<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to ____________
Commission file number: 333-76331
INTERNET.COM CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 06-1542480
-------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
23 OLD KINGS HIGHWAY SOUTH
DARIEN, CONNECTICUT 06820
-------------------------------------- -------------------------------------
(Address of principal executive offices) (Zip Code)
(203) 662-2800
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ]
The number of outstanding shares the Registrant's common stock, par value $.01
per share, as of July 31, 2000 was 25,093,602.
<PAGE>
INTERNET.COM CORPORATION
INDEX
PAGE
----
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 1999 and June 30, 3
2000
Consolidated Statements of Operations - For the Three Months
and Six Months Ended June 30, 1999 and 2000 4
Consolidated Statement of Changes in Stockholders' Equity -
For the Six Months Ended June 30, 2000 5
Consolidated Statements of Cash Flows - For the Six Months
Ended June 30, 1999 and 2000 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. Other Information 17
Signatures 18
EXHIBIT 27. Financial Data Schedule 19
2
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PART I. FINANCIAL INFORMATION Item 1. Financial Statements
INTERNET.COM CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND JUNE 30, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999(1) 2000
-------- ---------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 17,943 $ 85,878
Accounts receivable, net of allowances of $712 and 5,568 10,529
$1,473, respectively
Prepaid expenses and other 347 1,107
-------- ---------
Total current assets 23,858 97,514
Property and equipment, net of accumulated depreciation
of $688 and $1,557, respectively 3,221 4,752
Intangible assets, net of accumulated amortization
of $10,428 and $20,098, respectively 39,086 52,394
Investments in internet.com venture funds and other 1,855 4,794
Other assets 370 457
-------- ---------
Total assets $ 68,390 $ 159,911
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,635 $ 2,634
Accrued payroll and related expenses 1,441 1,926
Accrued expenses and other 2,096 4,071
Accrued Web site acquisition payments 6,462 4,539
Deferred revenues 403 747
-------- ---------
Total current liabilities 12,037 13,917
Accrued Web site acquisition payments 338 240
-------- ---------
Total liabilities 12,375 14,157
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,
23,334,520 and 25,090,770 shares issued and outstanding
at December 31, 1999 and June 30, 2000, respectively
233 251
Additional paid-in capital 70,917 169,315
Accumulated deficit (15,135) (23,819)
Accumulated other comprehensive income -- 7
-------- ---------
Total stockholders' equity 56,015 145,754
-------- ---------
Total liabilities and stockholders' equity $ 68,390 $ 159,911
======== =========
</TABLE>
(1) Represents the combined financial data of predecessor business and
internet.com.
See notes to consolidated financial statements.
3
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INTERNET.COM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 2000
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1999(1) 2000 1999(1) 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 2,872 $ 12,161 $ 4,484 $ 21,806
Cost of revenues 1,786 5,499 2,903 9,724
-------- -------- -------- --------
Gross profit 1,086 6,662 1,581 12,082
-------- -------- -------- --------
Operating expenses:
Advertising, promotion and selling 1,614 4,549 2,542 8,580
General and administrative 846 2,218 1,619 4,139
Depreciation 107 487 189 869
Amortization 2,090 5,332 4,028 9,670
Non-cash compensation charge 7,975 -- 7,975 --
-------- -------- -------- --------
Total operating expenses 12,632 12,586 16,353 23,258
-------- -------- -------- --------
Operating loss (11,546) (5,924) (14,772) (11,176)
Minority interest -- 96 -- 142
Equity (loss), net -- (8) -- (99)
Realized gain on investments -- 72 -- 72
Interest income (expense), net (52) 1,387 (84) 2,476
-------- -------- -------- --------
Loss before income taxes (11,598) (4,377) (14,856) (8,585)
Provision for income taxes -- 54 -- 99
-------- -------- -------- --------
Net loss $(11,598) $ (4,431) $(14,856) $ (8,684)
======== ======== ======== ========
Basic and diluted net loss per share $ (0.63) $ (0.18) $ (0.86) $ (0.35)
======== ======== ======== ========
Weighted average number of common
shares outstanding 18,270 25,089 17,293 24,789
======== ======== ======== ========
</TABLE>
(1) Represents the combined financial data of predecessor business and
internet.com.
