<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): March 7, 1997
-------------
OPEN MARKET, INC.
-------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware
------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
0-28436 04-3214536
-----------------------------------------------------------
(Commission File Number)(IRS Employer Identification No.)
245 First Street, Cambridge, Massachusetts 02142
--------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(617) 949-7000
---------------------------------------------------
Registrant's Telephone Number, Including Area Code
Not Applicable
----------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
The undersigned registrant hereby amends Item 7 of its Current Report on Form 8-
K dated March 7, 1997 to read in its entirety as follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
-----------------------------------------
Folio Corporation
Report of Independent Public Accountants
Balance Sheets -- December 31, 1995 and 1996
Statements of Operations for the Years Ended December 31, 1995
and 1996
Statements of Stockholder's Equity for the Years Ended December 31,
1995 and 1996
Statements of Cash Flows for the Years Ended December 31, 1995
and 1996
Notes to Financial Statements
(b) Pro Forma Financial Information.
-------------------------------
Unaudited Pro Forma Combined Financial Statements of Open Market,
Inc., Folio Corporation and Waypoint Corporation
Overview
Unaudited Consolidated Balance Sheet as of March 31, 1997
Pro Forma Combined Statement of Operations for the
three months ended March 31, 1997
Notes to Pro Forma Combined Statement of Operations for the
three months ended March 31, 1997
Pro Forma Combined Statement of Operations for the
year ended December 31, 1996
Notes to Pro Forma Combined Statement of Operations for the
year ended December 31, 1996
-1-
<PAGE>
(c) Exhibits
--------
Exhibit No. Description
- ----------- -----------
2.1/1/ Stock Purchase Agreement, dated as of February 20, 1997, among
Folio Corporation, Reed Elsevier Inc. and Open Market, Inc.
_______________________________
/1/ Previously filed.
-2-
<PAGE>
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 hereunto duly authorized.
Date: May 22, 1997 OPEN MARKET, INC.
(Registrant)
/s/ Regina O. Sommer
--------------------
By: Regina O. Sommer
Chief Financial Officer
-3-
<PAGE>
Report of Independent Public Accountants
To Folio Corporation:
We have audited the accompanying balance sheets of Folio Corporation as of
December 31, 1995 and 1996, and the related statements of operations,
stockholder's equity and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Folio Corporation as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
May 15, 1997
<PAGE>
FOLIO CORPORATION
Balance Sheets--December 31, 1995 and 1996
<TABLE>
<CAPTION>
ASSETS
1995 1996
<S> <C> <C>
Current Assets:
Cash $ 587,705 $ 136,983
Accounts receivable, net of allowance for doubtful accounts of approximately
$300,000 and $256,000 in 1995 and 1996, respectively 4,769,501 5,337,799
Inventory 53,461 88,248
Prepaid expenses and other current assets 18,094 632,589
----------- -----------
Total current assets 5,428,761 6,195,619
----------- -----------
PROPERTY AND EQUIPMENT, AT COST:
Building and improvements 5,417,335 5,423,496
Computers and office equipment 3,239,957 3,967,496
Furniture and fixtures 684,103 684,103
Land 410,000 410,000
----------- -----------
9,751,395 10,485,095
Less--Accumulated depreciation and amortization 1,234,023 2,496,859
----------- -----------
8,517,372 7,988,236
----------- -----------
Other Assets 9,426,875 7,614,475
----------- -----------
$23,373,008 $21,798,330
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 1,006,664 $ 1,408,478
Accrued expenses 2,492,674 1,121,343
Deferred revenues 462,156 1,290,826
----------- -----------
Total current liabilities 3,961,494 3,820,647
----------- -----------
Due to Reed Elsevier, Inc. And Subsidiaries 2,023,416 7,718,653
----------- -----------
Commitments (Note 5)
Stockholder's Equity:
Parent Company Investment $.01 par value-
Authorized, issued and outstanding--1,000 shares at December 31, 1996 and
1995 10 10
Additional paid-in capital 19,134,775 19,134,775
Accumulated deficit (1,746,687) (8,875,755)
----------- -----------
Total stockholder's equity 17,388,098 10,259,030
----------- -----------
$23,373,008 $21,798,330
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FOLIO CORPORATION
