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): June 5, 1998
AMERICA ONLINE, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
- --------------------------------------------------------------------------------
Delaware 0-19836 54-1322110
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
22000 AOL Way, Dulles, Virginia 20166
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (703) 448-8700
This 8-K/A filing amends an 8-K filed on June 11, 1998. Item 7 is
hereby amended to state as follows:
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired:
Mirabilis Ltd. (an Israeli Development Stage Corporation) as of
March 31, 1998 and the three months ended March 31, 1998 and 1997
(unaudited)
Mirabilis Ltd. (an Israeli Development Stage Corporation) for the year
ended December 31, 1997, for the period from July 29, 1996 (date of
incorporation) to December 31,1996 and for the period from July 29,
1996 to December 31, 1997
(b) Pro Forma Financial Information:
Pro Forma Combined Condensed Balance Sheet as of March 31, 1998
(unaudited)
Pro Forma Combined Statement of Operations for the nine month period
ended March 31, 1998 (unaudited)
Pro Forma Combined Statement of Operations for the nine month period
ended March 31, 1997 (unaudited)
Pro Forma Combined Statement of Operations for the year ended June 30,
1997 (unaudited)
Notes to Unaudited Consolidated Financial Statements
(c) Exhibits:
The following exhibits are filed as part of this Current Report
pursuant to Item 601 of Regulation S-K:
Exhibit
Number Description
2 Agreement of Purchase and Sale dated as of June 5, 1998 by and among
America Online, Inc., AOL Acquisition Corp., R.G.A.O. Holdings Ltd.,
and Mirabilis Ltd and the Principal Stockholders (Confidential
treatment has been requested with respect to certain portions of the
Agreement). (Incorporated herein by reference to Exhibit 2 to the
Company's Form 8-K, Commission File No. 0-19836, filed June 11, 1998).
23 Consent of Kesselman & Kesselman
99.1 Press Release Dated June 8, 1998 Announcing America Online, Inc.
Acquires Mirabilis Ltd and its ICQ Instant Communications and Chat
Technology. (Incorporated herein by reference to Exhibit 99 to the
Company's Form 8-K, Commission File No. 0-19836, filed June 11, 1998).
99.2 Letter of Kesselman & Kesselman regarding accounting
standards
Consolidated Financial Statements
Mirabilis Ltd.
(an Israeli Development Stage Corporation) As of March 31,
1998 and for the three months ended March 31, 1998
and 1997 (Unaudited)
Consolidated Balance sheet 1
Consolidated Statements of Operations 2
Consolidated Statements of Cash Flows 3
Notes to Unaudited Consolidated Financial Statements 4
Mirabilis Ltd.
(an Israeli Development Stage Corporation)
Consolidated Balance Sheet
as of March 31, 1998
(In thousands)
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 189
Accounts receivable 32
Total current assets 221
Property and equipment, net 668
Total assets $ 889
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable 71
Other accrued expenses and liabilities 259
Total current liabilities 330
Other liabilities 50
Total liabilities 380
Shareholders equity
Capital surplus 2,606
Deficit accumulated during development stage (2,097)
Total shareholders' equity 509
Total liabilities and shareholder's equity $ 889
See accompanying notes
Mirabilis Ltd.
(an Israeli Development Stage Corporation)
Consolidated Statements of Operations
For the three months ended March 31, 1998 and 1997
(In thousands)
(Unaudited)
<TABLE>
3 months 3 months Period From
ended ended July 29, 1996 ( Inception)
March 31, 1998 March 31, 1997 to March 31, 1998
<S> <C> <C> <C>
Revenues $ 14 $ - $ 49
Costs and expenses:
Operating expenses 244 33 759
Development costs 256 50 827
General and administrative 204 14 551
Total costs and expenses 704 97 2,137
Loss from operations (690) (97) (2,088)
Other income (loss), net 3 1 (6)
Loss before provision
for income taxes (687) (96) (2,094)
Provision for income taxes (3) - (3)
Net Loss $ (690) $ (96) $ (2,097)
Accumulated loss at the beginning of
the period (1,407) (67) -
Loss for the period (690) (96) (2,097)
Accumulated loss at the end of the period $ (2,097) $ (163) $ (2,097)
See accompanying notes
</TABLE>
Mirabilis Ltd.