See notes to consolidated financial statements.
4
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INTERNET.COM CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL TOTAL
------------------------ PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDERS' COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT INCOME EQUITY LOSS
------------ ---------- ------------ --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1999 23,334,520 $233 $ 70,917 $(15,135) $ -- $ 56,015 $ --
Proceeds from
public offering 1,750,000 18 98,312 -- -- 98,330 --
Exercise of stock
options 6,250 -- 86 -- -- 86 --
Foreign currency
translation
adjustment -- -- -- -- 7 7 7
Net loss -- -- -- (8,684) -- (8,684) (8,684)
---------- ---- -------- -------- ----------- --------- -------
Balance at
June 30, 2000 25,090,770 $251 $169,315 $(23,819) $ 7 $ 145,754 $(8,677)
========== ==== ======== ======== =========== ========= =======
</TABLE>
See notes to consolidated financial statements.
5
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INTERNET.COM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1999(1) 2000
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(14,856) $ (8,684)
Adjustments to reconcile net cash (used in) provided by operating activities-
Depreciation and amortization 4,217 10,539
Provision for losses on accounts receivable 165 761
Minority interest -- (142)
Equity loss -- 99
Non-cash compensation charge 7,975 --
Changes in assets and liabilities -
Accounts receivable (783) (5,595)
Prepaid expenses and other (80) (847)
Accounts payable and accrued expenses 2,268 3,584
Deferred revenues 402 292
-------- --------
Net cash (used in) provided by operating activities (692) 7
-------- --------
Cash flows from investing activities:
Additions to property and equipment (836) (2,385)
Acquisitions of Web sites, related Internet media properties and other (3,233) (25,071)
Investments in internet.com venture funds and other (90) (3,038)
-------- --------
Net cash used in investing activities (4,159) (30,494)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 45,932 98,330
Proceeds from exercise of stock options -- 86
Proceeds from exercise of warrant 3,000 --
Borrowings under line of credit 4,670 --
Payments for line of credit (6,566) --
-------- --------
Net cash provided by financing activities 47,046 98,416
-------- --------
Effects of exchange rates on cash -- 6
-------- --------
Net increase in cash and cash equivalents 42,195 67,935
Cash and cash equivalents, beginning of period 129 17,943
-------- --------
Cash and cash equivalents, end of period $ 42,324 $ 85,878
======== ========
Supplemental disclosures of cash flow:
Cash paid for interest $ 92 $ --
======== ========
Cash paid for income taxes $ -- $ 25
======== ========
</TABLE>
(1) Represents the combined financial data of predecessor business and
internet.com.
See notes to consolidated financial statements.
6
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INTERNET.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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 June 30, 2000, this network of Internet
media properties consisted of 122 Web sites, 168 e-mail newsletters, 136 online
discussion forums and 79 moderated e-mail discussion lists. The network is
organized into 14 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, internet.com's
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.
On February 1, 2000, internet.com completed a follow-on offering of
3,750,000 shares of common stock priced at $60.00 per share, of which 1,750,000
shares were sold by internet.com and 2,000,000 shares were sold by Penton Media,
Inc. Net proceeds received by internet.com from the follow-on offering were
approximately $98.3 million. internet.com did not receive any of the proceeds
from the sale of shares by Penton Media, Inc.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared from the books and records of internet.com in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. It is suggested that these unaudited
consolidated financial statements be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 1999 included in
internet.com's Form 10-K for the fiscal year ended December 31, 1999. In the
opinion of management, all adjustments considered necessary for a fair
presentation of the results for the interim periods presented have been
reflected in such consolidated financial statements.
The consolidated financial statements include the accounts of internet.com
and its majority-owned and wholly-owned subsidiaries. All significant
intercompany transactions have been eliminated.
internet.com does not believe any recently issued accounting standards on
derivatives and Web site development costs will have a material impact on its
financial condition or results of operations.