Statements of Operations
for the Years Ended December 31, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Revenues:
Product revenues $14,640,461 $16,110,878
Service revenues 2,876,229 2,663,574
----------- -----------
Total revenues 17,516,690 18,774,452
----------- -----------
Cost of Revenues:
Product revenues 498,000 433,000
Service revenues 2,794,670 3,275,839
----------- -----------
Total cost of revenues 3,292,670 3,708,839
----------- -----------
Gross profit 14,224,020 15,065,613
----------- -----------
Operating Expenses:
Selling and marketing 5,699,404 10,840,391
Research and development 5,526,576 5,959,118
General and administrative 4,170,488 4,969,805
----------- -----------
Total operating expenses 15,396,468 21,769,314
----------- -----------
Loss from operations (1,172,448) (6,703,701)
Interest Income 57,570 24,633
Interest Expense (92,000) (450,000)
----------- -----------
Net loss $(1,206,878) $(7,129,068)
=========== ===========
Net Loss Per Share $ (1,207) $ (7,129)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 1,000 1,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FOLIO CORPORATION
Statements of Stockholder's Equity
for the Years Ended December 31, 1995 and 1996
<TABLE>
<CAPTION>
PARENT
COMPANY INVESTMENT ADDITIONAL TOTAL
NUMBER $.01 PAID-IN ACCUMULATED STOCKHOLDER'S
OF SHARES PAR VALUE CAPITAL DEFICIT EQUITY
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 (unaudited) 1,000 $10 $19,134,775 $ (539,809) $18,594,976
Net loss - - - (1,206,878) (1,206,878)
----- --- ----------- ----------- -----------
Balance, December 31, 1995 1,000 10 19,134,775 (1,746,687) 17,388,098
Net loss - - - (7,129,068) (7,129,068)
----- --- ----------- ----------- -----------
Balance, December 31, 1996 1,000 $10 $19,134,775 $(8,875,755) $10,259,030
===== === =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FOLIO CORPORATION
Statements of Cash Flows
for the Years Ended December 31, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(1,206,878) $(7,129,068)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities-
Depreciation and amortization 3,045,349 3,452,438
Changes in assets and liabilities-
Accounts receivable (1,503,969) (568,298)
Inventory 147,045 (34,787)
Prepaid expenses and other current assets 116,178 (614,495)
Accounts payable 1,004,901 401,814
Accrued expenses (160,142) (1,371,331)
Deferred revenues 329,073 828,670
----------- -----------
Net cash provided by (used in)
operating activities 1,771,557 (5,035,057)
----------- -----------
Cash Flows from Investing Activities:
Purchases of property and equipment, net (3,496,525) (1,103,305)
Increase in other assets (11,875) (7,600)
----------- -----------
Net cash used in investing
activities (3,508,400) (1,110,905)
----------- -----------
Cash Flows from Financing Activities:
Increase in amount from due to Reed
Elsevier, Inc. and subsidiaries 1,764,314 5,695,240
----------- -----------
Net cash provided by financing
activities 1,764,314 5,695,240
----------- -----------
Net increase (decrease) in Cash 27,471 (450,722)
----------- -----------
Cash, beginning of year 560,234 587,705
----------- -----------
Cash, end of year $ 587,705 $ 136,983
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FOLIO CORPORATION
Notes to Financial Statements
(1) Operations
Folio Corporation (the Company or Folio) was acquired by Reed Elsevier,
Inc. (Reed Elsevier) on December 2, 1994 and operated as a wholly owned
subsidiary. The Company markets and sells software solutions for publishers
and consumers of business and professional electronic reference
information. Folio provides an open, standards-based, solution for selling,
delivering, and updating large information collections quickly and easily
for publishers of high-value professional, scientific and medical
information who sell and distribute their information over the Internet,
corporate intranets, LANs and CD-ROMs. Specifically, Folio's technology is
optimized to publish and access vast collections of electronic reference
information easily and rapidly. Due to the Company's extensive knowledge of
the publishing industry, its relationships with leading publishers in
several key market segments, and its experience in delivering solutions for
protecting intellectual property and managing rights associated with
information products, the Company is uniquely qualified to provide a whole-
product solution for these publishers.
