<PAGE>
As filed Pursuant to Rule 424(b)(1)
Registration No. 333-76331
3,400,000 SHARES
INTERNET.COM CORPORATION
[LOGO]
COMMON STOCK
$14.00 PER SHARE
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
- - The initial public offering price is - This is our initial public offering and no
$14.00 per share. public market currently exists for our
shares.
<S> <C>
- - Trading symbol: Nasdaq National Market--
INTM.
</TABLE>
-------------------
THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
<CAPTION>
PER SHARE TOTAL
----------- ----------
<S> <C> <C>
Public Offering Price................................................. $ 14.00 $47,600,000
Underwriting Discounts................................................ $ 0.98 $3,332,000
Proceeds, before expenses, to internet.com Corporation................ $ 13.02 $44,268,000
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
THE UNDERWRITERS HAVE A 30-DAY OPTION TO PURCHASE UP TO 510,000 ADDITIONAL
SHARES OF COMMON STOCK FROM A SELLING STOCKHOLDER TO COVER OVER-ALLOTMENTS, IF
ANY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OF ANYONE'S INVESTMENT IN THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
U.S. BANCORP PIPER JAFFRAY
WILLIAM BLAIR & COMPANY
DLJDIRECT Inc.
<PAGE>
THE DATE OF THIS PROSPECTUS IS JUNE 25, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary................................................................................ 4
Risk Factors........................................................................... 8
Use of Proceeds........................................................................ 17
Dividend Policy........................................................................ 17
Capitalization......................................................................... 18
Dilution............................................................................... 19
Selected Financial Data................................................................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................ 21
Business............................................................................... 32
Management............................................................................. 50
Certain Transactions................................................................... 55
Principal Stockholders................................................................. 59
Description of Capital Stock........................................................... 60
Shares Eligible for Future Sale........................................................ 63
Underwriting........................................................................... 65
Legal Matters.......................................................................... 67
Experts................................................................................ 67
Where You Can Find More Information.................................................... 68
Index to Financial Statements.......................................................... F-1
</TABLE>
------------------------------------
You should rely only on the information contained in this prospectus. We have
not, and the underwriters have not, authorized any other person to provide you
with different information. This prospectus is not an offer to sell, nor is it
seeking an offer to buy, these securities in any state where the offer or sale
is not permitted. The information in this prospectus is complete and accurate as
of the date on the front cover, but the information may have changed since that
date.
<PAGE>
SUMMARY
THE ITEMS IN THE FOLLOWING SUMMARY ARE DESCRIBED IN MORE DETAIL LATER IN THIS
PROSPECTUS. THIS SUMMARY PROVIDES AN OVERVIEW OF SELECTED INFORMATION AND DOES
NOT CONTAIN ALL THE INFORMATION YOU SHOULD CONSIDER. THEREFORE, YOU SHOULD ALSO
READ THE MORE DETAILED INFORMATION SET OUT IN THIS PROSPECTUS, THE FINANCIAL
STATEMENTS AND THE OTHER INFORMATION INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL REFERENCES IN THIS PROSPECTUS TO
"INTERNET.COM," "WE," "US" OR "OUR" ARE TO INTERNET.COM CORPORATION OR
INTERNET.COM LLC, OUR PREDECESSOR ENTITY.
INTERNET.COM
internet.com owns and operates a network of 61 Web sites and related Internet
media properties focused solely on the Internet industry. In addition to our 61
Web sites, our network includes 43 e-mail newsletters, which are periodical
publications delivered by electronic mail; 55 online discussion forums, which
are electronic message centers where members of specific interest groups review
messages left by others and leave their own messages; and 52 moderated e-mail
discussion lists, which are similar to online discussion forums, except that
members' messages are transmitted and received by e-mail broadcast. Our network
is organized into nine subject areas, or vertical content channels. These
vertical content channels serve our Internet users, which include Internet
industry and Internet technology professionals, Web developers and experienced
Internet users. We provide our audience, or community of Internet users, with
the following resources:
- - real-time Internet industry news
- - tutorials, training and skills development
- - Internet market research
- - buyer's guides and products reviews
- - archives of definitive industry publications
- - discussion forums
- - software downloads
- - expert advice
The Internet has emerged as a global distribution network for real-time news and
information, an environment for online communities and a marketplace in which
commerce is conducted. International Data Corporation, or IDC, estimates that
the number of Uniform Resource Locators, the addresses of documents on the World
Wide Web, will grow from approximately 925 million in 1998 to 13.1 billion in
2003. This growth has created a rapidly expanding group of Internet
professionals with a critical need for news and information resources to assist
them in their daily work and purchasing decisions. Our network provides a
comprehensive source of the latest Internet news and information for our
community of Internet users. It also provides the ability to share information
and evaluate, compare and purchase Internet-related products and services.
We also provide advertisers and vendors with a means through which they can
reach our community of Internet industry and Internet technology professionals,
many of whom either make or influence Internet technology purchasing decisions.
We have had over 450 advertisers on our network, including Biztravel.com, Dell
Computer Corporation, International Business Machines Corporation, Lucent
Technologies Inc., Macromedia Inc., Microsoft Corporation, Nortel Networks
Corporation, Oracle Corporation, OrderTrust LLC and Surfree.com Inc., which were
our 10 largest advertisers based on revenues during the six months ended March
31, 1999.
We have rapidly built a network of Internet media properties, through internal
development and acquisitions. We have experience identifying, evaluating,
acquiring and integrating Internet media properties which are complementary to
our content offerings and services. Since July 1995, we have made 28
acquisitions of Internet media properties, consisting of 37 Web sites, 29 e-mail
newsletters, 16 online discussion forums and four moderated e-mail discussion
lists. We have made 17 of these 28 acquisitions since March 1998. Our size and
recent growth are illustrated by the following statistics for the months of
April 1998 and April 1999:
4
<PAGE>
<TABLE>
<CAPTION>
APRIL 1998 APRIL 1999
------------ ------------
<S> <C> <C> <C>
Web site page views 13,490,000 42,100,000
Unique Web site visitors 850,000 1,660,000
E-mail newsletters distributed 300,000 8,100,000
E-mail newsletter subscribers 80,000 700,000
E-mail discussion list postings -- 31,200,000
E-mail discussion list subscribers -- 51,000
</TABLE>
Our objective is to maintain and strengthen our position as a provider of
business information focused solely on the Internet industry. We intend to
achieve this objective by continuing to execute the following strategies:
- increase our proprietary content offerings and services;
- grow through targeted acquisitions;
- increase traffic and enhance worldwide brand recognition;
- expand revenue opportunities; and
- increase our international presence.
In part due to our rapid and recent growth, we have a history of significant
losses. Since inception, internet.com and its predecessor business have a
cumulative loss of approximately $11.2 million, of which $3.3 million relates to
the three months ended March 31, 1999. Our plans for continued acquisitions of
Internet media properties, as well our operating in highly competitive markets,
will contribute to our anticipated continued losses for the foreseeable future.
Prior to the acquisition of Mecklermedia Corporation by Penton Media, Inc. in
November 1998, we operated since December 1994 as one of three divisions which
comprised Mecklermedia. We have a limited operating history. Our predecessor Web
sites, MECKLERWEB.COM and IWORLD.COM, were also dedicated to covering the
Internet industry. In connection with this acquisition, Penton Media determined
that Mecklermedia's Internet business was not consistent with its planned
strategic direction. To address this issue, Alan M. Meckler, Mecklermedia's
Chairman and Chief Executive Officer, purchased an 80.1% interest in
internet.com LLC, a business formed by Penton Media to hold the Internet
business acquired from Mecklermedia. See "Certain Transactions--Formation
Transactions." As of March 31, 1999, Mr. Meckler beneficially owned
approximately 55.2% of our outstanding common stock, after giving effect to this
offering.
Prior to the effectiveness of the registration statement relating to this
prospectus, one of our underwriters mailed written materials to persons we had
designated as potential purchasers of our common stock. In addition, this
underwriter has received funds from some of the recipients of these written
materials. These actions may have constituted violations of the Securities Act
of 1933. See "Risk Factors--Some shares in this offering may have been offered
or sold in violation of the Securities Act of 1933."
internet.com Corporation was incorporated on April 5, 1999 in the State of
Delaware. internet.com LLC will be merged with and into internet.com Corporation
immediately preceding the consummation of the offering. Our principal executive
offices are located at 20 Ketchum Street, Westport, Connecticut 06880 and our
telephone number is (203) 226-6967.
The information on our Web sites, e-mail newsletters, online discussion forums
and moderated e-mail discussion lists is not a part of this prospectus.
"internet.com" and the internet.com logo are two of our trademarks and service
marks. We have numerous other trademarks and service marks as well. See
"Business--Intellectual Property." This prospectus also references trademarks
and trade names of other companies.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered............................ 3,400,000 shares
Common stock outstanding after the offering..... 23,400,000 shares (1)(2)
Offering price.................................. $14.00 per share
Use of proceeds................................. We will receive net proceeds from this
offering of approximately $42.8 million.
We will use approximately $4.8 million of
the net proceeds to repay indebtedness
from our line of credit. We intend to use
the remaining net proceeds for potential
strategic acquisitions, general corporate
purposes, including working capital and
expansion of editorial, marketing and
sales activities, and to finance any
obligations to return the consideration
paid for shares of our common stock that
internet.com may have. See "Use of
Proceeds" and "Risk Factors--Some shares
in this offering may have been offered or
sold in violation of the Securities Act
of 1933."
Nasdaq National Market symbol................... INTM
</TABLE>
- ------------------------------------
(1) Based on shares outstanding as of March 31, 1999, assuming the conversion
of internet.com into a corporation had been effected as of that date.
Excludes 2,000,000 shares of common stock that have been set aside for stock
options under our stock incentive plan, of which 510,500 options will be
granted to our employees immediately preceding the closing of this offering
at the inital public offering price.
(2) Assumes exercise by Internet World Media of a warrant to purchase up to
2,075,634 shares.
UNLESS OTHERWISE SPECIFICALLY STATED, INFORMATION CONTAINED IN THIS PROSPECTUS
(A) DOES NOT TAKE INTO ACCOUNT THE EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT
OPTION TO PURCHASE UP TO 510,000 SHARES OF OUR COMMON STOCK FROM INTERNET WORLD
MEDIA, INC., A WHOLLY-OWNED SUBSIDIARY OF PENTON MEDIA, INC.; (B) DOES NOT GIVE
EFFECT TO THE EXERCISE BY INTERNET WORLD MEDIA OF A WARRANT TO PURCHASE
2,075,634 SHARES OF OUR COMMON STOCK IMMEDIATELY PRIOR TO THE CLOSING OF THIS
OFFERING; AND (C) GIVES EFFECT TO THE CONVERSION OF OUR BUSINESS FORM INTO A
CORPORATION, AT THE CONVERSION RATE OF ONE MEMBERSHIP UNIT IN INTERNET.COM LLC
INTO 16,215.891 SHARES OF OUR COMMON STOCK, WHICH WILL OCCUR IMMEDIATELY PRIOR
TO THE EFFECTIVENESS OF THIS OFFERING.
6
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes the financial data for internet.com and its
predecessor business, the iWorld division of Mecklermedia. The share information
reflects the conversion of internet.com from a limited liability company into a
corporation as if such conversion had occurred at the beginning of each period
indicated. Effective with the formation of internet.com in November 1998, our
fiscal year end has been changed to December 31. The following summary financial
data should be read in conjunction with the internet.com and iWorld audited
financial statements and accompanying notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE
INCEPTION MONTHS
(DEC. 7, 1994) FISCAL YEAR ENDED OCT. 1 NOV. 24 ENDED
THROUGH ------------------------------------- THROUGH THROUGH -----------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, NOV. 23, DEC. 31, MARCH 31,
1995(1) 1996(1) 1997(1) 1998(1) 1998(1) 1998(2) 1998(1)
--------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $ 123 $ 498 $ 1,479 $ 3,544 $ 778 $ 772 $ 831
Gross profit........................ 84 (38) 308 1,373 322 369 264
Operating loss...................... (404) (1,244) (2,155) (2,731) (467) (966) (691)
Net loss............................ (404) (1,244) (2,155) (2,731) (467) (974) (691)
Basic and diluted net loss per
share.............................
Common shares used to compute basic
and diluted net loss per share....
<CAPTION>
MARCH 31,
1999(2)
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $ 1,612
Gross profit........................ 495
Operating loss...................... (3,226)
Net loss............................ (3,258)
Basic and diluted net loss per
share............................. $ (0.18)
Common shares used to compute basic
and diluted net loss per share.... 17,924
</TABLE>
The following table summarizes our balance sheet (assuming the conversion of
internet.com LLC into a corporation) as of March 31, 1999, which has been
adjusted, on a pro forma basis, to reflect the sale of the 3,400,000 shares of
common stock offered hereby at the initial public offering price of $14.00 per
share, after deducting underwriting discounts and estimated offering expenses,
and the exercise by Internet World Media of its warrant to purchase 2,075,634
shares of our common stock immediately prior to the closing of this offering.
See "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................. $ 236 $ 44,153
Working capital (deficit).................................................. (2,207) 43,561
Total assets............................................................... 24,902 68,819
Borrowings under line of credit............................................ 1,851 --
Total stockholders' equity................................................. 20,265 66,033
</TABLE>
- ------------------------------------
(1) Represents the financial data of the iWorld division of Mecklermedia
Corporation.
(2) Represents the financial data of internet.com.
7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE
ONLY ONES FACING OUR COMPANY. OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF
OPERATIONS COULD BE HARMED BY ANY OF THE FOLLOWING RISKS. THE TRADING PRICE OF
OUR COMMON STOCK COULD DECLINE DUE TO ANY OF THE FOLLOWING RISKS, AND YOU MIGHT
LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY. Although our predecessor business, iWorld,
began operating in December 1994, internet.com was only formed in November 1998.
Thus, we have a limited operating history upon which you can evaluate our
business. We are subject to the risks, expenses and uncertainties frequently
encountered by companies in the new and rapidly evolving markets for Internet
products and services. For example:
- we might fail to continue to develop and extend our Internet-based
content offerings and services;
- our services may be rejected by Internet users, vendors or
advertisers;
- we might be unable to maintain and increase the levels of traffic
on our network;
- our competitors may develop or may already have developed similar
or superior services or products;
- the market might fail to continue to accept the Internet as an
advertising medium;
- we might not be able to successfully sell Internet advertising;
- market prices for Internet advertising may drop as a result of
competition or other factors;
- we might not effectively integrate the technology and operations of
any acquired businesses or technologies with our operations;
- the technologies we use in our operations might fail or operate
poorly; and
- we might be unable to identify, attract, retain and motivate
qualified personnel.
We might not be successful in addressing these risks or other risks we may face.
If we are unable to adequately address these risks, our business, results of
operations and financial condition would suffer.
WE ANTICIPATE CONTINUED LOSSES. We had net losses of approximately $1.2 million
for the year ended September 30, 1996, $2.2 million for the year ended September
30, 1997, $2.7 million for the year ended September 30, 1998 and $3.3 million
for the three months ended March 31, 1999. As of March 31, 1999, we had an
accumulated deficit of approximately $4.2 million. We cannot assure you that our
revenues will continue at their current level or increase in the future. We have
not achieved profitability on a quarterly or annual basis to date and we
anticipate that we will continue to incur net losses for the foreseeable future.
Our failure to achieve profitability could deplete our current capital resources
and reduce our ability to raise additional capital. We expect to increase our
operating expenses significantly, expand our sales and marketing operations and
continue to develop and expand our content offerings and services. If these
expenses are not accompanied by increased revenues, our business, results of
operations and financial condition would suffer.
WE HAVE A SIGNIFICANT AMOUNT OF NET INTANGIBLE ASSETS. We had approximately
$20.8 million of net intangible assets as of March 31, 1999. Of these intangible
assets, $19.9 million relates to the goodwill
8
<PAGE>
associated with the formation of internet.com LLC in November 1998. If we are
unable to recover the recorded amounts of our intangible assets, our business,
results of operations and financial condition will suffer.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS. Our
quarterly operating results may fluctuate significantly in the future because of
a variety of factors, many of which are outside our control. These factors
include:
- the level of Internet usage;
- traffic levels on our network;
- the demand for advertising on our network, as well as on the
Internet in general;
- changes in rates paid for Internet advertising resulting from
competition or other factors;
- our ability to enter into or renew key agreements with our
advertisers and vendors;
- the amount and timing of costs related to marketing efforts or
other initiatives;
- costs incurred as we expand operations;
- our ability to successfully introduce new content offerings and
services;
- new services introduced by us or our competitors;
- technical difficulties or system downtime affecting the Internet
generally or the operation of our network; and
- economic conditions specific to the Internet as well as general
economic conditions.
Therefore, operating results for any particular quarter might not be indicative
of future operating results. We expect to depend primarily on advertising
revenues for the foreseeable future. As a result, the level of advertising
revenues in each quarter is likely to significantly affect our quarterly
revenues and operating results. Our advertising, promotion and selling and
general and administrative expenses are based on expectations of future revenues
and are relatively fixed in the short term. These expenses totaled approximately
$1.7 million during the three months ended March 31, 1999. If our advertising
and other revenues are lower than expected, we might not be able to quickly
reduce spending. In addition, we intend to significantly increase operating
expenses to expand our business. Any shortfall in revenues would have a direct
impact on operating results for a particular quarter and these fluctuations
could affect the market price of our common stock.
THERE ARE RISKS ASSOCIATED WITH OUR BUSINESS, WHICH IS DEPENDENT ON INTERNET
ADVERTISING. We have derived approximately 99% of our revenues from
impression-based advertising for each of the three years ended September 30,
1996, 1997 and 1998. No standards have been widely accepted to measure the
effectiveness of Internet advertising. If such standards do not develop,
existing advertisers might not continue their current levels of Internet
advertising. Furthermore, advertisers that have traditionally relied upon other
advertising media may be reluctant to advertise on the Internet. In addition,
advertisers that have already invested substantial resources in other
advertising methods may be reluctant to adopt a new strategy. Our business would
suffer if the market for Internet advertising fails to continue to develop or
develops more slowly than expected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Our Business
Strategy" and "--Marketing and Sales."
9
<PAGE>
It is difficult to predict which, if any, of the pricing models currently used
to sell advertising on the Internet will emerge as the industry standard, which
makes it difficult to project future advertising rates and revenues. For
example, insistence by advertisers that advertising rates be based on the number
of click throughs, or user requests for additional information made by clicking
on the advertisement, instead of rates based solely on the number of advertising
impressions, or the number of times an advertisement is displayed, could
adversely affect revenues. Advertising revenues would suffer if we cannot adapt
to new Internet advertising pricing models. Moreover, filtering software
programs that limit or prevent advertising from being delivered to an Internet
user's computer are available. Widespread adoption of this filtering software by
Internet users could adversely affect the commercial viability of Internet
advertising, which would harm our business.
It is important to advertisers that we accurately measure the size and
demographics of our user base and accurately verify the number of advertising
impressions we deliver. We depend on third parties to provide these measurement
services. If they cannot provide these services in the future, we will be
required to perform them ourselves or obtain them from another provider. This
could cause us to incur additional costs or cause interruptions in business
during the time we are replacing these services.
WE DEPEND ON A LIMITED NUMBER OF ADVERTISERS. Our largest advertiser,
International Business Machines Corporation, accounted for 17% of our total
revenues for the six months ended March 31, 1999. Our top 20 advertisers
together accounted for 50% of our total revenues during the same period. We
expect that a limited number of advertisers will continue to account for a
significant portion of our revenues. Moreover, we typically sell advertisements
under purchase order agreements. These agreements are subject to cancellation by
our advertisers with no minimum notice requirement. If we lose one or more of
the advertisers that represent a material portion of the revenues we have
generated to date, our business, results of operations and financial condition
would suffer. In addition, if a significant advertiser fails to pay amounts it
owes us, or does not pay those amounts on time, our business, results of
operations and financial condition would suffer. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
THE SEASONALITY OF OUR ADVERTISING REVENUES COULD CAUSE OUR OVERALL REVENUES TO
FLUCTUATE. We believe that advertising sales in traditional media, such as print
publishing, generally are lower in the first and third calendar quarters of each
year due to buying patterns of advertisers. Therefore, we believe that the
growth of our advertising revenues, which constitute a significant portion of
our total revenues, may be lower in the first and third quarters of each year.
If the Internet makes the transition from an emerging to a more developed
advertising medium, we may experience similar seasonal patterns as those in the
traditional media industry. As a result, our stock price may be lower after the
announcement of our results for the first and third quarters than at other times
of the year.
WE DEPEND ON AN EFFECTIVE DIRECT SALES FORCE. We depend on our direct sales
force to sell advertising on our Web sites, e-mail newsletters, online
discussion forums and moderated e-mail discussion lists. We also depend on our
sales force to enter into e-commerce agreements. This dependence involves a
number of risks, including:
- the need to increase the size of our direct sales force;
- the need to hire, retain, integrate and motivate additional sales
and sales support personnel;
- lack of experience at internet.com of our new sales personnel; and
- competition from other companies in hiring and retaining sales
personnel.
Our business may suffer if we do not maintain an effective direct sales force.
10
<PAGE>
WE FACE INTENSE COMPETITION. The market for Internet-based content offerings and
services is relatively new, intensely competitive and rapidly changing. Since
the advent of commercial services on the Internet, the number of online services
competing for users' attention and spending has proliferated. We expect that
competition will continue to intensify. We compete with other companies that
direct some of their overall Web content and services at the Internet
professional community, such as Ziff-Davis Inc.'s ZDNet, C/NET, Inc., CMP Media
Inc., EarthWeb Inc. and Wired Digital Inc. We also compete for circulation and
advertising impressions with general interest portal and destination Web sites
as well as traditional media.
An important part of our strategy is to develop and increase the reputation of
our brand names. If we are unable to do so, or if our competitors develop their
brand names more successfully than we do, our future growth, and our business,
results of operations and financial condition would suffer.
Many of our current and potential competitors have longer operating histories,
larger customer bases, greater brand recognition and significantly greater
financial, marketing and other resources than we have. These competitors may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements and to devote greater resources to the development,
promotion and sale of their products and services than we can. We might not be
able to compete successfully against our current or future competitors. See
"Business--Competition."
WE MIGHT NOT BE ABLE TO ADEQUATELY MANAGE OUR GROWTH. Our recent growth has
placed, and will continue to place, a significant strain on our managerial,
operational and financial resources. We must continue to implement and improve
our operational and financial systems and to expand, train and manage our
employee base to manage this future growth. We also intend to establish or
acquire additional Web sites, e-mail newsletters, online discussion forums and
moderated e-mail discussion lists which will create additional operational and
management complexities. In addition, we expect that our operational and
management systems will face increased strain as a result of the expansion of
our content offerings and services. We might not be able to manage effectively
the expansion of our operations and systems, and our procedures and controls
might not be adequate to support our operations. In addition, our management
might not be able to make and execute decisions rapidly enough to exploit market
opportunities for the expansion of our content offerings and services. If we are
unable to manage growth effectively, our business, results of operations and
financial condition would suffer.
WE MIGHT BE UNABLE TO SUCCESSFULLY IMPLEMENT OUR ACQUISITION STRATEGY. We have
acquired and intend to continue to acquire complementary Web sites, e-mail
newsletters, online discussion forums and moderated e-mail discussion lists,
companies, technologies, services or products as appropriate opportunities
arise. If we identify an appropriate acquisition opportunity, we might not be
able to negotiate the terms of that acquisition successfully, finance it, or
integrate its personnel and operations. We may also have difficulty continuing
to acquire Web sites and other Internet media properties at the prices
historically paid due to the escalation of Internet media valuations. If we make
acquisitions outside of our core business, assimilating the acquired technology,
services or products into our operations could be difficult. This may cause a
disruption in our ongoing business, distract management and make it difficult to
maintain standards, controls and procedures. In addition, we might be required
to incur debt or issue equity securities to pay for any future acquisitions. If
the market price for acquisition targets increases substantially, our future
growth could be harmed.
OUR SYSTEMS ARE SUBJECT TO DAMAGE FROM NATURAL DISASTERS, TELECOMMUNICATION
FAILURES, ELECTRONIC BREAK-INS AND SIMILAR PROBLEMS. Most of our communications
and other computer hardware operations are located at our facility in Westport,
Connecticut. These systems could be damaged by fire, floods, earthquakes, power
loss, telecommunication failures, electronic break-ins and similar events. Our
network could also be affected by computer viruses, electronic break-ins or
other similar disruptive problems. Any of these
11
<PAGE>
occurrences could harm our business. Our insurance policies have limited
coverage levels and therefore insurance may not adequately compensate us for any
losses that may occur due to any failures or interruptions in our systems. See
"--The failure of computer systems and software products to be Year 2000
compliant could hurt our business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Compliance."
OUR SYSTEMS MAY FAIL OR EXPERIENCE A SLOWDOWN AND OUR USERS DEPEND ON OTHERS FOR
ACCESS TO OUR NETWORK. Our network of Web sites, e-mail newsletters, online
discussion forums and moderated e-mail discussion lists must accommodate a high
volume of traffic and deliver frequently updated information. Our network has in
the past, and may in the future, experience slower response times or decreased
traffic for a variety of reasons. There have been two instances where
internet.com as a whole has been inaccessible, in each instance for
approximately 30 minutes. Slower response times, which have occurred more
frequently, can result from general Internet problems, routing and equipment
problems by third-party Internet access providers, problems with third-party
advertising servers and increased traffic to our servers. We also depend on
information providers to provide information and data feeds on a timely basis.
Our network could experience interruptions in service due to the failure or
delay in the transmission or receipt of this information. In addition, our
community of Internet users depends on Internet service providers, online
service providers and other Web sites' operators for access to our network.
Those providers have experienced outages in the past, and may experience outages
or delays in the future. Moreover, our Internet infrastructure might not be able
to support continued growth of our network. Any of these problems could harm our
business.
THE FAILURE OF COMPUTER SYSTEMS AND SOFTWARE PRODUCTS TO BE YEAR 2000 COMPLIANT
WOULD HURT OUR BUSINESS. Our business will suffer if the computer systems we
use, as well as the computer systems used by our Internet users, advertisers and
vendors, do not correctly process the change in year from "99" to "00" on
January 1, 2000. We are working to avoid such problems and to obtain assurances
from our advertisers, vendors and other service providers that they are taking
similar steps. We believe that our computer systems will successfully handle the
Year 2000 issue, but there may be parts of our computer systems and aspects of
the Year 2000 issue, including the potential cost of addressing the Year 2000
issue, that we have failed to consider. If our efforts and the efforts of our
users, advertisers, vendors and other service providers to address the Year 2000
issue are not successful, our business will be harmed. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Compliance."
WE DEPEND ON THE CONTINUED SERVICE OF OUR CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
AND OUR PRESIDENT AND CHIEF OPERATING OFFICER, AND WE FACE INTENSE COMPETITION
FOR PERSONNEL. We depend on the continued service of Alan M. Meckler, our
Chairman and Chief Executive Officer, and Christopher S. Cardell, our President
and Chief Operating Officer. While we maintain key person life insurance for
Messrs. Meckler and Cardell, our business would suffer if we were to lose their
services.
We expect that we will need to hire additional personnel in all areas. The
competition for personnel in the Internet industry is intense. Any of our
personnel may terminate their employment at any time for any reason. If we do
not succeed in attracting new personnel or retaining and motivating our current
personnel, our business would be harmed.
WE HAVE LIMITED PROTECTION OF OUR INTELLECTUAL PROPERTY. Trademarks, copyrights
and other proprietary rights are important to our success and competitive
position. We seek protection of our editorial content, logos, brands and
software relating to our Web sites, e-mail newsletters, online discussion forums
and moderated e-mail discussion lists, but our actions may be inadequate to
protect our trademarks, copyrights and other proprietary rights or to prevent
others from claiming violations of their trademarks and other proprietary
rights. In seeking to protect our trademarks, copyrights and other
12
<PAGE>
proprietary rights, or defending ourselves against claims of infringement
brought by others, with or without merit, we could face costly litigation and
the diversion of our management's attention and resources. This could harm our
business.
OUR RIGHT TO USE THE INTERNET.COM TRADEMARK IS UNCERTAIN. We are currently
involved in proceedings opposing the application of International Data Group,
Inc., or IDG, to register the trademark internet.com. IDG has filed an
intent-to-use application that predates our applications to register this
trademark for substantially similar goods and services. The U.S. Patent and
Trademark Office must decide whether our actual use of the internet.com
trademark predates the IDG intent-to-use application date and whether such use
amounts to actual trademark use. See "Business--Intellectual Property" and
"--Legal Proceedings." If we are unsuccessful in opposing IDG's intent-to-use
application, IDG could limit the scope of our use of the internet.com trademark,
could use the internet.com trademark simultaneously with our use or could charge
us a fee for such use, any of which would harm our business.