7
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3. COMPUTATION OF NET LOSS PER SHARE
Basic net loss per share is computed using the weighted average number
of common shares outstanding during the period. Dilutive net 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 net loss per share for the three and
six months ended June 30, 1999 and 2000 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1999 2000 1999 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator: Net loss $(11,598) $ (4,431) $(14,856) $ (8,684)
Denominator: Weighted average shares outstanding 18,270 25,089 17,293 24,789
-------- -------- -------- --------
Basic and diluted net loss per share $ (0.63) $ (0.18) $ (0.86) $ (0.35)
======== ======== ======== ========
</TABLE>
4. ACQUISITIONS OF ASSETS
For the six months ended June 30, 1999 and 2000, internet.com made five
and 18 acquisitions of Web sites and related Internet media properties for a
total of $4.0 million and $17.4 million, respectively. These acquisitions were
accounted for as purchases. Twelve of the acquisitions made during the six
months ended June 30, 2000 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, a substantial majority of the purchase price has been
recorded as intangible assets on a preliminary basis and is being amortized over
an estimated useful life of three years. The purchase accounting for these
acquisitions will be finalized at a later date not to exceed one year from the
purchase date of each acquisition.
The unaudited pro forma information below presents results of operations,
as if the acquisitions occurred as of January 1, 1999 and 2000, respectively,
for the six months ended June 30, 1999 and 2000, respectively. The unaudited pro
forma information is not necessarily indicative of the results of operations of
the combined companies had these events occurred at the beginning of the periods
presented nor is it indicative of future results.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1999 2000
---------- --------
<S> <C> <C>
Pro forma revenues $ 4,952 $ 22,351
========== ========
Pro forma net loss $ (16,709) $ (9,418)
========== ========
Pro forma basic and diluted net loss per share $ (0.97) $ (0.38)
========== ========
</TABLE>
8
<PAGE>
5. INVESTMENT IN INTERNET.COM VENTURE PARTNERS III LLC
internet.com Venture Partners III LLC (the "Fund ") was organized on June
1, 2000, as a Delaware limited liability company. The Fund has received $75
million in capital commitments from its members. I-Venture Management LLC, a
wholly-owned subsidiary of internet.com, is the managing member and acts as the
Fund's investment manager and makes all investment decisions on behalf of the
Fund. internet.com is responsible for the day-to-day operation of the Fund.
internet.com has committed $10.4 million representing a 14% investment in
the Fund. Unpaid capital commitments were approximately $8.8 million as of June
30, 2000. internet.com accounts for these investments on the equity basis of
accounting, subject to review for impairment.
internet.com is entitled to approximately a 2% management fee for the
day-to-day management of the Fund. For the period from inception of the Fund to
June 30, 2000, management fees from the Fund amounted to $90,000. In addition,
internet.com is entitled to reimbursement for certain costs associated with the
operations of the Fund. The Fund owes $159,000 to internet.com related to such
costs as of June 30, 2000.
6. SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
internet.com barters portions of unsold advertising impressions for
equity interests in certain of its venture funds' portfolio companies.
internet.com recorded $438,000 and $798,000 in both revenue and investments in
internet.com venture funds and other during the three and six months,
respectively, ended June 30, 2000 related to the barter of unsold advertising
impressions for equity.
9
<PAGE>
ITEM 2. 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 filing.
This filing contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 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 which could cause our actual results to
differ from those contained in the forward-looking statements are discussed
below and in our reports filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934.
The forward-looking statements included herein are made as of the date of this
Form 10-Q, and we are under no obligation to update the forward-looking
statements after the date hereof.
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. As of June 30, 2000, our network consisted of 14 subject
areas, or vertical content channels, that contain 122 Web sites, 168 e-mail
newsletters, 136 online discussion forums and 79 moderated e-mail discussion
lists focused solely on the Internet industry. During the month of June 2000, we
delivered approximately 140 million page views to over 2.1 million unique
visitors and 25.9 million copies of our e-mail newsletters to 3.4 million
subscribers, and 33.4 million postings were generated by 129,000 subscribers to
our moderated e-mail discussion lists.
