<PAGE> 1
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)
February 8, 2000
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> 2
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of the Current Report on Form 8-K,
originally filed by the registrant with the Securities and Exchange Commission
on February 8, 2000, 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 Mail.com, Inc. Pro
Forma Condensed Consolidated Financial Information
TABLE OF CONTENTS
PAGE
NetMoves Corporation
Independent Accountants' Report F - 1
Balance Sheets as of December 31, 1999 and 1998 F - 2
Statements of Operations for the years ended
December 31, 1999 and 1998 F - 3
Statements of Shareholders' Equity (Deficit) for the
years ended December 31, 1999 and 1998 F - 4
Statements of Cash Flows for the years ended
December 31, 1999 and 1998 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, 1999 F - 17
Unaudited Pro Forma Condensed Consolidated
Statement of Operations For the Year
Ended December 31, 1999 F - 18
Notes to the Unaudited Pro Forma Condensed
Consolidated Financial Information F - 20
1
<PAGE> 3
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of NetMoves Corporation
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders' equity and cash flows present fairly, in all material
respects, the financial position of NetMoves Corporation (formerly FaxSav
Incorporated) (the "Company") at December 31, 1999 and 1998, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As described in Note 14 to the financial statements, Mail.com, Inc. completed
its acquisition of the Company on February 8, 2000.
PricewaterhouseCoopers LLP
February 15, 2000
2
<PAGE> 4
NETMOVES CORPORATION
(FORMERLY FAXSAV INCORPORATED)
BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 5,185,906 $ 5,260,450
Accounts receivable, less allowances of $275,181 and
$220,076 as of December 31, 1999 and 1998, respectively 3,258,954 3,198,688
Prepaid expenses and other current assets 280,581 162,218
------------ ------------
Total current assets 8,725,441 8,621,356
Property and equipment, net 6,113,935 5,487,221
Other assets, net 2,099,594 379,148
------------ ------------
Total assets $ 16,938,970 $ 14,487,725
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,270,287 $ 1,153,688
Accrued expenses and other liabilities 3,654,655 2,654,658
Current portion of notes payable 1,092,256 992,960
Obligation under capital lease 64,437 95,804
------------ ------------
Total current liabilities 6,081,635 4,897,110
Notes payable 1,222,938 1,540,481
Obligation under capital lease, net of current portion 122,057
------------ ------------
Total liabilities 7,426,630 6,437,591
------------ ------------
Commitments and contingencies (Notes 7 and 13)
Stockholders' equity
Common stock, $0.01 par value; 40,000,000 shares authorized;
16,473,820 and 13,904,203 shares issued and outstanding
as of December 31, 1999 and 1998, respectively 164,738 139,042
Additional paid-in capital 61,565,197 48,171,015
Accumulated deficit (52,217,595) (40,259,923)
------------ ------------
Total stockholders' equity 9,512,340 8,050,134
------------ ------------
Total liabilities and stockholders' equity $ 16,938,970 $ 14,487,725
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE> 5
NETMOVES CORPORATION
(FORMERLY FAXSAV INCORPORATED)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Revenue $ 22,436,529 $21,116,726 $17,418,333
Cost of service 11,574,781 11,128,752 10,413,797
------------- ------------ ------------
Gross margin 10,861,748 9,987,974 7,004,536
------------- ------------ ------------
OPERATING EXPENSES
Network operations and support 4,917,819 3,608,129 2,286,594
Research and development 2,137,054 1,995,039 1,909,137
Sales and marketing 8,437,702 6,639,575 5,268,099
General and administrative 5,110,125 3,285,126 3,132,438
Depreciation and amortization 2,209,322 1,492,493 1,702,054
Patent litigation settlement 1,025,000
------------- ------------ ------------
Total operating expenses 22,812,022 18,045,362 14,298,322
------------- ------------ ------------
Operating loss (11,950,274) (8,057,388) (7,293,786)
------------- ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 301,041 123,838 240,987
Interest expense (438,068) (257,264) (162,218)
Other 129,629 105,636 96,115
------------- ------------ ------------
(7,398) (27,790) 174,884
------------- ------------ ------------
Net loss $(11,957,672) $(8,085,178) $(7,118,902)
============= ============ ============
Basic and diluted net loss per
common share $ (0.77) $ (0.68) $ (0.72)
============= ============ ============
Shares used in computing net loss
per common share 15,523,391 11,842,956 9,880,681
------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE> 6
NETMOVES CORPORATION
(FORMERLY FAXSAV INCORPORATED)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(11,957,672) $(8,085,178) $(7,118,902)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization expense 2,209,322 1,492,493 1,702,054
Patent litigation settlement 1,000,000
Provision for doubtful accounts 1,081,490 269,470 230,520
Gain on sale of property and equipment (26,860) (18,791)
Changes in assets and liabilities
Increase in accounts receivable (1,141,756) (1,188,039) (495,484)
(Increase)/decrease in prepaid expenses and
other current assets (118,363) (126,374) 215,573
Decrease/(increase) in other assets 30,001 186,975 (182,462)
Increase in accounts payable 116,599 494,985 395,257
Increase (decrease) in accrued expenses and
other liabilities 999,997 (565,188) (193,941)
------------- ------------ ------------
Net cash used in operating activities (8,780,382) (6,547,716) (5,466,176)
CASH FLOWS USED IN INVESTING ACTIVITIES
Proceeds of marketable securities 1,002,513
Purchase of property and equipment (2,231,825) (2,761,566) (2,856,952)
Purchase of intangibles (2,139,601) (314,223)
Proceeds from sales of property and equipment 56,250 112,770
------------- ------------ ------------
Net cash used in investing activities (4,371,426) (3,019,539) (1,741,669)
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments made under capital lease obligation (124,367) (305,117) (280,517)
Borrowings under lines of credit and notes payable 999,485 1,522,845 1,299,797
Repayments of lines of credit and notes payable (1,217,732) (541,812) (178,372)
Proceeds from issuance of preferred stock, net
Proceeds from issuance of common stock
and exercise of stock options and warrants,
net of related expenses 13,419,878 10,471,604 2,124,017
------------- ------------ ------------
Net cash provided by financing activities 13,077,264 11,147,520 2,964,925
