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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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 (IRS Employer Identification No.)
incorporation or organization)
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)
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE ACT: COMMON STOCK $.01 PAR
VALUE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]
The aggregate market value of voting common stock held by non-affiliates of
the registrant as of February 23, 2000, based upon the last sale price of such
common stock on that date as reported by the Nasdaq National Market was
$1,088,001,120.
The number of shares of the outstanding registrant's Common Stock as of
February 23, 2000, was 25,011,520.
Information required by Part III of this Form 10-K, to the extent not set
forth herein, is incorporated by reference from the registrant's definitive
proxy statement for its 2000 annual meeting of stockholders, which will be filed
pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120
days after the end of the fiscal year to which this Form 10-K relates.
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INTERNET.COM CORPORATION
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PAGE
Part I
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Item 1. Business............................................................................... 3
Item 2. Properties............................................................................. 21
Item 3. Legal Proceedings...................................................................... 22
Item 4. Submission of Matters to a Vote of Security Holders.................................... 22
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................. 23
Item 6. Selected Financial Data................................................................ 25
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 26
7A. Quantitative and Qualitative Disclosures About Market Risk............................. 33
Item 8. Financial Statements................................................................... 34
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... 64
Part III
Item 10. Directors and Executive Officers of the Registrant..................................... 65
Item 11. Executive Compensation................................................................. 65
Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 65
Item 13. Certain Relationships and Related Transactions......................................... 65
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................ 66
Signatures............................................................................. 68
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"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995: Statements in this Form 10-K regarding internet.com Corporation's
business which are not historical facts are forward-looking statements that
involve risks and uncertainties. For a discussion of such risks and
uncertainties, which could cause actual results to differ from those contained
in the forward-looking statements, see internet.com's reports filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933 and
the Securities Act of 1934. The forward-looking statements included herein are
made as of the date of this Form 10-K, and internet.com assumes no obligation to
update the forward-looking statements after the date hereof.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
internet.com owns and operates a network of 100 Web sites and related
Internet media properties, as of February 23, 2000, focused solely on the
Internet industry. In addition to our 100 Web sites, our network includes 150
e-mail newsletters, which are periodical publications delivered by electronic
mail; 117 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 78 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 12 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:
o real-time Internet industry news o archives of definitive industry
publications
o tutorials, training and skills o discussion forums
development
o Internet market research o software downloads
o buyer's guides and products reviews o expert advice
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 1,100 advertisers on our network. For the
year ended December 31, 1999, our 10 largest advertisers based on revenues
during the year were:
Compaq Computer Corporation Lucent Technologies Inc.
EarthLink Network, Inc. Microsoft Corporation
GoTo.com, Inc. Moai Technologies, Inc.
Hewlett-Packard Company Net2Phone, Inc.
International Business Machines Corporation Sun Microsystems, Inc.
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. From July 1995 through
February 23, 2000, we have made 50 acquisitions of Internet media properties,
consisting of 64 Web sites, 45 e-mail newsletters, 77 online discussion forums
and 63 moderated e-mail discussion lists. Our size and recent growth are
illustrated by the following statistics for the months of January 1999 and 2000:
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JANUARY JANUARY
1999 2000
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Web site page views 28,600,000 112,000,000
Unique Web site visitors 1,700,000 2,200,000
E-mail newsletters distributed 2,300,000 21,000,000
E-mail newsletter subscribers 300,000 2,300,000
E-mail discussion list postings 6,100,000 38,100,000
E-mail discussion list subscribers 18,000 86,000
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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:
o increase our proprietary content offerings and services;
o grow through targeted acquisitions;
o enhance worldwide brand recognition;
o expand revenue opportunities; and
o increase our international presence.
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. As of February 23, 2000, Mr. Meckler
beneficially owned approximately 51.7% of our outstanding common stock.
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.
INDUSTRY BACKGROUND
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 that can effectively build and manage
their Internet infrastructures.
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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:
o news;
o analysis;
o tutorials, training and skills development;
o market information about emerging products and technologies;
o buyers' guides and product reviews;
o Internet market research; and
o 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:
o ONLINE DISCUSSION FORUMS. We offer 117 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.
o MODERATED E-MAIL DISCUSSION LISTS. We offer 78 moderated e-mail
discussion lists and have over 86,000 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.
o 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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o 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, among others:
o software and hardware;
o technical books and training materials;
o Internet research reports;
o employment classifieds;
o opt-in e-mail list brokerage;
o online press release distribution;
o online banking and credit card registration services;
o online travel services; and
o online scheduling.
BENEFITS FOR ADVERTISERS AND VENDORS
We provide advertisers and vendors with targeted channels to reach our
highly focused community of Internet users, 85% of whom either make or influence
purchasing decisions, according to a survey we commissioned from FollowUp.net,
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 FollowUp.net, LLC, which was conducted from August
1999 through February 2000, some key demographics of our community of Internet
users include:
o 85% are involved in purchasing Internet products and services for
their companies and organizations, including hardware, software,
networking and Internet access;
o 72% purchased products online within the past six months;
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o 58% have Internet technology or information technology job titles;
another 33% are in corporate management;
o the average household income of the group exceeds $69,000 annually;
o 60% are in the desirable 25-44 age group; and
o 60% 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 74 employees and over 100 freelance contributors as of
January 31, 2000, creates proprietary content for our network on a daily basis.
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. From July 1995 through February 23,
2000, we have made 50 acquisitions, which included 64 Web sites, 45 e-mail
newsletters, 77 online discussion forums and 63 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 year ended December 31, 1999, 79% of
our revenues were derived from banner advertising. A significant majority of our
advertising revenues for the year ended December 31, 1999 were derived from
technology companies. We believe that the increase in the number of advertising
impressions available for sale resulting from the growth of subscribers to our
e-mail newsletters and moderated e-mail discussion lists will increase
advertising revenues in the future.
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We are continuing to develop additional revenue sources, including e-commerce
agreements and offerings; seminars; paid subscription services; permission based
opt-in e-mail list rentals; content, brand and software licensing; online press
release distribution services; and venture fund management fees. 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 primary
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 have signed an agreement with VNU International, a division of
Netherlands-based publishing and information company VNU, to jointly operate
local internet.com branded Web sites in the United Kingdom, Scandinavia, Spain,
France, Belgium, Germany, The Netherlands and Italy. 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 year ended December 31, 1999, 79% 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 45 third party publishers. E-commerce agreements typically are a minimum of
six months in duration. As of December 31, 1999, our 10 largest e-commerce
vendors were:
CareerBuilder, Inc. Netzip, Inc.
Digital River, Inc. ON24, Inc.
Domain Bank, Inc. Qwest Communications, Inc.
FatBrain.com, Inc. Screaming Media.com, Inc.
MapQuest.com, Inc. Work Exchange.com, Inc.
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 year ended December 31, 1999, 7% of our revenues were derived
from e-commerce agreements and offerings. As of December 31, 1999, four of our
e-commerce agreements provided for fixed fees, one of our e-commerce agreements
provided for customer bounties, 45 of our e-commerce agreements provided for
revenue sharing, and 19 of our e-commerce agreements provided for a combination
of advertising, bounties and revenue sharing.
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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 year ended December 31, 1999, 5% of our revenues were derived from
seminars.
PAID SUBSCRIPTION SERVICES. We offer paid subscription e-mail services
for certain of our content areas that attract audiences with specialized
interests. For the year ended December 31, 1999, 4% of our revenues were derived
from paid subscription services.
PERMISSION BASED OPT-IN E-MAIL LIST RENTALS. Through a third-party agent,
we currently offer for rental our permission based 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 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. For the year ended
December 31, 1999, 3% of our revenues were derived from permission based opt-in
e-mail list rentals.
LICENSING AGREEMENTS. We license our editorial content and brands to third
parties for fixed fees and royalties based on the licensee's revenues generated
by the licensed content. We also provide access to limited versions of our
editorial content to others at no charge, to promote our brands and generate
traffic. We have paid licensing arrangements with America Online, Inc.,
Ziff-Davis Inc., 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 year ended December 31, 1999, 1% of our revenues
were derived from licensing agreements.
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.
VENTURE FUND MANAGEMENT FEES. 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
committed $1.5 million in the second fund, of which $1.1 million has been
invested as of December 31, 1999. 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.
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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 12 vertical content
categories, or channels:
o 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.
o 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.
o 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.
o ECOMMERCE/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.
o 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.
o 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 47 e-mail discussion lists used by more than
59,000 professionals in the ISP industry to communicate with their
colleagues.
o 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.
o 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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o 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.
o 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.
o 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.
