<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 (Date of earliest event reported)
August 23, 1999
MAIL.COM, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 7310 13-3787073
- --------------------------------------------------------------------------------
(State of other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
11 BROADWAY, 6TH FLOOR
NEW YORK, NEW YORK 10004
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (212) 425-4200
N/A
- --------------------------------------------------------------------------------
Former Name or Former Address, if Changed Since Last Report
<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 August 234, 1999, as set forth in the pages attached hereto:
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
<TABLE>
<CAPTION>
PAGE
<S> <C>
The Allegro Group, Inc.
Independent Accountants' Report F - 1
Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999 (unaudited) F - 2
Statements of Operations for the years ended December 31, 1997 and 1998, and for
the six months ended June 30, 1998 and 1999 (unaudited) F - 3
Statements of Shareholders' Equity (Deficit) for the years ended December 31, 1997
and 1998, and for the six months ended June 30, 1999 (unaudited) F - 4
Statements of Cash Flows for the years ended December 31, 1997 and 1998, and for
the six months ended June 30, 1998 and 1999 (unaudited) F - 5
Notes to Financial Statements F - 6
Mail.com, Inc. Pro Forma Condensed Consolidated Financial
Information F - 15
Unaudited Pro Forma Condensed Consolidated Balance Sheet of December 31, 1998 F - 17
Unaudited Pro Forma Condensed Consolidated Statement of Operations For the Year
Ended December 31, 1998 F - 18
Unaudited Pro Forma Condensed Consolidated Statement of Operations For the Six
Months Ended June 30, 1999 F - 19
Notes to the Unaudited Pro Forma Condensed Consolidated Financial Information F - 20
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Allegro Group, Inc.:
We have audited the accompanying balance sheets of The Allegro Group, Inc. as of
December 31, 1997 and 1998, and the related statements of operations,
shareholders' 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 The Allegro Group, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Columbus, Ohio
October 19, 1999
F-1
<PAGE>
THE ALLEGRO GROUP, INC.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
ASSETS 1997 1998 1999
------------------ ------------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 88,568 $ 39,096 $ 50,091
Accounts receivable, net of allowance for doubtful
accounts of $5,000, $3,000 and $12,000 in
1997, 1998, and 1999, respectively 485,295 445,159 457,277
Prepaid expenses and other current assets 23,849 21,849 50,048
------------------ ------------------- ---------------
Total current assets 597,712 506,104 557,416
------------------ ------------------- ---------------
Property and equipment, net 410,394 692,224 626,668
Other 9,109 8,624 8,624
------------------ ------------------- ---------------
Total assets $ 1,017,215 $ 1,206,952 $ 1,192,708
------------------ ------------------- ---------------
------------------ ------------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Revolving line of credit $ 99,993 $ 93,722 $ 98,600
Current portion of notes payable to bank -- 53,548 59,766
Current portion of capital lease obligations 22,870 76,493 142,265
Accounts payable 320,145 731,875 975,485
Other accrued expenses 41,107 286,000 332,911
Accrued payroll and related costs 153,483 51,000 140,817
------------------ ------------------- ---------------
Total current liabilities 637,598 1,292,638 1,749,844
------------------ ------------------- ---------------
Notes payable to bank, less current portion -- 56,755 22,104
Capital lease obligations, less current portion 38,363 105,213 3,152
------------------ ------------------- ---------------
Total liabilities 675,961 1,454,606 1,775,100
------------------ ------------------- ---------------
Shareholders' equity (deficit):
Common stock, $0.01 par value; 850 shares authorized;
401 shares issued and outstanding for all periods 4 4 4
Additional paid-in capital 536 536 536
Retained earnings (accumulated deficit) 340,714 (248,194) (582,932)
------------------ ------------------- ---------------
Total shareholders' equity (deficit) 341,254 (247,654) (582,392)
------------------ ------------------- ---------------
Commitments and contingencies
Total liabilities and shareholders'
equity (deficit) $ 1,017,215 $ 1,206,952 $ 1,192,708
------------------ ------------------- ---------------
------------------ ------------------- ---------------
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
THE ALLEGRO GROUP, INC.
Statements of Operations
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
1997 1998 1998 1999
--------------- ----------------- --------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $ 2,900,039 $ 4,325,995 $ 2,064,234 $ 2,335,234
--------------- ----------------- --------------- ----------------
Operating expenses:
Cost of revenues 1,362,830 2,317,970 1,212,166 1,349,374
Sales and marketing 538,722 892,097 354,285 548,935
Product development 63,368 135,463 51,029 104,164
General and administrative 719,312 1,442,534 546,146 591,502
--------------- ----------------- --------------- ----------------
Total operating expenses 2,684,232 4,788,064 2,163,626 2,593,975
--------------- ----------------- --------------- ----------------
Income (loss) from operations 215,807 (462,069) (99,392) (258,741)
--------------- ----------------- --------------- ----------------
Other income (expense):
Interest income 12,267 10,888 8,439 9,870
Interest expense (3,664) (38,286) (10,867) (25,679)
Other 1,284 (783) 3,677 5,100
--------------- ----------------- --------------- ----------------
Total other income
(expense), net 9,887 (28,181) 1,249 (10,709)
--------------- ----------------- --------------- ----------------
Net income (loss) $ 225,694 $ (490,250)$ (98,143)$ (269,450)
--------------- ----------------- --------------- ----------------
--------------- ----------------- --------------- ----------------
Pro Forma income taxes (unaudited) $ 88,007 $ (156,976)$ (78,488)$ 7,662
--------------- ----------------- --------------- ----------------
--------------- ----------------- --------------- ----------------
Pro Forma net income (loss) (unaudited) $ 137,687 $ (333,274)$ (19,655)$ (277,112)
--------------- ----------------- --------------- ----------------
--------------- ----------------- --------------- ----------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
THE ALLEGRO GROUP, INC.
