 862 - 862 1,379 (B) 2,241
-----------------------------------------------------------------------------
Total operating expenses 6,298 1,210 7,508 1,379 8,887
Loss from operations (3,918) (1,210) (5,128) (1,379) (6,507)
Other Income (expense):
Interest income 640 1 641 - 641
Interest expense (30) (2) (32) - (32)
-----------------------------------------------------------------------------
Net loss $ (3,308) $ (1,211) $ (4,519) $ (1,379) $ (5,898)
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Basic and diluted net loss per share (C) $ (0.40)
---------------
---------------
Shares used in per share calculation (C) 14,862
---------------
---------------
</TABLE>
<PAGE>
XOOM.COM
NOTES TO THE SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The total estimated purchase consideration of the MightyMail Networks merger
has been allocated on a preliminary basis to assets and liabilities based on
management's estimate of their fair values. The excess of the purchase cost
over the fair value of the net assets acquired has been allocated to
goodwill. This allocation is subject to change pending the completion of the
final analysis of the fair value of the assets acquired and liabilities
assumed. The impact of these changes cold be material.
The adjustments to the unaudited pro forma condensed combined balance sheet as
of March 31, 1999 have been calculated as if the merger occurred on March 31,
1999 and are as follows:
(1) To reflect the acquisition of MightyMail Networks for a total estimated
purchase price of approximately $23,114,000. The purchase price consists of the
following:
- Issuance of 302,354 shares of Xoom.com's Common Stock to the
shareholders of MightyMail Networks with an estimated fair value of
$21,497,000. The estimated fair value per share of XOOM.com's common
stock issued is based on the average closing price of XOOM.com's
common stock on May 5, 1999 (the day the merger was announced) and the
three days prior and subsequent to such date.
- Assumption of options to purchase 21,182 shares of XOOM.com's Common
Stock with a fair value of $1,317,000. The fair value of the options
assumed is based on the Black-Scholes model using the following
assumptions:
- Fair market value of the underlying shares is based on the
average closing price of XOOM.com's common stock on May 5, 1999
(the day the merger was announced) and the three days prior and
subsequent to such date
- Expected life of 3 years
- Expected volatility of 1.0
- Risk-free interest rate of 5.16%
- Expected dividend rate of 0%
- Other related transaction and merger costs estimated to be $300,000.
(2) Recognition of the excess purchase cost of $22,063,000 over the fair
value of the net tangible liabilities acquired, have been recorded as
goodwill and other intangible assets as follows:
<TABLE>
<S> <C>
- Developed technology $ 847,000
- Core Technology 2,436,000
- Acquired workforce 176,000
- Goodwill 18,604,000
-----------
$22,063,000
-----------
-----------
</TABLE>
(3) To reflect the elimination of the historical stockholders' equity accounts
of MightyMail Networks
(4) Recognition of purchased in-process research and development charge of
$1,082,000
The adjustments to the unaudited pro forma condensed combined consolidated
statements of operations for the year ended December 31, 1998 and the three
months ended March 31, 1999 have been calculated assuming that the merger
occurred as of January 1, 1998 and January 1, 1999, respectively and are as
follows:
<PAGE>
(A) The purchased in-process research and development charge of $1,082,000 has
been excluded from net loss for the year ended December 31, 1998 and the
three months ended March 31, 1999, as it represents a non-recurring charge.
The charge will be recorded in the three months ended June 30, 1999.
(B) To reflect the amortization of goodwill and other intangible assets
resulting from the merger. The goodwill and other intangible assets are
being amortized over a period of four years.
(c) Basic and diluted net loss per share reflects the issuance of 302,354
shares of XOOM.com's common stock, as if the shares had been outstanding
for the entire period. The effect of stock options issued assumed in the
merger have not been included, as their inclusion would be anti-dilutive.