The Company is subject to risks common to rapidly growing technology-based
companies, including a limited operating history, dependence on key
personnel, rapid technological change, competition from substitute products
and larger companies, and the successful development and marketing of
commercial products and services.
On March 7, 1997, all of the outstanding shares of common stock of the
Company were sold to Open Market, Inc. (see Note 12).
(2) Summary of Significant Accounting Policies
The accompanying financial statements reflect the application of the
following significant accounting policies described in this note and
elsewhere in the accompanying notes to financial statements.
(a) Revenue Recognition
The Company recognizes revenue in accordance with the provisions of
Statement of Position No. 91-1 (SOP 91-1), Software Revenue
Recognition. The Company generates revenue from licensing the rights
to use its software products to end users and royalties from
resellers. The Company also generates service revenues from the sale
of postcontract customer support and the sale of certain consulting
and development services.
Revenues from software license agreements are recognized upon delivery
of the software if there are no significant post-delivery obligations,
and payment is due within one year. The Company enters into reseller
arrangements for certain products that typically provide for royalties
payable to the Company based on a percentage of the Company's list
price. Royalty and sublicense revenues from the Company's reseller
arrangements are recognized when earned, either on a per-unit basis as
reported to the Company by its licensees, or, with regards to
guaranteed minimums, upon shipment of the master copy of all software
to which the guaranteed minimum sublicense
<PAGE>
FOLIO CORPORATION
Notes to Financial Statements
(Continued)
(2) Summary of Significant Accounting Policies (Continued)
(a) Revenue Recognition (Continued)
fees relate, if there are no significant post-delivery obligations or
contingencies. Revenues for post-contract customer support are
recognized ratably over the term of the support period, which is
typically one year. Revenues from development and consulting services
are recognized upon customer acceptance or the period in which
services are provided, if customer acceptance is not required, and the
revenues are fixed and determinable.
Cost of product revenues consists of costs to distribute the product,
including the cost of the media on which it is delivered and royalty
payments to third-party vendors. Cost of service revenues consists
primarily of consulting and support personnel salaries and related
costs.
Deferred revenues represent cash received from customers for products
and services in advance of revenue recognition.
(b) Depreciation and Amortization
The Company provides for depreciation and amortization using the
straight-line method to allocate the cost of property and equipment
over their estimated useful lives as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
<S> <C>
Building and improvements 39 years
Computers and office equipment 3-5 years
Furniture and fixtures 7 years
</TABLE>
<PAGE>
FOLIO CORPORATION
Notes to Financial Statements
(Continued)
(2) Summary of Significant Accounting Policies (Continued)
(c) Other Assets
Other assets consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
LIFE 1995 1996
<S> <C> <C> <C>
Customer relations 5 years $ 2,000,000 $ 2,000,000
Intellectual property 5 years 1,760,000 1,760,000
Trademarks 7 years 2,240,000 2,240,000
Goodwill 7 years 5,235,000 5,235,000
Deposits 11,875 19,475
----------- -----------
11,246,875 11,254,475
Accumulated amortization (1,820,000) (3,640,000)
----------- -----------
$ 9,426,875 $ 7,614,475
=========== ===========
</TABLE>
(d) Research and Development Expenses
The Company accounts for its software research and development costs
in accordance with Statement of Financial Accounting Standard (SFAS)
No. 86, Accounting for the Costs of Computer Software To Be Sold,
Leased or Otherwise Marketed. The Company sells product in a market
that is subject to rapid technological change, new product
development, and changing customer needs. The time period during which
costs could be capitalized from the point of reaching technological
feasibility until the time of general product release is very short
and, consequently, the amounts that could be capitalized are not
material to the Company's financial position or results of operations.
Therefore, the Company has charged all such costs to research and
development in the period incurred.
(e) Net Loss per Share
For the years ended December 31, 1995 and 1996, net loss per share is
computed by dividing the net loss by the weighted average number of
common shares outstanding which are owned by the parent company.
(f) Concentrations of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, requires disclosure of any significant
off-balance-sheet risks and credit risk concentrations. The Company
has no significant off-balance-sheet risk. The Company maintains its
cash with large financial institutions. Concentration of credit risk
with respect to accounts receivable is limited to customers to whom
the Company makes significant sales. To control credit risk, the
Company performs regular credit evaluations of its customers financial
condition and maintains allowance for potential credit loss.
