<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 8-K/A
Amendment No. 1 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): May 12, 2000
SOFTLOCK.COM, INC.
(Exact name of Registrant as specified in charter)
Delaware 1-13611 84-1130229
------------- ------- ----------
(State or other jurisdiction (Commission file number) (IRS employer
of incorporation) identification no.)
5 Clock Tower Place, Suite 440, Maynard, MA 01754
------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(978) 461-5940
--------------
(Registrant's telephone number, including area code)
<PAGE>
ITEM 2. ACQUISITION OF ASSETS
On May 12, 2000, SoftLock.com, Inc. (the "Registrant" or the
"Company") completed its acquisition of certain assets of Chili Pepper, Inc.
("Chili Pepper"), a Boston-based strategic marketing consulting firm, which
had provided merchandising consulting services to the Company during the
preceding sixty (60) day period. Under the terms of the agreement, the
Company acquired certain assets of Chili Pepper in exchange for 193,289
shares of the Company stock, $.01 par value, with an aggregate value of
$1,404,365 and $351,090 in cash (collectively, the "Purchase Price")(the
"Asset Acquisition"). The Company intends to continue using the purchased
assets as they were previously utilized for merchandising and communication
services to supplement the Company's existing merchandising capabilities.
The acquisition will be accounted for as a purchase, and accordingly,
the results of operations of Chili Pepper will be included in the Company's
consolidated financial statements from the date of acquisition. The Purchase
Price will be allocated to the assets acquired based upon their fair value
and is subject to finalization.
Under the terms of the agreement, thirty percent (30%) of the shares
issued are entitled to non-priority piggy-back registration rights, under
certain restrictions. Such rights are subordinated to the registration rights
of the holders of Series A Preferred Stock and Series B Preferred Stock and
to the registration rights of Intel Corporation. The remaining seventy
percent (70%) of the shares issued to Chili Pepper are "restricted stock" and
may only be sold pursuant to Rule 144 of the Securities Act of 1933, as
amended. In addition, the Company entered into an employment agreement with
one of the shareholders of Chili Pepper.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
Item 7 of the Registrant's Current Report dated as of May 12, 2000, as
amended, is amended to include required financial statements relating to the
Asset Acquisition as follows:
(a) Financial Statements of Business Acquired.
Balance Sheet of Chili Pepper, Inc. as of December 31, 1999 and
March 31, 2000 (unaudited) and the related Statements of
Operations for the year ended December 31, 1999 and for each of
the three months ended March 31, 2000 and 1999 (unaudited).
(b) Pro Forma Financial Information.
Pro Forma Condensed Statements of Operations for the year ended
December 31, 1999 and the three months ended March 31, 2000 and a
Pro Forma Condensed Balance Sheet as of March 31, 2000.
(c) Exhibits.
2.1 Asset Purchase Agreement entered into on May 12, 2000
by and among SoftLock.com, Inc., a Delaware corporation,
Chili Pepper, Inc., a Massachusetts corporation, Alex
Morrow and Leighton Collis (incorporated by reference to
Exhibit 2.1 to the Registrant's Current Report on
Form 8-K filed May 19, 2000).
2.2 Escrow Agreement entered into on May 12, 2000 by and
among SoftLock.com, Inc., a Delaware corporation, Chili
Pepper, Inc., a Massachusetts corporation, and McGuire,
Woods, Battle & Boothe LLP, as escrow agent
(incorporated by reference to Exhibit 2.2 to the
Registrant's Current Report on Form 8-K filed May 19,
2000).
2.3 Registration Rights Agreement entered into on May 12,
2000 by and between SoftLock.com, Inc., a Delaware
corporation and Chili Pepper, Inc., a Massachusetts
corporation (incorporated by reference to Exhibit 2.3
to the Registrant's Current Report on Form 8-K filed
May 19, 2000).
10.1 Employment Agreement entered into on May 12, 2000,
by and among SoftLock Services, Inc., a Delaware
corporation and wholly-owned subsidiary of SoftLock.com,
Inc., a Delaware corporation and Leighton Collis
(incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed May 19,
2000).
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be filed on its behalf by the
undersigned thereunto duly authorized
SoftLock.com, Inc.