o 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 100 Web sites, the Internet media properties presented
on these channels include 150 e-mail newsletters, 117 online discussion forums
and 78 moderated e-mail discussion lists. Our network of Internet media
properties consists of the following:
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<CAPTION>
ACQUIRED,
E-MAIL ONLINE E-MAIL INTERNALLY
INTERNET WEB NEWS- DISCUSSION DISCUSSION DEVELOPED
MEDIA PROPERTY DESCRIPTION SITE LETTER FORUMS LISTS OR LICENSED
INTERNETNEWS CHANNEL
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<S> <C> <C> <C> <C> <C> <C>
internetnews Real-time, global coverage of Internet o o Internally
WWW.INTERNETNEWS.COM industry news and analysis reported by developed
our staff covering business, finance,
ISP, Web development, e-commerce,
advertising, stocks and international
news
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
NewsLinx Provides continuous updates of o o Acquired
WWW.NEWSLINX.COM Internet news headlines with links to 11/98
the related articles from leading news
Web sites
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
atnewyork Provides news and analysis for the New o o o Acquired
WWW.ATNEWYORK.COM York City Internet industry 4/99
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Boston.internet.com Provides news and analysis for the o Internally
WWW.BOSTON.INTERNET.COM Boston Internet industry developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
DC.internet.com Provides news and analysis for the o Internally
WWW.DC.INTERNET.COM Washington, DC Internet industry developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
internetnews radio Daily audio Internet news broadcast o Internally
WWW.INTERNETNEWSRADIO.COM developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
INTERNET TECHNOLOGY CHANNEL
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
ServerWatch Reviews of Web server hardware and o o Acquired
WWW.SERVERWATCH.COM software 7/96
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
InternetProductWatch Searchable directory of commercial o o Acquired
WWW.INTERNETPRODUCTWATCH.COM Internet product listings 1/96
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
AllNet Devices News and reviews of devices that o o Internally
WWW.ALLNETDEVICES.COM perform specialized Internet and developed
intranet tasks
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
BotSpot Directory of information and resources o o Acquired
WWW.BOTSPOT.COM about automated Internet data retrieval 1/99
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
WebServer Compare Directory of Web servers listing o Acquired
WWW.WEBSERVERCOMPARE.COM technical specifications 7/96
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Intranet Design Magazine Tutorials and product reviews for o o o Acquired
WWW.INTRANETDESIGNMAGAZINE.CO intranet managers 9/98
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
SQLCourse Online tutorial teaching the basics of o Acquired
WWW.SQLCOURSE.COM Structured Query Language, a method of 9/99
retrieving information from databases
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
SQLWire News site for SQL professionals, o o Acquired
WWW.SQLWIRE.COM featuring links to news stories about 10/99
Structured Query Language and related
topics
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
SolarisGuide Information resource for Sun Solaris o Acquired
WWW.SOLARISGUIDE.COM administrators and software developers 10/99
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
CEWire News site featuring links to press o o Acquired
WWW.CEWIRE.COM reports about Microsoft's Windows CE 10/99
operating system
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Internet Technology Forums Discussion forums about Internet o Internally
FORUMS.INTERNET.COM technology topics developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Internet World Archives of Internet World magazine o o Licensed
WWW.IW.COM
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Hardware Central Comprehensive hardware information o o o Acquired
WWW.HARDWARECENTRAL.COM including advice on optimization and 5/99
troubleshooting
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
BrowserWatch News and information for technical o o Acquired
WWW.BROWSERWATCH.COM professionals about Web browsers 5/96
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
SharkyExtreme Resource for the latest hardware and o Acquired
WWW.SHARKYEXTREME.COM software technology on the Web 12/99
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
ThinPlanet.com News and information resource for o o o Acquired
WWW.THINPLANET.COM professionals involved with "thin 2/00
client" computing
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
ACQUIRED,
E-MAIL ONLINE E-MAIL INTERNALLY
INTERNET WEB NEWS- DISCUSSION DISCUSSION DEVELOPED
MEDIA PROPERTY DESCRIPTION SITE LETTER FORUMS LISTS OR LICENSED
WEB DEVELOPER CHANNEL
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
WebDeveloper News, reviews and tutorials for Web o o o Internally
WWW.WEBDEVELOPER.COM developers developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
WebReference Tutorials, technical information and o o o Acquired
WWW.WEBREFERENCE.COM reviews for Web developers 11/97
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Web Developer's Virtual Tutorials and technical information o o o o Acquired
Library for Web developers 3/98
WWW.WDVL.COM
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
StreamingMediaWorld Tutorials and information resources o o Internally
WWW.STREAMINGMEDIAWORLD.COM for streaming media developers developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
JustSMIL Tutorials, information resources and o o Acquired
WWW.JUSTSMIL.COM forums for streaming media developers 11/98
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
JavaBoutique Collection of over 360 Java applets o o o Acquired
WWW.JAVABOUTIQUE.COM available for download 5/97
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
The JavascriptSource Collection of over 300 Javascripts o o o Acquired
WWW.JAVASCRIPTSOURCE.COM available for download 7/98
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Javascript.com Portal site that facilitates access to o Internally
WWW.JAVASCRIPT.COM internet.com Javascript services developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
ScriptSearch Links to more than 5,000 C++, PERL, o o Acquired
WWW.SCRIPTSEARCH.COM VBScript and other programs online 9/98
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
FlashPlanet Information resource for flash o Acquired
WWW.FLASHPLANET.COM multimedia technology 1/00
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
FlashKit Information resource for flash o Acquired
WWW.FLASHKIT.COM multimedia technology 1/00
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
ExtremeFlash.com Information resource for flash o Acquired
WWW.EXTREMEFLASH.COM multimedia technology 2/00
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Web Developer's Journal Tutorials and information resources o o o o Acquired
WWW.WEBDEVELOPERSJOURNAL.COM for Web site development, site design, 7/99
HTML, Web graphics and audio
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Web Developer Forums Discussion forums about Web o Internally
FORUMS.INTERNET.COM development topics developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
ECOMMERCE/INTERNET MARKETING CHANNEL
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
The Electronic Commerce News, tutorials, reviews and opinions o o o o Acquired
Guide for e-commerce professionals 11/95
WWW.ECOMMERCE-GUIDE.COM
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
SearchEngineWatch How-to site for Internet marketers and o o Acquired
WWW.SEARCHENGINEWATCH.COM users about search engine operations 11/97
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
CyberAtlas Searchable repository of o o Acquired
WWW.CYBERATLAS.COM Internet-related research abstracts 8/98
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Internet Day Daily tutorial for Internet marketers o o Acquired
WWW.INTERNETDAY.COM and professionals 11/98
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Internet Advertising Report Highlights top Internet marketing and o o Internally
WWW.INTERNETNEWS.COM/IAR advertising news and events developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Ad Resource Collection of Internet advertising o Acquired
WWW.ADRESOURCE.COM resources for Internet marketers 11/98
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Refer-It Directory of Web site affiliate, o o o Acquired
WWW.REFER-IT.COM referral and revenue sharing programs 4/99
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
AllNetResearch Directory of Internet industry o o Internally
WWW.ALLNETRESEARCH.COM research reports available for online developed
purchase
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
INTERNET RESOURCES CHANNEL
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Webopedia Dictionary and search engine o o Acquired
WWW.WEBOPEDIA.COM containing more than 8,800 Internet 3/98
and technology definitions and terms
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
CoolCentral Recommendations for useful and o Acquired
WWW.COOLCENTRAL.COM entertaining Web sites 11/97
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
InternetShopper Directory of shopping Web sites listed o o Internally
WWW.INTERNETSHOPPER.COM by category, daily listings of free developed
and discounted items available online
and an Internet shopping agent
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
ACQUIRED,
E-MAIL ONLINE E-MAIL INTERNALLY
INTERNET WEB NEWS- DISCUSSION DISCUSSION DEVELOPED
MEDIA PROPERTY DESCRIPTION SITE LETTER FORUMS LISTS OR LICENSED
INTERNET RESOURCES CHANNEL (CONTINUED)
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Internet Jobs Provides searchable access to Internet o Internally
JOBS.INTERNET.COM industry and Internet technology job developed
openings
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
silicon alley Jobs Provides searchable access to Internet o o o Acquired
WWW.SILICONALLEYJOBS.COM industry and Internet technology job 4/99
openings
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
My Desktop Information site for experienced o o Acquired
WWW.MYDESKTOP.COM Internet users 5/99
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Virtual Dr Technical support for Internet and o o Acquired
WWW.VIRTUALDR.COM personal computer users 5/99
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
The Guestbook Online application that permits o Acquired
WWW.THEGUESTBOOK.COM Webmasters to add a "guest sign in" 9/99
feature to Web sites
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
The Counter Online tools to enable Webmasters to o o Acquired
WWW.THECOUNTER.COM analyze their traffic 9/99
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Internet Forums Directory of online discussion forums o Internally
FORUMS.INTERNET.COM about a variety of Internet topics developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Events.internet.com Information about Internet World and o Internally
EVENTS.INTERNET.COM ISP-CON trade shows developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
ISP RESOURCES CHANNEL
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
ASPIsland E-mail newsletters, discussion forums o o o Acquired
WWW.ASPISLAND.COM and job resources 2/00
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
ASPnews.com E-mail newsletters and online o o Acquired
WWW.ASPNEWS.COM publication serving the ASP industry 2/00
and community
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
ISP-Planet News and information for the ISP o o Internally
WWW.ISP-PLANET.COM industry developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
ISP-Lists E-mail discussion lists and Web sites o o Acquired
WWW.ISP-LISTS.COM serving ISP industry professionals 10/98
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
ISP News Real-time, global coverage of Internet o Internally
WWW.INTERNETNEWS.COM/ISP-NEWS Service Provider industry news developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
CLEC-Planet News and information about Competitive o o Internally
WWW.CLEC-PLANET.COM Local Exchange Carriers (CLECs) for developed
the ISP industry
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Boardwatch Archives of Boardwatch magazine o Licensed
WWW.BOARDWATCH.COM
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
ISPCON Information site for ISPCON events o Licensed
WWW.ISPCON.COM
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
INTERNET STOCKS/VC CHANNEL
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
InternetVCLinx News and information covering leading o o Acquired
WWW.INTERNETVCLINX.COM venture capitalists, their funds and 2/00
their deal flow related to the
Internet industry
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
InternetVCWatch Database of Internet venture capital o o Acquired
WWW.INTERNETVCWATCH.COM firms, deals and companies that have 2/00
received venture funding
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Internet Stock Report Intraday analysis of Internet stocks o o o Internally
WWW.INTERNETSTOCKREPORT.COM developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
ISDEX, The Internet Stock Proprietary index of 50 publicly o Internally
Index traded Internet stocks developed
WWW.ISDEX.COM
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
InternetStockList Directory of publicly traded Internet o Internally
WWW.INTERNETSTOCKLIST.COM companies, including related news, developed
information and analysis
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
IPO Watch Directory of Internet companies that o Internally
WWW.INTERNETNEWS.COM/STOCKS/I have filed to go public, including developed
related news, information and analysis
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
IPODEX Directory of Internet companies that o Internally
WWW.IPODEX.COM have recently gone public developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
silicon alley Stocks News and information about New York o Acquired
WWW.SILICONALLEYSTOCKS City Internet industry public companies 4/99
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
ACQUIRED,
E-MAIL ONLINE E-MAIL INTERNALLY
INTERNET WEB NEWS- DISCUSSION DISCUSSION DEVELOPED
MEDIA PROPERTY DESCRIPTION SITE LETTER FORUMS LISTS OR LICENSED
INTERNET STOCKS/VC CHANNEL (CONTINUED)
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Wall Street Research Net Information and resources for o o o Acquired
WWW.WSRN.COM investors on the Web 7/99
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Internet Stock Forums Discussion forums about Internet o Internally