(See Note 11).
<PAGE>
FOLIO CORPORATION
Notes to Financial Statements
(Continued)
(2) Summary of Significant Accounting Policies (Continued)
(g) Financial Instruments
The estimated fair value of the Company's financial instruments, which
include cash, accounts receivable and due to Reed Elsevier and
subsidiaries, approximate their carrying value.
(h) Use of Estimates
The preparation of the accompanying financial statements requires
management to make estimates and assumptions that affect the reported
amounts of estimates by assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
(3) Due to Reed Elsevier, Inc. and Subsidiaries
The Company maintains interest bearing intercompany balances with its
parent, Reed Elsevier. The Company recorded interest expense of
approximately $92,000 and $450,000 for the years ended December 31, 1995
and 1996, respectively.
(4) Income Taxes
The Company accounts for income taxes under SFAS No. 109, Accounting for
Income Taxes, the objective of which is to recognize the amount of current
and deferred income taxes payable or refundable at the date of the
financial statements as a result of all events that have been recognized in
the accompanying financial statements, as measured by enacted tax laws.
The Company is a wholly owned subsidiary of Reed Elsevier and is included
in its consolidated tax returns. Through December 31, 1996, the Company had
incurred net operating losses of approximately $9,500,000. These losses
have been benefited by Reed Elsevier in its consolidated tax return,
however, in the absence of a tax sharing arrangement, no benefit has been
recorded in the accompanying financial statements. In the event that Reed
Elsevier had not utilized the Company's net operating losses, the Company
would have provided a full valuation allowance against the deferred tax
asset resulting from the net operating losses and other temporary
differences, as the realization of the deferred tax asset would be
uncertain given the Company's past operating performance.
<PAGE>
FOLIO CORPORATION
Notes To Financial Statements
(Continued)
(5) Commitments
The Company leases certain facilities and equipment under operating
leases that expire through February 1998. The future minimum lease
commitments at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
<S> <C>
1997 $40,000
1998 6,000
-------
$46,000
=======
</TABLE>
Rent expense included in the accompanying statements of operations was
approximately $61,000 and $48,000 for the years ended December 31,
1995 and 1996, respectively.
(6) Related Party Transactions
The Company has entered into agreements with Reed Elsevier and its
subsidiaries that provide for product and service revenues. The Company
believes that the terms of these transactions are on terms no less
favorable to the Company than could be obtained from unaffiliated third
parties. The Company recognized product and service revenues from Reed
Elsevier and its subsidiaries of approximately $848,000 and $732,000 during
the years ended December 31, 1995 and 1996, respectively.
The Company had related party accounts receivable from Reed Elsevier and
its subsidiaries of approximately $236,000 and $290,000 in the accompanying
balance sheets as of December 31, 1995 and 1996, respectively.
Reed Elsevier and its subsidiaries provide legal and other services to
Folio. These amounts are not included in the statement of operations as
these costs are not significant.
(7) Employee Benefit Plan
The Company has a 401(k) savings and investment plan (the Plan) for
eligible employees. Each participant may elect to contribute up to 15% of
his or her compensation for the plan year, subject to certain limitations,
as defined. The Company's matching contribution is 50% of the employees'
contributions up to 6%. The Company has contributed approximately $179,000
and $157,000 to the Plan in the year ended December 31, 1995 and 1996,
respectively.
<PAGE>
FOLIO CORPORATION
Notes To Financial Statements
(Continued)
(8) Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
<S> <C> <C>
Payroll and related expenses $2,060,543 $ 745,577
All other 432,131 375,766
---------- ----------
$2,492,674 $1,121,343
========== ==========
</TABLE>
(9) Deferred Revenues
Deferred revenues consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
<S> <C> <C>
Prepaid royalties $ - $ 250,000
Prepaid support and maintenance 462,156 1,040,826
---------- ----------
$ 462,156 $1,290,826
========== ==========
</TABLE>
(10) Geographic Information
Revenues by geographic destination as a percentage of total revenues are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
<S> <C> <C>
North America 89% 86%
Europe 7 7
Other 4 7
--- ---
100% 100%
=== ===
</TABLE>
<PAGE>
FOLIO CORPORATION
Notes To Financial Statements
(Continued)
(11) Significant Customers
The Company recorded revenues of greater than 10% of total revenues from
the following customers:
<TABLE>
<CAPTION>
SIGNIFICANT PERCENTAGE OF
CUSTOMERS CUSTOMER REVENUES
A B
<S> <C> <C> <C>
Year ended December 31, 1995 2 11% 13%
Year ended December 31, 1996 1 11% -
</TABLE>
The Company had one customer whose accounts receivable balance was 11% at
December 31, 1995. The Company had no customers with accounts receivable
balances greater than 10% at December 31, 1996. The Company provided
approximately $32,000 and $10,000 to its allowance for doubtful accounts
and wrote off approximately $67,000 and $54,000 in the years ended December
31, 1995 and 1996, respectively.