(an Israeli Development Stage Corporation)
Consolidated Statements of Cash Flow For the three months
ended March 31, 1998 and 1997
(In thousands)
(Unaudited)
<TABLE>
3 months 3 months Period From
ended ended July 29, 1996 ( Inception)
March 31, 1998 March 31, 1997 to March 31, 1998
Cash flows from operating activities:
<S> <C> <C> <C>
Net Loss $ (690) $ (96) $ (2,097)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 65 3 159
Liability for employee rights upon termination 6 7 50
Impairment in value of property and equipment 28 - 28
Changes in operating assets and liabilities
Accounts receivable 23 (5) (32)
Operating liabilities 53 31 335
Net cash used in operating activities (515) (60) (1,557)
Cash flows from investing activities:
Purchases of property and equipment (234) (19) (860)
Net cash used in investing activities (234) (19) (860)
Cash flows from financing activities:
Issuance of share capital 787 124 2,606
Net cash provided by financing activities 787 124 2,606
Net increase in cash and cash equivalents 38 45 189
Cash and cash equivalents at beginning of period 151 3 -
Cash and cash equivalents at end of period $ 189 $ 48 $ 189
See accompanying notes
</TABLE>
Mirabilis Ltd.
(an Israeli Development Stage Corporation)
Notes to Unaudited Consolidated Financial Statements
March 31, 1998 and 1997
1. The consolidated financial statements include the accounts of Mirabilis
Ltd. without audit. Pursuant to the rules and regulations of the Securities
and Exchange Commission, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
Although the Company believes that the disclosures are adequate to make the
information presented not misleading, it is suggested that these financial
statements be read in connection with the audited financial statements and
notes thereto included in the Form 8-K/A filing filed with the Securities
and Exchange Commission on August 21, 1998.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
the financial position, results of operations, and cash flows for the
periods presented.
2. The Company was in a development stage through June 5, 1998, its efforts
having been principally devoted to raising capital and developing the ICQ
technology. The Company has not derived significant revenue from its
operating activities.
3. Subsequent Event
On June 5, 1998, America Online, Inc. acquired all of the assets and
selected liabilities of the Company in a transaction accounted for
under the purchase method of accounting.
MIRABILIS LTD.
(An Israeli Corporation in the Development Stage)
CONSOLIDATED FINANCIAL STATEMENTS
1997 ANNUAL REPORT
MIRABILIS LTD.
(An Israeli Corporation in the Development Stage, see note 1)
CONSOLIDATED FINANCIAL STATEMENTS
1997 ANNUAL REPORT
TABLE OF CONTENTS
Page
REPORT OF INDEPENDENT AUDITORS 2-3
FINANCIAL STATEMENTS - IN U.S. DOLLARS ($):
Balance sheets 4
Statements of operations 5
Statements of changes in shareholders' equity
(capital deficiency) 6
Statements of cash flows 7
Notes to financial statements 8-15
REPORT OF INDEPENDENT AUDITORS
To the shareholders of MIRABILIS LTD.
We have audited the consolidated balance sheets of Mirabilis Ltd. (an Israeli
corporation; hereafter the Company) and its subsidiary as of December 31, 1997
and 1996 and the related statements of operations, changes in shareholders'
equity (capital deficiency) and cash flows for the year ended December 31, 1997,
for the period from July 29, 1996 (date of incorporation) to December 31, 1996
and for the period from July 29, 1996 to December 31, 1997. These financial
statements are the responsibility of the Company's board of directors and
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed by the Israeli Auditors (Mode of
Performance) Regulations, 1973. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, either due to error or to intentional
misrepresentation. 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 the board of directors and management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a fair
basis for our opinion.
In our opinion, the aforementioned financial statements present fairly, in all
material respects, the consolidated financial position of the Company and its
subsidiary as of December 31, 1997 and 1996 and their results of operations,
changes in shareholders' equity (capital deficiency) and their cash flows for
the year ended December 31, 1997, for the period from July 29, 1996 to December
31, 1996 and for the period from July 29, 1996 to December 31, 1997, in
conformity with generally accepted accounting principles ("GAAP") in Israel (as
applicable to these financial statements, Israeli GAAP and U.S. GAAP are
practically identical in all material respects, see also note 6a).
Without qualifying our opinion, we draw attention to the Company's being in the
development stage through June 5, 1998, as described in note 1. On that date,
the Company sold all of its assets and on June 14, 1998 it entered into
voluntary winding-up procedures.
/s/Kesselman & Kesselman
Tel-Aviv, Israel
May 27, 1998,
except for notes 1 and 8, for which the date is
August 17, 1998
MIRABILIS LTD.