FORUMS.INTERNET.COM stocks and investing developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
INTERNATIONAL CHANNEL
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Arabia Daily Internet news and information o Licensed
ARABIA.INTERNET.COM about the Middle East
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Asia Daily Internet news and information o o Internally
WWW.ASIA.INTERNET.COM about Asia developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Australia Daily Internet news and information o o Internally
WWW.AUSTRALIA.INTERNET.COM about Australia developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Canada Daily Internet news and information o o Internally
WWW.CANADA.INTERNET.COM about Canada developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
China Daily Internet news and information o Licensed
WWW.CHINA.INTERNET.COM about China
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
France Daily Internet news and information o o Internally
WWW.FRANCE.INTERNET.COM about France developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Germany Daily Internet news and information o o Internally
WWW.GERMANY.INTERNET.COM about Germany developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Israel Daily Internet news and information o o Internally
WWW.ISRAEL.INTERNET.COM about Israel developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Japan Daily Internet news and information o o Internally
WWW.JAPAN.INTERNET.COM about Japan developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
South Africa Daily Internet news and information o o Internally
WWW.SOUTHAFRICA.INTERNET.COM about South Africa developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
United Kingdom Daily Internet news and information o o Internally
WWW.UK.INTERNET.COM about the United Kingdom developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
DOWNLOAD CHANNEL
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Jumbo! Software Web site with over 300,000 o o Acquired
WWW.JUMBO.COM programs available for download 11/98
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
CWSApps Reviews and downloads for Microsoft o o Acquired
WWW.CWSAPPS.COM Windows based Internet software 12/96
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
NewApps Links to new software programs o o Acquired
WWW.NEWAPPS.COM available for download 11/98
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
FileFarm Reviews and downloads for business o o Acquired
WWW.FILEFARM.COM software 5/99
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Software Blast Offers users a wide variety of free o o Acquired
WWW.SOFTWAREBLAST.COM software for download from 9/99
applications categories such as
business, communications, desktop
enhancements and productivity
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
INTERNET LISTS CHANNEL
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Web Design List Directory of more than 2,500 Web o o Internally
DESIGNLIST.INTERNET.COM design firms developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
InternetRadioList Directory of Internet radio stations o o Internally
WWW.INTERNETRADIOLIST.COM developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
InternetEmailList Directory of free e-mail service o Internally
WWW.INTERNETEMAILLIST.COM providers developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
InternetCasinoList Directory of more than 400 online o Internally
WWW.INTERNETCASINOLIST.COM casinos developed
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
The List Buyer's guide containing terms of o Acquired
WWW.THELIST.COM service for more than 8,100 Internet 8/95
Service Providers worldwide
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
ACQUIRED,
E-MAIL ONLINE E-MAIL INTERNALLY
INTERNET WEB NEWS- DISCUSSION DISCUSSION DEVELOPED
MEDIA PROPERTY DESCRIPTION SITE LETTER FORUMS LISTS OR LICENSED
INTERNET LISTS CHANNEL (CONTINUED)
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Directory of Internet Directory of Internet Service Providers o Licensed
Service Providers
BOARDWATCH.INTERNET.COM/ISP
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
InternetTradeShowList Directory of trade shows and seminars o o Internally
WWW.INTERNETTRADESHOWLIST.COM for the Internet and Information developed
Technology industries
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
WINDOWS INTERNET TECHNOLOGY CHANNEL
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
15 seconds Tutorials, discussion lists and o o o Acquired
WWW.15SECONDS.COM newsletters for Microsoft Active 12/98
Server Pages developers
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
Swynk News and information for system o o o o Acquired
WWW.SWYNK.COM administrators 4/99
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
WinPlanet Microsoft Windows software news, o o Acquired
WWW.WINPLANET.COM tutorials, opinions, reviews and tips 5/99
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
BHS.com Microsoft system administrator support o o o Acquired
WWW.BHS.COM site that offers software downloads, 8/99
FAQs, help wanted listings and online
discussion forums
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
ASPWatch Tutorials and information resources o o Acquired
WWW.ASPWATCH.COM for Web site developers using 8/99
Microsoft Active Server Pages
technology
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
ASPWire News site featuring links to press o o o Acquired
WWW.ASPWIRE.COM reports about Microsoft's Active 10/99
Server Pages Web site development
technology
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
VBWire News site featuring links to press o o o Acquired
WWW.VBWIRE.COM reports about Microsoft's Visual Basic 10/99
programming language
- ------------------------------------------------------------------------ ------- -------- ---------- --------- ------------
LINUX/OPEN SOURCE CHANNEL
- ------------------------------------------------------------------------ ------- -------- ---------- --------- ------------
JustLinux Portal site that facilitates access to o o o Acquired
WWW.JUSTLINUX.COM Linux information resources 1/00
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
LinuxPlanet Linux news and tutorials for system o o o Acquired
WWW.LINUXPLANET.COM administrators 5/99
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
LinuxToday News and community site for Linux o o Acquired
WWW.LINUXTODAY.COM professionals 10/99
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
LinuxCentral Linux software, book and accessories o o Acquired
WWW.LINUXCENTRAL.COM e-commerce site 10/99
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
LinuxProgramming Tutorials, discussion lists and o Acquired
WWW.LINUXPROGRAMMING.COM information resources for Linux 2/00
programmers
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
LinuxStart Portal site that facilitates access to o Acquired
WWW.LINUXSTART.COM Linux information resources 12/99
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
PHP Builder Tutorials, message boards and o Acquired
WWW.PHPBUILDER.COM information resources for PHP 2/00
(Personnel Home Page Tools) developers
- ------------------------------- ---------------------------------------- ------- -------- ---------- --------- ------------
</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.
16
<PAGE>
EDITORIAL
We maintain editorial offices in Darien, Connecticut; New York, New York;
South San Francisco and San Jose, California, Ann Arbor, Michigan; and
Lexington, Kentucky. 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.
Our editorial team, comprised of 74 employees and over 100 freelance
contributors as of January 31, 2000, creates considerable proprietary content
each month.
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.
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:
o two full-page advertisements at no charge in each issue of INTERNET
WORLD magazine and BOARDWATCH magazine;
o exhibit and sales office space at no charge for each U.S. Internet
World and ISPCON trade show; and
o 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:
o Web site archives of INTERNET WORLD and BOARDWATCH print
publications and information about Internet World and ISPCON trade
shows and conferences; and
o a minimum of 2.3 million advertising impressions each month on our
network.
17
<PAGE>
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 February 2000, 85% 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 1.4 to 2.7 times higher than the
published rates of Go2Net, Inc., go.com and Looksmart, Ltd. as of January 31,
2000, 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 January 2000, we
distributed 21 million copies of our e-mail newsletters to approximately 2.3
million subscribers. We also distributed 38.1 million messages to more than
86,000 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 1,100 advertisers have placed advertisements on our network. For the
year ended December 31, 1999, International Business Machines Corporation
accounted for 10% of our revenues, and our top 20 advertisers together accounted
for 29% of our revenues during the same period. Based on revenues, the following
were our 20 largest advertisers during the year ended December 31, 1999:
Allaire Corporation Lucent Technologies Inc.
American Power Conversion Corporation Microsoft Corporation
Ariel Corporation Moai Technologies. Inc.
Compaq Computer Corporation Mpath Interactive, Inc.
EarthLink Network, Inc. Net2Phone, Inc.
Flycast Communications Corporation Nortel Networks Corporation
GoTo.com, Inc. Oracle Corporation
Hewlett-Packard Company Sprint Corp.
Inktomi Corporation Sun Microsystems, Inc.
International Business Machines Corporation UBID, Inc.
E-COMMERCE SALES, LICENSING AND BUSINESS DEVELOPMENT. We offer e-commerce,
licensing and other business development arrangements to maximize the potential
of our proprietary content and community of Internet users. We identify
potential e-commerce vendors, licensees and other potential business development
opportunities and generally enter into contracts of six to 12 months' duration.
E-commerce agreements generally include a fixed fee for advertising as well as
revenue sharing of 10% 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
nine employees separate from our advertising sales force.
Licensing arrangements allow third parties to reproduce our editorial
content and brands either for print or online use. We are typically paid per-use
in the case of book and print rights, including reprints of articles published
on our network, and monthly in cases where our editorial content is published in
electronic form. We also offer our proprietary software for license to third
parties that offer services that are similar to, but do not compete with,
internet.com.
18
<PAGE>
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.
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 and Microsoft Corporation; an advertising management
system from DoubleClick 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 redundant production and staging servers in a data center
operated by Qwest Communications, Inc. In the event that all of the production
servers fail, the staging servers are capable of supporting our services. We
have redundant Internet circuits diversely routed within Qwest's network and
with redundant network equipment configured for automatic failover. All of our
servers are powered by uninterruptible power supplies, and the data center is on
multiple power grids. In addition, Qwest maintains a diesel-powered generator
and fuel supply in the event of extended outages. 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.
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
19
<PAGE>
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 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
20
<PAGE>
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.
EMPLOYEES
The following table sets forth a breakdown of our employees as of January
31, 2000:
<TABLE>
<CAPTION>
NUMBER OF
EMPLOYEES
---------------
<S> <C>
Editorial....................................................... 74
Marketing and sales............................................. 76
Technology and operations....................................... 47
Administration.................................................. 25
---
Total..................................................... 222
===
</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.
ITEM 2. PROPERTIES
Our principal administrative, editorial, sales, marketing and information
technology facilities are located in Darien, Connecticut. 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 January 31, 2000:
<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................ 7,100 August 2004
Toronto, Canada................................ 3,000 June 2000
San Jose, California........................... 2,000 December 2002
Ann Arbor, Michigan............................ 1,000 December 2000
Lexington, Kentucky............................ 1,000 March 2000
Clinton Township, Michigan..................... 600 June 2000
</TABLE>
21
<PAGE>
ITEM 3. 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.
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. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
22
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of internet.com began trading publicly on the Nasdaq
Stock Market on June 25, 1999, under the symbol "INTM". Prior to that date,
there was no public market for our common stock. The following table sets forth
for the periods indicated the high and low sale prices of our common stock.
<TABLE>
<CAPTION>
HIGH LOW
YEAR ENDING DECEMBER 31, 1999
<S> <C> <C>
Second Quarter (commencing June 25, 1999).................... $16.344 $11.000
Third Quarter................................................ $26.875 $ 9.188
Fourth Quarter............................................... $72.250 $13.750
YEAR ENDING DECEMBER 31, 2000
First Quarter (through February 23, 2000).................... $68.125 $41.000
</TABLE>
As of February 23, 2000, there were 5,979 holders of record of our common
stock.
DIVIDEND POLICY
We have never declared or paid a cash dividend and do not anticipate doing
so in the foreseeable future. We expect to retain earnings to finance the
expansion and development of our business.
23
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
Upon the closing of our initial public offering on June 25, 1999,
internet.com LLC was converted into a corporation and all membership interests
were converted into common stock of the Registrant at the rate of 16,215.891
shares per membership unit. The share numbers in the following table give effect
to the conversion of internet.com LLC into a corporation immediately prior to
the closing of our initial public offering.
