<PAGE>
Filed Pursuant to Rule 424(b)(1)
Registration Number 333-91853
PROSPECTUS
3,750,000 SHARES
[LOGO]
COMMON STOCK
internet.com Corporation is selling 1,750,000 shares of common stock. Penton
Media, Inc., one of our stockholders, is selling 2,000,000 shares of common
stock. We will not receive any proceeds from the sale of shares by Penton Media.
Our common stock is traded on the Nasdaq National Market under the symbol
"INTM." On January 26, 2000 the last reported sales price for our common stock
on the Nasdaq National Market was $63.00 per share.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------------
<S> <C> <C>
Public offering price....................................... $ 60.00 $225,000,000
Underwriting discounts...................................... $ 3.45 $ 12,937,500
Proceeds to internet.com Corporation before expenses........ $ 56.55 $ 98,962,500
Proceeds to selling stockholder............................. $ 56.55 $113,100,000
</TABLE>
The selling stockholder has granted the underwriters an option for a period
of 30 days to purchase up to 562,500 additional shares of common stock.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CHASE H&Q ROBERTSON STEPHENS
U.S. BANCORP PIPER JAFFRAY
WILLIAM BLAIR & COMPANY
January 27, 2000
<PAGE>
Inside Front Cover
[Artwork for prospectus inside front cover page consists of the internet.com
logo and tag line]
[Artwork for prospectus outside front cover foldout page shows screen
photos of the internet.com home page and the home pages for each of
internet.com's twelve vertical content channels.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY.......................................... 1
RISK FACTORS................................................ 5
USE OF PROCEEDS............................................. 13
DIVIDEND POLICY............................................. 13
PRICE RANGE OF OUR COMMON STOCK............................. 13
CAPITALIZATION.............................................. 14
DILUTION.................................................... 15
SELECTED FINANCIAL DATA..................................... 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 17
BUSINESS.................................................... 28
MANAGEMENT.................................................. 48
CERTAIN TRANSACTIONS........................................ 54
PRINCIPAL AND SELLING STOCKHOLDERS.......................... 57
DESCRIPTION OF CAPITAL STOCK................................ 58
SHARES ELIGIBLE FOR FUTURE SALE............................. 61
UNDERWRITING................................................ 62
LEGAL MATTERS............................................... 63
EXPERTS..................................................... 63
WHERE YOU CAN FIND MORE INFORMATION......................... 63
INDEX TO FINANCIAL STATEMENTS............................... F-1
</TABLE>
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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>
PROSPECTUS 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 92 Web sites and related
Internet media properties focused solely on the Internet industry. In addition
to our 92 Web sites, our network includes 72 e-mail newsletters, which are
periodical publications delivered by electronic mail; 110 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 75
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 twelve 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 850 advertisers on our network, including International
Business Machines Corporation, Sun Microsystems, Hewlett-Packard Company, Lucent
Technologies Inc., Microsoft Corporation, EarthLink Network, Inc., Compaq
Computer Corporation, Inktomi Corporation, GoTo.com, Inc. and uBid, Inc., which
were our 10 largest advertisers based on revenues during the nine months ended
September 30, 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 45 acquisitions of Internet media properties, consisting of 58 Web sites,
41 e-mail newsletters, 83
1
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online discussion forums and 61 moderated e-mail discussion lists. Our size and
recent growth are illustrated by the following statistics for the months of
November 1998 and November 1999:
<TABLE>
<CAPTION>
NOVEMBER NOVEMBER
1998 1999
---------- ----------
<S> <C> <C>
Web site page views.................................. 23,200,000 84,500,000
Unique Web site visitors............................. 1,168,000 1,880,000
E-mail newsletters distributed....................... 1,777,000 19,100,000
E-mail newsletter subscribers........................ 218,000 2,030,000
E-mail discussion list postings...................... 5,010,000 41,100,000
E-mail discussion list subscribers................... 18,000 80,000
</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;
- 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 $26.1 million, of which $18.1 million was
incurred during the nine months ended September 30, 1999. Our plans for
continued acquisitions of Internet media properties, as well as 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 December 31, 1999, Mr. Meckler beneficially owned
approximately 51.7% of our outstanding common stock, after giving effect to this
offering.
internet.com Corporation was incorporated on April 5, 1999 in the State of
Delaware. internet.com LLC was merged with and into internet.com Corporation
upon consummation of our initial public offering in June 1999. Our principal
executive offices are located at 23 Old Kings Highway South, Darien, Connecticut
06820 and our telephone number is (203) 662-2800.
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.
2
<PAGE>
RECENT DEVELOPMENTS
On January 20, 2000, we reported revenues of $7.5 million for the three
months ended December 31, 1999, a 383% increase as compared to the three months
ended December 31, 1998 revenues of $1.6 million.
Net loss applicable to common stockholders, excluding amortization of
intangibles, was $482,000, or $0.02 per share for the three months ended
December 31, 1999, as compared to $723,000, or $0.04 per share for the three
months ended December 31, 1998. Including amortization of intangibles, net loss
for the three months ended December 31, 1999 was $3.9 million, or $0.17 per
share.
For the year ended December 31, 1999, our revenues were $16.1 million, an
increase of 272% over the $4.3 million in revenues for the year ended
December 31, 1998. Net loss applicable to common stockholders for the year ended
December 31, 1999, excluding amortization of intangibles and a non-cash
compensation charge, was approximately $4.2 million, or $0.21 per share, as
compared to $2.3 million, or $0.14 per share for the year ended December 31,
1998. Including amortization of intangibles and the non-cash compensation
charge, net loss for the year ended December 31, 1999 was $22.0 million, or
$1.08 per share.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by internet.com......... 1,750,000 shares
Common stock offered by the selling
stockholder................................ 2,000,000 shares
Common stock outstanding after the
offering................................... 25,084,520 shares(1)
Use of proceeds.............................. Potential strategic acquisitions, venture
capital investments and general corporate
purposes, including working capital and
expansion of editorial, information
technology, marketing and sales activities.
See "Use of Proceeds."
Nasdaq National Market symbol................ INTM
</TABLE>
- ------------------------
(1) Based on shares outstanding as of December 31, 1999, excluding 1,090,730
shares of common stock that are reserved for issuance upon exercise of stock
options issued under our stock incentive plan. There are 899,750 additional
shares available for issuance under our stock incentive plan.
UNLESS OTHERWISE SPECIFICALLY STATED, INFORMATION CONTAINED IN THIS
PROSPECTUS DOES NOT TAKE INTO ACCOUNT THE EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION TO PURCHASE UP TO 562,500 SHARES OF OUR COMMON STOCK FROM
THE SELLING STOCKHOLDER.
3
<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 upon consummation of our initial public offering 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 LLC in November 1998, our fiscal year end was
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>
INCEPTION FISCAL YEAR ENDED OCT. 1 NOV. 24
(DEC. 7, 1994) --------------------------------- THROUGH THROUGH
THROUGH SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, NOV. 23, DEC. 31,
1995(1) 1996(1) 1997(1) 1998(1) 1998(1) 1998(2)
------------------ --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $ 123 $ 498 $ 1,479 $ 3,544 $ 778 $ 772
Gross profit................... 84 (38) 308 1,373 322 369
Amortization................... -- 109 505 920 86 632
Non-cash compensation charge... -- -- -- -- -- --
Operating loss................. (404) (1,244) (2,155) (2,731) (467) (966)
Net loss....................... (404) (1,244) (2,155) (2,731) (467) (974)
Basic and diluted net loss per
share........................
Common shares used to compute
basic and diluted net loss
per share....................
<CAPTION>
PRO
FORMA
NINE MONTHS NINE
ENDED MONTHS
--------------------- ENDED
SEPT. 30, SEPT. 30, SEPT. 30,
1998(1) 1999(2) 1999(3)
--------- --------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $ 2,775 $ 8,598 $ 9,941
Gross profit................... 947 3,660 4,484
Amortization................... 712 6,372 9,632
Non-cash compensation charge... -- 7,975 7,975
Operating loss................. (2,287) (18,491) (21,326)
Net loss....................... (2,287) (18,110) (20,946)
Basic and diluted net loss per
share........................ $ (0.94) $ (1.03)
Common shares used to compute
basic and diluted net loss
per share.................... 19,326 20,258
</TABLE>
- ------------------------------
(1) Represents the financial data of the iWorld division of Mecklermedia
Corporation.
(2) Represents the financial data of internet.com.
(3) Gives effect to the acquisitions described in unaudited condensed combined
financial information. See pages F-59 through F-62.
The following table summarizes our balance sheet as of September 30, 1999 on
an historical basis, on a pro forma basis to give effect to certain acquisitions
described in unaudited condensed combined financial information, included
elsewhere herein, and pro forma as adjusted to reflect the sale of the 1,750,000
shares of common stock offered by us hereby at the public offering price of
$60.00 per share, after deducting underwriting discounts and estimated offering
expenses. See "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
-------- -------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $30,211 $23,417 $121,680
Working capital............................................. 28,903 22,205 120,468
Total assets................................................ 65,442 65,496 163,759
Total stockholders' equity.................................. 59,867 59,867 158,130
</TABLE>
4
<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
$18.1 million for the nine months ended September 30, 1999. As of September 30,
1999, we had an accumulated deficit of approximately $11.2 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.
5
<PAGE>
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 $3.2 million during the three months ended September 30, 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. For the nine months ended September 30, 1999, we derived
approximately 81% of our revenues from advertising. 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."
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
6
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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 9% of our total
revenues for the nine months ended September 30, 1999. Our top 20 advertisers
together accounted for 35% 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."
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.
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, CNET, 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
7
<PAGE>
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.
WE HAVE A SIGNIFICANT AMOUNT OF NET INTANGIBLE ASSETS. We had approximately
$28.1 million of net intangible assets as of September 30, 1999. Of these
intangible assets, $15.4 million relates to the goodwill 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 would suffer.
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 facilities in Westport
and Darien, 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
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 would 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 three instances where
internet.com as a whole has been inaccessible, the longest instance lasting
approximately 60 minutes. Slower response times, which
8
<PAGE>
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. Some of the services in our network, but not our whole
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 or after January 1, 2000. We have worked to avoid such problems and
have obtained assurances from our vendors and other service providers that they
have taken 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, domain names 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 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.
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, South Africa, France, Japan, Germany and
Asia. We have also licensed our content for internet.com brand Web sites in
certain other Middle Eastern countries and China. 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.
9
<PAGE>
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.
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
10
<PAGE>
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 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
OUR STOCK PRICE COULD CONTINUE TO BE EXTREMELY VOLATILE. The market price
of our common stock has fluctuated in the past and is likely to continue to be
highly volatile. For example, the market price of our common stock has ranged
from $9.1875 per share to $72.25 per share since our initial public offering in
June 1999. 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 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 IS HEAVILY CONCENTRATED IN ALAN M. MECKLER, OUR CHAIRMAN
AND CHIEF EXECUTIVE OFFICER. As of December 31, 1999, the directors, executive
officers, greater than 5% stockholders and their affiliates beneficially owned
approximately 63.4% of our outstanding common stock, after giving effect to this
offering and assuming the full exercise of the underwriters' over-allotment
option. As of December 31, 1999, Alan M. Meckler beneficially owned
approximately 51.7% of our outstanding common stock, after giving effect to this
offering and assuming the full exercise of the underwriters' over-allotment
option. As a result of his beneficial ownership, Mr. Meckler, acting alone or
with others, is able to control all matters requiring stockholder approval,
including the election of directors and
11
<PAGE>
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 25,084,520 shares of our
common stock. Of these shares, the 3,910,000 shares sold in our initial public
offering are, and the shares sold in this offering will be, freely tradable
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 shares
outstanding upon completion of this offering will be "restricted securities" as
that term is defined in Rule 144. 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."
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 the underwriters and under applicable
securities laws. In addition, Internet World Media Inc., a wholly-owned
subsidiary of Penton Media and the selling stockholder in this offering, 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 public offering
price of our common stock is substantially higher than the pro forma 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 at
the public offering price of $60.00 per share, you will incur immediate dilution
of $55.08 in the net tangible book value per share of common stock from the
price you pay for such common stock. See "Dilution."
12
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 1,750,000 shares of our common stock
offered by internet.com are estimated to be $98.3 million. This is based on the
public offering price of $60.00 per share and also reflects a deduction for the
underwriting discounts and estimated offering expenses. We will not receive any
proceeds from the sale of common stock by the selling stockholder.
We expect to use the net proceeds for potential strategic acquisitions,
venture capital investments and general corporate purposes, including working
capital and expansion of editorial, information technology, marketing and sales
activities. From time to time we engage in discussions with potential
acquisition candidates. However, we have no current plans, commitments or
agreements with respect to any acquisitions, and we may not make any
acquisitions. The amounts actually expended for 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, government
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.
PRICE RANGE OF OUR COMMON STOCK
Our common stock began trading on the Nasdaq National Market under the
symbol "INTM" on June 25, 1999. Prior to that date, there was no established
public trading market for our common stock. The following table sets forth the
high and low prices of our common stock for the periods indicated as quoted on
the Nasdaq National Market.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ------ -------- --------
<S> <C> <C>
Year ending December 31, 2000
First quarter (through January 26, 2000)................ $68.125 $48.00
Year ended December 31, 1999
Second quarter (June 25, 1999 through June 30, 1999).... $16.344 $11.000
Third quarter........................................... $26.875 $ 9.188
Fourth quarter.......................................... $72.250 $13.750
</TABLE>
On January 26, 2000, the last reported sales price on the Nasdaq National
Market for our common stock was $63.00 per share. As of December 29, 1999, there
were approximately 5,000 holders of our common stock.
13
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999,
on an historical basis, on a pro forma basis to give effect to certain
acquisitions described in unaudited condensed financial information, included
elsewhere herein, and pro forma as adjusted to reflect the sale of 1,750,000
shares of common stock offered by internet.com hereby at the public offering
price of $60.00 per share, less underwriting discounts and estimated offering
expenses.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
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,
23,325,000 shares issued and outstanding, actual and pro
forma; 25,075,000 shares issued and outstanding, as
adjusted.................................................. 233 233 251
Additional paid-in capital.................................. 70,863 70,863 169,108
Accumulated deficit......................................... (11,229) (11,229) (11,229)
-------- -------- --------
Total stockholders' equity................................ 59,867 59,867 158,130
-------- -------- --------
Total capitalization.................................... $ 59,867 $ 59,867 $158,130
======== ======== ========
</TABLE>
See "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
notes included elsewhere in this prospectus.
14
<PAGE>
DILUTION
Our pro forma net tangible book value as of September 30, 1999 was
$25.1 million, or $1.07 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 shares of common stock outstanding as of
September 30, 1999. Our pro forma net tangible book value as of September 30,
1999 would have been $123.3 million, or $4.92 per share. These amounts reflect
the issuance and sale of our common stock offered hereby at the public offering
price of $60.00 per share and deductions for underwriting discounts and
estimated offering expenses. This represents an immediate increase in pro forma
net tangible book value of $3.85 per share to existing stockholders and an
immediate dilution of $55.08 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Public offering price per share............................. $60.00
------
Net pro forma tangible book value per share at September
30, 1999................................................ $1.07
Increase in pro forma net tangible book value per share
attributable to new investors........................... 3.85
-----
Net pro forma tangible book value per share after this
offering (as adjusted).................................... 4.92
------
Dilution per share to new investors......................... $55.08
======
</TABLE>
15
<PAGE>
SELECTED FINANCIAL DATA
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 and nine months ended September 30, 1998, as
well as the balance sheet data as of September 30, 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 and nine months ended September 30, 1999, as well as the
balance sheet data as of September 30, 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 and nine months ended September 30, 1998
and the three and nine months ended September 30, 1999 as well as the balance
sheet data as of September 30, 1999, have been audited by Arthur Andersen LLP,
independent public accountants. See "Index to Financial Statements." Operating
results for the three and nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the fiscal year
ended December 31, 1999.
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 FISCAL YEAR ENDED OCT. 1 NOV. 24
(DEC. 7, 1994) --------------------------------- THROUGH THROUGH
THROUGH SEPT. 30, SEPT. 30, SEPT. 30, NOV. 23, DEC. 31,
SEPT. 30, 1995(1) 1996(1) 1997(1) 1998(1) 1998(1) 1998(1)
----------------- --------- --------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $ 123 $ 498 $ 1,479 $ 3,544 $ 778 $ 772
Cost of revenues............ 39 536 1,171 2,171 456 403
----- ------- ------- ------- ----- -------
Gross profit............ 84 (38) 308 1,373 322 369
Operating expenses
Advertising, promotion and
selling................. 69 285 881 1,406 441 239
General and
administrative.......... 419 727 751 1,349 195 449
Depreciation.............. -- 85 326 429 67 15
Amortization.............. -- 109 505 920 86 632
Non-cash compensation
charge.................. -- -- -- -- -- --
----- ------- ------- ------- ----- -------
Total operating
expenses.............. 488 1,206 2,463 4,104 789 1,335
----- ------- ------- ------- ----- -------
Operating loss.............. (404) (1,244) (2,155) (2,731) (467) (966)
Interest income (expense),
net....................... -- -- -- -- -- (8)
----- ------- ------- ------- ----- -------
Net loss.................... $(404) $(1,244) $(2,155) $(2,731) $(467) $ (974)
===== ======= ======= ======= ===== =======
Basic and diluted net loss
per share................. $ (0.06)
-------
Common shares used to
compute basic and diluted
net loss per share........ 16,216
=======
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
--------------------- ---------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1998(1) 1999(2) 1998(1) 1999(2)
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $ 973 $ 4,114 $ 2,775 $ 8,598
Cost of revenues............ 684 2,035 1,828 4,938
------- ------- ------- --------
Gross profit............ 289 2,079 947 3,660
Operating expenses
Advertising, promotion and
selling................. 307 2,107 1,081 4,649
General and
administrative.......... 402 1,123 1,113 2,742
Depreciation.............. 117 224 328 413
Amortization.............. 252 2,344 712 6,372
Non-cash compensation
charge.................. -- -- -- 7,975
------- ------- ------- --------
Total operating
expenses.............. 1,078 5,798 3,234 22,151
------- ------- ------- --------
Operating loss.............. (789) (3,719) (2,287) (18,491)
Interest income (expense),
net....................... -- 465 -- 381
------- ------- ------- --------
Net loss.................... $ (789) $(3,254) $(2,287) $(18,110)
======= ======= ======= ========
Basic and diluted net loss
per share................. $ (0.14) $ (0.14) $ (0.94)
------- ------- --------
Common shares used to
compute basic and diluted
net loss per share........ 23,325 16,216 19,326
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
AS OF
------------------------------------------------
SEPT. 30, SEPT. 30, DECEMBER 31, SEPT. 30,
1997(1) 1998(1) 1998(2) 1999(2)
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ -- $ -- $ 129 $30,211
Working capital (deficit)................................... (166) 286 2,051 28,903
Total assets................................................ 2,812 7,225 25,876 65,442
Borrowings under line of credit............................. -- -- 1,886 --
Total equity................................................ 2,144 6,252 21,853 59,867
</TABLE>
- ------------------------------
(1) Represents the financial data of the iWorld division of Mecklermedia
Corporation.