THERE ARE A NUMBER OF RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS THAT COULD
HARM OUR BUSINESS. One component of our growth strategy is to further expand
into international markets. We have launched Web sites for Canada, the United
Kingdom, Israel, Australia and Asia. Our international operations are at an
early stage of development and have an extremely limited operating history. In
addition, the markets in which we have undertaken international expansion have
technology and online industries that are less developed than in the United
States.
There are risks inherent in doing business in international markets, such as the
following:
- uncertainty of product acceptance by different cultures;
- unforeseen changes in regulatory requirements;
- difficulties in staffing and managing multinational operations;
- government-imposed restrictions on the repatriation of funds;
- currency fluctuations;
- difficulties in finding appropriate foreign licensees or joint
venture partners; and
- potentially adverse tax consequences.
These factors could harm our ability to successfully operate internationally and
could harm our business.
RISKS RELATED TO THE INTERNET INDUSTRY
OUR FUTURE RESULTS DEPEND ON CONTINUED GROWTH IN THE USE OF THE INTERNET. Our
market is new and rapidly evolving. Our business could suffer if Internet usage
does not continue to grow. Internet usage may be inhibited for a number of
reasons, including:
- inadequate network infrastructure;
- security concerns;
- inconsistent quality of service;
- lack of availability of cost-effective and high-speed service; and
- changes in government regulation of the Internet.
13
<PAGE>
If Internet usage grows, the Internet infrastructure might not be able to
support the demands placed on it by this growth or its performance and
reliability may decline. In addition, future outages and other interruptions
occurring throughout the Internet could lead to decreased use of our network and
would therefore harm our business.
WE COULD BE SUED FOR INFORMATION RETRIEVED FROM THE INTERNET. We may face
liability for defamation, negligence, copyright or trademark infringement,
personal injury, or other claims due to the nature of content on our network of
Web sites, e-mail newsletters, online discussion forums and moderated e-mail
discussion lists, including content placed on our network by others. Such claims
may also include, among others, claims that by providing hypertext links to Web
sites operated by third parties, we are liable for wrongful actions by those
third parties through such Web sites. Similar claims have been brought, and
sometimes successfully asserted, against online services. It is also possible
that users could make claims against us for losses incurred in reliance on
information provided on our network. Although we carry general liability
insurance, and set forth our terms and conditions of use on our network, our
insurance might not cover potential claims of this type or might not be adequate
to fully protect us. Also, the legal effectiveness of our terms and conditions
of use is uncertain. Any liability or legal defense expenses that are not
covered by insurance would harm our business, results of operations and
financial condition.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD ADD ADDITIONAL COSTS AND
RISKS TO DOING BUSINESS ON THE INTERNET. There are currently few laws or
regulations that specifically regulate communications or commerce on the
Internet. However, laws and regulations may be adopted in the future that
address issues such as user privacy, pricing and the characteristics and quality
of products and services. For example, although it was held unconstitutional,
the Telecommunications Act of 1996 prohibited certain types of information and
content from being transmitted over the Internet. Several other nations have
taken actions to restrict the free flow of material deemed to be objectionable
on the Internet. In addition, local telephone carriers have argued before the
Federal Communications Commission, or FCC, that Internet service providers and
online service providers should be required to pay fees for access to local
telephone networks in a manner similar to long distance telephone carriers. If
these efforts are successful, costs for Internet access could increase sharply.
Moreover, it may take years to determine the extent to which existing laws
relating to issues such as property ownership, libel and personal privacy are
applicable to the Internet. Any new laws or regulations relating to the Internet
could harm our business.
REGULATION COULD REDUCE THE VALUE OF OUR DOMAIN NAMES. We own the Internet
domain name "internet.com," as well as numerous other domain names both in the
United States and internationally. Domain names generally are regulated by
Internet regulatory bodies. The regulation of domain names in the United States
and in foreign countries is subject to change. Regulatory bodies could establish
additional top-level domains, appoint additional domain name registrars or
modify the requirements for holding domain names. As a result, we might not
acquire or maintain the "internet.com" or comparable domain names in all the
countries in which we conduct business, which could harm our business.
Furthermore, the relationship between regulations governing domain names and
laws protecting trademarks and similar proprietary rights is unclear and still
evolving. Therefore, we might be unable to prevent third parties from acquiring
domain names that infringe or otherwise decrease the value of our trademarks and
other proprietary rights. If this occurred, our business would suffer.
THE INTERNET INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE. Rapid
technological developments, evolving industry standards and user demands, and
frequent new product introductions and enhancements characterize the market for
Internet products and services. These market characteristics are exacerbated by
the emerging nature of the market and the fact that many companies are expected
to introduce new Internet products and services in the near future. Our future
success will depend on
14
<PAGE>
our ability to continually improve our content offerings and services. In
addition, the widespread adoption of developing multimedia-enabling technologies
could require fundamental and costly changes in our technology and could
fundamentally affect the nature, viability and measurability of Internet-based
advertising, which could harm our business.
RISKS RELATED TO THIS OFFERING
THERE HAS BEEN NO PUBLIC TRADING MARKET FOR OUR STOCK PRIOR TO THIS OFFERING AND
OUR STOCK PRICE COULD BE EXTREMELY VOLATILE. There has not previously been a
public market for our common stock. We cannot predict the extent to which
investor interest in our company will lead to the development of a trading
market or how liquid any trading market might become. The initial public
offering price for the shares of our common stock was determined by negotiations
between internet.com and the representatives of our underwriters and might not
reflect prices that will prevail in the trading market. The stock market has
experienced extreme price and volume fluctuations and the market prices of
securities of technology companies, particularly Internet-related companies,
have been highly volatile. Investors might not be able to resell their shares at
or above the initial public offering price. In the past, following periods of
volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such a company. Such
litigation could result in substantial costs and a diversion of our management's
attention and resources.
OUR STOCK OWNERSHIP WILL BE CONCENTRATED IN ALAN M. MECKLER, OUR CHAIRMAN AND
CHIEF EXECUTIVE OFFICER. As of March 31, 1999, the present directors, executive
officers, greater than 5% stockholders and their affiliates beneficially owned
approximately 80.8% of our outstanding common stock, after giving effect to this
offering. As of March 31, 1999, Alan M. Meckler beneficially owned approximately
55.2% of our outstanding common stock, after giving effect to this offering. As
a result of his beneficial ownership, Mr. Meckler, acting alone or with others,
will be able to control all matters requiring stockholder approval, including
the election of directors and approval of significant transactions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of internet.com. See "Principal and Selling Stockholders."
OUR CHARTER DOCUMENTS AND THE DELAWARE GENERAL CORPORATION LAW MAY INHIBIT A
TAKEOVER. Our Amended and Restated Certificate of Incorporation, bylaws and the
Delaware General Corporation Law could make it more difficult for a third party
to acquire us, even if a change in control would be beneficial to our
stockholders. Our Amended and Restated Certificate of Incorporation allows our
board of directors to issue preferred stock which may have rights and
preferences that are superior to those of our common stock, thereby deterring a
potential acquiror. Our bylaws provide that a special meeting of stockholders
may only be called by our Board, Chairman of the Board, Chief Executive Officer
or President or at the request of the holders of a majority of the outstanding
shares of our common stock. See "Description of Capital Stock--Delaware
Anti-takeover Law and Certain Charter and Bylaw Provisions."
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING WOULD HURT OUR STOCK PRICE.
After this offering there will be outstanding 23,400,000 shares of our common
stock. Of these shares, the shares sold in this offering will be freely
tradeable except for any shares purchased by our "affiliates" as that term is
defined in Rule 144 under the Securities Act of 1933, as amended. The remaining
20,000,000 shares held by our directors, officers, employees, current outside
stockholders, greater than 5% stockholders and their affiliates will be
"restricted securities" and will become eligible for sale on the first
anniversary of the closing of this offering, subject to the volume limitations
and other conditions of Rule 144. In addition, 180 days after this offering, at
least 13,500 shares will be issuable upon the exercise of options (based on
options outstanding as of May 18, 1999). Sales of a large number of shares would
hurt the market price for our common stock. See "Certain Transactions" and
"Shares Eligible for Future Sale."
15
<PAGE>
None of our directors, officers or greater than 5% stockholders has any
restrictions on selling any of our securities held by him or her, other than as
provided in lock-up agreements with U.S. Bancorp Piper Jaffray Inc., William
Blair & Company, L.L.C. and DLJDIRECT Inc. and under applicable securities laws.
In addition, Internet World Media, a wholly-owned subsidiary of Penton Media,
can require us to register its shares of our common stock for public sale if we
register any more of our equity securities after this offering (with some
exceptions, such as if we register securities issuable under our stock incentive
plan). Any sales by Internet World Media following this offering could hurt the
trading price of our common stock. See "Certain Transactions--Registration
Rights Agreement" and "Shares Eligible for Future Sale."
YOU WILL INCUR IMMEDIATE DILUTION IN THIS OFFERING. The initial public offering
price of our common stock is substantially higher than the net tangible book
value per share of the outstanding common stock immediately after this offering.
Therefore, if you purchase our common stock in this offering, you will incur
immediate dilution of $12.07 in the net tangible book value per share of common
stock from the price you pay for such common stock (based upon the initial
public offering price of $14.00 per share). See "Dilution."
SOME SHARES IN THIS OFFERING MAY HAVE BEEN OFFERED OR SOLD IN VIOLATION OF THE
SECURITIES ACT OF 1933. Prior to the effectiveness of the registration of the
shares of our common stock being sold in this offering, U.S. Bancorp Piper
Jaffray, Inc., an underwriter of this offering, mailed written materials to 278
persons we had designated as potential purchasers of up to 170,000 shares of
common stock in this offering through a directed share program. These materials
requested that any of the recipients who wished to purchase shares of our common
stock through the directed share program send payment for such shares to U.S.
Bancorp Piper Jaffray prior to the effectiveness of the registration of the
shares of our common stock being sold in this offering. These materials may
constitute a prospectus that does not meet the requirements of the Securities
Act of 1933.
In addition, as of June 21, 1999 U.S. Bancorp Piper Jaffray has received funds
from 88 persons seeking to subscribe for the entire $2.4 million of common stock
reserved for issuance in the directed share program. This receipt of payment may
have constituted a sale of our common stock in violation of the Securities Act
of 1933. If the mailing of these materials or the receipt of funds by U.S.
Bancorp Piper Jaffray did constitute a violation of the Securities Act of 1933,
the recipients of the letter who purchased common stock in this offering would
have the right, for a period of one year from the date of their purchase of
common stock, to obtain recovery of the consideration paid in connection with
their purchase of common stock or, if they had already sold the stock, sue us
for damages resulting from their purchase of common stock. These refunds or
damages could total up to approximately $2.4 million plus interest, based on the
initial public offering price of $14.00 per share, if these investors seek
recovery or damages after an entire loss of their investment. If this occurs,
our business, results of operations and financial condition would be harmed.
16
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 3,400,000 shares of our common stock
offered by internet.com are estimated to be $42.8 million. This is based on the
initial public offering price of $14.00 per share and also reflects a deduction
for the underwriting discounts and commissions and estimated offering expenses.
The principal purposes of this offering are to obtain additional capital, create
a public market for internet.com common stock and facilitate our future access
to the public capital markets.
We intend to use a portion of the net proceeds for repayment of debt incurred
under our line of credit agreement (approximately $4.8 million as of May 31,
1999). This debt matures on November 15, 1999 and bears interest at a rate based
on the lower of prime plus 1% or LIBOR plus .65% (5.7% as of May 31, 1999). We
expect to use the remainder of the net proceeds for potential strategic
acquisitions, general corporate purposes, including working capital and
expansion of editorial, marketing and sales activities, and to finance any
obligations to return the consideration paid for shares of our common stock that
internet.com may have. See "Risk Factors -- Some shares in this offering may
have been offered or sold in violation of the Securities Act of 1933." The
amounts actually expended for such working capital purposes may vary
significantly and will depend on a number of factors, including the amount of
our future revenues and the other factors described under "Risk Factors."
Accordingly, our management will retain broad discretion in the allocation of
the net proceeds of this offering. Pending such uses, the net proceeds of this
offering will be invested in short-term, interest-bearing, investment grade
securities.
DIVIDEND POLICY
We have not in the past paid any dividends on our equity securities and
anticipate that we will retain any future earnings for use in the expansion and
operation of our business. We do not anticipate paying any cash dividends in the
foreseeable future. Any determination to pay dividends in the future will be at
the discretion of our board of directors and will depend upon our financial
condition, results of operations and capital requirements.
17
<PAGE>
CAPITALIZATION
The following table sets forth our historical capitalization (assuming the
conversion of internet.com LLC into internet.com Corporation) as of March 31,
1999, which has been adjusted, on a pro forma basis, to reflect the sale of
3,400,000 shares of common stock offered hereby at the initial public offering
price of $14.00 per share and the exercise by Internet World Media of its
warrant to purchase 2,075,634 shares of our common stock immediately prior to
the closing of this offering.
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Borrowings under line of credit (1)....................................................... $ 1,851 $ --
--------- -----------
Preferred stock, $0.01 par value; 4,000,000 shares authorized, no shares issued and
outstanding, actual..................................................................... -- --
Common stock, $0.01 par value; 75,000,000 shares authorized, 17,924,366 shares issued and
outstanding, actual; 23,400,000 shares issued and outstanding, pro forma as adjusted ... 179 234
Additional paid-in capital................................................................ 24,318 70,031
Accumulated deficit....................................................................... (4,232) (4,232)
--------- -----------
Total stockholders' equity........................................................ 20,265 66,033
--------- -----------
Total capitalization............................................................ $ 22,116 $ 66,033
--------- -----------
--------- -----------
</TABLE>
- ---------------------------------------------
(1) See Note 6 of notes to internet.com LLC financial statements for a
description of borrowings under line of credit.
18
<PAGE>
DILUTION
Our net tangible book value as of March 31, 1999, assuming the conversion of
internet.com LLC into internet.com Corporation as of that date, was $(539,000),
or $(0.03) per share of common stock. Pro forma net tangible book value per
share represents the amount of total tangible assets less total liabilities,
divided by the pro forma shares of common stock outstanding as of March 31,
1999. Our pro forma net tangible book value as of March 31, 1999 would have been
$45.2 million, or $1.93 per share. These amounts reflect the issuance and sale
of our common stock offered hereby at the initial public offering price of
$14.00 per share and deductions for underwriting discounts and commissions and
estimated offering expenses, and the exercise by Internet World Media of its
warrant to purchase 2,075,634 shares of our common stock immediately prior to
the closing of this offering for a total of $3.0 million. This represents an
immediate increase in pro forma net tangible book value of $1.96 per share to
existing stockholders and an immediate dilution of $12.07 per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................................... $ 14.00
Net tangible book value per share at March 31, 1999....................... $ (0.03)
Increase in pro forma net tangible book value per share attributable to
the exercise by Internet World Media of its warrant..................... 0.15
Increase in pro forma net tangible book value per share attributable to
new investors........................................................... 1.81
---------
Pro forma net tangible book value per share after offering (as adjusted).... 1.93
---------
Dilution per share to new investors......................................... $ 12.07
---------
---------
</TABLE>
The table below summarizes, on a pro forma basis, as of March 31, 1999, the
following differences between our existing stockholders and new investors
purchasing our common stock in this offering:
- the number of shares purchased from internet.com;
- the aggregate cash consideration paid; and
- the average price per share paid.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)(2).................... 20,000,000 85.5% $ 27,712,859 36.8% $ 1.39
New investors................................... 3,400,000 14.5 47,600,000 63.2 $ 14.00
------------ --------- ------------- ---------
Total....................................... 23,400,000 100.0% $ 75,312,859 100.0%
------------ --------- ------------- ---------
------------ --------- ------------- ---------
</TABLE>
- ---------------------------------------------
(1) Reflects the conversion of internet.com LLC into internet.com Corporation
as if it had occurred as of the inception of internet.com LLC on November
24, 1998.
(2) Amounts reflect the exercise by Internet World Media of its warrant to
purchase 2,075,634 shares of our common stock.
19
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share amounts)
The following selected financial data should be read in conjunction with the
financial statements of internet.com, the accompanying notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
selected financial data of the iWorld division of Mecklermedia for the period
from inception (December 7, 1994) through September 30, 1995, the years ended
September 30, 1996, 1997 and 1998, the period from October 1, 1998 through
November 23, 1998 and for the three months ended March 31, 1998, as well as the
balance sheet data as of March 31, 1998, are derived from financial statements
of the iWorld division of Mecklermedia. The selected financial data for the
period from November 24, 1998 through December 31, 1998 and for the three months
ended March 31, 1999, as well as the balance sheet data as of March 31, 1999,
are derived from the financial statements of internet.com. These financial
statements, except for the selected statements of operations data for the period
from inception (December 7, 1994) through September 30, 1995, the three months
ended March 31, 1998 and the three months ended March 31, 1999 as well as the
balance sheet data as of March 31, 1998 and March 31, 1999, have been audited by
Arthur Andersen LLP, independent public accountants. See "Index to Financial
Statements."
The financial information of the iWorld division of Mecklermedia included herein
is not necessarily indicative of the results of operations, financial position
and cash flows of internet.com had it been a stand-alone entity at such times.
It is also not necessarily indicative of the results of operations, financial
position and cash flows of internet.com in the future. The share information
reflects the conversion of internet.com from a limited liability company into a
corporation as if such conversion had occurred at the beginning of each period
indicated.
<TABLE>
<CAPTION>
INCEPTION
(DEC. 7, FISCAL YEAR ENDED OCT. 1
1994) THROUGH ------------------------------------- THROUGH
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, NOV. 23,
1995(1) 1996(1) 1997(1) 1998(1) 1998(1)
--------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $ 123 $ 498 $ 1,479 $ 3,544 $ 778
Cost of revenues................................... 39 536 1,171 2,171 456
------ ----------- ----------- ----------- -----------
Gross profit................................... 84 (38) 308 1,373 322
Operating expenses
Advertising, promotion and selling............... 69 285 881 1,406 441
General and administrative....................... 419 727 751 1,349 195
Depreciation..................................... -- 85 326 429 67
Amortization..................................... -- 109 505 920 86
------ ----------- ----------- ----------- -----------
Total operating expenses....................... 488 1,206 2,463 4,104 789
------ ----------- ----------- ----------- -----------
Operating loss..................................... (404) (1,244) (2,155) (2,731) (467)
Interest expense, net.............................. -- -- -- -- --
------ ----------- ----------- ----------- -----------
Net loss........................................... $ (404) $ (1,244) $ (2,155) $ (2,731) $ (467)
------ ----------- ----------- ----------- -----------
------ ----------- ----------- ----------- -----------
Basic and diluted net loss per share...............
Common shares used to compute basic and diluted net
loss per share...................................
<CAPTION>
NOV. 24 THREE MONTHS ENDED
THROUGH ------------------------
DEC. 31, MARCH 31, MARCH 31,
1998(2) 1998(1) 1999(2)
----------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $ 772 $ 831 $ 1,612
Cost of revenues................................... 403 567 1,117
----------- ----------- -----------
Gross profit................................... 369 264 495
Operating expenses
Advertising, promotion and selling............... 239 283 928
General and administrative....................... 449 348 773
Depreciation..................................... 15 102 82
Amortization..................................... 632 222 1,938
----------- ----------- -----------
Total operating expenses....................... 1,335 955 3,721
----------- ----------- -----------
Operating loss..................................... (966) (691) (3,226)
Interest expense, net.............................. (8) -- (32)
----------- ----------- -----------
Net loss........................................... $ (974) $ (691) $ (3,258)
----------- ----------- -----------
----------- ----------- -----------
Basic and diluted net loss per share............... $ (0.18)
-----------
-----------
Common shares used to compute basic and diluted net
loss per share................................... 17,924
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
AS OF
-------------------------------------
SEPT. 30, SEPT. 30, MARCH 31,
1997(1) 1998(1) 1998(1)
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ -- $ -- $ --
Working capital (deficit)........................................................... (166) 286 362
Total assets........................................................................ 2,812 7,225 5,430
Borrowings under line of credit..................................................... -- -- --
Total equity........................................................................ 2,144 6,252 4,619
<CAPTION>
MARCH 31,
1999(2)
-----------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 236
Working capital (deficit)........................................................... (2,207)
Total assets........................................................................ 24,902
Borrowings under line of credit..................................................... 1,851
Total equity........................................................................ 20,265
</TABLE>
- ---------------------------------------------------
(1) Represents the financial data of the iWorld division of Mecklermedia
Corporation.
(2) Represents the financial data of internet.com.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and the accompanying notes which appear elsewhere in this prospectus.
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to our future plans, objectives, beliefs,
expectations and intentions. These statements may be identified by the use of
words such as "expects," "anticipates," "believes," "intends," "plans" and
similar expressions. Our actual results could differ materially from those
discussed in these statements. Factors that could cause or contribute to these
differences include those discussed below and in "Risk Factors" and elsewhere in
this prospectus.
OVERVIEW
We own and operate a network of Web sites, e-mail newsletters, online discussion
forums and moderated e-mail discussion lists focused solely on the Internet
industry. Our network consists of nine subject areas, or vertical content
channels, that contain 61 Web sites, 43 e-mail newsletters, 55 online discussion
forums and 52 moderated e-mail discussion lists focused solely on the Internet
industry. During the month of April 1999, we delivered 42.1 million page views
to approximately 1.7 million unique visitors and 8.1 million copies of our
e-mail newsletters to 700,000 subscribers, and 31.2 million postings were
generated by 51,000 subscribers to our moderated e-mail discussion lists.
We were formed in November 1998 following the acquisition of Mecklermedia by
Penton Media. As part of the acquisition, Penton Media agreed to contribute all
the assets of Mecklermedia's Internet media business division, iWorld, to a
newly formed limited liability company, internet.com LLC. As part of this
acquisition agreement, we reserved 4% of our total membership units for
discretionary grants to our employees. The grants were completed in March 1999.
As these membership units will vest upon the completion of an initial public
offering, we will record an $8.8 million compensation charge concurrent with the
completion of this offering. Prior to the acquisition of Mecklermedia by Penton
Media, iWorld operated as one of three business lines which comprised
Mecklermedia. Our predecessor Web sites, MecklerWeb and iWorld.com, were also
dedicated to covering Internet developments. See "Certain
Transactions--Formation Transactions."
We generate revenues from the following primary sources:
- advertising on our Web sites, e-mail newsletters, online discussion
forums and moderated e-mail discussion lists;
- e-commerce agreements;
- paid subscription services; and
- licensing of our editorial content, brands and software.
We barter an immaterial portion of the unsold advertising impressions generated
by our network for advertising and promotion in media properties owned by Penton
Media and other third parties. We do not record any revenues or expenses for
such barter because we do not incur any costs to fulfill such barter and because
such unsold advertising and promotion exchanged and received would otherwise
have no value. Therefore, the recording of any barter would result in an
overstatement of revenues and expenses.
For the three months ended March 31, 1999, approximately 87% of our revenues
were from the sale of advertising. We recognize advertising revenue ratably in
the period the advertising is displayed,
21
<PAGE>
provided that no significant company obligations remain outstanding and
collection of the resulting receivable is probable. Such obligations typically
include guarantees of a minimum number of advertising impressions, or times an
advertisement is displayed. We use a direct sales force to sell advertising to
companies and advertising agencies.
Our e-commerce agreements generally include advertising on our Web sites or
revenue sharing for sales made by the e-commerce vendors as a result of links
from our network, or in some cases both advertising and revenue sharing. We
recognize the advertising component of these agreements ratably in the period
the advertising is displayed, provided that no significant company obligations
remain and collection of the remaining receivable is probable. We recognize the
revenue sharing component of these agreements as revenue in the period that the
underlying sales are made by the e-commerce vendor.
Paid subscription services relate to customer subscriptions to our paid e-mail
newsletters, Internet Stock Report's Monthly HotWatch, Internet StockTracker and
SearchEngineWatch, which are sold through our network and through affiliate
relationships. Revenue from subscriptions is recognized ratably over the
subscription period. Deferred revenues relate to the portion of collected
subscription fees which has not yet been recognized as revenue.
Our licensing agreements vary in structure, with internet.com generating fixed
fees, royalties or both for access to our editorial content, brands or software.
We generally license our editorial content, brands and software to offline and
online media companies.
Since July 1995, we have made 28 acquisitions of Internet media properties,
consisting of 37 Web sites, 29 e-mail newsletters, 16 online discussion forums
and four moderated e-mail discussion lists. We have made 17 of these 28
acquisitions since March 1, 1998. We expect to continue to pursue strategic
acquisitions to strengthen our content offerings and services.
We believe that advertising sales in traditional media, such as print
publishing, generally are lower in the first and third calendar quarters of each
year due to buying patterns of advertisers. If the Internet makes the transition
from an emerging to a more developed advertising medium, we may experience
similar seasonal patterns as those in the traditional media industry. See "Risk
Factors--The seasonality of our advertising revenues could cause our overall
revenues to fluctuate."
We have sustained losses on a quarterly and annual basis in the past. We expect
to incur significantly higher costs, particularly advertising, promotion and
selling expense, to grow our business. As a result, we expect to incur
significant operating losses for the foreseeable future and because costs are
largely fixed in the short term, we expect to be vulnerable to significant
fluctuations in operating losses if actual revenues fall below anticipated
levels. Furthermore, given the rapidly evolving nature of our business and our
limited operating history, our operating results are difficult to forecast and
period-to-period comparison of our operating results will not be meaningful and
should not be relied upon as any indication of future performance. Due to these
and other factors, many of which are outside our control, quarterly operating
results may fluctuate significantly in the future. See "Risk Factors--We have a
limited operating history," "--We anticipate continued losses" and "--Our
quarterly operating results are subject to significant fluctuations."
22
<PAGE>
RESULTS OF OPERATIONS
Costs have been allocated to the iWorld division of Mecklermedia based on our
management's estimate of the costs attributable to its operations. Such
allocations are not necessarily indicative of the costs that would have been
incurred if the iWorld division of Mecklermedia had been a stand-alone entity.
The following table sets forth certain statement of operations data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCT. 1
------------------------------------- THROUGH
SEPT. 30, SEPT. 30, SEPT. 30, NOV. 23,
1996(1) 1997(1) 1998(1) 1998(1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................................................. 100% 100% 100% 100%
Cost of revenues...................................................... 108 79 61 59
----------- ----------- ----------- -----
Gross profit.......................................................... (8) 21 39 41
----------- ----------- ----------- -----
Operating expenses:
Advertising, promotion and selling.................................. 57 60 40 57
General and administrative.......................................... 146 51 38 25
Depreciation........................................................ 17 22 12 8
Amortization........................................................ 22 34 26 11
----------- ----------- ----------- -----
Total operating expenses.......................................... 242 167 116 101
----------- ----------- ----------- -----
Operating loss........................................................ (250) (146) (77) (60)
----------- ----------- ----------- -----
Interest expense, net................................................. -- -- -- --
----------- ----------- ----------- -----
Net loss.............................................................. (250)% (146 )% (77 )% (60)%
----------- ----------- ----------- -----
----------- ----------- ----------- -----
<CAPTION>
NOV. 24 THREE MONTHS ENDED
THROUGH ------------------------
DEC. 31, MARCH 31, MARCH 31,
1998(2) 1998(1) 1999(2)
----------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................................................. 100% 100% 100%
Cost of revenues...................................................... 52 68 69
----- ----- -----
Gross profit.......................................................... 48 32 31
----- ----- -----
Operating expenses:
Advertising, promotion and selling.................................. 31 34 58
General and administrative.......................................... 58 42 48
Depreciation........................................................ 2 12 5
Amortization........................................................ 82 27 120
----- ----- -----
Total operating expenses.......................................... 173 115 231
----- ----- -----
Operating loss........................................................ (125) (83) (200)
----- ----- -----
Interest expense, net................................................. (1) -- (2)
----- ----- -----
Net loss.............................................................. (126 )% (83 )% (202 )%
----- ----- -----
----- ----- -----
</TABLE>
- ---------------------------------------------
(1) Represents the financial data of the iWorld division of Mecklermedia
Corporation.
(2) Represents the financial data of internet.com.