------------- ------------ ------------
Net increase (decrease) in cash (74,544) 1,580,265 (4,242,920)
Cash and cash equivalents at beginning of period 5,260,450 3,680,185 7,923,105
------------- ------------ ------------
Cash and cash equivalents at end of period $ 5,185,906 $ 5,260,450 $ 3,680,185
============= ============ ============
SUPPLEMENTAL DISCLOSURE
Cash paid for interest 74,560 $ 117,556 $ 45,918
============= ============ ============
Noncash investing and financing activities
Equipment acquired under capital lease $ 215,097 $ - $ -
============= ============ ============
Issuance of common stock pursuant to
patent litigation settlement $ - $ 1,000,000 $ -
============= ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE> 7
NETMOVES CORPORATION
(FORMERLY FAXSAV INCORPORATED)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 9,770,621 $ 97,706 $34,616,730 $(25,055,843) $ 9,658,593
------------ --------- ------------ ------------- -------------
Issuance of common stock in connection with private
Placement 1,000,000 10,000 2,165,000 2,175,000
Exercise of stock options 35,746 358 27,277 27,635
Exercise of warrants 99 1 539 540
Expenses in connection with stock issuance (79,158) (79,158)
Net loss (7,118,902) (7,118,902)
------------ --------- ------------ ------------- -------------
Balance at December 31, 1997 10,806,466 108,065 36,730,388 (32,174,745) 4,663,708
------------ --------- ------------ ------------- -------------
Issuance of common stock in connection with private placements 2,645,161 26,452 10,153,251 10,179,703
Issuance of warrants in connection with private placements 320,297 320,297
Exercise of stock options 143,560 1,435 279,774 281,209
Receivable from sale of stock (203,598) (203,598)
Stock issuance 34,016 340 101,708 102,048
Stock issuance in connection with settlement of litigation 275,000 2,750 997,250 1,000,000
Expenses in connection with stock issuance (208,055) (208,055)
Net loss (8,085,178) (8,085,178)
------------ --------- ------------ ------------- -------------
Balance at December 31, 1998 13,904,203 139,042 48,171,015 (40,259,923) 8,050,134
------------ --------- ------------ ------------- -------------
Issuance of common stock in connection with private placement 2,499,000 24,990 14,344,240 14,369,230
Exercise of stock options 46,026 460 75,396 75,856
Exercise of warrants 19,258 193 (193) -
Stock issuance 5,333 53 15,946 15,999
Expenses in connection with private placement (1,041,207) (1,041,207)
Net Loss (11,957,672) (11,957,672)
------------ --------- ------------ ------------- -------------
Balance at December 31, 1999 16,473,820 $164,738 $61,565,197 $(52,217,595) $ 9,512,340
============ ========= ============ ============= =============
</TABLE>
The Company has 1,000,000 authorized shares of preferred stock at $0.01 par
value. No preferred stock is currently issued or outstanding.
The accompanying notes are an integral part of the financial statements
6
<PAGE> 8
NETMOVES CORPORATION
(FORMERLY FAXSAV INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND NATURE OF OPERATIONS
NetMoves Corporation, formerly known as FaxSav Incorporated (the
"Company"), was formed in November 1989 to engage in the sale of network
services customized for the transmission of data, facsimile and graphical
information. In April 1999, the Company changed its name to NetMoves
Corporation.
The Company designs, develops, and markets a variety of
business-to-business facsimile transmission services, including desktop
to fax, enhanced fax and broadcast fax services. Through the use of its
integrated Internet-based and telephony-based network and its proprietary
software, the Company enables its customers to send documents and images
to fax machines worldwide. The Company initially offered services (the
"legacy fax services") through its telephony-based network with
termination by long distance carriers. In early 1996, the Company began
to deploy a global Internet-based network of nodes that enables it to
bypass the long distance carriers' networks when sending faxes to or from
international areas serviced by these nodes. Prior to 1997, most of the
Company's revenues have been derived from delivering facsimile
transmissions to locations outside the United States from customers
located throughout the United States. In 1997, the Company expanded its
customer base in international markets through the development of a
wholesale business in desktop to fax services and a fax-to-fax business
in certain markets in the Asia Pacific region.
In May 1999, the Company acquired the U.S. fax customer base of UNIFI
Communications for $1,531,214. The purchase price, including transaction
expenses, is classified as "Other Assets", and is being amortized over
forty-eight months.
On December 11, 1999, the Company entered into a merger agreement with
Mail.com, Inc. ("Mail.com") and Mast Acquisition Corp., a newly formed
subsidiary of Mail.com. The agreement provides for the merger of Mast
Acquisition Corp. with and into the Company, with the Company becoming a
wholly owned subsidiary of Mail.com.
The merger agreement provides for the issuance of .385336 shares of
Mail.com Class A common stock in exchange for each share of the Company's
stock, for a total of 6,343,904 shares of Class A common stock. The
agreement also states that Mail.com will assume the Company's outstanding
options and warrants, which represents the right to purchase 1,019,786
shares of Mail.com Class A common stock. The merger was completed on
February 8, 2000. (See Note 14). The combined entity is expected to have
significant cash requirements in anticipation of future growth. Mail.com
intends to expand the combined company's sales and marketing operations,
upgrade and enhance its technology, continue its international expansion
and improve and expand its management information and other internal
systems. Management believes that its current sources of liquidity, cash
and cash equivalents on a combined basis is sufficient to meet its
presently anticipated cash needs through at least the end of 2000.
7
<PAGE> 9
NETMOVES CORPORATION
(FORMERLY FAXSAV INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company is subject to risks common to rapidly growing
technology-based companies, including limited operating history,
dependence on key personnel, raising capital, rapid technological change,
dependence on network infrastructure, competition from substitute
products and larger companies, and the successful development and
marketing of its products and services.