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
TITLE OF NUMBER SHARES AFTER PURCHASE FORM OF
NAME DATE(S) OF SALE SECURITIES OF UNITS CONVERSION PRICE CONSIDERATION
- -------------- -------------------- ---------------- -------------- ----------------- ------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
William A.
Shutzer March 1999 Units 25 405,397 $1,000,000 Cash
Internet World
Media, Inc. March 1999 Units 11.149 180,786 $445,949 Cash
James S.
Mulholland III
March 1999 Units 3.125 50,675 $125,000 Cash
Marie Mulholland
Flatness March 1999 Units 3.125 50,675 $125,000 Cash
New River
Capital
Partners March 1999 Units 3.125 50,675 $125,000 Cash
Certain
Employees,
Officers and
Directors of
internet.com March 1999 Units 10.5 170,267 $420,000 Cash
</TABLE>
All sales were made in reliance on Rule 506 of Regulation D promulgated
under the Securities Act of 1933, as amended. These sales were made without
general solicitation or advertising. Each purchaser was an "accredited investor"
or a sophisticated investor with access to all relevant information necessary to
evaluate the investment who represented to internet.com that the shares were
being acquired for investment.
24
<PAGE>
ITEM 6. 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 1996, 1997 and 1998, the period from October 1, 1998
through November 23, 1998, are derived from financial statements of the iWorld
division of Mecklermedia. The selected financial data for the period from
inception (November 24, 1998) through December 31, 1998 and for the year ended
December 31, 1999, as well as the balance sheet data as of December 31, 1998 and
1999, are derived from the financial statements of internet.com. These financial
statements, except for the selected statement of operations data for the period
from inception (December 7, 1994) through September 30, 1995, have been audited
by Arthur Andersen LLP, independent public accountants. See "Index to Financial
Statements."
The financial information of the iWorld division of Mecklermedia included
herein is not necessarily indicative of the results of operations, financial
position and cash flows of internet.com had it been a stand-alone entity at such
times. It is also not necessarily indicative of the results of operations,
financial position and cash flows of internet.com in the future. The share
information reflects the conversion of internet.com from a limited liability
company into a corporation as if such conversion had occurred at the beginning
of each period indicated.
<TABLE>
<CAPTION>
INCEPTION
OCT. 1, (NOV. 24, FISCAL
INCEPTION 1998 1998) YEAR
(DEC. 7, 1994) FISCAL YEAR ENDED THROUGH THROUGH ENDED
THROUGH --------------------------------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, NOV. 23, DEC. 31, DEC. 31,
1995 (1) 1996 (1) 1997 (1) 1998 (1) 1998 (1) 1998 (2) 1999 (2)
--------------- -------------- -------------- -------------- ------------- ------------ -------------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $ 123 $ 498 $ 1,479 $ 3,544 $ 778 $ 772 $ 16,085
Cost of revenues............ 39 536 1,171 2,171 456 403 8,366
--------------- -------------- -------------- -------------- ------------- ------------ -------------
Gross profit.............. 84 (38) 308 1,373 322 369 7,719
Operating expenses:
Advertising, promotion and
selling................ 69 285 881 1,406 441 239 7,545
General and administrative 419 727 751 1,349 195 449 4,434
Depreciation.............. - 85 326 429 67 15 673
Amortization.............. - 109 505 920 86 632 9,796
Non-cash compensation charge - - - - - - 7,975
--------------- -------------- -------------- -------------- ------------- ------------ -------------
Total operating expenses 488 1,206 2,463 4,104 789 1,335 30,423
--------------- -------------- -------------- -------------- ------------- ------------ -------------
Operating loss............... (404) (1,244) (2,155) (2,731) (467) (966) (22,704)
Interest income (expense), net - - - - - (8) 688
--------------- -------------- -------------- -------------- ------------- ------------ -------------
Net loss..................... $(404) $(1,244) $(2,155) $(2,731) $(467) $ (974) $(22,016)
=============== ============== ============== ============== ============= ============ =============
Basic and diluted net loss per
share.................... $(.06) $(1.08)
============ =============
Common shares used to compute
basic and diluted net loss
per share................ 16,216 20,335
============ =============
</TABLE>
<TABLE>
<CAPTION>
AS OF
--------------------------------
DEC. DEC. 31
31, 1998 (2) 1998 (2)
----------------- --------------
BALANCE SHEET DATA:
<S> <C> <C>
Cash and cash equivalents........................................................ $ 129 $17,943
Working capital (deficit)........................................................ (2,051) 11,821
Total assets..................................................................... 25,876 68,390
Borrowings under line of credit.................................................. 1,886 -
Total equity..................................................................... 21,853 56,015
</TABLE>
- ----------------------
(1) Represents the financial data of the iWorld division of Mecklermedia
Corporation.
(2) Represents the financial data of internet.com.
25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 12 subject areas, or vertical content
channels, that contain 100 Web sites, 150 e-mail newsletters, 117 online
discussion forums and 78 moderated e-mail discussion lists focused solely on the
Internet industry. During the month of January 2000, we delivered 112 million
page views to 2.2 million unique visitors and 21 million copies of our e-mail
newsletters to approximately 2.3 million subscribers, and 38.1 million postings
were generated by 86,000 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.
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 seminars;
o paid subscription services;
o permission based opt-in e-mail list rentals;
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
and other third parties. In addition, internet.com barters portions of unsold
advertising impressions for equity interests in the internet.com venture funds'
portfolio companies. We did not record the effects of this barter in our
financial statements for the period from inception (November 24, 1998) to
December 31, 1998 and for the year ended December 31, 1999.
For the year ended December 31, 1999, approximately 79% 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.
26
<PAGE>
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.
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 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.
Through a third-party agent, we currently offer for rental our permission
based 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 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 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.
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 4,000 registered journalists. Revenues from this
service has been minimal to date.
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
and internet.com Venture Fund II 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, which are
recognized at the time of distribution from the venture capital funds.
From July 1995 through February 23, 2000, we have made 50 acquisitions of
Internet media properties, consisting of 64 Web sites, 45 e-mail newsletters, 77
online discussion forums and 63 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 December 31, 1999, we had $38.5 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-
27
<PAGE>
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
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 YEAR
--------------------------- THROUGH THROUGH ENDED
SEPT. 30, SEPT. 30, NOV. 23, DEC. 31, DEC. 31,
1997 (1) 1998 (1) 1998 (1) 1998 (2) 1999 (2)
------------ -------------- ------------- ------------- ---------------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Revenues..................................... . 100% 100% 100% 100% 100%
Cost of revenues.............................. 79 61 59 52 52
------------ -------------- ------------- ------------- ---------------
Gross profit.................................. 21 39 41 48 48
------------ -------------- ------------- ------------- ---------------
Operating expenses:
Advertising, promotion and selling.......... 60 40 57 31 47
General and administrative.................. 51 38 25 58 28
Depreciation................................ 22 12 8 2 4
Amortization................................ 34 26 11 82 61
Non-cash compensation charge................ - - - - 50
------------ -------------- ------------- ------------- ---------------
Total operating expenses................ 167 116 101 173 190
------------ -------------- ------------- ------------- ---------------
Operating loss................................. (146) (77) (60) (125) (142)
------------ -------------- ------------- ------------- ---------------
Interest income (expense), net................. - - - (1) 4
------------ -------------- ------------- ------------- ---------------
Net loss....................................... (146)% (77)% (60)% (126)% (138)%
============ ============== ============= ============= ===============
</TABLE>
- ------------------
(1) Represents the financial data of the iWorld division of Mecklermedia
Corporation.
(2) Represents the financial data of internet.com.
YEAR ENDED DECEMBER 31, 1999
REVENUES. Revenues were $16.1 million for the year ended December 31,
1999. Revenue related to 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, seminars, paid subscription
services, permission based opt-in e-mail list rentals, 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 $8.4 million for the year ended December 31, 1999. As a
percentage of revenues, cost of revenues was 52% for the year ended December 31,
1999. We anticipate that our cost of revenues will continue to increase in
absolute dollars as we continue to strengthen our existing content offerings and
services. We anticipate hiring additional editorial, technology and operations
personnel, as well as freelance contributors, as we acquire additional Web
sites, e-mail newsletters, online discussion forums and moderated e-mail
discussion lists and expand our proprietary content.
28
<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 $7.5 million for the year ended December 31, 1999. As a percentage of
revenues, advertising, promotion and selling expenses were 47% for the year
ended December 31, 1999. We anticipate that our advertising, promotion and
selling expenses will continue to increase in absolute dollars, primarily due to
our planned hiring of additional sales personnel in an effort to increase our
advertising sales as well as increased expenses for the promotion of our content
offerings and services to our community of Internet users, advertisers and
vendors.
GENERAL AND ADMINISTRATIVE. General and administrative expenses primarily
consist of salaries, professional fees and facilities costs. General and
administrative expenses were $4.4 million for the year ended December 31, 1999.
As a percentage of revenues, general and administrative expenses were 28% for
the year ended December 31, 1999. We expect that our general and administrative
expenses will continue to increase in absolute dollars, but these expenses are
expected to decrease as a percentage of revenues. We anticipate hiring
additional personnel and incurring additional costs related to investor
relations programs and professional services fees.
DEPRECIATION AND AMORTIZATION. Depreciation of property and equipment was
$673,000 for the year ended December 31, 1999. As a percentage of revenues,
depreciation of property and equipment was 4% for the year ended December 31,
1999. Amortization of intangibles was $9.8 million for the year ended December
31, 1999. As a percentage of revenues, amortization of intangibles was 61% for
the year ended December 31, 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.
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 $688,000 for the year ended December 31, 1999.
PERIOD FROM NOVEMBER 24, 1998 THROUGH DECEMBER 31, 1998
REVENUES. Revenues were $772,000 for the period from November 24, 1998
through December 31, 1998.
COST OF REVENUES. Cost of revenues was $403,000 for the period from
November 24, 1998 through December 31, 1998. As a percentage of revenues, cost
of revenues was 52% for the period from November 24, 1998 through December 31,
1998.
ADVERTISING, PROMOTION AND SELLING. Advertising, promotion and selling
expenses were $239,000 for the period from November 24, 1998 through December
31, 1998. As a percentage of revenues, advertising, promotion and selling
expenses were 31% for the period from November 24, 1998 through December 31,
1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$449,000 for the period from November 24, 1998, through December 31, 1998. As a
percentage of revenues, general and administrative expenses were 58% for the
period from November 24, 1998 through December 31, 1998.