(An Israeli Corporation in the Development Stage, see note 1)
CONSOLIDATED BALANCE SHEETS
IN U.S. DOLLARS
<TABLE>
December 31
<S> <C> <C>
1997 1996
A s s e t s
CURRENT ASSETS:
Cash and cash equivalents 150,855 3,377
Accounts receivable:
Trade 41,850
Other (note 3) 12,998 259
T o t a l current assets 205,703 3,636
FIXED ASSETS (note 4):
Cost 670,873 4,707
L e s s - accumulated depreciation 93,760 171
577,113 4,536
T o t a l assets 782,816 8,172
Liabilities and shareholders' equity
(net of capital deficiency)
CURRENT LIABILITIES
Accounts payable and accruals:
Trade 74,482
Other - (note 5) 253,050 24,381
T o t a l current liabilities 327,532 24,381
LIABILITY FOR EMPLOYEE RIGHTS
UPON RETIREMENT (note 6) 43,835 438
COMMITMENTS (note 7)
T o t a l liabilities 371,367 24,819
SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(note 8):
Share capital:
Ordinary shares of NIS 0.01 par value (December 31, 1997: authorized -
12,130,000 shares; issued - 11,774,599 shares; paid -11,586,185
shares) 33,954
Ordinary shares of NIS 1 par value (December 31, 1996:
authorized - 31,300 shares; issued and paid - 1,000 shares) 314
Premium on shares 1,785,100 49,961
Deficit accumulated during the
development stage (1,407,605) (66,922)
T o t a l shareholders' equity (capital deficiency) 411,449 (16,647)
T o t a l liabilities and shareholders' equity (net of capital
deficiency) 782,816 8,172
-------------------------------
)
)
-------------------------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
MIRABILIS LTD.
(An Israeli Corporation in the Development Stage, see note 1)
CONSOLIDATED STATEMENTS OF OPERATIONS
IN U.S. DOLLARS
<TABLE>
Period from Period from
Year ended July 29, 1996* to July 29, 1996* to
December 31, 1997 December 31, 1996 December 31, 1997
COSTS AND EXPENSES:
<S> <C> <C> <C> <C>
Development costs (note 9a) 563,387 8,148 571,535
Operating expenses (note 9b) 473,740 41,516 515,256
General and administrative
expenses (note 9c) 330,701 16,046 346,747
1,367,828 65,710 1,433,538
L E S S - revenue (note 1b) 35,000 35,000
LOSS FROM OPERATIONS 1,332,828 65,710 1,398,538
FINANCIAL EXPENSES - net 7,855 1,212 9,067
LOSS FOR THE PERIOD 1,340,683 66,922 1,407,605
* Date of incorporation.
The accompanying notes are an integral part of the financial statements.
</TABLE>
MIRABILIS LTD.
(An Israeli Corporation in the Development Stage, see note 1)
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
IN U.S. DOLLARS
<TABLE>
Deficit
accumulated
during the
Share Premium development
capital on shares stage Total
CHANGES IN THE PERIOD FROM JULY 29,
1996 (DATE OF INCORPORATION) TO
DECEMBER 31, 1996:
<S> <C> <C> <C> <C>
Issue of share capital 314 *49,961 50,275
Loss (66,922) (66,922)
BALANCE AT DECEMBER 31, 1996 314 49,961 (66,922) (16,647)
CHANGES IN THE YEAR ENDED
DECEMBER 31, 1997:
Issue of share capital 33,640 *1,735,139 1,768,779
Loss (1,340,683) (1,340,683)
BALANCE AT DECEMBER 31, 1997 33,954 1,785,100 (1,407,605) 411,449
* Net of share issue expenses.
The accompanying notes are an integral part of the financial statements.
</TABLE>
MIRABILIS LTD.
(An Israeli Corporation in the Development Stage, see note 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN U.S. DOLLARS
<TABLE>
Period from Period from
Year ended July 29, 1996* to July 29, 1996* to
December 31, 1997 December 31, 1996 December 31, 1997
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C>
Loss for the period (1,340,683) (66,922) (1,407,605)
Adjustments required to reflect the
cash flows from operating
activities:
Depreciation 93,589 171 93,760
Liability for employee rights upon
retirement 43,397 438 43,835
Changes in operating asset and
liability items:
Increase in accounts receivable (54,589) (259) (54,848)
Increase in accounts payable 257,363 24,381 281,744
339,760 24,731 364,491
Net cash used in operating activities (1,000,923) (42,191) (1,043,114)
CASH FLOWS FROM INVESTING
ACTIVITIES - purchase of fixed assets (620,378) (4,707) (625,085)
CASH FLOWS FROM FINANCING
ACTIVITIES - issue of share capital 1,768,779 50,275 1,819,054
INCREASE IN CASH AND CASH
EQUIVALENTS 147,478 3,377 150,855
BALANCE OF CASH AND CASH
EQUIVALENTS AT BEGINNING OF
PERIOD 3,377
BALANCE OF CASH AND CASH
EQUIVALENTS AT END OF PERIOD 150,855 3,377 150,855
* Date of incorporation
The accompanying notes are an integral part of the financial statements.
</TABLE>
MIRABILIS LTD.