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
REVENUES. We generate revenues from advertising on our Web sites, e-mail
newsletters, online discussion forums and moderated e-mail discussion lists;
e-commerce agreements; licensing of our editorial content, brands and software;
and paid subscription services. Revenues were $831,000 for the three months
ended March 31, 1998 and approximately $1.6 million for the three months ended
March 31, 1999, representing an increase of 94%. This increase was primarily due
to increased advertising on our network of Web sites, e-mail newsletters, online
discussion forums and moderated e-mail discussion lists. While we anticipate
that advertising revenues will continue to represent a substantial majority of
our revenues for the foreseeable future, we believe that revenues from e-
commerce agreements, licensing, paid subscription services, seminars, opt-in
e-mail list rentals and venture fund management will expand and diversify our
future revenue streams.
COST OF REVENUES. Cost of revenues primarily consists of expenses associated
with editorial, communications infrastructure and Web site hosting. Cost of
revenues was $567,000 for the three months ended March 31, 1998 and
approximately $1.1 million for the three months ended March 31, 1999,
representing an increase of 97%. This change was primarily due to the increased
hiring of editorial, technology and operations personnel and expenses for
freelance contributors. As a percentage of revenues, cost of revenues was 68%
for the three months ended March 31, 1998 and 69% for the three months ended
March 31, 1999. We anticipate that our cost of revenues will continue to
increase in absolute dollars as we continue to strengthen our existing content
offerings and services. We anticipate hiring additional editorial, technology
and operations personnel, as well as freelance
23
<PAGE>
contributors, as we acquire additional Web sites, e-mail newsletters, online
discussion forums and moderated e-mail discussion lists and expand our
proprietary content.
ADVERTISING, PROMOTION AND SELLING. Advertising, promotion and selling expenses
primarily consist of costs related to sales and marketing staff, sales
commissions and promotion costs. Advertising, promotion and selling expenses
were $283,000 for the three months ended March 31, 1998 and $928,000 for the
three months ended March 31, 1999, representing a 228% increase. This change was
primarily due to increased hiring of advertising sales personnel. As a
percentage of revenues, advertising, promotion and selling expenses were 34% for
the three months ended March 31, 1998 and 58% for the three months ended March
31, 1999. We anticipate that our advertising, promotion and selling expenses
will continue to increase in absolute dollars, primarily due to our planned
hiring of additional sales personnel in an effort to increase our advertising
sales as well as increased expenses for the promotion of our content offerings
and services to our community of Internet users, advertisers and vendors.
GENERAL AND ADMINISTRATIVE. General and administrative expenses primarily
consist of salaries, professional fees, facilities costs and bad debt expense.
General and administrative expenses were $348,000 for the three months ended
March 31, 1998 and $773,000 for the three months ended March 31, 1999,
representing a 122% increase. This change was primarily due to the hiring of
additional personnel and increased professional fees. As a percentage of
revenues, general and administrative expenses were 42% for the three months
ended March 31, 1998 and 48% for the three months ended March 31, 1999. We
expect that our general and administrative expenses will continue to increase in
absolute dollars, but these expenses are expected to decrease as a percentage of
revenues. We anticipate hiring additional personnel and incurring additional
costs related to being a public company, including directors' and officers'
liability insurance, investor relations programs and professional services fees.
DEPRECIATION AND AMORTIZATION. Depreciation of property and equipment was
$102,000 for the three months ended March 31, 1998 and $82,000 for the three
months ended March 31, 1999, representing a 20% decrease. As a percentage of
revenues, depreciation of property and equipment was 12% for the three months
ended March 31, 1998 and 5% for the three months ended March 31, 1999.
Amortization of intangibles was $222,000 for the three months ended March 31,
1998 and approximately $1.9 million for the three months ended March 31, 1999,
representing a 742% increase. This increase was primarily due to the
amortization of the goodwill associated with the formation of internet.com LLC.
As a percentage of revenues, amortization of intangibles was 27% for the three
months ended March 31, 1998 and 120% for the three months ended March 31, 1999.
We anticipate that depreciation and amortization will continue to increase as we
acquire additional Web sites, e-mail newsletters, online discussion forums and
moderated e-mail discussion lists. We also anticipate increasing our capital
expenditures to support the current and expected growth of our business.
INTEREST EXPENSE, NET. Interest expense, net of interest income, related to
borrowings under our line of credit was $32,000 for the three months ended March
31, 1999.
PERIOD FROM NOVEMBER 24, 1998 THROUGH DECEMBER 31, 1998
REVENUES. Revenues were $772,000 for the period from November 24, 1998 through
December 31, 1998.
COST OF REVENUES. Cost of revenues was $403,000 for the period from November 24,
1998 through December 31, 1998. As a percentage of revenues, cost of revenues
was 52% for the period from November 24, 1998 through December 31, 1998.
24
<PAGE>
ADVERTISING, PROMOTION AND SELLING. Advertising, promotion and selling expenses
were $239,000 for the period from November 24, 1998 through December 31, 1998.
As a percentage of revenues, advertising, promotion and selling expenses were
31% for the period from November 24, 1998 through December 31, 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $449,000
for the period from November 24, 1998, through December 31, 1998. As a
percentage of revenues, general and administrative expenses were 58% for the
period from November 24, 1998 through December 31, 1998.
DEPRECIATION AND AMORTIZATION. Depreciation of property and equipment was
$15,000 for the period from November 24, 1998 through December 31, 1998. As a
percentage of revenues, depreciation of property and equipment was 2% for the
period from November 24, 1998 through December 31, 1998. Amortization of
intangibles was $632,000 for period from November 24, 1998 through December 31,
1998. As a percentage of revenues, amortization of intangibles was 82% for the
period from November 24, 1998 through December 31, 1998.
INTEREST EXPENSE, NET. Interest expense, net of interest income, related to
borrowings under our line of credit was $8,000 for the period from November 24,
1998 through December 31, 1998.
PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
REVENUES. Revenues were $778,000 for the period from October 1, 1998 through
November 23, 1998.
COST OF REVENUES. Cost of revenues was $456,000 for the period from October 1,
1998 through November 23, 1998. As a percentage of revenues, cost of revenues
was 59% for the period from October 1, 1998 through November 23, 1998.
ADVERTISING, PROMOTION AND SELLING. Advertising, promotion and selling expenses
were $441,000 for the period from October 1, 1998 through November 23, 1998. As
a percentage of revenues, advertising, promotion and selling expenses were 57%
for the period from October 1, 1998 through November 23, 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $195,000
for the period from October 1, 1998 through November 23, 1998. As a percentage
of revenues, general and administrative expenses were 25% for the period from
October 1, 1998 through November 23, 1998.
DEPRECIATION AND AMORTIZATION. Depreciation of property and equipment was
$67,000 for the period from October 1, 1998 through November 23, 1998. As a
percentage of revenues, depreciation of property and equipment was 8% for the
period from October 1, 1998 through November 23, 1998. Amortization of
intangibles was $86,000 for the period from October 1, 1998 through November 23,
1998. As a percentage of revenues, amortization of intangibles was 11% for the
period from October 1, 1998 through November 23, 1998.
FISCAL YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
REVENUES. Revenues were $498,000 for the year ended September 30, 1996,
approximately $1.5 million for the year ended September 30, 1997 and $3.5
million for the year ended September 30, 1998, representing increases of 197%
from fiscal 1996 to fiscal 1997 and 140% from fiscal 1997 to fiscal 1998. The
197% increase from fiscal 1996 to fiscal 1997 was primarily due to an increase
in banner advertising. The 140% increase from fiscal 1997 to fiscal 1998 was
primarily due to an increase in banner advertising from a growing number of
advertisers as well as new revenue from e-commerce and licensing agreements.
25
<PAGE>
COST OF REVENUES. Cost of revenues was $536,000 for the year ended September 30,
1996, approximately $1.2 million for the year ended September 30, 1997 and $2.2
million for the year ended September 30, 1998, representing increases of 118%
from fiscal 1996 to fiscal 1997 and 85% from fiscal 1997 to fiscal 1998. These
increases were primarily due to the increased payroll costs for editorial,
technology and operations personnel to support the current and anticipated
future growth of our network. As a percentage of revenues, cost of revenues was
108% for the year ended September 30, 1996, 79% for the year ended September 30,
1997 and 61% for the year ended September 30, 1998.
ADVERTISING, PROMOTION AND SELLING. Advertising, promotion and selling expenses
were $285,000 for the year ended September 30, 1996, $881,000 for the year ended
September 30, 1997 and approximately $1.4 million for the year ended September
30, 1998, representing increases of 209% from fiscal 1996 to fiscal 1997 and 60%
from fiscal 1997 to fiscal 1998. These increases were primarily due to the
hiring of additional advertising sales personnel and related sales commissions.
As a percentage of revenues, advertising, promotion and selling expenses were
57% for the year ended September 30, 1996, 60% for the year ended September 30,
1997 and 40% for the year ended September 30, 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $727,000
for the year ended September 30, 1996, $751,000 for the year ended September 30,
1997 and approximately $1.3 million for the year ended September 30, 1998,
representing increases of 3% from fiscal 1996 to fiscal 1997 and 80% from fiscal
1997 to fiscal 1998. These increases were due primarily to increases in payroll
for administrative personnel and professional fees to support the growth of our
business and an increase in bad debt expense. As a percentage of revenues,
general and administrative expenses were 146% for the year ended September 30,
1996, 51% for the year ended September 30, 1997 and 38% for the year ended
September 30, 1998.
DEPRECIATION AND AMORTIZATION. Depreciation of property and equipment was
$85,000 for the year ended September 30, 1996, $326,000 for the year ended
September 30, 1997 and $429,000 for the year ended September 30, 1998,
representing increases of 284% from fiscal 1996 to fiscal 1997 and 32% from
fiscal 1997 to fiscal 1998. These increases were primarily due to our increased
capital expenditures which were required to support the current and anticipated
future growth of our network. As a percentage of revenues, depreciation expense
was 17% for the year ended September 30, 1996, 22% for the year ended September
30, 1997 and 12% for the year ended September 30, 1998. Amortization of
intangible assets was $109,000 for the year ended September 30, 1996, $505,000
for the year ended September 30, 1997 and $920,000 for the year ended September
30, 1998, representing increases of 363% from fiscal 1996 to fiscal 1997 and 82%
from fiscal 1997 to fiscal 1998. These increases were primarily due to our
acquisitions of Web sites, e-mail newsletters, online discussion forums and
moderated e-mail discussion lists. As a percentage of revenues, amortization
expense was 22% for the year ended September 30, 1996, 34% for the year ended
September 30, 1997 and 26% for the year ended September 30, 1998.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth statements of operations data for the periods
presented, as well as the percentage of our revenues represented by each item.
All data is unaudited, except for the periods from October 1 through November
23, 1998 and from November 24 through December 31, 1998, which have been
audited. The data for the unaudited interim financial statements have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, considered necessary for a full
26
<PAGE>
presentation of such information when read in conjunction with the financial
statements and accompanying notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1997(1) 1997(1) 1997(1) 1997(1) 1998(1) 1998(1)
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
STATEMENT OF OPERATIONS
Revenues................................... $ 346 $ 350 $ 460 $ 769 $ 831 $ 971
Cost of revenues........................... 339 299 277 343 567 577
----------- ----------- ----------- ----------- ----------- -----------
Gross profit............................... 7 51 183 426 264 394
----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Advertising, promotion and selling....... 189 292 193 325 283 491
General and administrative............... 172 198 223 236 348 363
Depreciation............................. 91 94 99 101 102 109
Amortization............................. 84 156 207 208 222 238
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses............... 536 740 722 870 955 1,201
----------- ----------- ----------- ----------- ----------- -----------
Operating loss............................. (529) (689) (539) (444) (691) (807)
Interest expense, net...................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net loss................................... $ (529) $ (689) $ (539) $ (444) $ (691) $ (807)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
AS A PERCENTAGE OF REVENUES
Revenues................................... 100% 100% 100% 100% 100% 100%
Cost of revenues........................... 98 85 60 45 68 59
----------- ----------- ----------- ----------- ----------- -----------
Gross profit............................... 2 15 40 55 32 41
----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Advertising, promotion and selling....... 55 83 42 42 34 51
General and administrative............... 50 57 48 31 42 37
Depreciation............................. 26 27 22 13 12 11
Amortization............................. 24 45 45 27 27 25
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses............... 155 212 157 113 115 124
----------- ----------- ----------- ----------- ----------- -----------
Operating loss............................. (153) (197) (117) (58) (83) (83)
Interest expense, net...................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net loss................................... (153)% (197 )% (117 )% (58 )% (83 )% (83)%
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
<S> <C> <C> <C> <C>
THREE
OCT. 1 NOV. 24 MONTHS
THROUGH THROUGH ENDED
SEPT. 30, NOV. 23, DEC. 31, MARCH 31,
1998(1) 1998(1) 1998(2) 1999(2)
----------- --------- --------- -----------
STATEMENT OF OPERATIONS
Revenues................................... $ 973 $ 778 $ 772 $ 1,612
Cost of revenues........................... 684 456 403 1,117
----------- --------- --------- -----------
Gross profit............................... 289 322 369 495
----------- --------- --------- -----------
Operating expenses:
Advertising, promotion and selling....... 307 441 239 928
General and administrative............... 402 195 449 773
Depreciation............................. 117 67 15 82
Amortization............................. 252 86 632 1,938
----------- --------- --------- -----------
Total operating expenses............... 1,078 789 1,335 3,721
----------- --------- --------- -----------
Operating loss............................. (789) (467) (966) (3,226)
Interest expense, net...................... -- -- (8) (32)
----------- --------- --------- -----------
Net loss................................... $ (789) $ (467) $ (974) $ (3,258)
----------- --------- --------- -----------
----------- --------- --------- -----------
AS A PERCENTAGE OF REVENUES
Revenues................................... 100% 100% 100% 100%
Cost of revenues........................... 70 59 52 69
----------- --------- --------- -----------
Gross profit............................... 30 41 48 31
----------- --------- --------- -----------
Operating expenses:
Advertising, promotion and selling....... 32 57 31 58
General and administrative............... 41 25 58 48
Depreciation............................. 12 8 2 5
Amortization............................. 26 11 82 120
----------- --------- --------- -----------
Total operating expenses............... 111 101 173 231
----------- --------- --------- -----------
Operating loss............................. (81) (60) (125) (200)
Interest expense, net...................... -- -- (1) (2)
----------- --------- --------- -----------
Net loss................................... (81 )% (60)% (126)% (202 )%
----------- --------- --------- -----------
----------- --------- --------- -----------
</TABLE>
- ---------------------------------------------
(1) Represents the financial data of the iWorld division of Mecklermedia
Corporation.
(2) Represents the financial data of internet.com.
Our revenues have increased sequentially from quarter to quarter throughout the
periods since January 1, 1997 due to increased advertising on our network of Web
sites, e-mail newsletters, online discussion forums and moderated e-mail
discussion lists. Quarterly revenues and operating results depend substantially
upon the advertising revenues received within the quarter, which are difficult
to forecast accurately. Accordingly, the cancellation or deferral of a small
number of advertising contracts could harm our business, results of operations
and financial condition. We believe that advertising sales in traditional media,
such as print publishing, generally are lower in the first and third calendar
quarters of each year due to buying patterns of advertisers. If the Internet
makes the transition from an emerging to a more developed medium, we may
experience similar seasonal patterns as those in the traditional media industry.
As a result, our stock price may be lower after the announcement of our results
for the first and third quarters than at other times of the year.
27
<PAGE>
Due to the foregoing factors, quarterly revenues and results of operations are
difficult to forecast. We do not believe that period-to-period comparison of our
operating results will necessarily be meaningful, and they should not be relied
upon as indicators of future performance. In one or more future quarters,
results of operations may fall below the expectations of securities analysts and
investors. In such event, the trading price of our common stock could decrease
significantly.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded operations primarily with cash from borrowings
under our line of credit and the capital contributions of members of
internet.com LLC. As of March 31, 1999, internet.com had total current assets of
$2.4 million and total current liabilities of $4.6 million, or a working capital
deficit of $2.2 million.
Net cash used in operating activities was approximately $1.1 million for the
year ended September 30, 1996, $1.1 million for the year ended September 30,
1997, $1.8 million for the year ended September 30, 1998, $1.4 million for the
period from October 1, 1998 through November 23, 1999, $612,000 for the period
from November 24, 1998 through December 31, 1998, $495,000 for the three months
ended March 31, 1998 and $73,000 for the three months ended March 31, 1999. Net
cash used in operating activities was primarily a result of our net losses
adjusted for non-cash depreciation, amortization and purchased in-process
research and development, and increases in accounts receivable, offset by an
increase in accounts payable and accrued expenses.
Net cash used in investing activities was approximately $642,000 for the year
ended September 30, 1996, $2.4 million for the year ended September 30, 1997,
$5.0 million for the year ended September 30, 1998, $2.5 million for the period
from October 1, 1998 through November 23, 1998, $1.1 million for the period from
November 24, 1998 through December 31, 1998, $1.4 million for the three months
ended March 31, 1998 and $1.5 million for the three months ended March 31, 1999.
Net cash used in investing activities was primarily a result of acquisitions of
Web sites and related Internet media properties and capital expenditures.
Net cash provided by financing activities was approximately $1.8 million for the
year ended September 30, 1996, $3.5 million for the year ended September 30,
1998, $3.9 million for the period from October 1, 1998 through November 23,
1998, $1.9 million for the period from November 24, 1998 through December 31,
1998, $1.9 million for the three months ended March 31, 1998 and $1.6 million
for the three months ended March 31, 1999. Net cash provided by financing
activities was a result of borrowings under our line of credit, a private
placement of equity securities and contributions from Mecklermedia.
Capital expenditures were $315,000 for the year ended September 30, 1996,
$740,000 for the year ended September 30, 1997, $934,000 for the year ended
September 30, 1998, $91,000 for the period from October 1, 1998, through
November 23, 1998, $546,000 for the period from November 24, 1998 through
December 31, 1998, $178,000 for the three months ended March 31, 1998 and
$370,000 for the three months ended March 31, 1999. We anticipate that we will
increase our capital expenditures consistent with our anticipated growth in
operations, infrastructure and personnel.
We have a $6.0 million line of credit with a bank secured by a personal
guarantee from Alan M. Meckler, our Chairman and Chief Executive Officer. We had
outstanding borrowings under the line of credit of approximately $1.9 million as
of March 31, 1999. Interest expense on this line is based on the lower of prime
plus 1% or LIBOR plus .65% (5.7% as of March 31, 1999). This line of credit
expires on November 15, 1999. Upon completion of this offering, we anticipated
terminating this line of credit.
28
<PAGE>
We believe that the net proceeds from this offering will be sufficient to meet
our anticipated cash needs for working capital and capital expenditures for at
least 12 months following this offering. Thereafter, if cash generated from
operations is insufficient to satisfy our liquidity requirements, we might need
to raise additional funds through public or private financing, strategic
relationships or other arrangements. There can be no assurance that such
additional funding, if needed, will be available on terms which we believe are
attractive to internet.com, or at all. If we fail to raise capital when needed,
it could harm our business, operating results and financial condition. If we
raise additional funds through the issuance of equity securities, the percentage
ownership of our stockholders would be reduced.
YEAR 2000
The Year 2000 issue is the potential for system and processing failures of
date-related data as a result of computer-controlled systems using two digits
rather than four to define the applicable year. For example, computer programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in system failure or
miscalculations causing disruptions of operations, including, among other
things, an inability to process transactions, send invoices or engage in similar
normal business activities. We may be affected by Year 2000 issues related to
non-compliant information technology systems or non-information technology
systems operated by us or third parties. Our information technology systems
consist of software and data developed either in-house or purchased from third
parties, and hardware purchased from vendors.
STATE OF READINESS. We have completed a preliminary assessment of our
information technology systems, which includes but is not limited to the
hardware and software necessary to provide and deliver our services. We are
continuing to perform assessments of our non-information technology systems,
which include many of the building and office equipment systems. To date, our
assessment has consisted of the following steps:
- identifying and evaluating all software and hardware upon which we
are dependent;
- contacting third-party vendors of hardware, software and services
that we utilize;
- contacting material non-information technology systems and service
providers; and
- developing and formalizing procedures to implement necessary
remedial measures.
As of the end of the first quarter of 1999 we have performed the following:
- we have reviewed all functional areas of our business and have
identified Microsoft Windows 95, Microsoft Office 97 and Microsoft
Windows NT as the only software programs that are not Year 2000
compliant;
- we will continue to perform Year 2000 simulations on our systems
and services to test our system and service readiness;
- we have revised and continue to revise our systems as necessary to
improve their Year 2000 compliance based on the results of our Year
2000 simulation tests;
- we are continuing to upgrade and test all other hardware and
software used in our operations;
- we have identified all vendors of material hardware and software
components of our information technology systems, have contacted
our principal vendors of hardware, software and data providers, and
have obtained confirmation from all of our material vendors, either
in writing or from information available on their Web sites,
confirming their Year 2000 compliance;
29
<PAGE>
- we are continuing the process of working with our hardware and
software providers to assure that we are prepared for the Year
2000; and
- we have received confirmation from all of our material
non-information technology systems and service providers, either in
writing or from information available on their
Web sites, confirming their Year 2000 compliance.
At this point in our assessment, we are not currently aware of any Year 2000
problems relating to these systems which would have a material effect on our
business, financial condition or results of operations. We plan to complete our
Year 2000 assessment during the summer of 1999 and expect to make all
remediations by September 1999. We believe that the work required to achieve
Year 2000 compliance is approximately 80% complete. The only products we have
not tested are network routers and switches.
COST. As of March 31, 1999, we had incurred costs of approximately $50,000 and
we expect to incur an additional $20,000 in connection with identifying,
evaluating and addressing Year 2000 compliance issues. Most of our expenses have
been related to, and are expected to continue to relate to, the operating costs
associated with time spent by employees in the evaluation process and Year 2000
compliance matters. If such expenses are higher than anticipated, our business,
financial condition and operating results would suffer.
RISKS. Although our assessment may be finalized without identifying any
additional material non-compliant information technology or systems operated by
us or by third parties, a systemic failure beyond our control, such as a
prolonged telecommunications or electrical failure, is possible. This type of
failure could prevent us from operating our business, prevent users from
accessing our network, or change the behavior of advertising customers or
persons accessing our network. We believe that the primary business risks, in
the event of such failure, would include but not be limited to lost advertising
revenues, lost business revenues, increased operating costs, loss of customers
or persons accessing our network and servers, or other business interruptions of
a material nature, as well as claims of mismanagement, misrepresentation or
breach of contract.
CONTINGENCY PLAN. As discussed above, we are engaged in an ongoing Year 2000
assessment. The results of our further testing and the responses we receive from
third-party vendors, service providers and customers will be taken into account
in determining the nature and extent of any contingency plans.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
We are exposed to market risk from changes in interest rates on borrowings under
our line of credit that bears interest from time to time at the lower of the
lending bank's prime rate plus 1% or LIBOR plus .65%. Because we do not believe
that the maximum available borrowings under the line of credit are material, and
because we anticipate terminating this line of credit upon the completion of
this offering, we do not believe this risk will be material.
We have no derivative financial instruments or derivative commodity instruments
in our cash and cash equivalents and investments. We invest our cash and cash
equivalents and investments in short-term, interest-bearing, investment grade
securities. We anticipate investing our net proceeds from this offering in
similar investment grade investments pending their use as described in this
prospectus. See "Use of Proceeds." Our transactions are generally conducted, and
our accounts are denominated, in United States dollars. Accordingly, we are not
exposed to significant foreign currency risk.
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RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), which establishes
standards for reporting information about operating segments in annual financial
statements. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. SFAS No. 131 is effective
for fiscal years beginning after December 15, 1997. The adoption of this
standard is not expected to have an impact on the presentation of our financial
statements.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. Presently, all costs to develop computer software
for internal use are expensed as incurred. Adoption of this new pronouncement in
1999 may require capitalization of certain software development costs although
such amounts are not expected to be material.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5, which is effective for
fiscal years beginning after December 15, 1998, provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start-up activities and organization costs to be expensed as incurred. As we
have expensed these costs historically, the adoption of this statement is not
expected to have a significant impact on our results of operations, financial
position or cash flows.
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BUSINESS
OVERVIEW
internet.com owns and operates a network of Web sites, e-mail newsletters,
online discussion forums and moderated e-mail discussion lists focused solely on
the Internet industry. Our community of Internet users includes Internet
industry and Internet technology professionals, Web developers and experienced
Internet users. The internet.com network provides Internet users with
proprietary content, including:
- - real-time Internet industry news
- - tutorials, training and skills development
- - Internet market research
- - buyer's guides and products reviews
- - archives of definitive industry publications
- - discussion forums
- - software downloads
- - expert advice
Our network of Internet media properties consists of nine subject areas, or
vertical content channels, that contain 61 Web sites, 43 e-mail newsletters, 55
online discussion forums and 52 moderated e-mail discussion lists. During the
month of April 1999, we delivered 42.1 million page views to approximately 1.7
million unique visitors and 8.1 million copies of our e-mail newsletters to
700,000 subscribers, and 31.2 million postings were generated by 51,000
subscribers to our moderated e-mail discussion lists.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET. The Internet has emerged as a global distribution
network for real-time news and information, an environment for online
communities and a market place in which commerce is conducted. IDC estimates
that the number of Internet users will grow from 159 million in 1998 to 509
million in 2003 and estimates that the number of Uniform Resource Locators, or
URLs, will grow from approximately 925 million in 1998 to 13.1 billion in 2003.
To best exploit the rapid growth of the Internet, businesses must stay abreast
of Internet-related technologies and products as well as develop and maintain
the skills necessary to utilize these technologies and products. A broader set
of executive management and business professionals are increasingly
participating in Internet technology implementation decisions with information
technology professionals. As a result, Internet-related topics need to be
addressed from a variety of business as well as technology perspectives to
effectively communicate the value of deploying and integrating Internet
technologies.
The increasing use of the Internet is dramatically affecting the operating
methods of profit and not-for-profit businesses and other organizations. These
businesses and organizations are dedicating an increasing amount of personnel
and financial resources to integrating and effectively using the Internet to
expand and enhance their operations. As a result, these businesses and
organizations have a rapidly growing need for personnel with specialized skills
and knowledge in Internet technologies who can effectively build and manage
their Internet infrastructures.
NEED FOR A COMPREHENSIVE RESOURCE FOR INTERNET INDUSTRY AND INTERNET TECHNOLOGY
PROFESSIONALS. With the rapid change and increasing complexity of Internet
technology and the industries surrounding it, Internet industry and Internet
technology professionals need a comprehensive resource to provide the most
recent Internet news and information as well as tutorials in Internet
technologies. To date, these professionals have relied upon general business and
information technology publishers, software and hardware vendors and training
service providers to stay abreast of the latest Internet industry developments
and Internet technology trends. We believe these traditional resources are
inadequate for
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Internet professionals for several reasons, including an inability to provide
real-time Internet news and information, training in the latest Internet
technologies and communities focused on specific interests.
Internet industry and Internet technology professionals have developed a
critical need for a timely and comprehensive resource that provides a broad
range of independent, in-depth and easy-to-access content to keep them
up-to-date in the rapidly evolving Internet industry. Internet industry and
Internet technology professionals require current information covering Internet
business and technical information, including:
- news;
- analysis;
- tutorials, training and skills development;
- market information about emerging products and technologies;
- buyers' guides and product reviews;
- Internet market research; and
- expert advice.
These professionals also need a focused online community to share information
with one another, work together to find solutions to common problems, learn
about upcoming conferences and other industry events, seek employment and hire
personnel. In addition, Internet industry and Internet technology professionals
are frequently responsible for purchasing Internet technologies for their
companies. In order to make informed purchasing decisions, these professionals
must devote considerable time, effort and financial resources to researching new
Internet technologies. To date, they have had to rely on fragmented and
disparate sources, such as technical books and print magazines, and training
materials provided by service providers and traditional software retailers. None
of these sources has provided a comprehensive and timely solution for Internet
professionals' need for news and information resources.
NEED FOR ADVERTISERS AND VENDORS TO REACH INTERNET INDUSTRY AND INTERNET
TECHNOLOGY PROFESSIONALS. Advertisers and vendors have realized that Internet
industry and Internet technology professionals represent a highly attractive
audience and need a medium through which they can reach this audience in a
focused and effective manner. Internet advertising permits advertisers to gather
demographic information, through voluntary registration and user surveys, and
direct messages at targeted groups of users. It also enables advertisers to
measure the effectiveness of their advertising campaigns and revise them in
response to real-time feedback, market factors and current events. Traditional
forms of advertising are not as targeted and do not permit evaluation of results
in as timely and accurate a manner. Internet advertising is growing rapidly and
is projected to experience significant growth in the future. Forrester Research,
Inc. estimates that:
- worldwide Internet advertising will grow from $1.5 billion in 1998
to $10.9 billion in 2002; and
- business-to-business Internet advertising will grow from $290
million in 1998 to $2.6 billion in 2002.