DEPRECIATION AND AMORTIZATION. Depreciation of property and equipment was
$15,000 for the period from November 24, 1998 through December 31, 1998. As a
percentage of revenues, depreciation
29
<PAGE>
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, 1997 AND 1998
REVENUES. Revenues were 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 140% from fiscal 1997 to fiscal 1998. 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 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 85% from fiscal 1997 to fiscal 1998. These
increases were primarily due to the increased payroll costs for editorial,
technology and operations personnel to support the current and anticipated
future growth of our network. As a percentage of revenues, cost of revenues was
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 $881,000 for the year ended September 30, 1997 and approximately
$1.4 million for the year ended September 30, 1998, representing increases of
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
60% for the year ended September 30, 1997 and 40% for the year ended September
30, 1998.
30
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$751,000 for the year ended September 30, 1997 and approximately $1.3 million
for the year ended September 30, 1998, representing increases of 80% from fiscal
1997 to fiscal 1998. These increases were due primarily to increases in payroll
for administrative personnel and professional fees to support the growth of our
business and an increase in bad debt expense. As a percentage of revenues,
general and administrative expenses were 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
$326,000 for the year ended September 30, 1997 and $429,000 for the year ended
September 30, 1998, representing increases of 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 22% for the year
ended September 30, 1997 and 12% for the year ended September 30, 1998.
Amortization of intangible assets was $505,000 for the year ended September 30,
1997 and $920,000 for the year ended September 30, 1998, representing increases
of 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 34% for the year ended September 30, 1997 and 26% for the year ended
September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded operations primarily with cash from our
initial public offering, borrowings under a line of credit and the capital
contributions of members of internet.com LLC and proceeds. 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 $43.0
million (net of underwriters' commission 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 December 31, 1999, internet.com had total current assets of $23.9
million and total current liabilities of $12.0 million, or working capital of
$11.9 million.
Net cash used in operating activities was approximately $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,
1998, $612,000 from November 24, 1998 through December 31, 1998 and $3.5 million
for the year ended December 31, 1999. Net cash used in operating activities was
primarily a result of our net losses adjusted for a non-cash compensation
charge, depreciation and amortization, and increases in accounts receivable and
prepaid expenses, offset by an increase in accounts payable, accrued expenses
and deferred revenues.
Net cash used in investing activities was approximately $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 from November 24, 1998 through December 31, 1998 and $25.0
million for the year ended December 31, 1999. Net cash used in investing
activities was primarily a result of acquisitions of Web sites and related
Internet media properties and capital expenditures.
Net cash provided by financing activities was approximately $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 from November 24, 1998 through December 31, 1998, and $46.3
million for the year ended December 31, 1999. Net cash provided by
31
<PAGE>
financing activities was a result of our initial public offering, borrowings
under our line of credit, a private placement of equity securities and
contributions from Mecklermedia.
Capital expenditures were $546,000 for the period from November 24, 1998
through December 31, 1998 and $2.5 million for the year ended December 31, 1999.
We anticipate that we will increase our capital expenditures consistent with our
anticipated growth in operations, infrastructure and personnel.
THE YEAR 2000 ISSUE
The Year 2000 issue was the result of computer programs being written
using two digits rather than four digits to define the applicable year. Any
programs that have time-sensitive software may have recognized a date using "00"
as the year 1900 rather than the year 2000. If not remedied, this could have
resulted in system failure or miscalculations.
internet.com assessed the impact of the Year 2000 on its computer systems,
both hardware and software, and developed a plan to timely address its Year 2000
issue. internet.com spent approximately $100,000 in the execution of its Year
2000 plan. Such expenditures were charged to expense as incurred. To date there
have been no material adverse consequences, nor does internet.com believe that
there will be any future material adverse consequences to internet.com's
business, operations, or financial condition from the Year 2000 issue. However,
there can be no assurances that failure to address the Year 2000 issue by a
third party, on which internet.com's systems rely, will not have a material
adverse effect on internet.com.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities", subsequently
amended by SFAS No. 137, which is 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 133 is not
expected to have a material effect on internet.com's financial statements.
In January 2000, the Emerging Issues Task Force reached a consensus on
Issue No. 99-17, "Accounting for Advertising Barter Transactions," to be
effective for transactions entered into after January 20, 2000. The consensus
states that advertising barter transactions should be accounted for at fair
value and the fair value recognized disclosed in the financial statements, if
there is verifiable objective evidence provided by sufficient cash transactions
received by the seller of the advertising or similar advertising. Accordingly,
internet.com will record the financial statement effects of barter transactions
at their estimated fair value, prospectively, beginning in January 2000.
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<PAGE>
RECENT DEVELOPMENTS
On February 1, 2000, internet.com completed a 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.
In January and February 2000, internet.com made eight acquisitions which
were accounted for as purchases. Five of these acquisitions provided for
contingent payments to be made after the acquisition dates based upon the
achievement of certain objectives. The acquired Web sites and related Internet
media properties had minimal tangible assets and the goodwill is being amortized
over its estimated useful life of three years.
ITEM 7A. 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 follow-on public offering on February 1, 2000 in short-term,
interest-bearing, investment grade securities. Our transactions are generally
conducted, and our accounts are denominated, in United States dollars.
Accordingly, we are not exposed to significant foreign currency risk.
33
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INTERNET.COM CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants.................................................... 35
Consolidated Balance Sheets as of December 31, 1998 and 1999................................ 36
Consolidated Statements of Operations for the Period from Inception (November 24, 1998)
through December 31, 1998 and for the Year Ended December 31, 1999...................... 37
Consolidated Statements of Changes in Stockholders' Equity for the Period from Inception
(November 24, 1998) through December 31, 1998 and for the Year Ended December 31, 1999.. 38
Consolidated Statements of Cash Flows for the Period from Inception (November 24, 1998)
through December 31, 1998 and for the Year Ended December 31, 1999...................... 39
Notes to Consolidated Financial Statements.................................................. 40
</TABLE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants.................................................... 53
Balance Sheets as of September 30, 1997 and 1998............................................ 54
Statements of Operations for the Years ended September 30, 1997 and 1998 and for the Period
from October 1, 1998 through November 23, 1998.......................................... 55
Statements of Changes in Division Equity for the Years ended September 30, 1997 and 1998 and
for the Period from October 1, 1998 through November 23, 1998........................... 56
Statements of Cash Flows for the Years ended September 30, 1997 and 1998 and for the Period
from October 1, 1998 through November 23, 1998.......................................... 57
Notes to Financial Statements............................................................... 58
</TABLE>
34
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of internet.com Corporation:
We have audited the accompanying consolidated balance sheets of
internet.com Corporation (a Delaware Corporation) as of December 31, 1998 and
1999, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the period from inception (November 24,
1998) through December 31, 1998 and for the year ended December 31, 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 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 internet.com Corporation as
of December 31, 1998 and 1999, and the results of its operations and its cash
flows for the period from inception (November 24, 1998) through December 31,
1998 and for the year ended December 31, 1999, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
January 20, 2000
35
<PAGE>
INTERNET.COM CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS 1998 1999
---------------- -----------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents................................................. $ 129 $ 17,943
Accounts receivable, net of allowances of $42 and $712, respectively...... 1,723 5,568
Prepaid expenses and other................................................ 120 347
---------------- -----------------
Total current assets......................................... 1,972 23,858
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $15 and $688,
respectively............................................................. 1,380 3,221
INTANGIBLE ASSETS, net of accumulated amortization of $632 and $10,428,
respectively............................................................. 22,332 39,086
INVESTMENTS IN INTERNET.COM VENTURE FUNDS.................................... - 1,855
OTHER ASSETS................................................................. 192 370
---------------- -----------------
Total assets................................................. $25,876 $ 68,390
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................................... $ 482 $ 1,635
Accrued payroll and related expenses...................................... 296 1,441
Accrued expenses and other................................................ 462 2,096
Accrued Web site acquisition payments..................................... 775 6,462
Deferred revenues......................................................... 122 403
Borrowings under line of credit........................................... 1,886 -
---------------- -----------------
Total current liabilities.................................... 4,023 12,037
ACCRUED WEB SITE ACQUISITION PAYMENTS........................................ - 338
---------------- -----------------
Total liabilities............................................ 4,023 12,375
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
23,334,520 shares issued and outstanding at December 31, 1998 and 1999,
respectively........................................................... 162 233
Additional paid-in capital................................................... 22,665 70,917
Accumulated deficit.......................................................... (974) (15,135)
---------------- -----------------
Total stockholders' equity................................... 21,853 56,015
---------------- -----------------
Total liabilities and stockholders' equity................... $25,876 $ 68,390
================ =================
</TABLE>
See notes to consolidated financial statements.
36
<PAGE>
INTERNET.COM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH
DECEMBER 31, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INCEPTION
(NOVEMBER 24,
1998) YEAR
THROUGH ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
-------------------- -----------------
<S> <C> <C>
REVENUES..................................................................... $ 772 $ 16,085
COST OF REVENUES............................................................. 403 8,366
-------------------- -----------------
GROSS PROFIT................................................................. 369 7,719
-------------------- -----------------
OPERATING EXPENSES:
Advertising, promotion and selling........................................ 239 7,545
General and administrative................................................ 449 4,434
Depreciation.............................................................. 15 673
Amortization.............................................................. 632 9,796
Non-cash compensation charge.............................................. - 7,975
-------------------- -----------------
Total operating expenses.................................................... 1,335 30,423
-------------------- -----------------
OPERATING LOSS............................................................... (966) (22,704)
INTEREST INCOME (EXPENSE), NET............................................... (8) 688
-------------------- -----------------
NET LOSS..................................................................... $ (974) $(22,016)
-------------------- -----------------
BASIC AND DILUTED LOSS PER SHARE............................................. $ (0.06) $ (1.08)
==================== =================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES..................................... 16,216 20,335
==================== =================
</TABLE>
See notes to consolidated financial statements.
37
<PAGE>
INTERNET.COM CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH
DECEMBER 31, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------------- ---------------- --------------- ------------------ ------------------
BALANCE AT INCEPTION
<S> <C> <C> <C> <C> <C>
(NOVEMBER 24, 1998).......... 16,215,891 $ 162 $22,665 $ - $ 22,827
Net loss..................... - - - (974) (974)
--------------- ---------------- --------------- ------------------ ------------------
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 42,795 - 42,829
Exercise of stock options.... 9,520 - 133 - 133
Net loss..................... - - (6,881) (15,135) (22,016)
--------------- ---------------- --------------- ------------------ ------------------
BALANCE AT
DECEMBER 31, 1999............ 23,334,520 $ 233 $70,917 $(15,135) $ 56,015
=============== ================ =============== ================== ==================
</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. The net losses for the year ended December 31,
1999 have been charged to additional paid-in capital to the extent the loss
related to the period prior to the initial public offering.