Fax boards used in the Company's telecommunications network are supplied
by one vendor on a non-exclusive basis. Other components of the Company's
operating network are supplied by a limited number of vendors, also on a
non-exclusive basis. Management believes that other suppliers could be
identified to provide this equipment at competitive prices if these
suppliers were unable to provide such equipment.
Operation of the Company's network is dependent upon long distance
telecommunications companies transmitting information for the Company.
The Company has typically utilized only a limited number of these
providers to generate volume discounts. The Company's business strategy
is also dependent upon providing this service at the lowest possible cost
which is greatly affected by the cost of long distance transmission
service. Management believes that its long-distance transmissions could
be made at competitive rates with any number of companies providing long
distance service.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) REVENUE RECOGNITION AND COST OF SERVICE
The Company recognizes revenue as services are provided to
customers and records the related cost of service as incurred.
Cost of service consists of local access charges, leased network
backbone circuit costs and long distance domestic and
international termination charges.
(b) ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Significant estimates made by management and included in the
financial statements are the allowance for doubtful accounts, the
valuation allowance for deferred tax assets.
(c) EARNINGS PER SHARE
In February 1998, the SEC issued Staff Accounting Bulletin No. 98
("SAB 98"), which revised the views of the staff contained in
8
<PAGE> 10
NETMOVES CORPORATION
(FORMERLY FAXSAV INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
previous staff accounting bulletins, to be consistent with the
provisions of SFAS 128. All prior periods have been restated in
accordance with SAB 98.
Stock options outstanding of approximately 2,574,000, 2,065,000
and 1,523,000 for the years ended December 31, 1999, 1998, and
1997, respectively, have been excluded from the calculation of
diluted earnings per share, since their effect would be
antidilutive.
In addition, approximately 149,000 warrants were outstanding for
the year ended December 31, 1999, 169,000 warrants for the year
ended December 31, 1998 and 100,000 warrants for the year ended
December 31, 1997 have been excluded from diluted earnings per
share, since their effect would be antidilutive.
(d) CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased
with an original maturity of three months or less to be cash
equivalents.
(e) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated
depreciation and amortization. Depreciation of furniture and
equipment, except enhanced fax equipment, is calculated using the
straight-line method over their estimated useful lives of five
years. Enhanced fax equipment is included in equipment and is
depreciated over its estimated life of 30 months. Leasehold
improvements are amortized using the straight-line method over the
lesser of the lease term or the estimated useful life of the
related asset. Repairs and maintenance costs are expensed as
incurred; major renewals and betterments are capitalized.
When assets are sold or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts and
any gain or loss on the disposition is reflected in current
operations. Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount may not be recoverable. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of the
asset, a loss is recognized for the difference between the
estimated fair value and carrying value of the assets.
(f) INCOME TAXES
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". This statement requires an asset and liability approach
for deferred taxes that recognizes deferred tax assets and
liabilities for the expected future tax consequences of events
that have been recognized in the Company's financial statements or
tax returns.
9
<PAGE> 11
NETMOVES CORPORATION
(FORMERLY FAXSAV INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(g) CONCENTRATION OF CREDIT RISK
Statement of Financial Accounting Standards No. 105, "Disclosure
of Information about Financial Instruments with Off-Balance-Sheet
Risk and Financial Instruments with Concentration of Credit Risk"
requires disclosure of any significant off-balance-sheet and
credit risk concentrations. Financial instruments that potentially
subject the Company to concentrations of credit risk consist
primarily of cash and cash equivalents and accounts receivable.
From time to time, the Company had concentrations of cash in
several banks in the form of demand deposits and money market
accounts. The Company believes that concentrations of credit risk
with respect to trade accounts receivable are limited due to the
large number of entities comprising the Company's customer base.
(h) FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments,
which include cash, cash equivalents, accounts receivable and
amounts outstanding under line of credit, approximates their
carrying value.
The fair value of cash and cash equivalents and accounts
receivable approximates their carrying value because their
maturity is generally less than one year in duration. The fair
value of amounts outstanding under the line of credit was
determined using valuation techniques that considered cash flow
discounted at current rates.
(i) RECLASSIFICATION
Certain prior year items have been reclassified to conform to the
current presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
<S> <C> <C>
Equipment $ 12,455,810 $ 10,232,895
Computer software 806,710 625,413
Furniture and fixtures 135,470 132,609
Leasehold improvements 200,073 168,265
------------- -------------
13,598,063 11,159,182
Less, accumulated depreciation and
amortization 7,484,128 5,671,961
------------- -------------
$ 6,113,935 $ 5,487,221
============= =============
</TABLE>
10
<PAGE> 12
NETMOVES CORPORATION
(FORMERLY FAXSAV INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Included in the equipment balance is certain equipment under capital
leases of approximately $1,181,115 and $966,058 at December 31, 1999 and
1998. Accumulated amortization of equipment under capital leases
approximated $802,796 and $588,079 as of December 31, 1999 and 1998,
respectively. Depreciation and amortization expense for property and
equipment for the years ended December 31, 1999, 1998, and 1997, amounted
to $1,820,166, $1,420,208 and $1,674,554, respectively.
4. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
<S> <C> <C>
Accrued carrier charges $ 1,963,881 $ 1,834,894
Accrued salaries, bonuses and commissions 396,892 224,933
Accrued merger costs 297,630 -
Excise and state taxes payable 223,804 132,219
Other 772,448 462,612
------------ ------------
$ 3,654,655 $ 2,654,658
============ ============
</TABLE>
11
<PAGE> 13
NETMOVES CORPORATION
(FORMERLY FAXSAV INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. NOTES PAYABLE
Long-term debt includes the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
<S> <C> <C>
1996 notes payable to bank - $750,000 $ 126,760
1997 notes payable to bank - $800,000 $ 239,972 559,935
1997 notes payable - $500,000 269,298 418,009
1998 notes payable to bank - $500,000 249,968 449,942
1998 notes payable - $1,000,000 766,159 978,795
1999 notes payable - $1,000,000 789,797 -
------------ ------------
Total notes payable 2,315,194 2,533,441
Less current portion 1,092,256 992,960
------------ ------------
Non-current portion $ 1,222,938 $ 1,540,481
============ ============
</TABLE>
During 1997, the Company entered into two new loan agreements. The first
agreement was an equipment line of credit with the Bank, in the form of a
collateralized promissory note, in the amount of $800,000. In 1998 this
agreement was amended to increase available borrowings by an additional
$500,000. This line is also evidenced by a collateralized promissory note
which is payable over 30 months. Interest on advances, if any, are at the
Bank's prime rate plus an applicable margin, as defined in the credit
agreement, which resulted in a borrowing rate of 9.5% for 1997 and 8.9%
in 1998. Among the covenants stated in the agreement, specific liquidity
ratios, debt service ratios, and net worth ratios are required to be
maintained and disclosed to the Bank on a monthly basis. At December 31,
1999 and 1998, the Company had fully utilized these lines of credit.