Vendors of goods and services via the Internet benefit from the ability to reach
a global audience and to operate with minimal physical infrastructure, reduced
overhead and greater economies of scale. The number of transactions taking place
over the Internet is growing rapidly and is expected to increase as vendors
improve Internet-based transaction processing technology and as consumers become
more accustomed to buying online. Forrester Research estimates that:
- e-commerce will grow from $55 billion in 1998 to $1.1 trillion in
2002; and
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- business-to-business e-commerce will grow from $17 billion in 1998
to $327 billion in 2002.
In summary, the evolution and growth of the Internet has created a rapidly
expanding group of Internet professionals with a critical need for news and
information resources. These Internet professionals represent a select, focused
and attractive group of potential purchasers for advertisers and vendors to
target.
THE INTERNET.COM SOLUTION
We provide our community of Internet users with a wide variety of content
offerings and services to aid them in their daily work and purchasing decisions.
Our solution addresses the needs of three constituencies--Internet users,
advertisers and vendors.
BENEFITS FOR OUR COMMUNITY OF INTERNET USERS
CONTENT. Our network of Web sites, e-mail newsletters, online discussion forums
and moderated e-mail discussion lists provides Internet news and information
which is updated on a daily basis. This Internet news and information helps our
community of Internet users to enhance their job performance by providing them
with up-to-date information and resources about the Internet industry. Our
network consists of proprietary content as well as services for the Internet
industry, including:
- news;
- analysis;
- tutorials, training and skills development;
- market information about emerging products and technologies;
- buyers' guides and product reviews;
- Internet market research; and
- expert advice.
Unlike traditional media, our network provides our community of Internet users
with real-time Internet news and information. These users can easily search our
network by using a host of search and navigation tools.
COMMUNITY. Our network of Web sites, e-mail newsletters, online discussion
forums and moderated e-mail discussion lists provides our community of Internet
users the ability to discuss and solve technical problems and share information.
We provide means by which users can contribute materials and communicate with
each other. Users submit and share software code and development tools that are
then published and archived on our network. We believe that creating a sense of
community through these services fosters loyalty and affinity among our
community of Internet users and increases the amount of time they spend using
our services. These services include:
- ONLINE DISCUSSION FORUMS. We offer 55 online discussion forums,
categorized by vertical content areas for the Internet industry,
that enable users to share information and resources in order to
help each other solve technical problems. We archive these online
discussion forums, creating an online knowledge repository for
future reference.
- MODERATED E-MAIL DISCUSSION LISTS. We offer 52 moderated e-mail
discussion lists and have over 51,000 subscribers to these lists,
which are categorized by subject, or vertical content areas for the
Internet industry. These forums, which enable subscribers to
conveniently share information and resources and solve technical
problems, are moderated by skilled internet.com personnel.
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- QUESTION AND ANSWER SERVICES. We offer question and answer services
that enable users to submit technical questions related to the
Internet industry and our content offerings and services. Answers
from skilled internet.com personnel are published online in
searchable formats.
- TECHNICAL JOB LISTINGS. Through SILICONALLEYJOBS.COM and an
agreement with CareerBuilder, Inc., JOBS.INTERNET.COM, we provide
our community of Internet users with access to Internet industry
and Internet technology job openings. These Web sites can be
searched by job type, salary range and geographic location.
COMMERCE. Our network of Web sites, e-mail newsletters, online discussion forums
and moderated e-mail discussion lists provides our community of Internet users
the ability to evaluate, compare and purchase Internet-related products and
services provided by e-commerce vendors. We receive either fixed fees for
advertising, or revenue sharing of 10% to 50% of the sales made by the
e-commerce vendors as a result of links from our network, or in some cases both
advertising and revenue sharing. These commerce offerings provide our users with
access to the following goods and services:
- software and hardware;
- technical books and training materials;
- Internet research reports;
- employment classifieds;
- opt-in e-mail list brokerage;
- online press release distribution;
- online banking and credit card registration services;
- online travel services; and
- online scheduling.
BENEFITS FOR ADVERTISERS AND VENDORS
We provide advertisers and vendors with targeted channels to reach our highly
focused community of Internet users, 83% of whom either make or influence
purchasing decisions, according to a survey we commissioned from Informative
LLC. We believe that our Internet users represent a large and targeted online
community of Internet industry and Internet technology professionals, Web
developers and experienced Internet users. We believe our advertisers and
vendors can enhance the effectiveness of their advertising by customizing
advertisements and placing them on targeted channels and pages on our network.
We also provide vendors with a much needed distribution channel and the ability
to focus their marketing efforts cost effectively.
Our Web sites, e-mail newsletters, online discussion forums and moderated e-mail
discussion lists attract a focused community of business and professional
Internet users, as compared to more broadly focused Web sites. According to a
survey we commissioned from Informative LLC, which was conducted from August
1998 through February 1999, some key demographics of our community of Internet
users include:
- 83% are involved in purchasing Internet products and services for
their companies and organizations, including hardware, software,
networking and Internet access;
- 67% purchased products online in the six months ended February 28,
1999;
- 53% have Internet technology or information technology job titles;
another 19% are in corporate management;
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- the average household income of the group exceeds $65,000 annually;
- 61% are in the desirable 25-44 age group; and
- 72% have at least one college degree.
OUR BUSINESS STRATEGY
Our objective is to maintain and strengthen our position as a provider of
business information focused solely on the Internet industry. We intend to
achieve this objective by continuing to execute the following key strategies:
INCREASE OUR PROPRIETARY CONTENT OFFERINGS AND SERVICES. We will strengthen our
existing content offerings and services by continuing to improve our proprietary
content available for our community of Internet users. Our editorial team,
comprised of 33 employees and over 50 freelance contributors as of April 30,
1999, creates proprietary content for our network on a daily basis. In April
1999, our editorial team authored more than 700 news articles published in
InternetNews, over 50 technical tutorials, over 140 product or book reviews and
various other publications. We will continue to identify emerging topics of
interest and then create and aggregate content for those topics through internal
development and acquisitions of additional Web sites, e-mail newsletters, online
discussion forums and moderated e-mail discussion lists.
GROW THROUGH TARGETED ACQUISITIONS. Since July 1995, we have made 28
acquisitions, which included 37 Web sites, 29 e-mail newsletters, 16 online
discussion forums and four moderated e-mail discussion lists. Since March 1,
1998, we have made 17 acquisitions, which included 26 Web sites, 22 e-mail
newsletters, nine online discussion forums and three moderated e-mail discussion
lists. We expect to continue to pursue strategic acquisitions to strengthen our
content offerings and services. We may also acquire Internet media properties to
obtain valuable brands, expertise or access to new users, advertisers and
vendors. We believe that by acquiring Internet media properties, we can
integrate them into our network and improve their traffic and revenue results.
In addition, we believe that acquiring Web sites, e-mail newsletters, online
discussion forums and moderated e-mail discussion lists generally has increased
the overall traffic on our existing network. We intend to use our experience
gained from our numerous acquisitions in order to identify, evaluate, acquire
and integrate Web sites, e-mail newsletters, online discussion forums and
moderated e-mail discussion lists which are complementary to our network.
INCREASE TRAFFIC AND ENHANCE WORLDWIDE BRAND RECOGNITION. We will continue to
expand the combination of online and offline advertising and promotional
campaigns to enhance the brand recognition of internet.com. We intend to promote
the internet.com brand as a leading source of online content focused solely on
the Internet industry. In addition, we will promote our branded Internet
services, such as Web Developer and The Electronic Commerce Guide, under the
internet.com network through online and offline advertising and other
promotional activities. Our marketing and branding campaigns are designed to
increase overall brand awareness. This increased brand awareness will help drive
additional traffic to our network and create additional advertising impressions,
which in turn will create additional advertising and e-commerce revenue
opportunities. As a result, this growth in user traffic should make our network
more valuable to advertisers and vendors. Our marketing and branding campaigns
will reinforce to users, advertisers and vendors that the internet.com brand
represents technical competence, comprehensiveness, timeliness and objectivity.
EXPAND REVENUE OPPORTUNITIES. For the three months ended March 31, 1999, 79% of
our revenues were derived from banner advertising. A significant majority of our
advertising revenues for the three months ended March 31, 1999 were derived from
technology companies. We believe that the increase in the number of advertising
impressions available for sale resulting from the growth of subscribers to
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our e-mail newsletters and moderated e-mail discussion lists will increase
advertising revenues in the future. We are continuing to develop additional
revenue sources, including e-commerce agreements; content, brand and software
licensing; paid subscription services; seminars; opt-in e-mail list rentals; and
venture capital management. See "--Revenue Opportunities."
INCREASE OUR INTERNATIONAL PRESENCE. The Internet is also rapidly growing
internationally and we intend to utilize our experience to continue to develop
and acquire Web sites, e-mail newsletters, online discussion forums and
moderated e-mail discussion lists with an international focus in order to expand
our global presence. We currently have internet.com country and regional Web
sites for Asia, Australia, Canada, Israel and the United Kingdom. These English
language editions are produced by our employees and freelance contributors in
the geographic areas they serve and provide daily Internet news from the country
or region. We also have licensed the internet.com brand and content for
non-English language editions. We are aggressively seeking opportunities in
other countries and regions to produce additional non-English language editions.
We intend to continue to develop and acquire English and non-English language
Internet media properties to increase our global presence.
REVENUE OPPORTUNITIES
ADVERTISING. For the three months ended March 31, 1999, 87% of our revenues were
derived from advertising, of which 91% of these advertising revenues were
generated from advertising on our Web sites and online discussion forums. With
the growth in subscribers to our e-mail newsletters and moderated e-mail
discussion lists, these media properties are also expected to contribute to
increased advertising revenues in the future.
E-COMMERCE AGREEMENTS. We have entered into a number of e-commerce agreements,
which generally include either a fixed fee for advertising or revenue sharing of
10% to 50% of the sales made by the e-commerce vendor as a result of links from
our network, or in some cases both advertising and revenue sharing. E-commerce
agreements typically are a minimum of six months in duration. During the three
months ended March 31, 1999, 7% of our revenues were derived from e-commerce
agreements. As of March 31 1999, four of our e-commerce agreements provided for
fixed fees, and four of our e-commerce agreements provided for both fixed fees
and revenue sharing. As of March 31, 1999, our e-commerce vendors were:
<TABLE>
<S> <C> <C> <C>
- - Biztravel.com, Inc. - FatBrain.com, Inc. (formerly Computer Literacy, Inc.)
- - CareerBuilder, Inc. - Hewlett-Packard Company
- - CompuBank, N.A. - Internet Wire Inc.
- - Digital River, Inc. - Jintek, LLC
</TABLE>
LICENSING AGREEMENTS. We license our editorial content and brands to third
parties for fixed fees and royalties based on the licensee's revenues generated
by the licensed content. We also provide access to limited versions of our
editorial content to others at no charge, to promote our brands and generate
traffic. We have paid licensing arrangements with America Online, Inc.,
Ziff-Davis Inc., One Galaxy Solution, Inc., Upside Media Inc.'s UPSIDE MAGAZINE,
MBNA America Bank, N.A., T4S Group, ITI Wirtschaftsinformations and Reprint
Services. We also license our editorial content and brands in exchange for
promotional consideration to other Web sites, including YAHOO.COM, SNAP.COM, Web
TV Networks, Inc. and PC Financial Network, Inc.
We license selected portions of our editorial content to print publishers. In
March 1999, we entered into an agreement with the Los Angeles Times Syndicate
International to license our editorial content to print periodicals. We also
license one-time rights to reprint individual articles, online or in print, to
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third parties through licensing of reprints and copyright permission requests.
We have licensed our ISDEX, The Internet Stock Index, to the Kansas City Board
of Trade for the creation of futures and futures options contracts which are
expected to be traded on this exchange. We also offer our proprietary software
for license to third parties that offer services that are similar to, but do not
compete with, internet.com. For example, our NewsLinx software provides a highly
efficient and cost-effective means by which Internet content publishers can
abstract and aggregate news and information for any vertical subject area. For
the three months ended March 31, 1999, 2% of our revenues were derived from
licensing agreements.
PAID SUBSCRIPTION SERVICES. We currently publish three paid e-mail subscription
publications, Internet Stock Report's Hotwatch, Internet StockTracker and
SearchEngineWatch, which have a combined total of more than 9,000 paying
subscribers. We believe that our other content areas may attract audiences with
specialized interests that would pay subscription fees for unique proprietary
content and we will launch additional paid subscription services when
appropriate. In particular, we anticipate launching additional paid subscription
services in our Internet Stock, Internet Marketing and Web Developer Channels.
For the three months ended March 31, 1999, 4% of our revenues were derived from
paid subscription services.
SEMINARS. As a result of recent acquisitions, we plan to offer offline seminars
focused on several Internet-specific topics which are of interest to our
community of Internet users. We are able to efficiently promote these seminars
through our network. We anticipate generating revenues from attendee
registrations as well as from advertiser and vendor sponsorships. We have not
yet generated any revenues from seminars.
OPT-IN E-MAIL LIST RENTALS. Through a third-party agent, we currently offer for
rental our opt-in e-mail list names relating to 25 Internet-specific topics.
Members of our community of Internet users volunteer, or "opt in," to be
included on these lists to receive e-mail product offerings and information
relevant to their Internet interests. Subscribers to these opt-in e-mail lists
receive e-mail announcements of special offers relating to each topic
subscribed. We generate revenues on a per use basis for the rental of our list
names. For the three months ended March 31, 1999, 1% of our revenues were
derived from opt-in e-mail list rentals.
VENTURE FUND MANAGEMENT. We are the portfolio manager of internet.com Venture
Fund I LLC, a $5.0 million venture fund formed in April 1999, that will invest
in early-stage content-based Internet properties that are not competitive with
internet.com. We earn management fees for the day to day operation and general
management of the fund. We also earn 20% of the realized gains on investments
made by this fund. We committed to invest $600,000 in this fund at its
inception. The remaining $4.4 million was committed to by third party investors.
internet.com and all other investors contributed 15% of their total investments
to the fund at its inception. Remaining commitments will be called by the fund
as investments are actually made by the fund. We have not yet generated any
revenues from the management of this fund. See "Certain Transactions--Venture
Capital Fund."
CONTENT OFFERINGS AND SERVICES
We offer a broad range of content offerings and services to serve the needs of
our community of Internet users for content, community and commerce, as well as
the needs of advertisers and vendors in targeting our community of Internet
users. Our network is organized into the following nine vertical content
categories, or channels:
- INTERNETNEWS CHANNEL--Provides real-time coverage of Internet
industry news events from around the world. Our staff of over 25
analysts and journalists file approximately 25 original items daily
in the following vertical Internet news categories: business,
finance, Internet service provider, or ISP, Web developer,
E-commerce, Internet
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advertising and Internet stocks. We enhance our original coverage
of Internet industry news events through agreements with Reuters
NewMedia Inc. and USA TODAY to carry selected Internet news items.
- INTERNET TECHNOLOGY CHANNEL--Provides access to Internet news,
analyses, tutorials, reviews and resource guides to help our users
integrate evolving Internet technologies. Internet media properties
in the Internet Technology Channel cover many topics, including
Microsoft Active Server Pages, corporate intranet implementation,
Web servers and Internet technology products.
- WEB DEVELOPER CHANNEL--Provides our users who are responsible for
building and maintaining Web sites with communication services and
the latest information and trends for Web site development. We
provide tutorials, applets and script downloads and online resource
directories to Web developers. In addition, we provide community-
building resources through online discussion forums, frequently
asked questions and moderated e-mail discussion lists.
- INTERNET MARKETING CHANNEL--Provides Internet marketers with
information resources, market research and sales and marketing
techniques. This channel includes tutorials for gaining better
placement in search engines, summaries of the latest Internet
market research and information about Internet advertising and
promotion.
- INTERNET RESOURCES CHANNEL--Provides access to Internet job
listings, an online dictionary of Internet and technology terms,
subscription services to our e-mail newsletters, information about
Internet industry events including Internet World and ISPCON trade
shows and other Internet resources.
- ISP RESOURCES CHANNEL--Provides information for professionals in
the ISP industry, including the online edition of BOARDWATCH
magazine, and ISP-Lists, a collection of 38 e-mail discussion lists
used by more than 33,000 professionals in the ISP industry to
communicate with their colleagues. This channel also provides
sophisticated Internet users with information about Internet access
through THE LIST: THE DEFINITIVE ISP BUYER'S GUIDE.
- INTERNET STOCKS CHANNEL--Provides stock and financial news,
information and analysis about Internet companies. This channel
includes the Internet Stock Report, which includes daily analysis
of Internet stocks; ISDEX, The Internet Stock Index, a proprietary
index of 50 publicly traded Internet stocks; InternetStockList, a
directory of publicly traded Internet companies; IPO Watch, a
directory of Internet companies which have filed to go public; and
IPODEX, a directory of Internet companies which have recently gone
public.
- INTERNATIONAL CHANNEL--Provides Internet news and information for
specific countries or regions, including Asia, Australia, Canada,
Israel, the Middle East and the United Kingdom.
- DOWNLOAD CHANNEL--Helps experienced Internet users evaluate and
retrieve freeware and shareware software in a variety of
categories, including business, developer, utilities, multimedia
and games.
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INTERNET.COM WEB SITES AND RELATED INTERNET MEDIA PROPERTIES
In addition to our 61 Web sites, the Internet media properties presented on
these channels include 43 e-mail newsletters, 55 online discussion forums and 52
moderated e-mail discussion lists. Our network of Internet media properties
consists of the following:
<TABLE>
<CAPTION>
ONLINE E-MAIL
E-MAIL DISCUS- DISCUS-
INTERNET WEB NEWS- SION SION
MEDIA PROPERTY DESCRIPTION SITE LETTERS FORUMS LISTS
- ------------------------------ ---------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
<CAPTION>
INTERNETNEWS CHANNEL
<S> <C> <C> <C> <C> <C>
internetnews Real-time, global coverage of Internet
WWW.INTERNETNEWS.COM industry news and analysis reported by our
staff covering business, finance, ISP, Web
development, e-commerce, advertising, stocks
and international news
NewsLinx Provides continuous updates of Internet news
WWW.NEWSLINX.COM headlines with links to the related articles
from leading news Web sites
atnewyork Provides news and analysis for the New York
WWW.ATNEWYORK.COM City Internet industry
internetnews radio Daily audio Internet news broadcast
STREAM.INTERNET.COM
<CAPTION>
INTERNET TECHNOLOGY CHANNEL
<S> <C> <C> <C> <C> <C>
The Electronic Commerce Guide News, tutorials, reviews and opinions for
E-COMMERCE.INTERNET.COM e-commerce professionals
<CAPTION>
<S> <C> <C> <C> <C> <C>
ServerWatch Reviews of Web server hardware and software
WWW.SERVERWATCH.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
Internet ProductWatch Searchable directory of commercial Internet
WWW.INTERNETPRODUCTWATCH.COM product listings
<CAPTION>
<S> <C> <C> <C> <C> <C>
15 seconds Tutorials, discussion lists and newsletters
WWW.15SECONDS.COM for Microsoft Active Server Pages developers
<CAPTION>
<S> <C> <C> <C> <C> <C>
AllNet Devices News and reviews of devices that perform
WWW.ALLNETDEVICES.COM specialized Internet and intranet tasks
<CAPTION>
<S> <C> <C> <C> <C> <C>
BotSpot Directory of information and resources about
WWW.BOTSPOT.COM automated Internet data retrieval
<CAPTION>
<S> <C> <C> <C> <C> <C>
WebServer Compare Directory of Web servers listing technical
WWW.WEBSERVERCOMPARE.COM specifications
<CAPTION>
<S> <C> <C> <C> <C> <C>
Intranet Design Magazine Tutorials and product reviews for intranet
WWW.INTRANETDESIGNMAGAZINE.COM managers
<CAPTION>
<S> <C> <C> <C> <C> <C>
The Web Design List Directory of more than 1,000 Web design firms
DESIGNLIST.INTERNET.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
Swynk News and information for system administrators
WWW.SWYNK.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
LinuxPlanet Linux news and tutorials for system
WWW.LINUXPLANET.COM administrators
<CAPTION>
<S> <C> <C> <C> <C> <C>
WinPlanet Microsoft Windows software news, tutorials,
WWW.WINPLANET.COM opinions, reviews and tips
<CAPTION>
<S> <C> <C> <C> <C> <C>
Internet Technology Forums Discussion forums about Internet technology
FORUMS.INTERNET.COM topics
<CAPTION>
<S> <C> <C> <C> <C> <C>
Internet World Archives of Internet World newspaper
WWW.IW.COM
<CAPTION>
<CAPTION>
ACQUIRED,
INTERNALLY
INTERNET DEVELOPED
MEDIA PROPERTY OR LICENSED
- ------------------------------ -----------
<S> <C>
INTERNETNEWS CHANNEL
<S> <C>
internetnews Internally
WWW.INTERNETNEWS.COM Developed
NewsLinx Acquired
WWW.NEWSLINX.COM 11/98
atnewyork Acquired
WWW.ATNEWYORK.COM 4/99
internetnews radio Internally
STREAM.INTERNET.COM Developed
INTERNET TECHNOLOGY CHANNEL
<S> <C>
The Electronic Commerce Guide Acquired
E-COMMERCE.INTERNET.COM 11/95
<S> <C>
ServerWatch Acquired
WWW.SERVERWATCH.COM 7/96
<S> <C>
Internet ProductWatch Acquired
WWW.INTERNETPRODUCTWATCH.COM 1/96
<S> <C>
15 seconds Acquired
WWW.15SECONDS.COM 12/98
<S> <C>
AllNet Devices Internally
WWW.ALLNETDEVICES.COM Developed
<S> <C>
BotSpot Acquired
WWW.BOTSPOT.COM 1/99
<S> <C>
WebServer Compare Acquired
WWW.WEBSERVERCOMPARE.COM 7/96
<S> <C>
Intranet Design Magazine Acquired
WWW.INTRANETDESIGNMAGAZINE.COM 9/98
<S> <C>
The Web Design List Internally
DESIGNLIST.INTERNET.COM Developed
<S> <C>
Swynk Acquired
WWW.SWYNK.COM 4/99
<S> <C>
LinuxPlanet Acquired
WWW.LINUXPLANET.COM 5/99
<S> <C>
WinPlanet Acquired
WWW.WINPLANET.COM 5/99
<S> <C>
Internet Technology Forums Internally
FORUMS.INTERNET.COM Developed
<S> <C>
Internet World Licensed
WWW.IW.COM
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
ONLINE E-MAIL
E-MAIL DISCUS- DISCUS-
INTERNET WEB NEWS- SION SION
MEDIA PROPERTY DESCRIPTION SITE LETTERS FORUMS LISTS
- ------------------------------ ---------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
<CAPTION>
WEB DEVELOPER CHANNEL
<S> <C> <C> <C> <C> <C>
WebDeveloper News, reviews and tutorials for Web developers
WWW.WEBDEVELOPER.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
WebReference Tutorials, technical information and reviews
WWW.WEBREFERENCE.COM for Web developers
<CAPTION>
<S> <C> <C> <C> <C> <C>
Web Developer's Virtual Tutorials and technical information for Web
Library developers
WWW.WDVL.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
WebDeveloper101 Web developer resource for novices and experts
WWW.WEBDEVELOPER101.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
BrowserWatch News and information for technical
WWW.BROWSERWATCH.COM professionals about Web browsers
<CAPTION>
<S> <C> <C> <C> <C> <C>
StreamingMediaWorld Tutorials and information resources for
WWW.STREAMINGMEDIAWORLD.COM streaming media developers
<CAPTION>
<S> <C> <C> <C> <C> <C>
JustSMIL Tutorials, information resources and forums
WWW.JUSTSMIL.COM for streaming media developers
<CAPTION>
<S> <C> <C> <C> <C> <C>
Java Boutique Collection of over 360 Java applets available
WWW.JAVABOUTIQUE.COM for download
<CAPTION>
<S> <C> <C> <C> <C> <C>
The JavascriptSource Collection of over 300 Javascripts available
WWW.JAVASCRIPTSOURCE.COM for download
<CAPTION>
<S> <C> <C> <C> <C> <C>
ScriptSearch Links to more than 5,000 C++, PERL, VBScript
WWW.SCRIPTSEARCH.COM and other programs online
<CAPTION>
<S> <C> <C> <C> <C> <C>
Web Developer Forums Discussion forums about Web development topics
FORUMS.INTERNET.COM
<CAPTION>
INTERNET MARKETING CHANNEL
<S> <C> <C> <C> <C> <C>
SearchEngineWatch How-to site for Internet marketers and users
WWW.SEARCHENGINEWATCH.COM about search engine operations
<CAPTION>
<S> <C> <C> <C> <C> <C>
CyberAtlas Searchable repository of Internet-related
WWW.CYBERATLAS.COM research abstracts
<CAPTION>
<S> <C> <C> <C> <C> <C>
Internet Day Daily tutorial for Internet marketers and
WWW.INTERNETDAY.COM professionals
<CAPTION>
<S> <C> <C> <C> <C> <C>
Internet Advertising Report Highlights top Internet marketing and
WWW.INTERNETNEWS.COM/IAR advertising news and events
<CAPTION>
<S> <C> <C> <C> <C> <C>
Ad Resource Collection of Internet advertising resources
WWW.ADRESOURCE.COM for Internet marketers
<CAPTION>
<S> <C> <C> <C> <C> <C>
Refer-It Directory of Web site affiliate, referral and
WWW.REFER-IT.COM revenue sharing programs
<CAPTION>
<S> <C> <C> <C> <C> <C>
AllNetResearch Directory of Internet industry research
WWW.ALLNETRESEARCH.COM reports available for online purchase
<CAPTION>
<S> <C> <C> <C> <C> <C>
INTERNET RESOURCES CHANNEL
<CAPTION>
<S> <C> <C> <C> <C> <C>
Webopedia Dictionary and search engine containing more
WWW.WEBOPEDIA.COM than 7,500 Internet and technology definitions
and terms
<CAPTION>
<S> <C> <C> <C> <C> <C>
Internet Radio List Directory of Internet radio stations
WWW.INTERNETRADIOLIST.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
CoolCentral Recommendations for useful and entertaining
WWW.COOLCENTRAL.COM Web sites
<CAPTION>
<S> <C> <C> <C> <C> <C>
InternetShopper Directory of shopping Web sites listed by
WWW.INTERNETSHOPPER.COM category, daily listings of free and
discounted items available online and an
Internet shopping agent
<CAPTION>
<S> <C> <C> <C> <C> <C>
Internet Jobs Provides searchable access to Internet
JOBS.INTERNET.COM industry and Internet technology job openings
<CAPTION>
<S> <C> <C> <C> <C> <C>
silicon alley Jobs Provides searchable access to Internet
WWW.SILICONALLEYJOBS.COM industry and Internet technology job openings
<CAPTION>
<S> <C> <C> <C> <C> <C>
My Desktop Information site for experienced Internet
WWW.MYDESKTOP.COM users
<CAPTION>
<S> <C> <C> <C> <C> <C>
Virtual Dr Technical support for Internet and personal
WWW.VIRTUALDR.COM computer users
<CAPTION>
<S> <C> <C> <C> <C> <C>
Hardware Central Comprehensive hardware information including
WWW.HARDWARECENTRAL.COM advice on optimization and troubleshooting
<CAPTION>
<S> <C> <C> <C> <C> <C>
Internet Forums Directory of online discussion forums about a
FORUMS.INTERNET.COM variety of Internet topics
<CAPTION>
<S> <C> <C> <C> <C> <C>
Events.internet.com Information about Internet World and ISPCON
EVENTS.INTERNET.COM trade shows
<CAPTION>
<CAPTION>
ACQUIRED,
INTERNALLY
INTERNET DEVELOPED
MEDIA PROPERTY OR LICENSED
- ------------------------------ -----------
<S> <C>
WEB DEVELOPER CHANNEL
<S> <C>
WebDeveloper Internally
WWW.WEBDEVELOPER.COM Developed
<S> <C>
WebReference Acquired
WWW.WEBREFERENCE.COM 11/97
<S> <C>
Web Developer's Virtual Acquired
Library 3/98
WWW.WDVL.COM
<S> <C>
WebDeveloper101 Acquired
WWW.WEBDEVELOPER101.COM 5/99
<S> <C>
BrowserWatch Acquired
WWW.BROWSERWATCH.COM 5/96
<S> <C>
StreamingMediaWorld Internally
WWW.STREAMINGMEDIAWORLD.COM Developed
<S> <C>
JustSMIL Acquired
WWW.JUSTSMIL.COM 11/98
<S> <C>
Java Boutique Acquired
WWW.JAVABOUTIQUE.COM 5/97
<S> <C>
The JavascriptSource Acquired
WWW.JAVASCRIPTSOURCE.COM 7/98
<S> <C>
ScriptSearch Acquired
WWW.SCRIPTSEARCH.COM 9/98
<S> <C>
Web Developer Forums Internally
FORUMS.INTERNET.COM Developed
INTERNET MARKETING CHANNEL
<S> <C>
SearchEngineWatch Acquired
WWW.SEARCHENGINEWATCH.COM 11/97
<S> <C>
CyberAtlas Acquired
WWW.CYBERATLAS.COM 8/98
<S> <C>
Internet Day Acquired
WWW.INTERNETDAY.COM 11/98
<S> <C>
Internet Advertising Report Internally
WWW.INTERNETNEWS.COM/IAR Developed
<S> <C>
Ad Resource Acquired
WWW.ADRESOURCE.COM 11/98
<S> <C>
Refer-It Acquired
WWW.REFER-IT.COM 4/99