Statements of Shareholders' Equity (Deficit)
<TABLE>
<CAPTION>
RETAINED TOTAL
ADDITIONAL EARNINGS SHAREHOLDERS'
COMMON STOCK PAID-IN (ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT) (DEFICIT)
--------- ------------ --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 401 $ 4 $ 536 $ 233,028 $ 233,568
Net income -- -- -- 225,694 225,694
Shareholder distributions -- -- -- (118,008) (118,008)
--------- ------------ --------------- ------------- --------------
Balances at December 31, 1997 401 4 536 340,714 341,254
Net loss -- -- -- (490,250) (490,250)
Shareholder distributions -- -- -- (98,658) (98,658)
--------- ------------ --------------- ------------- --------------
Balances at December 31, 1998 401 4 536 (248,194) (247,654)
Net loss (unaudited) -- -- -- (269,450) (269,450)
Shareholder distributions (unaudited) -- -- -- (65,288) (65,288)
--------- ------------ --------------- ------------- --------------
Balances at June 30, 1999 401 $ 4 $ 536 $ (582,932) $ (582,392)
(unaudited)
--------- ------------ --------------- ------------- --------------
--------- ------------ --------------- ------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
THE ALLEGRO GROUP, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
1997 1998 1998 1999
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 225,694 $(490,250) $ (98,143) $(269,450)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 145,061 262,624 124,920 166,722
Provision for doubtful accounts 33,000 41,000 15,000 31,000
Losses on disposal of property and equipment 1,191 23,703 19,706 7,098
Changes in operating assets and liabilities:
Accounts receivable (333,536) (864) 52,365 (43,118)
Prepaid expenses and other current assets (22,398) 2,000 18,004 (28,199)
Other assets (1,137) 485 198 --
Accounts payable 215,875 411,730 279,287 243,610
Other accrued expenses 35,676 244,893 8,961 46,911
Accrued payroll and related costs 125,006 (102,483) (51,210) 89,817
--------- --------- --------- ---------
Net cash provided by operating activities 424,432 392,838 369,088 244,391
--------- --------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment (307,864) (401,918) (309,516) (108,264)
Proceeds from sales of property and equipment -- 2,285 -- --
--------- --------- --------- ---------
Net cash used in investing activities (307,864) (399,633) (309,516) (108,264)
--------- --------- --------- ---------
Cash flows from financing activities:
Net borrowings (repayments) under revolving
line of credit 79,993 (6,271) (24,001) 10,000
Borrowings under notes payable to bank -- 139,487 95,729 --
Repayments of notes payable to bank -- (29,184) (7,980) (33,555)
Principal payments under capital lease obligations (17,008) (48,051) (22,951) (36,289)
Distributions paid (118,008) (98,658) (76,162) (65,288)
--------- --------- --------- ---------
Net cash used in financing activities (55,023) (42,677) (35,365) (125,132)
--------- --------- --------- ---------
Net increase (decrease) in
cash and cash equivalents 61,545 (49,472) 24,207 10,995
Cash and cash equivalents at beginning of period 27,023 88,568 88,568 39,096
--------- --------- --------- ---------
Cash and cash equivalents at the end of period $ 88,568 $ 39,096 $ 112,775 $ 50,091
--------- --------- --------- ---------
--------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 3,664 $ 38,286 $ 10,867 $ 26,679
--------- --------- --------- ---------
--------- --------- --------- ---------
NON-CASH FINANCING ACTIVITIES-
Property and equipment purchased under capital
lease obligations $ 62,244 $ 168,524 $ 123,267 $ --
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
THE ALLEGRO GROUP, INC.
Notes to Financial Statements
December 31, 1997 and 1998
(All information subsequent to December 31, 1998 is unaudited)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(A) SUMMARY OF OPERATIONS
The Allegro Group, Inc. (the "Company" or "Allegro") was formed
in 1995 as an S corporation. The Company provides businesses
with internet email message management services. The Company's
services include internet email network integration services,
email hosting services and email message management services,
including virus scanning, attachment control, spam control,
legal disclaimers and real time Web-based reporting.
Inherent in the Company's business are various risks and
uncertainties, including its limited operating history. The
Company's future success will be dependent upon its ability to
create and deliver effective and competitive messaging services
and its ability to develop and provide new services that meet
members' changing requirements, including the effective use of
leading technologies. The Company must also continue to enhance
its current services, and to influence and respond to emerging
industry standards and other technological changes on a timely and
cost-effective basis.