(2) Represents the financial data of internet.com.
16
<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" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934 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 twelve subject areas, or vertical
content channels, that contain 92 Web sites, 72 e-mail newsletters, 110 online
discussion forums and 75 moderated e-mail discussion lists focused solely on the
Internet industry. During the month of November 1999, we delivered 84.5 million
page views to 1.9 million unique visitors and 19.1 million copies of our e-mail
newsletters to 2.0 million subscribers, and 41.1 million postings were generated
by 80,000 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 vested upon the completion of our initial public
offering, we recorded an $8.0 million compensation charge concurrent with the
completion of our initial public offering in June 1999. 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 sources:
- advertising on our Web sites, e-mail newsletters, online discussion forums
and moderated e-mail discussion lists;
- e-commerce agreements and offerings;
- paid subscription services;
- licensing of our editorial content, brands and software;
- opt-in e-mail list rentals;
- seminars;
- venture fund management fees; and
- online press release distribution services.
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.
17
<PAGE>
For the nine months ended September 30, 1999, approximately 81% of our
revenues were from the sale of advertising. We recognize advertising revenue
ratably in the period the advertising is displayed, 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 and offerings generally include advertising on our
Web sites, bounties for new customers or revenue sharing for sales made by the
e-commerce vendors as a result of links from our network, or in some cases
combinations of advertising, bounties 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 and services, Internet Stock Report's Monthly HotWatch,
Internet StockTracker, SearchEngineWatch and certain sections of Wall Street
Research Net, 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.
Through a third-party agent, we currently offer for rental our opt-in e-mail
list names relating to over 80 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. Revenue from
opt-in list rentals is recognized at the time of use by the renter.
Our seminars generate revenues from attendee registrations, as well as from
advertiser and vendor sponsorships. Proceeds from the sale of attendee
registrations and advertiser and vendor sponsorships are deferred and recognized
as revenue at the time the seminars are held.
Since July 1995, we have made 45 acquisitions of Internet media properties,
consisting of 58 Web sites, 41 e-mail newsletters, 83 online discussion forums
and 61 moderated e-mail discussion lists. We expect to continue to pursue
strategic acquisitions to strengthen our content offerings and services. All of
internet.com's acquisitions have been accounted for as purchases. Consequently,
as of September 30, 1999, we have $27.6 million of goodwill, net, which is being
amortized over three years.
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."
18
<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>
PERCENTAGE OF REVENUES
-------------------------------------------------------
FISCAL YEAR ENDED OCT. 1 NOV. 24
--------------------------------- THROUGH THROUGH
SEPT. 30, SEPT. 30, SEPT. 30, NOV. 23, DEC. 31,
1996(1) 1997(1) 1998(1) 1998(2) 1998(1)
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................... 100% 100% 100% 100% 100%
Cost of revenues.................. 108 79 61 59 52
---- ---- --- --- ----
Gross profit...................... (8) 21 39 41 48
---- ---- --- --- ----
Operating expenses:
Advertising, promotion and
selling......................... 57 60 40 57 31
General and administrative........ 146 51 38 25 58
Depreciation...................... 17 22 12 8 2
Amortization...................... 22 34 26 11 82
Non-cash compensation charge...... -- -- -- -- --
---- ---- --- --- ----
Total operating expenses.......... 242 167 116 101 173
---- ---- --- --- ----
Operating loss.................... (250) (146) (77) (60) (125)
---- ---- --- --- ----
Interest income (expense), net.... -- -- -- -- (1)
---- ---- --- --- ----
Net loss.......................... (250)% (146)% (77)% (60)% (126)%
==== ==== === === ====
<CAPTION>
PERCENTAGE OF REVENUES
---------------------------------------------
THREE MONTHS NINE MONTHS
ENDED ENDED
--------------------- ---------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1998(1) 1999(2) 1998(1) 1999(2)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................... 100% 100% 100% 100%
Cost of revenues.................. 70 50 66 57
--- --- --- ----
Gross profit...................... 30 50 34 43
--- --- --- ----
Operating expenses:
Advertising, promotion and
selling......................... 32 51 39 54
General and administrative........ 41 27 40 32
Depreciation...................... 12 5 12 5
Amortization...................... 26 57 26 75
Non-cash compensation charge...... -- -- -- 93
--- --- --- ----
Total operating expenses.......... 111 140 117 258
--- --- --- ----
Operating loss.................... (81) (90) (83) (215)
--- --- --- ----
Interest income (expense), net.... -- 11 -- 4
--- --- --- ----
Net loss.......................... (81)% (79)% (83)% (211)%
=== === === ====
</TABLE>
- ------------------------------
(1) Represents the financial data of the iWorld division of Mecklermedia
Corporation.
(2) Represents the financial data of internet.com.
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
REVENUES. Revenues were $973,000 for the three months ended September 30,
1998 and approximately $4.1 million for the three months ended September 30,
1999, representing an increase of 323%. 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 and offerings, paid subscription services, licensing,
seminars, opt-in e-mail list rentals, venture fund management and online press
release distribution services 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 $684,000 for the three months ended September 30, 1998 and
approximately $2.0 million for the three months ended September 30, 1999,
representing an increase of 198%. 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 70%
for the three months ended September 30, 1998 and 50% for the three months ended
September 30, 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 contributors, as we acquire
additional Web sites, e-mail newsletters, online discussion forums and moderated
e-mail discussion lists and expand our proprietary content.
19
<PAGE>
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 $307,000 for the three months ended September 30, 1998 and $2.1 million for
the three months ended September 30, 1999, representing a 586% increase. This
change was primarily due to increased hiring of advertising sales personnel. As
a percentage of revenues, advertising, promotion and selling expenses were 32%
for the three months ended September 30, 1998 and 51% for the three months ended
September 30, 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 and facilities costs. General and
administrative expenses were $402,000 for the three months ended September 30,
1998 and $1.1 million for the three months ended September 30, 1999,
representing a 179% 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 41% for the three months
ended September 30, 1998 and 27% for the three months ended September 30, 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
$117,000 for the three months ended September 30, 1998 and $224,000 for the
three months ended September 30, 1999, representing a 91% increase. As a
percentage of revenues, depreciation of property and equipment was 12% for the
three months ended September 30, 1998 and 5% for the three months ended
September 30, 1999. Amortization of intangibles was $252,000 for the three
months ended September 30, 1998 and approximately $2.3 million for the three
months ended September 30, 1999, representing a 830% increase. This increase was
primarily due to the amortization of the goodwill associated with the formation
of internet.com LLC and acquisition of Web sites and related Internet media
properties. As a percentage of revenues, amortization of intangibles was 26% for
the three months ended September 30, 1998 and 57% for the three months ended
September 30, 1999. We anticipate that depreciation and amortization will
continue to increase as we acquire additional Web sites, e-mail newsletters,
online discussion forums, moderated e-mail discussion lists and other online
businesses. We also anticipate increasing our capital expenditures to support
the current and expected growth of our business.
INTEREST INCOME (EXPENSE), NET. Interest income was $465,000 for the three
months ended September 30, 1999.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
REVENUES. Revenues were approximately $2.8 million for the nine months
ended September 30, 1998 and approximately $8.6 million for the nine months
ended September 30, 1999, representing an increase of 210%. 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.
20
<PAGE>
COST OF REVENUES. Cost of revenues was approximately $1.8 million for the
nine months ended September 30, 1998 and approximately $4.9 million for the nine
months ended September 30, 1999, representing an increase of 170%. 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 66% for the nine months ended September 30, 1998
and 57% for the nine months ended September 30, 1999.
ADVERTISING, PROMOTION AND SELLING. Advertising, promotion and selling
expenses were approximately $1.1 million for the nine months ended
September 30, 1998 and approximately $4.6 million for the nine months ended
September 30, 1999, representing a 330% increase. This change was primarily due
to increased hiring of advertising sales personnel. As a percentage of revenues,
advertising, promotion and selling expenses were 39% for the nine months ended
September 30, 1998 and 54% for the nine months ended September 30, 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
approximately $1.1 million for the nine months ended September 30, 1998 and
approximately $2.7 million for the nine months ended September 30, 1999,
representing a 146% 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 40% for the nine months ended
September 30, 1998 and 32% for the nine months ended September 30, 1999.
DEPRECIATION AND AMORTIZATION. Depreciation of property and equipment was
$328,000 for the nine months ended September 30, 1998 and $413,000 for the nine
months ended September 30, 1999, representing a 26% increase. As a percentage of
revenues, depreciation of property and equipment was 12% for the nine months
ended September 30, 1998 and 5% for the nine months ended September 30, 1999.
Amortization of intangibles was $712,000 for the nine months ended
September 30, 1998 and approximately $6.4 million for the nine months ended
September 30, 1999, representing a 795% increase. This increase was primarily
due to the amortization of the goodwill associated with the formation of
internet.com LLC and acquisitions of Web sites and related Internet media
properties. As a percentage of revenues, amortization of intangibles was 26% for
the nine months ended September 30, 1998 and 75% for the nine months ended
September 30, 1999.
NON-CASH COMPENSATION CHARGE. In March 1999, internet.com LLC granted 4% of
its total membership units at the time to certain of its employees. As these
membership units vested upon the completion of our initial public offering in
June 1999, internet.com recorded an $8.0 million compensation charge concurrent
with the completion of our initial public offering on June 25, 1999.
INTEREST INCOME (EXPENSE), NET. Interest income, net of interest expense,
was $381,000 for the nine months ended September 30, 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.
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.
21
<PAGE>
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 INCOME (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.
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,
22
<PAGE>
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. 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 table sets 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 presentation of such
information when read in conjunction with the financial statements and
accompanying notes appearing elsewhere in this prospectus.
23
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCT. 1
------------------------------------------------------------------------------------- THROUGH
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, NOV. 23,
1997(1) 1997(1) 1997(1) 1997(1) 1998(1) 1998(1) 1998(1) 1998(1)
---------- --------- ---------- --------- ---------- --------- ---------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Revenues................. $ 346 $ 350 $ 460 $ 769 $ 831 $ 971 $ 973 $ 778
Cost of revenues......... 339 299 277 343 567 577 684 456
----- ----- ----- ----- ----- ------ ------ -----
Gross profit............. 7 51 183 426 264 394 289 322
----- ----- ----- ----- ----- ------ ------ -----
Operating expenses:
Advertising, promotion
and selling.......... 189 292 193 325 283 491 307 441
General and
administrative....... 172 198 223 236 348 363 402 195
Depreciation........... 91 94 99 101 102 109 117 67
Amortization........... 84 156 207 208 222 238 252 86
Non-cash compensation
charge............... -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ------ ------ -----
Total operating
expenses........... 536 740 722 870 955 1,201 1,078 789
----- ----- ----- ----- ----- ------ ------ -----
Operating loss........... (529) (689) (539) (444) (691) (807) (789) (467)
Interest income
(expense), net......... -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ------ ------ -----
Net loss................. $(529) $(689) $(539) $(444) $(691) $ (807) $ (789) $(467)
===== ===== ===== ===== ===== ====== ====== =====
AS A PERCENTAGE OF REVENUES
-------------------------------------------------------------------------------------------------
Revenues................. 100% 100% 100% 100% 100% 100% 100% 100%
Cost of revenues......... 98 85 60 45 68 59 70 59
----- ----- ----- ----- ----- ------ ------ -----
Gross profit............. 2 15 40 55 32 41 30 41
----- ----- ----- ----- ----- ------ ------ -----
Operating expenses:
Advertising, promotion
and selling.......... 55 83 42 42 34 51 32 57
General and
administrative....... 50 57 48 31 42 37 41 25
Depreciation........... 26 27 22 13 12 11 12 8
Amortization........... 24 4 4 27 27 25 26 11
Non-cash compensation
charge............... -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ------ ------ -----
Total operating
expenses........... 155 212 157 113 115 124 111 101
----- ----- ----- ----- ----- ------ ------ -----
Operating loss........... (153) (197) (117) (58) (83) (83) (81) (60)
Interest income
(expense), net......... -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ------ ------ -----
Net loss................. (153)% (197)% (117)% (58)% (83)% (83)% (81)% (60)%
===== ===== ===== ===== ===== ====== ====== =====
<CAPTION>
NOV. 24 THREE MONTHS ENDED
THROUGH -----------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1998(2) 1999(2) 1999(2) 1999(2)
--------- ---------- --------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Revenues................. $ 772 $ 1,612 $ 2,872 $ 4,114
Cost of revenues......... 403 1,117 1,786 2,035
------ ------- -------- -------
Gross profit............. 369 495 1,086 2,079
------ ------- -------- -------
Operating expenses:
Advertising, promotion
and selling.......... 239 928 1,614 2,107
General and
administrative....... 449 773 846 1,123
Depreciation........... 15 82 107 224
Amortization........... 632 1,938 2,090 2,344
Non-cash compensation
charge............... -- -- 7,975 --
------ ------- -------- -------
Total operating
expenses........... 1,335 3,721 12,632 5,798
------ ------- -------- -------
Operating loss........... (966) (3,226) (11,546) (3,719)
Interest income
(expense), net......... (8) (32) (52) 465
------ ------- -------- -------
Net loss................. $ (974) $(3,258) $(11,598) $(3,254)
====== ======= ======== =======
AS A PERCENTAGE OF REVENUES
-----------------------------------------------
Revenues................. 100% 100% 100% 100%
Cost of revenues......... 52 69 62 50
------ ------- -------- -------
Gross profit............. 48 31 38 50
------ ------- -------- -------
Operating expenses:
Advertising, promotion
and selling.......... 31 58 56 51
General and
administrative....... 58 48 29 27
Depreciation........... 2 5 4 5
Amortization........... 82 120 73 57
Non-cash compensation
charge............... -- -- 278 --
------ ------- -------- -------
Total operating
expenses........... 173 231 440 140
------ ------- -------- -------
Operating loss........... (125) (200) (402) (90)
Interest income
(expense), net......... (1) (2) (2) 11
------ ------- -------- -------
Net loss................. (126)% (202)% (404)% (79)%
====== ======= ======== =======
</TABLE>
- ------------------------------
(1) Represents the financial data of the iWorld division of Mecklermedia
Corporation.
(2) Represents the financial data of internet.com.
24
<PAGE>
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.
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 proceeds
from our initial public offering, borrowings under a line of credit and the
capital contributions of members of internet.com LLC. On June 25, 1999, we
completed our initial public offering of 3,400,000 shares of our common stock at
$14.00 per share. Net proceeds to internet.com aggregated approximately
$42.9 million (net of underwriters' discounts and offering expenses of
$4.7 million). On June 30, 1999, internet.com paid the outstanding balance under
its line of credit of approximately $5.0 million and terminated the line of
credit.
As of September 30, 1999, internet.com had total current assets of
$34.1 million and total current liabilities of $5.2 million, or working capital
of $28.9 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, $1.3 million for the nine
months ended September 30, 1998 and $2.8 million for the nine months ended
September 30, 1999. Net cash used in operating activities was primarily a result
of our net losses adjusted for a non-cash compensation charge, amortization and
purchased in-process research and development, and increases in accounts
receivable, offset by an increase in accounts payable, accrued expenses and
deferred revenues.
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, $3.5 million for the
nine months ended September 30, 1998 and $13.3 million for the nine months ended
September 30, 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, 1997, $6.8 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,
$4.8 million for the nine months ended September 30, 1998 and $46.3 million for
the nine months ended September 30, 1999. Net cash provided by financing
activities was a result of proceeds from our initial public offering in
June 1999, borrowings under our line of credit, a private placement of equity
securities and contributions from Mecklermedia.
25
<PAGE>
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, $650,000 for the nine months ended September 30, 1998 and
$1.3 million for the nine months ended September 30, 1999. We anticipate that we
will increase our capital expenditures consistent with our anticipated growth in
operations, infrastructure and personnel.
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 an 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 have also performed
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 December 31, 1999 we had performed the following:
- we have reviewed all functional areas of our business and have updated all
software programs that were not Year 2000 compliant;
- we have performed Year 2000 simulations on our systems and services to
test our system and service readiness;
- we have revised our systems as necessary to improve their Year 2000
compliance based on the results of our Year 2000 simulation tests;
- we have upgraded and tested all other hardware and software used in our
operations;
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- 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; 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 believe that the work
required to achieve Year 2000 compliance is complete for hardware and software
necessary to deliver our services, and for software running on personal
computers.
COST. As of December 31, 1999, we had incurred costs of approximately
$100,000 in connection with identifying, evaluating and addressing Year 2000
compliance issues. Most of our expenses have been related to the operating costs
associated with time spent by employees in the evaluation process and Year 2000
compliance matters.
RISKS. Although our assessment has been 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
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, government
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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<PAGE>
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 twelve subject areas,
or vertical content channels, that contain 92 Web sites, 72 e-mail newsletters,
110 online discussion forums and 75 moderated e-mail discussion lists. During
the month of November 1999, we delivered 84.5 million page views to 1.9 million
unique visitors and 19.1 million copies of our e-mail newsletters to
2.0 million subscribers, and 41.1 million postings were generated by 80,000
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 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.