<S> <C>
AllNetResearch Internally
WWW.ALLNETRESEARCH.COM Developed
<S> <C>
INTERNET RESOURCES CHANNEL
<S> <C>
Webopedia Acquired
WWW.WEBOPEDIA.COM 3/98
<S> <C>
Internet Radio List Internally
WWW.INTERNETRADIOLIST.COM Developed
<S> <C>
CoolCentral Acquired
WWW.COOLCENTRAL.COM 11/97
<S> <C>
InternetShopper Internally
WWW.INTERNETSHOPPER.COM Developed
<S> <C>
Internet Jobs Internally
JOBS.INTERNET.COM Developed
<S> <C>
silicon alley Jobs Acquired
WWW.SILICONALLEYJOBS.COM 4/99
<S> <C>
My Desktop Acquired
WWW.MYDESKTOP.COM 5/99
<S> <C>
Virtual Dr Acquired
WWW.VIRTUALDR.COM 5/99
<S> <C>
Hardware Central Acquired
WWW.HARDWARECENTRAL.COM 5/99
<S> <C>
Internet Forums Internally
FORUMS.INTERNET.COM Developed
<S> <C>
Events.internet.com Internally
EVENTS.INTERNET.COM Developed
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
ONLINE E-MAIL
E-MAIL DISCUS- DISCUS-
INTERNET WEB NEWS- SION SION
MEDIA PROPERTY DESCRIPTION SITE LETTERS FORUMS LISTS
- ------------------------------ ---------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
<CAPTION>
ISP RESOURCES CHANNEL
<S> <C> <C> <C> <C> <C>
ISP-Planet News and information for the ISP industry
WWW.ISP-PLANET.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
ISP-Lists E-mail discussion lists and Web sites serving
WWW.ISP-LISTS.COM ISP industry professionals
<CAPTION>
<S> <C> <C> <C> <C> <C>
The List Buyer's guide containing terms of service for
WWW.THELIST.COM more than 6,700 Internet Service Providers
worldwide
<CAPTION>
<S> <C> <C> <C> <C> <C>
ISP News Real-time, global coverage of Internet Service
WWW.INTERNETNEWS.COM/ISP-NEWS Provider industry news
<CAPTION>
<S> <C> <C> <C> <C> <C>
Boardwatch Archives of Boardwatch magazine
WWW.BOARDWATCH.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
ISPCON Information site for ISPCON events
WWW.ISPCON.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
Directory of Internet Service Directory of Internet Service Providers
Providers
BOARDWATCH.INTERNET.COM/ISP
<CAPTION>
INTERNET STOCKS CHANNEL
<S> <C> <C> <C> <C> <C>
Internet Stock Report Intraday analysis of Internet stocks
WWW.INTERNETSTOCKREPORT.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
ISDEX, The Internet Stock Proprietary index of 50 publicly traded
Index Internet stocks
WWW.ISDEX.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
InternetStockList Directory of publicly traded Internet
WWW.INTERNETSTOCKLIST.COM companies, including related news, information
and analysis
<CAPTION>
<S> <C> <C> <C> <C> <C>
IPO Watch Directory of Internet companies that have
WWW.INTERNETNEWS.COM/STOCKS/IPO filed to go public, including related news,
information and analysis
<CAPTION>
<S> <C> <C> <C> <C> <C>
IPODEX Directory of Internet companies that have
WWW.IPODEX.COM recently gone public
<CAPTION>
<S> <C> <C> <C> <C> <C>
Internet Stock Forums Discussion forums about Internet stocks and
FORUMS.INTERNET.COM investing
<CAPTION>
INTERNATIONAL CHANNEL
<S> <C> <C> <C> <C> <C>
Arabia Daily Internet news and information about the
ARABIA.INTERNET.COM Middle East
<CAPTION>
<S> <C> <C> <C> <C> <C>
Asia Daily Internet news and information about Asia
ASIA.INTERNET.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
Australia Daily Internet news and information about
AUSTRALIA.INTERNET.COM Australia
<CAPTION>
<S> <C> <C> <C> <C> <C>
Canada Daily Internet news and information about
CANADA.INTERNET.COM Canada
<CAPTION>
<S> <C> <C> <C> <C> <C>
Israel Daily Internet news and information about
ISRAEL.INTERNET.COM Israel
<CAPTION>
<S> <C> <C> <C> <C> <C>
United Kingdom Daily Internet news and information about the
UK.INTERNET.COM United Kingdom
<CAPTION>
DOWNLOAD CHANNEL
<S> <C> <C> <C> <C> <C>
Jumbo! Software Web site with over 300,000 programs
WWW.JUMBO.COM available for download
<CAPTION>
<S> <C> <C> <C> <C> <C>
CWSApps Reviews and downloads for Microsoft Windows-
WWW.CWSAPPS.COM based Internet software
<CAPTION>
<S> <C> <C> <C> <C> <C>
NewApps Links to new software programs available for
WWW.NEWAPPS.COM download
<CAPTION>
<S> <C> <C> <C> <C> <C>
FileFarm Reviews and downloads for business software
WWW.FILEFARM.COM
<CAPTION>
<CAPTION>
ACQUIRED,
INTERNALLY
INTERNET DEVELOPED
MEDIA PROPERTY OR LICENSED
- ------------------------------ -----------
<S> <C>
ISP RESOURCES CHANNEL
<S> <C>
ISP-Planet Internally
WWW.ISP-PLANET.COM Developed
<S> <C>
ISP-Lists Acquired
WWW.ISP-LISTS.COM 10/98
<S> <C>
The List Acquired
WWW.THELIST.COM 8/95
<S> <C>
ISP News Internally
WWW.INTERNETNEWS.COM/ISP-NEWS Developed
<S> <C>
Boardwatch Licensed
WWW.BOARDWATCH.COM
<S> <C>
ISPCON Licensed
WWW.ISPCON.COM
<S> <C>
Directory of Internet Service Licensed
Providers
BOARDWATCH.INTERNET.COM/ISP
INTERNET STOCKS CHANNEL
<S> <C>
Internet Stock Report Internally
WWW.INTERNETSTOCKREPORT.COM Developed
<S> <C>
ISDEX, The Internet Stock Internally
Index Developed
WWW.ISDEX.COM
<S> <C>
InternetStockList Internally
WWW.INTERNETSTOCKLIST.COM Developed
<S> <C>
IPO Watch Internally
WWW.INTERNETNEWS.COM/STOCKS/IP Developed
<S> <C>
IPODEX Internally
WWW.IPODEX.COM Developed
<S> <C>
Internet Stock Forums Internally
FORUMS.INTERNET.COM Developed
INTERNATIONAL CHANNEL
<S> <C>
Arabia Licensed
ARABIA.INTERNET.COM
<S> <C>
Asia Internally
ASIA.INTERNET.COM Developed
<S> <C>
Australia Internally
AUSTRALIA.INTERNET.COM Developed
<S> <C>
Canada Internally
CANADA.INTERNET.COM Developed
<S> <C>
Israel Internally
ISRAEL.INTERNET.COM Developed
<S> <C>
United Kingdom Internally
UK.INTERNET.COM Developed
DOWNLOAD CHANNEL
<S> <C>
Jumbo! Acquired
WWW.JUMBO.COM 11/98
<S> <C>
CWSApps Acquired
WWW.CWSAPPS.COM 12/96
<S> <C>
NewApps Acquired
WWW.NEWAPPS.COM 11/98
<S> <C>
FileFarm Acquired
WWW.FILEFARM.COM 5/99
</TABLE>
Penton Media has licensed the online publishing rights for its INTERNET WORLD,
BOARDWATCH and DIRECTORY OF INTERNET SERVICE PROVIDERS print publications, as
well as information about its Internet World and ISPCON trade shows, to
internet.com. See "Certain Transactions--Services Agreement."
42
<PAGE>
SELECTED CASE STUDIES
The following case studies are provided as representative samples of both our
internally developed and acquired Internet properties and their growth from
March 1998 to March 1999, which we believe is representative of the overall
growth of our network for the same period:
INTERNETNEWS.COM. We created internetnews.com in November 1995. internetnews.com
publishes, on a real-time basis throughout each business day, approximately 25
original Internet news items which are produced by our staff of over 25 editors,
freelance contributors and analysts, and supplemented by content from Reuters
NewMedia Inc. and USA TODAY. The editorial philosophy of internetnews.com is to
provide members of our community of Internet users with current Internet
industry information. Monthly page views for internetnews.com increased 275%
from 746,000 in March 1998 to approximately 2.8 million in March 1999.
WEBDEVELOPER.COM. We launched WebDeveloper.com as a print publication with a
companion Web site in September 1995. In May 1997, Web Developer.com was
reconstituted as an exclusively online resource. WebDeveloper.com provides news,
software and book reviews, tutorials, and question and answer features for Web
developers. WebDeveloper.com appeals to professionals who are responsible for
building and maintaining Web sites. WebDeveloper.com also provides links to
other resources, many of which are within our network, containing reference
information on Web development topics. Monthly page views for WebDeveloper.com
increased 203% from 288,000 in March 1998 to 873,000 in March 1999.
THE LIST--"THE DEFINITIVE ISP BUYER'S GUIDE". We acquired The List in August
1995 and have continued to enhance its content offerings and services, making
The List a leading directory of ISPs on the Internet. The List currently
provides access to information detailing the service offerings and rates of
6,700 ISPs in more than 200 countries worldwide. The List is based on a
contributory system that allows ISPs to enter information about rates and
services offered. The List offers ISPs a targeted method of acquiring
subscribers through sponsoring or providing advertising on specific pages
corresponding to area codes in which they provide service, allowing them to
effectively reach potential customers. In April 1999, we launched a program of
selling enhanced listings and sponsorships that allows ISPs to add their logos
to The List and more effectively target new customers. Monthly page views for
The List increased 69% from approximately 1.3 million in March 1998 to
approximately 2.2 million in March 1999.
SEARCHENGINEWATCH. We acquired SearchEngineWatch in November 1997.
SearchEngineWatch serves two audiences: marketers who want to have their
companies' Web sites listed prominently in search engines and sophisticated
Internet users who want to make informed selections when choosing a search
engine to use. In addition to advertising and sponsorship revenue,
SearchEngineWatch offers a paid subscription newsletter on its Web site. Since
acquiring and integrating SearchEngineWatch into our network in November 1997,
we have rapidly increased the number of paid subscribers while at the same time
increasing the annual subscription rate for this service from $25 to $44.
Monthly page views for SearchEngineWatch increased 109% from 573,000 in March
1998 to approximately 1.2 million in March 1999.
EDITORIAL
We maintain editorial offices in Westport, Connecticut; New York, New York;
Lexington, Kentucky; and Ann Arbor, Michigan. In addition, editorial personnel
work from home offices throughout the United States and in Hong Kong. Freelance
contributors and analysts are also located both domestically and in 13 countries
worldwide.
43
<PAGE>
Our editorial team, comprised of 33 employees and over 50 freelance contributors
as of April 30, 1999, creates considerable proprietary content each month. For
example, in April 1999, our editorial team:
- authored more than 700 news articles published in InternetNews;
- authored more than 50 technical tutorials;
- authored more than 100 market analysis reports;
- reviewed more than 140 products and books;
- created more than 450 editions of 43 separate e-mail newsletters;
- moderated over 50 e-mail discussion lists and over 50 online
discussion forums;
- catalogued and evaluated more than 1,300 software programs; and
- maintained more than 10,000 directory listings of Internet-related
products, services and companies.
In addition, our editorial staff also maintains an online dictionary,
WWW.WEBOPEDIA.COM, of 7,500 Internet and technology terms, writes question and
answer columns and creates directories of scripts for major Internet
technologies. We also have an exclusive agreement to serve as the Internet
publisher of Penton Media's INTERNET WORLD, BOARDWATCH and DIRECTORY OF INTERNET
SERVICE PROVIDERS print publications, as well as information about Penton
Media's Internet World and ISPCON trade shows. See "Certain
Transactions--Services Agreement."
MARKETING AND SALES
MARKETING. We employ a combination of online and offline advertising and
promotional campaigns to promote our content offerings and services to our
community of Internet users, advertisers and vendors. User advertising includes
cross-promotion on our network, advertising in trade publications and at trade
shows and promotional links from Web sites that attract demographically similar
audiences. We believe that this strategy maintains the high quality and unique
focus of our community of Internet users. We have participated in various
Internet industry events, including Internet World and ISPCON trade shows. We
have also used print advertising, which has appeared in INTERNET WORLD,
BOARDWATCH, UPSIDE, INTERNET WEEK, DATA COMMUNICATIONS, TELE.COM, SILICON ALLEY
REPORTER and ADWEEK, among other publications.
Our marketing efforts are directed largely at acquiring advertising clients and
commerce agreements. We principally use offline and online advertising, direct
mail and event sponsorships for customer acquisition. ADVERTISING AGE, ADWEEK,
MARKETING COMPUTERS, CLICKZ, CHANNELSEVEN.COM and the ONLINE ADVERTISING
DISCUSSION LIST are among the venues used to deliver our promotional messages.
In addition, we have a strategic agreement with Penton Media, a significant
investor in internet.com, which provides for an exchange of services to be
provided by each party. This agreement expires on November 23, 2001 and is
automatically renewable for subsequent three year terms unless terminated by
either party.
Services provided by Penton Media to us under this agreement include the
following:
- one full-page advertisement at no charge in each issue of INTERNET
WORLD newspaper and BOARDWATCH magazine;
- exhibit and sales office space at no charge for each U.S. Internet
World and ISPCON trade show; and
44
<PAGE>
- prominent listing as a sponsor in all promotional materials and for
appropriate conference tracks, as well as prominent hanging media
banners for Internet World and ISPCON trade shows.
Services we provide to Penton Media under this agreement include the following:
- Web site archives of INTERNET WORLD and BOARDWATCH print
publications and information about Internet World and ISPCON trade
shows and conferences; and
- a minimum of 2.3 million advertising impressions each month on our
network.
ADVERTISING SALES. We believe that we have been able to obtain revenue from
advertising on our Web sites and online discussion forums because we enable
clients to efficiently and effectively reach targeted segments of the Internet
community. Based on a survey we commissioned which was conducted from August
1998 through February 1999, 83% of our community of Internet users report that
they either make or influence purchasing decisions. We believe that targeting
this influential audience allows us to sell advertising space at rates that are
higher than the average rates charged by online services aimed at more general
audiences. Based upon publicly available banner advertisement rate cards, we
believe that our actual rates are approximately 1.2 and 3.5 times higher than
the published rates of Go2Net, Inc., Netscape Communications Corp., Yahoo! Inc.
and Infoseek Corporation as of April 1999, which we believe to be a
representative group of Internet-based services aimed at more general audiences.
We also offer advertisers the opportunity to advertise on our e-mail newsletters
and moderated e-mail discussion lists. In April 1999, we distributed 8.1 million
copies of our e-mail newsletters to over 700,000 subscribers. We also
distributed 31.2 million messages to more than 51,000 moderated e-mail
discussion list subscribers.
Our sales force is organized by geographic regions as follows: New England, New
York Metro, Mid-Atlantic/Southeast, Midwest, West, Canada, Europe and Israel.
Over 450 advertisers have placed advertisements on our network. For the six
months ended March 31, 1999, International Business Machines Corporation
accounted for 17% of our revenues, and our top 20 advertisers together accounted
for 50% of our revenues during the same period. Based on revenues, the following
were our largest 20 advertisers during the six months ended March 31, 1999:
Allaire Corporation
Apple Computer, Inc.
Ariel Corporation
Biztravel.com, Inc.
Dell Computer Corporation
Digital River, Inc.
Earthlink Networks, Inc.
GoTo.com, Inc.
Hewlett-Packard Company
Inktomi Corporation
International Business Machines
Lucent Technologies Inc.
Macromedia Inc.
Microsoft Corporation
Northern Telecom Limited
Oracle Corporation
OrderTrust LLC
Surfree.com Inc.
Transarc Corporation
Ubid, Inc.
E-COMMERCE SALES, LICENSING AND BUSINESS DEVELOPMENT. We offer e-commerce,
licensing and other business development arrangements to maximize the potential
of our proprietary content and community of Internet users. We identify
potential e-commerce vendors, licensees and other potential business development
opportunities and generally enter into contracts of six to 12 months' duration.
E-commerce agreements generally include a fixed fee for advertising as well as
revenue sharing of 10%
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to 50% of the sales made by the e-commerce vendor as a result of links from our
network. These activities are conducted by a staff of three employees separate
from our advertising sales force.
Licensing arrangements allow third parties to reproduce our editorial content
and brands either for print or online use. We are typically paid per-use in the
case of book and print rights, including reprints of articles published on our
network, and monthly in cases where our editorial content is published in
electronic form. We also offer our proprietary software for license to third
parties that offer services that are similar to, but do not compete with,
internet.com.
COMPETITION
We believe we compete on the basis of our brand recognition and our proprietary
content offerings and services focused solely on the Internet industry. We
believe that we are differentiated relative to our competitors due to our
vertical focus of providing content, community and commerce to Internet industry
and Internet technology professionals, Web developers and experienced Internet
users.
The market for Internet-based services is relatively new, intensely competitive
and rapidly changing. Since the advent of commercial services on the Internet,
the number of online services competing for users' attention and spending has
proliferated. We expect that competition will continue to intensify. We compete
with other companies which direct a portion of their overall Web content at the
Internet professional community, such as Ziff-Davis Inc.'s ZDNet, C/NET, CMP
Media Inc., EarthWeb Inc. and Wired Digital Inc. We also compete for circulation
and advertising impressions with general interest portal and destination Web
sites as well as traditional media.
Many of our current and potential competitors have longer operating histories,
larger customer bases, greater brand recognition and significantly greater
financial, marketing and other resources than we have. These competitors may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements and to devote greater resources to the development,
promotion and sale of their products and services than we can. The number of
companies competing for the attention and spending of our community of Internet
users has increased and we expect it to continue to increase. See "--Industry
Overview" and "Risk Factors--We face intense competition."
TECHNOLOGY AND OPERATIONS
We have developed an expandable operations infrastructure using open standard
hardware and software systems. We make our Web sites, e-mail newsletters, online
discussion forums and moderated e-mail discussion lists available using multiple
Sun Microsystems, Inc. and Wintel-based servers that run on Sun Solaris and
Microsoft NT operating systems. We license software from the following parties,
among others: Web and e-mail servers from Netscape; Web and database servers
from Microsoft Corporation; an advertising management system from NetGravity,
Inc.; a content management system from Vignette Corporation; a log and traffic
analysis system from net.Genesis Corp.; a streaming media server from
RealNetworks, Inc.; a spidering, content indexing, personalization and
categorization system from Autonomy, Inc.; and a firewall from Network
Associates Inc.
We maintain a data center with redundant production and staging servers. In the
event that all of the production servers fail, the staging servers are capable
of supporting our services. Our redundant Internet circuits are diversely routed
to different points within our providers' networks, so that interruptions will
be minimized if a failure in one network segment occurs. All of our servers are
powered by uninterruptible power supplies. In addition, all of our production
systems are copied to backup tapes each night and stored at an off-site storage
facility each business day. In the event of a disaster at the production
facility, arrangements are in place to resume production at an off-site center
maintained by International Business Machines. We maintain a quality assurance
process to constantly
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monitor our servers, processes and network connectivity. We have implemented
these redundancies and backup systems in order to minimize the risk associated
with damage from fire, power loss, telecommunications failure, break-ins,
computer viruses and other events beyond our control. See "Risk Factors--Our
systems are subject to damage from natural disasters, telecommunication
failures, electronic break-ins and similar problems."
INTELLECTUAL PROPERTY
We regard our content, logos, brands and software as proprietary and attempt to
protect them by relying on trademark, copyright, trade secret and other laws and
restrictions. We currently have no patents or patents pending and do not
anticipate that patents will become a significant part of our intellectual
property in the foreseeable future. We pursue the registration of our trademarks
and service marks in the United States and internationally, and have applied for
registration in the United States and numerous other countries for a number of
our trademarks and service marks. We also pursue copyright registration of our
content in the United States. We might not be able to obtain effective
trademark, copyright and trade secret protection in every country in which we
distribute our services or make them available through the Internet, and it is
difficult for us to police unauthorized use of our proprietary information. We
seek protection of our content, logos, brands and software relating to our Web
sites, e-mail newsletters, online discussion forums and moderated e-mail
discussion lists.
We have applied for registration of our trademarks and service marks in the
United States and in over 60 other countries. We have encountered obstacles to
registration of some marks in several of these countries.
We are opposing an application by IDG to register the trademark "internet.com"
in the United States Patent and Trademark Office. IDG has filed an intent-to-use
application that predates our applications to register this trademark for
substantially similar goods and services. We have, however, been using this
trademark for several years, and we believe that our actual use predates IDG's
intent-to-use application. The Patent and Trademark Office must decide whether
our actual use of the internet.com trademark predates the IDG intent-to-use
application date and whether such use amounts to actual trademark use. We
believe that we will be successful in opposing IDG's intent-to-use application
on these grounds, but there can be no guarantee of this outcome. If we are
unsuccessful in opposing IDG's intent-to-use application, IDG could limit the
scope of our use of the internet.com trademark, could use the internet.com
trademark simultaneously with our use or could charge a fee for such use,
although we would have the option of pursuing our rights in federal court in
that event.
Legal standards relating to the validity, enforceability and scope of protection
of proprietary rights in Internet-related businesses are uncertain and still
evolving. As a result, we cannot assure the future viability or value of our
proprietary rights. We might not have taken adequate steps to prevent the
misappropriation or infringement of our intellectual property. Any such
infringement or misappropriation, should it occur, might harm our business,
results of operations and financial condition. In addition, we may have to file
lawsuits in the future to perfect or enforce our intellectual property rights,
to protect our trade secrets or to determine the validity and scope of the
proprietary rights of others. These lawsuits could result in substantial costs
and divert our resources and the attention of our management. As a result, our
business, results of operations and financial condition would suffer.
Our business activities may infringe upon the proprietary rights of others, and
other parties might assert infringement claims against us. From time to time, we
have been, and expect to continue to be, subject to claims in the ordinary
course of our business including claims of alleged infringement of the
trademarks, service marks and other intellectual property rights of third
parties. If similar claims are
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made against us in the future, those claims and any resultant litigation might
subject us to liability for damages, result in invalidation of our proprietary
rights and, even if not meritorious, could be time consuming and expensive to
defend and could result in the diversion of our resources and the attention of
our management. As a result, our business, results of operations and financial
condition would suffer.
We generally obtain our content and some of our technology from our employees or
pursuant to work-for-hire arrangements. We also license technology and content
from third parties. In such license arrangements, we generally obtain
representations as to origin and ownership of such content and technology and
the licensors have generally agreed to defend, indemnify and hold us harmless
from any third party claims that such technology or content violates the rights
of another. We cannot be sure that these third party technology and content
protections will be effective or sufficient or that we will be able to maintain
such content or technology on commercially reasonable terms. As a result, our
business, results of operations and financial condition would suffer.
We have licensed in the past, and expect to license in the future, proprietary
rights, such as trademarks or copyrighted material, to third parties. While we
attempt to ensure that the quality of our brands and content are maintained by
such licensees, we cannot be sure that such licensees will not take actions that
might decrease the value of our brands, proprietary rights or reputation, which
would harm our business, prospects, financial condition and results of
operations.
DOMAIN NAMES
We own the Internet domain name "internet.com," as well as numerous other domain
names both in the United States and internationally. Domain names generally are
regulated by Internet regulatory bodies. The regulation of domain names in the
United States and in foreign countries is subject to change. Regulatory bodies
could establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names. As a result, we
might not acquire or maintain the "internet.com" or comparable domain name in
all the countries in which we conduct business.
The relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear and still evolving.
Therefore, we might be unable to prevent third parties from acquiring domain
names that infringe or otherwise decrease the value of our trademarks and other
proprietary rights. See "Risk Factors--Regulation could reduce the value of our
domain names."
EMPLOYEES
The following table sets forth a breakdown of our employees as of April 30,
1999:
<TABLE>
<CAPTION>
NUMBER OF
EMPLOYEES
-------------
<S> <C>
Editorial........................................................................... 33
Marketing and sales................................................................. 35
Technology and operations........................................................... 19
Administration...................................................................... 10
---
Total........................................................................... 97
---
---
</TABLE>
We have never had a work stoppage and no personnel are represented under
collective bargaining agreements. We consider our relations with our personnel
to be good.
FACILITIES
Our principal administrative, editorial, sales, marketing and information
technology facilities are located in Westport, Connecticut and are rented from
Penton Media. See "Certain Transactions." We believe that our current facilities
will be adequate to meet our needs for the foreseeable future.
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The following table sets forth a summary of our leased and subleased office
facilities as of April 30, 1999:
<TABLE>
<CAPTION>
LOCATION SQUARE FEET LEASED THROUGH
- --------------------------------------------------------------- ------------- ------------------
<S> <C> <C>
Westport, Connecticut.......................................... 7,000 December 1999
New York, New York............................................. 3,400 November 2000
Burlingame, California......................................... 1,800 December 2000
Ann Arbor, Michigan............................................ 1,000 December 2000
Lexington, Kentucky............................................ 1,000 December 1999
</TABLE>
LEGAL PROCEEDINGS
We are engaged in trademark opposition proceedings before trademark offices in
the United States and other jurisdictions, including our opposition to the
application of IDG to register the mark "internet.com." Our opposition to IDG's
application was filed with the Trademark Trial and Appeal Board of the U.S.
Patent and Trademark Office in September 1998. See "Business--Intellectual
Property."
Messrs. Alan M. Meckler and Christopher S. Cardell, who are shareholders,
executive officers and directors of internet.com, were shareholders, executive
officers and directors of Mecklermedia Corporation prior to its acquisition by
Penton Media in November 1998. In addition, Messrs. Gilbert F. Bach and Michael
J. Davies, who will become directors of internet.com upon the closing of this
offering, were directors of Mecklermedia Corporation prior to the acquisition by
Penton Media. A complaint seeking class action status was filed in Delaware
Chancery Court on June 16, 1999 by a former shareholder of Mecklermedia
Corporation alleging that Messrs. Meckler, Cardell, Bach and Davies, as well as
the other directors of Mecklermedia Corporation, breached their fiduciary duties
of care, candor and loyalty in connection with the approval of the sale of
Mecklermedia Corporation to Penton Media at the price paid by Penton Media and
the related sale of 80.1% of the Internet business of Mecklermedia Corporation
to Mr. Meckler at the price paid by Mr. Meckler. See "Certain
Transactions--Formation Transactions." Among other things, this plaintiff has
alleged that the price paid by Penton Media for the purchase of Mecklermedia
Corporation, and the price paid by Mr. Meckler for an 80.1% stake in the
Internet business of Mecklermedia Corporation, were inadequate. This former
shareholder of Mecklermedia Corporation has asserted claims for unspecified
damages. The plaintiff also named internet.com Corporation as a defendant
seeking that a constructive trust be established consisting of any benefits
derived by the defendants in respect of the allegations set forth in the
complaint and other relief. All of the defendants, including internet.com and
Messrs. Meckler, Cardell, Bach and Davies, deny such allegations and intend to
vigorously defend themselves.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our executive
officers, directors and nominees for election to our board:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
Alan M. Meckler 53 Director, Chairman and Chief Executive Officer
Christopher S. Cardell 39 Director, President and Chief Operating Officer
Christopher J. Baudouin 32 Chief Financial Officer
Gilbert F. Bach(1) 67 Director
Michael J. Davies(1) 54 Director
</TABLE>
- ------------------------------------
(1) Will become a director on our board and a member of the compensation and
audit committees of our board upon the closing of this offering.
