<PAGE>
========================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 8-K/A
AMENDMENT TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 1, 1999
----------------
NetZero, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 000-27405 95-4644384
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation File Number) Identification No.
2555 Townsgate Road, Westlake Village, California 91361
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices with Zip Code)
(Registrant's Telephone Number, Including Area Code): (805) 418-2000
------------------------
Not Applicable
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
===================
<PAGE>
AMENDMENT
The undersigned Registrant hereby amends the following items,
financial statements, exhibits or other portions of its Current Report on Form
8-K, originally filed with the Securities Exchange Commission on December 14,
1999, as set forth in the pages attached hereto:
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
- ------ ------------------------------------------------------------------
The following financial statements and pro forma financial information
are filed as a part of this report.
(a) Financial Statements of AimTV, Inc.
Report of Independent Accountants
Balance Sheets at June 30, 1999 and September 30, 1999
Statement of Operations for the period March 1, 1999
(inception) through June 30, 1999, the three months ended
September 30, 1999 and the period March 1 ,1999 (inception)
through September 30, 1999
Statement of Shareholders' Equity for the period March 1, 1999
(inception) through September 30, 1999
Statement of Cash Flows for the period March 1, 1999
(inception) through June 30, 1999, the three months ended
September 30, 1999 and the period March 1, 1999 (inception)
through September 30, 1999
Notes to Financial Statements
(b) Pro Forma Financial Information
Unaudited Pro Forma Condensed Balance Sheet at September 30,
1999
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the three months ended September 30, 1999
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended June 30, 1999
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
(c) Exhibits. See Index to Financial Statements
<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.
NetZero, Inc.
---------
(Registrant)
Dated: February 11, 2000 By: /s/ Charles S. Hilliard
-------------------------------
Name: Charles S. Hilliard
Title: Chief Financial Officer
<PAGE>
Exhibits:
EXHIBIT 99.1
ITEM 7(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AimTV, Inc. Financial Statements
- --------------------------------
<S> <C>
Report of Independent Accountants........................................... F-2
Balance Sheets June 30, 1999 and September 30, 1999 ........................ F-3
Statement of Operations for the period March 1, 1999 (inception) through
June 30, 1999, the three months ended September 30, 1999 and the period
March 1, 1999 (inception) through September 30, 1999......................... F-4
Statement of Shareholders' Equity for the period March 1, 1999
(inception) through September 30, 1999 .......................................F-5
Statement of Cash Flows for the period March 1, 1999 (inception) through
June 30, 1999, the three months ended September 30, 1999 and the period
March 1, 1999 (inception) through September 30, 1999........................ F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
AimTV, Inc.
(A Development Stage Enterprise)
In our opinion, the accompanying balance sheet of AimTV, Inc. (A Development
Stage Enterprise) (the "Company") as of June 30, 1999, and the related
statements of operations, shareholders' equity and cash flows for the period
from March 1, 1999 (inception) through June 30, 1999 present fairly, in all
material respects, the financial position of the Company as of June 30, 1999,
and the results of its operations and its cash flows for the period from
March 1, 1999 (inception) through June 30, 1999, in conformity with
accounting principles generally accepted in the United States. 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 of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Woodland Hills, California
January 6, 2000
<PAGE>
AIMTV, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
JUNE 30, 1999
(ALL INFORMATION AS OF SEPTEMBER 30, 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
1999 1999
----------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 765,750 $ 620,630
Prepaid expenses and other current assets 24,520 28,825
----------- -----------