The Company's ability to provide services is dependent on its
telecommunications network. The Company uses one
telecommunications company for its business. The Company does not
anticipate any contractual changes with this telecommunications
company. However, if such changes do occur, the Company does not
believe that they would have an adverse effect of the Company's
business.
(B) UNAUDITED INTERIM INFORMATION
The interim financial statements of the Company as of June 30,
1999, and for the six months ended June 30, 1998 and 1999, are
unaudited. Certain information and note disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the SEC relating
to interim financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of the financial position and
the results of its operations and its cash flows have been
included in such unaudited financial statements. The results of
operations for the six months ended June 30, 1998 and 1999 are not
necessarily indicative of the results to be expected for the
entire year.
F-6 (Continued)
<PAGE>
THE ALLEGRO GROUP, INC.
Notes to Financial Statements
December 31, 1997 and 1998
(All information subsequent to December 31, 1998 is unaudited)
(C) USE OF ESTIMATES
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and the 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.
(D) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid securities, with original
maturities of three months or less when acquired, to be cash
equivalents. Cash equivalents at December 31, 1997 and 1998 and
June 30, 1999 were approximately $26,000, $27,000 and $28,000,
respectively.
(E) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the estimated
useful lives of the related assets, generally ranging from three
to five years. Property and equipment under capital leases are
stated at the present value of minimum lease payments and are
amortized using the straight-line method over the shorter of the
lease term or the estimated useful lives of the assets. Leasehold
improvements are amortized using the straight-line method over the
estimated useful lives of the assets or the term of the lease,
whichever is shorter.
(F) IMPAIRMENT OF LONG-LIVED ASSETS
Periodically, management determines whether any property and
equipment or any other assets have been impaired based on the
criteria established in SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of."
(G) INCOME TAXES
The Company has elected under the Internal Revenue Code to be an S
Corporation. As such, the Company is not subject to federal or
state income taxes. The Company's stockholders include the taxable
income or loss of the Company in their personal income tax
returns. Accordingly, no provision for income taxes has been
reflected in the financial statements of the Company.
If the Company had operated as a C Corporation since inception,
the Company would have recorded net deferred tax assets for the
years ended December 31, 1997 and 1998 and for the six months
ended June 30, 1999 of approximately $6,000, $133,000, and
$147,000. However, due to operating losses incurred, there would
have been a corresponding valuation allowance of $31,000 and
$147,000 in 1998 and 1999, respectively.
F-7 (Continued)
<PAGE>
THE ALLEGRO GROUP, INC.
Notes to Financial Statements
December 31, 1997 and 1998
(All information subsequent to December 31, 1998 is unaudited)
(H) REVENUE RECOGNITION
The Company's revenues are derived principally from internet
email network integration services, email hosting services
and email message management services, including virus
scanning, attachment control, spam control, legal disclaimers
and real time web-based reporting.
(I) PRODUCT DEVELOPMENT COSTS
Product development costs consist principally of salaries and
related costs, which are charged to expense as incurred.
(J) SALES AND MARKETING COSTS
The Company expenses the cost of advertising and promoting its
services as incurred. Such costs are included in sales and
marketing and totaled approximately $368,000 and $419,000 and
$160,000 and $305,000 for the years ending December 31, 1997, and
1998 and for the six-month periods ended June 30, 1998 and 1999,
respectively.
(K) FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist of cash and cash
equivalents and accounts receivable. At December 31, 1997 and
1998, and June 30, 1999, the fair value of these instruments
approximated their financial statement carrying amount because of
the short-term maturity of these instruments. The Company has not
experienced any significant credit loss to date. No single
customer exceeded 10% of either revenue or accounts receivable in
1997, 1998, or 1999.
The fair value of other financial instruments, including the
current portion of notes payable and current liabilities also
approximated their financial statement carrying amount because of
the short-term maturity of these instruments. The carrying amount
of notes payable approximated fair value calculated by discounting
scheduled cash flows through maturity using current rates.
(L) RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use
("SOP 98-1"). SOP 98-1 provides guidance for determining whether
computer software is internal-use software and on accounting for
the proceeds for determining whether computer software originally
developed or obtained for internal use and then subsequently sold
to the public. It also provides guidance on capitalization of the
costs incurred for computer software developed or obtained for
internal use. The Company adopted SOP 98-1 in the fourth quarter
of 1998 and has approximately $16,000 and $47,000 of capitalized
software costs as of December 31, 1998 and June 30, 1999,
respectively.
F-8 (Continued)
<PAGE>
THE ALLEGRO GROUP, INC.
Notes to Financial Statements
December 31, 1997 and 1998
(All information subsequent to December 31, 1998 is unaudited)
The Company adopted the provisions of Statement of Financial
Accounting Standards "(SFAS") No. 130, "Reporting Comprehensive
Income" in 1998. SFAS No. 130 requires the Company to report in
its financial statements, in addition to its net income (loss),
comprehensive income (loss), which includes all changes in equity
during a period from non-owner sources including, as applicable,
foreign currency items, minimum pension liability adjustments and
unrealized gains and losses on certain investments in debt and
equity securities. There were no differences between the Company's
comprehensive income (loss) and its net income (loss) as reported.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for the way that public enterprises report
information about operating segments. It also establishes
standards for related disclosures about products and services,
geographic areas and major customers. The Company has determined
that it does not have any separately reportable segments.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other
contracts, and for hedging activities. Subsequently, the FASB
issued SFAS No. 137 which deferred the effective date of SFAS No.