(An Israeli Corporation in the Development Stage, see note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL:
a. Mirabilis Ltd. ("Mirabilis" or the "Company") - an Israeli
corporation in the development stage through June 5, 1998, see
c. below - was incorporated, and commenced operations, on July
29, 1996. The Company is engaged in the development,
dissemination and operation of a revolutionary, user-friendly
Internet and Intranet tool - named ICQ - used for on-line,
real-time, peer-to-peer communication between users. As from
January 1, 1998, the Company's wholly owned subsidiary in the
United States - ICQ Networks, Inc. ("ICQ Networks"), which was
founded in October 1997 - renders certain technical server
hosting services in the United States to the Company.
b. The Company was in the development stage through date of sale,
see c. below, its efforts through December 31, 1997 having
been principally devoted to raising capital and development
efforts. The Company has not derived significant income from
its operating activities. Through December 31, 1997, the
Company incurred a loss of $ 1.4 million which was financed by
private placements.
c. On June 5, 1998, the Company sold all its assets (including
its investment in the wholly-owned subsidiary) to America
Online Inc. group for $ 287 million payable immediately and $
120 million in three equal annual payments, commencing 2000,
contingent upon certain growth performance levels in each
year. In addition the Company could receive additional
consideration upon the successful public stock offering of the
Company business. In a General Extraordinary Meeting of the
Shareholders of the Company held on June 14, 1998, it was
resolved that the Company shall enter into voluntary
winding-up procedures, by the Company's Shareholders, without
Court supervision, pursuant to the provisions of the Israeli
Companies Ordinance.
d. On May 27, 1998, the Company published audited consolidated
financial statements as of December 31, 1997 and for the
period from July 29, 1996 to December 31, 1997. These
financial statements include, in addition to the
abovementioned financial statements, balance sheet as of
December 31, 1996 and statements of operations, changes in
shareholders' equity (capital deficiency) and cash flows for
each of the period from July 29, 1996 to December 31, 1996 and
for the year ended December 31, 1997.
MIRABILIS LTD.
(An Israeli Corporation in the Development Stage, see note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies applied on a consistent basis,
are as follows:
a. General:
1) Functional currency
Most of the revenues of the Company are expected to be
received outside Israel, in U.S. dollars ("dollars") and
most of the fixed assets were purchased in U.S., in
dollars. Thus, the functional currency of the Company is
the dollar.
Transactions and balances originally denominated in dollars
are presented at their original amounts. Currency
transaction gains and losses arising from non-dollar
balances and transactions are included in the determination
of net income or loss.
2) Accounting principles
The financial statements are prepared in accordance with
generally accepted accounting principles ("GAAP") in
Israel, which, as applicable to these financial statements,
are practically identical in all material respect to U.S.
GAAP (see also note 6a).
3) Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
and to disclose contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
b. Principles of consolidation:
1) The consolidated financial statements include the accounts
of the Company and its subsidiary.
2) Intercompany balances and transactions have been eliminated.
c. Development costs
The development costs represent expenses incurred in respect
of development of the ICQ software and system (see note 1a).
All development costs are charged to operations as incurred.
MIRABILIS LTD.
(An Israeli Corporation in the Development Stage, see note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):
d. Fixed assets:
1) These assets are stated at cost.
2) The assets are depreciated by the straight-line method, on
basis of their estimated useful life.
Annual rates of depreciation are as follows:
%
Computers and peripheral equipment 25-33
(mainly 33)
Furniture and office equipment 6-15
Leaseholds improvements are amortized by the straight-line
method over the term of the lease, which is shorter than
the estimated useful life of the improvements.
e. Cash equivalents
The Company and its subsidiary consider all highly liquid
investments, which include short-term bank deposits (up to
three months from date of deposit) to be cash equivalents.
f. Revenue recognition
Revenue from sale of products is recognized upon fulfillment
of all the Company's commitments, according to the sales
agreement.
Deferred revenue represents amounts received under sales
agreements in advance of revenue recognition.
g. Deferred taxes
Deferred taxes are computed in respect of differences between
the amounts presented in these statements and those taken into
account for tax purposes, see also note 10d.
NOTE 3 - ACCOUNTS RECEIVABLE - OTHER:
December 31
1997 1996
U.S. dollars
VAT refundable 10,669 259
Other 2,329
Total 12,998 259
MIRABILIS LTD.