See notes to consolidated financial statements.
38
<PAGE>
INTERNET.COM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH
DECEMBER 31, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
INCEPTION
(NOVEMBER 24,
1998) THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
--------------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss.................................................................. $ (974) $(22,016)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization...................................... 647 10,469
Provision for losses on accounts receivable........................ 42 670
Non-cash compensation charge....................................... - 7,975
Changes in current assets and liabilities:
Accounts receivable, net .......................................... (595) (4,193)
Prepaid expenses and other ........................................ (23) (467)
Accounts payable and accrued expenses.............................. 217 3,866
Deferred revenues.................................................. 74 232
--------------------- -----------------
Net cash used in operating activities......................... (612) (3,464)
--------------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment....................................... (546) (2,514)
Acquisitions of Web sites, related Internet media properties and other.... (599) (20,670)
Investment in internet.com Venture Funds.................................. - (1,855)
--------------------- -----------------
Net cash used in investing activities......................... (1,145) (25,039)
--------------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net............................... - 45,070
Proceeds from exercise of warrant......................................... - 3,000
Proceeds from exercise of stock options................................... - 133
Borrowings under line of credit........................................... 1,886 4,670
Payments for line of credit............................................... - (6,556)
--------------------- -----------------
Net cash provided by financing activities..................... 1,886 46,317
--------------------- -----------------
Net change in cash and cash equivalents...................................... 129 17,814
Cash and cash equivalents, beginning of period............................... - 129
--------------------- -----------------
Cash and cash equivalents, end of period..................................... $ 129 $ 17,943
--------------------- -----------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW:
Cash paid for interest.................................................... $ 8 $ 92
===================== =================
Cash paid for income taxes................................................ $ - $ -
===================== =================
</TABLE>
See notes to consolidated financial statements.
39
<PAGE>
INTERNET.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH
DECEMBER 31, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1999
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 December 31, 1999, this network of
Internet media properties consisted of 89 Web sites, 142 e-mail newsletters, 101
online discussion forums and 76 moderated e-mail discussion lists. The network
is organized into 12 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 product 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).
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.
For presentation purposes the financial statements have been restated as
if internet.com had always been a corporation.
2. 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 was
valued at $284,000 which reflected the present value of the strike price using a
risk free rate of return
40
<PAGE>
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.
The allocation of Internet World Media's valuation, which was pushed down
to internet.com LLC, including the warrant, was 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 (148)
Borrowings under line of credit (685)
----------
$ 22,921
==========
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of internet.com, its majority owned and wholly-owned subsidiaries.
All significant intercompany balances and transactions have been eliminated in
consolidation.
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. In
addition, internet.com barters a portion of unsold advertising impressions for
equity interests in the internet.com venture funds' portfolio companies.
internet.com did not record the effects of such barter transactions in its
financial statements.
internet.com generates its revenues from eight 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; seminars,
subscriptions to paid e-mail newsletters; permission based opt-in e-mail list
rentals; licensing of editorial content, brands and software; online press
release distribution services and venture fund management fees.
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
41
<PAGE>
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.
SEMINARS. Seminar revenue relates to registration fees received
from attendees at our offline seminars, as well as advertisers and
vendor sponsorships. Revenue for seminars is recognized in the period
in which the seminar is held. Deferred revenues relate to the portion
of collected seminar registration fees and advertiser and vendor
sponsorships that have been collected prior to the commencement of the
seminars.
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.
PERMISSION BASED OPT-IN E-MAIL LIST RENTAL REVENUES. Permission
based opt-in e-mail list revenue relates to customer subscription to
our opt-in e-mail lists through a third party agent. Revenue is
recorded 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
the use by the renter.
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.
ONLINE PRESS RELEASE DISTRIBUTION SERVICES. 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 4,000 registered journalists. Revenue from this
service is recorded on a per use basis and recognized at the time of
distribution.
VENTURE FUND MANAGEMENT FEES. 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 and internet.com Venture
Fund II 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 from the portfolio investments, which are recognized
at the time of distribution from the venture funds.
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 internet.com to a significant concentration of credit risk consist
primarily of cash and accounts receivable. internet.com deposits the majority of
its cash with a single financial institution. Most of internet.com's accounts
receivable as of December 31, 1998 and 1999 are from Internet-related
businesses.
At December 31, 1998 and 1999, three customers accounted for 38% and 20%
of accounts receivable, respectively. For the period from inception (November
24, 1998) through December 31, 1998, and for the year ended December 31, 1999,
one customer accounted for 25% and 10% of revenues, respectively.
CASH AND CASH EQUIVALENTS. internet.com considers all highly liquid
investments purchased with original maturities of three months or less to be
cash equivalents. At December 31, 1998 and 1999, internet.com had no investments
with maturities greater than three months.
42
<PAGE>
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. Leasehold improvements are amortized over the shorter of
their useful lives or the lease term.
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, 1999.
INVESTMENTS IN INTERNET.COM VENTURE FUNDS. Investments in internet.com
venture capital funds are accounted for at cost. These investments are reviewed
whenever events or changes in circumstances indicate that the carrying amount of
these investments may not be recoverable. Since these investments do not have a
readily determinable fair value, the valuation of these investments is subject
to uncertainty.
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.
ADVERTISING EXPENSE. internet.com expenses advertising costs as incurred.
Advertising expense was $44,000 and $670,000 for the period from inception
(November 24, 1998) through December 31, 1998 and for the year ended December
31, 1999, respectively.
WEB SITE DEVELOPMENT COSTS. Web site development costs include expenses
incurred by internet.com to develop, enhance, manage, monitor and operate our
Web sites. Web site development costs are expensed as incurred.
INCOME TAXES. internet.com accounts for income taxes using the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred income tax assets and liabilities of changes in tax rates is
recognized in income in the period that includes the enactment date. Valuation
allowances will be established when necessary to reduce deferred tax assets to
the amount expected to be realized.
STOCK BASED COMPENSATION. internet.com grants to certain employees stock
options with an exercise price equal to the fair value of the shares at the date
of grant. internet.com accounts for stock option grants in accordance with APB
Opinion 25, "Accounting for Stock Issued to Employees," and, accordingly,
recognizes no compensation expense for such grants.
43
<PAGE>
In October 1995, Statement of Financial Accounting Standard "SFAS" No.
123, "Accounting for Stock-Based Compensation", was issued. As permitted under
the provisions of SFAS No. 123, internet.com has not changed its method of
accounting for stock-based compensation; however, SFAS No. 123 requires
additional footnote disclosures relating to the effect of using a fair value
based method of accounting for stock-based compensation cost.
RECENT ACCOUNTING PRONOUNCEMENTS. In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", 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
internet.com's financial statements.
In January 2000, the Emerging Issues Task Force reached a consensus on
Issue No. 99-17, "Accounting for Advertising Barter Transactions," to be
effective for transactions entered into after January 20, 2000. The consensus
states that advertising barter transactions should be accounted for at fair
value and the fair value recognized disclosed in the financial statements, if
there is verifiable objective evidence provided by sufficient cash transactions
received by the seller of the advertising or similar advertising. Accordingly,
internet.com will record the financial statement effects of barter transactions
at their estimated fair value, prospectively, beginning in January 2000.
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. Common
equivalent shares are excluded from the calculation if their effect is
anti-dilutive.
Computations of basic and diluted loss per share for the period from
inception (November 24, 1998) through December 31, 1998 and for the year ended
December 31, 1999 are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
INCEPTION
(NOVEMBER 24,
1998) THROUGH YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
BASIC AND DILUTED NET LOSS PER SHARE
<S> <C> <C>
Numerator: Net loss.......................................... $ (974) $(22,016)
Denominator: Weighted average shares outstanding............. 16,216 20,335
----------- ----------
Basic and diluted loss per share.............................. $ (.06) $ (1.08)
=========== ==========
</TABLE>
44
<PAGE>
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Computer equipment and software.............................. $1,248 $2,996
Furniture, fixtures and equipment............................ 147 654
Leasehold improvements....................................... - 259
------------ ------------
1,395 3,909
Less: Accumulated depreciation............................... (15) (688)
------------ ------------
Property and equipment, net.................................. $1,380 $3,221
============ ============
</TABLE>
6. INTANGIBLE ASSETS
Intangible assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Goodwill..................................................... $ 22,695 $ 48,752
Trademarks................................................... 269 762
------------ ------------
22,964 49,514
Less: Accumulated amortization............................... (632) (10,428)
------------ ------------
Intangible assets, net....................................... $ 22,332 $ 39,086
============ ============
</TABLE>
7. ACQUISITIONS
From inception (November 24, 1998) through December 31, 1998 and for the
year ended December 31, 1999, internet.com made two and 19 acquisitions of Web
sites and related Internet media properties for a total of $580,000 and $23.8
million, respectively. These acquisitions were accounted for as purchases.
Eighteen 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 have minimal tangible
assets or liabilities. Therefore, the entire purchase price has been recorded as
intangible assets on a preliminary basis and is being amortized over its
estimated useful life of three years for these acquisitions. The purchase
accounting for these acquisition will be finalized at a later date not to exceed
one year from the purchase date of each acquisition.
45
<PAGE>
The unaudited pro forma information below presents results of operations
as if the 1999 acquisitions occurred at January 1, 1999. 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 period
presented nor is it indicative of future results (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Revenues..................................................... $ 18,804
============
Net loss..................................................... $ (28,107)
============
Basic and diluted loss per share............................. $ (1.38)
============
</TABLE>
8. INVESTMENTS IN INTERNET.COM VENTURE FUNDS
Investments in internet.com venture funds consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999
-----------------
<S> <C>
Investment in internet.com Venture Fund I LLC................ $ 700
Investment in internet.com Venture Fund II LLC............... 1,155
-----------------
Investments in internet.com venture funds.................... $ 1,855
-----------------
</TABLE>
internet.com Venture Fund I LLC ("Fund I") and internet.com Venture Fund
II LLC ("Fund II") (or collectively referred to as the "Funds") were organized
on March 23, 1999 and September 7, 1999, respectively, as Delaware limited
liability companies. I-Venture Management LLC, a wholly-owned subsidiary of
internet.com, is the managing member and acts as the Funds' investment manager
and makes all investment decisions on behalf of both Funds. internet.com is
responsible for the day-to-day operation of the Funds.