133. SFAS No. 137 is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. This statement is not
expected to effect the Company, as the Company does not have any
derivative instruments or engage in hedging activities.
F-9 (Continued)
<PAGE>
THE ALLEGRO GROUP, INC.
Notes to Financial Statements
December 31, 1997 and 1998
(All information subsequent to December 31, 1998 is unaudited)
(2) PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
USEFUL DECEMBER 31, JUNE 30,
LIVES 1997 1998 1999
----------- ----------- -------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Computer equipment and software, including
amounts related to capital leases of
$49,558, $118,195 and $118,195,
respectively 3 $ 486,193 $ 850,414 $ 938,365
Furniture and fixtures, including amounts
related to capital leases of $43,036,
$142,603 and $142,603, respectively
5 106,122 273,715 272,195
Leasehold improvements 3-5 9,985 12,339 12,339
----------- -------------- ---------------
602,300 1,136,468 1,222,899
Less accumulated depreciation and
amortization, including amounts related
to capital leases of $34,880, $74,479
and $108,426, respectively 191,906 444,244 596,231
----------- -------------- ---------------
Total $ 410,394 $ 692,224 $ 626,668
----------- -------------- ---------------
----------- -------------- ---------------
</TABLE>
THE ALLEGRO GROUP, INC.
Notes to Financial Statements
December 31, 1997 and 1998
(All information subsequent to December 31, 1998 is unaudited)
(3) LINE OF CREDIT
The Company has a revolving credit facility agreement with a bank that
enables it to borrow up to $100,000 at 1.0% above prime (8.75% at
December 31, 1998), subject to certain conditions and collateral
restrictions as defined in the agreement. At December 31, 1998, the
Company had additional borrowing capacity of approximately $6,000. The
revolving credit facility is secured by substantially all of the
Company's assets, including accounts receivable and property and
equipment. The line of credit agreement expired in September 1999 and was
repaid in October 1999.
F-10 (Continued)
<PAGE>
THE ALLEGRO GROUP, INC.
Notes to Financial Statements
December 31, 1997 and 1998
(All information subsequent to December 31, 1998 is unaudited)
(4) NOTES PAYABLE
A summary of notes payable is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------------ ---------------
(UNAUDITED)
<S> <C> <C>
Notepayable to bank, bearing interest at prime plus 0.75%
(8.5% at December 31, 1998); principal and interest
payable in monthly installments of $2,007 through
August 2000; secured by property and equipment
$ 38,515 $ 26,468
Notepayable to bank, bearing interest at prime plus 0.75%
(8.5% at December 31, 1998); principal and interest
payable in monthly installments of $2,660 through March
2001; secured by property and equipment
71,788 55,402
------------------ ---------------
Total notes payable 110,303 81,870
Less current portion (53,548) (59,766)
------------------ ---------------
Notes payable, less current portion $ 56,755 $ 22,104
------------------ ---------------
------------------ ---------------
</TABLE>
Aggregate maturities under these obligations as of December 31, 1998 and June
30, 1999 are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------------ ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
1999 $ 53,548 2000 $ 59,766
2000 48,843 2001 22,104
2001 7,912 2002 -
------------------ ----------------
$ 110,303 $ 81,870
------------------ ----------------
------------------ ----------------
</TABLE>
F-11 (Continued)
<PAGE>
THE ALLEGRO GROUP, INC.
Notes to Financial Statements
December 31, 1997 and 1998
(All information subsequent to December 31, 1998 is unaudited)
(5) LEASES
The Company has one operating lease having a remaining non-cancelable
lease term in excess of one year for its principal office facility and
has various capital leases for property and equipment. Rental expense
for operating leases for the years ending December 31, 1997, and 1998
and for the six months ended June 30, 1998 and 1999 was approximately
$50,000, $107,000, $34,000 and $74,000, respectively.
The Company's capital lease obligations are collateralized by certain
assets at December 31, 1998. Future minimum lease payments under
non-cancelable operating leases (with initial or remaining lease terms in
excess of one year) and future minimum capital lease payments as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, CAPITAL LEASES OPERATING LEASES
----------------- ---------------------
<S> <C> <C> <C>
1999 $ 105,686 $ 149,000
2000 89,208 153,000
2001 11,558 157,000
2002 - 66,000
----------------- ---------------------
Total minimum lease payments 206,452 $ 525,000
---------------------
---------------------
Less estimated amount representing interest (at a
weighted-average interest rate of 9.5%) 24,746
-----------------
Present value of minimum capital lease payments 181,706
Less current portion of capital lease obligations 76,493
-----------------
-----------------
Capital lease obligations, less current portion
$ 105,213
-----------------
-----------------
</TABLE>
(6) CAPITAL STOCK
The Company has authorized 450 shares of voting and 400 shares of
non-voting common stock. As of December 31, 1998, the Company has issued
and outstanding 401 shares of voting common stock to the three principal
shareholders of the Company. The Company makes periodic distributions to
its shareholders. However, no distributions are required to be made under
the terms of the Company's Shareholder Agreement.