(An Israeli Corporation in the Development Stage, see note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4 - FIXED ASSETS
Composition of assets, grouped by major classifications, is as
follows:
<TABLE>
Cost Accumulated depreciation
December 31, 1997 December 31, 1996 December 31, 1997 December 31, 1996
U.S. dollars U.S. dollars
Computers and
<S> <C> <C> <C> <C>
peripheral equipment 642,757 4,555 90,177 170
Furniture and office
equipment 19,651 152 657 1
Leasehold improvements 8,465 2,926
670,873 4,707 93,760 171
</TABLE>
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUALS - OTHER:
December 31
1997 1996
U.S. dollars
Employees and employee institutions 134,056 426
Accrued expenses 35,757 3,528
Provision for vacation and recreation pay 32,240 700
Deferred income 23,530
Related parties 25,620 19,727
Sundry 1,847
253,050 24,381
MIRABILIS LTD.
(An Israeli Corporation in the Development Stage, see note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - EMPLOYEE RIGHTS UPON RETIREMENT:
a. Israeli law generally requires payment of severance pay upon
dismissal of an employee or upon termination of employment in
certain other circumstances. The Company's severance pay
liability to its employees, based upon the number of years of
service and the latest monthly salary, is partly covered by
certain insurance policies. Under labor agreements, these
insurance policies are, subject to certain limitations, the
property of the employees.
The amounts accrued and the portion funded by the insurance
policies are reflected in the balance sheets as follows:
December 31, December 31,
1997 1996
U.S. dollars
Employee rights upon retirement 48,554 438
Less - amounts funded 4,719
Unfunded balance 43,835 438
The Company may only make withdrawals from the amounts funded
by insurance policies for the purpose of paying severance pay.
Under the Israeli GAAP, amounts funded by purchase of
insurance policies, as above, are deducted from the related
severance pay liability. Under U.S. GAAP, the amounts funded
should be presented as a long-term investment among the
Company's assets.
b. The severance pay expense in the year ended December 31, 1997
was approximately $ 62,000; $400 in the period from June 29,
1996 to December 31, 1996.
NOTE 7 - COMMITMENTS
In 1997, the Company entered into two lease agreements for its
facilities in Tel-Aviv, for periods ending June 30, 1998. The
annual lease fees, computed on the basis of the lease fees as of
December 31, 1997, are approximately $ 65,000.
In April 1998, the Company exercised an option to extend one of the
abovementioned lease agreements for one year commencing July 1,
1998. The Company also entered into a new lease agreement for a
period ending June 30, 1999. The expected annual lease fees for the
year commencing July 1, 1998 are approximately $ 85,000. The
Company has an option to extend these leases for one year - until
June 30, 2000.
MIRABILIS LTD.
(An Israeli Corporation in the Development Stage, see note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - SHARE CAPITAL:
a. Deferred shares
On May 28, 1998, 140,000 Ordinary Shares were converted into
Deferred Shares.
b. Options granted to an employee
In April 1997, 250,000 options were granted to an employee
under an employment agreement ("the option plan"). The
exercise price was set at NIS 0.01 per share. The vesting
periods of the options were 6, 12, 18 and 24 months from the
date of grant. On May 15, 1998, 25,000 options were exercised
to purchase 25,000 ordinary shares and the option plan was
cancelled. The monetary equivalent of the balance of 225,000
options was given after December 31, 1997 as a bonus and will
be reported as an expense in the financial statements under
"salaries and employee benefits".
The Company accounts for its option plan using the treatment
prescribed by Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25"). Under
APB 25, compensation cost for employee stock option plans is
measured using the intrinsic value based method of accounting.
In October 1995, the FASB issued Statement No. 123 "Accounting
for Stock-Based Compensation" ("SFAS 123"). This Statement
established a fair value based method of accounting for an
employee stock option or similar equity instrument and
encourages adoption of such method of accounting for stock
compensation plans. However, it also allows companies to
continue to account for those plans using the accounting
treatment prescribed by APB 25.
The Company has elected to continue applying the provisions of
APB 25. No compensation expense has been charged against
income, since the amount thereof is not material.
Implementation of the provisions set forth in SFAS 123,
relating to awards granted in 1997, would have no material
effect on the operating results.
NOTE 9 - STATEMENTS OF OPERATIONS DATA:
a. Development costs:
<TABLE>
Period from Period from
Year ended July 29, 1996* to July 29, 1996* to
December 31, 1997 December 31, 1996 December 31, 1997
U.S. dollars
<S> <C> <C> <C>
Salaries and employee benefits 502,546 8,148 510,694
Rent and maintenance 48,448 48,448
Depreciation 12,393 12,393
563,387 8,148 571,535
* Date of incorporation.
</TABLE>
MIRABILIS LTD.