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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
- business-to-business e-commerce will grow from $17 billion in 1998 to
$327 billion in 2002.
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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 110 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 75 moderated e-mail discussion
lists and have over 85,000 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.
- 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.
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- TECHNICAL JOB LISTINGS. Through SILICONALLEYJOBS.COM, WDVLJOBS.COM,
SWYNKJOBS.COM, BHSJOBS.COM and through an agreement with
CareerBuilder, Inc. for 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, bounties for new customers 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 combinations of advertising, bounties and revenue sharing. Through
LINUXCENTRAL.COM we sell hardware, software and other products geared for the
Linux and Open Source community. Through SILICONALLEYJOBS.COM, WDVLJOBS.COM,
SWYNKJOBS.COM and BHSJOBS.COM, we offer paid job listings that can be searched
by job type, salary range and geographic location. 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, 79% 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 1999 through September 1999, some key demographics of our community of
Internet users include:
- 79% are involved in purchasing Internet products and services for their
companies and organizations, including hardware, software, networking and
Internet access;
- 72% purchased products online in the six months ended September 30, 1999;
- 50% have Internet technology or information technology job titles; another
29% are in corporate management;
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- the average household income of the group exceeds $67,000 annually;
- 61% are in the desirable 25-44 age group; and
- 58% 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 60 employees and over 100 freelance contributors as of
November 30, 1999, creates proprietary content for our network on a daily basis.
In October 1999, our editorial team authored more than 790 news articles
published in InternetNews, over 80 technical tutorials, over 190 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 45
acquisitions, which included 58 Web sites, 41 e-mail newsletters, 83 online
discussion forums and 61 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.
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 continue to promote
the internet.com brand as a leading source of online content focused solely on
the Internet industry. In addition, we will continue to 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. We also provide access to limited versions of our
editorial content to others at no charge to promote our brands and generate
traffic. 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 nine months ended September 30, 1999,
67% of our revenues were derived from banner advertising. A significant majority
of our advertising revenues for the nine months ended September 30, 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 our e-mail newsletters and moderated e-mail discussion lists will
increase advertising
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revenues in the future. We are continuing to develop additional revenue sources,
including e-commerce agreements and offerings; content, brand and software
licensing; paid subscription services; seminars; opt-in e-mail list rentals;
venture capital management; and online press release distribution services. 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 have launched internet.com country and regional Web
sites for Asia, Australia, Canada, France, Germany, Israel, Japan, South Africa
and the United Kingdom. These regional 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 in either English or the local
language. We also have licensed the internet.com brand and content for
non-English language editions in certain other Middle Eastern countries and
China. 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 nine months ended September 30, 1999, 81% of our
revenues were derived from advertising, of which 82% 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 AND OFFERINGS. We have entered into a number of
e-commerce agreements, which generally include either a fixed fee for
advertising, a bounty for new customer accounts 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 combinations of advertising, bounties and revenue
sharing. Through Allnetresearch.com, we sell paid research reports offered by
over 40 third party publishers. E-commerce agreements typically are a minimum of
six months in duration. As of September 30, 1999, our ten largest e-commerce
vendors were:
<TABLE>
<S> <C> <C>
AD CLUB (Division of Avenue A, Inc.) FatBrain.com, Inc.
CareerBuilder, Inc. Hewlett-Packard Company
CompuBank, N.A. MapQuest.com, Inc.
Digital River, Inc. Micro Warehouse, Inc.
Domain Bank, Inc. ON24, Inc.
</TABLE>
We also provide our user community with various e-commerce offerings.
Through LinuxCentral.com, we sell hardware, software and other products geared
for the Linux and Open Source community. Through SILICONALLEYJOBS.COM,
WDVLJOBS.COM, SWYNKJOBS.COM and BHSJOBS.COM, we offer paid job listings that can
be searched by job type, salary range and geographic location. We plan on
offering additional category-specific paid job sites in the future.
During the nine months ended September 30, 1999, 7% of our revenues were
derived from e-commerce agreements and offerings. As of September 30, 1999,
three of our e-commerce agreements provided for fixed fees, one of our
e-commerce agreements provided for customer bounties, 40 of our e-commerce
agreements provided for revenue sharing, and 15 of our e-commerce agreements
provided for a combination of advertising, bounties and revenue sharing.
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
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generate traffic. We have paid licensing arrangements with America
Online, Inc., Ziff-Davis Inc., MBNA America Bank, N.A., T4S Group, Random
House Inc. and Reprint Services, a division of Print Craft, Inc. We also license
our editorial content and brands in exchange for promotional consideration to
other Web sites, including YAHOO!, Inc., CNET, Inc., Reuters NewMedia Inc., Web
TV Networks, Inc. and PC Financial Network, Inc.
We license selected portions of our editorial content to print publishers.
We have 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
third parties through licensing of reprints and copyright permission requests.
We licensed our ISDEX, The Internet Stock Index, to the Kansas City Board of
Trade for futures and futures options contracts which trade on this exchange. We
also licensed our ISDEX to Investec Guinness Flight Global Asset Management
Limited for use in connection with a mutual fund. In addition, we 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 nine months ended September 30, 1999, 3% of our
revenues were derived from licensing agreements.
PAID SUBSCRIPTION SERVICES. We currently publish four paid e-mail
subscription services, Internet Stock Report's Hotwatch, Internet StockTracker,
SearchEngineWatch and certain sections of Wall Street Research Net, which have a
combined total of more than 13,000 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 nine months ended September 30,
1999, 4% of our revenues were derived from paid subscription services.
SEMINARS. We 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 generate revenues
from attendee registrations, as well as from advertiser and vendor sponsorships.
For the nine months ended September 30, 1999, 3% of our revenues were derived
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 over 80 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 nine months ended September 30, 1999, 2% 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, and
internet.com Venture Fund II LLC, a $15.0 million venture fund formed in
November 1999, both of which 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 funds. We are also
entitled to 20% of the realized gains on investments made by these funds. We
invested $700,000 in the initial fund, which is now fully invested, and invested
$1.5 million in the second fund. The remaining $4.3 million in the initial fund
and $13.5 million in the second fund were invested by third party investors. To
date, we have generated minimal revenues from the management of these funds. See
"Certain Transactions--Venture Capital Fund."
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ONLINE PRESS RELEASE DISTRIBUTION SERVICES. Through InternetNewsBureau.com,
which we acquired on October 13, 1999, we provide paid e-mail based press
release distribution services. These press releases are e-mailed to over 4,000
registered journalists. To date, we have generated minimal revenues from these
services.
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 twelve 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 30 original items daily in the following
vertical Internet news categories: business, finance, Internet service
provider, or ISP, Web developer, E-commerce, Internet 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 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.
- ECOMMERCE/INTERNET MARKETING CHANNEL--Provides Internet marketers and
e-commerce professionals 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
and Competitive Local Exchange Carrier (CLEC) industries, including the
online edition of BOARDWATCH magazine, ISP-Planet, CLEC-Planet and
ISP-Lists, a collection of 55 e-mail discussion lists used by more than
53,000 professionals in the ISP industry to communicate with their
colleagues.
- INTERNET STOCKS/VC 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, China, France,
Germany, Israel, Japan, certain other Middle Eastern countries, South
Africa and the United Kingdom.
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- 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.
- LINUX/OPEN SOURCE CHANNEL--Provides news, tutorials, information resources
and e-commerce services for technology professionals implementing and
maintaining Linux and/or open source technologies.
- INTERNET LISTS CHANNEL--A collection of Web-based directories that allow
users to find and evaluate ISPs, Web design firms, trade shows, online
casinos and online radio stations.
- WINDOWS INTERNET TECHNOLOGY CHANNEL--Provides news, tutorials, and
information resources for technology professionals implementing and
maintaining Internet and intranet applications using Microsoft Corporation
technologies, including Active Server Pages and Back Office.
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INTERNET.COM WEB SITES AND RELATED INTERNET MEDIA PROPERTIES
In addition to our 92 Web sites, the Internet media properties presented on
these channels include 72 e-mail newsletters, 110 online discussion forums and
75 moderated e-mail discussion lists. Our network of Internet media properties
consists of the following:
<TABLE>
<CAPTION>
ACQUIRED,
E-MAIL ONLINE E-MAIL INTERNALLY
INTERNET WEB NEWS- DISCUSSION DISCUSSION DEVELOPED
MEDIA PROPERTY DESCRIPTION SITE LETTERS FORUMS LISTS OR LICENSED
- ------------------------- ------------------------- ---- ------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
INTERNETNEWS CHANNEL
internetnews Real-time, global - - Internally
WWW.INTERNETNEWS.COM coverage of Internet developed
industry news and
analysis reported by
our staff covering
business, finance, ISP,
Web development,
e-commerce,
advertising, stocks and
international news
NewsLinx Provides continuous - - Acquired
WWW.NEWSLINX.COM updates of Internet 11/98
news headlines with
links to the related
articles from leading
news Web sites
atnewyork Provides news and - - - Acquired
WWW.ATNEWYORK.COM analysis for the New 4/99
York City Internet
industry
Boston.internet.com Provides news and - Internally
WWW.BOSTON.INTERNET.COM analysis for the Boston developed
Internet industry
DC.internet.com Provides news and - Internally
WWW.DC.INTERNET.COM analysis for the developed
Washington, DC Internet
industry
internetnews radio Daily audio Internet news - Internally
INTERNETNEWSRADIO.COM broadcast developed
INTERNET TECHNOLOGY
CHANNEL
ServerWatch Reviews of Web server - - Acquired
WWW.SERVERWATCH.COM hardware and software 7/96
InternetProductWatch Searchable directory of - - Acquired
WWW.INTERNETPRODUCTWATCH.COM commercial Internet 1/96
product listings
AllNet Devices News and reviews of - - Internally
WWW.ALLNETDEVICES.COM devices that perform developed
specialized Internet
and intranet tasks
BotSpot Directory of information - - Acquired
WWW.BOTSPOT.COM and resources about 1/99
automated Internet data
retrieval
WebServer Compare Directory of Web servers - Acquired
WWW.WEBSERVERCOMPARE.COM listing technical 7/96
specifications
Intranet Design Magazine Tutorials and product - - - Acquired
WWW.INTRANETDESIGNMAGAZINE.COM reviews for intranet 9/98
managers
SQLCourse Online tutorial teaching - Acquired
WWW.SQLCOURSE.COM the basics of 9/99
Structured Query
Language, a method of
retrieving information
from databases
SQLWire News site for SQL - - Acquired
WWW.SQLWIRE.COM professionals, 10/99
featuring links to news
stories about
Structured Query
Language and related
topics
SolarisGuide Information resource for - Acquired
WWW.SOLARISGUIDE.COM Sun Solaris 10/99
administrators and
software developers
CEWire News site featuring links - - Acquired
WWW.CEWIRE.COM to press reports about 10/99
Microsoft's Windows CE
operating system
Internet Technology Discussion forums about - Internally
Forums Internet technology developed
FORUMS.INTERNET.COM topics
Internet World Archives of Internet - - Licensed
WWW.IW.COM World magazine
Hardware Central Comprehensive hardware - - - Acquired
WWW.HARDWARECENTRAL.COM information including 5/99
advice on optimization
and troubleshooting
BrowserWatch News and information for - - Acquired
WWW.BROWSERWATCH.COM technical professionals 5/96
about Web browsers
Sharky Extreme Resource for the latest - Acquired
WWW.SHARKYEXTREME.COM hardware and software 12/99
technology on the Web
WEB DEVELOPER CHANNEL
WebDeveloper News, reviews and - - - Internally
WWW.WEBDEVELOPER.COM tutorials for Web developed
developers
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
ACQUIRED,
E-MAIL ONLINE E-MAIL INTERNALLY
INTERNET WEB NEWS- DISCUSSION DISCUSSION DEVELOPED
MEDIA PROPERTY DESCRIPTION SITE LETTERS FORUMS LISTS OR LICENSED
- ------------------------- ------------------------- ---- ------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
WEB DEVELOPER CHANNEL (CONTINUED)
WebReference Tutorials, technical - - - Acquired
WWW.WEBREFERENCE.COM information and reviews 11/97
for Web developers
Web Developer's Virtual Tutorials and technical - - - - Acquired
Library information for Web 3/98
WWW.WDVL.COM developers
StreamingMediaWorld Tutorials and information - - Internally
WWW.STREAMINGMEDIAWORLD.COM resources for streaming developed
media developers
JustSMIL Tutorials, information - - Acquired
WWW.JUSTSMIL.COM resources and forums 11/98
for streaming media
developers
JavaBoutique Collection of over 360 - - - Acquired
WWW.JAVABOUTIQUE.COM Java applets available 5/97
for download
The JavascriptSource Collection of over 300 - - - Acquired
WWW.JAVASCRIPTSOURCE.COM Javascripts available 7/98
for download
Javascript.com Portal site that - Internally
WWW.JAVASCRIPT.COM facilitates access to developed
internet.com Javascript
services
ScriptSearch Links to more than 5,000 - - Acquired
WWW.SCRIPTSEARCH.COM C++, PERL, VBScript and 9/98
other programs online
Web Developer's Journal Tutorials and information - - - - Acquired
WWW.WEBDEVELOPERSJOURNAL.COM resources for Web site 7/99
development, site
design, HTML, Web
graphics and audio
FlashPlanet Information resource for - Acquired
WWW.FLASHPLANET.COM Flash multimedia 1/00
technology
FlashKit Information resource for - Acquired
WWW.FLASHKIT.COM Flash multimedia 1/00
technology
Web Developer Forums Discussion forums about - Internally
FORUMS.INTERNET.COM Web development topics developed
ECOMMERCE/INTERNET MARKETING CHANNEL
The Electronic Commerce News, tutorials, reviews - - - - Acquired
Guide and opinions for 11/95
ECOMMERCE-GUIDE.COM e-commerce
professionals
SearchEngineWatch How-to site for Internet - - Acquired
WWW.SEARCHENGINEWATCH.COM marketers and users 11/97
about search engine
operations
CyberAtlas Searchable repository of - - Acquired
WWW.CYBERATLAS.COM Internet-related 8/98
research abstracts
Internet Day Daily tutorial for - - Acquired
WWW.INTERNETDAY.COM Internet marketers and 11/98
professionals
Internet Advertising Highlights top Internet - - Internally
Report marketing and adver- developed
WWW.INTERNETNEWS.COM/IAR tising news and events
Ad Resource Collection of Internet - Acquired
WWW.ADRESOURCE.COM advertising resources 11/98
for Internet marketers
Refer-It Directory of Web site - - - Acquired
WWW.REFER-IT.COM affiliate, referral and 4/99
revenue sharing
programs
AllNetResearch Directory of Internet - - Internally
WWW.ALLNETRESEARCH.COM industry research developed
reports available for
online purchase
INTERNET RESOURCES
CHANNEL
Webopedia Dictionary and search - - Acquired
WWW.WEBOPEDIA.COM engine containing more 3/98
than 8,800 Internet and
technology definitions
and terms
CoolCentral Recommendations for - Acquired
WWW.COOLCENTRAL.COM useful and entertaining 11/97
Web sites
InternetShopper Directory of shopping Web - - Internally
WWW.INTERNETSHOPPER.COM sites listed by cate- developed
gory, daily listings of
free and discounted
items available online
and an Internet
shopping agent
Internet Jobs Provides searchable - Internally
JOBS.INTERNET.COM access to Internet developed
industry and Internet
technology job openings
silicon alley Jobs Provides searchable - - - Acquired
WWW.SILICONALLEYJOBS.COM access to Internet 4/99
industry and Internet
technology job openings
My Desktop Information site for - - Acquired
WWW.MYDESKTOP.COM experienced Internet 5/99
users
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
ACQUIRED,
E-MAIL ONLINE E-MAIL INTERNALLY
INTERNET WEB NEWS- DISCUSSION DISCUSSION DEVELOPED
MEDIA PROPERTY DESCRIPTION SITE LETTERS FORUMS LISTS OR LICENSED
- ------------------------- ------------------------- ---- ------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
INTERNET RESOURCES CHANNEL (CONTINUED)
Virtual Dr Technical support for - - Acquired
WWW.VIRTUALDR.COM Internet and personal 5/99
computer users
The Guestbook Online application that - Acquired
WWW.THEGUESTBOOK.COM permits Webmasters to 9/99
add a "guest sign in"
feature to Web sites
The Counter Online tools to enable - - Acquired
WWW.THECOUNTER.COM Webmasters to analyze 9/99
their traffic
Internet Forums Directory of online - Internally
FORUMS.INTERNET.COM discussion forums about developed
a variety of Internet
topics
Events.internet.com Information about - Internally
EVENTS.INTERNET.COM Internet World and ISP- developed
CON trade shows
ISP RESOURCES CHANNEL
ISP-Planet News and information for - - Internally
WWW.ISP-PLANET.COM the ISP industry developed
ISP-Lists E-mail discussion lists - - Acquired
WWW.ISP-LISTS.COM and Web sites serving 10/98
ISP industry
professionals
ISP News Real-time, global - Internally
WWW.INTERNETNEWS.COM/ISP-NEWS coverage of Internet developed
Service Provider
industry news
CLEC-Planet News and information - - Internally
WWW.CLEC-PLANET.COM about Competitive Local developed
Exchange Carriers
(CLECs) for the ISP
industry
Boardwatch Archives of Boardwatch - Licensed
WWW.BOARDWATCH.COM magazine
ISPCON Information site for - Licensed
WWW.ISPCON.COM ISPCON events
INTERNET STOCKS/VC
CHANNEL
Internet Stock Report Intraday analysis of - - - Internally
WWW.INTERNETSTOCKREPORT.COM Internet stocks developed
ISDEX, The Internet Stock Proprietary index of 50 - Internally
Index publicly traded developed
WWW.ISDEX.COM Internet stocks
InternetStockList Directory of publicly - Internally
WWW.INTERNETSTOCKLIST.COM traded Internet compa- developed
nies, including related
news, information and
analysis
IPO Watch Directory of Internet - Internally
WWW.INTERNETNEWS.COM/STOCKS/IPO companies that have developed
filed to go public,
including related news,
information and
analysis
IPODEX Directory of Internet - Internally
WWW.IPODEX.COM companies that have developed
recently gone public
silicon alley Stocks News and information - Acquired
WWW.SILICONALLEYSTOCKS about New York City 4/99
Internet industry
public companies
Wall Street Research Net Information and resources - - - Acquired
WWW.WSRN.COM for investors on the 7/99
Web