The second agreement in 1997 was for an equipment loan line of $500,000
with another lender and is in the form of two collateralized promissory
notes, both of which the Company is required to pay over a term of
forty-eight months with an effective interest rate of 16%. In 1998 this
agreement was amended to increase available borrowings by an additional
$1,000,000. This line is also evidenced by promissory notes which are
payable over 42 months. The new line was fully utilized by December 31,
1999.
In February 1999, the Company entered into a new $1,000,000 equipment
line of credit with a lender. Draw-downs are to be paid over a term of 42
months with an effective interest rate of 16%. This line was fully
utilized by December 31, 1999.
12
<PAGE> 14
NETMOVES CORPORATION
(FORMERLY FAXSAV INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. RELATED PARTY TRANSACTIONS
During 1998 the Company loaned two officers a total of $203,598. These
loans are full recourse to the borrowers, bear interest at a rate of 5%
and are also collateralized by approximately 61,000 shares of the
Company's common stock. The loans are due and payable in November 2003.
7. COMMITMENTS
TELECOMMUNICATIONS LINES
The Company has committed to minimum monthly usage levels with its
primary telecommunications carriers. The commitments require minimum
monthly payments, exclusive of usage discounts, of $500,000 per month
through August 2002. The Company also leases space under co-locate
agreements for certain of its telecommunications equipment.
LEASES
Total rent expense for office facilities for the years ended December 31,
1999, 1998 and 1997 amounted to $599,288, $470,959 and $302,643,
respectively.
The Company leases certain computer equipment pursuant to operating
leases which expire through 2000. Rent expense related to these leases
for the years ended December 31, 1999, 1998 and 1997 amounted to $45,525,
$69,313 and $120,085, respectively.
The Company acquired equipment for $215,057 under capital lease
obligations during the year ended December 31, 1999. Interest paid for
capital lease obligations during the years ended December 31, 1999, 1998
and 1997 was $23,072, $27,064 and $59,658, respectively.
13
<PAGE> 15
NETMOVES CORPORATION
(FORMERLY FAXSAV INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company was obligated under these agreements to make the following
payments for office facilities and equipment:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
OPERATING CAPITAL OPERATING CAPITAL
LEASE LEASE LEASE LEASE
<S> <C> <C> <C> <C>
1999 $ 368,428 $ 103,126
2000 $ 362,318 $ 87,537 274,404
2001 362,318 87,537 274,404
2002 222,794 36,474 102,595
2003 and thereafter 205,223
------------ ---------- ------------ ----------
Total minimum lease payments $ 1,152,653 211,548 $ 1,019,831 103,126
============ ============
Less, amount representing interest 25,054 7,322
Less, current principal maturities of
obligation under capital lease 64,437 95,804
---------- ----------
Long-term lease obligation $ 122,057 $ -
========== ==========
</TABLE>
8. CAPITAL STOCK AND WARRANTS
On July 8, 1993, the Company agreed to grant warrants to purchase 5,556
shares of common stock to a firm providing equipment to the Company under
a Master Lease Agreement. The exercise price was $5.40 per share and the
warrants were to expire ten years from the date of grant. On May 5, 1994,
the Company granted additional warrants, which were to expire ten years
from the date of grant, to purchase 9,889 shares of common stock at $1.80
per share to this firm in connection with an increase in the equipment
covered by the Master Lease Agreement. On July 7, 1995, the Company
granted warrants to purchase 28,889 shares of common stock to a bank in
connection with the issuance of the working capital line of credit. The
exercise price was $1.98 per share and the warrants were to expire five
years from the date of grant.
The number and purchase price of the shares could have been adjusted by
the occurrence of certain events, as defined in the warrant agreements.
On December 30, 1998, the Company granted warrants to purchase 64,516
shares of common stock to an investor in
14
<PAGE> 16
NetMoves Corporation
(FORMERLY FAXSAV INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
connection with a private placement of 645,161 new unregistered shares of
common stock. The exercise price is $5.425 per share and the warrants
will expire three years from the date of grant. The warrants were valued
at $320,297.
In May 1999 the Company completed a $13,303,032 (net of private placement
expenses) private placement of 2,499,000 new unregistered shares of its
common stock to a group of investors. In accordance with the Stock
Purchase Agreement for this transaction, the Company subsequently
registered the securities for public sale.