(12) Acquisition
On March 7, 1997, Open Market, Inc. (Open Market) acquired all of the
outstanding shares of capital stock of the Company for $45,000,000 in
equity and cash, subject to certain closing adjustments, as defined. The
purchase consideration was paid in the form of 1,795,732 shares of Open
Market's common stock valued at approximately $25,000,000 (897,866 shares
issuable upon closing and an equal amount issuable in January 1998)
$10,000,000 in cash upon closing and a $10,000,000, 8% interest-bearing
note, which is payable over a period of up to two years in cash or a
combination of cash and equity depending on certain future events, as
defined.
<PAGE>
OPEN MARKET, INC.
FOLIO CORPORATION
WAYPOINT SOFTWARE CORPORATION
Overview
On February 12, 1997, Open Market, Inc. (Open Market or the Company) acquired
all of the outstanding shares of capital stock of Waypoint Software Corporation
(Waypoint), a software development company specializing in the business-to-
business industrial catalog segment of the Internet. As payment of the purchase
price, Open Market issued an aggregate of 738,503 shares of its common stock to
the stockholders of Waypoint and issued options to acquire 5,756 shares of Open
Market's common stock at $.0456 per share to Waypoint option holders. The value
of the shares of the Company's common stock issued in connection with the
acquisition was approximately $11,000,000 based on a weighted average market
price, as defined, of the Company's freely tradable shares. The shares issued
are subject to certain selling restrictions and, as a result, are not freely
tradable. Therefore, for the purposes of calculating aggregate consideration
paid, the value of the shares issued was recorded at a discounted value. In
addition, in connection with this acquisition, Open Market has entered into
employment agreements with certain of the principals (all of whom were
stockholders) of Waypoint under which Open Market has agreed to pay bonuses in
an aggregate amount of $1,200,000 over two years depending on certain future
events, as defined. The Waypoint acquisition was accounted for as a purchase,
and accordingly, the initial purchase price and acquisition costs aggregating
approximately $9,922,000 has preliminarily been allocated to the assets
acquired, which primarily consists of approximately $9,250,000 of in-process
research and development charged to operations in the first quarter of 1997.
On March 7, 1997, the Company acquired all of the outstanding shares of capital
stock of Folio Corporation (Folio), a leading supplier of software for managing
business-critical information. The purchase consideration was paid in the form
of 1,795,732 shares of common stock (897,866 shares issuable upon closing and an
equal amount issuable in January 1998), $10,000,000 in cash upon closing and a
$10,000,000, 8% interest-bearing note, which is payable over a period of up to
two years in cash or a combination of cash and equity depending on certain
future events, as defined. The value of the shares of the Company's common stock
issued in connection with the acquisition was approximately $25,000,000 based on
a weighted average market price, as defined, of the Company's freely tradable
shares. As a portion of the shares will not be issued until January 1998 and the
shares already issued are subject to selling restrictions, the shares are not
freely tradable. Therefore, for the purposes of calculating aggregate
consideration paid, the value of the shares issued, including those to be issued
in January 1998, was recorded at a discounted value. The purchase agreement also
contained a provision allowing for a purchase price adjustment based on the
change in the net assets of Folio from the estimated value at December 31, 1996
through the date of closing. As a result of this provision, the Company
currently estimates that, subject to resolution between the parties based on a
closing balance sheet audit, that the former stockholder of Folio will be
required to return a portion of the shares of common stock issued in the
transaction. Other equity in the accompanying consolidated balance sheet
includes the value of the shares to be issued in January 1998, net of the value
of the estimated shares to be returned upon completion of the closing balance
sheet audit.