F-12 (Continued)
<PAGE>
THE ALLEGRO GROUP, INC.
Notes to Financial Statements
December 31, 1997 and 1998
(All information subsequent to December 31, 1998 is unaudited)
(7) 401(K) SAVINGS/RETIREMENT PLAN
Effective December 1, 1997, the Company adopted a 401(k) plan that covers
all employees. The Company may make a matching contribution to each
participant up to 3% of participant's compensation. Matching
contributions vest to each participant at the rate of 20% per year after
the first full year of service. Company matching contributions for the
years ended December 31, 1997 and 1998 and for the six months ended June
30, 1998 and 1999 were approximately $1,000, $12,000, $6,000, and $8,000,
respectively.
(8) LEGAL PROCEEDINGS
The Company is involved in certain legal actions which have arisen in the
ordinary course of business. The Company has accrued its best estimate of
potential amounts to be paid related to these matters and has included
approximately $19,000, $248,000, and $282,000 in other accrued expenses
as of December 31, 1997 and 1998 and June 30, 1999, respectively.
In the opinion of management the ultimate disposition of these matters
will not have a material adverse effect on the Company's financial
position, results of operations, or liquidity.
(9) SUBSEQUENT EVENTS
During August and September 1999, the Company executed two lease
agreements to finance the purchase of equipment. The August agreement
requires the Company to pay approximately $115,000 over a 2 year period
and the September agreement requires the Company to pay approximately
$41,000 over a 3 year period.
F-13 (Continued)
<PAGE>
THE ALLEGRO GROUP, INC.
Notes to Financial Statements
December 31, 1997 and 1998
(All information subsequent to December 31, 1998 is unaudited)
On August 20, 1999, Mail.com, Inc. ("Mail.com") acquired the Company
pursuant to the terms of an Agreement and Plan of Merger dated August 20,
1999 (the "Merger Agreement"), among Mail.com, AG Acquisition Corp., a
wholly-owned subsidiary of Mail.com ("Acquisition Corp."), the Company
and the shareholders of the Company. Pursuant to the terms of the Merger
Agreement, the Company merged with and into Acquisition Corp. and became
a wholly-owned subsidiary of Mail.com. Mail.com paid aggregate
consideration in connection with the transaction of approximately $3.2
million in cash and 1,102,973 shares of its Class A common stock. In
addition to the purchase price, one-time sign-on bonus payments totaling
$800,000 were paid to employees of the Company who are not shareholders
of the Company. Mail.com also may pay additional consideration (the
"Contingent Consideration") upon completion of its audited financial
statements for the year ended December 31, 2000 based on the achievement
of certain performance standards for such year. The Contingent
Consideration would consist of up to $3.2 million payable in cash,
additional bonus payments up to $800,000 and up to $16.0 million payable
in shares of Mail.com Class A common stock based on the market value of
such stock at the time of payment (but such market value shall be deemed
to be not less than $8.00 per share.)
F-14
<PAGE>
Item 7. Financial Statements and Pro Forma Financial Information
(b) Pro Forma Condensed Consolidated Financial Information
On August 20, 1999, Mail.com, Inc. ("Mail.com" or the "Company") acquired
The Allegro Group, Inc. ("Allegro") for approximately $20.4 million
including acquisition costs pursuant to the terms of an Agreement and Plan
of Merger dated August 20, 1999 (the "Merger Agreement"), among Mail.com, AG
Acquisition Corp., a wholly-owned subsidiary of Mail.com ("Acquisition
Corp."), Allegro and the shareholders of Allegro. Pursuant to the terms of
the Merger Agreement, Allegro merged with and into Acquisition Corp. and
became a wholly owned subsidiary of Mail.com. The acquisition will be
accounted for as a purchase business combination. The consideration payable
by Mail.com in connection with the acquisition of Allegro consisted of the
following: approximately $3.2 million in cash and 1,102,973 shares of
Mail.com's Class A common stock valued at approximately $17.1 million. The
Company also incurred acquisition costs of approximately $150,000. In
addition, one-time sign-on bonuses of $800,000 were paid to employees of
Allegro who were not shareholders of Allegro pursuant to employment
agreements entered into with them upon the closing date. In connection with
their employment agreements with Mail.com, Mail.com also granted options to
Allegro employees to purchase approximately 625,000 shares of Mail.com
common stock at an exercise price of $16.00 per share, the then fair value.
These options vest quarterly over four year's subject to continued
employment.
Mail.com may be obligated to pay additional consideration (the "Contingent
Consideration") upon completion of its audited financial statements for the
year ended December 31, 2000 based on the achievement of certain performance
standards for such year. The Contingent Consideration would consist of up to
$3.2 million payable in cash, additional bonus payments up to $800,000 and
up to $16.0 million payable in shares of Mail.com Class A common stock based
on the market value of such stock at the time of payment (but such market
value shall be deemed to be not less than $8.00 per share).