Dated: July 25, 2000 By:/s/ Michael J. Dziczkowski
---------------------------------------
Michael J. Dziczkowski
Corporate Controller
(Principal Accounting Officer)
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Chili Pepper, Inc.
Boston, Massachusetts
We have audited the accompanying balance sheet of Chili Pepper, Inc. (the
"Company") as of December 31, 1999, and the related statements of income,
stockholders' equity, and cash flows for the year then ended. 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 auditing standards generally
accepted in the United States of America. 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, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1999, and the
results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States
of America.
/s/ Deloitte & Touche LLP
July 20, 2000
<PAGE>
CHILI PEPPER, INC.
BALANCE SHEET
DECEMBER 31, 1999 AND MARCH 31, 2000
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
-----------------------------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 67,499 $ -
Accounts receivable (net of allowance of $15,469 and
$56,100 at December 31, 1999 and March 31, 2000, respectively) 99,745 454,430
Investments 12,582 10,432
Prepaid expenses and other current assets 4,274 5,199
------------ ---------
Total current assets 184,100 470,061
PROPERTY AND EQUIPMENT - Net 53,448 48,166
SECURITY DEPOSITS 9,174 8,249
------------ ---------
TOTAL ASSETS $ 246,722 $ 526,476
============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 115,934 $ 319,178
Current portion of obligations under capital leases 15,949 16,310
------------ ---------
Total current liabilities 131,883 335,488
Obligations under capital lease, less current portion 19,513 15,295
Commitments (Note 4) - -
STOCKHOLDERS' EQUITY:
Common stock, no par value; 10,000 shares authorized;
1,000 shares issued and outstanding at December 31, 1999
and March 31, 2000. 10,000 10,000
Accumulated other comprehensive income 3,415 1,265
Retained earnings 81,911 164,428
------------ ---------
Total stockholders' equity $ 95,326 $ 175,693
------------ ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 246,722 $ 526,476
============ =========
</TABLE>
See Notes to the unaudited condensed financial statements.
<PAGE>
CHILI PEPPER, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE THREE MONTHS ENDED MARCH 31, 2000
AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, MARCH 31,
1999 2000 1999
-------------------------------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net revenues $ 1,122,748 $ 726,206 $ 165,930
Cost of revenues 543,926 223,992 50,222
----------- --------- --------
Gross profit 578,822 502,214 115,708
Operating expenses:
Selling and marketing expense 47,594 96,939 -
General and administrative expense 534,359 241,975 57,764
----------- --------- --------
Total operating expenses 581,953 338,914 57,764
----------- --------- --------
Operating income (loss) (3,131) 163,300 57,944
Other income (expense)
Interest expense (1,165) (783) -
Other income 298 - -
----------- --------- --------
Total other (expense) (867) (783) -
----------- --------- --------
Net income (loss) $ (3,998) $ 162,517 $ 57,944
Other comprehensive income (loss) 3,415 (2,150) -
----------- --------- --------
Total comprehensive income (loss) $ (583) $ 160,367 $ 57,944
=========== ========= ========
</TABLE>
See notes to the financial statements.
<PAGE>
CHILI PEPPER, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999, AND THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
OTHER RETAINED
COMMON STOCK COMPREHENSIVE EARNINGS /
------------------------------
SHARES AMOUNT INCOME (DEFICIT) TOTAL
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1998 1,000 $ 10,000 $ - $ 110,909 $ 120,909
Distribution to Shareholder - - - (25,000) (25,000)
Net loss - - - (3,998) (3,998)
Unrealized gain on investment - - 3,415 - 3,415
------ -------- ------- --------- ---------
Balance, December 31, 1999 1,000 10,000 3,415 81,911 95,326
Distribution to shareholders - - - (80,000) (80,000)
Net Income - - - 162,517 162,517
Unrealized loss on investments - - (2,150) - (2,150)
------ -------- ------- --------- ---------
BALANCE, MARCH 31, 2000 1,000 $ 10,000 $ 1,265 $ 164,428 $ 175,693
====== ======== ======= ========= =========
</TABLE>
See notes to the financial statements.