Total current assets 790,270 649,455
Property and equipment, net 37,902 193,350
Other assets 11,958 14,835
Restricted cash 75,000 75,637
----------- -----------
Total assets $ 915,130 $ 933,277
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 40,893 $ 292,035
Other payables 22,392 16,938
Convertible notes payable - current portion - 100,000
----------- -----------
Total current liabilities 63,285 408,973
Convertible notes payable 50,000 150,000
----------- -----------
Total liabilities 113,285 558,973
Shareholders' equity:
Convertible preferred stock; no par value; 5,000,000 authorized;
3,600,000 and 4,000,000 issued and outstanding at June 30, 1999
and September 30, 1999, respectively, liquidation
preference of $900,000 and $1,000,000, respectively 900,000 1,000,000
Common stock; no par value; 30,000,000 authorized at June 30,
1999 and September 30, 1999, respectively; 10,260,000 and 11,800,000
issued and outstanding at June 30, 1999 and
September 30, 1999, respectively 6,640 83,640
Additional paid-in capital - 1,356,358
Unearned deferred compensation - (1,000,503)
Deficit accumulated during the development stage (104,795) (1,065,191)
----------- -----------
Total shareholders' equity 801,845 374,304
----------- -----------
Total liabilities and shareholders' equity $ 915,130 $ 933,277
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
AIMTV, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
March 1, 1999
Period from Three Months (Inception)
March 1, 1999 Ended Through
(Inception) September 30, September 30,
Through 1999 1999
June 30, 1999 (Unaudited) (Unaudited)
------------- ------------- -------------
<S> <C> <C> <C>
Revenue $ - $ - $ -
Costs and expenses:
Research and product
development 26,874 308,712 335,586
Sales and marketing 19,987 122,705 142,692
General and administrative 58,712 174,813 233,525
Stock-based compensation - 355,855 355,855
---------- ---------- ----------
Loss from operations (105,573) (962,085) (1,067,658)
Other income (expense):
Interest income 778 4,530 5,308
Interest expense - (2,841) (2,841)
---------- ---------- ----------
Net loss ($ 104,795) ($ 960,396) ($1,065,191)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
AIMTV, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF SHAREHOLDERS' EQUITY
(ALL INFORMATION FOR THE THREE MONTH PERIOD ENDED
SEPTEMBER 30, 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Unearned
Convertible Preferred Stock Common Stock Paid-In Deferred
Shares Amount Shares Amount Capital Compensation
----------- ----------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 1, 1999 (inception)
Issuance of common stock - - 10,260,000 $ 6,640 - -
Issuance of Series A Preferred 3,600,000 $ 900,000 - - - -
Net loss - - - - - -
--------- ----------- ---------- -------- ----------- -----------
Balance at June 30, 1999 3,600,000 900,000 10,260,000 6,640 - -
Issuance of common stock - - 1,540,000 77,000 - -
Issuance of Series A Preferred 400,000 100,000 - - - -
Unearned deferred compensation - - - - $ 1,356,358 ($1,356,358)
Stock-based compensation - - - - - 355,855
Net loss - - - - - -
--------- ----------- ---------- -------- ----------- -----------
Balance at September 30, 1999 4,000,000 $ 1,000,000 11,800,000 $ 83,640 $ 1,356,358 ($1,000,503)
========= =========== ========== ======== =========== ===========
<CAPTION>
Retained
Earnings
(Deficit)
Accumulated
During The Total
Development Shareholders'
Stage Equity
------------- -------------
<S> <C> <C>
Balance at March 1, 1999 (inception)
Issuance of common stock - $ 6,640
Issuance of Series A Preferred - 900,000
Net loss ($ 104,795) (104,795)
----------- -----------
Balance at June 30, 1999 (104,795) 801,845
Issuance of common stock - 77,000
Issuance of Series A Preferred - 100,000
Unearned deferred compensation - -
Stock-based compensation - 355,855
Net loss (960,396) (960,396)
----------- -----------
Balance at September 30, 1999 ($1,065,191) $ 374,304
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
AIMTV, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
March 1, 1999
Period from Three Months (Inception)
March 1, 1999 Ended Through
(Inception) September 30, September 30,
Through 1999 1999
June 30, 1999 (Unaudited) (Unaudited)
------------- ------------ -------------
<S> <C> <C> <C>
Operating activities:
Net loss ($ 104,795) ($ 960,396) ($1,065,191)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,279 9,778 11,057
Stock-based compensation - 355,855 355,855
Changes in current assets and liabilities:
Restricted cash (75,000) (637) (75,637)
