<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JUNE 22, 1999
-------------
ROWECOM INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 0-21379 04-3370008
------------------------------- ---------------- -----------------
(State or Other Jurisdiction (Commission File (I.R.S. Employer
of Incorporation) S Number) Identification No.)
725 Concord Avenue, Cambridge, MA 02138
-----------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (617) 497-5800
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<PAGE>
THE UNDERSIGNED REGISTRANT, ROWECOM INC. ("ROWECOM"), HEREBY AMENDS ITS CURRENT
REPORT ON FORM 8-K DATED AND FILED ON JUNE 22, 1999, SOLELY TO ADD THE
FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS REQUIRED BY
ITEM 7 OF FORM 8-K.
ITEM 7. FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
(a) Financial Statements of Business Acquired
The financial statements of Corporate Subscription Services, Inc. are set forth
below.
Report of Independent Accountants
To the Stockholders of Corporate Subscription Services, Inc.:
In our opinion the accompanying balance sheet and the related statement of
operations, stockholders' deficit and cash flows present fairly, in all material
respects, the financial position of Corporate Subscription Services, Inc. (the
"Company") at December 31, 1998, and the results of its operations and its cash
flows for the year then ended, 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 audit. We conducted our audit 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 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 audit provides a reasonable basis for the opinion expressed
above.
As discussed in Note 1, on June 14, 1999, the Company was acquired by RoweCom
Inc.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 1, 1999
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<PAGE>
Corporate Subscription Services, Inc.
Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
AT AT
DECEMBER 31, MARCH 31,
1998 1999
----------- --------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 250 $ 362
Accounts receivable 31 -
Restricted cash 98 62
Other current assets 195 200
------- -------
Total current assets 574 624
Equipment and furnishings, net 55 49
Other assets 7 7
------- -------
Total assets $ 636 $ 680
======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable 447 463
Accrued expenses 206 446
Accrued compensation 10 23
Deferred revenue 889 951
Customer advances 98 62
------- -------
Total current liabilities 1,650 1,945
Commitments (Note 5)
Stockholders' deficit
Common stock, no par value per share, 1,000 shares
authorized, 100 shares issued and outstanding 1 1
Accumulated deficit (1,015) (1,266)
------- -------
Total stockholders' deficit (1,014) (1,265)
------- -------
Total liabilities and stockholders' deficit $ 636 $ 680
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
Corporate Subscription Services, Inc.
Statement of Operations
(in thousands)
<TABLE>
<CAPTION>
YEAR THREE MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
(unaudited)
<S> <C> <C>
Revenues $ 7,554 $ 1,602
Cost of revenues 6,846 1,497
------- -------
Gross profit 708 105
Operating expenses:
Sales and marketing 648 282
Research and development 21 25
General and administrative 758 49
------- -------
Total operating expenses 1,427 356
------- -------
Loss from operations (719) (251)
Interest and other income, net 2 -
------- -------
Loss before income taxes (717) (251)
Provision for income taxes - -
------- -------
Net loss $ (717) $ (251)
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
Corporate Subscriptions Services, Inc.
Statement of Stockholder's Deficit
(in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock
No Par Value
--------------------------- Accumulated
Shares Amount Deficit Total
------------- ------------- ------------- -------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 100 $ 1 $ (298) $ (297)
Net loss - - (717) (717)
------ ------ -------- --------
Balance, December 31, 1998 100 1 (1,015) (1,014)
Net loss - - (251) (251)
------ ------ -------- --------
Balance, March 31, 1999 100 $ 1 $ (1,266) $ (1,265)
(unaudited)
====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
Corporate Subscription Services, Inc.
Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
YEAR THREE MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
----------- ------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(717) $(251)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 24 7
Changes in operating assets and liabilities:
Accounts receivable (30) 30
Other current and long term assets (65) (5)
Accounts payable 316 17
Accrued expenses and accrued compensation 154 62
Deferred revenue (33) 252
----- -----
Net cash used in operating activities (351) 112
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and furnishings (27) -
----- -----
Net cash used in investing activities (27) -
Net decrease in cash and cash equivalents (378) 112
Cash and cash equivalents, beginning of year 628 250
----- -----
Cash and cash equivalents, end of year $ 250 $ 362
===== =====
</TABLE>
SUPPLEMENTARY INFORMATION:
There was no cash paid for interest or taxes during the three month period ended
March 31, 1999 or the year ended December 31, 1998.
The accompanying notes are an integral part of these financial statements.
