<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): May 5, 2000
SALON.COM
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 0-27886 94-3228750
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer)
incorporation or organization) Identification No.)
</TABLE>
22 Fourth Street, 16th Floor
San Francisco, California 94103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 645-9200
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) This amendment to the Company's Form 8-K filed on May 22, 2000 contains the
financial statements of MP3Lit.com at page F-1.
(b) This amendment to the Company's Form 8-K filed on May 22, 2000 contains the
unaudited pro forma financial statements required pursuant to Article 11 of
Regulation S-X at page PF-1.
(c) Exhibits.
Exhibit No. Description
----------- -----------
2.1* Agreement and Plan of Reorganization dated as of May 5,
2000, among Salon.com, a Delaware corporation, Target
Acquisition Corporation, a Delaware corporation and wholly-
owned subsidiary of Salon, MP3Lit.com, a Nevada corporation
and Gary Hustwit, Valerie Hustwit and William Hustwit.
2.2* Articles of Merger filed with the Secretary of State of the
State of Nevada on May 5, 2000.
2.3* Certificate of Merger filed with the Secretary of State of
the State of Delaware on May 5, 2000.
99.1* Press release dated May 8, 2000 announcing the execution of
the Merger Agreement.
__________________________
*Previously filed as an exhibit to the Company's Form 8-K filed with the
Securities and Exchange Commission on May 22, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: July 19, 2000
SALON.COM
By: /s/ Michael O'Donnell
---------------------
Michael O'Donnell, Acting Chief
Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
Index to Financial Statements
a) Documents filed as a part of this report for MP3Lit.com, Inc.
Independent Auditors' Report
Balance Sheet as of March 31, 2000
Statement of Operations from Inception Through March 31, 2000
Statement of Stockholders' Deficit from Inception Through
March 31, 2000
Statement of Cash Flows from Inception Through March 31, 2000
Notes to Financial Statements
b) Documents filed as a part of this report for Salon.com
Pro Forma Consolidated Financial Statements (Unaudited)
Pro Forma Consolidated Balance Sheet (Unaudited)
Pro Forma Consolidated Statement of Operations (Unaudited)
Notes to Pro Forma Consolidated Financial Statements (Unaudited)
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
MP3Lit.com, Inc.
We have audited the accompanying balance sheet of MP3Lit.com, Inc., (a
development stage company) (the "Company") as of March 31, 2000, and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
period September 1, 1999 (date of inception) through March 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of March 31,
2000, and the results of their operations and their cash flows for the period
September 1, 1999 (date of inception) through March 31, 2000 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying
financial statements, the Company is a development stage company which has
experienced significant losses since inception with no significant revenues.
These factors, and other factors discussed in Note 1 to the financial statements
raise substantial doubt about the ability of the Company to continue as a going
concern. Management's plans in regard to these matters are described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ CORBIN & WERTZ
Irvine, California
June 28, 2000
F-1
<PAGE>
MP3Lit.com, Inc.
(A Development Stage Company)
Balance Sheet
================================================================================
<TABLE>
<CAPTION>
ASSETS March 31, 2000
--------------
<S> <C>
Current assets:
Due from stockholder $ 4,012
---------
Total current assets 4,012
Property and equipment, net of accumulated depreciation of $2,112 5,612
Intangible assets, net of accumulated amortization of $488 2,592
---------
$ 12,216
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 36,195
---------
Total current liabilities 36,195
---------
Commitments and contingencies
Stockholders' deficit:
Common stock, no par value; 25,000 shares authorized;
25,000 shares issued and outstanding 1,000
Additional paid-in capital 89,411
Deficit accumulated during the development stage (114,390)
---------
Total stockholders' deficit (23,979)
---------
$ 12,216
=========
</TABLE>
--------------------------------------------------------------------------------
See independent auditors' report and
accompanying notes to financial statements.
F-2
<PAGE>
MP3Lit.com, Inc.
(A Development Stage Company)
Statement of Operations
================================================================================
<TABLE>
<CAPTION>
September 1, 1999
(Date of Inception)
Through
March 31, 2000
-------------------
<S> <C>
Net revenues $ -
Operating expenses:
Advertising 10,750
Depreciation 2,112
Insurance 1,115
Marketing 15,617
Payroll 39,092
Payroll taxes 6,153
Rent 13,000
Travel and entertainment 8,758
Other 17,793
---------
Total operating expenses 114,390
---------
Net loss $(114,390)
=========
Net loss available to common stockholders per
common share $ (5.48)
=========
Weighted average number of common shares
outstanding 20,873
=========
</TABLE>
--------------------------------------------------------------------------------
See independent auditors' report and
accompanying notes to financial statements.