Prepaid expenses and other assets (30,378) (7,182) (37,560)
Accounts payable and accrued expenses 40,893 251,142 292,035
Other payables 22,392 (5,454) 16,938
----------- ----------- -----------
Net cash used in operating activities (145,609) (356,894) (502,503)
----------- ----------- -----------
Investing activities:
Purchases of property and equipment (39,181) (165,226) (204,407)
----------- ----------- -----------
Net cash used in investing activities (39,181) (165,226) (204,407)
----------- ----------- -----------
Financing activities:
Proceeds from issuance of common stock 540 77,000 77,540
Proceeds from issuance of Series A preferred stock 900,000 100,000 1,000,000
Proceeds from convertible notes payable 50,000 200,000 250,000
----------- ----------- -----------
Net cash provided by financing activities 950,540 377,000 1,327,540
----------- ----------- -----------
Increase (decrease) in cash and
cash equivalents 765,750 (145,120) 620,630
Cash and cash equivalents at beginning of period - 765,750 -
----------- ----------- -----------
Cash and cash equivalents at end of period $ 765,750 $ 620,630 $ 620,630
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ - $ 1,300 $ 1,300
=========== =========== ===========
Supplemental disclosure of noncash transactions:
Issuance of common stock in exchange for employee
services $ 6,100 $ - $ 6,100
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AIMTV, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT BUSINESS RISKS
ORGANIZATION
AimTV, A Development Stage Enterprise (the "Company"), was incorporated
on March 1, 1999 as a California Corporation. The Company has developed
a patent-pending web technology designed to enable advertisers to run
broadcast-quality television commercials over narrowband Internet
connections. Since inception, the Company has devoted its efforts to
the development of its products and organization of its business. The
Company's business is characterized by rapid technological change, new
product development and product obsolescence, and a competitive
business environment for the attraction and retention of knowledge
workers. The Company is an early stage enterprise and is subject to all
the risks associated with development stage companies.
On December 1, 1999, NetZero, Inc. acquired all of the Company's
outstanding shares of common stock, at which time the Company became a
wholly-owned subsidiary of NetZero, Inc.
SIGNIFICANT BUSINESS RISKS
Since its inception, the Company has incurred significant operating
losses. The ability of the Company to successfully carry out its
business plan is primarily dependent upon its ability to (1) obtain
sufficient additional capital, (2) overcome product development issues,
(3) generate significant revenues through its existing assets, products
under development and ongoing operations, and (4) obtain approval of
its pending patent.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ACCOUNTING ESTIMATES
In the normal course of preparing financial statements in conformity
with generally accepted accounting principles, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
6
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents are carried at cost, which approximates fair value. At
times, cash balances held at financial institutions are in excess of
FDIC insurance limits.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is computed using the straight-line
method based upon the estimated useful lives of the assets of two to
three years. Useful lives are evaluated by management in order to
determine recoverability in light of current technological conditions.
Repairs and maintenance are charged to expense as incurred while
renewals and improvements are capitalized. Upon the sale or retirement
of property and equipment, the accounts are relieved of the cost and
the related accumulated depreciation or amortization, with any
resulting gain or loss included in the Statement of Operations.
ADVERTISING
Advertising costs are expensed as incurred, and to date, have not been
significant.
SOFTWARE DEVELOPMENT COSTS
Under the provisions of Statement of Financial Accounting Standards
("SFAS") No. 86, "Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed," the Company is required to
capitalize software development costs when "technological feasibility"
of the product has been established and anticipated future revenues
ensure recovery of the capitalized amounts.
RESEARCH AND DEVELOPMENT COSTS
Costs incurred in the research and development of products are expensed
as incurred.