Internet Stock Forums Discussion forums about - Internally
FORUMS.INTERNET.COM Internet stocks and developed
investing
INTERNATIONAL CHANNEL
Arabia Daily Internet news and - Licensed
ARABIA.INTERNET.COM information about the
Middle East
Asia Daily Internet news and - - Internally
ASIA.INTERNET.COM information about Asia developed
Australia Daily Internet news and - - Internally
AUSTRALIA.INTERNET.COM information about developed
Australia
Canada Daily Internet news and - - Internally
CANADA.INTERNET.COM information about developed
Canada
China Daily Internet news and - Licensed
CHINA.INTERNET.COM information about China
France Daily Internet news and - - Internally
FRANCE.INTERNET.COM information about developed
France
Germany Daily Internet news and - - Internally
GERMANY.INTERNET.COM information about developed
Germany
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
ACQUIRED,
E-MAIL ONLINE E-MAIL INTERNALLY
INTERNET WEB NEWS- DISCUSSION DISCUSSION DEVELOPED
MEDIA PROPERTY DESCRIPTION SITE LETTERS FORUMS LISTS OR LICENSED
- ------------------------- ------------------------- ---- ------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
INTERNATIONAL CHANNEL (CONTINUED)
Israel Daily Internet news and - - Internally
ISRAEL.INTERNET.COM information about developed
Israel
Japan Daily Internet news and - - Internally
JAPAN.INTERNET.COM information about Japan developed
South Africa Daily Internet news and - - Internally
SOUTHAFRICA.INTERNET.COM information about South developed
Africa
United Kingdom Daily Internet news and - - Internally
UK.INTERNET.COM information about the developed
United Kingdom
DOWNLOAD CHANNEL
Jumbo! Software Web site with - - Acquired
WWW.JUMBO.COM over 300,000 programs 11/98
available for download
CWSApps Reviews and downloads for - - Acquired
WWW.CWSAPPS.COM Microsoft Win- 12/96
dows-based Internet
software
NewApps Links to new software - - Acquired
WWW.NEWAPPS.COM programs available for 11/98
download
FileFarm Reviews and downloads for - - Acquired
WWW.FILEFARM.COM business software 5/99
Software Blast Offers users a wide - - Acquired
WWW.SOFTWAREBLAST.COM variety of free 9/99
software for download
from applications
categories such as
business,
communications, desktop
enhancements and
productivity
INTERNET LISTS CHANNEL
Web Design List Directory of more than - - Internally
DESIGNLIST.INTERNET.COM 2,500 Web design firms developed
InternetRadioList Directory of Internet - - Internally
WWW.INTERNETRADIOLIST.COM radio stations developed
InternetEmailList Directory of free e-mail - Internally
WWW.INTERNETEMAILLIST.COM service providers developed
InternetCasinoList Directory of more than - Internally
WWW.INTERNETCASINOLIST.COM 400 online casinos developed
The List Buyer's guide containing - Acquired
WWW.THELIST.COM terms of service for 8/95
more than 8,100
Internet Service
Providers worldwide
Directory of Internet Directory of Internet - Licensed
Service Service Providers
Providers
BOARDWATCH.INTERNET.COM/ISP
InternetTradeShowList Directory of trade shows - Internally
WWW.INTERNETTRADESHOWLIST.COM and seminars for the Developed
Internet and IT
industries
WINDOWS INTERNET
TECHNOLOGY CHANNEL
15 seconds Tutorials, discussion - - - Acquired
WWW.15SECONDS.COM lists and newsletters 12/98
for Microsoft Active
Server Pages developers
Swynk News and information for - - - - Acquired
WWW.SWYNK.COM system administrators 4/99
WinPlanet Microsoft Windows - - Acquired
WWW.WINPLANET.COM software news, 5/99
tutorials, opinions,
reviews and tips
BHS.com Microsoft system - - - Acquired
WWW.BHS.COM administrator support 8/99
site that offers
software downloads,
FAQs, help wanted
listings and online
discussion forums
ASPWatch Tutorials and information - - Acquired
WWW.ASPWATCH.COM resources for Web site 8/99
developers using
Microsoft Active Server
Pages technology
ASPWire News site featuring links - - - Acquired
WWW.ASPWIRE.COM to press reports about 10/99
Microsoft's Active
Server Pages Web site
development technology
VBWire News site featuring links - - - Acquired
WWW.VBWIRE.COM to press reports about 10/99
Microsoft's Visual
Basic programming lan-
guage
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
ACQUIRED,
E-MAIL ONLINE E-MAIL INTERNALLY
INTERNET WEB NEWS- DISCUSSION DISCUSSION DEVELOPED
MEDIA PROPERTY DESCRIPTION SITE LETTERS FORUMS LISTS OR LICENSED
- ------------------------- ------------------------- ---- ------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
LINUX/OPEN SOURCE CHANNEL
LinuxPlanet Linux news and tutorials - - - Acquired
WWW.LINUXPLANET.COM for system adminis- 5/99
trators
LinuxToday News and community site - - Acquired
WWW.LINUXTODAY.COM for Linux profes- 10/99
sionals
LinuxCentral Linux software, book and - - Acquired
WWW.LINUXCENTRAL.COM accessories e-commerce 10/99
site
LinuxStart Portal site that - Acquired
WWW.LINUXSTART.COM facilitates access to 12/99
Linux information
resources
JustLinux Portal site that - - - Acquired
WWW.JUSTLINUX.COM facilitates access to 1/00
Linux information
resources
</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."
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
October 1998 to October 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 30 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 192% from 1.3 million in October 1998 to approximately 3.8 million in
October 1999.
WEBDEVELOPER.COM. We launched WebDeveloper.com as a print publication with
a companion Web site in September 1995. In May 1997, WebDeveloper.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 217% from 504,000 in October 1998 to approximately 1.6 million in
October 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 $69.
Monthly page views for SearchEngineWatch increased 91% from 890,000 in
October 1998 to approximately 1.7 million in October 1999.
EDITORIAL
We maintain editorial offices in Darien, Connecticut; New York, New York;
Lexington, Kentucky; Toronto, Canada; 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 18 countries worldwide.
41
<PAGE>
Our editorial team, comprised of 60 employees and over 100 freelance
contributors as of November 30, 1999, creates considerable proprietary content
each month. For example, in October 1999, our editorial team:
- authored more than 790 news articles published in InternetNews;
- authored more than 100 technical tutorials;
- authored more than 230 market analysis reports;
- reviewed more than 190 products and books;
- created more than 1,100 editions of 71 separate e-mail newsletters;
- moderated over 75 e-mail discussion lists and over 101 online discussion
forums;
- catalogued and evaluated more than 2,100 software programs; and
- maintained more than 15,000 directory listings of Internet-related
products, services and companies.
In addition, our editorial staff also maintains an online dictionary,
WWW.WEBOPEDIA.COM, of 8,800 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
magazine and BOARDWATCH magazine;
- exhibit and sales office space at no charge for each U.S. Internet World
and ISPCON trade show; and
42
<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 1999 through September 1999, 79% 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 to 3.4 times
higher than the published rates of Go2Net, Inc., go.com, Looksmart, Ltd. and NBC
Internet Inc. as of October 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 November 1999, we
distributed 19.1 million copies of our e-mail newsletters to over 2.0 million
subscribers. We also distributed 41.1 million messages to more than 80,000
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 850 advertisers have placed advertisements on our network. For the nine
months ended September 30, 1999, International Business Machines Corporation
accounted for 9% of our revenues, and our top 20 advertisers together accounted
for 35% of our revenues during the same period. Based on revenues, the following
were our largest 20 advertisers during the nine months ended September 30, 1999:
<TABLE>
<S> <C>
International Business Machines Corporation Ariel Corporation
Sun Microsystems, Inc. Moai Technologies
Hewlett-Packard Company Nortel Networks Corporation
Lucent Technologies Inc. Oracle Corporation
Microsoft Corporation Surfree.com Inc. Company
EarthLink Network, Inc. PSINet Inc.
Compaq Computer Corporation American Power Conversion Corporation
Inktomi Corporation Allaire Corporation
GoTo.com, Inc. Flycast Communications Corporation
UBID, Inc. Akamai Technologies, Inc.
</TABLE>
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% 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.
43
<PAGE>
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, CNET, 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.
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, Microsoft NT and Linux 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; database servers
from Oracle Corporation; an advertising management system from
NetGravity, Inc.; a content management system from Vignette Corporation; 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 each night to backup tapes that are 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 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
44
<PAGE>
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, domain names 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 75 other countries. We have encountered obstacles to
registration of some marks in several of these countries.
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 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
45
<PAGE>
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
November 30, 1999:
<TABLE>
<CAPTION>
NUMBER OF
EMPLOYEES
---------
<S> <C>
Editorial................................................... 60
Marketing and sales......................................... 65
Technology and operations................................... 38
Administration.............................................. 19
---
Total..................................................... 182
===
</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 Darien, Connecticut. See "Certain
Transactions." We believe that our current facilities will be adequate to meet
our needs for the foreseeable future.
The following table sets forth a summary of our leased and subleased office
facilities as of November 30, 1999:
<TABLE>
<CAPTION>
LOCATION SQUARE FEET LEASED THROUGH
- -------- ------------------------ --------------------------------
<S> <C> <C>
Darien, Connecticut............................. 20,000 February 2003
New York, New York.............................. 11,000 September 2004
South San Francisco, California................. 4,500 August 2004
Ann Arbor, Michigan............................. 1,000 December 2000
Lexington, Kentucky............................. 1,000 January 2000
</TABLE>
46
<PAGE>
LEGAL PROCEEDINGS
Until late November 1999, we were engaged in trademark opposition
proceedings before trademark offices in the United States and other
jurisdictions with International Data Group, Inc. or IDG. We have reached a
settlement with IDG regarding the registration of the trademark "internet.com"
in the United States Patent Office, which we originally filed with the Trademark
Trial and Appeal Board of the U.S. Patent and Trademark Office in
September 1998. The settlement with IDG gives us exclusive rights to the
"internet.com" trademark worldwide. See "Business--Intellectual Property."
Messrs. Alan M. Meckler and Christopher S. Cardell, who are stockholders,
executive officers and directors of internet.com, were stockholders, 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 are directors of internet.com, were directors of Mecklermedia
Corporation prior to its acquisition by Penton Media. A complaint seeking class
action status was filed in Delaware Chancery Court on June 16, 1999 by a former
stockholder 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 stockholder 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. On August 20, 1999, all of the
defendants, including internet.com and Messrs. Meckler, Cardell, Bach and
Davies, served an answer to the complaint generally denying the allegations
therein, denying that the directors of Mecklermedia Corporation breached any
fiduciary duties, and asserting certain affirmative defenses. All of the
defendants intend to vigorously defend themselves.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our executive
officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ----------------------------------------------
<S> <C> <C>
Alan M. Meckler........................... 54 Director, Chairman and Chief Executive Officer
Christopher S. Cardell.................... 40 Director, President and Chief Operating
Officer
Christopher J. Baudouin................... 32 Chief Financial Officer
Gilbert F. Bach........................... 68 Director
Michael J. Davies......................... 55 Director
William A. Shutzer (1).................... 52 Director
</TABLE>
(1) William A. Shutzer became a director of internet.com on January 1, 2000.
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...................... 48 Vice President and Publisher
Augustine Venditto........................ 44 Editor-in-Chief
Mark J. Berns............................. 46 Chief Technology Officer
David M. Arganbright...................... 57 Vice President of Commerce and Licensing
Mitchell S. Eisenberg..................... 36 Vice President of International Business
and General Counsel
Kirk J. Holland........................... 31 Vice President of Business Development
</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 has been a director of internet.com since its inception.
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.
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<PAGE>
MICHAEL J. DAVIES has been a director of internet.com since its inception.
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 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.
WILLIAM A. SHUTZER has been a director of internet.com since January 2000.
Mr. Shutzer has been a Partner of Thomas Weisel Partners since September 1999.
He has been a director of Tiffany & Co. since 1984 and The Fortress Group since
1996 and a director on the Advisory Board of the E&J Gallo Winery since 1999.
Mr. Shutzer was Executive Vice President of Furman Selz, an investment bank,
from March 1994 to March 1996, President from April 1996 to September 1997 and
Chairman of the investment banking group of ING Furman Selz from October 1997 to
August 1999. Prior to that Mr. Shutzer was employed at the investment bank
Lehman Bros. from August 1972 to February 1994, most recently as a Managing
Director.
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 December 1999, Mr. Eisenberg was also named Vice President of
International Business. In addition to overseeing all of internet.com's
international joint ventures and operations and legal matters, he is
49
<PAGE>
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.
KIRK J. HOLLAND joined internet.com in June 1999 as Vice President of
Business Development. He is responsible for acquisitions and other business
development opportunities for internet.com. Prior to joining internet.com,
Mr. Holland was an investment banker in U.S. Bancorp Piper Jaffray's Internet
Media and Technology Group from June 1998 to June 1999, where he was involved in
equity offerings, private placements and mergers and acquisitions. From
June 1997 to September 1997, Mr. Holland worked in marketing and business
development for Sprint PCS. Prior to that, Mr. Holland worked in operations and
technology management for Procter and Gamble Company from 1991 to 1996.
BOARD OF DIRECTORS AND BOARD COMMITTEES
Our board of directors is comprised of five directors. 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 consulting
services. The audit committee is comprised of Messrs. Bach, Davies and Shutzer.
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. The compensation
committee is comprised of Messrs. Bach, Davies and Shutzer.
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 are paid an annual stipend
of $4,000. For each board meeting they attend, these other directors receive
$1,000 and are reimbursed for their expenses incurred in connection with the
meeting. In addition, each of these other directors received, 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. Michael J. Davies and Gilbert F. Bach each earned
$4,055 in stipends for the period from our inception through December 31, 1999,
and for attending board meetings in 1999. See "--1999 Stock Incentive Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee makes all compensation decisions. No interlocking
relationship exists between the board or compensation committee and the board of
directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
Each of Christopher S. Cardell and Christopher J. Baudouin has an employment
agreement with internet.com which provides for severance pay equal to one year
and six months, respectively, of his annual salary if his employment with
internet.com is terminated. Pursuant to our 1999 Stock Incentive Plan, the
vesting of stock options will be accelerated upon certain changes of control of
internet.com.
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<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth, for the last
fiscal year and for the period from inception (November 24, 1998) through
December 31, 1998, cash and certain other compensation paid or accrued by
internet.com for the Chief Executive Officer of internet.com in all capacities
in which he served. The table also sets forth cash and certain other
compensation paid or accrued by internet.com for the last fiscal year and for
the period from inception through December 31, 1998 for the President and Chief
Operating Officer and the Chief Financial Officer of internet.com.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION AWARDS
COMPENSATION --------------------
----------------------- NUMBER OF SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY($) UNDERLYING OPTIONS
- --------------------------- -------- --------- --------------------
<S> <C> <C> <C>
Alan M. Meckler...................................... 1999 123,077(2) 300,000
Chairman and Chief Executive Officer 1998(1) 12,164 None
Christopher S. Cardell............................... 1999 178,077(3) 75,000
President and Chief Operating Officer 1998(1) 17,740 None
Christopher J. Baudouin.............................. 1999 119,654(4) 20,000
Chief Financial Officer 1998(1) 12,164 None
</TABLE>
- ------------------------
(1) Represents the period from inception (November 24, 1998) through
December 31, 1998.
(2) Mr. Meckler's current annual salary is $195,000.
(3) Mr. Cardell's current annual salary is $195,000.
(4) Mr. Baudouin's current annual salary is $150,000.
OPTION GRANTS TABLE. The following table sets forth information concerning
the grant of options to purchase shares of our common stock to each of the Chief
Executive Officer, President and Chief Operating Officer and Chief Financial
Officer of internet.com during the fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
NUMBER OF PERCENT OF APPRECIATION FOR OPTION
SECURITIES TOTAL OPTIONS TERM(8)
UNDERLYING GRANTED TO EXERCISE PRICE EXPIRATION -----------------------
NAME OPTIONS EMPLOYEES IN 1999 ($/SH)(7) DATE 5% 10%
- ---- ---------- ----------------- -------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Alan M. Meckler......... 200,000(1) 17.3% $15.40 6/25/09 $850,947 $1,880,371
100,000(2) 8.6% $14.75 9/7/09 $407,421 $ 900,295
Christopher S.
Cardell............... 50,000(3) 4.3% $14.00 6/25/09 $440,226 $1,115,620
25,000(4) 2.2% $13.41 9/7/09 $210,774 $ 534,143
Christopher J.
Baudouin.............. 15,000(5) 1.3% $14.00 6/25/09 $132,068 $ 334,686
5,000(6) 0.4% $13.41 9/7/09 $ 42,155 $ 106,829
</TABLE>
- ------------------------
(1) Of these, 66,666 options become exercisable on June 25, 2000; 66,667 options
become exercisable on June 25, 2001; and 66,667 options become exercisable
on June 25, 2002.
(2) Of these, 33,333 options become exercisable on September 7, 2000; 33,333
options become exercisable on September 7, 2001; and 33,334 options become
exercisable on September 7, 2002.
(3) Of these, 16,666 options become exercisable on June 25, 2000; 16,667 options
become exercisable on June 25, 2001; and 16,667 options become exercisable
on June 25, 2002.
(4) Of these, 8,333 options become exercisable on September 7, 2000; 8,333
options become exercisable on September 7, 2001; and 8,334 options become
exercisable on September 7, 2002.
(5) Of these, 5,000 options become exercisable on June 25, 2000; 5,000 options
become exercisable on June 25, 2001; and 5,000 options become exercisable on
June 25, 2002.