<PAGE>
CHILI PEPPER, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, 1999 MARCH 31, 2000
(UNAUDITED)
------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,998) $ 162,517
Adjustments to reconcile net loss to net cash used for
operating activities
Depreciation and amortization 13,157 5,282
Allowance for doubtful accounts 15,939 40,631
Distribution to shareholders (25,000) (80,000)
Increase (decrease) in cash from:
Accounts receivable 11,264 (395,316)
Prepaid expenses and other current assets (4,274) (925)
Accounts payable 84,150 203,244
-------- --------
Net cash provided by (used for) operating activities 91,238 (64,567)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Payment) receipt of security deposits (4,800) 925
Investments 6,353
Purchases of property and equipment (17,062)
-------- --------
Net cash used for investing activities (15,509) 925
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (8,887) (3,857)
-------- --------
Net cash used in financing activities (8,887) (3,857)
NET INCREASE (DECREASE) IN CASH 66,842 (67,499)
CASH, BEGINNING OF PERIOD 657 67,499
-------- -------
CASH, END OF PERIOD $ 67,499 $ -
========= =========
SUPPLEMENTAL CASH FLOW INFORMAITON
Cash paid for taxes $ - $ -
========= =========
Cash paid for interest $ 1,164 $ -
========= =========
Equipment acquired through capital lease $ 44,349 $ -
========= =========
</TABLE>
<PAGE>
CHILI PEPPER, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999 (UNAUDITED)
1. DESCRIPTION OF THE BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS - Chili Pepper, Inc. (the "Company") provides
strategic marketing and consulting services including advertising and
merchandising services to businesses primarily in the internet and software
industries.
SALE OF CERTAIN ASSETS - On May 12, 2000, the Company entered into a definitive
agreement with SoftLock.com, Inc. to sell certain assets of the Company in
exchange for 193,289 shares of SoftLock.com, Inc. common stock with an aggregate
value of $1,404,365 and $351,090 in cash. Under the terms of the agreement,
thirty percent (30%) of the shares issued are entitled to non-priority
piggy-back registration rights, with certain restrictions, including
subordination to the registration rights of certain holders. The remaining
seventy percent (70%) of the shares received are "restricted stock" and may only
be sold pursuant to Rule 144 of the Securities Act of 1933, as amended. In
addition, SoftLock.com, Inc. entered into an employment agreement with one of
the shareholders of the Company.
The financial information included herein does not reflect any adjustments that
may be made by the buyer to record the allocation of purchase price to the
assets acquired and the liabilities assumed in preparing an opening balance
sheet, nor does it reflect what the results of operations are expected to be in
the future.
The accompanying financial statements include all of the accounts of the
Company.
USE OF ESTIMATES - The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires the Company's
management to make estimates and assumptions that affect the amounts reported in
these financial statements and accompanying notes. Actual results could differ
from those estimates.
MARKETABLE SECURITIES - Marketable securities are classified as
available-for-sale and are carried at aggregate fair market value using current
market quotes. Unrealized gains or losses are included in comprehensive income.
In calculating realized gains and losses, cost is determined using the average
cost method.
PROPERTY AND EQUIPMENT - Purchased property and equipment is recorded at cost.
Capital lease property and equipment is recorded at the lesser of cost or the
present value of the minimum lease payments required. Expenditures for renewals
and improvements are capitalized, while expenditures for repairs and maintenance
are charged to operations as incurred. Depreciation and amortization of property
and equipment are computed using the straight-line method over the estimated
useful lives of the related assets (three to seven years) and over the terms of
the related leases (two to three years). Leasehold improvements are being
amortized over the lesser of the lease term or their useful lives.
REVENUE RECOGNITION - Revenue for creative services is recognized when the
services are rendered. Revenue in connection with media buying is reported on a
net basis and reflects only the Company's commissions related to such
activities. Such revenue is deferred until the advertisement is run, at which
time the revenue is recognized. There were no revenues recognized or deferred
related to media buying for the twelve months ended December 31, 1999.
COMPREHENSIVE INCOME - Comprehensive income for the Company is the combination
of reported net income and the change in the unrealized gain or loss recorded
for changes in the value of the Company's marketable securities. Comprehensive
income/ loss is reported as a separate component of stockholders' equity.
INCOME TAXES - The Company has elected S Corporation status for federal and
state income tax purposes, under which income earned by the Company is allocated
to
<PAGE>
shareholders who are responsible for the payment of federal and state taxes
thereon. The Company remains liable for certain state income taxes that may be
due.