7
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes are accounted for under SFAS No. 109, "Accounting for
Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities
are determined based on differences between the financial reporting and
tax bases of assets and liabilities, and are measured using the enacted
tax rates and laws that will be in effect when the differences are
expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be
realized.
COMPREHENSIVE INCOME
Comprehensive income generally represents all changes in shareholders'
equity (deficit) during the period except those resulting from
investments by, or distributions to, shareholders. For the period from
March 1, 1999 (inception) through June 30, 1999, there were no such
significant changes in shareholders' equity other than net loss
amounts.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements
in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
complies with the disclosure provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation." Under APB No. 25, compensation expense
is recognized over the vesting period based on the difference, if any,
on the date of grant between the deemed fair value for accounting
purposes of the company's stock and the exercise price on the date of
grant. The Company accounts for equity awards issued to non-employees
in accordance with the provisions SFAS No. 123 and Emerging Issues Task
Force ("EITF") 96-18.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, "Software for
Internal Use," which provides guidance on accounting for the cost of
computer software developed or obtained for internal use. The adoption
of SOP No. 98-1 in 1999 did not have a significant impact on the
Company's financial position, results of operations or cash flows.
8
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs
of Start-Up Activities." SOP No. 98-5 requires that all start-up costs
related to new operations must be expensed as incurred. In addition,
start-up costs that were capitalized in the past must be written off
when SOP No. 98-5 is adopted. The adoption of SOP No. 98-5 in 1999 did
not have a significant impact on the Company's financial position,
results of operations or cash flows.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30, September 30,
1999 1999
----------- ------------
<S> <C> <C>
Computer equipment $ 39,181 $ 168,694
Computer software - 30,653
Furniture and fixtures - 5,060
--------- ---------
39,181 204,407
Less: Accumulated depreciation and
amortization (1,279) (11,057)
--------- ---------
Total $ 37,902 $ 193,350
========= =========
</TABLE>
9
<PAGE>
4. INCOME TAXES
As a result of net operating losses, the Company has not recorded a
provision for income taxes. The components of the deferred tax assets
and related valuation allowance is as follows:
<TABLE>
<CAPTION>
June 30,
1999
----------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 41,918
--------
Total deferred tax assets 41,918
Less: Valuation allowance (41,918)
--------
Net deferred taxes $ -
========
</TABLE>
Based on management's assessment, the Company has placed a valuation
allowance against its otherwise recognizable deferred tax assets due to
the likelihood that the Company may not generate sufficient taxable
income during the carryforward period to utilize the net operating loss
carryforwards.
10
<PAGE>
5. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its facility and other assets under noncancelable
operating leases which expire through 2005, subject to the execution of
certain renewal options. The following are the minimum lease payments
under these leases:
<TABLE>
<CAPTION>
Year Ended
June 30,
----------
<S> <C>
2000 $137,280
2001 146,573
2002 135,352
2003 140,012
2004 140,400
Thereafter 11,700
--------
$711,317
========
</TABLE>
Total expense under operating leases for the period March 1, 1999
through June 30, 1999 was $1,627.
The facility lease requires that a $75,000 irrevocable standby letter
of credit be established as collateral to meet the Company's obligation
under the lease; this amount is reflected as restricted cash on the
balance sheet.
LITIGATION
From time to time, certain legal actions may arise in the ordinary
course of the Company's business. To date, such legal actions have not
had a material adverse effect on the Company's financial position,
results of operations and cash flows.
11
<PAGE>
6. CAPITALIZATION
STOCK SPLIT
On August 17, 1999, the Board of Directors declared a four-for-one
split of the Company's common stock, effected in the form of a stock
dividend paid on October 4, 1999. All agreements concerning stock
options and other commitments payable in shares of the Company's common
stock provide for the issuance of additional shares due to the
declaration of the stock split. All references to number of common and
preferred shares in the financial statements have been adjusted to
reflect the stock split on a retroactive basis.