The consideration payable by Mail.com was determined as a result of
negotiation between Mail.com and Allegro. The number of shares of Mail.com
Class A Common Stock to be issued to Allegro shareholders, was determined
based on the exchange rate of 2,750.5561 shares of Mail.com Class A
common stock for each share of Allegro common stock. Funds payable in
connection with the acquisition of Allegro were provided from Mail.com's
cash on hand.
The Company has allocated a portion of the purchase price to the net book
value of the acquired assets and liabilities of Allegro as of the date of
acquisition. The excess of the purchase price over the net book value of the
acquired assets and liabilities of Allegro has been preliminarily allocated
to goodwill and other intangible assets. Goodwill and other intangible
assets will be amortized over a period of 3 years, the expected period of
benefit. This allocation is preliminary and may be subject to change upon
the evaluation of the fair value of the acquired assets and liabilities of
Allegro at the date of acquisition, as well as the potential identification
of certain intangible assets.
Approximately $900,000 of the purchase price of Allegro is expected to be
allocated to in-process technology. Because such in-process technology had
not reached the stage of technological feasibility at the acquisition date
and had no alternative future use, this amount will be immediately
written-off by the Company and has been reflected in the pro forma balance
sheet as a charge to stockholder' equity (deficit). The preliminary fair
value of purchased existing and in-process technologies was determined by
management using a risk-adjusted income valuation approach.
F-15
<PAGE>
The unaudited Pro Forma Condensed Consolidated Statement of Operations (the
"Pro Forma Statements of Operations") for the year ended December 31, 1998
and six months ended June 30, 1999 gives effect to the acquisition of
Allegro as if it had occurred on January 1, 1998. The Pro Forma Statements
of Operations are based on historical results of operations of the Company
and Allegro for the year ended December 31, 1998 and six months ended June
30, 1999. The unaudited Pro Forma Condensed Consolidated Balance Sheet (the
"Pro Forma Balance Sheet") gives effect to the acquisition of Allegro as if
the acquisition had occurred on that date. The Pro Forma Statements of
Operations and Pro Forma Balance Sheet and 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 Allegro, or of the financial position or results of
operations of the consolidated Company that would have actually occurred had
the acquisition of Allegro been effected on January 1, 1998.
F-16
<PAGE>
MAIL.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------
THE ALLEGRO PRO FORMA PRO FORMA
ASSETS MAIL.COM, INC. GROUP, INC. ADJUSTMENTS AS ADJUSTED
---------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 65,407,151 $ 50,091 $ -- $ 65,457,242
Accounts receivable, net 970,888 457,277 -- 1,428,165
Prepaid expenses and other
current assets 349,966 50,048 -- 400,014
---------------- -------------- ------------- --------------
Total current assets 66,728,005 557,416 -- 67,285,421
---------------- -------------- ------------- --------------
Property and equipment, net 15,478,558 626,668 -- 16,105,226
Domain assets, net 4,395,489 -- -- 4,395,489
Partner advances 22,436,853 -- -- 22,436,853
Investments in affiliated companies 250,000 -- -- 250,000
Deferred tax asset -- -- 147,000 (c) 147,000
Goodwill and other intangible assets 294,841 8,624 20,052,112 (a) 20,355,577
---------------- -------------- ------------- --------------
Total assets $ 109,583,746 $ 1,192,708 $ 20,199,112 (a) $ 130,975,566
---------------- -------------- ------------- --------------
---------------- -------------- ------------- --------------
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable $ 9,750,677 $ 975,485 $ -- $ 10,726,162
Accrued expenses 2,431,759 332,911 -- 2,764,670
Accrued payroll and other related costs 1,170,467 140,817 -- 1,311,284
Current portion of capital lease obligations 1,335,933 142,265 -- 1,478,198
Current portion of domain asset purchase
obligations 365,092 -- -- 365,092
Current portion of long-term debt -- 158,366 -- 158,366
Deferred revenue 902,737 -- -- 902,737
---------------- -------------- ------------- --------------
Total current liabilities 15,956,665 1,749,844 -- 17,706,509
Capital lease obligations, less current portion 3,238,648 3,152 -- 3,241,800
Domain asset purchase obligation, less
current portion 187,530 -- -- 187,530
Long term debt, less current position -- 22,104 -- 22,104
Deferred revenue 1,035,466 -- -- 1,035,466
---------------- -------------- ------------- --------------
Total liabilities 20,418,309 1,775,100 -- 22,193,409
19,616,720 (a)
Stockholders' equity 89,165,437 (582,392) 582,392 (a) 108,782,157
---------------- -------------- ------------- --------------
Total liabilities and
stockholders' equity $ 109,583,746 $ 1,192,708 $ 20,199,112 $ 130,975,566
---------------- -------------- ------------- --------------
---------------- -------------- ------------- --------------
</TABLE>
F-17
<PAGE>
MAIL.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
---------------------------------
THE ALLEGRO PRO FORMA PRO FORMA
MAIL.COM, INC. GROUP, INC. ADJUSTMENTS AS ADJUSTED
---------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ 1,494,762 $ 4,325,995 $ -- $ 5,820,757
Operating expenses:
Cost of revenues 2,890,582 2,317,970 -- 5,208,552
Sales and marketing 6,679,478 892,097 -- 7,571,575
General and administrative 3,482,097 1,442,534 -- 4,924,631
Product development 1,573,465 135,463 -- 1,708,928