OTHER MANAGEMENT EMPLOYEES
The following table sets forth the names and positions of other management
employees:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
Christopher S. Elwell 38 Vice President and General Manager
Susan F. Leiterstein 47 Vice President and Publisher
Augustine Venditto 43 Editor-in-Chief
Mark J. Berns 45 Chief Technology Officer
David M. Arganbright 57 Vice President of Commerce and Licensing
Mitchell S. Eisenberg 35 General Counsel
</TABLE>
ALAN M. MECKLER has been a director, Chairman of the Board and Chief Executive
Officer of internet.com since its inception. Previously, Mr. Meckler had been
Chairman of the Board and Chief Executive Officer of Mecklermedia since December
1993 and had been President and a director from 1971 through November 1997. Mr.
Meckler also held the office of Chairman of the Board of Mecklermedia since
1971, and was the only person to have held the offices of Chairman of the Board
or Chief Executive Officer since Mecklermedia's founding.
CHRISTOPHER S. CARDELL has been a director, President and Chief Operating
Officer of internet.com since its inception. Previously, Mr. Cardell was
President and Chief Operating Officer of Mecklermedia since November 1997, and a
director since February 1997. Prior to November 1997, Mr. Cardell held the
office of Executive Vice President, Chief Operating Officer and Chief Financial
Officer of Mecklermedia. He joined Mecklermedia as Senior Vice President and
Chief Financial Officer in January 1996. Prior to that time, Mr. Cardell was a
Senior Manager with Arthur Andersen LLP.
CHRISTOPHER J. BAUDOUIN has been Chief Financial Officer of internet.com since
its inception. Mr. Baudouin served as Chief Financial Officer of Mecklermedia
since June 1998. He joined Mecklermedia as Controller in June 1997. Prior to
that time, Mr. Baudouin was a Manager with Arthur Andersen LLP.
GILBERT F. BACH will become a director of internet.com upon its conversion to a
corporation immediately before the closing of this offering. Mr. Bach retired on
January 1, 1997 from Lehman Bros., where he held various positions from 1979
through 1996, most recently as a Managing Director. From 1955 to 1979, Mr. Bach
held various positions at Hirsch & Co. and Loeb Rhoades & Co. Mr. Bach was also
a director of Mecklermedia from February 1997 until it was acquired by Penton
Media in November 1998.
MICHAEL J. DAVIES will become a director of internet.com upon its conversion to
a corporation immediately before the closing of this offering. Mr. Davies has
been President of Fox Hill Consulting LLC since February 1998 and a director of
PROVANT Inc. since April 1998. He was a special limited
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partner with American Business Partners from July 1997 to April 1998. Prior to
that he was a Managing Director, Corporate Finance, of the investment bank Legg
Mason Wood Walker, Incorporated since 1993. Before joining Legg Mason, Mr.
Davies was the Publisher of the Baltimore Sun between 1990 and 1993. Mr. Davies
was also a director of Mecklermedia from January 1996 until it was acquired by
Penton Media in November 1998.
CHRISTOPHER S. ELWELL has been Vice President and General Manager of
internet.com and its predecessor business since January 1997. Mr. Elwell is
responsible for the editorial, sales and marketing operations of internet.com.
Mr. Elwell was employed at Cowles Business Media Company's Simba Information
division, a publisher of newsletters and market research about the media
industry from January 1991 to December 1996, most recently as the Publisher.
Prior to becoming the Publisher, Mr. Elwell served in a variety of editorial,
product development and management roles.
SUSAN F. LEITERSTEIN has been Vice President and Publisher for internet.com and
its predecessor business since February 1997. Ms. Leiterstein is responsible for
developing and implementing strategies for building the advertising sales force
and continuing the constant growth of sales revenue. Ms. Leiterstein came to
internet.com from Cowles Business Media Company where she was responsible for
small space advertising for both traditional and online media from October 1994
to January 1997. She was the Vice President and Publisher of The McGraw-Hill
Companies Sweet's Group from July 1989 to June 1994.
AUGUSTINE VENDITTO has been editor-in-chief of internet.com and its predecessor
business since January 1998. He has been writing about computers since 1984 and
is best known for his columns and articles in INTERNET WORLD, PC MAGAZINE, HOME
PC, and PC WEEK. In 1992, he was the founding editor-in-chief of Ziff-Davis'
WINDOWS SOURCES magazine. He is the author of six books and over 300 magazine
articles. Mr. Venditto began his career in 1977 with the Scott Meredith Literary
Agency.
MARK J. BERNS has served as Chief Technology Officer of internet.com since its
inception. Mr. Berns was Director of Information Technology for Mecklermedia
from July 1998 through November 1998. Prior to that, Mr. Berns was the
Technology Manager responsible for Internet development at The Associated Press
from October 1995 to June 1998. Mr. Berns also served as Director of Product
Development in The Associated Press's Technology Department, where he was
responsible for development and support of a number of news delivery services
from June 1992 to September 1995.
DAVID M. ARGANBRIGHT has been Vice President of Commerce and Licensing of
internet.com and its predecessor business since June 1998. He initiated and is
responsible for internet.com's Commerce Affiliates Program. Prior to joining
internet.com, Mr. Arganbright was President of Grolier Interactive, a division
of the Lagardere Group's Grolier, Inc. and publisher of the GROLIER MULTIMEDIA
ENCYCLOPEDIA from October 1985 to February 1998. Prior to joining Grolier, Mr.
Arganbright held senior level general management and marketing positions at
Philips Electronics and the RCA Corporation.
MITCHELL S. EISENBERG has served as General Counsel of internet.com since its
inception. In addition to overseeing all of internet.com's legal matters, he is
active in developing license and other e-commerce agreements. Previously, Mr.
Eisenberg was General Counsel to Mecklermedia since January 1997. Prior to that
time, Mr. Eisenberg was Commercial Counsel to Framatome Connectors USA, Inc.
from January 1994 to December 1996.
BOARD OF DIRECTORS AND BOARD COMMITTEES
Our board of directors will be comprised of four directors upon the closing of
this offering. Directors are elected by the stockholders at each annual meeting
of stockholders and serve until their successors are duly elected and qualified.
All executive officers are elected by, and serve at the discretion of, the board
of directors.
The audit committee has the responsibility to review audited financial
statements and accounting practices of internet.com, and to consider and
recommend the employment of, and approve the fee arrangements with, independent
accountants for both audit functions and for advisory and other
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consulting services. Upon the closing of this offering, the audit committee will
be comprised of Messrs. Bach and Davies.
The compensation committee reviews and approves the compensation and benefits
for our key executive officers, administers our employee benefit plans and makes
recommendations to the board regarding such matters. Upon the closing of this
offering, the compensation committee will be comprised of Messrs. Bach and
Davies.
DIRECTOR COMPENSATION
Directors of internet.com who are also employees or officers of internet.com do
not receive any compensation specifically related to their activities as
directors, other than reimbursement for expenses incurred in connection with
their attendance at board meetings. Other directors will be paid an annual
stipend of $4,000. For each board meeting they attend, these other directors
will receive $1,000 and will be reimbursed for their expenses incurred in
connection with the meeting. In addition, each of these other directors will
receive, upon becoming a director, options for 5,000 shares of common stock,
which vest over a period of three years. Each of these other directors will also
receive options for 1,000 shares of common stock, which also vest over a period
of three years, for each year of service as a director. See "--1999 Stock
Incentive Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to this offering, our board did not have a compensation committee.
Compensation decisions were made by Mr. Meckler. Upon completion of this
offering, the compensation committee will make all compensation decisions. No
interlocking relationship exists between the board or compensation committee and
the board of directors or compensation committee of any other company, nor has
any such interlocking relationship existed in the past.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
Each of Christopher S. Cardell and Christopher J. Baudouin has an employment
agreement with internet.com which provides for severance pay equal to one year
and six months, respectively, of his annual salary if his employment with
internet.com is terminated. Pursuant to our 1999 Stock Incentive Plan, the
vesting of stock options will be accelerated upon certain changes of control of
internet.com.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth, for the period from
inception (November 24, 1998) through December 31, 1998, cash and certain other
compensation paid or accrued by internet.com for the Chief Executive Officer of
internet.com in all capacities in which he served. The table also sets forth
cash and certain other compensation paid to or accrued by internet.com for the
period from inception through December 31, 1998 for the President and Chief
Operating Officer and the Chief Financial Officer of internet.com.
SUMMARY COMPENSATION TABLE
PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY($) OTHER ANNUAL COMPENSATION
- ---------------------------------------------------------------- --------- ----------- ---------------------------
<S> <C> <C> <C>
Alan M. Meckler................................................. 1998 12,164(1) --
Chairman and Chief Executive Officer
Christopher S. Cardell.......................................... 1998 17,740(2) --
President and Chief Operating Officer
Christopher J. Baudouin......................................... 1998 12,164(3) --
Chief Financial Officer
</TABLE>
- ------------------------------------
(1) Mr. Meckler's current annual salary is $120,000.
(2) Mr. Cardell's current annual salary is $175,000.
(3) Mr. Baudouin's current annual salary is $120,000.
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<PAGE>
1999 STOCK INCENTIVE PLAN
On April 15, 1999, we adopted the internet.com Corporation 1999 Stock Incentive
Plan. We will issue options to purchase 510,500 shares of our common stock to
our directors, officers and employees concurrently with the closing of this
offering. The exercise price of options granted under the 1999 Stock Incentive
Plan will not be less than the fair market value of the shares of our common
stock on the date of grant. The purpose of the plan is to provide stock-based
incentive compensation to these individuals to further align their interests
with the interests of our stockholders. We have reserved 2,000,000 shares of
common stock for issuance pursuant to the exercise or vesting of awards under
the plan.
The plan allows for the discretionary grant of restricted stock, non-qualified
stock options, incentive stock options as defined in Section 422 of the Internal
Revenue Code of 1986, as amended, and other stock-based awards. In addition, the
plan provides for the automatic grant of non-qualified stock options to our
directors who are not also employees or officers of internet.com. Only
directors, key employees and consultants may receive discretionary awards under
the plan.
The plan will be administered by the compensation committee of our board of
directors. The compensation committee will make the determination with respect
to the discretionary awards under the plan, including which eligible individuals
are to receive awards under the plan and the specific terms, vesting conditions,
if any, and number of shares of stock to which each award relates.
The compensation committee may grant awards with different terms and conditions.
The compensation committee can also accelerate the vesting of outstanding awards
and can reprice any option at any time. At the time options are granted, the
compensation committee will set the price at which options can be exercised to
purchase shares of common stock.
Option holders will not have any rights as stockholders until and to the extent
they have exercised their options. The exercise price for options may either be
paid in cash or check or, at the discretion of the compensation committee, by
tendering shares having a value equal to the exercise price. The number of
shares of common stock covered by awards will be adjusted in the event of any
stock split, merger, recapitalization or similar corporate event.
The board of directors may terminate or amend the stock plan at any time, except
that the board may not, without the approval of our stockholders, increase the
maximum number of shares for which options may be granted under the stock plan
or expand the class of individuals eligible to participate in the plan.
Immediately after this offering, we intend to file a registration statement
under the Securities Act covering the 2,000,000 shares of common stock reserved
for issuance under the plan. See "Shares Eligible for Future Sale--Stock
Options."
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INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our Amended and Restated Certificate of Incorporation will include a provision
that eliminates the personal liability of our directors for monetary damages for
breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to internet.com or
its stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; and
- for any transaction from which the director derived an improper
personal benefit.
Our Amended and Restated Certificate of Incorporation will also provide that:
- we must indemnify our directors, officers, other employees and
agents to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions; and
- we must pay expenses of our directors, and may pay expenses of our
officers, other employees, agents or trustees, incurred in
connection with a legal proceeding before the final disposition of
such proceeding.
These provisions are permitted under the Delaware General Corporation Law. In
addition, our Bylaws provide that we must indemnify our directors and officers
to the fullest extent permitted by the Delaware General Corporation Law.
Prior to the completion of this offering, we intend to enter into indemnity
agreements with each of our directors and executive officers to give them
additional contractual assurances regarding the scope of the indemnification
described above and to provide additional procedural protections. In addition,
we intend to obtain directors' and officers' insurance providing indemnification
for our directors, officers and management employees for liabilities arising as
a result of their employment at internet.com. We believe that these
indemnification provisions and agreements are necessary to attract and retain
qualified directors and officers.
The limitation of liability and indemnification provisions in our Amended and
Restated Certificate of Incorporation and Bylaws may discourage stockholders
form bringing a lawsuit against directors for breach of their fiduciary duty.
They may also reduce the likelihood of derivative litigation against directors
and officers, even though such an action, if successful, might otherwise benefit
us and our stockholders. Furthermore, a stockholder's investment may be
adversely affected to the extent we pay the costs of settlement and damage
awards against directors and officers pursuant to these indemnification
provisions.
Except as otherwise described in this prospectus, there is at present no pending
litigation or proceeding involving any of our directors, officers or employees
regarding which indemnification is sought, nor are we aware of any threatened
litigation that may result in claims for indemnification. See "Business-- Legal
Proceedings."
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CERTAIN TRANSACTIONS
FORMATION TRANSACTIONS
internet.com LLC was formed as part of the acquisition of Mecklermedia
Corporation by Internet World Media, a wholly-owned subsidiary of Penton Media
(a publicly-owned corporation). During the negotiation of this acquisition,
Penton Media indicated that it did not wish to retain all of iWorld Corporation,
Mecklermedia's Internet business, because it believed that the Internet business
was inconsistent with its planned strategic direction. However, Penton Media
indicated that it wanted Internet World Media to maintain a minority interest in
the Internet business due to its belief that the Internet business had the
potential to become profitable in the future. As a result, Alan M. Meckler,
Mecklermedia's Chairman and Chief Executive Officer, agreed to purchase an 80.1%
interest in the Internet business from Internet World Media for a total of $18.0
million in cash immediately following the acquisition of Mecklermedia by
Internet World Media. On November 24, 1998, Mecklermedia was acquired by
Internet World Media in an all-cash tender offer. Following its purchase of
Mecklermedia, Internet World Media caused iWorld Corporation to be merged into
internet.com LLC, a newly-formed Delaware limited liability company. Internet
World Media then sold 80.1% of its membership interest in internet.com to Alan
M. Meckler (including four trusts for the benefit of his children) for a total
of $18.0 million in cash and a warrant valued at $284,000. Internet World Media
retained a 19.9% interest in internet.com LLC and a warrant to acquire up to an
additional 128 membership units in internet.com LLC (representing 2,075,634
shares of our common stock) for up to $3.0 million. For accounting purposes, the
warrant has been valued at $284,000 which reflects the present value of the
strike price using a risk free rate of return over a three year term, as
compared to the cash price per share paid to Penton Media. The following chart
summarizes the organizational events from the acquisition of Mecklermedia by
Penton Media to the closing of this offering:
[LOGO]
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In March 1999, internet.com sold additional membership units to Internet World
Media and to several additional investors, some of whom are employees, officers
or directors of internet.com. In addition, in March 1999, we granted 49.33, or
4%, of internet.com's total membership units at the time (assuming full
dilution, including the exercise of the Internet World Media warrant) to 15 of
our employees. The following table summarizes the number of units sold in March
1999, the number of shares of internet.com Corporation common stock into which
those units will be converted immediately prior to the consummation of this
offering, and the resulting price per share:
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK PRICE PER SHARE ASSUMING
NUMBER OF UNITS SOLD UPON CONVERSION CONVERSION
- --------------------- ----------------------- -------------------------
<S> <C> <C>
56.02 908,475 $ 2.47
</TABLE>
The units purchased by Internet World Media and by our employees, officers and
directors in this transaction were purchased at the same price as the price we
negotiated with our four unaffiliated new investors. Christopher S. Cardell, our
President and Chief Operating Officer, purchased 3.75 of these units, which will
convert to 60,810 shares of internet.com Corporation common stock at a price of
$2.47 per share, assuming conversion. Christopher J. Baudouin, our Chief
Financial Officer, purchased 0.88 of these units, which will convert to 14,189
shares of internet.com Corporation common stock at a price of $2.47 per share,
assuming conversion. The remaining employees purchased in the aggregate 5.875 of
these units, which will convert to 95,268 shares of our common stock at a price
of $2.47 per share, assuming conversion.
The following table summarizes the number of units granted to our employees in
March 1999, the number of shares of internet.com Corporation common stock into
which those units will be converted immediately prior to the consummation of
this offering and the resulting value per share:
<TABLE>
<CAPTION>
TOTAL VALUE OF GRANTS
NUMBER OF UNITS SHARES OF COMMON STOCK ASSUMING $11.00 PER
GRANTED UPON CONVERSION SHARE
- --------------------- ----------------------- ------------------------
<S> <C> <C>
49.33 800,000 $ 8,800,000
</TABLE>
Christopher S. Cardell, our President and Chief Operating Officer, was granted
18.50 of these units, which will convert to 300,000 shares of internet.com
Corporation common stock at a total value of $3.3 million, assuming a value of
$11.00 per share. Christopher J. Baudouin, our Chief Financial Officer, was
granted 3.47 of these units, which will convert to 56,250 shares of internet.com
Corporation common stock at a total value of $618,750, assuming a value of
$11.00 per share. The remaining employees were granted in the aggregate 27.36 of
these units, which will convert to 443,750 shares of our common stock at a total
value of $4.9 million, assuming a value of $11.00 per share.
LIMITED LIABILITY COMPANY AGREEMENT. On November 24, 1998, Mr. Meckler and
Internet World Media entered into an Amended and Restated Limited Liability
Company Agreement governing internet.com LLC. Membership interests in
internet.com LLC are represented by membership units in the records of
internet.com LLC. As discussed above, additional membership units in
internet.com LLC were sold and granted after November 24, 1998, and a Second
Amended and Restated Limited Liability Company Agreement was entered into in
March 1999, which included as members the holders of the membership units issued
after November 24, 1998. This agreement also contains provisions relating to,
among other things, the management of internet.com LLC, allocations of profits
and losses, transfer restrictions, anti-dilution provisions and rights of first
refusal. In addition, this agreement contains provisions entitling the members
of internet.com LLC to participate in the proposed sale by another member of all
or part of its membership units to a third party. Furthermore, pursuant to this
agreement, Mr. Meckler is entitled to require all other members to sell all or
part of their membership units to a
56
<PAGE>
proposed third-party purchaser of Mr. Meckler's membership units. In both of the
foregoing cases, the number of units which each member would have the right to
sell or would be required to sell, as applicable, would be determined pro-rata
based on the number of membership units initially proposed to be sold. This
agreement will be of no further force and effect upon the conversion of
internet.com LLC to a corporation immediately prior to the closing of this
offering.
WARRANT AGREEMENT. On November 24, 1998, we issued a warrant to Internet World
Media to acquire up to 128 additional membership units in internet.com LLC for
up to $3.0 million. Upon the conversion of internet.com LLC into a corporation,
this warrant will entitle Internet World Media to purchase up to 2,075,634
shares of our common stock at an exercise price of approximately $1.45 per
share. Internet World Media has informed us that it intends to exercise this
warrant prior to the closing of this offering of common stock. As a result of
such exercise, following this offering, Internet World Media will hold 5,483,383
shares of our common stock, or approximately 23.4% of the total shares of our
common stock which will be outstanding immediately following this offering
(assuming the underwriters do not exercise their over-allotment option). If
Internet World Media does not exercise its warrant prior to the consummation of
this offering, the warrant will expire upon consummation of this offering.
REGISTRATION RIGHTS AGREEMENT. On November 24, 1998, we entered into a
registration rights agreement with Internet World Media. Internet World Media
has "piggyback" registration rights if we register any of our equity securities
under the Securities Act following the offering of common stock made by this
prospectus. For a further discussion of these registration rights, see
"Description of Capital Stock-- Registration Rights."
SERVICES AGREEMENT. On November 24, 1998, we entered into a Services Agreement
with Penton Media and Internet World Media. Penton Media and Internet World
Media provide us with a royalty-free license to use intellectual property and
promotional, advertising and display rights, and we provide to Penton Media and
Internet World Media, a royalty-free license to use intellectual property,
advertising rights on our network of Web sites and related Internet media
properties and the inclusion of back issues of INTERNET WORLD AND BOARDWATCH
print publications on our network. See "Business--Marketing and Sales."
TRADEMARK CO-LICENSE AGREEMENT. On November 24, 1998, we entered into a
Trademark Co-License Agreement with Internet World Media. Internet World Media
provides us with a royalty-free license to use several of its trademarks in
connection with our inclusion of those trademarks on our network. We provide
Internet World Media with a royalty-free license to use several of our
trademarks in Internet World Media's INTERNET WORLD, BOARDWATCH and DIRECTORY OF
INTERNET SERVICE PROVIDERS print publications, at Internet World Media's
Internet World and ISPCON trade shows and conferences and in promotional
materials for those print publications, trade shows and conferences.
COPYRIGHT CO-LICENSE AGREEMENT. On November 24, 1998, we entered into a
Copyright Co-License Agreement with Internet World Media. Internet World Media
provides us with a royalty-free license to use several of its copyrights in
connection with our inclusion of those copyrights and material protected by
those copyrights on our network. We provide Internet World Media with a
royalty-free license to use several of our copyrights and the material protected
by those copyrights in Internet World Media's INTERNET WORLD, BOARDWATCH and
DIRECTORY OF INTERNET SERVICE PROVIDERS print publications.
REORGANIZATION TRANSACTIONS
Immediately prior to the closing of this offering, we will convert our business
form to a corporation. We will effect the reorganization by merging internet.com
LLC into a newly-formed Delaware corporation called internet.com Corporation. In
connection with this reorganization, our Operating
57
<PAGE>
Agreement will terminate. Each member of internet.com LLC will receive shares of
our common stock in exchange for his or her membership units at a rate of
16,215.891 shares per membership unit. For more information on the stock
ownership after the reorganization of those members who are officers, directors
or greater than 5% stockholders of internet.com, see "Principal and Selling
Stockholders."
OFFICE LEASES
Since November 24, 1998, internet.com has occupied space in Penton Media
facilities in Westport, Connecticut to house our corporate headquarters and in
Burlingame, California to house a portion of our sales force. Rent expense was
$22,000 for the use of these locations for the period from inception (November
24, 1998) through March 31, 1999. We are obligated to pay a proportionate share
of all electricity, heating, ventilation and air conditioning costs for these
premises. These leases are governed by the Services Agreement between
internet.com and Penton Media; we have not executed separate leases with Penton
Media regarding these premises.
VENTURE CAPITAL FUND
We organized and are the portfolio manager of internet.com Venture Fund I LLC, a
$5.0 million venture capital fund formed on April 12, 1999, that invests in
early-stage content-based Internet properties that are not competitive with
internet.com. We earn management fees for the day to day operation and general
management of the fund. We also earn a percentage of the realized gains on
investments made by this fund. We committed to invest $600,000 in this fund at
its inception.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of April 30, 1999 and as adjusted to
reflect the sale of the shares of common stock offered hereby by: (a) each
person who is known by internet.com to own beneficially more than 5% of our
common stock, (b) each director and director nominee of internet.com, (c) each
Named Executive Officer of internet.com and (d) all executive officers and
directors of internet.com as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY
OWNED(1)(2)(3)
------------------------
NUMBER OF PRIOR TO AFTER
NAME OF BENEFICIAL OWNER SHARES OFFERING OFFERING
- ----------------------------------------------------------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
Alan M. Meckler.............................................................. 12,907,850(4) 64.5% 55.2%
Penton Media, Inc.
1100 Superior Avenue, N.E.
Cleveland, Ohio 44114........................................................ 5,483,383 (5) 27.4 23.4
Christopher S. Cardell....................................................... 441,889 2.2 1.9
Gilbert F. Bach(6)........................................................... -- -- --
Michael J. Davies(6)......................................................... -- -- --
Christopher J. Baudouin...................................................... 70,439 * *
All executive officers and directors as a group (five persons)............... 13,420,178 67.1% 57.4%
</TABLE>
- ---------------------------------------------
* Represents beneficial ownership of less than 1%.
(1) Percentage ownership is based on 20,000,000 shares outstanding as of April
30, 1999, assuming the conversion of internet.com from a limited liability
company into a corporation (which is to occur immediately prior to the
effectiveness of this offering) had occurred as of such date. Shares of
common stock subject to options currently exercisable or exercisable within
60 days of April 30, 1999 are deemed outstanding for the purpose of
computing the percentage ownership of the person holding such options but
are not deemed outstanding for computing the percentage ownership of any
other person. Unless otherwise indicated below, the persons and entities
named in the table have sole voting and sole investment power with respect
to all shares beneficially owned by them, subject to community property laws
where applicable.
(2) Assumes exercise by Internet World Media, a wholly-owned subsidiary of
Penton Media, of a warrant to purchase up to 2,075,634 shares. See "Certain
Transactions."
(3) Assumes the underwriters do not exercise their over-allotment option to
purchase up to 510,000 shares from Internet World Media.
(4) Includes 1,443,214 shares held in trusts established for the benefit of Mr.
Meckler's four children. Mr. Meckler exercises investment control over these
trusts.
(5) Penton Media's beneficial ownership set forth above is based on the record
ownership of these shares by Internet World Media which is a wholly-owned
subsidiary of Penton Media.
(6) Will become a director upon the closing of this offering.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, we will have authorized capital stock
consisting of 75,000,000 shares of common stock, $0.01 par value per share, and
4,000,000 shares of preferred stock, $0.01 par value per share. As of March 31,
1999, assuming the conversion of our business form into a corporation, the
simultaneous conversion of limited liability company membership units into
shares of common stock and the exercise by Internet World Media of a warrant to
purchase up to 2,075,634 shares of common stock, there were outstanding
20,000,000 shares of common stock, each with a par value of $0.01, held of
record by 25 stockholders.
The following description of internet.com's Amended and Restated Certificate of
Incorporation, Bylaws and the Registration Rights Agreement is only a summary,
and does not purport to be complete. For a full understanding of these documents
and the terms of our capital stock, you should read the original documents,
which are included as exhibits to the registration statement of which this
prospectus forms a part.
COMMON STOCK
Subject to preferences that may be applicable to any preferred stock outstanding
at the time, the holders of outstanding shares of common stock are entitled to
receive dividends out of assets legally available therefor at such times and in
such amounts as the board from time to time may determine. Holders of common
stock are entitled to one vote for each share held on all matters submitted to a
vote of shareholders. Cumulative voting for the election of directors is not
authorized by internet.com's Amended and Restated Certificate of Incorporation,
which means that the holders of a majority of the shares voted can elect all of
the directors then standing for election. The common stock is not entitled to
preemptive rights and is not subject to conversion or redemption. Upon
liquidation, dissolution or winding up of internet.com, the assets legally
available for distribution to stockholders are distributable ratably among the
holders of the common stock after payment of liquidation preferences, if any, on
any outstanding preferred stock and payment of other claims of creditors. Each
outstanding share of common stock is, and all shares of common stock to be
outstanding upon completion of this offering will upon payment therefor be, duly
and validly issued, fully paid and nonassessable.
PREFERRED STOCK
The board is authorized, subject to any limitations prescribed by the Delaware
General Corporation Law, to issue preferred stock in one or more series. The
board can fix the rights, preferences and privileges of the shares of each
series and any qualifications, limitations or restrictions thereon.
The board may authorize the issuance of preferred stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of common stock. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, have the effect of delaying, deferring or
preventing a change in control of internet.com. We have no current plans to
issue any shares of preferred stock. See "Risk Factors--Our charter documents
and the Delaware General Corporation Law may inhibit a takeover."
WARRANTS
On November 24, 1998, we issued a warrant to Internet World Media which will
entitle Internet World Media to acquire additional shares of common stock prior
to the closing of this offering. See "Certain Transactions--Formation
Transactions--Warrant Agreement."
60
<PAGE>
REGISTRATION RIGHTS
We entered into a Registration Rights Agreement with Internet World Media at the
closing of the acquisition of Mecklermedia by Internet World Media. Internet
World Media has piggyback registration rights if we register any of our equity
securities under the Securities Act of 1933, as amended, other than the common
stock offered by this prospectus, securities relating to employee benefits
plans, securities registered pursuant to Rule 145 of the Securities Act of 1933,
as amended, in connection with reclassifications, mergers, acquisitions and
asset transfers and registrations which do not permit secondary sales. If we
register additional equity securities in the future, Internet World Media will
have the right to have all or a part of its internet.com common stock included
in the registration, including any shares of common stock acquired by Internet
World Media by the exercise of its warrant. However, the managing underwriter,
if any, of any such offering has the right to limit the number of securities
that Internet World Media may include in such registration if the managing
underwriter determines that marketing factors require such a limitation.