COMMON STOCK
The Company is required to reserve and keep available out of its
authorized but unissued shares of common stock such number of shares
sufficient to effect the conversion of all outstanding shares of
preferred stock and all outstanding common stock warrants, plus shares
granted and available for grant under the Company's stock option plan.
The amount of such shares of common stock reserved for these purposes
is as follows:
<TABLE>
<CAPTION>
June 30, September 30,
1999 1999
---------- -------------
<S> <C> <C>
Conversion of preferred stock 3,600,000 4,000,000
Outstanding warrants - 140,000
Outstanding stock options 700,000 4,600,000
Additional shares available for grant under
the Company's stock option plan 5,040,000 1,140,000
--------- ---------
9,340,000 9,880,000
========= =========
</TABLE>
SERIES A CONVERTIBLE PREFERRED
The Series A Preferred provides for a noncumulative dividend of $0.08
per share per annum. In the event of any liquidation or winding up of
the Company, each share is entitled to receive, in preference to common
stock, an amount equal to the original price plus declared but unpaid
dividends. The Series A Preferred is not redeemable.
12
<PAGE>
6. CAPITALIZATION (CONTINUED)
SERIES A CONVERTIBLE PREFERRED (CONTINUED)
The Series A Preferred may be converted into common stock at any time
at the option of the holder and will be adjusted for any common stock
splits. The conversion price shall be the original purchase price per
share, as adjusted for stock splits.
Additionally, the Series A Preferred will automatically convert into
common stock in the event of (i) an underwritten public offering of the
Company's common stock with gross proceeds to the Company of at least
$10,000,000 and an offering price per share of not less than $3.00 or
(ii) the conversion of more than 50% of the originally issued Series A
Preferred.
The holders of Preferred stock have the right to the vote equal to the
number of shares of common stock issuable upon conversion of the
Preferred stock. Consent of the holders of a majority of the Preferred
stock will be required for (i) the creation of any new class or series
of shares having preference over the existing Preferred stock, (ii) any
increase in the authorized number of shares of Preferred stock, (iii)
any amendment to the Articles of Incorporation that materially and
adversely affect Preferred stock, (iv) any redemption or repurchase of
shares of common stock, or (v) issuance of any equity securities by any
subsidiary. Holders of 50,000 shares or more of Series A Preferred
shall have a pro rata right to participate in future equity financings
of the Company.
WARRANTS
On September 1, 1999, the Company issued warrants to purchase 40,000
shares of common stock, at $0.25 per share, to a non-employee in
connection with the Company's financing efforts. The warrants issued
are fully vested, non-forfeitable and are immediately exercisable and
will expire at the earlier of (i) the closing of the initial
underwritten public offering of the Company's common stock with gross
proceeds in excess of $10,000,000, or (ii) September 1, 2002. The fair
value of warrants was determined using a Black-Scholes option pricing
model and resulted in a charge of approximately $49,500.
13
<PAGE>
6. CAPITALIZATION (CONTINUED)
VESTING (CONTINUED)
On August 30, 1999, the Company issued warrants to purchase 100,000
shares of common stock, at $0.10 per share, to a non-employee for
services. The warrants issued are fully vested, non-forfeitable and are
immediately exercisable and will expire at the earlier of (i) the
closing of the initial underwritten public offering of the Company's
common stock with gross proceeds in excess of $10,000,000, or (ii)
August 30, 2003. The fair value of warrants was determined using the
Black-Scholes option pricing model and resulted in a charge of
approximately $57,500, which was recognized as expense during the
three-month period ended September 30, 1999.