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<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Corporate Subscription Services, Inc. ("CSS" or "the Company"), formerly
Discount Magazine Subscriptions, Inc., was organized in New Jersey in August
1991. The Company provides magazine subscription advice and coordinates
knowledge acquisition and management services. The Company's principal
market is in the United States.
The Company is subject to risks and uncertainties common to technology-based
companies including the ability to obtain adequate financing, dependence on
key individuals, successful development and marketing of its product,
competition from larger and more established enterprises and the need to
establish profitable operations. The Company has a negative working capital
balance and has a net capital deficiency. The Company's continuation as a
going concern is dependent upon its ability to generate sufficient cash flows
to meet its obligations on a timely basis or to obtain additional financing
as may be required. On June 14, 1999, the Company was acquired by RoweCom
Inc. ("RoweCom") for an aggregate purchase price of approximately $5,900,000.
Therefore, the Company expects to operate as a subsidiary of RoweCom and
receive future funding from RoweCom as its parent.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments
with remaining maturities of three months or less from the date of
purchase. Carrying amounts approximate fair value due to the short
maturity of the investments.
REVENUES
Revenues are generated from subscription orders for third-party
publications, which include the cost of the subscription and the associated
transaction fee earned by CSS. CSS recognizes revenues from a subscription
order when payment to the supplier is processed.
RESEARCH AND DEVELOPMENT AND CAPITALIZED SOFTWARE COSTS
Costs incurred prior to the establishment of technological feasibility
are charged to research and development expense as incurred. Software
production costs incurred subsequent to the establishment of technological
feasibility are capitalized until the product or enhancement is available
for general release to customers. Amortization is based on the straight-
line method over the remaining estimated life of the product. Software
production costs eligible for capitalization have been immaterial.
ADVERTISING COSTS
CSS expenses advertising costs as incurred. Advertising expense for the
year ended December 31, 1998 was $12,309.
EQUIPMENT AND FURNISHINGS
Equipment and furnishings are stated at cost, net of accumulated
depreciation. Depreciation is provided using the straight-line method over
the estimated lives of the related assets. Leasehold improvements are
depreciated over the shorter of the lease term or the estimated useful
life. Upon retirement or sale, the cost of the assets disposed of and the
related accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in the determination of net income or
loss.
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<PAGE>
INCOME TAXES
The Company has elected to be taxed as an S Corporation for federal and
certain state income tax purposes and, as a result, is not subject to
federal taxation. The stockholders are liable for individual federal and
certain state income taxes on their allocated portions of the Company's
taxable income.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMER INFORMATION
Financial instruments, which potentially subject the Company to
concentrations of credit risk consist primarily of cash and trade
receivables. At December 31, 1998, all of the Company's financial
instruments were held by one financial institution. The Company performs
ongoing evaluations of customers' financial condition, in certain cases
requires advances from customers for future purchases and maintains
reserves for potential uncollectible amounts, which, in the aggregate, have
not exceeded management expectations. For the year ended December 31, 1998,
revenues generated from two customers represented 27% of total revenues.
Two suppliers provided 14% of knowledge resources sold by the Company
for the year ended December 31, 1998. If these suppliers were to cease
providing knowledge resources at favorable prices, the Company may be
unable to offer competitive prices to its customers.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to provide 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 expense during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL DATA
The interim financial data as of March 31, 1999 and for the three months
ended March 31, 1999 are unaudited; however, in the opinion of management,
the interim financial data include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
results of operations for these interim periods. The interim financial data
are not necessarily indicative of the results of operations for a full
fiscal year.
2. RESTRICTED CASH:
---------------
Restricted cash consists of funds advanced by customers for the future
purchase of publications. The amount has also been recorded as customer
advances.
3. EQUIPMENT AND FURNISHINGS:
-------------------------
The components of equipment and furnishings at December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
USEFUL LIFE
(Years)
------------------
<S> <C> <C>
Computer equipment and software 3 $39,390
Furniture and office equipment 5 27,163
Leasehold improvements Term of the Lease 47,462
-------
114,015
Less: accumulated depreciation (58,635)
-------
$55,380
=======
</TABLE>
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<PAGE>
Depreciation expense for the year ended December 31, 1998 was $24,219.
4. RELATED PARTY TRANSACTIONS:
---------------------------
Included in other currents assets at December 31, 1998 is a loan to an
officer and principal stockholder of the Company in the amount of $194,887.
This loan is due and payable on demand.
Included in accounts payable at December 31, 1998 was $4,000 for tax and
accounting services rendered by a party related to a principal stockholder.