(An Israeli Corporation in the Development Stage, see note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9 - STATEMENTS OF OPERATIONS DATA (continued):
<TABLE>
Period from Period from
Year ended July 29, 1996* to July 29, 1996* to
December 31, 1997 December 31, 1996 December 31, 1997
U.S. dollars
b. Operating expenses:
<S> <C> <C> <C>
Salaries and employee benefits 145,161 145,161
Server hosting services 210,341 15,009 225,350
Travel abroad 45,304 26,336 71,640
Depreciation 72,934 171 73,105
473,740 41,516 515,256
c. General and administrative expenses:
Salaries and employee
benefits 151,976 151,976
Rent and maintenance 23,224 23,224
Postage and
telecommunication 12,744 12,744
Travel abroad 35,785 8,987 44,772
Professional fees 59,769 3,528 63,297
Depreciation 8,262 8,262
Office supplies and printing 4,658 4,658
Other 34,283 3,531 37,814
330,701 16,046 346,747
* Date of incorporation.
</TABLE>
NOTE 10 - TAXES ON INCOME:
a. Measurement of results for tax purposes under the Income Tax
(Inflationary Adjustments) Law, 1985 Under this law, results
for tax purposes are measured in real terms, in accordance
with the changes in the Israeli CPI. The Company is taxed
under this law.
b. Tax benefits under the Law for the Encouragement of Capital
Investments 1959 (hereafter - the Law)
The Company has applied to the Investment Centre for "approved
enterprise" status under the Law. If granted, the Company will
be entitled to various tax benefits in respect of the income
derived from its approved enterprise. Such approval has not
yet been received.
MIRABILIS LTD.
(An Israeli Corporation in the Development Stage, see note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - TAXES ON INCOME (continued):
Income derived from this approved enterprise, if this status
is granted, is tax exempt during the first two years from the
year in which the Company first earns taxable income from the
approved enterprise and is subject to a reduced tax rate of
25% during the period from the third year until the seventh
year, but not beyond the year 2012.
In the event of distribution of cash dividends from income
which is tax exempt, as above, the Company will have to pay
the 25% tax in respect of the amount distributed.
If the approved enterprise status is granted, the entitlement
to the above benefits will be conditional upon the Company's
fulfilling the conditions stipulated by the Law, regulations
published thereunder and the instrument of approval. In the
event of failure to comply with these conditions, the benefits
may be cancelled and the Company may be required to refund the
amount of the benefits, in whole or in part, with the addition
of interest.
As the Company has sold all its assets, as described in note
1, the Company has asked the Investment Centre to cease the
procedures regarding issuance of "approved enterprise" status.
c. Carryforward tax losses
The Company has carryforward tax losses in the amount of
approximately $ 927,000, which can be utilized without any
time limits. Under the inflationary adjustments law, the
carryforward losses are linked to the Israeli CPI.
d. Deferred taxes
The deferred tax asset (mostly in respect of carryforward
losses, see above), computed at a tax rate of 36%, amounted to
approximately $ 500,000 at December 31, 1997. A full valuation
allowance has been provided against the deferred tax asset
because of the Company's lack of earnings history and the
uncertainty relating to the utilization of these losses in the
foreseeable future.
e. Tax status of the subsidiary
The subsidiary is taxed under the laws of its country of
residence.
f. Tax assessments
The Company and its subsidiary have not been assessed for tax
purposes since incorporation.
MIRABILIS LTD.
(An Israeli Corporation in the Development Stage, see note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 11 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES (as defined by
Opinion 29 of the Institute of Certified Public Accountants in
Israel):
a. Transactions with related parties
Salary costs for the year ended December 31, 1997, in respect
of the shareholders employed in the Company, amounted to
approximately $ 136,000; period from date of incorporation to
December 31, 1996 - $ 8,000; period from date of incorporation
to December 31, 1997 - $ 144,000.
b. Balances with related parties
Current liabilities as of December 31, 1997 include $ 25,620
to related parties; December 31, 1996 - $ 19,727.
Pro Forma Financial Information
On June 5, 1998 America Online, Inc. ("AOL", or the "Company")
completed the acquisition of Mirabilis Ltd. ("Mirabilis"), an Israeli private
limited company. AOL acquired the assets of Mirabilis, including its ICQ instant
communications and chat technology, and assumed certain liabilities and
obligations for a purchase price of $287 million in cash and the potential for
contingent purchase payments starting in AOL's fiscal year 2001, of up to $120
million over three years subject to the satisfaction of certain specified growth
performance standards in each year (the "Transaction").
The unaudited pro forma combined condensed balance sheet gives effect
to the Transaction as if it had been consummated as of March 31, 1998. The
unaudited pro forma combined condensed balance sheet combines the unaudited
historical condensed balance sheet of AOL as of March 31, 1998 and the unaudited
historical condensed balance sheet of Mirabilis as of March 31, 1998.