7. STOCK OPTIONS
In May 1999, the Company adopted the 1999 Stock Option Plan (the
"Plan") which provides for the issuance of stock-based awards to
qualified employees, directors and consultants of the Company. The
stock-based awards may include incentive stock options or nonqualified
stock options. The exercise price per share is not to be less than 85%
of the fair market value per share of the Company's common stock on the
date of grant for nonqualified stock options. Incentive stock options
may not be granted at less than 100% of the fair market value of the
Company's common stock on the date of grant (110% if granted to an
employee who owns 10% or more of the common stock outstanding). Options
become exercisable over the vesting period as determined by the Board
of Directors and expire over terms not exceeding 10 years from the
vesting base date as determined by the Board of Directors. The Company
has reserved 5,740,000 shares of its common stock for issuance under
the Plan. As of June 30, 1999 and September 30, 1999, 5,040,000 and
1,140,000 options to purchase shares of common stock were available for
future grant.
14
<PAGE>
7. STOCK OPTIONS (CONTINUED)
A summary of the status of the Company's stock options and related
changes is presented below:
<TABLE>
<CAPTION>
Weighted-
Average
Exercise
Shares Price
--------- ----------
<S> <C> <C>
Outstanding at March 1, 1999 (Inception) - -
Granted 700,000 $.05
Exercised - -
Canceled - -
---------
Outstanding at June 30, 1999 700,000 .05
---------
Granted 3,900,000 .05
Exercised - -
Canceled - -
---------
Outstanding at September 30, 1999 4,600,000 $.05
=========
</TABLE>
Additional information with respect to stock options outstanding is as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Number Contractual Exercise Number Exercise
Outstanding Life Price Outstanding Price
------------ ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
At June 30, 1999 700,000 9.93 $.05 - $.05
At September 30, 1999 4,600,000 9.83 $.05 349,917 $.05
</TABLE>
15
<PAGE>
7. STOCK OPTIONS (CONTINUED)
Options granted during the period March 1, 1999 (inception) to June 30,
1999 and the three months ended September 30, 1999 resulted in $0 and
$1,279,145, respectively, of deferred compensation, which was included
in deferred compensation in shareholders' equity. Deferred compensation
expense is recognized over the vesting period as services are rendered.
During the period March 1, 1999 (inception) to June 30, 1999 and the
three months ended September 30, 1999, compensation expense included in
stock-based compensation in the statement of operations related to
stock option grants amounted to $0 and $248,855, respectively.
The Company determined the compensation expense of options granted
using the methodology prescribed in SFAS No. 123 and determined the
results to be immaterial. The fair value of these awards was estimated
at the date of grant using a minimum value option pricing model with
the following assumptions: risk-free interest rate of 6%; no dividend
yield; no volatility factor; a forfeiture rate of 0%; and an expected
average life of 10 years. The effects of applying SFAS No. 123 are not
indicative of future amounts and additional awards in future years are
anticipated.
8. CONVERTIBLE PROMISSORY NOTES
From June to August 1999, the Company issued convertible promissory
notes to non-employees and one officer of the Company. Interest on the
notes ranges from 7 to 8 percent per annum. Principal and interest at
the termination of the note are payable at various repayment dates,
which range from September 2000 through June 2002. The notes were all
repaid in December 1999.
16
<PAGE>
EXHIBIT 99.2
ITEM 7(b) PRO FORMA FINANCIAL INFORMATION
INDEX TO PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NetZero Pro Forma Consolidated Financial Statements
- -----------------------------------------------------
<S> <C>
Unaudited Pro Forma Condensed Balance Sheet at September 30, 1999 .......... F-3
Unaudited Pro Forma Condensed Statement of Operations for the Three
Months Ended September 30, 1999 .......................................... F-4
Unaudited Pro Forma Condensed Statement of Operations for the Year
Ended June 30, 1999 ...................................................... F-5
Notes to the Unaudited Pro Forma Condensed Financial Statements............. F-6
</TABLE>
F-1
<PAGE>
NETZERO, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
OVERVIEW
On December 1, 1999, the Company acquired AimTV, Inc. ("AimTV") in a
stock-for-stock transaction. AimTV has developed a patent-pending technology
designed to enable advertisers to run broadcast-quality commercials over
narrowband Internet connections. The following unaudited pro forma condensed
consolidated statements of operations for the year ended June 30, 1999 and the
three months ended September 30, 1999 are set forth herein to give effect to the
acquisition of AimTV by the Company as if the acquisition had occurred on March
1, 1999 (inception of AimTV). Consideration for the purchase was approximately
970,000 shares of common stock and options to purchase common stock of the
Company with a fair value of approximately $23.3 million. The unaudited pro
forma condensed consolidated balance sheet data gives effect to the acquisition
of AimTV by the Company as if such acquisition had occurred on September 30,
1999.