We generate revenues from the following sources:
o advertising on our Web sites, e-mail newsletters, online discussion
forums and moderated e-mail discussion lists;
o e-commerce agreements and offerings;
o permission based opt-in e-mail list rentals;
o seminars;
o paid subscription services;
o licensing of our editorial content, brands and software;
o online press release distribution services; and
o venture fund management fees
We barter a portion of the unsold advertising impressions generated by our
network for advertising and promotion in media properties owned by Penton Media,
Inc. and other third parties. In addition, internet.com barters portions of
unsold advertising impressions for equity interests in certain of our venture
funds' portfolio companies. We did not record the effects of this barter in our
financial statements for the six months ended June 30, 1999. Beginning in
January 2000, in accordance with Emerging Issues Task Force Issue No. 99-17,
"Accounting for Advertising Barter Transactions," we have prospectively recorded
revenues and expenses from barter transactions at their estimated fair values.
Revenues and expenses related to barter transactions were $909,000 and
approximately $1.9 million, respectively, for the three and six months ended
June 30, 2000.
For the three and six months ended June 30, 2000, approximately 77% and
76%, respectively, of our revenues were from the sale of advertising. We
recognize advertising revenue ratably in the period the advertising is
displayed, provided that we have no significant remaining obligations and
collection of the resulting receivable is probable. Such obligations typically
include guarantees of a minimum number of advertising impressions, or times
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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
both 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.
Through a third-party agent, we currently offer for rental our permission
based opt-in e-mail list names relating to over 160 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 permission based
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 permission based 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.
Paid subscription services relate primarily to customer subscriptions to
our paid e-mail newsletters and services, 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. Revenues are recognized ratably over the
period of the licensing agreements.
Online press release distribution revenues are generated through
INTERNETNEWSBUREAU.COM, which we acquired in October 1999. We distribute e-mail
based press releases to over 5,000 registered journalists.
Revenues are recognized at the time of distribution.
Venture fund management fees relate to management fees earned for the
day-to-day operation and general management of internet.com Venture Fund I LLC,
internet.com Venture Fund II LLC and internet.com Venture Partners III LLC.
Management fees are recognized ratably over the period the services are
rendered. In addition, internet.com is entitled to 20% of the realized gains
earned from portfolio investments.
From July 1995 through June 30, 2000, we made 60 acquisitions of Internet
media properties, consisting of 74 Web sites, 70 e-mail newsletters, 96 online
discussion forums and 64 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 June 30, 2000 we had approximately $51.6 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
11
<PAGE>
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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND 2000
REVENUES. Revenues were approximately $2.9 million for the three months
ended June 30, 1999 and approximately $12.2 million for the three months ended
June 30, 2000, representing an increase of 323%. Revenues relate to advertising
on our network of Web sites, e-mail newsletters, online discussion forums and
moderated e-mail discussion lists; e-commerce agreements and offerings;
permission based opt-in e-mail list rentals; seminars; paid subscription
services; licensing; online press release distribution services; and venture
fund management fees. While we anticipate that advertising revenues will
continue to represent a majority of our revenues for the foreseeable future, we
believe that revenues from e-commerce agreements and offerings, permission based
opt-in e-mail list rentals, seminars, paid subscription services, licensing,
online press release distribution services and venture fund management fees 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 approximately $1.8 million for the three months ended June
30, 1999 and approximately $5.5 million for the three months ended June 30,
2000, representing an increase of 208%. 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
62% for the three months ended June 30, 1999 and 45% for the three months ended
June 30, 2000. We anticipate that our cost of revenues will continue to increase
in absolute dollars as we continue to expand 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.
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 $1.6 million for the three months ended June 30, 1999 and approximately
$4.5 million for the three months ended June 30, 2000, representing a 182%
increase. This change was primarily due to increased hiring of advertising sales
personnel and the recording of barter advertising. As a percentage of revenues,
advertising, promotion and selling expenses were 56% for the three months ended
June 30, 1999 and 37% for the three months ended June 30, 2000. We anticipate
that our advertising, promotion and selling expenses will continue to increase
in absolute dollars, primarily due to our planned hiring of additional sales
personnel in an effort to increase our advertising sales as well as increased
expenses for the promotion of our content offerings and services to our
community of Internet users, advertisers and vendors.