9. STOCK OPTIONS
The Company has a stock option plan which authorized up to 1,794,175
shares of common stock to be issued. During 1998, the shareholders
approved an amendment to the plan increasing the authorized number of
shares by 650,000 to 2,444,175. In 1999, the shareholders approved an
additional amendment to the plan increasing the authorized number of
shares by 500,000 to 2,944,175. Under the stock option plan, the Company
may grant incentive stock options or nonqualified stock options. The
option exercise price of stock options may not be less than 85% of the
fair value of a share of common stock on the date of the option grant,
and the options expire in ten years. The shares issuable upon the
exercise of nonqualified options generally vest over one or two years
from the date of grant. The shares issuable upon the exercise of
incentive stock options generally vest 20% upon completion by the
optionee of one year of service and the remaining 80% over 48 equal
months of service thereafter based on continued service. Stock option
transactions under the plan are as follows:
15
<PAGE> 17
NETMOVES CORPORATION
(FORMERLY FAXSAV INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
INCENTIVE EXERCISE
NONQUALIFIED STOCK AVAILABLE PRICE PER
OPTIONS OPTIONS FOR GRANT SHARE
<S> <C> <C> <C> <C>
January 1, 1997 493,184 762,730 474,676 $ 1.09
Granted 173,329 392,280 (565,609) $ 3.38
Exercised (35,746) $ 0.80
Canceled (8,333) (254,602) 262,935 $ 1.63
------------ ------------ ----------- -----------
December 31, 1997 658,180 864,662 172,002 $ 1.28
Available for Grant 650,000
Granted 517,580 318,474 (836,054) $ 3.41
Exercised (55,555) (88,005) $ 4.63
Canceled (113,859) (36,561) 150,420 $ 4.40
------------ ------------ ----------- -----------
December 31, 1998 1,006,346 1,058,570 136,368 $ 1.80
Available for Grant 500,000
Granted 643,610 11,500 (655,110) $ 4.94
Exercised (11,000) (35,026) $ 1.65
Canceled (32,000) (68,103) 100,103 $ 3.34
------------ ------------ ----------- -----------
December 31, 1999 1,606,956 966,941 81,361 $ 2.54
============ ============ ===========
</TABLE>
At December 31, 1999, 1998 and 1997, options for 1,246,173, 905,483 and
785,584 shares were vested and exercisable.
In October 1995, The Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." The standard establishes
a fair value method for accounting for or disclosing stock-based
compensation plans. The Company discloses the pro forma net loss and loss
per share amounts assuming the fair value method.
Accordingly, if the Company had elected to recognize compensation costs
in accordance with SFAS No. 123 the reported net loss and loss per share
for 1999, 1998 and 1997, respectively, would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net loss as reported $ (11,957,672) $ (8,085,178) $ (7,118,902)
Net loss - pro forma (12,853,274) (8,482,567) (7,260,113)
Loss per share - as reported (0.77) (0.68) (0.72)
Loss per share - pro forma (0.83) (0.72) (0.73)
</TABLE>
16
<PAGE> 18
NETMOVES CORPORATION
(FORMERLY FAXSAV INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company estimated the fair value, as of the date of grant, of options
outstanding in the plan using the Black-Scholes option pricing model with
the following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Expected life 5 years 5 years 5 years
Risk free interest rate 5.5% 5.3% 6.3%
Expected future dividend yield 0% 0% 0%
Expected volatility 117.4% 127.2% 85.2%
</TABLE>
In accordance with SFAS 123, the Company has utilized peer information
when using the Black-Scholes option pricing model.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
WEIGHTED OPTIONS EXERCISABLE
AVERAGE WEIGHTED NUMBER WEIGHTED
NUMBER REMAINING AVERAGE EXERCISABLE AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE AS OF EXERCISE
RANGE OF EXERCISE PRICES 12/31/99 LIFE PRICE 12/31/99 PRICE
<S> <C> <C> <C> <C> <C>
$0.230 - $0.900 880,065 4.47 $ .53 850,047 $ .53
$1.250 - $2.875 567,532 8.06 $ 2.30 214,848 $ 2.11
$2.938 - $4.310 751,490 8.77 $ 3.65 175,112 $ 3.37
$4.462 - $7.438 367,310 9.41 $ 5.36 6,166 $ 6.02
$7.688 - $7.688 7,500 9.13 $ 7.69 - $ -
------------ ------------
$0.230 - $7.688 2,573,897 7.24 $ 2.54 1,246,173 $ 1.23
------------ ------------
</TABLE>
10. SEGMENT INFORMATION
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
Related Information." Although the services provided to its customers are
the same in the U.S. and international markets, management views the two
as separate businesses and measures the results for both to the gross
margin level. The ubiquitous nature of the Company's network and its
centralized operations in the U.S. prohibit the allocation of expenses
beyond that level. Accordingly, 1999, 1998 and 1997 segment Gross Margin
and Assets for the Company were as follows:
17
<PAGE> 19
NETMOVES CORPORATION
(FORMERLY FAXSAV INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
U.S. INTERNATIONAL TOTAL U.S. INTERNATIONAL
<S> <C> <C> <C> <C> <C>
GROSS MARGIN
INTERNET FAX
Revenues $ 12,507,035 $ 6,248,332 $ 18,755,367 $ 9,069,808 $ 5,884,596
Cost of Service 6,068,610 3,764,360 9,832,970 4,379,264 3,292,542
------------- ------------ ------------- ------------- ------------
Gross Margin 6,438,425 2,483,972 8,922,397 4,690,544 2,592,054
TELEPHONY FAX
Revenue 3,681,162 3,681,162 6,162,322
Cost of Service 1,741,811 1,741,811 3,456,946
------------- ------------ ------------- ------------- ------------
Gross Margin 1,939,351 1,939,351 2,705,376
TOTAL
Revenue 16,188,197 6,248,332 22,436,529 15,232,130 5,884,596
Cost of Service 7,810,421 3,764,360 11,574,781 7,836,210 3,292,542
============= ============ ============= ============= ============
Gross Margin $ 8,377,776 $ 2,483,972 $ 10,861,748 $ 7,395,920 $ 2,592,054
============= ============ ============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
1997
TOTAL U.S. INTERNATIONAL TOTAL
<S> <C> <C> <C> <C>
GROSS MARGIN
INTERNET FAX
Revenues $ 14,954,404 $ 6,116,576 $ 2,306,249 $ 8,422,825
Cost of Service 7,671,806 3,459,849 1,335,140 4,794,989
------------- ------------- ------------ -------------
Gross Margin 7,282,598 2,656,727 971,109 3,627,836
TELEPHONY FAX
Revenue 6,162,322 8,995,508 8,995,508
Cost of Service 3,456,946 5,618,808 5,618,808
------------- ------------- ------------ -------------
Gross Margin 2,705,376 3,376,700 3,376,700
TOTAL
Revenue 21,116,726 15,112,084 2,306,249 17,418,333