The Funds' investment objective is to maximize capital appreciation
through investments in Internet related companies that have a broad focus on
content outside the areas of e-business and Internet technology and are believed
to have high growth potential.
As of December 31, 1999, internet.com had a 14% and 10%, investment in
each of the Fund I and Fund II, respectively. Accordingly, internet.com accounts
for these investments on the cost basis, subject to review for impairment. As of
December 31, 1999, internet.com was fully invested in Fund I and internet.com
had approximately $385,000 of unpaid capital commitments to Fund II that were
called by the fund and paid to Fund II in January 2000.
internet.com is entitled to a 2% management fee for the day-to-day
management of the Funds, which amounted to $107,000 for the year ended December
31, 1999. As of December 31, 1999, amounts owed to internet.com for management
fees were $15,000. In addition, internet.com is entitled to reimbursement for
certain costs associated with the operations of Fund I and Fund II. These
amounted to $30,000 and $14,000 as of December 31, 1998 and 1999, respectively.
9. 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
46
<PAGE>
expense on this line was based on the lower of prime plus 1% or LIBOR plus .65%
(5.7% as of December 31, 1998). 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.
10. PREFERRED STOCK
On June 25, 1999, in conjunction with internet.com's IPO, internet.com
authorized the issuance of 4,000,000 shares of preferred stock, $.01 par value
(the "Preferred Stock").
The Board of Directors has the authority, without further vote or action
by the stockholders, to issue the undesignated shares of Preferred Stock in one
or more series and to fix all rights, qualifications, preferences, limitations
and restrictions of each series, including dividend rights, voting rights, terms
of redemption, redemption prices, liquidation preferences and the number of
shares constituting any series or the designation of such series.
11. 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.
12. INCOME TAXES
No benefit for federal and state income taxes is reported in the financial
statements for the period from inception (November 24, 1998) through December
31, 1998 as internet.com had elected to be taxed as a partnership prior to the
reorganization of internet.com LLC into a subchapter C-Corporation which took
effect immediately prior to the closing of the IPO. The federal and state income
tax effects of internet.com's results of operations were recorded by the members
in their respective income tax return for the period from inception (November
24, 1998) through the consummation of the IPO on June 25, 1999.
internet.com did not provide for any current or deferred United States
federal, state or foreign income tax provision or benefit for any of the periods
presented because it has experienced operating losses since inception.
47
<PAGE>
As of December 31, 1999, internet.com had future federal and state income
tax benefits as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999
--------------------
<S> <C>
Net operating losses.................................................................. $ 2,646
Excess of amortization of intangibles for financial reporting purposes over income taxes 2,740
Excess of depreciation of property and equipment for income tax purposes over financial
reporting.......................................................................... (60)
Reserves recorded for financial reporting purposes ................................... 523
Total future federal and state income tax benefits.................................... 5,849
Less valuation allowance.............................................................. (5,849)
--------------------
Deferred income tax asset............................................................. $ -
====================
</TABLE>
internet.com has a valuation allowance as of December 31, 1999, which
fully offsets its deferred income tax assets. Due to internet.com's brief
operating history, recent historical losses and the fact that there is no
guarantee that internet.com will generate sufficient taxable income in the
future to be able to realize any or all of the deferred tax assets.
As of December 31, 1999, internet.com has approximately $2.1 million of
net operating losses for federal income tax purposes, which begin to expire in
2018. internet.com also has $527,000 of net operating loss carryforwards for
state income tax purposes, which begin to expire in 2003.
A reconciliation setting forth the difference between internet.com's
effective income tax rate and the U.S. Federal statutory income tax rate is as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999
-------------------
<S> <C>
Federal statutory tax rate............................................................ $(4,000)
State taxes........................................................................... (527)
Losses without income tax benefits.................................................... 4,071
Provision for non-deductible expenses................................................. 426
Other................................................................................. 30
-------------------
$ -
-------------------
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
internet.com has entered into various operating leases for each of its
office facilities. Generally under the lease agreements, internet.com is
obligated to pay a proportionate share of all electricity, heating, ventilation
and air conditioning costs for these premises. Rent expense for leased
facilities was $7,000 and $460,000 for the period from inception (November 24,
1998) through December 31, 1998 and the year ended December 31, 1999,
respectively.
48
<PAGE>
Future annual minimum lease payments under all operating leases were as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
2000......................................................... $1,179
2001......................................................... 1,104
2002......................................................... 1,059
2003......................................................... 610
2004......................................................... 383
Thereafter................................................... -
--------
$4,335
--------
</TABLE>
internet.com has entered into employment agreements with two of its
officers with terms ranging from six months to one year.
Prior to the effectiveness of the registration of the shares of
internet.com common stock being sold in the IPO, one of internet.com's
underwriters mailed written materials to 278 persons internet.com had designated
as potential purchasers of up to 170,000 shares of common stock in the IPO
through a directed share program. These materials requested that any of the
recipients who wished to purchase shares of internet.com's common stock through
the directed share program send payment for such shares to this underwriter
prior to the effectiveness of the registration of the shares of internet.com's
common stock being sold in the IPO. These materials may constitute a prospectus
that does not meet the requirements of the Securities Act of 1933.
In addition, as of June 21, 1999 this underwriter had received funds from
88 persons seeking to subscribe for the entire $1.9 million of common stock
reserved for issuance in the directed share program. This receipt of payment may
have constituted a sale of internet.com's common stock in violation of the
Securities Act of 1933. If the mailing of these materials or the receipt of
funds by this underwriter did constitute a violation of the Securities Act of
1933, the recipients of the letter who purchased common stock in the IPO would
have the right, for a period of one year from the date of their purchase of
common stock, to obtain recovery of the consideration paid in connection with
their purchase of common stock or, if they had already sold the stock, sue
internet.com for damages resulting from their purchase of common stock. These
refunds or damages could total up to approximately $1.9 million, based on an
assumed initial public offering price of $11.00 per share, if these investors
seek recovery or damages after an entire loss of their investment. While the
ultimate outcome of these matters cannot be determined, internet.com does not
expect that they will have a material adverse effect on its financial position,
results of operations or cash flows.
A complaint seeking class action status was filed in Delaware Chancery
Court on June 16, 1999 by a former shareholder of Mecklermedia Corporation
alleging that certain officers and directors of Mecklermedia Corporation
breached their fiduciary duties in connection with the sale of Mecklermedia
Corporation to Penton Media. This former shareholder of Mecklermedia Corporation
has asserted claims for damages against the officers and directors and has also
named internet.com Corporation as a defendant seeking that a constructive trust
be established. All of the defendants deny such allegations and intend to
vigorously defend themselves.
internet.com is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position of internet.com.
49
<PAGE>
14. 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 each year for the benefit of all
eligible employees under the plan. There were no discretionary contributions for
the period from inception (November 24, 1998) through December 31, 1998 and for
the year ended December 31, 1999, respectively.
15. 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, consultants and directors up to an aggregate of
2,000,000 shares of common stock of which 592,350 options were granted
immediately prior to the IPO. 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.
A summary of the status of internet.com's stock option plan as of December
31, 1999, and changes during the year ending December 31, 1999 are presented
below:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
OPTIONS PRICE
-------------- --------------
<S> <C> <C>
Outstanding at beginning of year................................ - $ -
Granted......................................................... 1,157,100 17.03
Exercised....................................................... (9,520) 14.00
Forfeited....................................................... (56,850) 14.11
-------------- --------------
Outstanding at December 31, 1999................................ 1,090,730 17.21
==============
Options exercisable at end of year.............................. 31,980 $42.89
============== ==============
Weighted average fair value of options granted
during the year............................................. $13.46
==============
</TABLE>
50
<PAGE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------------------------------------------------------------------------------
WEIGHTED-
AVERAGE
NUMBER OF REMAINING WEIGHTED- NUMBER OF WEIGHTED-
OPTIONS AT YEARS OF AVERAGE OPTIONS AT AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1999 LIFE PRICE 1999 PRICE
---------------------- ----------------- ------------------ ------------------- ------------------------
<S> <C> <C> <C> <C> <C>
$12.031-$16.281 952,330 7.99 $14.33 6,980 $13.83
$19.970-$19.970 46,550 9.83 $19.97 - $ -
$37.090-$37.090 19,650 9.92 $37.09 - $ -
$42.380-$52.500 72,200 9.97 $47.92 25,000 $51.00
---------------------- ------------------
1,090,730 31,980
====================== ==================
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions used
for grants in 1999: risk-free interest rates of 6.72%; expected lives of 3
years; expected dividend rate of zero; and expected volatility of 138%.
internet.com applies Accounting Principles Board Opinion No. 25 in
accounting for its stock option plan. Accordingly, no compensation expense has
been recognized for its stock option plan.
The following table reflects pro forma net loss and loss per share had
internet.com elected to adopt the fair value approach of SFAS No. 123 (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
INCEPTION
NOVEMBER 24,
(1998) THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------------- ------------------
<S> <C> <C>
Net loss
As reported................................................ $ (974) $(22,016)
======= =========
Pro forma.................................................. $ (974) $(24,635)
======= =========
Basic and diluted loss per share
As reported ............................................... $ (.06) $ (1.08)
======= =========
Pro Forma.................................................. $(.06) $ (1.21)
======= =========
</TABLE>
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years.
16. 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 23, 2001 and
will automatically renew for three-year terms unless canceled by either party.
51
<PAGE>
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.
I-Venture Management LLC, a wholly owned subsidiary of internet.com serves
as the managing member of internet.com Venture Fund I LLC and internet.com
Venture Fund II LLC. Certain directors and officers of internet.com serve as
directors and officers of I-Venture Management LLC.
From November 24, 1998 through November 1999, internet.com occupied space
in Penton Media, Inc. facilities in Westport, Connecticut to house its corporate
headquarters and in Burlingame, California to house a portion of its sales
force. Rent expense for this space was $7,000 for the period from inception
(November 24, 1998) through December 31, 1998 and $77,000 for the year ended
December 31, 1999. internet.com was obligated to pay its proportionate share of
all electricity, heating, ventilation and air conditioning costs for these
premises.
internet.com made a $180,000 non-interest bearing loan to one of its
stockholders in 1997, which is still outstanding and is included in other assets
as of December 31, 1999.
52
<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 the
years ended September 30, 1997 and 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 the years ended September 30, 1997 and
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
53
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------- -----------
1997 1998
---------- -----------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
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 of accumulated depreciation of $483 and $912,
respectively.............................................................. 831 1,336
INTANGIBLE ASSETS, net of accumulated amortization of $614 and $1,534
respectively.............................................................. 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.