GENERAL AND ADMINISTRATIVE. General and administrative expenses primarily
consist of salaries, professional fees, facilities costs and provisions for
losses on accounts receivable. General and administrative expenses were $846,000
for the three months ended June 30, 1999 and approximately $2.2 million for the
three months ended June 30, 2000, representing a 162% increase. This change was
primarily due to the hiring of additional personnel and increased provisions for
losses on accounts receivable. As a percentage of revenues, general and
administrative expenses were 29% for the three months ended June 30, 1999 and
18% for the three months ended June 30, 2000. 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 general and administrative personnel.
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DEPRECIATION AND AMORTIZATION. Depreciation of property and equipment was
$107,000 for the three months ended June 30, 1999 and $487,000 for the three
months ended June 30, 2000, representing a 355% increase. As a percentage of
revenues, depreciation of property and equipment was 4% for the three months
ended June 30, 1999 and June 30, 2000. Amortization of intangibles was
approximately $2.1 million for the three months ended June 30, 1999 and
approximately $5.3 million for the three months ended June 30, 2000,
representing a 155% increase. This increase was primarily due to the
amortization of acquired Web sites and related Internet media properties. As a
percentage of revenues, amortization of intangibles was 73% for the three months
ended June 30, 1999 and 44% for the three months ended June 30, 2000. 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.
NON-CASH COMPENSATION CHARGE. In March 1999, internet.com LLC granted 4%
of its total common stock at the time to certain of its employees. As this
common stock vested upon the completion of our initial public offering ("IPO"),
we recorded an $8.0 million non-cash compensation charge concurrent with the
completion of our IPO.
MINORITY INTEREST. Minority interest represents the minority stockholders'
proportionate share of losses of the internet.com majority-owned consolidated
international subsidiaries.
EQUITY INCOME (LOSS), NET. Equity losses represent internet.com's net
equity interests in the investments in the internet.com venture funds and
international joint ventures.
REALIZED GAIN ON INVESTMENTS. During the three months ended June 30, 2000,
internet.com received 17,213 shares of GoTo.com, Inc. common stock as a
distribution from internet.com Venture Fund I LLC. internet.com recorded $72,000
in net realized gains on the disposition of its investment in GoTo.com, Inc.
INTEREST INCOME (EXPENSE), NET. Interest expense, net of interest income,
related to borrowings under a line of credit was $52,000 for the three months
ended June 30, 1999. Interest income was $1.4 million for the three months ended
June 30, 2000.
PROVISION FOR INCOME TAXES. internet.com recorded a provision for income
taxes of $54,000 for the three months ended June 30, 2000 related to foreign tax
liabilities which were recorded based upon estimated foreign tax rates.
SIX MONTHS ENDED JUNE 30, 1999 AND 2000
REVENUES. Revenues were approximately $4.5 million for the six months
ended June 30, 1999 and approximately $21.8 million for the six months ended
June 30, 2000, representing an increase of 386%. Revenues relate to advertising
on our network of Web sites, e-mail newsletters, online discussion forums and
moderated e-mail discussion lists; e-commerce agreements and offerings;
permission based opt-in e-mail list rentals; seminars; paid subscription
services; licensing; online press release distribution services; and venture
fund management fees.
COST OF REVENUES. Cost of revenues primarily consists of expenses
associated with editorial, communications infrastructure and Web site hosting.
Cost of revenues was approximately $2.9 million for the six months ended June
30, 1999 and approximately $9.7 million for the six months ended June 30, 2000,
representing an increase of 235%. 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 65%
for the six months ended June 30, 1999 and 45% for the six months ended June 30,
2000.
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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 $2.5 million for the six months ended June 30, 1999 and approximately $8.6
million for the six months ended June 30, 2000, representing a 238% increase.
This change was primarily due to increased hiring of advertising sales personnel
and the recording of barter advertising. As a percentage of revenues,
advertising, promotion and selling expenses were 57% for the six months ended
June 30, 1999 and 39% for the six months ended June 30, 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses primarily
consist of salaries, professional fees, facilities costs and provisions for
losses on accounts receivable. General and administrative expenses were $1.6
million for the six months ended June 30, 1999 and approximately $4.1 million
for the six months ended June 30, 2000, representing a 156% increase. This
change was primarily due to the hiring of additional personnel and increased
provisions for losses on accounts receivable. As a percentage of revenues,
general and administrative expenses were 36% for the six months ended June 30,
1999 and 19% for the six months ended June 30, 2000.