Internet World Media is entitled to unlimited piggyback registrations.
We would bear all registration expenses incurred in connection with these
registrations. Internet World Media would pay all underwriting discounts and
selling commissions applicable to the sale of its securities.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
EFFECT OF DELAWARE ANTI-TAKEOVER STATUTE. We are subject to Section 203 of the
Delaware General Corporation Law, which, subject to certain exceptions,
prohibits a publicly held Delaware corporation from engaging in any "business
combination" with any "interested stockholder" for a period of three years
following the date that such stockholder became an interested stockholder,
unless:
- prior to such date, the board of directors of the corporation
approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the
stockholder becoming an interest stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced; and
- on or subsequent to such date, the business combination is approved
by the board of
directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote
of at least 66 2/3% of the outstanding voting stock that is not
owned by the interested stockholder.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the
interested stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of
the assets of the corporation involving the interested stockholder;
- subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested
stockholder; and
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<PAGE>
- the receipt by the "interested stockholder" of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
In general, Section 203 defines an interested stockholder as an entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
This statute could prohibit or delay mergers or other takeover or
change-in-control attempts with respect to internet.com and, accordingly, may
discourage attempts to acquire us.
Our Bylaws provide that any action required or permitted to be taken by our
stockholders at an annual meeting or special meeting may only be taken if it is
properly brought before such meeting. The Amended and Restated Certificate of
Incorporation and the Bylaws provide that special meetings of the stockholders
may only be called by the Chairman of the board, the Chief Executive Officer,
the board or by the President, who will call a meeting at the request of any
stockholder or stockholders holding together at least a majority of the
outstanding voting stock. Such provisions may have the effect of delaying or
preventing a change-in-control.
The board is authorized, subject to any limitations prescribed by the Delaware
General Corporation Law, to issue preferred stock in one or more series. The
board can fix the rights, preferences and privileges of the shares of each
series and any qualifications, limitations or restrictions thereon. The board
may authorize the issuance of preferred stock with voting or conversion rights
that could adversely affect the voting power or other rights of the holders of
common stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, have the effect of delaying, deferring or preventing a change in
control of internet.com.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS. Our
Amended and Restated Certificate of Incorporation and our Bylaws limit liability
of directors to the fullest extent permitted by the Delaware General Corporation
Law. See "Indemnification of Directors and Executive Officers and Limitation of
Liability."
TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar for our common
stock is American Stock Transfer and Trust Company. Its address is 40 Wall
Street, New York, New York 10005, and its telephone number at this location is
(212) 936-5100.
LISTING. Our common stock has been approved for listing on the Nasdaq National
Market under the trading symbol "INTM."
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, we will have outstanding an aggregate
23,400,000 shares of our common stock, assuming no exercise of outstanding
options. Of these shares, all of the shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act of
1933, as amended, unless such shares are purchased by "affiliates" as that term
is defined in Rule 144 under the Securities Act of 1933, as amended. The
remaining 20,000,000 shares of common stock held by existing stockholders are
"restricted securities" as that term is defined in Rule 144 under the Securities
Act of 1933, as amended. Restricted securities may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rule 144 or 701 promulgated under the Securities Act of 1933, as amended, which
rules are summarized below.
As a result of the contractual restrictions described below and the provisions
of Rule 144 and 701, the restricted securities will be available for sale in the
public market on the date which is one year from the date of the effectiveness
of the registration statement of which this prospectus forms a part, subject to
the volume limitations and other conditions of Rule 144.
LOCK-UP AGREEMENTS. Our officers, directors and all of our remaining
stockholders have signed lock-up agreements under which they agreed not to
transfer or dispose of, directly or indirectly, any shares of common stock or
any securities convertible into or exercisable or exchangeable for shares of
common stock, for a period of 180 days after the date of this prospectus,
subject to certain exceptions. Transfers or dispositions can be made sooner with
the prior written consent of U.S. Bancorp Piper Jaffray Inc.
RULE 144. In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this Prospectus, a person who has beneficially owned shares of
our common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which
will equal 234,000 shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
us.
RULE 144(K). Under Rule 144(k), a person who is not deemed to have been one of
our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
RULE 701. In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors who purchase shares from
us in connection with a compensatory stock or option plan or other written
agreement is eligible to resell such shares 90 days after the effective date of
this offering in reliance on Rule 144, but without compliance with certain
restrictions, including the holding period, contained in Rule 144.
REGISTRATION RIGHTS. Upon completion of this offering, Internet World Media,
which will (assuming the exercise of its warrant but assuming no exercise of the
underwriters' over-allotment option) hold
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<PAGE>
5,483,383 shares of our common stock, or its transferees, will be entitled to
rights with respect to the registration of such shares under the Securities Act
of 1933, as amended, if we register additional equity securities under the
Securities Act. See "Description of Capital Stock--Registration Rights." After
such a registration, any shares registered would become freely tradable without
restriction under the Securities Act of 1933, as amended. Internet World Media
would then not have any obligation or other restrictions on resale with respect
to our common stock, other than restrictions imposed by lock-up agreements
described above and applicable securities laws.
STOCK OPTIONS. Immediately after this offering, we intend to file a registration
statement under the Securities Act of 1933, as amended, covering the 2,000,000
shares of common stock reserved for issuance under our 1999 Stock Incentive
Plan. Immediately prior to the consummation of this offering, we will issue
options to purchase 510,500 shares of common stock, of which 13,500 shares will
vest immediately. Upon the expiration of the lock-up agreements describe above,
at least 13,500 shares of common stock will be subject to vested options, based
on the number of options to be issued immediately prior to the consummation of
this offering. Such registration statement is expected to be filed and become
effective as soon as practicable after the effective date of this offering.
Accordingly, shares registered under such registration statement will, subject
to vesting provisions and Rule 144 volume limitations applicable to our
affiliates, be available for sale in the open market immediately after the
lock-up agreements expire.
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<PAGE>
UNDERWRITING
The underwriters named below, for whom U.S. Bancorp Piper Jaffray Inc., William
Blair & Company, L.L.C. and DLJDIRECT Inc. are acting as representatives, have
agreed to buy, subject to the terms of the purchase agreement, the number of
shares listed opposite their names below. The underwriters are committed to
purchase and pay for all of the shares if any are purchased, other than those
shares covered by the over-allotment option described below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ----------------------------------------------------------- -----------------
<S> <C>
U.S. Bancorp Piper Jaffray Inc............................. 1,283,750
William Blair & Company L.L.C. ............................ 691,250
DLJDIRECT, Inc............................................. 150,000
BancAmerica Securities, Inc. .............................. 150,000
BancBoston Robertson Stephens Inc.......................... 150,000
Bear, Stearns & Co. Inc. .................................. 150,000
Donaldson, Lufkin & Jenrette Securities Corporation........ 150,000
Hambrecht & Quist L.L.C. .................................. 150,000
The Buckingham Research Group Incorporated................. 75,000
Dain Rauscher Incorporated................................. 75,000
Lasalle St. Securities, Inc. .............................. 75,000
McDonald Investments Inc., a KeyCorp Company............... 75,000
Monness Crespi Hardi & Co., Inc............................ 75,000
SoundView Technology Group, Inc............................ 75,000
Nessuah Zannex Ltd......................................... 75,000
-----------------
Total................................................ 3,400,000
-----------------
-----------------
</TABLE>
The underwriters propose to offer the shares of common stock directly to the
public at the initial public offering price set forth on the cover page of this
prospectus and to certain dealers at that price less a concession not in excess
of $.58 per share. The underwriters may allow and these dealers may reallow a
concession not in excess of $.10 per share to certain other dealers. After the
initial public offering of the shares has been completed, the offering price and
other selling terms may be changed by the representatives of the underwriters.
The representatives have informed internet.com that the underwriters do not
intend to confirm discretionary sales in excess of 5% of the shares of common
stock offered by this prospectus.
Internet World Media, a wholly-owned subsidiary of Penton Media, has granted to
the underwriters an option to purchase up to an additional 510,000 shares of our
common stock, at the same price to the public, and with the same underwriting
discount, as set forth in the table above. The underwriters may exercise this
option any time during the 30-day period after the date of this prospectus, but
only to cover over-allotments, if any. To the extent the underwriters exercise
the option, each underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of the additional
shares as it was obligated to purchase under the purchase agreement.
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<PAGE>
The following tables show the per share and total underwriting discount to be
paid to the underwriters by internet.com and the selling stockholder in
connection with this offering. These amounts are shown assuming both no exercise
and full exercise of the over-allotment option.
<TABLE>
<CAPTION>
FULL
PAID BY INTERNET.COM NO EXERCISE EXERCISE
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Per share......................................................... $ 0.98 $ 0.98
Total............................................................. $ 3,332,000 $3,332,000
<CAPTION>
FULL
PAID BY SELLING STOCKHOLDER NO EXERCISE EXERCISE
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Per share......................................................... -- $ 0.98
Total............................................................. -- $ 499,800
</TABLE>
The underwriting discount is an amount equal to the offering price per share to
the public of the common stock, less the amount paid by the underwriters to
internet.com per share of common stock. The underwriting discount is 7%.
We and the selling stockholder have agreed to indemnify the underwriters against
certain liabilities, including civil liabilities under the Securities Act of
1933, as amended, or to contribute to payments that the underwriters may be
required to make in respect of those liabilities.
The expenses of the offering, exclusive of the underwriting discount, include
the Securities and Exchange Commission registration fee, the National
Association of Securities Dealers filing fee, the Nasdaq National Market listing
fee, printing expenses, legal fees and expenses, accounting fees and expenses,
road show expenses, Blue Sky fees and expenses, transfer agent and registrar
fees and other miscellaneous fees. We estimate that these fees and expenses will
be an aggregate of approximately $1,500,000. These fees and expenses are payable
entirely by us. The selling stockholder will not bear any of the expenses of the
offering other than the underwriting discount in connection with the sale of its
shares of our common stock.
We and each of our directors, executive officers and stockholders have agreed to
certain restrictions on our ability to sell additional shares of our common
stock for a period of 180 days after the date of this prospectus. We have agreed
not to directly or indirectly offer for sale, sell, contract to sell, grant any
option for the sale of, or otherwise issue or dispose of, any shares of common
stock, options or warrants to acquire shares of common stock, or any related
security or instrument, without the prior written consent of the
representatives. The agreements provide exceptions for (1) sales to the
underwriters pursuant to the purchase agreement, (2) our sales in connection
with the exercise of options granted and the granting of options to purchase
shares under the existing stock option plan and (3) other exceptions specified
in the purchase agreement and lock-up agreements.
Of the 3,400,000 shares of common stock offered by us, 170,000 shares will be
reserved for sale to persons designated by us. Total shares reserved for sale to
persons designated by us will not exceed 5% of the total shares offered. Shares
not sold to these persons will be reoffered immediately by the underwriters to
the public at the initial public offering price.
Prior to the offering, there has been no established trading market for the
common stock. The initial public offering price for the shares of common stock
offered by this prospectus was negotiated by us and the underwriters. The
factors considered in determining the initial public offering price include the
history of and the prospects for the industry in which we compete, our past and
present operations, our historical results of operations, our prospects for
future earnings, the recent market prices of securities of generally comparable
companies and the general condition of the securities markets at the time of the
offering and other relevant factors. There can be no assurance that the initial
public offering price
66
<PAGE>
of the common stock will correspond to the price at which the common stock will
trade in the public market subsequent to this offering or that an active public
market for the common stock will develop and continue after this offering.
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for our common stock.
Consequently, the initial public offering price for our common stock was
determined by negotiation among internet.com and the representatives of the
underwriters. Among the factors considered in determining the public offering
price were:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalizations and stages of development of other
companies which we and the representatives of the underwriters
believe to be comparable to internet.com; and
- estimates of our business potential.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for internet.com by Willkie Farr & Gallagher, New York, New York. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Cooley Godward LLP, San Francisco, California.
EXPERTS
The audited financial statements and schedules included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
67
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission for the stock we are offering by this prospectus. This
prospectus does not include all of the information contained in the registration
statement. You should refer to the registration statement and its exhibits for
additional information. Whenever we make reference in this prospectus to any of
our contracts, agreements or other documents, the references are not necessarily
complete and you should refer to the exhibits attached to the registration
statement for copies of the actual contract, agreement or other document. When
we complete this offering, we will also be required to file annual, quarterly
and special reports, proxy statements and other information with the Securities
and Exchange Commission.
You can read our Securities and Exchange Commission filings, including the
registration statement, over the Internet at the Securities and Exchange
Commission's Web site at http://www.sec.gov. You may also read and copy any
document we file with the Securities and Exchange Commission at its public
reference facilities at 450 Fifth Street, NW, Washington, DC 20549, 7 World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may also obtain
copies of the documents at prescribed rates by writing to the Public Reference
Section of the Securities and Exchange Commission at 450 Fifth Street, NW,
Washington, DC 20549. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the operation of the public reference
facilities. Our Securities and Exchange Commission filings are also available at
the office of the Nasdaq National Market. For further information on obtaining
copies of our public filings at the Nasdaq National Market, you should call
(212) 656-5060.
68
<PAGE>
INTERNET.COM LLC
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Balance Sheets as of December 31, 1998 and March 31, 1999 (unaudited)...................................... F-3
Statements of Operations for the Period from Inception (November 24, 1998) through December 31, 1998 and
for the Three Months Ended March 31, 1999 (unaudited).................................................... F-4
Statements of Changes in Members' Capital for the Period from Inception (November 24, 1998) through
December 31, 1998 and for the Three Months Ended March 31, 1999 (unaudited).............................. F-5
Statements of Cash Flows for the Period from Inception (November 24, 1998) through December 31, 1998 and
for the Three Months Ended March 31, 1999 (unaudited).................................................... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants................................................................... F-15
Balance Sheets as of September 30, 1997 and 1998........................................................... F-16
Statements of Operations for the Years ended September 30, 1996, 1997 and 1998 and for the Period from
October 1, 1998 through November 23, 1998 and for the Three Months Ended March 31, 1998 (unaudited)...... F-17
Statements of Changes in Division Equity for the Years ended September 30, 1996, 1997 and 1998 and for the
Period from October 1, 1998 through November 23, 1998.................................................... F-18
Statements of Cash Flows for the Years ended September 30, 1996, 1997 and 1998 and for the Period from
October 1, 1998 through November 23, 1998 and for the Three Months Ended March 31, 1998 (unaudited)...... F-19
Notes to Financial Statements.............................................................................. F-20
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of internet.com LLC:
We have audited the accompanying balance sheet of internet.com LLC (a Delaware
limited liability company) as of December 31, 1998, and the related statements
of operations, changes in members' capital and cash flows for the period from
inception (November 24, 1998) through December 31, 1998. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides 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 internet.com LLC as of December
31, 1998, and the results of its operations and its cash flows for the period
from inception (November 24, 1998) through December 31, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
June 21, 1999
F-2
<PAGE>
INTERNET.COM LLC
BALANCE SHEETS
DECEMBER 31, 1998 AND MARCH 31, 1999 (UNAUDITED)
(IN THOUSANDS, EXCEPT UNIT AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................... $ 129 $ 236
Accounts receivable, net of allowances of $42 and $109, respectively................ 1,723 1,663
Prepaid expenses and other.......................................................... 312 531
------------ -----------
Total current assets............................................................ 2,164 2,430
PROPERTY AND EQUIPMENT, net........................................................... 1,380 1,668
INTANGIBLE ASSETS, net................................................................ 22,332 20,804
------------ -----------
Total assets.................................................................... $ 25,876 $ 24,902
------------ -----------
------------ -----------
LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable.................................................................... $ 482 $ 584
Accrued payroll and related expenses................................................ 296 490
Accrued Web site acquisition payments............................................... 775 100
Accrued expenses and other.......................................................... 462 1,180
Deferred revenues................................................................... 122 432
Borrowings under line of credit..................................................... 1,886 1,851
------------ -----------
Total current liabilities....................................................... 4,023 4,637
COMMITMENTS AND CONTINGENCIES......................................................... -- --
MEMBERS' CAPITAL:
Members' capital, 1,000 and 1,105 units issued and outstanding, respectively........ 22,827 25,068
Members' capital receivable......................................................... -- (571)
Accumulated deficit................................................................. (974) (4,232)
------------ -----------
Total members' capital.......................................................... 21,853 20,265
------------ -----------
Total liabilities and members' capital.......................................... $ 25,876 $ 24,902
------------ -----------
------------ -----------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
INTERNET.COM LLC
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 24, 1998 THREE MONTHS
THROUGH ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- -----------------
<S> <C> <C>
(UNAUDITED)
REVENUES................................................................... $ 772 $ 1,612
COST OF REVENUES........................................................... 403 1,117
------- -------
GROSS PROFIT............................................................... 369 495
------- -------
OPERATING EXPENSES:
Advertising, promotion and selling....................................... 239 928
General and administrative............................................... 449 773
Depreciation............................................................. 15 82
Amortization............................................................. 632 1,938
------- -------
TOTAL OPERATING EXPENSES................................................... 1,335 3,721
------- -------
OPERATING LOSS............................................................. (966) (3,226)
INTEREST EXPENSE, NET...................................................... (8) (32)
------- -------
NET LOSS................................................................... $ (974) $ (3,258)
------- -------
------- -------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
INTERNET.COM LLC
STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
(IN THOUSANDS, EXCEPT UNIT AMOUNTS)
<TABLE>
<CAPTION>
MEMBERS' CAPITAL
MEMBERS' CAPITAL RECEIVABLE TOTAL
-------------------- -------------------- ACCUMULATED MEMBERS'
UNITS AMOUNT UNITS AMOUNT DEFICIT CAPITAL
--------- --------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT INCEPTION (November 24, 1998).......... 1,000 $ 22,827 -- $ -- $ -- $ 22,827
Net loss.......................................... -- -- -- -- (974) (974)
--------- --------- --------- --------- ------------ ---------
BALANCE AT DECEMBER 31, 1998...................... 1,000 22,827 -- -- (974) 21,853
Capital contributions............................. 56 2,241 (14) (571) -- 1,670
Issuance of membership units...................... 49 -- -- -- -- --
Net loss.......................................... -- -- -- -- (3,258) (3,258)
--------- --------- --------- --------- ------------ ---------
BALANCE AT MARCH 31, 1999......................... 1,105 $ 25,068 (14) $ (571) $ (4,232) $ 20,265
--------- --------- --------- --------- ------------ ---------
--------- --------- --------- --------- ------------ ---------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
INTERNET.COM LLC
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 24, 1998 THREE MONTHS
THROUGH ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................................... $ (974) $ (3,258)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................. 647 2,020
Changes in operating assets and liabilities:
Accounts receivable, net................................................ (553) 60
Prepaid expenses and other.............................................. (23) (219)
Accounts payable........................................................ 183 102
Accrued expenses and other.............................................. 34 912
Deferred revenues....................................................... 74 310
------- -------
Net cash used in operating activities................................. (612) (73)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment......................................... (546) (370)
Acquisitions of Web sites, related Internet media properties and other...... (599) (1,085)
------- -------
Net cash used in investing activities................................. (1,145) (1,455)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit............................................. 1,886 1,465
Payments for line of credit................................................. -- (1,500)
Capital contributions....................................................... -- 1,670
------- -------
Net cash provided by financing activities............................. 1,886 1,635
------- -------
Net change in cash............................................................ 129 107
Cash at beginning of period................................................... -- 129
------- -------
Cash at end of period......................................................... $ 129 $ 236
------- -------
------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW:
Cash paid for interest...................................................... $ 8 $ 32
------- -------
------- -------
Cash paid for income taxes.................................................. $ -- --
------- -------
------- -------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
1. ORGANIZATION AND NATURE OF BUSINESS
Immediately prior to the closing of this offering, internet.com LLC will convert
its business form to a corporation. This reorganization will be effected by
merging internet.com LLC into a newly-formed Delaware corporation called
internet.com Corporation. Each member of internet.com LLC will receive shares of
internet.com Corporation common stock in exchange for his or her membership
units at a rate of 16,215.891 shares per membership unit. internet.com
Corporation currently is a shell entity and will remain as such until the
conversion of internet.com LLC into a corporation. internet.com Corporation
currently has no assets, liabilities, revenues nor expenses.
HISTORY. internet.com LLC was formed as part of the acquisition of Mecklermedia
Corporation by Internet World Media, a wholly-owned subsidiary of Penton Media
(a publicly-owned corporation). During the negotiation of this acquisition,
Penton Media indicated that it did not wish to retain all of iWorld Corporation,
Mecklermedia's Internet business, because it believed that the Internet business
was inconsistent with its strategic direction. However, Penton Media indicated
that it wanted Internet World Media to maintain a minority interest in the
Internet business due to its belief that the Internet business had the potential
to become profitable in the future. As a result, Alan M. Meckler, Mecklermedia's
Chairman and Chief Executive Officer, agreed to purchase an 80.1% interest in
the Internet business from Internet World Media for a total of $18.0 million in
cash and a warrant valued at $284,000 immediately following the acquisition of
Mecklermedia by Internet World Media which imputed a purchase price of $22.8
million. On November 24, 1998, Mecklermedia was acquired by Internet World Media
in an all-cash tender offer. Following its purchase of Mecklermedia, Internet
World Media caused iWorld Corporation to be merged into internet.com LLC, a
newly-formed Delaware limited liability company. Internet World Media then sold
80.1% of its membership interest in internet.com to Alan M. Meckler (including
four trusts for the benefit of his children) for a total of $18.0 million in
cash and a warrant valued at $284,000. Internet World Media retained a 19.9%
interest in internet.com LLC and a warrant to acquire up to an additional 128
membership units in internet.com LLC (representing 2,075,634 shares of our
common stock) for up to $3.0 million. For accounting purposes, the warrant has
been valued at $284,000 which reflects the present value of the strike price
using a risk free rate of return over a three year term, as compared to the cash
price per share paid to Penton Media.
F-7
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
The preliminary allocation of Internet World Media's valuation, which was pushed
down to internet.com LLC, including the warrant, is as follows (in thousands):
<TABLE>
<S> <C>
Accounts receivable................................................ $ 1,170
Prepaid expenses and other......................................... 289
Property and equipment............................................. 850
Intangible assets.................................................. 22,365
Accounts payable................................................... (299)
Accrued payroll and related expenses............................... (136)
Accrued Web site acquisition payments.............................. (485)
Accrued expenses and other......................................... (242)
Borrowings under line of credit.................................... (685)
---------
$ 22,827
---------
---------
</TABLE>
Since all of internet.com's products and services relate to providing
Internet-related information to Internet industry and Internet technology
professionals, Web developers and experienced Internet users, its success is
dependent on the continued growth of the Internet.
On April 13, 1999, the Board of Directors authorized internet.com to proceed
with an initial public offering ("IPO") of our common stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION. internet.com barters portions of the unsold advertising
impressions generated by its Web sites, e-mail newsletters, online discussion
forums and moderated e-mail discussion lists for advertising and promotion in
media properties owned by Penton Media and other third parties. internet.com
does not record any revenues or expenses for such barter because it does not
incur any costs to fulfill such barter and because such unsold advertising and
promotion exchanged and received would otherwise have no value. Therefore, the
recording of any barter would result in an overstatement of revenues and
expenses.
internet.com generates its revenues from four primary sources: the sale of
advertising on its Web sites, e-mail newsletters, online discussion forums and
moderated e-mail discussion lists; e-commerce agreements; licensing of editorial
content, brands and software; and subscriptions to paid e-mail newsletters.
ADVERTISING REVENUES. Advertising revenue is recognized ratably in the
period the advertising is displayed, provided that no significant company
obligations remain and collection of the resulting receivable is
probable. Company obligations typically include guarantees of a minimum
number of advertising impressions, or times that an advertisement is
viewed by users of internet.com's Web sites and related Internet media
properties.
E-COMMERCE REVENUES. E-commerce agreements generally include a fixed fee
for advertising and/or revenue sharing for sales made by the e-commerce
vendors. The advertising component of these agreements is recognized
ratably in the period the advertising is displayed, provided that no
significant company obligations remain and collection of the remaining
receivable is
F-8
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
probable. The revenue sharing component of these agreements is recognized
as revenue in the period that the underlying sale is made by the
e-commerce vendor.
LICENSING REVENUES. The licensing agreements vary, with internet.com
generating fixed fees and royalties for monthly access to editorial
content, brands and software produced by internet.com. Such amounts are
recognized as revenue in the month earned.
PAID SUBSCRIPTION REVENUES. Subscription revenue relates to customer
subscriptions to our paid e-mail newsletters. Revenue from subscriptions
is recognized ratably over the subscription period. Deferred revenues
relate to the portion of collected subscription fees which have not yet
been recognized as revenue.
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS. 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 the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL DATA. The accompanying financial statements as of, and for the
three months ended, March 31, 1999 are unaudited. In the opinion of management,
these interim statements have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the results of the
interim periods. The financial and other data disclosed in these notes to the
financial statements for these periods are also unaudited. The results of the
operations for the interim periods are not necessarily indicative of the results
to be expected for any future periods.
CONCENTRATION OF CREDIT RISK. Financial instruments that potentially subject
internet.com to a significant concentration of credit risk consist primarily of
cash and accounts receivable. internet.com deposits all its cash with a single
financial institution. Most of internet.com's accounts receivable as of December
31, 1998 and March 31, 1999 are from Internet-related businesses.
At December 31, 1998, three customers accounted for 38% of accounts receivable.
At March 31, 1999, three customers accounted for 21% of accounts receivable. For
the period from inception (November 24, 1998) through December 31, 1998, one
customer accounted for 25% of revenues. For the three months ended March 31,
1999, one customer accounted for 13% of revenues.
CASH AND CASH EQUIVALENTS. internet.com considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents. At December 31, 1998 and March 31, 1999, internet.com had no
investments with maturities greater than three months.
FINANCIAL INSTRUMENTS. The recorded amounts of financial instruments such as
cash and cash equivalents, accounts receivable, accounts payable and debt
approximate their fair values due to their short maturities.
PROPERTY AND EQUIPMENT. Depreciation of computer equipment and software is
provided for by the straight-line method over estimated useful lives ranging
from three to five years. Depreciation of
F-9
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
furniture, fixtures and equipment is provided for by the straight-line method
over estimated useful lives ranging from five to ten years.
Maintenance and repair expenditures are charged to appropriate expense accounts
in the period incurred; replacements, renewals and betterments are capitalized.
Upon the sale or other disposition of property, the cost and accumulated
depreciation of such properties are eliminated from the accounts and the gains
or losses thereon are reflected in operations.
INTANGIBLE ASSETS. Intangible assets, primarily consisting of goodwill, are
being amortized using the straight-line method over three years.
IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets and certain identifiable
intangibles are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss is recognized when the sum of undiscounted
expected future cash flows is less than the carrying amount of such assets. The
measurement for such impairment loss is based on the fair value of the assets.
internet.com believes no such impairment exists as of March 31, 1999.
ACCRUED WEB SITE ACQUISITION PAYMENTS. Accrued Web site acquisition payments
consist of future amounts payable under purchase agreements for Web sites and
related Internet media properties.
INCOME TAXES. internet.com accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109"). SFAS 109 requires an asset and liability
approach which requires the recognition of deferred tax assets and deferred tax
liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities.
Valuation allowances will be established when necessary to reduce deferred tax
assets to the amount expected to be realized.
No benefit for federal and state income taxes is reported in the financial
statements as internet.com has elected to be taxed as a partnership prior to the
reorganization of the limited liability company into a corporation, which will
take effect immediately prior to the closing of the IPO. Therefore, the federal
and state income tax effects of internet.com's results of operations are
recorded by the members in their respective income tax returns.
ADVERTISING COSTS. internet.com expenses advertising costs as incurred.
Advertising expense was $44,000 for the period from inception (November 24,
1998) through December 31, 1998 and $189,000 for the three months ended March
31, 1999.
RECENT ACCOUNTING PRONOUNCEMENTS. In June 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), which establishes standards for reporting information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The adoption of this standard is not expected to have an impact on the
presentation of the financial statements of internet.com.