Amortization of intangible assets -- -- 6,684,037 (a) 6,684,037
---------------- -------------- --------------- ----------------
Total operating expenses 14,625,622 4,788,064 6,684,037 26,097,723
---------------- -------------- --------------- ----------------
Loss from operations (13,130,860) (462,069) (6,684,037) (20,276,966)
---------------- -------------- --------------- ----------------
Other income (expense):
Gain on sale of investment 438,000 -- -- 438,000
Other income 277,164 10,105 -- 287,269
Interest expense (109,187) (38,286) -- (147,473)
---------------- -------------- --------------- ----------------
Total other income (expense), net 605,977 (28,181) -- 577,796
---------------- -------------- --------------- ----------------
Net loss $ (12,524,883) $ (490,250) $ (6,684,037) (19,699,170)
---------------- -------------- --------------- ----------------
---------------- -------------- --------------- ----------------
Basic and diluted net loss per share $ (0.86) $ (1.25)(b)
---------------- -------------- --------------- ----------------
---------------- -------------- --------------- ----------------
Weighted-average basic and diluted
shares outstanding 14,607,915 1,102,973 (b) 15,710,888
---------------- -------------- --------------- ----------------
---------------- -------------- --------------- ----------------
</TABLE>
F-18
<PAGE>
MAIL.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999
----------------------------------
THE ALLEGRO PRO FORMA PRO FORMA
MAIL.COM, INC. GROUP, INC. ADJUSTMENTS AS ADJUSTED
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 3,242,949 $ 2,335,234 $ -- $ 5,578,183
Operating expenses:
Cost of revenues 3,656,208 1,349,374 -- 5,005,582
Sales and marketing 7,496,423 548,935 -- 8,045,358
General and administrative 3,998,946 591,502 -- 4,590,448
Product development 2,586,520 104,164 -- 2,690,684
Amortization of intangible assets -- -- 3,342,019 (a) 3,342,019
--------------- --------------- -------------- ---------------
Total operating expenses 17,738,097 2,593,975 3,342,019 23,674,091
--------------- --------------- -------------- ---------------
Loss from operations (14,495,148) (258,741) (3,342,019) (18,095,908)
--------------- --------------- -------------- ---------------
Other income (expense):
Interest income 304,369 14,970 -- 319,339
Interest expense (177,787) (25,679) -- (203,466)
--------------- --------------- -------------- ---------------
Total other income (expense), net 126,582 (10,709) -- 115,873
--------------- --------------- -------------- ---------------
Net loss $ (14,368,566) $ (269,450) $ (3,342,019)$ (17,980,035)
--------------- --------------- -------------- ---------------
--------------- --------------- -------------- ---------------
Cumulative dividends on settlement of
contingent obligations to preferred
stockholders (14,555,646) -- -- (14,555,646)
--------------- --------------- -------------- ---------------
Net loss attributable to common
stockholders $ (28,924,212) $ (269,450) $ (3,342,019) $ (32,535,681)
--------------- --------------- -------------- ---------------
--------------- --------------- -------------- ---------------
Basic and diluted net loss per share $ (1.56) $ (1.66)(b)
--------------- ---------------
--------------- ---------------
Weighted-average basic and diluted
shares outstanding 18,531,509 1,102,973 (b) 19,634,482 (b)
--------------- -------------- ---------------
--------------- -------------- ---------------
</TABLE>
F-19
<PAGE>
(1) PRO FORMA ADJUSTMENTS AND ASSUMPTIONS
(a) On August 20, 1999, Mail.com, Inc. ("Mail.com" or the "Company")
acquired The Allegro Group, Inc. ("Allegro") for approximately
$20.4 million including acquisition costs pursuant to the terms of
an Agreement and Plan of Merger dated August 20, 1999 (the "Merger
Agreement"), among Mail.com, AG Acquisition Corp., a wholly-owned
subsidiary of Mail.com ("Acquisition Corp."), Allegro and the
shareholders of Allegro. Pursuant to the terms of the Merger
Agreement, Allegro merged with and into Acquisition Corp. and
became a wholly owned subsidiary of Mail.com. The acquisition will
be accounted for as a purchase business combination. The
consideration payable by Mail.com in connection with the
acquisition of Allegro consisted of the following: approximately
$3.2 million in cash and 1,102,973 shares of Mail.com's Class A
common stock valued at approximately $17.1 million. The Company
also incurred acquisition costs of approximately $150,000. In
addition, one-time sign-on bonuses of $800,000 were paid to
employees of Allegro who were not shareholders of Allegro pursuant
to employment agreements entered into with them upon the closing
date.
The valuation of the write-off of in-process technology in the
amount of $900,000 in connection with the acquisition of Allegro
is based on an independent appraisal which determined that the new
versions of MailZone technology acquired from Allegro had not been
developed into the platform required by the Company at the date of
acquisition. As a result, the Company will be required to expend
significant capital expenditures to successfully integrate and
develop the new versions of the MailZone technology, for which
there is considerable risk that such technology will not be
successfully developed, and if such technology is not
successfully developed, there will be no alternative use for the
technology. The MailZone technology is an enabling technology for
email communications and includes message management, license,
traffic and reporting. The Company's Statements of Operations will
reflect a one-time write-off of the amount of purchase price
allocated to in-process research and development of $900,000.