DEPRECIATION AND AMORTIZATION. Depreciation of property and equipment was
$189,000 for the six months ended June 30, 1999 and $869,000 for the six months
ended June 30, 2000, representing a 360% increase. As a percentage of revenues,
depreciation of property and equipment was 4% for the six months ended June 30,
1999 and June 30, 2000. Amortization of intangibles was approximately $4.0
million for the six months ended June 30, 1999 and approximately $9.7 million
for the six months ended June 30, 2000, representing a 140% increase. This
increase was primarily due to the amortization of acquired Web sites and related
Internet media properties. As a percentage of revenues, amortization of
intangibles was 90% for the six months ended June 30, 1999 and 44% for the six
months ended June 30, 2000.
NON-CASH COMPENSATION CHARGE. In March 1999, internet.com LLC granted 4%
of its total common stock at the time to certain of its employees. As this
common stock vested upon the completion of our initial public offering ("IPO"),
we recorded an $8.0 million non-cash compensation charge concurrent with the
completion of our IPO.
MINORITY INTEREST. Minority interest represents the minority stockholders'
proportionate share of losses of the internet.com majority-owned consolidated
international subsidiaries
EQUITY INCOME (LOSS), NET. Equity losses represent internet.com's net
equity interests in the investments in the internet.com venture funds and
international joint ventures.
REALIZED GAIN ON INVESTMENTS. During the six months ended June 30, 2000,
internet.com received 17,213 shares of GoTo.com, Inc. common stock as a
distribution from internet.com Venture Fund I LLC. internet.com recorded $72,000
in net realized gains on the disposition of its investment in GoTo.com, Inc.
INTEREST INCOME (EXPENSE), NET. Interest expense, net of interest income,
related to borrowings under a line of credit was $84,000 for the six months
ended June 30, 1999. Interest income was $2.5 million for the six months ended
June 30, 2000.
PROVISION FOR INCOME TAXES. internet.com recorded a provision for income
taxes of $99,000 for the six months ended June 30, 2000 related to foreign tax
liabilities which were recorded based upon estimated foreign tax rates.
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LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded operations primarily with cash from
proceeds from our IPO and follow-on public equity offering, borrowings under a
line of credit and the capital contributions of members of internet.com LLC. On
June 25, 1999, we completed our IPO of 3,400,000 shares of our common stock at
$14.00 per share. Net proceeds to internet.com aggregated approximately $42.9
million. On June 30, 1999, internet.com paid the outstanding balance under our
line of credit of approximately $5.0 million and terminated the line of credit.
On February 1, 2000, we completed our follow-on public offering of 3,750,000
shares of common stock priced at $60.00 per share, of which 1,750,000 shares
were sold by internet.com and 2,000,000 shares were sold by Penton Media, Inc.
Net proceeds received by internet.com from the follow-on offering were
approximately $98.3 million. internet.com did not receive any of the proceeds
from the sale of shares by Penton Media, Inc.
As of June 30, 2000, internet.com had total current assets of $97.5
million and total current liabilities of $13.9 million, or working capital of
$83.6 million.
Net cash used in operating activities was $692,000 for the six months
ended June 30, 1999 and net cash provided by operating activities was $7,000 for
the six months ended June 30, 2000. Net cash used in operating activities for
the six months ended June 30, 1999 was primarily a result of our net losses
adjusted for depreciation and amortization offset by increases in accounts
receivable. Net cash provided by operating activities for the six months ended
June 30, 2000 was a result of a decrease in our net losses adjusted for
depreciation and amortization and increases in accounts payable offset by
increases in accounts receivable.
Net cash used in investing activities was approximately $4.2 million for
the six months ended June 30, 1999 and $30.5 million for the six months ended
June 30, 2000. Net cash used in investing activities was primarily a result of
acquisitions of Web sites and related Internet media properties and capital
expenditures. Included in investing activities are securities received as a
result of certain barter transactions with third parties.