Cost of Service 11,128,752 9,078,657 1,335,140 10,413,797
============= ============= ============ =============
Gross Margin $ 9,987,974 $ 6,033,427 $ 971,109 $ 7,004,536
============= ============= ============ =============
</TABLE>
<TABLE>
<CAPTION>
1999 1998
U.S. INTERNATIONAL TOTAL U.S. INTERNATIONAL
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 5,185,906 $ 5,185,906 $ 5,260,450
Accounts receivable, net 2,491,431 $ 767,523 3,258,954 2,037,549 $ 1,161,139
Property and equipment, net 5,518,337 595,598 6,113,935 4,623,455 863,766
------------- ------------ ------------- ------------- -------------
Subtotal $ 13,195,674 $ 1,363,121 $ 14,558,795 $ 11,921,454 $ 2,024,905
============= ============ ============= ============= =============
Other unallocated amounts 2,380,175
-------------
Total assets $ 16,938,970
=============
</TABLE>
<TABLE>
<CAPTION>
1997
TOTAL U.S. INTERNATIONAL TOTAL
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 5,260,450 $ 3,680,185 $ 3,680,185
Accounts receivable, net 3,198,688 1,756,353 $ 523,766 2,280,119
Property and equipment, net 5,487,221 3,175,848 999,416 4,175,264
------------- ------------ ------------ -------------
Subtotal 13,946,359 8,612,386 1,523,182 10,135,568
Other unallocated amounts 541,366 360,017
------------- ------------ ------------ -------------
Total assets $ 14,487,725 $ 10,495,585
============= ============ =============
</TABLE>
11. PATENT LITIGATION SETTLEMENT
Effective September 22, 1998 the Company settled all outstanding
litigation with AudioFAX IP,L.L.P. ("AudioFAX") to avoid the expense and
disruption of protracted litigation. In 1997 the Company had filed a
lawsuit against AudioFAX seeking declaratory relief that NetMoves
services did not infringe on any valid claims in certain AudioFAX's
patents relating to store-and-forward technology or that certain claims
of the AudioFAX patents are not valid. Immediately after the filing of
NetMoves' complaint, AudioFAX filed a lawsuit against NetMoves alleging
patent infringement.
The terms of the settlement agreement required the Company to issue
275,000 shares of common stock to AudioFAX and to register such shares
for resale in exchange for a fully paid-up license to the patents in the
dispute. Although under certain circumstances the Company would have been
required to issue additional shares or pay a certain amount of cash to
AudioFAX, these requirements are no longer applicable.
18
<PAGE> 20
NETMOVES CORPORATION
(FORMERLY FAXSAV INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company recorded a charge of $1,025,000 in 1998 representing all
costs associated with the settlement. No costs have been capitalized, as
the Company could not determine the future economic benefit, if any, to
the Company of the patent licenses acquired.
12. INCOME TAXES
The Company continues to incur operating losses and currently pays no
income taxes and no provision or benefit for income taxes has been
recorded.
The income tax benefit at the United States federal statutory rate on the
Company's operating loss, for all periods presented, has been reduced by
an increase in the valuation allowance for deferred tax assets and
operating losses not recognized.
At December 31, 1999, the Company had net operating loss carryforwards
available for income tax purposes of approximately $47,000,000 which
start to expire in 2005. Section 382 of the Internal Revenue Code of
1986, as amended, places a limitation on the utilization of federal net
operating loss carryforwards when an ownership change occurs. Generally,
an ownership change occurs when a greater than 50% change in ownership
takes place over a three-year test period. The annual utilization of net
operating loss carryforwards generated prior to such change in ownership
is limited, in any one year, to a percentage of the fair market value of
the Company at the time of the ownership change. The acquisition by
Mail.com will impact the combined company's ability to utilize the
Company's net operating loss carryforwards assuming the combined company
can generate sufficient taxable income. The components of the Company's
deferred tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
<S> <C> <C>
Operating loss carryforwards $ 18,711,324 $ 12,765,029
Temporary differences 962,659 914,450
------------ --------------
19,673,983 13,679,479
------------- --------------
Less - valuation allowance 19,673,983 (13,679,479)
============= ==============
$ $
============= ==============
</TABLE>
In evaluating the realization of these deferred tax assets, management
has considered the market in which the Company operates, the operating
losses incurred to date and the operating losses anticipated for the
future, and believes that given the significance of this evidence, a full
valuation allowance against its deferred tax assets is required as of
December 31, 1999, 1998, and 1997.
19
<PAGE> 21
NETMOVES CORPORATION
(FORMERLY FAXSAV INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. CONTINGENCIES
The Company is involved in various disputes, claims or legal proceedings
related to its normal course of business. In the opinion of management,
all such matters are without merit or involve amounts, if disposed of
unfavorably, which would not have a material adverse effect on the
financial position or results of operations of the Company.
14. SUBSEQUENT EVENT
On February 8, 2000, Mail.com ("Mail.com") completed its acquisition of
NetMoves Corporation ("NetMoves") pursuant to an agreement and Plan of
Merger dated as of December 11, 1999 among Mail.com, NetMoves and Mast
Acquisition Corp., a wholly-owned subsidiary of Mail.com ("Merger Sub").
Merger Sub merged with and into NetMoves, with NetMoves surviving as a
wholly-owned subsidiary of Mail.com Business Messaging Services, Inc.
In the Merger, each outstanding share of NetMoves common stock was
converted into the right to receive 0.385336 shares of Mail.com Class A
common stock, with cash being paid in lieu of fractional shares of
Mail.com Class A common stock. All outstanding options and certain
outstanding warrants to purchase NetMoves common stock were converted
into options and warrants to purchase the number of Mail.com Class A
common stock into which the shares of NetMoves common stock underlying
the options and warrants would have been converted in the Merger.
