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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT TO
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) FEBRUARY 2, 1998
COMMISSION FILE NUMBER 0-27830
-----------------------
LYCOS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3277338
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
500 OLD CONNECTICUT PATH, FRAMINGHAM, MASSACHUSETTS 01701-4576
(Address of principal executive offices, including Zip Code)
(508) 424-0400
(Registrant's telephone number, including area code)
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The undersigned registrant hereby amends the following items, financial
statements, exhibits, or other portions of the Current Report on Form 8-K filed
by the registrant on February 17, 1998 as set forth in the pages attached
hereto:
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
- ------- ------------------------------------------------------------------
(a) Financial Statements of Business Acquired
TRIPOD, INC.
TABLE OF CONTENTS
PAGE
--------
Independent Auditors' Report.................................................................. F-1
Balance Sheets
October 31, 1997 and December 31, 1996..................................................... F-2
Statements of Operations
Ten months ended October 31, 1997 and Year ended December 31, 1996......................... F-3
Statements of Stockholders' Equity
Ten months ended October 31, 1997 and Year ended December 31, 1996......................... F-4
Consolidated Statements of Cash Flows
Ten months ended October 31, 1997 and Year ended December 31, 1996......................... F-5
Notes to Financial Statements................................................................. F-6
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Tripod, Inc.:
We have audited the accompanying balance sheets of Tripod, Inc. as of October
31, 1997 and December 31, 1996 and the related statements of operations,
stockholders' equity and cash flows for the ten months ended October 31, 1997
and year ended December 31, 1996. 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 Tripod, Inc. as of October 31,
1997 and December 31, 1996, and the results of its operations and its cash flows
for the ten months ended October 31, 1997 and year ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
February 3, 1998
TRIPOD, INC.
BALANCE SHEETS
OCTOBER 31, DECEMBER 31,
1997 1996
----------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 5,871,589 $ 46,128
Accounts receivable, less allowance for doubtful accounts
of $110,000 and $34,000 at October 31, 1997 and
December 31,1996, respectively......................................... 111,128 114,870
Prepaid expenses......................................................... 17,567 8,000
----------------- -----------------
Total current assets.................................................. 6,000,284 168,998
----------------- -----------------
Property and equipment, less accumulated depreciation...................... 916,552 263,728
Other assets............................................................... 24,650 14,625
----------------- -----------------
Total assets.......................................................... $ 6,941,486 $ 447,351
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................................................ $ -- $ 600,000
Accounts payable......................................................... 53,199 111,821
Accrued expenses......................................................... 695,457 84,684
Deferred revenues........................................................ 92,520 31,594
----------------- -----------------
Total current liabilities............................................. 841,176 828,099
Deferred compensation...................................................... 169,183 147,930
Redeemable preferred stock, Series D and E, $0.01 par value:
Authorized: 291,921 shares at October 31, 1997 and
December 31, 1996; Issued and outstanding: 239,872
at October 31, 1997 and 40,669 at December 31, 1996. Involuntary
liquidation value and redemption value of 11,749,978 at
October 31, 1997....................................................... 11,475,850 1,535,898
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 500,000 shares authorized,
69,025 shares at October 31, 1997 and 69,025 at
December 31, 1996 issued and outstanding. Involuntary
liquidation value of $1,126,940 at October 31, 1997...................... 690 690
Common stock, $.01 par value; 1,000,000 shares authorized,
83,510 shares at October 31, 1997 and 83,372 at
December 31, 1996 issued and outstanding............................... 835 834
Additional paid-in capital............................................... 1,466,143 1,313,882
Deferred compensation.................................................... (141,548) --
Accumulated deficit...................................................... (6,870,843) (3,379,982)
----------------- -----------------
Total stockholders' equity............................................ (5,544,723) (2,064,576)
----------------- -----------------
Total liabilities and stockholders' equity............................ $ 6,941,486 $ 447,351
================= =================
See accompanying notes to financial statements.
F-2
TRIPOD, INC.
STATEMENTS OF OPERATIONS
TEN MONTHS ENDED YEAR ENDED
OCTOBER 31, 1997 DECEMBER 31, 1996
------------------- -------------------
Revenues:
Advertising................................................ $ 450,980 $ 347,191
Other...................................................... 113,749 5,032
------------------- -------------------
Total revenues.......................................... 564,729 352,223
Cost of revenues............................................. 497,746 443,252
------------------- -------------------
Gross profit............................................ 66,983 (91,029)
Operating expenses:
Research and development................................... 1,814,486 804,359
Sales and marketing........................................ 1,301,143 903,325
General and administrative................................. 542,044 279,146
------------------- -------------------
Total operating expenses................................ 3,657,673 1,986,830
------------------- -------------------
Operating loss............................................... (3,590,690) (2,077,859)
Interest income (expense).................................... 99,829 (9,734)
------------------- -------------------
Net loss..................................................... $(3,490,861) $ (2,087,593)
=================== ===================
See accompanying notes to financial statements.