Net cash provided by financing activities was approximately $47.0 million
for the six months ended June 30, 1999 and $98.4 million for the six months
ended June 30, 2000. Net cash provided by financing activities was primarily a
result of net proceeds from our initial public offering, borrowings under our
line of credit and the capital contributions of members of internet.com LLC
during the six months ended June 30, 1999 and from net proceeds from our
follow-on public offering for the six months ended June 30, 2000.
Capital expenditures were $836,000 for the six months ended June 30, 1999
and approximately $2.4 million for the six months ended June 30, 2000. We
anticipate that we will increase our capital expenditures consistent with our
anticipated growth in operations, infrastructure and personnel.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS No.
133") subsequently amended by SFAS No. 137, to be effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 requires
that all derivative financial instruments, such as interest rate swap contracts
and foreign exchange contracts, be recognized in the financial statements and
measured at fair value regardless of the purpose or intent for holding them.
Changes in the fair value of derivative financial instruments are either
recognized periodically in income or stockholders' equity, depending on whether
the derivative is being used to hedge changes in fair value or cash flows. The
adoption of SFAS No. 133 is not expected to have a material effect on our
financial statements.
In March 2000, the Emerging Issues Task Force reached a consensus on
Issue No. 00-2, "Accounting for Web Site Development Costs," ("EITF Issue No.
00-2") to be applicable to all Web site development costs incurred for the
quarter beginning after June 30, 2000. The consensus states that for specific
Web site development costs, the accounting for such costs should be based
generally on a model consistent with AICPA Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
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Internal Use," ("SOP 98-1"). Accordingly, certain Web site development costs
which are presently being expensed as incurred, will be capitalized and
amortized. The adoption of EITF Issue No. 00-2 is not expected to have a
material effect on our financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
We have no derivative financial instruments or derivative commodity
instruments in our cash and cash equivalents. We have invested our net proceeds
from our public offerings in short-term, interest-bearing, investment grade
securities. Our transactions are generally conducted, and our accounts are
generally denominated, in United States dollars. Accordingly, we are not exposed
to significant foreign currency risk.
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
For a description of material pending legal proceedings
affecting the Registrant, see Item 3. Legal Proceedings
contained in the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999.
Item 2. CHANGES IN SECURITIES
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on May
15, 2000.
The following nominees were elected as directors, each to
hold office until his or her successor is elected and
qualified, by the vote set forth below:
NOMINEE FOR WITHHELD
------- --- --------
Alan M. Meckler 22,836,503 10,060
Christopher S. Cardell 22,836,503 10,060
Michael J. Davies 22,836,503 10,060
Gilbert F. Bach 22,836,503 10,060
William A. Shutzer 22,836,503 10,060
The proposal to approve an amendment to the internet.com
Corporation 1999 Stock Incentive Plan to increase the number
of shares of internet.com Corporation common stock available
for grant pursuant to the exercise of options thereunder by
4,000,000 shares was approved by the vote set forth below:
FOR AGAINST ABSTAIN
--- ------- -------
18,889,935 1,024,554 10,817
The proposal to approve the appointment of Arthur Andersen
LLP, independent accountants, to act as independent auditors
for internet.com Corporation for the fiscal year ending
December 31, 2000 was approved by the vote set forth below:
FOR AGAINST ABSTAIN
--- ------- -------
22,806,286 38,665 1,612
Item 5. OTHER INFORMATION
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits
The following is a list of exhibits filed as part of
this Report on Form 10-Q. Where so indicated by
footnote, exhibits which were previously filed are
incorporated by reference. For exhibits incorporated
by reference, the location of the exhibit in the
previous filing is indicated parenthetically except
for in those situations where the exhibit number was
the same as set forth below.
Exhibit
Number Description
-----------------------------------------------------
11 Statement Regarding Computation of Per
Share Earnings (Loss) (included in
notes to consolidated financial
statements)
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 11, 2000 internet.com Corporation
/s/Christopher S. Cardell
-----------------------------------------------
Christopher S. Cardell
Director, President and Chief Operating Officer
/s/Christopher J. Baudouin
-----------------------------------------------
Christopher J. Baudouin
Chief Financial Officer
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