F-3
<PAGE>
MP3Lit.com, Inc.
(A Development Stage Company)
Statements of Stockholders' Deficit
For The Period September 1, 1999 (Date of Inception)
Through March 31, 2000
================================================================================
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During The Total
Common Stock Paid-in Development Stockholders'
----------------------
Shares Amount Capital Stage Equity
-------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, September 1, 1999
(date of inception) - $ - $ - $ - $ -
Capital assets contributed by
owners on September 1, 1999 - - 3,358 - 3,358
Sale of 25,000 shares of
common stock at $0.04 per
share on October 6, 1999,
net of offering costs of $0 25,000 1,000 - - 1,000
Stockholders' capital
contributions on November
16, 1999 through March 24,
2000 - - 34,544 - 34,544
Expenses paid by stockholder
during September 1999
through March 2000 - - 51,509 - 51,509
Net loss - - - (114,390) (114,390)
-------- -------- ---------- ------------- -------------
Balance, March 31, 2000 25,000 $ 1,000 $ 89,411 $ (114,390) $ (23,979)
======== ======== ========== ============= =============
</TABLE>
--------------------------------------------------------------------------------
See independent auditors' report and
accompanying notes to financial statements.
F-4
<PAGE>
MP3Lit.com, Inc.
(A Development Stage Company)
Statement of Cash Flows
================================================================================
<TABLE>
<CAPTION>
September 1, 1999
(Date of
Inception) Through
March 31, 2000
------------------
<S> <C>
Cash flows from operating activities:
Net loss $ (114,390)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation/amortization 2,600
Changes in operating assets and liabilities:
Due from stockholder (4,012)
Accounts payable and accrued expenses 36,195
----------
Net cash used in operating activities (79,607)
----------
Cash flows from investing activities:
Purchases of property and equipment (4,366)
Costs incurred for intangibles (3,080)
----------
Net cash used in investing activities (7,446)
----------
Cash flows from financing activities:
Expenses paid by stockholder 51,509
Stockholders' additional capital contribution 34,544
Proceeds from the sale of common stock 1,000
----------
Net cash provided by financing activities 87,053
----------
Net change in cash -
Cash at beginning of period -
----------
Cash at end of period $ -
==========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ -
==========
Cash paid during the period for income taxes $ -
==========
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
During the period September 1, 1999 (date of inception) through March 31, 2000,
the owners contributed $3,385 in property and equipment to the Company.
--------------------------------------------------------------------------------
See independent auditors' report and
accompanying notes to financial statements.
F-5
<PAGE>
MP3Lit.com, Inc.
(A Development Stage Company)
Notes to Financial Statements
For The Period September 1, 1999 (Date of Inception)
Through March 31, 2000
================================================================================
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
----------------------------------------------------------------------
Organization and Operations
---------------------------
MP3Lit.com, Inc. (a development stage company) ("Company"), was incorporated on
September 14, 1999 according to the laws of Nevada. The Company has been in the
development stage since its inception. During the development stage, the
Company is primarily engaged in raising capital, obtaining financing, developing
its web site, advertising and marketing the Company, and administrative
functions. The Company intends to provide a web site dedicated to helping their
customers grow and obtain financing for their business ventures.
Risks and Uncertainties
-----------------------
The Company is a start-up company subject to the substantial business risks and
uncertainties inherent to such an entity, including the potential risk of
business failure.
The accompanying financial statements have been prepared on the basis of a going
concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business.
The Company has a loss of $114,390 for the period September 1, 1999 (date of
inception) through March 31, 2000 and a stockholders' deficit of $23,979 as of
March 31, 2000. There is no assurance the Company will be able to generate
sufficient revenues or obtain sufficient funds when needed, or that such funds,
if available, will be obtained on terms satisfactory to the Company. Management
has addressed this issue through the merger of the Company subsequent to March
31, 2000 (see Note 7).
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
--------------------------------------------------------------------------------
F-6
<PAGE>
MP3Lit.com, Inc.
(A Development Stage Company)
Notes to Financial Statements
For The Period September 1, 1999 (Date of Inception)
Through March 31, 2000
================================================================================
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES,
-----------------------------------------------------------------------
continued
---------
Organizational Costs
--------------------
The Company adopted Statement of Position No. 98-5 ("SOP 98-5"), "Reporting the
Costs of Start-Up Activities." SOP 98-5 requires that all non-governmental
entities expense the cost of start-up activities, including organizational costs
as those costs are incurred. The effect of this pronouncement is reflected in
the accompanying consolidated financial statements.