The total expense for these services was $9,000 in 1998. In addition,
marketing consulting services of approximately $141,500 were rendered by a
party related to a principal stockholder during the year ended December 31,
1998.
5. COMMITMENTS:
-----------
The Company leases office space in Montvale, NJ under a non-cancelable
operating lease agreement, which expires on July 31, 2000. Rent expense for
the year ended December 31, 1998 was $41,550. The Company also leases certain
office equipment under non-cancelable operating leases expiring throughout
2001. Future minimum lease payments under these leases are $84,671, $50,342
and $22,819 for years 1999, 2000 and 2001, respectively.
6. STOCKHOLDERS' DEFICIT:
---------------------
The Company has authorized 1,000 shares of common stock, no par value. Common
stockholders are entitled to one vote for each share held and to receive
dividends if and when declared by the Board. The Company has not declared any
common stock dividends to date.
7. EMPLOYEE BENEFIT PLAN:
---------------------
The Company maintains a contributory 401(k) defined contribution plan (the
"Plan") to provide retirement benefits for principally all employees at CSS,
as defined. Under the terms of the Plan, participants may defer up to 15% of
their compensation, a portion of which may be contributed on a pretax basis
as defined by law. The Company may also make discretionary contributions to
the Plan. Participants vest in employer contributions over a six-year period.
The Company did not make any contributions to the Plan for the year ended
December 31, 1998.
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<PAGE>
(b) UNAUDITED PRO FORMA FINANCIAL STATEMENTS
In June 1999, RoweCom Inc. ("RoweCom") acquired all of the issued and
outstanding capital stock of Corporate Subscription Services, Inc., ("CSS"), a
New Jersey Corporation in a transaction accounted for using the purchase method
of accounting.
The total consideration of $5,976,493 consisted of $5,726,493 in cash (subject
to certain post-closing adjustments as provided in the agreement), and 16,260
shares of RoweCom's common stock, which were valued at $250,000. The terms of
the agreement were determined in arm's length negotiations between RoweCom and
the shareholders of CSS. The cash portion of the purchase price came from the
proceeds of RoweCom's initial public offering, which closed on March 12, 1999.
The Unaudited Pro Forma Statement of Operations for the year ended December 31,
1998 gives effect to the acquisition of CSS as if it occurred on January 1, 1998
and is based on the historical results of operations of RoweCom and CSS for the
year ended December 31, 1998. The Unaudited Pro Forma Statement of Operations
for the three months ended June 30, 1999 gives effect to the acquisition of CSS
as if it occurred on April 1, 1999 and is based on the historical results of
operations of RoweCom and CSS for the three months ended June 30, 1999. The
Unaudited Pro Forma Statement of Operations for the six months ended June 30,
1999 gives effect to the acquisition of CSS as if it occurred on January 1, 1999
and is based on the historical results of operations of RoweCom and CSS for the
six months ended June 30, 1999. The Unaudited Pro Forma Statement of Operations
and the accompanying notes should be read in conjunction with the historical
financial statements of RoweCom and CSS and notes thereto. A Pro Forma balance
sheet has not been presented as the transaction is reflected in the most recent
historical financial statements of RoweCom as filed in the Form 10-Q for the
period ended June 30, 1999.
The Unaudited 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 CSS that would have actually occured had the acquisition of CSS
being effective for the periods presented.
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<PAGE>
RoweCom Inc. and CSS
Unaudited Pro Forma Statement of Operations
For the year ended December 31, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
PRO PRO
ROWECOM FORMA FORMA
INC. CSS. ADJ. TOTAL
--------- ------- -------- -----------
<S> <C> <C> <C> <C>
Revenues $ 19,053 $ 7,554 $ - $ 26,607
Cost of revenues 18,736 6,846 - 25,582
--------- ------- -------- -----------
Gross profit 317 708 - 1,025
Operating expenses:
Sales and marketing 4,817 648 - 5,465
Research and development 1,631 21 - 1,652
General and administrative 1,561 758 - 2,319
Goodwill amortization - - 2,488(a) 2,448
--------- ------- -------- -----------
Total operating expenses 8,009 1,427 2,448 11,884
--------- ------- -------- -----------
Loss from operations (7,692) (719) (2,448) (10,859)
Interest and other income, net 172 2 - 174
--------- ------- -------- -----------
Loss before income taxes (7,520) (717) (2,448) (10,685)
Provision for income taxes 109 - - 109
--------- ------- -------- -----------
Net loss $ (7,629) $ (717) $ (2,448) $ (10,794)
========= ======= ======== ===========
(a) Adjustment to amortization to reflect the amortization of goodwill of
approximately $7.3 million resulting from the acquisition of CSS, over a
three year period, the expected period of benefit.