The unaudited pro forma combined statements of operations give effect
to the Transaction as if it was consummated at the beginning of the periods
presented. The unaudited pro forma combined statement of operations for the nine
months ended March 31, 1998 combines the unaudited historical statement of
operations of AOL for the nine months ended March 31, 1998 and the unaudited
historical statement of operations of Mirabilis for the nine months ended March
31, 1998. The unaudited pro forma combined statement of operations for the year
ended June 30, 1997 combines the audited historical statement of operations of
AOL for the year ended June 30, 1997 and the unaudited statement of operations
of Mirabilis for the twelve months ended June 30, 1997.
The acquisition is accounted for as a purchase business combination
under APB 16, "Business Combinations". For purposes of the Pro Forma Financial
Statements, the purchase price is recorded as an investment in ICQ, a wholly
owned subsidiary that holds the acquired Mirabilis assets. The Company is
currently in discussions with the Securities and Exchange Commission regarding
the allocation of the purchase price. When finalized, the Company expects a
substantial portion of the purchase price to be allocated to in-process research
and development which will be expensed in the Company's quarter ended June 30,
1998. In addition, the Company expects that substantially all of the remaining
purchase price will be allocated to intangible assets, which will be amortized
over their expected useful lives.
The pro forma information is presented for illustrative purposes only
and does not purport to be indicative of the operating results or financial
position that would have actually occurred if the Transaction had been in effect
on the dates indicated, nor is it indicative of the future operating results or
financial position of the Company. The pro forma adjustments are based upon
information and assumptions available at the time of the filing of this Form
8-K/A. The pro forma information should be read in conjunction with the
Company's June 30, 1997 financial statements and notes thereto contained in its
Form 10-K dated September 29, 1997.
America Online, Inc.
Pro Forma Combined Condensed Balance Sheet
as of March 31, 1998
(In thousands)
(Unaudited)
Historical
<TABLE>
Mirabilis Pro Forma Pro Forma
AOL Ltd Adjustments Combined
ASSETS
Current assets:
<S> <C> <C> <C> <C>
Cash, cash equivalents and short-term investments $ 924,312 $ 189 $ (287,000) 1 $ 637,501
Trade and accounts receivable 159,518 32 - 159,550
Prepaid expenses and other current assets 90,538 - - 90,538
Total current assets 1,174,368 221 (287,000) 887,589
Property and equipment, net 340,009 668 - 340,677
Other assets:
Product development cost, net 84,543 - - 84,543
Other assets including available-for-sale securities 328,460 - - 328,460
Investment in ICQ Inc. - - 290,491 2 290,491
Goodwill and other intangible assets 118,190 - - 118,190
Deferred income taxes 78,806 - - 78,806
Total Assets $ 2,124,376 $ 889 $ 3,491 $ 2,128,756
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 84,294 $ 71 $ - $ 84,365
Other accrued expenses and liabilities 468,559 259 4,000 1 472,818
Deferred network services credit 76,218 - - 76,218
Deferred revenue 227,380 - - 227,380
Total current liabilities 856,451 330 4,000 860,781
Notes payable 374,773 - - 374,773
Deferred income taxes 78,806 - - 78,806
Deferred revenue 72,499 - - 72,499
Deferred network services credit 292,169 - - 292,169
Other liabilities 1,125 50 - 1,175
Total Liabilities 1,675,823 380 4,000 1,680,203
Total stockholders' equity 448,553 509 (509) 448,553
$ 2,124,376 $ 889 $ 3,491 $ 2,128,756
See accompanying notes
</TABLE>
America Online, Inc.
Pro Forma Combined Statement of Operations
For the nine month period ended March 31, 1998 ( In thousands,
except per share data)
(Unaudited)
<TABLE>
Historical
Mirabilis Pro Forma Pro Forma
AOL Ltd Adjustments Combined
<S> <C> <C> <C> <C>
Revenues $ 1,807,274 $ 49 $ - $ 1,807,323
Costs and expenses:
Cost of revenues 1,170,742 590 - 1,171,332
Marketing 278,810 - - 278,810
Product development 66,751 684 - 67,435
General and administrative 164,509 455 - 164,964
Amortization of goodwill 8,064 - - 8,064
Restructuring charge 33,796 - - 33,796
Acquired research and development 9,700 - - 9,700
Settlement charge (1,009) - - (1,009)
Total costs and expenses 1,731,363 1,729 - 1,733,092
Income (loss) from operations 75,911 (1,680) - 74,231
Other income, net 8,832 (1) (12,915) 3 (4,084)
Income (loss) before provision
for income taxes 84,743 (1,681) (12,915) 70,147
Provision for income taxes - (3) - (3)
Net income (loss) $ 84,743 $ (1,684) $(12,915) $ 70,144
Net income per common share - diluted $ 0.35 - - $ 0.29
Net income per common share - basic $ 0.41 - - $ 0.34
Weighted average shares outstanding - diluted 243,109 - - 243,109
Weighted average shares outstanding - basic 208,793 - - 208,793
See accompanying notes
</TABLE>
America Online, Inc.