51
<PAGE>
(6) Of these, 1,666 options become exercisable on September 7, 2000; 1,666
options become exercisable on September 7, 2001; and 1,667 options become
exercisable on September 7, 2002.
(7) The exercise price per share of each option granted to Messrs. Cardell and
Baudouin was equal to the fair market value of internet.com's common stock
on the date of grant. The exercise price per share of each option granted to
Mr. Meckler was equal to 110% of the fair market value of internet.com's
common stock on the date of grant.
(8) These amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5.0% and 10.0%
compounded annually from the date the respective options were granted to
their expiration dates. These assumptions are not intended to forecast
future appreciation of our stock price. The potential realizable value
computation does not take into account federal or state income tax
consequences of option exercises or sales of appreciated stock.
FISCAL YEAR-END OPTION VALUE TABLE. The following table sets forth
information for each of the Chief Executive Officer, President and Chief
Operating Officer and Chief Financial Officer of internet.com with respect to
the value of options outstanding as of December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED VALUE OPTIONS AT YEAR END YEAR END ($)
NAME ON EXERCISE ($) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- --------------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Alan M. Meckler........... -- -- --/300,000 --/11,120,340
Christopher S. Cardell.... -- -- --/75,000 --/2,883,600
Chrisopher J. Baudouin.... -- -- --/20,000 --/767,970
</TABLE>
1999 STOCK INCENTIVE PLAN
On April 15, 1999, we adopted the internet.com Corporation 1999 Stock
Incentive Plan. Through November 30, 1999, we had issued options to purchase
1,011,810 shares of our common stock to our directors, officers and employees.
The exercise price of options granted under the 1999 Stock Incentive Plan has
not been and 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. There are an additional
978,670 shares of common stock available for issuance 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 is administered by the compensation committee of our board of
directors. The compensation committee makes the determinations 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 do not and 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.
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<PAGE>
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.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our Amended and Restated Certificate of Incorporation includes 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 also provides 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.
We have entered into indemnity agreements with each of our directors and
executive officers in order to give them additional contractual assurances
regarding the scope of the indemnification described above and to provide
additional procedural protections. In addition, we maintain 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
from 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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<PAGE>
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 which was exercised in full
by Internet World Media immediately prior to our initial public offering. The
following chart summarizes the organizational events from the acquisition of
Mecklermedia by Penton Media to the closing of our initial public offering in
June 1999:
[CHART]
54
<PAGE>
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 to 15 of our
employees, 4.63 of which units were granted to one employee, subject to vesting
requirements which were never satisfied. 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 were converted immediately prior
to the consummation of our initial public offering, and the resulting price per
share:
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK PRICE PER SHARE
NUMBER OF UNITS SOLD UPON CONVERSION UPON 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
converted to 60,810 shares of internet.com Corporation common stock at a price
of $2.47 per share. Christopher J. Baudouin, our Chief Financial Officer,
purchased 0.88 of these units, which converted to 14,189 shares of internet.com
Corporation common stock at a price of $2.47 per share. The remaining employees
purchased in the aggregate 5.875 of these units, which converted to 95,268
shares of our common stock at a price of $2.47 per share.
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 were converted immediately prior to the consummation of
our initial public offering and the resulting aggregate value upon conversion:
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK AGGREGATE VALUE
NUMBER OF UNITS GRANTED UPON CONVERSION UPON CONVERSION
- ----------------------- ---------------------- ---------------
<S> <C> <C>
44.70 725,000 $7,975,000
</TABLE>
Christopher S. Cardell, our President and Chief Operating Officer, was
granted 18.50 of these units, which converted to 300,000 shares of internet.com
Corporation common stock at a total value of $3.3 million. Christopher J.
Baudouin, our Chief Financial Officer, was granted 3.47 of these units, which
converted to 56,250 shares of internet.com Corporation common stock at a total
value of $618,750. The remaining employees were granted in the aggregate 22.73
of these units, which converted to 368,750 shares of our common stock at a total
value of $4.1 million.
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. 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
55
<PAGE>
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.
OFFICE LEASES
From inception until November 19, 1999, internet.com 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 $56,000 for the use of these locations for the period
from inception (November 24, 1998) through September 30, 1999. We were obligated
to pay a proportionate share of all electricity, heating, ventilation and air
conditioning costs for these premises. These leases were governed by the
Services Agreement between internet.com and Penton Media; we had not executed
separate leases with Penton Media regarding these premises. In July 1999, we
entered into an agreement to lease office space for our corporate headquarters
in Darien, Connecticut at an annual rate of $350,000. This lease will expire in
February 2003. We are obligated to pay a proportionate share of all electricity,
heating, ventilation and air conditioning costs for these premises. In
October 1999, we moved our Burlingame, California operations to new premises
located in South San Francisco, California pursuant to a lease entered into in
September 1999 and expiring in August 2004. Rent expense is $130,000 annually
and we are obligated to pay a proportionate share of all electricity, heating,
ventilation and air conditioning costs for these premises. In September 1999, we
entered into a lease for premises located in New York, New York pursuant to a
lease expiring in September 2004. Rent expense is $310,000 annually.
VENTURE CAPITAL FUNDS
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, and
internet.com Venture Fund II LLC, a $15.0 million venture capital fund formed in
November 1999, both of which 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 funds. We are also
entitled to 20% of the realized gains on investments made by these funds. We
invested $700,000 in the initial fund, which is now fully invested, and invested
$1.5 million in the second fund. The remaining $4.3 million in the initial fund
and $13.5 million in the second fund were invested by third party investors. To
date, we have generated minimal revenues from these funds.
56
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of December 31, 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 of internet.com, (c) each Named Executive
Officer of internet.com, (d) the selling stockholder and (e) all executive
officers and directors of internet.com as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED AFTER OFFERING
SHARES BENEFICIALLY IF OVER-ALLOTMENT
OWNED PRIOR TO NUMBER OF OPTION EXERCISED
OFFERING(1) NUMBER OF SHARES OFFERED IN IN FULL
------------------------ SHARES OVER-ALLOTMENT ---------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED OPTION NUMBER PERCENT
- ------------------------ ---------- -------- --------- ----------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Alan M. Meckler.................. 12,977,850(2) 55.6% -- -- 12,977,850 51.7%
Penton Media, Inc................ 4,973,383(3) 21.3 2,000,000 562,500 2,410,883 9.6
1100 Superior Avenue, N.E.
Cleveland, Ohio 44114
Christopher S. Cardell........... 441,889 1.9 -- -- 441,889 1.8
Gilbert F. Bach.................. 5,000 * -- -- 5,000 *
Michael J. Davies................ 500 * -- -- 500 *
Christopher J. Baudouin.......... 74,439(4) * -- -- 74,439 *
All executive officers and
directors as a group (five
persons)....................... 13,499,678 57.9% -- -- 13,499,678 53.8%
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1%.
(1) Percentage ownership is based on 23,334,520 shares outstanding as of
December 31, 1999. Shares of common stock subject to options currently
exercisable or exercisable within 60 days of December 31, 1999 are deemed
outstanding for the purpose of computing the percentage ownership of the
person holding such options but are not deemed outstanding for the purpose
of 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) Includes (a) 1,443,215 shares held in trusts established for the benefit of
Mr. Meckler's four children and over which Mr. Meckler exercises investment
control and (b) 50,000 shares donated by Mr. Meckler to the Meckler
Foundation, a non-profit charitable foundation founded by Mr. Meckler and
for which he acts as a trustee.
(3) 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.
(4) Includes 500 shares held in a trust for the benefit of Mr. Baudouin's child.
Mr. Baudouin exercises investment control over this trust.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
We 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 December 29, 1999, there were outstanding 23,334,520
shares of common stock, each with a par value of $0.01, held of record by
approximately 5,000 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."
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, a
subsidiary of Penton 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 in our initial public
offering in June 1999, 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. However, the managing underwriter, if any, of
58
<PAGE>
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 interested 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
- 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
59
<PAGE>
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 is listed on the Nasdaq National Market under the
trading symbol "INTM."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
After this offering, there will be outstanding 25,084,520 shares of our
common stock. Of these shares, the 3,910,000 shares sold in our initial public
offering are, and the shares sold in this offering will be, freely tradable
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 shares
outstanding upon completion of this offering will be "restricted securities" as
that term is defined in Rule 144. 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.
LOCK-UP AGREEMENTS. Our executive officers, directors and 5% or greater
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 90 days after the date of this prospectus, subject
to certain exceptions. Transfers or dispositions can be made sooner with the
prior written consent of Hambrecht & Quist LLC.
RULE 144. In general, under Rule 144 as currently in effect, 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 250,845 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.
REGISTRATION RIGHTS. Upon completion of this offering, Internet World
Media, which will (assuming no exercise of the underwriters' over-allotment
option) hold 2,973,383 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. We have issued options to purchase 1,090,730 shares of
common stock, of which 31,980 shares are fully vested. Upon the expiration of
the lock-up agreements described above, at least 31,980 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. Subject to vesting
provisions and Rule 144 volume limitations applicable to our affiliates, the
shares of our common stock underlying those options are available for sale in
the open market immediately after the lock-up agreements expire.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives, Hambrecht & Quist LLC,
BancBoston Robertson Stephens Inc., U.S. Bancorp Piper Jaffray Inc. and William
Blair & Company, L.L.C. have severally agreed to purchase from us and the
selling stockholder the following numbers of shares of common stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ---------
<S> <C>
Hambrecht & Quist LLC....................................... 1,597,500
BancBoston Robertson Stephens Inc........................... 1,242,500
U.S. Bancorp Piper Jaffray Inc.............................. 532,500
William Blair & Company, L.L.C.............................. 177,500
Gerard Klauer Mattison & Co., LLC........................... 100,000
Moness, Crespi, Hart & Co., Inc............................. 100,000
---------
Total..................................................... 3,750,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to conditions that we and the selling stockholder must satisfy,
including the receipt of certificates, opinions and letters from us, our counsel
and our independent auditors. The underwriters are committed to purchase all
shares of common stock offered in this prospectus if any shares are purchased.
The underwriters propose to offer the shares of common stock directly to the
public at the public offering price set forth on the cover page of this
prospectus and to dealers at the public offering price less a concession not in
excess of $2.00 per share. The underwriters may allow and the dealers may
reallow a concession not in excess of $.10 per share to other dealers. After the
public offering of the shares, the underwriters may change the offering price
and other selling terms.
Internet World Media has granted to the underwriters an option, exercisable
no later than 30 days after the date of this prospectus, to purchase up to
562,500 additional shares of common stock at the public offering price, less the
underwriting discount set forth on the cover page of this prospectus. To the
extent that the underwriters exercise this option, each underwriter will have a
firm commitment to purchase a number of shares that approximately reflects the
same percentage of total shares the underwriter purchased in the above table.
The selling stockholder will be obligated to sell shares to the underwriters to
the extent the option is exercised. The underwriters may exercise this option
only to cover over-allotments made in connection with the sale of common stock
offered in this prospectus.
We and the selling stockholder have agreed to indemnify the underwriters
against liabilities, including liabilities under the Securities Act, and to
contribute to payments the underwriters may be required to make in respect
thereof.
The selling stockholder and all of our executive officers and directors, who
will own in the aggregate 16,315,958 shares of common stock after this offering,
assuming the full exercise of the underwriters' over-allotment option, have
agreed that they will not, without the prior written consent of Hambrecht &
Quist LLC, offer, sell or otherwise dispose of any shares of common stock,
options or warrants to acquire shares of common stock or securities exchangeable
for or convertible into shares of common stock owned by them during the 90-day
period following the date of this prospectus, subject to certain exceptions. We
have agreed that we will not, without the prior written consent of Hambrecht &
Quist LLC, offer, sell or otherwise dispose of any shares of common stock,
options or warrants to acquire shares of common stock or securities exchangeable
for or convertible into shares of common stock during the 90-day period
following the date of this prospectus, except that we may issue shares upon the
exercise of options granted prior to the date of this prospectus and may grant
additional options under our 1999 Stock Incentive Plan provided that, without
the prior written consent of Hambrecht & Quist LLC, any additional options shall
not be exercisable during the 90-day period.
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<PAGE>
In general, the rules of the Securities and Exchange Commission will
prohibit the underwriters from making a market in our common stock during the
"cooling off" period immediately preceding the commencement of sales in the
offering. The Commission has, however, adopted exemptions from these rules that
permit passive market making under certain conditions. These rules permit an
underwriter to continue to make a market subject to the conditions, among
others, that its bid not exceed the highest bid by a market maker not connected
with the offering and that its net purchases on any one trading day not exceed
prescribed limits. Pursuant to these exemptions, certain underwriters, selling
group members, if any, or their respective affiliates intend to engage in
passive market making in our common stock during the cooling off period.
Persons participating in this offering may over-allot or effect transactions
that stabilize, maintain or otherwise affect the market price of the common
stock at levels above those that might otherwise prevail in the open market,
including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase for the purpose of pegging, fixing or
maintaining the price of the common stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of common stock sold by the syndicate member are purchased
in syndicate covering transactions. These transactions may be effected on the
Nasdaq National Market, in the over-the-counter market or otherwise.
Stabilizing, if commenced, may be discontinued at any time.
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 Fulbright & Jaworski L.L.P., New York, New York.
EXPERTS
The audited financial statements and schedules included in this prospectus
and elsewhere in the registration statement have been audited by Arthur Andersen
LLP, Revideco AB and Tobkin, Chiang and Hammon, independent public accountants,
as indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firms as experts in giving said reports.
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. We are
also 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.
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<PAGE>
INTERNET.COM CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Consolidated Balance Sheets as of December 31, 1998 and
September 30, 1999 (unaudited)............................ F-3
Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1998 and 1999 (unaudited)...... F-4
Consolidated Statement of Changes in Stockholders' Equity
for the Nine Months Ended September 30, 1999
(unaudited)............................................... F-5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and 1999 (unaudited)............. F-6
Notes to Consolidated Financial Statements (unaudited)...... F-7
</TABLE>
INTERNET.COM LLC
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-10
Balance Sheet as of December 31, 1998....................... F-11
Statement of Operations for the Period from Inception
(November 24, 1998) through December 31, 1998............. F-12
Statement of Changes in Members' Capital for the Period from
Inception (November 24, 1998) through December 31, 1998... F-13
Statement of Cash Flows for the Period from Inception
(November 24, 1998) through December 31, 1998............. F-14
Notes to Financial Statements............................... F-15
</TABLE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-23
Balance Sheets as of September 30, 1997 and 1998............ F-24
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............................ F-25
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-26
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............................ F-27
Notes to Financial Statements............................... F-28
</TABLE>
BEVERLY HILLS SOFTWARE
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-34
Balance Sheets as of December 31, 1998 and July 31, 1999
(unaudited)............................................... F-35
Statements of Operations for the Year Ended December 31,
1998 and for the Seven Months Ended July 31, 1998 and 1999
(unaudited)............................................... F-36
Statements of Proprietors' Capital for the Year Ended
December 31, 1998 and for the Seven Months Ended July 31,
1999 (unaudited).......................................... F-37
Statements of Cash Flows for the Year Ended December 31,
1998 and for the Seven Months Ended July 31, 1998 and 1999
(unaudited)............................................... F-38
Notes to Financial Statements............................... F-39
</TABLE>
F-1
<PAGE>
SITCH AB
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Auditor's Report............................................ F-40
Balance Sheets as of December 31, 1998 and September 24,
1999 (unaudited).......................................... F-41
Statements of Operations for the Year Ended December 31,
1998 and for the Period from Inception (March 17, 1998)
through September 30, 1998 and from January 1, 1999
through September 24, 1999 (unaudited).................... F-42
Statements of Shareholders' Equity for the Year Ended
December 31, 1998 and for the Period from January 1, 1999
through September 24, 1999 (unaudited).................... F-43
Statements of Cash Flows for the Year Ended December 31,
1998 and for the Period from Inception (March 17, 1998)
through September 30, 1998 and from January 1, 1999
through September 24, 1999 (unaudited).................... F-44
Notes to Financial Statements............................... F-45
</TABLE>
LINUX TODAY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-46
Balance Sheets as of December 31, 1998 and September 30,
1999 (unaudited).......................................... F-47
Statements of Operations for the Period from Inception
(November 1, 1998) to December 31, 1998 and for the Nine
Months Ended September 30, 1999 (unaudited)............... F-48
Statements of Partners' Capital for the Period from
Inception (November 1, 1998) to December 31, 1998 and for
the Nine Months Ended September 30, 1999 (unaudited)...... F-49
Statements of Cash Flows for the Period from Inception
(November 1, 1998) to December 31, 1998 and for the Nine
Months Ended September 30, 1999 (unaudited)............... F-50
Notes to Financial Statements............................... F-51
</TABLE>
AKULA INTERNET PUBLISHING, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-52
Balance Sheet as of September 30, 1999...................... F-53
Statements of Operations and Retained Earnings for the
Period from Inception (October 6, 1998) to September 30,
1999...................................................... F-54
Statement of Changes in Stockholders' Equity for the Period
from Inception (October 6, 1998) to September 30, 1999.... F-55
Statement of Cash Flows for the Period from Inception
(October 6, 1998) to September 30, 1999................... F-56
Notes to Financial Statements............................... F-57
</TABLE>
INTERNET.COM LLC
INDEX TO PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Pro Forma Condensed Combined Financial
Information............................................... F-59
Unaudited Pro Forma Condensed Combined Balance Sheet as of
September 30, 1999........................................ F-60
Unaudited Pro Forma Condensed Combined Statement of
Operations for the Nine Months Ended September 30, 1999... F-61
Unaudited Pro Forma Condensed Combined Statement of
Operations for the Year Ended December 31, 1998........... F-62
</TABLE>
F-2
<PAGE>
INTERNET.COM CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 129 $ 30,211
Accounts receivable, net of allowances of $42 and $393,
respectively............................................ 1,723 3,671
Prepaid expenses and other................................ 120 202
------- --------
Total current assets.................................... 1,972 34,084
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
$15 and $425, respectively................................ 1,380 2,241
INTANGIBLE ASSETS, net of accumulated amortization of $632
and $7,004, respectively.................................. 22,332 28,140
INVESTMENT IN INTERNET.COM VENTURE FUND I LLC............... -- 600
OTHER ASSETS................................................ 192 377
------- --------
Total assets............................................ $25,876 $ 65,442
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 482 $ 755
Accrued payroll and related expenses...................... 296 1,259
Accrued expenses and other................................ 462 1,701
Accrued Web site acquisition payments..................... 775 816
Deferred revenues......................................... 122 650
Borrowings under line of credit........................... 1,886 --
------- --------
Total current liabilities............................... 4,023 5,181
ACCRUED WEB SITE ACQUISITION PAYMENTS....................... -- 394
------- --------
Total liabilities....................................... 4,023 5,575
COMMITMENTS AND CONTINGENCIES............................... -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 4,000,000 shares
authorized, no shares issued and outstanding............ -- --
Common stock, $.01 par value, 75,000,000 shares
authorized, 16,215,891 and 23,325,000 shares issued and
outstanding at December 31, 1998 and September 30, 1999,
respectively............................................ 162 233
Additional paid-in capital................................ 22,665 70,863
Accumulated deficit....................................... (974) (11,229)
------- --------
Total stockholders' equity.............................. 21,853 59,867
------- --------
Total liabilities and stockholders' equity.............. $25,876 $ 65,442
======= ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
INTERNET.COM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
(PREDECESSOR (PREDECESSOR
BUSINESS) BUSINESS)
------------ ------------
1998 1999 1998 1999
------------ -------- ------------ --------
<S> <C> <C> <C> <C>
REVENUES........................................... $ 973 $ 4,114 $ 2,775 $ 8,598
COST OF REVENUES................................... 684 2,035 1,828 4,938
------- ------- ------- --------
GROSS PROFIT....................................... 289 2,079 947 3,660
------- ------- ------- --------
OPERATING EXPENSES:
Advertising, promotion and selling............... 307 2,107 1,081 4,649
General and administrative....................... 402 1,123 1,113 2,742
Depreciation..................................... 117 224 328 413
Amortization..................................... 252 2,344 712 6,372
Non-cash compensation charge..................... -- -- -- 7,975
------- ------- ------- --------
TOTAL OPERATING EXPENSES........................... 1,078 5,798 3,234 22,151
------- ------- ------- --------
OPERATING LOSS..................................... (789) (3,719) (2,287) (18,491)
INTEREST INCOME (EXPENSE), NET..................... -- 465 -- 381
------- ------- ------- --------
NET LOSS........................................... $ (789) $(3,254) $(2,287) $(18,110)
======= ======= ======= ========
BASIC AND DILUTED LOSS PER SHARE................... $ (0.05) $ (0.14) $ (0.14) $ (0.94)
======= ======= ======= ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES........... 16,216 23,325 16,216 19,326
======= ======= ======= ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
INTERNET.COM CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
---------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998............ 16,215,891 $162 $22,665 $ (974) $ 21,853
Proceeds from private placement....... 908,475 9 2,232 -- 2,241
Issuance of management shares......... 725,000 7 7,968 -- 7,975
Conversion of internet.com LLC to
internet.com Corporation............ -- -- (974) 974 --
Exercise of warrant................... 2,075,634 21 2,979 -- 3,000
Proceeds from initial public
offering............................ 3,400,000 34 42,874 -- 42,908
Net loss.............................. -- -- (6,881) (11,229) (18,110)
---------- ---- ------- -------- --------
BALANCE AT SEPTEMBER 30, 1999........... 23,325,000 $233 $70,863 $(11,229) $ 59,867
========== ==== ======= ======== ========
</TABLE>
NOTE:
Immediately prior to the closing of its initial public offering,
internet.com LLC converted its business form to a corporation. This
reorganization was effected by merging internet.com LLC into a newly-formed
Delaware corporation called internet.com Corporation. Each member of
internet.com LLC received shares of internet.com Corporation common stock in
exchange for their membership units at a rate of 16,215.891 shares per
membership unit. All share and per share data have been retroactively adjusted
to reflect the reorganization.