Basic and Diluted net loss per share
Basic and diluted weighted
average shares outstanding 4,079 -- -- 4,095
Basic and diluted loss per
share $ (1.87) -- -- $ (2.64)
</TABLE>
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<PAGE>
RoweCom Inc. and CSS
Unaudited Pro Forma Statement of Operations
For the three months ended June 30, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
PRO PRO
ROWECOM FORMA FORMA
INC. CSS. ADJ. TOTAL
--------- ------- -------- ---------
<S> <C> <C> <C> <C>
Revenues $ 1,128 $ 1,992 $ - $ 3,120
Cost of revenues 1,049 1,819 - 2,868
--------- ------- -------- ---------
Gross profit 79 173 - 252
Operating expenses:
Sales and marketing 2,562 355 - 2,917
Research and development 986 39 - 1,025
General and administrative 1,156 99 - 1,255
Goodwill amortization 204 - (408)(a) 612
--------- ------- -------- ---------
Total operating expenses 4,908 493 (408) 5,809
--------- ------- -------- ---------
Loss from operations (4,829) (320) 408 (5,557)
Interest and other income, net 817 - - 817
--------- ------- -------- ---------
Loss before income taxes (4,012) (320) 408 (4,740)
Provision for income taxes 55 - - 55
--------- ------- -------- ---------
Net loss $ (4,067) $ (320) $ 408 $ (4,795)
========= ======= ======== =========
(a) Adjustment to amortization to reflect the amortization of goodwill of
approximately $7.3 million resulting from the acquisition of CSS, over a
three year period, the expected period of benefit.
Basic and Diluted net loss per share
Basic and diluted weighted
average shares outstanding 10,090 -- -- 10,107
Basic and diluted loss per
share $ (.41) -- -- $ (.47)
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</TABLE>
<PAGE>
RoweCom Inc. and CSS
Unaudited Pro Forma Statement of Operations
For the six months ended June 30, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
PRO PRO
ROWECOM FORMA FORMA
INC. CSS. ADJ. TOTAL
--------- ------- -------- ------------
<S> <C> <C> <C> <C>
Revenues $ 2,827 $ 3,594 $ - $ 6,421
Cost of revenues 2,576 3,316 - 5,892
--------- ------- -------- ------------
Gross profit 251 278 529
Operating expenses:
Sales and marketing 4,457 637 - 5,094
Research and development 1,803 64 - 1,867
General and administrative 1,882 148 - 2,030
Goodwill amortization 204 - (1,020)(a) 1,224
--------- ------- -------- ------------
Total operating expenses 8,346 849 1,020 10,215
--------- ------- -------- ------------
Loss from operations (8,095) (571) 1,020 (9,686)
Interest and other income, net 1,068 - - 1,068
--------- ------- -------- ------------
Loss before income taxes (7,027) (571) 1,020 (8,618)
Provision for income taxes 55 - - 55
--------- ------- -------- ------------
Net loss $ (7,082) $ (571) $ 1,020 $ (8,673)
========= ======= ======== ============
(a) Adjustment to amortization to reflect the amortization of goodwill of
approximately $7.3 million resulting from the acquisition of CSS, over a three
year period, the expected period of benefit.
Basic and Diluted net loss per share
Basic and diluted weighted
average shares outstanding 8,750 - - 8,766
Basic and diluted loss per
share $ (.82) - - $ (.99)
</TABLE>
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(C) EXHIBITS
Exhibit No. Description
- ----------- -----------
23.1 Consent of PricewaterhouseCoopers LLP.
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<PAGE>
SIGNATURE
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, thereunto duly authorized.
ROWECOM INC.
August 19, 1999 By: /s/ Louis Hernandez, Jr.,
---------------------------------
Louis Hernandez, Jr.,
Executive Vice President and
Chief Financial Officer
(Authorized Officer and Principal
Financial and Accounting Officer)
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INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
23.1 Consent of PricewaterhouseCoopers LLP.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 333-77891) of RoweCom Inc. of our report dated
July 1, 1999 relating to the financial statements of Corporate Subscription
Services, Inc., which appears in the Current Report on Form 8-K/A of RoweCom
Inc. dated August 19, 1999.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 19, 1999