The Folio acquisition was accounted for as a purchase, and accordingly, the
initial purchase price and acquisition costs aggregating approximately
$45,512,000 has preliminarily been allocated to the assets acquired which
consists of approximately $25,000,000 of in-process research and development
charged to operations in the first quarter of 1997, $11,375,000 of tangible
assets and approximately $9,137,000 of intangible assets.
<PAGE>
The purchase price allocations represent the fair values determined by an
independent appraisal. The appraisal incorporated established valuation
procedures and techniques in determining the fair value of each asset. The
amount allocated to in-process research and development relates to projects that
had not yet reached technological feasibility and that, until completion of the
development, have no alternative future use. These projects will require
substantial high risk development and testing by the Company prior to reaching
technological feasibility.
The following unaudited financial statements give effect to the acquisition of
Waypoint and Folio. The consolidated balance sheet of Open Market as of March
31, 1997 reflects the consummation of the Waypoint and Folio acquisitions. The
pro forma statement of operations for the year ended December 31, 1996 combine
the historical consolidated statements of operations of Open Market and Folio
for the year ended December 31, 1996 and Waypoint for the period from inception
(October 1996) to December 31, 1996. The pro forma statement of operations for
the three months ended March 31, 1997 combine the historical consolidated
statement of operations of Open Market for the three months ended March 31, 1997
and Waypoint and Folio historical statements of operations from January 1, 1997
to their respective acquisition dates (February 12, 1997 and March 7, 1997,
respectively). The results of operations for Waypoint and Folio for the period
from their respective acquisition dates to March 31, 1997 have been included in
the Open Market results for the three months ended March 31, 1997. The pro forma
statement of operations assumes the acquisitions were consummated at the
beginning of each respective period, including the related amortization,
interest income and interest expense adjustments. The pro forma statements of
operations do not reflect the nonrecurring charges for acquired in-process
research and development. The unaudited pro forma combined statements of
operations do not purport to be indicative of the results which would actually
have been reported if the acquisition had been effected at those dates or which
may be reported in the future. These unaudited financial statements should be
read in conjunction with the accompanying notes and the respective historical
financial statements and related notes of Open Market on Form 10-K and Folio
included in this Form 8-K.
<PAGE>
OPEN MARKET, INC.
FOLIO CORPORATION
WAYPOINT SOFTWARE CORPORATION
Consolidated Balance Sheet
As of March 31, 1997
(Unaudited)
(In Thousands, except share data)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 26,645
Marketable securities 25,243
Accounts receivable, net of allowance of $846 14,418
Loan to founder 1,500
Prepaid expenses and other current assets 1,523
--------
Total current assets 69,329
--------
Property, Plant and Equipment, at cost:
Computers and office equipment 9,704
Land and building 4,200
Leasehold improvements 1,105
Furniture and fixtures 594
--------
15,603
Less--Accumulated depreciation and amortization 3,270
--------
12,333
Intangible Assets, net 9,002
Other Assets 726
--------
$ 91,390
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,902
Note payable 10,000
Accrued expenses 12,058
Deferred revenues 5,557
Current maturities of long-term obligations 35
--------
Total current liabilities 31,552
--------
Long-Term Obligations, net of current maturities 128
Commitments
Stockholders' Equity:
Preferred stock, $.10 par value-
Authorized--2,000,000 shares
Issued and outstanding--none -
Common stock, $.001 par value-
Authorized--100,000,000 shares
Issued and outstanding--30,653,182 shares 31
Additional paid-in capital 136,541
Other equity 6,920
Accumulated deficit (83,782)
--------
Total stockholders' equity 59,710
--------
$ 91,390
========
</TABLE>
<PAGE>
OPEN MARKET, INC.