Fair Value of Financial Instruments
-----------------------------------
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 107 ("SFAS 107"), "Disclosures About Fair Value of
Financial Instruments." SFAS 107 requires disclosure of fair value information
about financial instruments when it is practicable to estimate that value. The
carrying amount of the Company's cash and cash equivalents, marketable
securities, trade payables and accrued expenses approximates their estimated
fair values due to the short-term maturities of those financial instruments.
Customer Concentration
----------------------
Management's intention is that the Company will not be dependent on any single
customer or group of customers for a significant portion of its annual sales.
The Company's customer base will change on a continuous basis as new customers
are added or removed.
Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, cash and cash equivalents consist
of demand deposits in banks with an initial maturity of 90 days or less.
Property and Equipment
----------------------
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the useful life of two years. Depreciation expense
for the period September 1, 1999 (date of inception) through March 31, 2000 was
$2,112.
Betterments, renewals, and extraordinary repairs that extend the lives of the
assets are capitalized; other repairs and maintenance charges are expensed as
incurred. The cost and related accumulated depreciation applicable to assets
retired are removed from the accounts, and the gain or loss on disposition is
recognized in current operations.
--------------------------------------------------------------------------------
F-7
<PAGE>
MP3Lit.com, Inc.
(A Development Stage Company)
Notes to Financial Statements
For The Period September 1, 1999 (Date of Inception)
Through March 31, 2000
================================================================================
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES,
-----------------------------------------------------------------------
continued
---------
Intangibles
-----------
Intangibles, consisting of a domain name and trademark, are stated at cost.
Amortization is computed using the straight-line method over the useful life of
two years. Amortization expense for the period September 1, 1999 (date of
inception) through March 31, 2000 was $488.
Long-Lived Assets
-----------------
During 1995, the FASB issued Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets To Be Disposed Of," which requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In accordance with the
provisions of SFAS 121, the Company regularly reviews long-lived assets and
intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable. Based
on its analysis, the Company believes that no impairment of the carrying value
on its long-lived assets exists at March 31, 2000. There can be no assurance
however, that market conditions will not change or demands for the Company's
services will continue which could result in impairment on long-lived assets in
the future.
Income Taxes
------------
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." Under SFAS 109,
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. A valuation allowance is
provided for significant deferred tax assets when it is more likely than not
that such assets will not be recovered.
Revenue Recognition
-------------------
The Company will recognize revenue during the month in which services are
provided.
--------------------------------------------------------------------------------
F-8
<PAGE>
MP3Lit.com, Inc.
(A Development Stage Company)
Notes to Financial Statements
For The Period September 1, 1999 (Date of Inception)
Through March 31, 2000
================================================================================
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES,
-----------------------------------------------------------------------
continued
---------
Advertising
-----------
Advertising costs are expensed as incurred. For the period September 1, 1999
(date of inception) through March 31, 2000, $10,750 of advertising costs have
been incurred.
Earnings Per Share
------------------
The Company has adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings Per Share." Under SFAS 128, basic earnings per share is
computed by dividing income available to common stockholders by the weighted-
average number of common shares assumed to be outstanding during the period of
computation. Diluted earnings per share is computed similar to basic earnings
per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
Because the Company has incurred net losses, basic and diluted loss per share
are the same as additional potential common shares would be anti-dilutive.
Comprehensive Income
--------------------
The Company has adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. The effect of SFAS 130 is reflected
in the accompanying financial statements.
Segments of Business
--------------------
The Company has adopted Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 changes the way public companies report information
about segments of their business in their annual financial statements and
requires them to report selected segment information in their quarterly reports
issued to stockholders. It also requires entity-wide disclosures about the
products and services an entity provides, the material countries in which it
holds assets and reports revenues and its major customers. The Company currently
operates in one segment, as disclosed in the accompanying statement of
operations.
--------------------------------------------------------------------------------
F-9
<PAGE>
MP3Lit.com, Inc.
(A Development Stage Company)
Notes to Financial Statements
For The Period September 1, 1999 (Date of Inception)
Through March 31, 2000
================================================================================
NOTE 2 - PROPERTY AND EQUIPMENT
-------------------------------
Property and equipment consist of the following as of March 31, 2000:
Computer equipment $ 2,958
Equipment 4,366
Furniture and fixtures 400
-------
7,724
Less accumulated depreciation (2,112)
-------
$ 5,612
=======
Depreciation expense for the period September 1, 1999 (date of inception)
through March 31, 2000 was $2,112.