See notes to consolidated financial statements.
F-5
<PAGE>
INTERNET.COM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
(PREDECESSOR
BUSINESS)
------------
1998 1999
------------ --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(2,287) $(18,110)
Adjustments to reconcile net loss to net cash used in
operations:
Depreciation and amortization........................... 1,040 6,785
Provision for losses on accounts receivable........... 94 351
Non-cash compensation charge.......................... -- 7,975
Changes in assets and liabilities:
Accounts receivable, net.............................. (261) (2,116)
Prepaid expenses and other............................ (9) (270)
Accounts payable and accrued expenses................. 143 2,197
Deferred revenues..................................... -- 345
------- --------
Net cash used in operating activities............... (1,280) (2,843)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment....................... (650) (1,271)
Acquisitions of Web sites, related Internet media
properties and other.................................... (2,865) (11,467)
Investment in internet.com Venture Fund I LLC............. -- (600)
------- --------
Net cash used in investing activities............... (3,515) (13,338)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net............... -- 45,149
Proceeds from exercise of warrant......................... -- 3,000
Contributions from Mecklermedia Corporation............... 4,795 --
Borrowings under line of credit........................... -- 4,670
Payments for line of credit............................... -- (6,556)
------- --------
Net cash provided by financing activities........... 4,795 46,263
------- --------
Net change in cash and cash equivalents..................... -- 30,082
Cash and cash equivalents, beginning of period.............. -- 129
------- --------
Cash and cash equivalents, end of period.................... $ -- $ 30,211
======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW:
Cash paid for interest.................................... $ -- $ 92
======= ========
Cash paid for income taxes................................ $ -- $ --
======= ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
INTERNET.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
1. THE COMPANY
internet.com owns and operates a leading network of integrated
business-to-business Web sites and related Internet media properties focused
solely on the Internet industry. As of September 30, 1999, this network of
Internet media properties consisted of 70 Web sites, 65 e-mail newsletters, 99
online discussion forums and 71 moderated e-mail discussion lists. The network
is organized into nine vertical content channels to serve Internet users, which
include Internet industry and Internet technology professionals, Web developers
and experienced Internet users.
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 June 25, 1999, internet.com completed an initial public offering ("IPO")
of 3,400,000 shares of common stock at $14.00 per share. Net proceeds to
internet.com aggregated approximately $42.9 million (net of underwriters'
commissions and offering expenses of approximately $4.7 million). On June 30,
1999, internet.com paid the outstanding balance under its line of credit of
approximately $5.0 million and terminated the line of credit.
2. HISTORY
internet.com LLC was formed as part of the acquisition of Mecklermedia
Corporation by Internet World Media, Inc., a wholly-owned subsidiary of Penton
Media, Inc. (a publicly-owned corporation). 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 (a
wholly-owned subsidiary of Mecklermedia) 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 LLC to Alan M. Meckler,
Mecklermedia's Chairman and Chief Executive Officer (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 internet.com common
stock) for up to $3.0 million. For accounting purposes, the warrant was 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. This warrant was exercised by Penton Media on
June 24, 1999.
Immediately prior to the closing of the IPO, internet.com LLC converted its
business form to a corporation. This reorganization was effected by merging
internet.com LLC into a newly-formed Delaware corporation called internet.com
Corporation. Each member of internet.com LLC received shares of internet.com
Corporation common stock in exchange for their membership units at a rate of
16,215.891 shares per membership unit. All share and per share data have been
retroactively adjusted to reflect the reorganization.
3. BASIS OF PRESENTATION
INTERIM FINANCIAL DATA. The accompanying financial statements as of and for
the nine months ended September 30, 1998 and 1999 are unaudited. In the opinion
of management, these interim
F-7
<PAGE>
INTERNET.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
3. BASIS OF PRESENTATION (CONTINUED)
statements have been prepared on the same basis as the audited financial
statements of internet.com as of December 31, 1998 and for the period from
inception (November 24, 1998) through December 31, 1998 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 the notes to financial statements for these periods are also
unaudited. The results of operations for the interim periods are not necessarily
indicative of the results to be expected for any future periods.
The consolidated financial statements include the accounts of internet.com
and its majority owned investments. All significant intercompany transactions
have been eliminated.
Certain amounts have been reclassified in the prior year statements to
conform to the current year presentation.
internet.com does not believe any recently issued accounting standards will
have a material impact on its financial condition or results of operations.
4. COMPUTATION OF NET LOSS PER SHARE
Basic loss per share is computed using the weighted average number of common
shares outstanding during the period. Dilutive loss per share is computed using
the weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consist of the
incremental common shares issuable upon the exercise of stock options and
warrants (using the treasury stock method). Common equivalent shares are
excluded from the calculation if their effect is anti-dilutive.
Computations of basic and diluted loss per share for the three and nine
months ended September 30, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
(PREDECESSOR (PREDECESSOR
BUSINESS) BUSINESS)
------------ ------------
1998 1999 1998 1999
------------ -------- ------------ --------
<S> <C> <C> <C> <C>
BASIC AND DILUTED NET LOSS PER SHARE
Numerator: Net loss................................ $ (789) $(3,254) $(2,287) $(18,110)
Denominator: Weighted average shares outstanding... 16,216 23,325 16,216 19,326
------- ------- ------- --------
Basic and diluted loss per share................... $ (0.05) $ (0.14) $ (0.14) $ (0.94)
======= ======= ======= ========
</TABLE>
5. ACQUISITIONS OF ASSETS
internet.com made 12 acquisitions of Web sites and related Internet media
properties for a total of $10.8 million during the nine months ended
September 30, 1999. These acquisitions were accounted for as purchases. Eight of
these acquisitions provide for contingent payments to be made after the
acquisition date based upon the achievement of certain objectives. The acquired
Web sites and related Internet media properties had minimal tangible assets or
liabilities. Therefore, the entire purchase price
F-8
<PAGE>
INTERNET.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
5. ACQUISITIONS OF ASSETS (CONTINUED)
has been recorded as intangible assets and is being amortized over its estimated
useful life of three years for these acquisitions. The purchase accounting for
these acquisitions is still preliminary and will be finalized at a later date
not to exceed one year from the purchase date of each acquisition.
6. NON-CASH COMPENSATION CHARGE
In March 1999, internet.com LLC granted 4% of its total membership units at
the time to certain of its employees. As these membership units vested upon the
completion of the IPO, internet.com recorded an $8.0 million compensation charge
concurrent with the completion of the IPO on June 25, 1999.
7. OFFICE LEASES
In July 1999, internet.com entered into an agreement to lease office space
for its corporate headquarters in Darien, Connecticut at an annual rate of
$350,000. This lease will expire in February 2003. internet.com is obligated to
pay a proportionate share of all electricity, heating, ventilation and air
conditioning costs for these premises. In October 1999, internet.com moved its
Burlingame, California operations to new premises located in South San Francisco
pursuant to a lease entered into in September 1999 and expiring in August 2004.
Rent expense is $130,000 annually and internet.com is obligated to pay a
proportionate share of all electricity, heating, ventilation and air
conditioning costs for these premises. In September 1999, internet.com entered
into a lease for premises located in New York, New York pursuant to a lease
expiring in September 2004. Rent expense is $310,000 annually.
F-9
<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-10
<PAGE>
INTERNET.COM LLC
BALANCE SHEET
DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT UNIT AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 129
Accounts receivable, net of allowances of $42............. 1,723
Prepaid expenses and other................................ 312
-------
Total current assets.................................... 2,164
PROPERTY AND EQUIPMENT, net................................. 1,380
INTANGIBLE ASSETS, net...................................... 22,332
-------
Total assets............................................ $25,876
=======
LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable.......................................... $ 482
Accrued payroll and related expenses...................... 296
Accrued Web site acquisition payments..................... 775
Accrued expenses and other................................ 462
Deferred revenues......................................... 122
Borrowings under line of credit........................... 1,886
-------
Total current liabilities............................... 4,023
COMMITMENTS AND CONTINGENCIES............................... --
MEMBERS' CAPITAL:
Members' capital, 1,000 units issued and outstanding...... 22,827
Accumulated deficit....................................... (974)
-------
Total members' capital.................................. 21,853
-------
Total liabilities and members' capital.................. $25,876
=======
</TABLE>
See notes to financial statements.
F-11
<PAGE>
INTERNET.COM LLC
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 24,
1998
THROUGH
DECEMBER 31, 1998
-----------------
<S> <C>
REVENUES.................................................... $ 772
COST OF REVENUES............................................ 403
------
GROSS PROFIT................................................ 369
------
OPERATING EXPENSES:
Advertising, promotion and selling........................ 239
General and administrative................................ 449
Depreciation.............................................. 15
Amortization.............................................. 632
------
TOTAL OPERATING EXPENSES.................................... 1,335
------
OPERATING LOSS.............................................. (966)
INTEREST EXPENSE, NET....................................... (8)
------
NET LOSS.................................................... $ (974)
======
</TABLE>
See notes to financial statements.
F-12
<PAGE>
INTERNET.COM LLC
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT UNIT AMOUNTS)
<TABLE>
<CAPTION>
MEMBERS' CAPITAL TOTAL
------------------- ACCUMULATED MEMBERS'
UNITS AMOUNT DEFICIT CAPITAL
-------- -------- ----------- --------
<S> <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
===== ======= ===== =======
</TABLE>
See notes to financial statements.
F-13
<PAGE>
INTERNET.COM LLC
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 24, 1998
THROUGH
DECEMBER 31, 1998
------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (974)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 647
Changes in operating assets and liabilities:
Accounts receivable, net.............................. (553)
Prepaid expenses and other............................ (23)
Accounts payable...................................... 183
Accrued expenses and other............................ 34
Deferred revenues..................................... 74
-------
Net cash used in operating activities............... (612)
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment....................... (546)
Acquisitions of Web sites, related Internet media
properties and other.................................... (599)
-------
Net cash used in investing activities............... (1,145)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit........................... 1,886
Payments for line of credit............................... --
Capital contributions..................................... --
-------
Net cash provided by financing activities........... 1,886
-------
Net change in cash.......................................... 129
Cash, beginning of period................................... --
-------
Cash, end of period......................................... $ 129
=======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW:
Cash paid for interest.................................. $ 8
=======
Cash paid for income taxes.............................. $ --
=======
</TABLE>
See notes to financial statements.
F-14
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998
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.
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>
F-15
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998
1. ORGANIZATION AND NATURE OF BUSINESS (CONTINUED)
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 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
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
F-16
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 are from Internet- related businesses.
At December 31, 1998, three customers accounted for 38% of accounts
receivable. For the period from inception (November 24, 1998) through
December 31, 1998, one customer accounted for 25% 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, 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 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 December 31, 1998.
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
F-17
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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).
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.
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.
F-18
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
Computer equipment and software............................. $1,248
Furniture, fixtures and equipment........................... 147
------
1,395
Less: Accumulated depreciation.............................. (15)
------
Property and equipment, net................................. $1,380
======
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
Goodwill.................................................... $22,695
Trademarks.................................................. 269
-------
22,964
Less: Accumulated amortization.............................. (632)
-------
Intangibles, net............................................ $22,332
=======
</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. These acquisitions
were accounted for as purchases. Two of these 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 of three years for these acquisitions. The purchase
accounting for these acquisitions is still preliminary and will be finalized at
a later date not to exceed one year from the purchase date of each acquisition.
The pro forma results for the period from inception (November 24, 1998) through
December 31, 1998, 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 had 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. 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 expired on November 15, 1999.
F-19
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998
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. 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 which were sold in internet.com's initial public offering in
June 1999, 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 initial public offering 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 have constituted a prospectus that
did not meet the requirements of the Securities Act of 1933.
In addition, as of June 21, 1999 this underwriter has received funds from
potential investors 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 initial
public 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 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. In
addition, this underwriter has agreed to indemnify internet.com for any losses
incurred as a result of this issue. 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
F-20
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
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 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
F-21
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998
9. RELATED PARTY TRANSACTIONS (CONTINUED)
(November 24, 1998) through December 31, 1998. 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 $8.0 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 the IPO
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-22
<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-23
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1998
(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-24
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998 AND
THE PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 1, 1998
SEPTEMBER 30, THROUGH
------------------------------ NOVEMBER 23,
1996 1997 1998 1998
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
REVENUES............................................ $ 498 $ 1,479 $ 3,544 $ 778
COST OF REVENUES.................................... 536 1,171 2,171 456
------- ------- ------- -----
GROSS PROFIT........................................ (38) 308 1,373 322
------- ------- ------- -----
OPERATING EXPENSES:
Advertising, promotion and selling................ 285 881 1,406 441
General and administrative........................ 727 751 1,349 195
Depreciation...................................... 85 326 429 67
Amortization...................................... 109 505 920 86
------- ------- ------- -----
TOTAL OPERATING EXPENSES............................ 1,206 2,463 4,104 789
------- ------- ------- -----
NET LOSS............................................ $(1,244) $(2,155) $(2,731) $(467)
======= ======= ======= =====
</TABLE>
See notes to financial statements.
F-25
<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
THE PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
(IN THOUSANDS)
<TABLE>
<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-26
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998 AND
THE PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 1, 1998
SEPTEMBER 30, THROUGH
------------------------------ NOVEMBER 23,
1996 1997 1998 1998
-------- -------- -------- ----------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................... $(1,244) $(2,155) $(2,731) $ (467)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 194 831 1,349 153
Changes in operating assets and liabilities:
Accounts receivable, net...................... (142) (261) (570) (326)
Prepaid expenses and other.................... 26 (41) (187) (28)
Accounts payable and accrued expenses......... 21 534 305 (725)
------- ------- ------- ------
Net cash used in operating activities....... (1,145) (1,092) (1,834) (1,393)
------- ------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment............... (315) (740) (934) (91)
Acquisitions of Web sites, related Internet media
properties and other............................ (327) (1,659) (4,071) (2,393)
------- ------- ------- ------
Net cash used in investing activities....... (642) (2,399) (5,005) (2,484)
------- ------- ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from Mecklermedia Corporation....... 1,787 3,491 6,839 3,877
------- ------- ------- ------
Net cash provided by financing activities... 1,787 3,491 6,839 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-27
<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
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-28
<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
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
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.