ADVERTISING AND MARKETING - Advertising and marketing costs are charged to
operations in the period incurred. Total advertising and marketing costs were
$47,594, $96,939 and $0 for the twelve months ended December 31, 1999 and the
three months ended March 31, 2000 and 1999, respectively.
FAIR VALUES OF FINANCIAL INSTRUMENTS - Unless otherwise indicated, the fair
values of all reported assets and liabilities which represent financial
instruments (none of which are held for trading purposes) approximate the
carrying values of such instruments due to the short-term nature of such
instruments.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS - The Company's revenues are
derived from various customers who generally are not required to provide
collateral for amounts owed to the Company. Four customers accounted for 38%,
26%, 11% and 0% and 28%, 16%, 0% and 46% of accounts receivable at
December 31, 1999 and March 31, 2000, respectively.
Major customers accounted for the following percentages of the Company's
revenues:
<TABLE>
<CAPTION>
December 31, March 31, March 31,
1999 1999 2000
<S> <C> <C> <C>
Customer A 18% 12%
Customer B 29% 31%
Customer C 14% 41%
Customer D 12%
Customer E 18%
Customer F 46%
</TABLE>
No other customers accounted for more than 10% of revenues in any of the years
presented.
2. INVESTMENTS
The Company holds investments in the following securities as of December 31,
1999:
<TABLE>
<CAPTION>
Holding Description Shares Price Market Value Cost Unrealized Gain/(Loss)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loral Space & Communications 100 24.31 2,431 1,872 559.54
American Express (AXP) 50 166.25 8,313 5,091 3,222
Crescent Real Estate 100 18.38 1,838 2,204 (366)
--------------------------------------------------------
$12,582 $9,167 $3,415
--------------------------------------------------------
</TABLE>
The Company held investments in the following securities as of March 31, 2000:
<TABLE>
<CAPTION>
Holding Description Shares Price Market Value Cost Unrealized Gain/(Loss)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loral Space & Communications 100 10.94 $ 1,094 $1,872 $ (778)
American Express 150 50.00 7,500 5,091 2,409
Crescent Real Estate 100 18.38 1,838 2,204 (366)
------- ------ ------
$10,432 $9,167 $1,265
======= ====== ======
</TABLE>
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
<S> <C> <C>
Leasehold improvements $ 15,607 $ 15,607
Office equipment 54,958 54,958
-------- --------
Total property and equipment 70,565 70,565
Less accumulated depreciation and
amortization (17,117) (22,399)
-------- --------
Property and equipment - net $ 53,448 $ 48,166
======== ========
</TABLE>
Included in property and equipment is certain equipment held under capital
leases with a net carrying value of $36,300 and $32,604 as of December 31, 1999
and March 31, 2000, respectively.
4. COMMITMENTS
The Company leases approximately 1,000 square feet as its principal operating
location under a five-year operating lease agreement. The agreement provides for
a yearly escalating monthly rental of $2,667 for the first 12 months, $2,750 for
months 13 through 24, $2,833 for months 25 through 36, $2,917 for the months 37
through 48 and $3,000 for months 49 through 60. The Company is recording rent
expense on a straight-line basis over the entire life of the lease. The lease
also requires the Company to pay certain incremental costs incurred by the
lessor and shared costs of the property. Rent expense for the year ended
December 31, 1999 and each of the three months ended March 31, 2000 and 1999
totaled $32,105, $8,000 and $3,496, respectively.
At December 31, 1999, the aggregate minimum rental payments due under
noncancelable operating leases are as follows:
2000.................... $ 32,500
2001.................... 33,500
2002.................... 34,500
2003.................... 35,500
2004.................... 18,000
----------
Total................... $ 154,000
==========
<PAGE>
4. COMMITMENTS (CONTINUED)
Minimum payments due under capitalized leases as of December 31, 1999 are as
follows:
<TABLE>
<S> <C>
2000...................................... $ 18,561
2001...................................... 16,616
2002...................................... 4,198
---------
Total..................................... 39,375
Less amount representing interest......... 3,913
---------
Present value of minimum payments......... 35,462
Less current portion...................... 15,949
---------
Total long-term capital lease obligation.. $ 19,513
=========
</TABLE>
5. RELATED PARTY
The Company has performed creative services for Lonestar, Inc., a related
party. Such services are performed on a subcontractor basis for other third
parties, for whom Lonestar, Inc. acts as a broker. The Company records
revenue upon completion of the services performed. Collection of such
revenues is not reliant on Lonestar, Inc.'s collecting from said third
parties.
6. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The new standard
requires that all companies record derivatives on the balance sheet as assets
or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge accounting.
Management is currently assessing the impact of SFAS No. 133 on the financial
statements of the Company.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin, or SAB, No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements.
Management is currently assessing the impact of SAB No. 101 on the financial
statements of the Company.
<PAGE>
SoftLock.com,Inc
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements (the "Pro Forma
Financial Statements") are based on historical financial statements of the
Registrant and Chili Pepper and have been prepared to illustrate the effects of
the Asset Acquisition.
The unaudited pro forma condensed statements of operations for the year ended
December 31, 1999 and for the three months ended March 31, 2000 give effect to
the Asset Acquisition as if the transaction had been completed as of January 1,
1999. All Intercompany transactions have been eliminated for purposes of these
pro forma statements. The unaudited pro forma condensed balance sheet as of
March 31, 2000 gives effect to the Asset Acquisition as if the transaction had
been completed as of that date. The pro forma Financial Statements do not
include certain cost savings, if any, that may be achieved relating to general
business and administrative activities.
The Asset Acquisition will be accounted for using the purchase method of
accounting. The total purchase price will be allocated to the tangible and
intangible assets and liabilities acquired based upon their respective fair
values.
These unaudited pro forma condensed financial statements should be read in
conjunction with the historical consolidated financial statements and the
notes thereto of the Company. The pro forma financial information is for
informational purposes only and does not purport to represent what the
Company's results of operations would have actually been had the transactions
to which pro forma effect is given, been consummated as of the dates or for
the periods indicated, nor do they purport to be indicative of the results of
operations or financial condition that may be achieved in the future.
<PAGE>
CHILI PEPPER, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
SOFTLOCK.COM CHILI PEPPER ADJUSTMENTS AS ADJUSTED
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 83,790 $ 1,122,748 $ - $ 1,206,538
-
Cost of revenues 21,902 543,926 - 565,828
------------ ----------- ---------- -------------
Gross profit 61,888 578,822 - 640,710
Operating expenses:
Research and development 1,823,141 - - 1,823,141
Selling and marketing expense 1,181,155 47,594 - 1,228,749
General and administrative expense 3,700,796 534,359 345,089 (2) 4,580,244
------------ ----------- ---------- -------------
Total operating expenses 6,705,092 581,953 345,089 7,632,134
------------ ----------- ---------- -------------
Operating income (loss) (6,643,204) (3,131) (345,089) (6,991,424)
Other income (expense)
Interest expense (23,472) (1,165) - (24,637)
Interest income 68,283 - - 68,283
Other income (expense) (562) 298 - (264)
------------ ----------- ---------- -------------
Total other income (expense) 44,249 (867) - 43,382
------------ ----------- ---------- -------------
Net income (loss) $ (6,598,955) $ (3,998) $ (345,089) $ (6,948,042)
Beneficial conversion feature on
convertible preferred stock (3,210,604) - - $ (3,210,604)
------------ ----------- ---------- -------------
Net loss attributable to
common stockholders $ (9,809,559) $ (3,998) $ (345,089) $(10,158,646)
============ =========== ========== ============
Basic loss per common share $ (0.94) $ (0.96)
============ ============
Basic weighted average shares
outstanding 10,400,995 10,594,284
============ ============
</TABLE>
<PAGE>
CHILI PEPPER, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
PRO FORMA
SOFTLOCK.COM CHILI PEPPER ADJUSTMENTS AS ADJUSTED
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 12,734 $ 726,206 $ (229,450)(1) $ 509,490
-
Cost of revenues 4,832 223,992 (95,550)(1) 133,274