NOTE 3 - INTANGIBLES
--------------------
Intangibles consist of the following as of March 31, 2000:
Domain name $ 1,680
Trademark 1,400
-------
3,080
Less accumulated amortization (488)
-------
$ 2,592
=======
Amortization expense for the period September 1, 1999 (date of inception)
through March 31, 2000 was $488.
NOTE 4 - STOCKHOLDERS' EQUITY
-----------------------------
Common Stock
------------
From the Company's date of inception to the period September 1, 1999 through
March 31, 2000, the Company had issued an aggregate of 25,000 shares of common
stock for $1,000.
On August 1, 1999, the owners contributed $3,385 in capital assets to the
Company. The assets consisted of computers and related equipment. These assets
were valued at their net book value at the date of contribution.
--------------------------------------------------------------------------------
F-10
<PAGE>
MP3Lit.com, Inc.
(A Development Stage Company)
Notes to Financial Statements
For The Period September 1, 1999 (Date of Inception)
Through March 31, 2000
================================================================================
NOTE 4 - STOCKHOLDERS' EQUITY, continued
----------------------------------------
On October 6, 1999, 25,000 shares of common stock were issued to the owners of
the Company for $1,000.
For the period November 16, 1999 through March 24, 2000, the stockholders
contributed $35,544 in cash to the Company.
For the period September 1999 through March 2000, the stockholders paid $51,509
in expense on behalf of the Company.
NOTE 5 - RELATED PARTIES
------------------------
As of March 31, 2000, the Company had an advance to a stockholder of $4,012.
This advance is non-interest bearing and is due in the current year.
NOTE 6 - INCOME TAXES
---------------------
The tax effects of temporary differences that give rise to deferred taxes at
March 31, 2000 are as follows:
Deferred tax asset:
Net operating loss carryforward $ 46,500
--------
Total gross deferred tax asset 46,500
Less valuation allowance (46,500)
--------
Net deferred tax asset $ -
========
No current provision for income taxes for the period ended March 31, 2000 is
required, except for minimum state taxes, since the Company incurred losses
during the period.
As of March 31, 2000, the Company had net operating loss carryforwards of
approximately $115,000 for both federal and state income tax reporting purposes,
which expire in March 2019 and March 2004, respectively.
Management has determined that it is more likely than not that the deferred tax
asset will not be utilized and as such has recorded a valuation allowance.
--------------------------------------------------------------------------------
F-11
<PAGE>
MP3Lit.com, Inc.
(A Development Stage Company)
Notes to Financial Statements
For The Period September 1, 1999 (Date of Inception)
Through March 31, 2000
================================================================================
NOTE 7 - SUBSEQUENT EVENTS
--------------------------
On May 5, 2000, pursuant to an Agreement and Plan of Reorganization dated as of
May 5, 2000, Target Acquisition Corporation, a Delaware corporation and wholly-
owned subsidiary of Salon.com, a Delaware corporation, merged with and into
MP3Lit.com, Inc., with MP3lit.com, Inc. continuing as a wholly-owned subsidiary
of Salon. At the time of the merger and pursuant to the merger agreement, the
25,000 shares of MP3Lit.com, Inc. common stock issued and outstanding
immediately prior to the merger were converted and exchanged into the right to
receive the following:
1) an aggregate of 1,268,000 shares of Salon common stock;
2) an aggregate of $400,000 cash, and
3) warrants to purchase an aggregate of 100,000 shares of Salon common
stock at a price of $10.50 per share
(the Salon common stock, cash and warrants together, the "merger
consideration")
The merger consideration was determined through arms-length negotiation. There
were no material relationships between MP3Lit.com stockholders and Salon.com or
any of its affiliates, any director or officer of Salon or any associate of any
such director or officer prior to the merger.
--------------------------------------------------------------------------------
F-12
<PAGE>
SALON.COM
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following financial pro forma consolidated statements represent the
Salon.com ("Salon") pro forma consolidated balance sheet as of March 31, 2000
and statement of operations for the year ended March 31, 2000.