20
<PAGE> 22
Item 7 Financial Statements and Pro Forma Financial Information
(b) PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On February 8, 2000, Mail.com acquired NetMoves Corporation ("NetMoves") for
approximately $168.7 million including acquisition costs. Pursuant to the terms
of the merger agreement, Mast Acquisition Corp., which is a wholly owned
subsidiary of Mail.com, will merge with and into NetMoves and NetMoves will
become a wholly-owned subsidiary of Mail.com. Pursuant to the merger, NetMoves
stockholders will be entitled to receive 0.385336 of a share of Mail.com Class A
common stock for each issued and outstanding share of NetMoves common stock. The
consideration payable by Mail.com in connection with the acquisition of NetMoves
consisted of the following:
- 6,343,904 shares of Mail.com Class A common stock valued at
approximately $145.7 million based upon the average trading price
before and after the date the agreement was signed and announced
(December 13, 1999) at $22.96 per share;
- The assumption by Mail.com of options to purchase shares of
NetMoves' common stock, par value of $.01 per share, to be
exchanged for options to purchase approximately 1.0 million shares
of Mail.com Class A common stock. The options were valued at
approximately $19.7 million based on the Black-Scholes pricing
model. Such options have an aggregate exercise price of
approximately $6.6 million;
- The assumption by Mail.com of warrants to purchase shares of
NetMoves' common stock, par value of $.01 per share, to be
exchanged for warrants to purchase approximately 58,000 shares of
Mail.com Class A common stock. The warrants were valued at
approximately $1.2 million based on the Black-Scholes pricing
model. Such warrants have an aggregate exercise price of
approximately $496,000; and
- Acquisition costs of approximately $2.2 million related to the
merger.
In addition to the rollover of existing options contemplated by the
merger agreement, Thomas Murawski, NetMoves' President, Chief Executive Officer
and Chairman of the board of directors, as an employee of Mail.com received
options from Mail.com on February 8, 2000 to purchase Mail.com Class A common
stock based on the exchange ratio and equivalent to 600,000 options to purchase
NetMoves' common stock, with an exercise price equal to $17.50 per share, the
then fair value of Mail.com's Class A common stock.
The consideration paid by Mail.com was determined as a result of
negotiations between Mail.com and NetMoves. The number of shares of Mail.com
Class A common stock issued to NetMoves stockholders was determined based on the
exchange rate of 0.385336 shares of Mail.com Class A common stock for each share
of NetMoves common stock.
The acquisition has been accounted for using the purchase method of
accounting. Mail.com has allocated a portion of the purchase price to the fair
market value of the acquired assets and assumed liabilities of NetMoves as of
the date of the closing. For pro forma purposes, Mail.com used the announcement
date (December 13, 1999) of the intended acquisition as its basis for
determining its allocation of the purchase price. The excess of the purchase
price over the fair
21
<PAGE> 23
market value of the acquired assets and assumed liabilities of NetMoves has been
allocated to goodwill and an assembled employee workforce. Goodwill is being
amortized over a period of 5 years, the expected estimated period of benefit and
assembled employee workforce are being amortized over a period of 3 years, the
expected estimated period of benefit.
Approximately $7.7 million of the purchase price of NetMoves was
allocated to in-process technology based upon an independent appraisal which
determined that the new versions of the various fax technologies acquired from
NetMoves had not been developed into the platform required by Mail.com as of the
acquisition date. The fair value of purchased existing and in-process
technologies was determined by management using a risk-adjusted income valuation
approach. As a result, Mail.com is required to expend significant capital
expenditures to successfully integrate and develop the new versions of various
fax technologies, for which there is considerable risk that such technologies
will not be successfully developed, and if such technologies are not
successfully developed, there will be no alternative use for the technologies.
The various fax technologies are enabling technologies for fax communications
and include message management and reporting. Accordingly, on the date of
acquisition, Mail.com's statements of operations will reflect a write-off of the
amount of purchase price allocated to in-process technology of approximately
$7.7 million. Because such in-process technologies did not reach technological
feasibility as of the acquisition date and is expected to have no alternative
future use, this amount will be immediately written-off by Mail.com in the first
quarter of 2000 and has been reflected in the pro forma balance sheet as a
charge to stockholders' equity.
Mail.com intends to incur in excess of approximately $12.0 million
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. Mail.com 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, Mail.com 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.
Mail.com has allocated the excess purchase price over the fair value of
net tangible assets acquired to identified intangible assets including assembled
employee workforce. In performing this allocation, Mail.com 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, Mail.com 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 included 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.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The accompanying unaudited pro forma condensed combined Statement of
Operations (the "Pro Forma Statement of Operations") for the year ended December
31, 1999 gives effect to the NetMoves acquisition as if it had occurred on
January 1, 1999. The Pro Forma Statement of Operations are based on historical
results of operations of Mail.com and NetMoves for the year ended December 31,
1999.
22
<PAGE> 24
The Unaudited Pro Forma Condensed Combined Balance Sheet (the "Pro Forma
Balance Sheet") gives effect to the acquisition of NetMoves as if the
acquisition had occurred on December 31, 1999. The Pro Forma Statement 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 Mail.com and NetMoves and notes thereto
set forth or incorporated by reference.
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 Mail.com after the acquisition of NetMoves,
or of the financial position or results of operations of Mail.com that would
have actually occurred had the acquisition of NetMoves been effected on January
1, 1999.