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.
F-29
<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
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, and $167,000 for the three
years ended September 30, 1996, 1997, 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,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Computer equipment.......................................... $1,124 $1,694
Furniture, fixtures and equipment........................... 142 420
Leasehold improvements...................................... 48 134
------ ------
1,314 2,248
Less: Accumulated depreciation.............................. (83) (912)
------ ------
Property and equipment, net................................. $ 831 $1,336
====== ======
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1997 1998
-------- --------
<S> <C> <C>
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 and four Web sites and related Internet media
properties for $230,000, $1.4 million, $3.9 million, and $2.4 million during the
years ended September 30, 1996, 1997,
F-30
<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
5. ACQUISITIONS OF ASSETS (CONTINUED)
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 of three years.
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.
The provision (benefit) for income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30, OCTOBER 1, 1998
------------------------------ THROUGH
1996 1997 1998 NOVEMBER 23, 1998
-------- -------- -------- -----------------
<S> <C> <C> <C> <C>
Current provision (benefit):
Federal.................................. $(18) $(11) $(37) $ 43
State.................................... (5) (3) (9) 11
---- ---- ---- ----
(23) (14) (46) 54
Deferred provision (benefit):
Federal.................................. 18 11 37 (43)
State.................................... 5 3 9 (11)
---- ---- ---- ----
$ -- $ -- $ -- $ --
==== ==== ==== ====
</TABLE>
F-31
<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
6. INCOME TAXES (CONTINUED)
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.
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>
FOR THE YEARS ENDED
SEPTEMBER 30, OCTOBER 1, 1998
------------------------------ THROUGH
1996 1997 1998 NOVEMBER 23, 1998
-------- -------- -------- -----------------
<S> <C> <C> <C> <C>
Federal statutory tax rate........................... $ 423 $ 733 $ 928 $ 159
State taxes.......................................... 61 105 133 23
Losses without income tax benefits................... (487) (841) (1,064) (183)
Provision for non-deductible expenses................ 3 3 3 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.
F-32
<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
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 and $150,000 for the years ended September 30, 1996, 1997,
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 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 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,
------------------------------
1996 1997 1998 NOVEMBER 23, 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-33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Beverly Hills Software:
We have audited the accompanying balance sheet of Beverly Hills Software as
of December 31, 1998, and the related statements of operations, proprietors'
capital and cash flows for the year then ended. These financial statements are
the responsibility of Beverly Hills Software 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 Beverly Hills Software as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
November 23, 1999
F-34
<PAGE>
BEVERLY HILLS SOFTWARE
BALANCE SHEETS
DECEMBER 31, 1998 AND JULY 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1998 1999
------------ ---------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 123,748 $ 98,290
Accounts receivable....................................... 31,681 90,200
--------- ---------
Total current assets.................................... 155,429 188,490
PROPERTY AND EQUIPMENT, net................................. 105,315 89,930
--------- ---------
Total assets............................................ $ 260,744 $ 278,420
========= =========
LIABILITIES AND PROPRIETORS' CAPITAL
CURRENT LIABILITIES:
Accounts payable.......................................... $ 17,416 --
Accrued expenses.......................................... 4,858 --
Deferred revenues......................................... 10,500 --
--------- ---------
Total current liabilities............................... 32,774 --
PROPRIETORS' CAPITAL: 227,970 278,420
--------- ---------
Total liabilities and proprietors' capital.............. $ 260,744 $ 278,420
========= =========
</TABLE>
See notes to financial statements.
F-35
<PAGE>
BEVERLY HILLS SOFTWARE
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE SEVEN MONTHS ENDED JULY 31, 1998 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE SEVEN MONTHS
ENDED ENDED JULY 31,
DECEMBER 31, --------------------
1998 1998 1999
------------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES................................................... $ 989,851 $677,452 $498,081
COST OF REVENUES........................................... 175,770 27,795 38,182
---------- -------- --------
GROSS PROFIT............................................... 814,081 649,657 459,899
---------- -------- --------
OPERATING EXPENSES:
Advertising, promotion and selling....................... 186,121 1,089 --
General and administrative............................... 273,108 330,649 288,999
Depreciation............................................. 34,299 17,870 18,834
---------- -------- --------
TOTAL OPERATING EXPENSES................................... 493,528 349,608 307,833
---------- -------- --------
OPERATING INCOME........................................... 320,553 300,049 152,066
INTEREST INCOME............................................ 194 140 38
---------- -------- --------
NET INCOME................................................. $ 320,747 $300,189 $152,104
========== ======== ========
</TABLE>
See notes to financial statements.
F-36
<PAGE>
BEVERLY HILLS SOFTWARE
STATEMENTS OF PROPRIETORS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE SEVEN MONTHS ENDED JULY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
PROPRIETORS'
CAPITAL
------------
<S> <C>
BALANCE AT DECEMBER 31, 1997................................ $ 53,816
Less: Distributions to proprietors.......................... (146,593)
Net income.................................................. 320,747
---------
BALANCE AT DECEMBER 31, 1998................................ 227,970
Less: Distributions to proprietors.......................... (101,654)
Net income (unaudited)...................................... 152,104
---------
BALANCE AT JULY 31, 1999 (unaudited)........................ $ 278,420
=========
</TABLE>
See notes to financial statements.
F-37
<PAGE>
BEVERLY HILLS SOFTWARE
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE SEVEN MONTHS ENDED JULY 31, 1998 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SEVEN MONTHS
FOR THE YEAR ENDED ENDED JULY 31,
DECEMBER 31, ---------------------
1998 1998 1999
------------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 320,747 $300,189 $152,104
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation........................................ 34,299 17,870 18,834
Changes in current assets and liabilities:
Accounts receivable............................... (31,681) (87,556) (58,519)
Accounts payable.................................. 17,416 -- (17,416)
Accrued expenses.................................. 4,858 -- (4,858)
Deferred revenue.................................. 10,500 -- (10,500)
--------- -------- --------
Net cash provided by operating activities....... 356,139 230,503 79,645
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment................... (119,212) (90,353) (3,449)
--------- -------- --------
Net cash used in investing activities........... (119,212) (90,353) (3,449)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to proprietors.......................... (146,593) (61,380) (101,654)
--------- -------- --------
Net cash used in financing activities........... (146,593) (61,380) (101,654)
--------- -------- --------
Net change in cash...................................... 90,334 78,770 (25,458)
Cash, beginning of period............................... 33,414 33,414 123,748
--------- -------- --------
Cash, end of period..................................... $ 123,748 $112,184 $ 98,290
========= ======== ========
</TABLE>
See notes to financial statements.
F-38
<PAGE>
BEVERLY HILLS SOFTWARE
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE
SEVEN MONTHS ENDED JULY 31, 1998 AND 1999 (UNAUDITED)
1. ORGANIZATION AND OPERATIONS OF THE PROPRIETORSHIP:
Beverly Hills Software (the "Proprietorship") is a family proprietorship
whose principal place of business is Beverly Hills, California. The
Proprietorship is an Internet Web site and e-mail newsletter collectively known
as BHS.com, which is primarily intended for consultants and users of Windows
NT/2000 as a technical resource.
On August 5, 1999, an agreement was executed to sell BHS.com, including all
related Internet Web site pages content and domain names, as well as subscriber
lists and e-mail newsletters to internet.com Corporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the assets, generally five years.
REVENUE RECOGNITION. Revenue is recognized ratably in the period the
advertising is displayed, provided that no significant proprietorship
obligations remain and collection of the resulting receivable is probable.
INCOME TAXES. No provision for federal and state income taxes is reported
in the financial statements as the election has been made to be taxed as a
proprietorship and therefore, the federal and state income tax effects of the
Proprietorship's results of operations are recorded by the owners in their
respective income tax returns.
F-39
<PAGE>
AUDITOR'S REPORT
To the General Meeting Shareholders of Sitch AB:
Registered Number 556520-6157
We have audited the financial statements, the accounts and the
administration of the board of directors and the managing director of Sitch AB
for the year ended December 31, 1998. These accounts and the administration of
the Company are the responsibility of the board of directors and the managing
director. Our responsibility is to express an opinion on the financial
statements and the administration 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 that 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 their application by the board of
directors and the managing director, as well as evaluating the overall
presentation of information in the financial statements. We examined significant
decisions, actions taken and circumstances of the Company in order to be able to
determine the possible liability to the Company of any board member or the
managing director or whether they have in some other way acted in contravention
of the Companies Act, the Annual Accounts Act or the Articles of Association. We
believe that our audit provides a reasonable basis for our opinion set out
below.
In our opinion, the financial statements have been prepared in accordance
with the Annual Accounts, consequently we recommend that the income statement
and the balance sheet be adopted, and that the profit/loss be dealt with in
accordance with the proposal in the Administration Report.
In our opinion, the board members and the managing directors have not
committed any act or been guilty of any omission, which could give rise to any
liability to the Company. We therefore recommend that the members of the board
of directors and the managing director be discharged from liability for the
financial year.
Stockholm, June 16, 1999
Revideco AB
F-40
<PAGE>
SITCH AB
BALANCE SHEET
DECEMBER 31, 1998 AND SEPTEMBER 24, 1999
(SWEDISH KRONA)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 SEPTEMBER 24, 1999
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... SEK 311 SEK 614
Accounts receivable....................................... 144 30
Other current assets...................................... -- 192
------- ---------
Total current assets.................................... 455 836
PROPERTY AND EQUIPMENT, net................................. 22 122
OTHER ASSETS................................................ -- 51
------- ---------
Total assets............................................ SEK 477 SEK 1,009
======= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Taxes payable............................................. SEK 45 SEK 38
Accrued liabilities....................................... 177 51
------- ---------
Total current liabilities............................... 222 89
DEFERRED TAX LIABILITY...................................... 45 45
SHAREHOLDERS' EQUITY:
Common stock, SEK 100 par, 1,000 shares issued............ 100 100
Retained earnings......................................... 110 775
------- ---------
Total shareholders' equity.............................. 210 875
------- ---------
Total liabilities and shareholders' equity.............. SEK 477 SEK 1,009
======= =========
</TABLE>
See notes to financial statements.
F-41
<PAGE>
SITCH AB
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE PERIOD FROM INCEPTION (MARCH 17, 1998) THROUGH SEPTEMBER 30, 1998 AND
FROM JANUARY 1, 1999 THROUGH SEPTEMBER 24, 1999 (UNAUDITED)
(SWEDISH KRONA)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE MARCH 17, 1998 JANUARY 1, 1999
YEAR ENDED THROUGH THROUGH
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 24,
1998 1998 1999
------------ -------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES............................................. SEK 572 SEK 62 SEK 2,277
COST OF REVENUES..................................... 372 59 1,555
------- ------ ---------
GROSS PROFIT......................................... 200 3 722
UNTAXED RESERVES..................................... 45 -- --
INTEREST EXPENSE, NET................................ -- -- 7
------- ------ ---------
INCOME BEFORE TAXES.................................. 155 3 715
INCOME TAXES......................................... 45 -- --
------- ------ ---------
NET INCOME........................................... SEK 110 SEK 3 SEK 715
======= ====== =========
</TABLE>
See notes to financial statements.
F-42
<PAGE>
SITCH AB
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE PERIOD FROM JANUARY 1, 1999 THROUGH SEPTEMBER 24, 1999 (UNAUDITED)
(SWEDISH KRONA)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997........................ 500 SEK 50 SEK -- SEK 50
Capital contributions............................... 500 50 -- 50
Net income.......................................... -- -- 110 110
----- ------- ------- -------
BALANCE AT DECEMBER 31, 1998........................ 1,000 100 110 210
Less: Distributions to shareholders................. -- -- (50) (50)
Net income.......................................... -- -- 715 715
----- ------- ------- -------
BALANCE AT SEPTEMBER 24, 1999....................... 1,000 SEK 100 SEK 775 SEK 875
===== ======= ======= =======
</TABLE>
See notes to financial statements.
F-43
<PAGE>
SITCH AB
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE PERIOD FROM INCEPTION (MARCH 17, 1998) THROUGH SEPTEMBER 30, 1998 AND
FROM JANUARY 1, 1999 THROUGH SEPTEMBER 24, 1999 (UNAUDITED)
(SWEDISH KRONA)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE MARCH 17, 1998 JANUARY 1, 1999
YEAR ENDED THROUGH THROUGH
DECEMBER 31, 1988 SEPTEMBER 30, 1998 SEPTEMBER 24, 1999
----------------- ------------------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ SEK 110 SEK 3 SEK 715
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation............................ 1 -- --
Deferred tax liability.................. 45 -- --
Changes in current assets and
liabilities:
Accounts receivable................... (144) -- 114
Other assets.......................... -- -- (243)
Taxes payable......................... 45 -- (7)
Accrued liabilities................... 177 (3) (126)
------- ------- -------
Net cash provided by operating
activities........................ 234 -- 453
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment....... (22) -- (100)
------- ------- -------
Net cash used in investing
activities........................ (22) -- (100)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions (distributions)..... 50 14 (50)
Borrowings from shareholders.............. -- 22 --
Payments to shareholders.................. -- (33) --
------- ------- -------
Net cash provided by (used in)
financing activities.............. 50 3 (50)
------- ------- -------
Net change in cash.......................... 262 3 303
Cash, beginning of period................... 49 -- 311
------- ------- -------
Cash, end of period......................... SEK 311 SEK 3 SEK 614
======= ======= =======
</TABLE>
See notes to financial statements.
F-44
<PAGE>
SITCH AB
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE PERIOD FROM INCEPTION (MARCH 17, 1998) THROUGH SEPTEMBER 30, 1998 AND
FROM JANUARY 1, 1999 THROUGH SEPTEMBER 24, 1999 (UNAUDITED)
1. ORGANIZATION AND OPERATIONS OF THE COMPANY:
Sitch AB (the "Company") is a Swedish Company engaged in the business of
developing, publishing, marketing, distributing and creating Internet Web sites,
including but not limited to THECOUNTER.COM, THEGUESTBOOK.COM and
THECGI-BIN.COM, and is the owner of a list of opt-in e-mail names.
The Company is owned by two individuals who each own 50% of the shares of
the Company. On September 24, 1999, an agreement was executed in which
internet.com Corporation agreed to purchase all the shares of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION. The accompanying financial statements are prepared
in accordance with generally accepted accounting principles in Sweden. The only
significant difference between these financial statements and those which would
be presented in accordance with United States generally accepted accounting
principles relates to Untaxed Reserves. According to Swedish law, 20% of taxes
payable can be deferred to future periods. Without this 20% allocation, the 1998
results of operations would have been as follows (in thousands):
<TABLE>
<S> <C>
Income before taxes............... SEK 200
Income taxes...................... 57
-------
Net income........................ SEK 143
=======
</TABLE>
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT. Property and equipment are composed of furniture
and fixtures and are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
five years.
F-45
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Linux Today:
We have audited the accompanying balance sheet of Linux Today as of
December 31, 1998, and the related statements of operations, partners' capital
and cash flows for the period from inception (November 1, 1998) to December 31,
1998. These financial statements are the responsibility of Linux Today'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 Linux Today as of
December 31, 1998, and the results of its operations and its cash flows for the
period from inception (November 1, 1998) to December 31, 1998 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
November 29, 1999
F-46
<PAGE>
LINUX TODAY
BALANCE SHEETS
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $1,365 $ 6,327
Accounts receivable....................................... 1,300 68,373
------ -------
Total current assets.................................... 2,665 74,700
PROPERTY AND EQUIPMENT, net................................. -- 6,337
------ -------
Total assets............................................ $2,665 $81,037
====== =======
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accrued liabilities....................................... $ -- $ 8,000
------ -------
Total current liabilities............................... -- 8,000
------ -------
PARTNERS' CAPITAL:
Partners' capital......................................... 1,689 1,689
Retained earnings......................................... 976 71,348
------ -------
Total partners' capital................................. 2,665 73,037
------ -------
Total liabilities and partners' capital................. $2,665 $81,037
====== =======
</TABLE>
See notes to financial statements.
F-47
<PAGE>
LINUX TODAY
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 1, 1998) TO DECEMBER 31, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
NOVEMBER 1, 1998 NINE MONTHS
TO ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
------------------ ------------------
(UNAUDITED)
<S> <C> <C>
REVENUES................................................... $2,802 $168,390
COST OF REVENUES........................................... 1,055 81,837
------ --------
GROSS PROFIT............................................... 1,747 86,553
------ --------
OPERATING EXPENSES:
Advertising, promotion and selling....................... 606 6,571
General and administrative............................... 165 9,204
Depreciation............................................. -- 406
------ --------
TOTAL OPERATING EXPENSES................................... 771 16,181
------ --------
NET INCOME................................................. $ 976 $ 70,372
====== ========
</TABLE>
See notes to financial statements.
F-48
<PAGE>
LINUX TODAY
STATEMENTS OF PARTNERS' CAPITAL
FOR THE PERIOD FROM INCEPTION (NOVEMBER 1, 1998) TO DECEMBER 31, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PARTNERS'
CAPITAL TOTAL
--------- RETAINED PARTNERS'
AMOUNT EARNINGS CAPITAL
--------- -------- ---------
<S> <C> <C> <C>
BALANCE AT NOVEMBER 1, 1998................................. $ -- $ -- $ --
Capital contributions....................................... 1,689 -- 1,689
Net income.................................................. -- 976 976
-------- -------- --------
BALANCE AT DECEMBER 31, 1998................................ 1,689 976 2,665
Net income (unaudited)...................................... -- 70,372 70,372
-------- -------- --------
BALANCE AT SEPTEMBER 30, 1999 (unaudited)................... $ 1,689 $ 71,348 $ 73,037
======== ======== ========
</TABLE>
See notes to financial statements.