FOLIO CORPORATION
WAYPOINT SOFTWARE CORPORATION
Pro Forma Combined Statement of Operations
for the Three Months Ended March 31, 1997
(Unaudited)
(In Thousands, except per share data)
<TABLE>
<CAPTION>
-------------------HISTORICAL------------------ -------------PRO FORMA---------------
OPEN MARKET WAYPOINT FOLIO ADJUSTMENTS COMBINED
(For the period January
1, 1997 to the acquisition date)
<S> <C> <C> <C> <C> <C>
Revenues:
Product revenues $ 9,056 $ - $ 2,179 $ - $ 11,235
Service revenues 2,302 - 566 - 2,868
-------- -------- ------- ------------ --------
Total revenues 11,358 - 2,745 - 14,103
-------- -------- ------- ------------ --------
Cost of Revenues:
Product revenues 866 - 150 - 1,016
Service revenues 2,122 - 752 - 2,874
-------- -------- ------- ------------ --------
Total cost of revenues 2,988 - 902 - 3,890
-------- -------- ------- ------------ --------
Gross profit 8,370 - 1,843 - 10,213
-------- -------- ------- ------------ --------
Operating Expenses:
Selling and marketing 7,982 22 2,492 - 10,496
Research and development 5,375 165 1,190 - 6,730
General and administrative 2,371 37 958 (35) (A) 3,331
Acquired in-process research and
development 34,250 - - (34,250) (B) -
-------- -------- ------- ------------ --------
Total operating expenses 49,978 224 4,640 (34,285) 20,557
-------- -------- ------- ------------ --------
Loss from operations (41,608) (224) (2,797) 34,285 (10,344)
-------- -------- ------- ------------ --------
Other Income (Expense):
Interest income 890 3 2 (101) (C) 794
Interest expense (50) - (127) (29) (D) (206)
Other expense (36) - - - (36)
-------- -------- ------- ------------ --------
Loss before provision for income
taxes (40,804) (221) (2,922) 34,155 (9,792)
Provision for Foreign Income Taxes 340 - - - 340
-------- -------- ------- ------------ --------
Net loss $(41,144) $(221) $(2,922) $ 34,155 $(10,132)
======== ======== ======= ============ ========
Net Loss per Common and Common
Equivalent Share $ (1.39) $(.33) (E)
========
Weighted Average Number of Common and
Common Equivalent
Shares Outstanding 29,590 (F) 361 (G) 1,114 (H) 31,065
======== ======== ======= ========
</TABLE>
<PAGE>
OPEN MARKET, INC.
FOLIO CORPORATION
WAYPOINT SOFTWARE CORPORATION
Pro Forma Combined Statement of Operations
for the Three Months Ended March 31, 1997
(Unaudited)
(In Thousands)
Certain pro forma adjustments have been made to the accompanying pro forma
statement of operations as described below for both Waypoint and Folio. The pro
forma adjustments outlined below assume the purchase of both acquisitions took
place at the beginning of the period. Due to the nonrecurring nature of the
acquired in-process research and development, it has been assumed to be written
off before the beginning of the pro forma period.
<TABLE>
<CAPTION>
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS AMOUNT
<S> <C>
(A) Represents the adjustment to amortization and depreciation of the assets acquired from Folio based on $ (35)
their estimated useful lives.
(B) Represents the removal of the nonrecurring charge for acquired in-process research and development. (34,250)
(C) Represents the estimated reduction of interest income earned, using an interest rate of 5.5%, by the Company
attributable to the lower cash balance as a result of the cash payment component of the Folio purchase price. (101)
(D) Represents the estimated increase in interest expense incurred by the Company as a result of the issuance of
the $10 million, 8% note payable as a component of the Folio purchase price in excess of the interest expense
incurred by Folio. (29)
(E) Pro forma net loss per common share is computed based on the weighted average number of common shares outstanding
for Open Market assuming the shares issued in connection with the Waypoint and Folio acquisitions were outstanding
for the entire period. Common equivalent shares have not been included as their effect would be antidilutive.
(F) Weighted average number of common shares outstanding represents the actual weighted average shares of Open
Market common stock outstanding during the three months ended March 31, 1997.
(G) Represents the increase in weighted average number of common shares outstanding assuming the shares of Open Market
common stock were issued in connection with the Waypoint acquisition as of the beginning of the period.
(H) Represents the increase in weighted average number of common shares outstanding assuming the shares of Open Market
common stock were issued in connection with the Folio acquisition as of the beginning of the period.
</TABLE>
<PAGE>
OPEN MARKET, INC.