Salon's acquisition of MP3Lit.com ("MP3Lit") has been accounted for under
the "purchase" method of accounting, which requires the purchase price to be
allocated to the acquired assets and liabilities of MP3Lit on the basis of their
estimated fair values as of the date of acquisition. The following pro forma
consolidated balance sheet gives effect to the acquisition of MP3Lit as if the
acquisition occurred on March 31, 2000 and the statement of operations for the
year ended March 31, 2000 gives effect to the acquisition of MP3Lit as if it
occurred on September 1, 1999, MP3Lit's date of inception, and includes
adjustments directly attributable to the acquisition of MP3Lit and expected to
have a continuing impact on the combined company.
The pro forma information is based on historical financial statements. The
assumptions give effect to the business combination with MP3Lit under the
purchase method of accounting. The information has been prepared in accordance
with the rules and regulations of the Securities and Exchange Commission and is
provided for comparative purposes only. The pro forma information does not
purport to be indicative of the results that actually would have occurred had
the combination been effected at MP3Lit's date of inception.
PF-1
<PAGE>
SALON.COM
PRO FORMA CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
March 31, 2000 March 31, 2000 March 31, 2000
----------------- ---------------- --------------
Salon.com MP3Lit Adjustments Pro Forma
--------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 17,982 $ - $ (400)(A) $ 17,582
Accounts receivable, net 2,425 4 - 2,429
Inventories 16 - - 16
Prepaid expenses and other current assets 391 - - 391
----------------- ---------------- ---------------- -------------
Total current assets 20,814 4 (400) 20,418
Property and equipment, net 2,312 6 - 2,318
Other assets 186 - - 186
Intangible assets, net 4,088 2 2,028 (A) 6,118
----------------- ---------------- ---------------- -------------
Total assets $ 27,400 $ 12 $ 1,628 $ 29,040
================= ================ ================ =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,831 $ 36 $ - $ 1,867
Accrued liabilities 2,318 - 135 (A) 2,453
Capital leases, current portion 154 - - 154
Deferred revenue 210 - - 210
Bank borrowings 90 - - 90
----------------- ---------------- ---------------- -------------
Total current liabilities 4,603 36 135 4,774
Other long term liabilities 149 - - 149
Capital Leases, net of current portion 324 - - 324
----------------- ---------------- ---------------- -------------
Total liabilities 5,076 36 135 5,247
----------------- ---------------- ---------------- -------------
Stockholders' Equity:
Common stock 13 1 (1)(A) 13
Additional paid-in capital 1,284 (A)
185 (A)
78,448 89 (89)(A) 79,917
Advertising receivable from stockholder (7,884) - - (7,884)
Unearned compensation (2,098) - - (2,098)
Accumulated deficit (46,155) (114) 114 (A) (46,155)
----------------- ---------------- ---------------- -------------
Total stockholders' equity 22,324 (24) 1,493 23,793
----------------- ---------------- ---------------- -------------
Total liabilities and stockholders' equity $ 27,400 $ 12 $ 1,628 $ 29,040
================= ================ ================ =============
The accompanying notes are an integral part of these pro forma financial statements.
</TABLE>
PF-2
<PAGE>
SALON.COM
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
March 31, 2000 March 31, 2000 March 31, 2000
----------------------------------------------------------------------------------
Salon.com MP3Lit Adjustments Pro Forma
--------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Net revenues $ 8,002 $ - $ - $ 8,002
------------------------------------------------------------------------------
Operating expenses:
Production, content and product 9,004 - - 9,004
Sales and marketing 14,399 26 - 14,425
Research and development 1,402 65 - 1,467
General and administrative 2,453 23 - 2,476
Amortization of intangibles 1,023 - 237 (B) 1,260
Non-cash advertising expense 202 - - 202
Non-cash compensation charges 2,412 - - 2,412
------------------------------------------------------------------------------
Total operating expenses 30,895 114 237 31,246
------------------------------------------------------------------------------
Loss from operations (22,893) (114) (237) (23,244)
Interest income 1,129 - - 1,129
Other income (expense), net (126) - - (126)
------------------------------------------------------------------------------
Net loss (21,890) (114) (237) (22,241)
Preferred dividend 11,515 - - 11,515
------------------------------------------------------------------------------
Net loss attributable to common stockholders $ (33,405) $ (114) $ (237) $(33,756)
==============================================================================
Basic and diluted net loss per share
attributable to common stockholders $ (3.63) $ (3.58)
============ ========
Weighted average shares used in computing
basic and diluted net loss per share
attributable to common stockholders 9,204 222 (C) 9,426
============ ========= ========
The accompanying notes are an integral part of these pro forma financial statements.