The acquisition has been accounted for as a purchase. Based on the purchase
price allocation, approximately $23.0 million of intangible assets have been
recorded which are being amortized over periods ranging from two to three years.
The unaudited pro forma condensed consolidated statements of operations are
provided for illustrative purposes only and are not necessarily indicative of
the operating results that would have been achieved had the acquisition occurred
on March 1, 1999 (inception of AimTV), nor do they represent a forecast of the
combined future results of operations for any future periods. The audited
historical financial statements of the Company are included elsewhere in this
Form 8-K/A and the unaudited pro forma condensed consolidated financial
information presented herein should be read in conjunction with those financial
statements and related notes.
F-2
<PAGE>
NETZERO, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Netzero, Inc. AimTV, Inc. Adjustments Pro Forma
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $181,718,000 $ 621,000 $ - $182,339,000
Accounts receivable, net 4,825,000 - 4,825,000
Other current assets 6,680,000 29,000 6,709,000
------------ ------------ ------------ ------------
Total current assets 193,223,000 650,000 - 193,873,000
Property and equipment, net 21,472,000 193,000 21,665,000
Restricted cash 1,884,000 75,000 1,959,000
Deposits and other assets 597,000 15,000 612,000
Intangible assets 22,975,000(b) 22,975,000
------------ ------------ ------------ ------------
Total assets $217,176,000 $ 933,000 $ 22,975,000 $241,084,000
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts payable $ 13,043,000 $ 292,000 $ - $ 13,335,000
Accrued liabilities 1,554,000 17,000 100,000(b) 1,671,000
Deferred revenue 4,717,000 - 4,717,000
Current portion of notes payable 1,460,000 100,000 1,560,000
Current portion of capital leases 1,394,000 1,394,000
------------ ------------ ------------ ------------
Total current liabilities 22,168,000 409,000 100,000 22,677,000
Notes payable less current portion 3,395,000 150,000 3,545,000
Capital leases less current portion 2,332,000 - 2,332,000
Commitments and contingencies - - -
Stockholders' equity 189,281,000 374,000 (374,000)(c) 212,530,000
23,249,000(a)
-
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity $217,176,000 $ 933,000 $ 22,975,000 $241,084,000
============ ============ ============ ============
</TABLE>
See accompanying notes to Pro Forma Condensed Consolidated Financial Information
F-3
<PAGE>
NETZERO, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
NETZERO, INC. AIMTV, INC. ADJUSTMENTS PRO FORMA
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Net revenues $ 7,720,000 $ - $ - $ 7,720,000
Cost of revenues 12,093,000 - 12,093,000
------------ ------------ ----------- ------------
Gross loss (4,373,000) - - (4,373,000)
Operating expenses -
Sales and marketing 4,991,000 123,000 5,114,000
Product development 818,000 309,000 1,127,000
General and administrative 3,506,000 175,000 3,681,000
Stock-based compensation 1,303,000 355,000 1,658,000
Amortization of intangible assets 2,308,000(d) 2,308,000
------------ ------------ ----------- ------------
Total operating expenses 10,618,000 962,000 2,308,000 13,888,000
Loss from operations (14,991,000) (962,000) (2,308,000) (18,261,000)
Interest income 285,000 5,000 290,000
Interest expense (221,000) (3,000) (224,000)
------------ ------------ ----------- ------------
Net loss $(14,927,000) $ (960,000) $(2,308,000) $(18,195,000)
============ ============ =========== ============
Historical basic and diluted net loss
per share $ (1.04)
============
Shares used in the calculation of
historical basic and diluted net
loss per share 14,365,000