------------ ---------- ---------- -------------
Gross profit 7,902 502,214 (133,900) 376,216
Operating expenses:
Research and development 1,008,487 - - 1,008,487
Selling and marketing expense 1,146,147 96,939 - 1,243,086
General and administrative expense 1,044,200 241,975 86,272 (2) 1,372,447
------------ ---------- ---------- -------------
Total operating expenses 3,198,834 338,914 86,272 3,624,020
------------ ---------- ---------- -------------
Operating income (loss) (3,190,932) 163,300 (220,172) (3,247,804)
Other income (expense)
Interest expense (12,856) (783) - (13,639)
Interest income 111,644 - - 111,644
Other income (expense) - - - -
- - - -
Total other income (expense) 98,788 (783) - 98,005
------------ ---------- ---------- -------------
Net income (loss) $ (3,092,144) $ 162,517 $ (220,172) $ (3,149,799)
Beneficial conversion feature on
convertible preferred stock (9,643,696) - - $ (9,643,696)
============ ========== ========== =============
Net loss attributable to common stockholders $(12,735,840) $ 162,517 $ (220,172) $ (12,793,495)
============ ========== ========== =============
Basic loss per common share $ (0.99) $ (0.98)
============ =============
Basic weighted average shares outstanding 12,848,104 13,041,393
============ =============
</TABLE>
<PAGE>
SOFTLOCK.COM, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 2000
<TABLE>
<CAPTION>
PRO FORMA
SOFTLOCK.COM CHILI PEPPER ADJUSTMENTS AS ADJUSTED
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 10,344,464 $ - $ (351,090)(3) $ 9,993,374
Accounts receivable, net 54,145 454,430 (454,430)(3) 54,145
Investments - 10,432 (10,432)(3) -
Prepaid expenses and other current assets 397,329 5,199 - 402,528
------------ ----------- ------------- -------------
Total current assets 10,795,938 470,061 (815,952) 10,450,047
PROPERTY AND EQUIPMENT - Net 969,136 48,166 - 1,017,302
Capitalized web development costs 1,596,872 - - 1,596,872
Goodwill - - 1,725,446 (2) 1,725,446
Other assets 106,791 8,249 - 115,040
TOTAL ASSETS $ 13,468,737 $ 526,476 $ 909,494 $ 14,904,707
============ =========== ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 646,093 $ 319,178 $ (319,178)(3) $ 646,093
Accrued Expenses 1,145,993 - - 1,145,993
Current portion of obligations under capital leases 178,812 16,310 - 195,122
------------ ----------- ------------- -------------
Total current liabilities 1,970,898 335,488 (319,178) 1,987,208
Obligations under capital lease, less current portion 417,236 15,295 - 432,531
Other long-term liabilities 87,588 - - 87,588
Redeemable covertible preferred stock 12,535,545 - - 12,535,545
STOCKHOLDERS' EQUITY:
Common stock 128,628 10,000 (8,067)(3) 130,561
Additional paid-in-capital 15,569,311 - 1,402,432 (3) 16,971,743
Deferred compensation (2,642,767) - - (2,642,767)
Deferred royalties (2,515,035) - - (2,515,036)
Retained earnings (11,813,787) 164,428 (164,428)(3) (11,813,786)
Accumulated other comprehensive income - 1,265 (1,265)(3) -
Notes reeceivable from officers and investors (268,880) - - (268,880)
------------ ----------- ------------- -------------
Total stockholders' equity (deficit) (1,542,530) 175,693 1,228,672 (138,165)
------------ ----------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 13,468,737 $ 526,476 $ 909,494 $ 14,904,707
============ =========== ============= =============
</TABLE>
See Notes to the unaudited condensed financial statements.
<PAGE>
Notes to the Unaudited Pro Forma Condensed Financial Statements
(1) Represents the elimination of intercompany sales and related cost of sales.
(2) Represents the amortization associated with gross amount of goodwill
recorded of $1,725,446, in the amount of $345,089 and $86,272 for the
twelve months ended December 31, 1999 and the three months ended
March 31, 2000, respectively which are being amortized over their
estimated useful lives of 5 years.
(3) Represents the removal of those assets and liabilities not acquired in
the Asset Transaction and the recording of the consideration paid for the
assets acquired in the form of $351,090 in cash and 193,289 shares of the
Company's stock, $.01 par value, with an aggregate value of $1,404,365.