Pro Forma Combined Statement of Operations
Year Ended June 30, 1997
( In thousands, except per share data)
(Unaudited)
<TABLE>
Historical
Mirabilis Pro Forma Pro Forma
AOL Ltd Adjustments Combined
<S> <C> <C> <C> <C>
Revenues $ 1,685,228 $ - $ - $ 1,685,228
Costs and expenses:
Cost of revenues 1,074,051 169 - 1,074,220
Marketing
Marketing 421,866 - - 421,866
Write off of deferred subscriber acquisition cost 385,221 - - 385,221
Product development 79,145 143 - 79,288
General and administrative 126,705 95 - 126,800
Amortization of goodwill 6,549 - - 6,549
Restructuring charge 48,627 - - 48,627
Acquired research and development - - - -
Contract termination charge 24,506 - - 24,506
Settlement charge 24,204 - - 24,204
Total costs and expenses 2,190,874 407 - 2,191,281
Loss from operations (505,646) (407) - (506,053)
Other income, net 6,299 (6) (17,220) 3 (10,927)
Loss before provision
for income taxes (499,347) (413) (17,220) (516,980)
Provision for income taxes - - - -
Net loss $ (499,347) $ (413) $ (17,220) (516,980)
Net loss per common share - diluted $ (2.61) - - $ (2.70)
Net loss per common share - basic $ (2.61) - - $ (2.70)
Weighted average shares outstanding - diluted 191,214 - - 191,214
Weighted average shares outstanding - basic 191,214 - - 191,214
See accompanying notes
</TABLE>
Notes to Unaudited Pro Forma
Financial Statements
Pro Forma adjustments to reflect the acquisition of Mirabilis, Ltd. give effect
to the following:
1. To record the payment of $287 million for the assets and selected
liabilities of Mirabilis and other purchase accounting adjustments.
2. The Company is in the process of finalizing the allocation of purchase
price for the acquisition of Mirabilis. The Company is currently in
discussions with the Securities and Exchange Commission regarding this
allocation. When finalized, the Company expects a substantial portion of
the purchase price to be allocated to in process research and development
which will be expensed in the Company's quarter ended June 30, 1998. In
addition, substantially all of the remaining purchase price will be
allocated to intangible assets, which will be amortized over their expected
useful lives. The amortization of these intangibles has not been included
in the Pro Forma Financial Statements.
3. To record the forgone interest income from the cash utilized to purchase
Mirabilis.
4. Certain amounts in the pro forma combined statement of operations for
the year ended June 30, 1997 have been reclassified to conform to current
year presentation. On March 16, 1998 the Company effected a two-for-one
stock split of the outstanding shares of common stock that was effected by
dividending on additional share for each share owned as of the record date,
February 23, 1998. Accordingly, all data shown in the accompanying
unaudited pro forma combined financial statements has been adjusted to
effect the stock split.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICA ONLINE, INC.
Date: August 21, 1998 By:/s/J. Michael Kelly
J. Michael Kelly
Senior Vice President, Chief Financial
Officer, Chief Accounting Officer,
Treasurer and Assistant Secretary
EXHIBIT INDEX
Exhibit
Number Description
23 Consent of Kesselman & Kesselman
99.2 Letter of Kesselman & Kesselman regarding accounting
standards
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8) listed below of our report dated August 17, 1998, with respect to the
financial statements of Mirabilis Ltd. for the year ended December 31,1997,
included in the America Online, Inc.'s Current Report on Form 8-K/A dated August
20, 1998, filed with the Securities and Exchange Commission.
1) No.33-46607 11) No.333-00416
2) No.33-48447 12) No.333-02460
3) No.33-78066 13) No.333-07163
4) No.33-86392 14) No.333-07559
5) No.33-86394 15) No.333-07603
6) No.33-86396 16) No.333-22027
7) No.33-90174 17) No.333-46633
8) No.33-91050 18) No.333-46635
9) No.33-94000 19) No.333-46637
10) No.33-94004 20) No.333-57143
21) No.333-57153
22) No.333-60625
23) No.333-60623
August 17, 1998 /s/Kesselman & Kesselman
August 3, 1998
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Mirabilis Ltd.
Dear Sirs:
Our audit with respect to the financial statements of the above company was
conducted in accordance with Israeli auditing standards (GAAS).
In practice, the principles and approach of Israeli GAAS and US GAAS are
virtually identical.
Sincerely yours,
/s/Kesselman & Kesselman
Kesselman & Kesselman
Certified Public Accountants (lsr.)