</TABLE>
PF-3
<PAGE>
SALON.COM
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION:
In May 2000, Salon acquired MP3Lit, a web site dedicated to offering
downloadable spoken word and audio literature recordings in the MP3 format.
The unaudited pro forma information is not necessarily indicative of the
future consolidated results of operations of Salon or the consolidated results
of operations that would have resulted had the acquisition taken place on
September 1, 1999, MP3Lit's date of inception. The unaudited pro forma
consolidated balance sheet as of March 31, 2000 reflects the effects of the
acquisition, assuming the related events occurred on March 31, 2000. The
unaudited pro forma consolidated statement of operations for the year ended
March 31, 2000 reflects the effects of the acquisition, assuming the related
events occurred as of September 1, 1999.
NOTE 2 - UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL ADJUSTMENTS:
The unaudited pro forma consolidated financial statements reflect a
purchase price of $2.0 million consisting of the following: (i) 380,400 shares
of common stock valued at $3.375 per share; (ii) $400,000 of cash consideration;
(iii) warrants to purchase 100,000 shares of common stock over a five-year
period at a price of $10.50 per share valued at $185,000 using the Black-Scholes
method; and (iv) acquisition costs of $135,000. An additional 887,600 shares
have been issued and are held in escrow. These shares are contingent upon the
meeting of certain business benchmarks over a three-year period. If the business
benchmarks are met, the shares will be released to the former stockholders of
MP3Lit. When the contingencies are resolved, the shares will be recorded at
their fair value on the respective dates, as either an additional cost of the
acquisition or as compensation expense of the appropriate period.
The acquisition was recorded under the purchase method of accounting. The
identifiable intangible assets and the goodwill will be recognized over five
years, the estimated period of benefit.
The assets acquired consist of net tangible assets, identifiable intangible
assets and goodwill. Net tangible assets include primarily accounts receivable,
property, plant and equipment and accounts payable. A preliminary review of the
identifiable intangible assets indicates the purchase of audio streaming
technology which will serve as the platform for Salon to launch an audio format,
a website and associated traffic, trade and domain names, an acquired workforce
and non-compete agreements. Salon is in the process of determining the fair
values of the identifiable intangible assets acquired and will allocate the
purchase price accordingly.
PF-4
<PAGE>
SALON.COM
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - UNAUDITED CONSOLIDATED NET LOSS PER SHARE:
The net loss per share and shares used in computing the net loss per share
for the year ended March 31, 2000 is based upon the historical weighted average
common shares outstanding. The contingent common shares and the warrant shares
have been excluded as the effect would be antidilutive.
The 380,400 shares of common stock issued in connection with the purchase
price of MP3Lit have been included in the calculation of basic and diluted net
loss per share for the year ended March 31, 2000 as follows:
<TABLE>
<S> <C>
Shares used in computing basic and diluted net loss per
share attributable to common stockholders 9,203,960
Adjustment to reflect the common stock issued in
connection with the purchase of MP3Lit 221,900
---------
Shares used in computing pro forma basic and diluted
net loss per share attributable to common stockholders 9,425,860
=========
</TABLE>
NOTE 4 - PURCHASE ADJUSTMENTS:
The following adjustments were applied to Salon's historical financial
statements and those of MP3Lit to arrive at the pro forma consolidated balance
sheet and statement of operations:
(A) To record the issuance of Salon common stock, the fair market value of
the warrants issued, and the cash payments of $400,000 made in connection with
the acquisition of MP3Lit and to record estimated acquisition costs of $135,000
and other assets and liabilities at their estimated fair value.
(B) To record amortization of goodwill and other intangibles over their
estimated useful lives of five years.
(C) To reflect the common shares issued in connection with the acquisition
of MP3Lit.
PF-5
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- -----------
2.1* Agreement and Plan of Reorganization dated as of May 5, 2000,
among Salon.com, a Delaware corporation, Target Acquisition
Corporation, a Delaware corporation and wholly-owned subsidiary
of Salon, MP3Lit.com, a Nevada corporation and Gary Hustwit,
Valerie Hustwit and William Hustwit.
2.2* Articles of Merger filed with the Secretary of State of the State
of Nevada on May 5, 2000.
2.3* Certificate of Merger filed with the Secretary of State of the
State of Delaware on May 5, 2000.
99.1* Press release dated May 8, 2000 announcing the execution of the
Merger Agreement.
--------------------
*Previously filed as an exhibit to the Company's Form 8-K filed with the
Securities and Exchange Commission on May 22, 2000.