FOLIO CORPORATION
WAYPOINT SOFTWARE CORPORATION
Pro Forma Combined Statement of Operations
for the Year Ended December 31, 1996
(Unaudited)
(In Thousands, except per share data)
<TABLE>
<CAPTION>
------------- HISTORICAL------------ ---------PRO FORMA------
OPEN MARKET WAYPOINT (A) FOLIO ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C> <C>
Revenues:
Product revenues $ 17,200 $ - $16,111 $ - $ 33,311
Service revenues 5,301 - 2,663 - 7,964
-------- ------- ------- ----------- --------
Total revenues 22,501 - 18,774 - 41,275
-------- ------- ------- ----------- --------
Cost of Revenues:
Product revenues 768 - 433 - 1,201
Service revenues 4,725 - 3,276 - 8,001
-------- ------- ------- ----------- --------
Total cost of revenues 5,493 - 3,709 - 9,202
-------- ------- ------- ----------- --------
Gross profit 17,008 - 15,065 - 32,073
-------- ------- ------- ----------- --------
Operating Expenses:
Selling and marketing 23,810 - 10,840 - 34,650
Research and development 16,393 98 5,959 - 22,450
General and administrative 5,925 - 4,970 (213) (B) 10,682
-------- ------- ------- ----------- --------
Total operating expenses 46,128 98 21,769 (213) 67,782
-------- ------- ------- ----------- --------
Loss from operations (29,120) (98) (6,704) 213 (35,709)
-------- ------- ------- ----------- --------
Other Income (Expense):
Interest income 3,042 5 25 (550) (C) 2,522
Interest expense (79) - (450) (342) (D) (871)
Other income 7 - - - 7
-------- ------- ------- ----------- --------
Loss before provision for income
taxes (26,150) (93) (7,129) (679) (34,051)
Provision for Foreign Income Taxes 360 - - - 360
-------- ------- ------- ----------- --------
Net loss $(26,510) $ (93) $(7,129) $ (679) $(34,411)
======== ======= ======= =========== ========
Net Loss per Common and Common
Equivalent Share $ (.96) $ (1.15) (E)
======== ========
Weighted Average Number of Common and
Common Equivalent Shares Outstanding
27,587 (F) 739 (G) 1,543 (H) 29,869
=========== ======= ======= ========
</TABLE>
<PAGE>
OPEN MARKET, INC.
FOLIO CORPORATION
WAYPOINT SOFTWARE CORPORATION
Pro Forma Combined Statement of Operations
for the Year Ended December 31, 1996
(Unaudited)
(In Thousands)
Certain pro forma adjustments have been made to the accompanying pro forma
statement of operations as described below for both Waypoint and Folio. The pro
forma adjustments outlined below assume the purchase of both acquisitions took
place at the beginning of the period. Due to the nonrecurring nature of the
acquired in-process research and development, it has been assumed to be written
off before the beginning of the pro forma period.
<TABLE>
<CAPTION>
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS AMOUNT
<S> <C>
(A) The Waypoint Statement of Operations is from the period from inception (October 1996) to December 31, 1996.
(B) Represents the adjustment to amortization and depreciation of the assets acquired from Folio based on their
estimated useful lives. $ (213)
(C) Represents the estimated reduction of interest income earned, using an interest rate of 5.5%, by the Company
attributable to the lower cash balance as a result of the cash payment component of the Folio purchase price. (550)
(D) Represents the estimated increase in interest expense incurred by the Company as a result of the issuance of
the $10 million, 8% note payable as a component of the Folio purchase price in excess of the interest expense
incurred by Folio. (342)
(E) Pro forma net loss per common share is computed based on the weighted average number of common and common
equivalent shares outstanding for Open Market assuming the shares issued in connection with the Waypoint
and Folio acquisitions were outstanding for the entire year.
(F) Weighted average number of common shares outstanding represents the actual weighted average shares of Open
Market common stock outstanding during the year.
(G) Represents the increase in weighted average number of common shares outstanding assuming the shares of Open
Market common stock were issued in connection with the Waypoint acquisition as of the beginning of the year.
(H) Represents the increase in weighted average number of common shares outstanding assuming the shares of Open
Market common stock were issued in connection with the Folio acquisition as of the beginning of the year.
</TABLE>