============
Pro forma basic and diluted net loss
per share $ (1.20)(e)
============
Shares used in the calculation of
pro forma basic and diluted net
loss per share 15,127,000(e)
============
</TABLE>
F-4
<PAGE>
NETZERO, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
NETZERO, INC. AIMTV, INC.(1) ADJUSTMENTS PRO FORMA
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net revenues $ 4,634,000 $ - $ - $ 4,634,000
Cost of revenues 12,426,000 - 12,426,000
------------ ------------ ------------ -------------
Gross loss (7,792,000) - - (7,792,000)
Operating expenses
Sales and marketing 926,000 20,000 946,000
Product development 1,019,000 27,000 1,046,000
General and administrative 4,442,000 59,000 4,501,000
Stock-based compensation 1,236,000 1,236,000
Amortization of intangible assets 3,078,000(d) 3,078,000
------------ ------------ ------------ -------------
Total operating expenses 7,623,000 106,000 3,078,000 10,807,000
Loss from operations (15,415,000) (106,000) (3,078,000) (18,599,000)
Interest income 225,000 1,000 226,000
Interest expense (110,000) - (110,000)
------------ ------------ ------------ -------------
Net loss $(15,300,000) $ (105,000) $ (3,078,000) $ (18,483,000)
============ ============ ============ =============
Historical basic and diluted net loss
per share $ (1.42)
============
Shares used in the calculation of
historical basic and diluted net
loss per share 10,792,000
============
Pro forma basic and diluted net loss
per share $ (1.60)(e)
=============
Shares used in the calculation of
pro forma basic and diluted net
loss per share 11,554,000(e)
=============
</TABLE>
(1) Operating results are for the period from March 1, 1999 (Inception)
through June 30, 1999.
F-5
<PAGE>
NETZERO, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The unaudited pro forma condensed consolidated statements of operations
for the Company for the year ended June 30, 1999 and for AimTV for the period
from March 1, 1999 (inception) through June 30, 1999 and for the Company and
AimTV for the three months ended September 30, 1999 have been prepared as if the
acquisition, which has been accounted for as a purchase, had occurred on March
1, 1999 (inception of AimTV) and July 1, 1999, respectively.
Note 2. The unaudited pro forma condensed consolidated balance sheet of the
Company and AimTV has been prepared as if the acquisition, which has been
accounted for as a purchase, had occurred on September 30, 1999. Aggregate
consideration of $23.3 million and $100,000 of estimated acquisition costs
resulted in approximately $23.0 million in goodwill and other intangible assets,
including acquired technology and non-compete agreements.
Note 3. The following pro forma adjustments are reflected in the unaudited pro
forma condensed consolidated financial information:
(a) Issuance of approximately 973,000 shares of common stock and
options to purchase common stock of the Company, at $23.94 per
share as of November 15, 1999.
(b) Excess of purchase consideration and estimated acquisition
costs over the fair value of net tangible assets acquired.
(c) Elimination of AimTV's historical equity.
(d) Amortization of goodwill and other intangible assets on a
straight-line basis over periods ranging from two to three
years commencing March 1, 1999 (inception), and July 1, 1999,
respectively.
(e) The difference between the historical and pro forma basic and
diluted net loss per share for the year ended June 30, 1999
and the three months ended September 30, 1999 is the result of
an increase in shares used in the calculation of pro forma net
loss per share due to the inclusion of shares issued in
connection with the acquisition of AimTV, adjusted for shares
subject to repurchase.
F-6