The Company allocated the excess purchase price over the fair
value of net tangible assets acquired to identified intangible
assets. In performing this allocation, the Company considered,
among other factors, the attrition rate of the active users of the
technology at the date of acquisition and the research and
development projects in-process at the date of acquisition. With
regard to the in-process research and development projects, the
Company considered, among other factors, the stage of development
of each project at the time of acquisition, the importance of each
project to the overall development plan, and the projected
incremental cash flows from the projects when completed and any
associated risks. Associated risks include the inherent
difficulties and uncertainties in completing each project and
thereby achieving technological feasibility and risks related to
the impact of potential changes in future target markets.
The Company intends to incur in excess of $600,000, related
primarily to salaries, to develop the in-process technology into
commercially viable products over the next year. Remaining
development efforts are focused on addressing security issues,
architecture stability and electronic commerce capabilities, and
completion of these projects will be necessary before revenues are
produced. The Company expects to begin to benefit from the
purchased in-process research and development by its fiscal year
2000. If these projects are not successfully developed, the
Company may not realize the value assigned to the in-process
research and development projects. In addition, the value of the
other acquired intangible assets may also become impaired.
The Company may be required to record additional contingent
purchase payments based on future performance levels. Basic and
diluted net loss per share excludes the effect of additional
purchase price of up to $19.2 million including the issuance of up
to 2 million shares of Class A common stock (based on the minimum
deemed fair market value of such shares of $8.00 per
F-20
<PAGE>
share) whose payout and issuance is contingent on Allegro
achieving certain revenue and spending levels in fiscal year 2000.
The contingent consideration would consist of up to $3.2 million
payable in cash, additional bonus payments of $800,000 and up to
$16.0 million payable in shares of Mail.com Class A common stock
based on the market value of such stock at the time of payment
(but such market value shall be deemed to be not less than $8.00
per share). The minimum level of performance required in fiscal
2000 that would require payout of any of the $20 million and
issuance of up to 2 million shares of Class A common stock
is tied to specified revenue targets and spending levels as
defined. If the entire $4.0 and million is paid ($3.2 million of
purchase price and additional bonus payments up to $800,000) and
all of the $16 million n value of contingent Class A common shares
are issued (2 million shares based upon the minimum assumed fair
market value per share of $8.00), $19.2 million of additional
purchase price, $800,000 of expense and approximately $6.4 million
of additional annual amortization expense will result. If all
these contingent shares were included in the basic and diluted net
loss per share calculation, basic and diluted net loss per share
would have been ($1.52) and ($1.84) for the year ended
December 31, 1998 and the six months ended June 30, 1999,
respectively.
The following represents the allocation of the purchase price over
the historical net book values of the acquired assets and
liabilities of Allegro at June 30, 1999, and is for illustrative
pro forma purposes only. Actual fair values will be based on
financial information as of the acquisition date (August 20,
1999). Assuming the transaction had occurred on June 30, 1999, the
allocation would have been as follows:
<TABLE>
<CAPTION>
ALLEGRO
<S> <C>
Assets acquired:
Cash $ 50,091
Accounts receivable 457,277
Other assets 58,672
Property and equipment 626,668
Goodwill and intangibles 20,052,112
--------------------
21,244,820
In-process research and development 900,000
Liabilities assumed (1,775,100)
--------------------
Purchase price $ 20,369,720
--------------------
--------------------
</TABLE>
This allocation is preliminary and may be subject to change upon
evaluation of the fair value of Allegro's acquired assets and
liabilities as of the acquisition date as well as the potential
identification of certain intangible assets.
The Pro Forma adjustment reconciles the historical balance sheet
of Allegro at June 30, 1999 to the allocated purchase price
assuming the transaction had occurred on June 30, 1999.
Goodwill and other intangible assets will be amortized over a
period of 3 years, the expected period of benefit. The Pro Forma
adjustments to the statement of operations reflect twelve months
of amortization expense for the year ended December 31, 1998 and
six months of amortization expense for the six months ended June
30, 1999, assuming the transaction occurred on January 1, 1998.
The value of the intangible assets as of January 1, 1998 would
have been approximately $20.1 million.
F-21
<PAGE>
(b) In connection with the acquisition of Allegro, the Company issued
1,102,973 shares of Mail.com Class A Common Stock, par value $.01
per share, to the Allegro shareholders. The pro forma basic and
diluted net loss per common share is computed by dividing the net
loss attributable to common shareholders' by the weighted average
number of common shares outstanding. The calculation of the
weighted average number of shares outstanding assumes that shares
issued in connection with the acquisition were outstanding for the
entire period. Diluted net loss per share equals basic net loss
per share, as common stock equivalents are anti-dilutive for all
pro forma periods presented.
(c) Reflects the tax effect for Allegro upon consummation of the
transaction.
F-22
<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 26, 1999
Mail.com,inc.
By: /s/ Gary Millin
Name: Gary Millin
Title : President