F-10
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. Presently, all costs to develop computer software
for internal use are expensed as incurred. Adoption of this new pronouncement in
1999 may require capitalization of certain software development costs although
such amounts are not expected to be material.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5, which is effective for
fiscal years beginning after December 15, 1998, provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start-up activities and organization costs to be expensed as incurred. As
internet.com has expensed these costs historically, the adoption of this
statement is not expected to have a significant impact on internet.com's results
of operations, financial position or cash flows.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------- -----------
<S> <C> <C>
Computer equipment and software....................................... $ 1,248 $ 1,590
Furniture, fixtures and equipment..................................... 147 175
------ -----------
1,395 1,765
Less: Accumulated depreciation........................................ (15) (97)
------ -----------
Property and equipment, net........................................... $ 1,380 $ 1,668
------ -----------
------ -----------
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
<S> <C> <C>
Goodwill.............................................................. $ 22,695 $ 22,870
Trademarks............................................................ 269 504
------------ -----------
22,964 23,374
Less: Accumulated amortization........................................ (632) (2,570)
------------ -----------
Intangibles, net...................................................... $ 22,332 $ 20,804
------------ -----------
------------ -----------
</TABLE>
5. ACQUISITIONS OF ASSETS
internet.com made two acquisitions for a total of $580,000 during the period
from inception (November 24, 1998) through December 31, 1998 and one acquisition
for $175,000 during the three months ended March 31, 1999. These acquisitions
were accounted for as purchases. Two of these
F-11
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
acquisitions provide for contingent payments to be made one year after the
acquisition date based upon the achievement of certain objectives. The acquired
Web sites and related Internet media properties had no tangible assets or
liabilities. Therefore, the entire purchase price has been recorded as goodwill
and is being amortized over its estimated useful life for these acquisitions.
The pro forma results for the period from inception (November 24, 1998) through
December 31, 1998 and for the three months ended March 31, 1999, assuming these
acquisitions had been made at the beginning of the period, would not be
materially different from reported results.
6. LINE OF CREDIT
internet.com has a $6.0 million line of credit with a bank secured by a personal
guarantee from Alan M. Meckler, Chairman and Chief Executive Officer of
internet.com. internet.com had outstanding borrowings under the line of credit
of approximately $1.9 million as of December 31, 1998 and March 31, 1999.
Interest expense on this line is based on the lower of prime plus 1% or LIBOR
plus .65% (5.7% as of December 31, 1998). This line of credit expires on
November 15, 1999.
7. COMMITMENTS AND CONTINGENCIES
Since November 24, 1998, internet.com has occupied space in Penton Media, Inc.
facilities in Westport, Connecticut to house its corporate headquarters and in
Burlingame, California to house a portion of its sales force. Rent expense for
this space was approximately $7,000 for the period from inception (November 24,
1998) through December 31, 1998 and $15,000 for the three months ended March 31,
1999. internet.com is obligated to pay its proportionate share of all
electricity, heating, ventilation and air conditioning costs for these premises.
Future annual minimum lease payments under all operating leases as of December
31, 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ----------------------------------------------------------------------------------------
<S> <C>
1999.................................................................................... $ 236
2000.................................................................................... 131
---------
$ 367
---------
---------
</TABLE>
internet.com has entered into employment agreements with two of its officers
with terms ranging from six months to one year.
internet.com has made a $180,000 non-interest bearing loan to one of its
members.
Prior to the effectiveness of the registration of the shares of internet.com
common stock being sold in the IPO, one of internet.com's underwriters mailed
written materials to 278 persons internet.com had designated as potential
purchasers of up to 170,000 shares of common stock in the IPO through a directed
share program. These materials requested that any of the recipients who wished
to purchase shares of internet.com's common stock through the directed share
program send payment for such shares to this underwriter prior to the
effectiveness of the registration of the shares of internet.com's common stock
being sold in the IPO. These materials may constitute a prospectus that does not
meet the requirements of the Securities Act of 1933.
F-12
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
In addition, as of June 21, 1999 this underwriter has received funds from 88
persons seeking to subscribe for the entire $1.9 million of common stock
reserved for issuance in the directed share program. This receipt of payment may
have constituted a sale of internet.com's common stock in violation of the
Securities Act of 1933. If the mailing of these materials or the receipt of
funds by this underwriter did constitute a violation of the Securities Act of
1933, the recipients of the letter who purchased common stock in the IPO would
have the right, for a period of one year from the date of their purchase of
common stock, to obtain recovery of the consideration paid in connection with
their purchase of common stock or, if they had already sold the stock, sue
internet.com for damages resulting from their purchase of common stock. These
refunds or damages could total up to approximately $1.9 million, based on an
assumed initial public offering price of $11.00 per share, if these investors
seek recovery or damages after an entire loss of their investment. While the
ultimate outcome of these matters cannot be determined, internet.com does not
expect that they will have a material adverse effect on its financial position,
results of operations or cash flows.
A complaint seeking class action status was filed in Delaware Chancery Court on
June 16, 1999 by a former shareholder of Mecklermedia Corporation alleging that
certain officers and directors of Mecklermedia Corporation breached their
fiduciary duties in connection with the sale of Mecklermedia Corporation to
Penton Media. This former shareholder of Mecklermedia Corporation has asserted
claims for damages against the officers and directors and has also named
internet.com Corporation as a defendant seeking that a constructive trust be
established. All of the defendants deny such allegations and intend to
vigorously defend themselves.
internet.com is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position of internet.com.
8. EMPLOYEE BENEFIT PLAN
internet.com has a defined contribution plan which qualifies under Section
401(k) of the Internal Revenue Code for employees meeting certain service
requirements. The plan allows eligible employees to contribute up to 15% of
their compensation to the plan. At the discretion of the Board of Directors,
internet.com may also make contributions dependent on profits each year for the
benefit of all eligible employees under the plan. There were no discretionary
contributions for the period from inception (November 24, 1998) through December
31, 1998 and for the three months ended March 31, 1999.
9. RELATED PARTY TRANSACTIONS
internet.com, Internet World Media, Inc. and Penton Media, Inc. entered into a
Services Agreement dated November 24, 1998, whereby internet.com agreed to
provide certain services to Internet World Media, Inc. and Penton Media, Inc. in
return for services to be provided to internet.com by Internet World Media, Inc.
and Penton Media, Inc. The Services Agreement expires November 24, 2001 and will
automatically renew for three-year terms unless canceled by either party.
On November 24, 1998, internet.com entered into a Trademark Co-License Agreement
with Internet World Media. Internet World Media provides internet.com with a
royalty-free license to use several of its trademarks in connection with the
inclusion of those trademarks on internet.com's network of Web sites and related
Internet media properties. internet.com provides Internet World Media with a
F-13
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
royalty-free license to use several of internet.com's trademarks in Internet
World Media's INTERNET WORLD, BOARDWATCH and DIRECTORY OF INTERNET SERVICE
PROVIDERS print publications, at Internet World Media's Internet World and
ISPCON trade shows and conferences and in promotional materials for those print
publications, trade shows and conferences.
On November 24, 1998, internet.com entered into a Copyright Co-License Agreement
with Internet World Media. Internet World Media provides internet.com with a
royalty-free license to use several of its copyrights in connection with the
inclusion of those copyrights and material protected by those copyrights on
internet.com's network of Web sites and related Internet media properties.
internet.com provides Internet World Media with a royalty-free license to use
several of internet.com's copyrights and the material protected by those
copyrights in Internet World Media's INTERNET WORLD, BOARDWATCH and DIRECTORY OF
INTERNET SERVICE PROVIDERS print publications.
Since November 24, 1998, internet.com has occupied space in Penton Media, Inc.
facilities in Westport, Connecticut to house its corporate headquarters and in
Burlingame, California to house a portion of its sales force. Rent expense for
this space was $7,000 for the period from inception (November 24, 1998) through
December 31, 1998 and $15,000 for the three months ended March 31, 1999.
internet.com is obligated to pay its proportionate share of all electricity,
heating, ventilation and air conditioning costs for these premises.
10. SUBSEQUENT EVENTS
ISSUANCE OF ADDITIONAL MEMBERSHIP UNITS. Since December 31, 1998, internet.com
has sold additional membership units for an aggregate of approximately
$2,241,000 to Internet World Media and to several additional investors,
including certain of internet.com's employees, officers and directors. In
addition, in March 1999, internet.com granted 4% of its total membership units
at the time (assuming full dilution, including the exercise of the Internet
World Media warrant) to certain of its employees. As these membership units will
vest upon the completion of an IPO, internet.com will record a $8.8 million
compensation charge concurrent with the completion of its IPO.
STOCK INCENTIVE PLAN. In April 1999, internet.com established a stock incentive
plan under which internet.com may issue qualified incentive or nonqualified
stock options to employees, including officers, and consultants and directors up
to an aggregate of 2,000,000 shares of common stock, of which 510,500 options
will be granted immediately prior to the consummation of this offering under the
plan. The exercise price of the options granted under the stock incentive plan
will not be less than the fair market value of the shares of internet.com's
common stock on the date of grant. The plan will terminate on April 15, 2009.
VENTURE CAPITAL FUND. In April 1999, internet.com established internet.com
Venture Fund I LLC, a $5.0 million venture fund that will invest in early-stage
content-based Internet properties that are not competitive with internet.com.
internet.com earns management fees for the day to day operation and general
management of the fund. internet.com will also earn a percentage of the realized
gains on investments made by this fund. internet.com has committed to invest
$600,000 in this fund at its inception.
F-14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of internet.com LLC:
We have audited the accompanying balance sheets of the iWorld division of
Mecklermedia Corporation, as of September 30, 1997 and 1998, and the related
statements of operations, changes in division equity and cash flows for each of
the three years in the period ended September 30, 1998 and for the period
October 1, 1998 through November 23, 1998. 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 iWorld division of
Mecklermedia Corporation, as of September 30, 1997 and 1998, and the results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1998, and for the period October 1, 1998 through November
23, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
April 5, 1999
F-15
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable, net of allowances of $17 and $149, respectively......................... $ 432 $ 1,002
Prepaid expenses and other................................................................... 70 257
--------- ---------
Total current assets..................................................................... 502 1,259
PROPERTY AND EQUIPMENT, net.................................................................... 831 1,336
INTANGIBLE ASSETS, net......................................................................... 1,479 4,630
--------- ---------
Total assets............................................................................. $ 2,812 $ 7,225
--------- ---------
--------- ---------
LIABILITIES AND DIVISION EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................................. $ 162 $ 316
Accrued payroll and related expenses......................................................... 475 625
Accrued expenses............................................................................. 31 32
--------- ---------
Total current liabilities................................................................ 668 973
DIVISION EQUITY................................................................................ 2,144 6,252
--------- ---------
Total liabilities and division equity.................................................... $ 2,812 $ 7,225
--------- ---------
--------- ---------
</TABLE>
See notes to financial statements.
F-16
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER OCTOBER 1, 1998
30, THREE MONTHS THROUGH
------------------------------- ENDED MARCH 31, NOVEMBER 23,
1996 1997 1998 1998 1998
--------- --------- --------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES..................................... $ 498 $ 1,479 $ 3,544 $ 831 $ 778
COST OF REVENUES............................. 536 1,171 2,171 567 456
--------- --------- --------- ----- -----
GROSS PROFIT................................. (38) 308 1,373 264 322
--------- --------- --------- ----- -----
OPERATING EXPENSES:
Advertising, promotion and selling......... 285 881 1,406 283 441
General and administrative................. 727 751 1,349 348 195
Depreciation............................... 85 326 429 102 67
Amortization............................... 109 505 920 222 86
--------- --------- --------- ----- -----
TOTAL OPERATING EXPENSES..................... 1,206 2,463 4,104 955 789
--------- --------- --------- ----- -----
NET LOSS..................................... $ (1,244) $ (2,155) $ (2,731) $ (691) $ (467)
--------- --------- --------- ----- -----
--------- --------- --------- ----- -----
</TABLE>
See notes to financial statements.
F-17
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
STATEMENTS OF CHANGES IN DIVISION EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
AND FOR THE PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
BALANCE AT SEPTEMBER 30, 1995.......................................................................... $ 265
Contributions from Mecklermedia Corporation............................................................ 1,787
Net loss............................................................................................... (1,244)
---------
BALANCE AT SEPTEMBER 30, 1996.......................................................................... 808
Contributions from Mecklermedia Corporation............................................................ 3,491
Net loss............................................................................................... (2,155)
---------
BALANCE AT SEPTEMBER 30, 1997.......................................................................... 2,144
Contributions from Mecklermedia Corporation............................................................ 6,839
Net loss............................................................................................... (2,731)
---------
BALANCE AT SEPTEMBER 30, 1998.......................................................................... 6,252
Contributions from Mecklermedia Corporation............................................................ 3,877
Net loss............................................................................................... (467)
---------
BALANCE AT NOVEMBER 23, 1998........................................................................... $ 9,662
---------
---------
</TABLE>
See notes to financial statements.
F-18
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 1, 1998
SEPTEMBER 30, THREE MONTHS THROUGH
------------------------------- ENDED MARCH NOVEMBER 23,
1996 1997 1998 31, 1998 1998
--------- --------- --------- -------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................... $ (1,244) $ (2,155) $ (2,731) $ (691) $ (467)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 194 831 1,349 324 153
Changes in operating assets and liabilities:
Accounts receivable, net.................. (142) (261) (570) (104) (326)
Prepaid expenses and other................ 26 (41) (187) 14 (28)
Accounts payable and accrued expenses..... 21 534 305 (38) (725)
--------- --------- --------- ------- -------
Net cash used in operating activities... (1,145) (1,092) (1,834) (495) (1,393)
--------- --------- --------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment........... (315) (740) (934) (178) (91)
Acquisitions of Web sites, related Internet
media properties and other.................. (327) (1,659) (4,071) (1,199) (2,393)
--------- --------- --------- ------- -------
Net cash used in investing activities... (642) (2,399) (5,005) (1,377) (2,484)
--------- --------- --------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from Mecklermedia Corporation... 1,787 3,491 6,839 1,872 3,877
--------- --------- --------- ------- -------
Net cash provided by financing
activities............................ 1,787 3,491 6,839 1,872 3,877
--------- --------- --------- ------- -------
Net change in cash.............................. -- -- -- -- --
--------- --------- --------- ------- -------
Cash at beginning of period..................... -- -- -- -- --
--------- --------- --------- ------- -------
Cash at end of period........................... $ -- $ -- $ -- $ -- $ --
--------- --------- --------- ------- -------
--------- --------- --------- ------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW:
Cash paid for interest.......................... $ -- $ -- $ -- $ -- $ --
--------- --------- --------- ------- -------
--------- --------- --------- ------- -------
Cash paid for income taxes...................... $ -- $ -- $ -- $ -- $ --
--------- --------- --------- ------- -------
--------- --------- --------- ------- -------
</TABLE>
See notes to financial statements.
F-19
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
AND FOR THE PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
1. ORGANIZATION AND NATURE OF BUSINESS
The accompanying financial statements and related notes reflect the carved-out
historical results of operations and financial position of the iWorld division
of Mecklermedia Corporation ("iWorld"). The Statements of Operations include all
revenues and costs directly attributable to iWorld, including costs for
facilities, functions and services used by iWorld at shared sites and
allocations of costs for certain administrative functions and services performed
by centralized departments within Mecklermedia Corporation.
iWorld consisted of a network of Web sites and related Internet media properties
that delivered the latest news and resources for the Internet industry,
directories of Internet products and services, back issues of the Mecklermedia
Corporation's print publications, and information about Mecklermedia
Corporation's trade shows.
Costs were allocated to iWorld based on management's estimate of costs
attributable to the operation of the business. Such costs are not necessarily
indicative of the costs that would have been incurred if iWorld had been a
separate entity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION. iWorld bartered portions of the unsold advertising
impressions generated by its Web sites, e-mail newsletters, online discussion
forums and moderated e-mail discussion lists for advertising and promotion in
media properties owned by third parties. iWorld did not record any revenues or
expenses for such barter because it does not incur any costs to fulfill such
barter and because such unsold advertising and promotion exchanged and received
would otherwise have no value. Therefore, the recording of any barter would
result in an overstatement of revenues and expenses.
iWorld generated its revenues from four primary sources: the sale of advertising
on its Web sites, e-mail newsletters, online discussion forums and moderated
e-mail discussion lists; e-commerce agreements; licensing of editorial content,
brands and software; and subscriptions to paid e-mail newsletters.
ADVERTISING REVENUES. Advertising revenue is recognized ratably in the
period the advertising is displayed, provided that no significant company
obligations remain and collection of the resulting receivable is probable.
Company obligations typically include guarantees of a minimum number of
advertising impressions, or times that an advertisement is viewed by users
iWorld's Web sites and related Internet media properties.
E-COMMERCE REVENUES. E-commerce agreements generally include a fixed fee
for advertising and/or revenue sharing for sales made by the e-commerce
vendors. The advertising component of these agreements is recognized
ratably in the period the advertising is displayed, provided that no
significant company obligations remain and collection of the remaining
receivable is probable. The revenue sharing component of these agreements
is recognized as revenue in the period that the underlying sale is made by
the e-commerce vendor.
F-20
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
AND FOR THE PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
LICENSING REVENUES. The licensing agreements vary, with iWorld typically
generating fixed fees and royalties for monthly access to editorial
content produced by iWorld. Such amounts are recognized as revenue in the
month earned.
PAID SUBSCRIPTION REVENUES. Subscription revenue relates to customer
subscriptions to our paid e-mail newsletters. Revenue from subscriptions
is recognized ratably over the subscription period. Deferred revenues
relate to the portion of collected subscription fees which have not yet
been recognized as revenue.
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS. 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 the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL DATA. The accompanying financial statements for the three
months ended March 31, 1998 are unaudited. In the opinion of management, these
interim statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the results of the interim
periods. The financial and other data disclosed in these notes to the financial
statements for these periods are also unaudited. The results of the operations
for the interim periods are not necessarily indicative of the results to be
expected for any future periods.
CONCENTRATION OF CREDIT RISK. Financial instruments that potentially subject
iWorld to a significant concentration of credit risk consist primarily of cash
and accounts receivable. iWorld deposits all its cash primarily with a single
financial institution. Most of iWorld's accounts receivable as of September 30,
1996, 1997, and 1998 are from Internet-related businesses.
At September 30, 1997, and 1998, four and three customers accounted for 33% and
28% of accounts receivable, respectively. For the year ended September 30, 1996,
one customer accounted for 15% of revenues. For the year ended September 30,
1997, two customers accounted for 38% of revenues. For the year ended September
30, 1998, one customer accounted for 17% of revenues. For the three months ended
March 31, 1998, one customer accounted for 14% of revenues. For the period from
October 1, 1998 through November 23, 1998, one customer accounted for 21% of
revenues.
FINANCIAL INSTRUMENTS. The recorded amounts of financial instruments such as
cash and cash equivalents, accounts receivable and accounts payable approximate
their fair values due to their short maturities.
PROPERTY AND EQUIPMENT. Depreciation of computer equipment and software is
provided for by the straight-line method over estimated useful lives ranging
from three to five years. Depreciation of furniture, fixtures and equipment is
provided for by the straight-line method over estimated useful lives ranging
from five to ten years. Amortization of leasehold improvements is provided for
over the lesser of the term of the related lease or the estimated useful life of
the improvement.
F-21
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
AND FOR THE PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
Maintenance and repair expenditures are charged to appropriate expense accounts
in the period incurred; replacements, renewals and betterments are capitalized.
Upon the sale or other disposition of property, the cost and accumulated
depreciation of such properties are eliminated from the accounts and the gains
or losses thereon are reflected in operations.
INTANGIBLE ASSETS. Intangible assets, primarily consisting of goodwill,
resulting from acquisitions of Web sites and related Internet media properties
are being amortized using the straight-line method over periods ranging from
three to five years.
INCOME TAXES. The taxable losses of iWorld for each of the three years in the
period ended September 30, 1998 and for the period October 1, 1998 through
November 23, 1998 were included in the Mecklermedia Corporation's consolidated
income tax returns. For all periods presented, deferred income taxes and related
income tax expenses have been recorded by applying the asset and liability
approach to each component of iWorld as if it were a separate taxpayer. Under
this approach, deferred tax assets and liabilities represent the expected future
tax consequences of carryforwards and temporary differences between the carrying
amounts and the tax bases of assets and liabilities.
ADVERTISING COSTS. iWorld expensed advertising costs as incurred. Advertising
expense was $62,000, $163,000, $320,000, $41,000 and $167,000 for the three
years ended September 30, 1996, 1997, 1998, for the three months ended March 31,
1998 and for the period October 1, 1998 through November 23, 1998, respectively.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Computer equipment........................................................... $ 1,124 $ 1,694
Furniture, fixtures and equipment............................................ 142 420
Leasehold improvements....................................................... 48 134
--------- ---------
1,314 2,248
Less: Accumulated depreciation............................................... (483) (912)
--------- ---------
Property and equipment, net.................................................. $ 831 $ 1,336
--------- ---------
--------- ---------
</TABLE>
F-22
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
AND FOR THE PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
4. INTANGIBLE ASSETS
Intangible assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Goodwill..................................................................... $ 1,787 $ 5,690
Trademarks................................................................... 306 474
--------- ---------
2,093 6,164
Less: Accumulated amortization............................................... (614) (1,534)
--------- ---------
Intangible assets, net....................................................... $ 1,479 $ 4,630
--------- ---------
--------- ---------
</TABLE>
5. ACQUISITIONS OF ASSETS
iWorld acquired six, two, nine, two and four Web sites and related Internet
media properties for $230,000, $1.4 million, $3.9 million, $1.2 million and $2.4
million during the years ended September 30, 1996, 1997, 1998, the three months
ended March 31, 1998 and the period from October 1, 1998 through November 23,
1998, respectively. These acquisitions were accounted for as purchases. Certain
of these acquisitions provide for contingent payments to be made one year after
the acquisition dates based upon the achievement of certain objectives. The
acquired Web sites and related Internet media properties had no tangible assets
or liabilities and therefore the entire purchase price has been recorded as
goodwill and is being amortized over its estimated useful life. The pro forma
results for the years ended September 30, 1996, 1997 and 1998 and the period
from October 1, 1998 through November 23, 1998, assuming these acquisitions had
been made at the beginning of the period, would not be materially different from
reported results.
6. INCOME TAXES
The operating results of iWorld were included in the consolidated tax returns of
Mecklermedia. The methodology for allocating income tax expense to iWorld is set
forth in Note 2. For all periods presented, valuation allowances were recorded
against income tax benefits generated from the losses from iWorld.
F-23
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
AND FOR THE PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
The provision (benefit) for income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER OCTOBER 1,
30, 1998 THROUGH
------------------------------- NOVEMBER 23,
1996 1997 1998 1998
--------- --------- --------- THREE MONTHS -------------
ENDED
MARCH 31, 1998
-----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current provision (benefit):
Federal............................................ $ (18) $ (11) $ (37) $ (10) $ 43
State.............................................. (5) (3) (9) (2) 11
--------- --------- --------- --- ------
(23) (14) (46) (12) 54
Deferred provision (benefit):
Federal............................................ 18 11 37 10 (43)
State.............................................. 5 3 9 2 (11)
--------- --------- --------- --- ------
$ -- $ -- $ -- $ -- $ --
--------- --------- --------- --- ------
--------- --------- --------- --- ------
</TABLE>
At September 30, 1996, 1997 and 1998 and November 23, 1998, iWorld had future
federal and state income tax benefits as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, NOVEMBER 23,
------------------------------- -------------
1996 1997 1998 1998
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Net operating losses................................................. $ 602 $ 1,390 $ 2,388 $ 2,559
Excess of amortization of intangibles for financial reporting
purposes over income taxes......................................... 46 114 314 307
Excess of depreciation of property and equipment for income tax
purposes over financial reporting.................................. (13) (44) (58) (58)
Reserves recorded for financial reporting purposes................... 9 41 38 99
--------- --------- --------- -------------
Total future federal and state income tax benefits................... 644 1,501 2,682 2,907
Less valuation allowances............................................ (644) (1,501) (2,682) (2,907)
--------- --------- --------- -------------
Deferred income tax asset............................................ $ -- $ -- $ -- $ --
--------- --------- --------- -------------
--------- --------- --------- -------------
</TABLE>
At November 23, 1998, iWorld had available net operating loss carryforwards for
its federal income tax purposes of approximately $7.0 million which will expire
beginning in 2009.
F-24
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
AND FOR THE PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
A reconciliation setting forth the difference between the effective income tax
rate of iWorld and the U.S. Federal statutory tax rate is as follows (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 1,
FOR THE YEARS ENDED SEPTEMBER 1998
30, THROUGH
------------------------------- NOVEMBER 23,
1996 1997 1998 1998
--------- --------- --------- THREE MONTHS -------------
ENDED
MARCH 31, 1998
-----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal statutory tax rate.......................... $ 423 $ 733 $ 928 $ 235 $ 159
State taxes......................................... 61 105 133 37 23
Losses without income tax benefits.................. (487) (841) (1,064) (273) (183)
Provision for non-deductible expenses............... 3 3 3 1 1
--------- --------- --------- ----- -------------
$ -- $ -- $ -- $ -- $ --
--------- --------- --------- ----- -------------
--------- --------- --------- ----- -------------
</TABLE>
7. EMPLOYEE BENEFIT PLAN
iWorld participated in Mecklermedia's defined contribution plan which qualified
under Section 401(k) of the Internal Revenue Code for employees meeting certain
service requirements. The plan allowed eligible employees to contribute up to
15% of their compensation to the plan. At the discretion of Mecklermedia's board
of directors, Mecklermedia was also able to make contributions dependent on
profits each year for the benefit of all eligible employees under the plan.
There were no discretionary contributions for any of the periods presented.
8. RELATED PARTY TRANSACTIONS
The accompanying financial statements include costs for cash management,
accounting, legal and network operations that were provided to iWorld by
Mecklermedia, in addition to allocated costs for facility charges at shared
sites, including rent and equipment usage. Costs for cash management accounting,
legal and network operations have been allocated to iWorld based on internet.com
management's estimated percentage of the time spent by Mecklermedia employees on
iWorld to total department time. The costs for facility charges are based on the
percentage of usage by the iWorld Division of Mecklermedia to the overall costs.
Such allocations are not necessarily indicative of the costs that would have
been incurred if iWorld had been a stand-alone entity.
Costs allocated to iWorld by Mecklermedia were approximately $440,000, $777,000,
$1,185,000, $331,000 and $150,000 for the years ended September 30, 1996, 1997,
1998, for the three months ended March 31, 1998 and for the period from October
1, 1998 through November 23, 1998, respectively. For the year ended September
30, 1996, allocated costs of $23,000 and $417,000 were included in cost of
revenues and general and administrative expenses, respectively. For the three
months ended March 31, 1998, allocated costs of $26,000 and $305,000 were
included in cost of revenues and general and administrative expenses,
respectively. For the year ended September 30, 1997, allocated costs of $67,000
and $710,000 were included in cost of revenues and general and administrative
expenses, respectively. For the year ended September 30, 1998, allocated costs
of $100,000 and $1,085,000 were included in cost of revenues and general and
administrative expenses, respectively. All of the allocated costs for the
F-25
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
AND FOR THE PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
period from October 1, 1998 through November 23, 1998, were included in general
and administrative expenses. Management believes the allocation methods used are
reasonable.
Mecklermedia funded the working capital requirements of iWorld based upon a
centralized cash management system. Division Equity, included in the
accompanying financial statements, consists of funding for net losses, working
capital requirements and acquisitions. There is no liability to Mecklermedia for
these amounts. In addition, no interest has been charged on these transactions.
Division equity consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------- NOVEMBER 23,
1996 1997 1998 1998
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Division equity at beginning of period.......................... $ 265 $ 808 $ 2,144 $ 6,252
Net losses...................................................... (1,244) (2,155) (2,731) (467)
Working capital................................................. 1,145 1,092 1,834 1,393
Acquisitions.................................................... 642 2,399 5,005 2,484
--------- --------- --------- -------------
Division equity at end of period................................ $ 808 $ 2,144 $ 6,252 $ 9,662
--------- --------- --------- -------------
--------- --------- --------- -------------
Average division equity during the period....................... $ 537 $ 1,476 $ 4,198 $ 7,957
--------- --------- --------- -------------
--------- --------- --------- -------------
</TABLE>
F-26
<PAGE>
3,400,000 SHARES
INTERNET.COM CORPORATION
COMMON STOCK
[LOGO]
---------------------
PROSPECTUS
----------------
Until July 20, 1999, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
U.S. BANCORP PIPER JAFFRAY
WILLIAM BLAIR & COMPANY
DLJDIRECT INC.
JUNE 25, 1999