54
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 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
1997 1998 NOVEMBER 23, 1998
-------------- ---------------- -----------------------
<S> <C> <C> <C>
REVENUES......................................... $ 1,479 $ 3,544 $ 778
COST OF REVENUES................................. 1,171 2,171 456
-------------- ---------------- -----------------------
GROSS PROFIT..................................... 308 1,373 322
-------------- ---------------- -----------------------
OPERATING EXPENSES:
Advertising, promotion and selling............... 881 1,406 441
General and administrative....................... 751 1,349 195
Depreciation..................................... 326 429 67
Amortization..................................... 505 920 86
-------------- ---------------- -----------------------
TOTAL OPERATING EXPENSES......................... 2,463 4,104 789
-------------- ---------------- -----------------------
NET LOSS........................................ $(2,155) $(2,731) $(467)
-------------- ---------------- -----------------------
</TABLE>
See notes to financial statements.
55
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
STATEMENTS OF CHANGES IN DIVISION EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1998
AND FOR THE PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
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.
56
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1998
AND FOR THE PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30, OCTOBER 1, 1998
------------------------------- THROUGH
1997 1998 NOVEMBER 23, 1998
--------------- ------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss................................................. $(2,155) $(2,731) $ (467)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization......................... 831 1,349 153
Changes in operating assets and liabilities:
Accounts receivable, net............................ (261) (570) (326)
Prepaid expenses and other.......................... (41) (187) (28)
Accounts payable and accrued expenses............... 534 305 (725)
--------------- ------------- ---------------
Net cash used in operating activities........... (1,092) (1,834) (1,393)
--------------- ------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment...................... (740) (934) (91)
Acquisitions of Web sites, related Internet media
properties and other................................... (1,659) (4,071) (2,393)
--------------- ------------- ---------------
Net cash used in investing activities........... (2,399) (5,005) (2,484)
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from Mecklermedia Corporation.............. 3,491 6,839 3,877
--------------- ------------- ---------------
Net cash provided by financing activities....... 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.
57
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 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 for
such barter transactions.
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.
58
<PAGE>
LICENSING REVENUES. The licensing agreements vary, with iWorld
typically generating fixed 1fees 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, 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, 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.
INCOME TAXES. The taxable losses of iWorld for each of the two 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 $163,000, $320,000, and $167,000 for the years ended
September 30, 1997 and 1998, and for the period from October 1, 1998 through
November 23, 1998, respectively.
59
<PAGE>
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............................... (483) (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 two, nine and four Web sites and related Internet media
properties for $1.4 million, $3.9 million and $2.4 million during the years
ended September 30, 1997 and 1998 and the period from October 1, 1998 through
November 23, 1998, respectively. These acquisitions were accounted for as
purchases. Certain of these acquisitions provide for contingent payments to be
made one year after the acquisition dates based upon the achievement of certain
objectives. The acquired Web sites and related Internet media properties had no
tangible assets or liabilities and therefore the entire purchase price has been
recorded as goodwill and is being amortized over its estimated useful life. The
pro forma results for the years ended September 30, and 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.
iWorld did not provide for any current or deferred United States federal,
state or foreign income tax provision or benefit for any of the periods
presented because it has experienced operating losses since inception.
60
<PAGE>
At September 30, 1997 and 1998 and November 23, 1998, iWorld had future
federal and state income tax benefits as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30, NOVEMBER 23,
---------------------------
1997 1998 1998
---------- ------------- ---------------
<S> <C> <C> <C>
Net operating losses........................ $ 1,390 $ 2,388 $ 2,559
Excess of amortization of intangibles for
financial reporting purposes over income
taxes................................... 114 314 307
Excess of depreciation of property and
equipment for income tax purposes over
financial reporting..................... (44) (58) (58)
Reserves recorded for financial reporting
purposes................................ 41 38 99
Total future federal and state income tax
benefits................................ 1,501 2,682 2,907
---------- ------------- ---------------
Less valuation allowances................... (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.
61
<PAGE>
A reconciliation setting forth the difference between the effective income
tax rate of iWorld and the U.S. Federal statutory tax rate is as follows (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 1, 1998
FOR THE YEARS ENDED THROUGH
SEPTEMBER 30, NOVEMBER 23,
1997 1998 1998
--------- ------------ ------------
<S> <C> <C> <C>
Federal statutory tax rate..................... $ 733 $ 928 $ 159
State taxes.................................... 105 133 23
Losses without income tax benefits............. (841) (1,064) (183)
Provision for non-deductible expenses.......... 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.
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 $777,000,
$1,185,000, and $150,000 for the years ended September 30, 1997 and 1998, and
for the period from October 1, 1998 through November 23, 1998, 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.
62
<PAGE>
Division equity consisted of the following (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30, NOVEMBER 23,
------------------------------
1997 1998 1998
------------ -------------- --------------
<S> <C> <C> <C>
Division equity at beginning of period...... $ 808 $ 2,144 $6,252
Net losses.................................. (2,155) (2,731) (467)
Working capital............................. 1,092 1,834 1,393
Acquisitions................................ 2,399 5,005 2,484
------------ -------------- --------------
Division equity at end of period............ $ 2,144 $ 6,252 $9,662
============ ============== ==============
Average division equity during the
period.................................. $ 1,476 $ 4,198 $7,957
============ ============== ==============
</TABLE>
63
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
64
<PAGE>
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference herein from internet.com's Proxy Statement for its
Annual Meeting of Stockholders to be held in 2000.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference herein from the internet.com's Proxy Statement for its
Annual Meeting of Stockholders to be held in 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference herein from the internet.com's Proxy Statement for its
Annual Meeting of Stockholders to be held in 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference herein from the internet.com's Proxy Statement for its
Annual Meeting of Stockholders to be held in 2000.
65
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
INDEX TO EXHIBITS
(a)
(1) FINANCIAL STATEMENTS: See internet.com Corporation -- Index
to Consolidated Financial Statements and iWorld Division of
Mecklermedia Corporation (Predecessor Business) -- Index to Financial
Statements at Item 8 on page 34 of this report.
(2) FINANCIAL STATEMENT SCHEDULE: Schedule II -- Valuation and
Qualifying Accounts
(3) INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
2.01* Merger Agreement, dated June 24, 1999, between
internet.com LLC and the Registrant
3.01* Registrant's Amended and Restated Certificate of
Incorporation
3.02* Registrant's Bylaws
4.01* Specimen Stock Certificate for the Registrant's
Common Stock
4.02* Registration Rights Agreement, dated as of November
24, 1998, by and among internet.com LLC and
Internet World Media, Inc.
10.01* Form of Indemnification Agreement entered into
between the Registrant and each of its directors
and executive officers
10.02* Services Agreement by and among Penton Media, Inc.,
Internet World Media, Inc. and internet.com LLC,
dated as of November 24, 1998
66
<PAGE>
EXHIBIT NUMBER DESCRIPTION
10.03* Trademark Co-License Agreement by and between
Internet World Media, Inc. and internet.com LLC,
dated as of November 24, 1998
10.04* Copyright Co-License Agreement by and between
Internet World Media, Inc. and internet.com LLC,
dated as of November 24, 1998
10.05*+ Registrant's 1999 Stock Incentive Plan
10.06*+ Employment Agreement between the Registrant and
Christopher S. Cardell, dated as of November 24,
1998
10.07*+ Employment Agreement between the Registrant and
Christopher J. Baudouin, dated as of November 24,
1998
10.08* Specimen Advertising Insertion Order
11** Statement Regarding Computation of Per Share
Earnings (Loss) (included in notes to financial
statements)
21** Subsidiaries of the Registrant
23** Consent of Arthur Andersen LLP
27** Financial Data Schedule
* Incorporated herein by reference to the Registrant's Registration
Statement on Form S-1 (File No. 333-76331).
** Filed herewith.
+ Compensatory plans and arrangements for executives and others.
(b) Reports on Form 8-K
None
67
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March 7, 2000
internet.com Corporation
By: /s/ Alan M. Meckler
----------------------------------------
Name: Alan M. Meckler
Title: Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Alan M. Meckler Chairman of the Board, Chief Executive
- -------------------------------- Officer and Director (Principal
Alan M. Meckler Executive Officer)
/s/ Christopher S. Cardell President, Chief Operating Officer and
- ------------------------------- Director
Christopher S. Cardell
/s/ Christopher J. Baudouin Chief Financial Officer (Principal
- ------------------------------- Financial and Accounting Officer)
Christopher J. Baudouin
/s/ Gilbert F. Bach Director
- -------------------------------
Gilbert F. Bach
/S/ Michael J. Davies Director
- -------------------------------
Michael J. Davies
/s/ William A. Shutzer Director
- -------------------------------
William A. Shutzer
68
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of internet.com Corporation:
We have audited in accordance with generally accepted auditing standards
the consolidated financial statements of internet.com Corporation included in
this Form 10-K and have issued our report thereon dated January 20, 2000. Our
audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. Schedule II is the responsibility of the company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
Schedule II has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
January 20, 2000
S-1
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
INTERNET.COM CORPORATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
INCEPTION YEAR
(NOVEMBER 24, 1998) THROUGH ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
------------------------------- ------------------------
<S> <C> <C>
Balance, beginning of period $ - $ 42
Additions charged to statement of operations 42 670
------ ------
Balance, end of period $42 $712
====== ======
</TABLE>
S-2
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
I-Venture Management LLC (a Delaware limited liability company)
Sitch AB (a Swedish corporation)
Akula Internet Publishing, Inc. (a Delaware corporation)
internet.com Canada Corporation (a Nova Scotia unlimited liability
company)
japan.internet.com K.K. (a Japanese corporation)
france.internet.com SARL (a French limited liability company)
ThinPlanet.com, Inc. (a California corporation)
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 333-76331.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
March 7, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERNET.COM
CORPORATION'S CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 17,943
<SECURITIES> 0
<RECEIVABLES> 6,280
<ALLOWANCES> (712)
<INVENTORY> 0
<CURRENT-ASSETS> 23,858
<PP&E> 3,909
<DEPRECIATION> (688)
<TOTAL-ASSETS> 68,390
<CURRENT-LIABILITIES> 12,037
<BONDS> 0
233
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 68,390
<SALES> 0
<TOTAL-REVENUES> 16,085
<CGS> 8,366
<TOTAL-COSTS> 8,366
<OTHER-EXPENSES> 30,423
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (688)
<INCOME-PRETAX> (22,016)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,016)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,016)
<EPS-BASIC> (1.08)
<EPS-DILUTED> (1.08)
</TABLE>