MAIL.COM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
NETMOVES
MAIL.COM, INC. CORPORATION ADJUSTMENTS PRO FORMA
-------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $36,870 $5,186 $ -- $42,056
Marketable securities.......................................... 7,006 -- -- 7,006
Accounts receivable, net....................................... 4,138 3,259 -- 7,397
Prepaid expenses and other current assets...................... 1,940 280 -- 2,220
Receivable from sale leaseback................................. 183 -- -- 183
--------------- ------------ ------------ ----------
Total current assets............................ 50,137 8,725 -- 58,862
Property and equipment, net....................................... 28,935 6,114 -- 35,049
Domain assets, net................................................ 7,934 -- -- 7,934
Partner advances.................................................. 16,809 -- -- 16,809
Investments in affiliated companies............................... 2,962 -- -- 2,962
Goodwill and other intangible assets, net......................... 28,964 2,100 151,578(a) 182,642
Restricted investment............................................. 1,000 -- -- 1,000
Other assets...................................................... 526 -- -- 526
--------------- ------------ ------------ ----------
Total assets.................................... $137,267 $16,939 $151,578 $305,784
=============== ============ ============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $7,546 $1,270 $ -- $8,816
Accrued expenses............................................... 11,735 3,655 -- 15,390
Capital lease obligations...................................... 5,483 65 -- 5,548
Domain asset purchase obligations.............................. 400 -- -- 400
Current portion of long-term debt.............................. -- 1,092 -- 1,092
Deferred revenue............................................... 610 -- -- 610
Other current liabilities...................................... 2,562 -- -- 2,562
--------------- ------------ ------------ ----------
Total current liabilities....................... 28,336 6,082 -- 34,418
Capital lease obligations, less current portion................... 12,016 122 -- 12,138
</TABLE>
23
<PAGE> 25
<TABLE>
<S> <C> <C> <C> <C>
Domain asset purchase obligations, less current portion........... 176 -- -- 176
Long-term debt, less current portion.............................. -- 1,223 -- 1,223
Deferred revenue.................................................. 725 -- -- 725
--------------- ------------ ------------ ----------
Total liabilities............................... 41,253 7,427 -- 48,680
(7,650)(a)
(9,512)(a)
Stockholders' equity.............................................. 96,014 9,512 168,740 (a) 257,104
--------------- ------------ ------------ ----------
Total liabilities and stockholders' equity...... $137,267 $16,939 $151,578 $305,784
=============== ============ ============ ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Information.
24
<PAGE> 26
MAIL.COM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
NETMOVES
MAIL.COM, INC. CORPORATION ADJUSTMENTS PRO FORMA
-------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues............................... $12,709 $22,437 $-- $35,146
Operating expenses:
Cost of revenues.................... 13,778 17,089 -- 30,867
Sales and marketing................. 29,542 8,438 -- 37,980
General and administrative.......... 12,136 6,480 -- 18,616
Product development................. 7,017 2,380 -- 9,397
Amortization of goodwill
and intangible assets............... 2,979 -- 30,729(a) 33,708
Write-off of acquired in-process
technology 900 -- -- 900
--------------- ------------- -------------- ---------------
Total operating expenses......... 66,352 34,387 30,729 131,468
--------------- ------------- -------------- ---------------
Loss from operations....... (56,643) (11,950) (30,729) (96,322)
--------------- ------------- -------------- ---------------
Other income:
Gain on sale of investment.......... 5,494 -- -- 5,494
Other income........................ 1,885 431 -- 2,316
Interest expense.................... (751) (438) -- (1,189)
--------------- ------------- -------------- ---------------
Total other income (expenses),
net............................... 6,628 (7) -- 6,621
--------------- ------------- -------------- ---------------
Net loss............................... (47,015) (11,957) (30,777) (89,701)
Cumulative dividends on settlement of
contingent obligations to preferred
stockholders (14,556) -- -- (14,556)
--------------- ------------- -------------- ---------------
Net loss attributable to common
stockholders $(61,571) $(11,957) $(30,777) $(104,257)
--------------- ------------- -------------- ---------------
Basic and diluted net loss per common
share............................... $(1.96) $(2.76)(b)
--------------- ---------------
Weighted-average basic and diluted
shares outstanding.................. 31,373,645 6,343,904(b) 37,717,549(b)
=============== ============== ===============
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Information.
25
<PAGE> 27
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
(1) PRO FORMA ADJUSTMENTS AND ASSUMPTIONS
(a) The following represents the allocation of the purchase price over the
historical net book values of the acquired assets and assumed liabilities
of NetMoves at December 31, 1999, and is for illustrative pro forma
purposes only. Actual fair values will be based on financial information
as of the acquisition date. Assuming the transaction had occurred on
December 31, 1999, the allocation would have been as follows:
<TABLE>
<S> <C>
Assets acquired:
Cash................................................. $5,186
Accounts receivable.................................. 3,259
Other assets......................................... 2,380
Property and equipment............................... 6,114
Goodwill and intangibles............................. 151,578
-----------------
168,517
In-process technology................................... 7,650
Liabilities assumed..................................... (7,427)
-----------------
Purchase price.......................................... $168,740
=================
</TABLE>
This allocation is preliminary and may be subject to change upon
evaluation of the fair value of NetMoves' acquired assets and liabilities
as of the acquisition date as well as the potential identification of
certain intangible assets.
- The pro forma adjustments reflect twelve months of amortization
expense for the year ended December 31, 1999 assuming the
transaction had occurred on January 1, 1999. The preliminary value
of the goodwill and intangible assets at January 1, 1999 would
have been approximately $151.8 million. Goodwill is being
amortized over a period of 5 years, the expected estimated period
of benefit and assembled employee workforce are being amortized
over a period of 3 years, the expected estimated period of
benefit;
- For purposes of the pro forma financial information, the amount of
the in-process technology is approximately $7.7 million. Because
such in-process technologies did not reach the stage of
technological feasibility by February 8, 2000 and is expected to
have no alternative future use, this amount was immediately
written-off by Mail.com in the first quarter of 2000 and has been
reflected in the pro forma balance sheet as a charge to
stockholders' equity; and
- The pro forma adjustment reconciles the historical balance sheet
of NetMoves at December 31, 1999 to the allocated purchase price
of NetMoves of $168.7 million assuming the transaction had
occurred on December 31, 1999.
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(b) The pro forma basic and diluted net loss per common share is computed by
dividing the net loss attributable to common stockholders by the weighted
average number of common shares outstanding. The calculation of the
weighted average number of shares outstanding assumes that 6,343,904 of
Mail.com's common stock issued in connection with its acquisition of
NetMoves 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.
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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.
April 24, 2000
Mail.com,Inc.
By: /s/ Debra McClister
Debra McClister
Executive Vice President and Chief Financial Officer
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<PAGE> 30
Exhibits
23 Consent of PricewaterhouseCoopers LLP
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Nos. 333-31356 and 333-96151) of Mail.com, Inc. of our
report dated February 15, 2000 relating to the financial statements of NetMoves
Corporation, which appears in the Current Report on Form 8-K/A of Mail.com Inc.
dated April 24, 2000.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
April 24, 2000