F-49
<PAGE>
LINUX TODAY
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 1, 1998) TO DECEMBER 31, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
NOVEMBER 1, 1998
TO NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 976 $ 70,372
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation........................................... -- 406
Changes in current assets and liabilities:
Accounts receivable.................................. (1,300) (67,073)
Accrued liabilities.................................. -- 8,000
------- --------
Net cash (used in) provided by operating
activities....................................... (324) 11,705
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment...................... -- (6,743)
------- --------
Net cash used in investing activities.............. -- (6,743)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions.................................... 1,689 --
------- --------
Net cash provided by financing activities.......... 1,689 --
------- --------
Net change in cash......................................... 1,365 4,962
Cash, beginning of period.................................. -- 1,365
------- --------
Cash, end of period........................................ $ 1,365 $ 6,327
======= ========
</TABLE>
See notes to financial statements.
F-50
<PAGE>
LINUX TODAY
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 1, 1998) TO DECEMBER 31, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
1. ORGANIZATION AND OPERATIONS OF THE PARTNERSHIP:
Linux Today (the "Partnership") commenced operations in November 1998 and is
engaged in the ownership and operation of various assets including the Internet
Web sites and e-mail newsletter collectively known as linuxtoday.com and
eltoday.com.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the assets, generally five years.
REVENUE RECOGNITION. Revenue is recognized ratably in the period the
advertising is displayed provided that no significant partnership obligations
remain and collection of the resulting receivable is probable.
INCOME TAXES. No provision for federal and state income taxes is reported
in the financial statements as the election has been made to be taxed as a
partnership, and therefore, the federal and state income tax effects of the
results of operations of the Partnership are recorded by the partners in their
respective income tax returns.
3. SUBSEQUENT EVENT:
On October 14, 1999, an agreement was executed to sell the business of Linux
Today, including all related Internet Web site pages, content and domain names,
as well as subscriber lists and e-mail newsletters to internet.com Corporation.
F-51
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Akula Internet Publishing, Inc.
San Jose, California:
We have audited the accompanying balance sheet of Akula Internet Publishing,
Inc. (a development stage company) as of September 30, 1999, and the related
statements of operations, retained earnings, changes in stockholders' equity and
cash flows for the period from October 6, 1998 (inception) through
September 30, 1999. 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 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 Akula Internet Publishing,
Inc. as of September 30, 1999 and the results of its operations and its cash
flows for the period then ended in conformity with generally accepted accounting
principles.
TOBKIN, CHIANG AND HAMMON
San Jose, California
November 27, 1999
F-52
<PAGE>
AKULA INTERNET PUBLISHING, INC.
BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 61,526
Accounts receivable....................................... 75,242
Prepaid expenses.......................................... 6,152
--------
Total current assets.................................... 142,920
FIXED ASSETS:
Office equipment & computers.............................. 52,263
Accumulated depreciation.................................. (9,038)
--------
Net fixed assets........................................ 43,225
--------
Total assets............................................ $186,145
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 8,038
Accrued expenses.......................................... 4,256
Income taxes payable...................................... 33,700
--------
Total current liabilities............................... 45,994
STOCKHOLDERS' EQUITY:
Common stock.............................................. 68,120
Retained earnings......................................... 72,031
--------
Total stockholders' equity.............................. 140,151
--------
Total liabilities and stockholders' equity.............. $186,145
========
</TABLE>
See accompanying notes and auditors' report.
F-53
<PAGE>
AKULA INTERNET PUBLISHING, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE PERIOD FROM INCEPTION (OCTOBER 6, 1998) TO SEPTEMBER 30, 1999
<TABLE>
<S> <C>
REVENUES.................................................... $426,591
OPERATING EXPENSES
Salaries and wages........................................ 127,158
Bad debts................................................. 24,756
Bank charges.............................................. 461
Consulting................................................ 73,732
Commissions............................................... 8,290
Depreciation.............................................. 9,038
Insurance................................................. 4,447
Interest.................................................. 750
Internet charges.......................................... 1,203
Office expenses........................................... 3,015
Professional fees......................................... 16,053
Rent...................................................... 12,131
Payroll service charge.................................... 592
Telephone................................................. 12,153
Travel.................................................... 16,553
Utilities................................................. 865
Web server hosting........................................ 8,863
--------
TOTAL OPERATING EXPENSES................................ 320,060
OPERATING PROFIT........................................ 106,531
INCOME TAXES............................................ 34,500
--------
NET PROFIT.............................................. 72,031
RETAINED EARNINGS--October 6, 1998.......................... --
--------
RETAINED EARNINGS--September 30, 1999....................... $ 72,031
========
</TABLE>
See accompanying notes and auditors' report.
F-54
<PAGE>
AKULA INTERNET PUBLISHING, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (OCTOBER 6, 1998) TO SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
-------- -------- --------
<S> <C> <C> <C>
BALANCE AT OCTOBER 6, 1998.................................. $ -- $ -- $ --
Stock issued
Sale of 8,910,000 shares of common stock at $0.003975 per
share,
no par value............................................ 35,420 -- 35,420
Sale of 1,090,000 shares of common stock at $0.03 per
share,
no par value............................................ 32,700 -- 32,700
Net profit.................................................. -- 72,031 72,031
------- ------- --------
BALANCE AT SEPTEMBER 30, 1999............................... $68,120 $72,031 $140,151
======= ======= ========
</TABLE>
See accompanying notes and auditors' report.
F-55
<PAGE>
AKULA INTERNET PUBLISHING, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (OCTOBER 6, 1998) TO SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit................................................ $ 72,031
Adjustments to reconcile net profit to net cash provided
by operating activities:
Depreciation............................................ 9,038
Increase in accounts receivable......................... (75,242)
Increase in prepaid expenses............................ (6,152)
Increase in accounts payable............................ 8,038
Increase in accrued expenses............................ 4,256
Increase in income taxes payable........................ 33,700
--------
NET CASH PROVIDED BY OPERATING ACTIVITIES........... 45,669
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets............................... (52,263)
Common stock.............................................. 68,120
--------
NET CASH PROVIDED BY INVESTING ACTIVITIES........... 15,857
--------
NET INCREASE IN CASH........................................ 61,526
CASH--October 6, 1998....................................... --
--------
CASH--September 30, 1999.................................... $ 61,526
========
Total interest paid from October 6, 1998 through
September 30, 1999........................................ $ 750
========
Total taxes paid from October 6, 1998 through September 30,
1999...................................................... $ 800
========
</TABLE>
See accompanying notes and auditors' report.
F-56
<PAGE>
AKULA INTERNET PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
This summary of significant accounting policies of Akula Internet
Publishing, Inc. is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
Company's management who is responsible for their integrity and objectivity.
These accounting policies conform to generally accepted accounting principles
and have been consistently applied in the preparation of the financial
statements.
NATURE OF BUSINESS. The Company operates a Web site on the internet under
the name SharkyExtreme.com. The Web site was created in October 1998 to provide
technical information on the latest computer hardware and software. The source
of revenue is mainly from selling advertising space on the Web site to other
vendors on the Internet. The Company grants credit to customers in the
technology industry throughout the world. Consequently, the Company's ability to
collect the amounts due from customers is affected by economic fluctuations in
the industry.
CASH AND CASH EQUIVALENTS. For purposes of the statement of cash flows, the
Company considers all short-term debt securities purchased with a maturity of
three months or less to be cash equivalents. The Company currently uses a
national bank and its deposits during the year are insured up to $100,000 by
federal depository insurance.
DEPRECIATION OF FIXED ASSETS. Fixed assets are carried at cost.
Depreciation of fixed assets are provided using the straight-line method for
financial reporting purposes of rates based on the following estimated useful
lives:
<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Computer equipment.......................................... 5
Furniture and fixtures...................................... 7
Leasehold Improvements...................................... 15
</TABLE>
For federal income tax purposes, depreciation is computed using the modified
accelerated cost recovery system. Expenditures for major renewals and
improvements that extend the useful lives of fixed assets are capitalized.
Expenditures for maintenance and repairs are charged to expense as incurred.
NOTE B--ACCOUNTS RECEIVABLE:
The Company commenced sales in October 1998. The accounts receivable balance
as of September 30, 1999 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable......................................... $ 99,998
Less bad debt reserve....................................... (24,756)
--------
Net accounts receivable..................................... $ 75,242
========
</TABLE>
NOTE C--RENT ARRANGEMENTS:
The Company conducts its operations from facilities in southern California
that are rented under a month-to-month rental agreement. Monthly rents
approximate $1,000 per month.
F-57
<PAGE>
AKULA INTERNET PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
NOTE D--COMMON STOCK:
The common stock as of September 30, 1999 consists of the following:
<TABLE>
<CAPTION>
SHARES
----------
<S> <C>
Common stock authorized..................................... 10,000,000
Common stock issued......................................... 10,000,000
</TABLE>
10,000,000 shares of common stock issued consist of 8,910,000 shares sold at
$0.003975 per share and 1,090,000 shares sold at $0.03 per share. The shares of
common stock issued have no par value.
NOTE E--INCOME TAXES:
The income tax expense for the period ending September 30, 1999 consists of
the following:
<TABLE>
<CAPTION>
<S> <C>
Federal income tax.......................................... $25,000
State income tax............................................ 9,500
-------
Total income tax expense.................................... $34,500
=======
</TABLE>
The Company keeps its books under the accrual basis of accounting and files
its income tax returns under the cash basis of accounting.
F-58
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements
give effect to the acquisition by internet.com Corporation of Beverly Hills
Software, Sitch AB, Linux Today and Akula Internet Publishing, Inc. in business
combinations accounted for by the purchase method of accounting. The unaudited
pro forma condensed combined financial statements are derived from the
historical financial statements of internet.com Corporation, Beverly Hills
Software, Sitch AB, Linux Today and Akula Internet Publishing, Inc.
Since the acquisition of Beverly Hills Software and Sitch AB were
consummated prior to September 30, 1999, their effect has already been reflected
in internet.com Corporation's September 30, 1999 consolidated balance sheet. The
unaudited pro forma condensed combined statements of operations for the year
ended December 31, 1998 and for the nine months ended September 30, 1999 give
effect to the acquisitions of Beverly Hills Software, Sitch AB, Linux Today and
Akula Internet Publishing, Inc. as if they had occurred at the beginning of the
period. The pro forma adjustments are based on certain assumptions that
management believes are reasonable under the circumstances. The pro forma
information is not necessarily indicative of the results that would have been
reported had such events actually occurred on the dates specified, nor is it
intended to project internet.com Corporation's results of operations or
financial position for any future period or date. The information set forth
should be read in conjunction with internet.com Corporation's audited financial
statements for the year ended December 31, 1998 and the unaudited financial
statements of internet.com Corporation for the nine months ended September 30,
1999 included elsewhere in this prospectus, and the audited financial statements
of Beverly Hills Software, Sitch AB, Linux Today and Akula Internet Publishing,
Inc. included elsewhere in this prospectus.
F-59
<PAGE>
INTERNET.COM CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
LINUX
INTERNET.COM TODAY AKULA PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS BALANCES
------------ ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.............................. $ 30,211 $ 6 $ 62 $(6,862)(a) $ 23,417
Accounts receivable, net.......... 3,671 69 75 -- 3,815
Prepaids and other................ 202 -- 6 -- 208
-------- ------ ---- ------- --------
Total current assets............ 34,084 75 143 (6,862) 27,440
-------- ------ ---- ------- --------
PROPERTY AND EQUIPMENT, net......... 2,241 -- 43 -- 2,284
INTANGIBLE ASSETS, net.............. 28,140 6 -- 6,649 (a)(b) 34,795
INVESTMENT IN INTERNET.COM VENTURE
FUND I LLC........................ 600 -- -- -- 600
OTHER ASSETS........................ 377 -- -- -- 377
-------- ------ ---- ------- --------
Total assets.................... $ 65,442 $ 81 $186 $ (213) $ 65,496
======== ====== ==== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................. $ 755 $ 8 $ 8 $ -- $ 771
Accrued payroll and related
expenses........................ 1,259 -- -- -- 1,259
Accrued expenses and other........ 1,701 -- 38 -- 1,739
Accrued Web site acquisition
payments........................ 816 -- -- -- 816
Deferred revenues................. 650 -- -- -- 650
-------- ------ ---- ------- --------
Total current liabilities....... 5,181 8 46 -- 5,235
-------- ------ ---- ------- --------
ACCRUED WEB SITE ACQUISITION
PAYMENTS.......................... 394 -- -- -- 394
-------- ------ ---- ------- --------
Total liabilities............... 5,575 8 -- -- 5,629
-------- ------ ---- ------- --------
STOCKHOLDERS' EQUITY:
Common stock...................... 233 2 68 (70)(a) 233
Additional paid-in capital........ 70,863 -- -- -- 70,863
Accumulated deficit............... (11,229) 71 72 (143)(a)(b)(c) (11,229)
-------- ------ ---- ------- --------
Total stockholders' equity...... 59,867 73 140 (213)(a) 59,867
-------- ------ ---- ------- --------
Total liabilities and
stockholders' equity.......... $ 65,442 $ 81 $186 $ (213) $ 65,496
======== ====== ==== ======= ========
</TABLE>
(a) To record the acquisition of Linux Today and Akula Internet Publishing.
(b) To record the preliminary purchase price allocation for the acquisition of
Linux Today and Akula Internet Publishing.
F-60
<PAGE>
INTERNET.COM CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
LINUX
INTERNET.COM SITCH AB BHS TODAY AKULA PRO FORMA PRO FORMA
HISTORICAL HISTORICAL(A) HISTORICAL(B) HISTORICAL HISTORICAL ADJUSTMENTS BALANCES
------------ ------------- ------------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES................ $ 8,598 $ 277 $ 498 $ 168 $400 $ -- $ 9,941
COST OF REVENUES........ 4,938 189 38 82 210 -- 5,457
-------- ------ ------ ------ ---- ------- --------
GROSS PROFIT............ 3,660 88 460 86 190 -- 4,484
-------- ------ ------ ------ ---- ------- --------
OPERATING EXPENSES:
Advertising, promotion
and selling......... 4,649 -- -- 7 -- -- 4,656
General and
administrative...... 2,742 -- 289 9 68 -- 3,108
Depreciation.......... 413 -- 19 -- 7 -- 439
Amortization.......... 6,372 -- -- -- -- 3,260 (c) 9,632
Non-cash compensation
charge.............. 7,975 -- -- -- -- -- 7,975
-------- ------ ------ ------ ---- ------- --------
TOTAL OPERATING
EXPENSES.............. 22,151 -- 308 16 75 3,260 25,810
-------- ------ ------ ------ ---- ------- --------
OPERATING LOSS.......... (18,491) 88 152 70 115 (3,260) (21,326)
INTEREST EXPENSE, NET... 381 (1) -- -- -- -- 380
INCOME TAXES............ -- -- -- -- (35) 35 --
-------- ------ ------ ------ ---- ------- --------
NET LOSS................ $(18,110) $ 87 $ 152 $ 70 $ 80 $(3,225) $(20,946)
======== ====== ====== ====== ==== ======= ========
Basic and diluted net
loss
per share............. $ (0.94) $ (1.03)
======== ========
Common shares used to
compute basic and
diluted net loss per
share................. 19,326 20,258
======== ========
</TABLE>
- ------------------------
(a) Reflects results of Sitch AB from January 1, 1999 to September 24, 1999.
(b) Reflects results of BHS from January 1, 1999 to August 4, 1999.
(c) To record amortization of goodwill over a three year period.
F-61
<PAGE>
INTERNET.COM LLC
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
IWORLD
DIVISION OF LINUX
INTERNET.COM MECKLERMEDIA SITCH AB BHS TODAY AKULA PRO FORMA PRO FORMA
HISTORICAL(A) HISTORICAL(B) HISTORICAL HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS BALANCES
------------- ------------- ---------- ---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES............... $ 772 $ 4,322 $ 72 $990 $ 3 $21 $ -- $ 6,180
COST OF REVENUES....... 403 2,627 52 176 1 22 -- 3,281
------ ------- ---- ---- ---- --- ------- --------
GROSS PROFIT........... 369 1,695 20 814 2 (1) -- 2,899
------ ------- ---- ---- ---- --- ------- --------
OPERATING EXPENSES:
Advertising,
promotion and
selling............ 239 1,847 -- 186 1 -- -- 2,273
General and
administrative..... 449 1,544 -- 273 -- 1 -- 2,697
Depreciation......... 15 496 -- 34 -- 2 -- 547
Amortization......... 632 1,006 -- -- -- -- 4,347 (c) 5,985
------ ------- ---- ---- ---- --- ------- --------
TOTAL OPERATING
EXPENSES............. 1,335 4,893 -- 493 1 3 4,347 11,072
------ ------- ---- ---- ---- --- ------- --------
OPERATING LOSS......... (966) (3,198) 20 321 1 (4) (4,347) (8,173)
INTEREST EXPENSE,
NET.................. (8) -- -- -- -- -- -- (8)(c)
INCOME TAXES........... -- -- (6) -- -- -- -- (6)
------ ------- ---- ---- ---- --- ------- --------
NET LOSS............... $ (974) $(3,198) $ 14 $321 $ 1 $(4) $(4,347) $ (8,187)
====== ======= ==== ==== ==== === ======= ========
Basic and diluted net
loss per share....... $(0.06) $ (.48)
====== ========
Common shares used to
compute basic and
diluted net loss per
share................ 16,216 17,148
====== ========
</TABLE>
- ------------------------
(a) Represents the financial data of the internet.com LLC for the period from
inception (November 24, 1998) to December 31, 1998.
(b) Represents the financial data of the iWorld Division of Mecklermedia
Corporation from January 1, 1998 to November 23, 1998.
(c) To record amortization of goodwill over a three year period.
F-62
<PAGE>
Inside Back Cover
[Artwork for prospectus inside back cover page shows the internet.com
logo surrounded by the names of internet.com's 92 Web sites.]
Outside Back Cover
[Artwork for prospectus outside back cover page consists of the
internet.com logo, tag line and universal resource locator]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,750,000 SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
--------------
CHASE H&Q
ROBERTSON STEPHENS
U.S. BANCORP PIPER JAFFRAY
WILLIAM BLAIR & COMPANY
------------
JANUARY 27, 2000
---------------
YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF OUR COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN THAT JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM
THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE
DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