F-3
TRIPOD, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
Balances at December 31, 1995..................... 69,025 $690 79,500 $795
Issuance of preferred stock warrants.............. -- -- -- --
Issuance of common stock in connection with
the exercise of common stock options............. -- -- 3,872 39
Net loss.......................................... -- -- -- --
-------------------------------------------------------------
Balances at December 31, 1996..................... 69,025 $690 83,372 $834
Issuance of common stock in connection with
the exercise of common stock options............. -- -- 138 1
Deferred compensation related to grant of stock
options.......................................... -- -- -- --
Amortization of deferred compensation............. -- -- -- --
Net loss.......................................... -- -- -- --
-------------------------------------------------------------
Balances at October 31, 1997...................... 69,025 $690 83,510 $835
=============================================================
ADDITIONAL
PAID-IN DEFERRED ACCUMULATED
CAPITAL COMPENSATION DEFICIT TOTAL
------------------------------------------------------------
Balances at December 31, 1995..................... $1,139,750 $ -- $(1,292,389) $ (151,154)
Issuance of preferred stock warrants.............. 158,683 -- -- 158,683
Issuance of common stock in connection with
the exercise of common stock options............. 15,449 -- -- 15,488
Net loss.......................................... -- -- (2,087,593) (2,087,593)
------------------------------------------------------------
Balances at December 31, 1996..................... $1,313,882 $ -- $(3,379,982) $(2,064,576)
Issuance of common stock in connection with
the exercise of common stock options............. 551 -- -- 552
Deferred compensation related to grant of stock
options.......................................... 151,710 (151,710) -- --
Amortization of deferred compensation............. -- 10,162 -- 10,162
Net loss.......................................... -- -- (3,490,861) (3,490,861)
------------------------------------------------------------
Balances at October 31, 1997...................... $1,466,143 $(141,548) $(6,870,843) $(5,544,723)
============================================================
See accompanying notes to financial statements.
F-4
TRIPOD, INC.
STATEMENTS OF CASH FLOWS
TEN MONTHS ENDED YEAR ENDED
OCTOBER 31, 1997 DECEMBER 31, 1996
------------------- -------------------
OPERATING ACTIVITIES
Net loss............................................................. $(3,490,861) $(2,087,593)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of deferred compensation.............................. 10,162 --
Depreciation and amortization...................................... 209,744 63,020
Allowance for doubtful accounts.................................... 75,131 34,495
Changes in operating assets and liabilities:
Accounts receivable................................................ (71,389) (147,665)
Prepaid expenses................................................... (9,567) (7,177)
Other assets....................................................... (10,025) (14,625)
Accounts payable................................................... (58,622) 44,624
Accrued expenses................................................... 610,773 43,767
Deferred revenues.................................................. 60,926 (34,031)
Deferred compensation.............................................. 21,253 24,114
------------------- -------------------
Net cash used in operating activities................................ (2,652,475) (2,081,071)
------------------- -------------------
INVESTING ACTIVITIES
Purchase of property and equipment................................... (862,568) (256,009)
------------------- -------------------
Net cash used in investing activities................................ (862,568) (256,009)
------------------- -------------------
FINANCING ACTIVITIES
Proceeds from sale of redeemable preferred stock..................... 9,999,991 1,591,304
Proceeds from sale of preferred stock warrants....................... -- 158,683
Payment of issuance costs for redeemable preferred stock............. (60,039) (55,406)
Proceeds from borrowings on notes payable............................ 975,000 600,000
Payments on notes payable............................................ (1,575,000) --
Proceeds from exercise of stock options.............................. 552 15,488
------------------- -------------------
Net cash provided by financing activities............................ 9,340,504 2,310,069
------------------- -------------------
Net increase (decrease) in cash and cash equivalents................. 5,825,461 (27,011)
------------------- -------------------
Cash and cash equivalents at beginning of period..................... 46,128 73,139
------------------- -------------------
Cash and cash equivalents at end of period........................... $ 5,871,589 $ 46,128
=================== ===================
See accompanying notes to financial statements.
F-5
TRIPOD, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Tripod, Inc. ("Tripod" or the "Company"), which operates in one industry
segment, maintains a community oriented website on the Internet's World Wide
Web. The Company provides content for members of Tripod and provides software
applications that allow members to publish their personal homepage on the
Internet's World Wide Web. The Company was formed in September 1992 and is
incorporated in the state of Delaware.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original or
remaining maturities of three months or less to be cash equivalents. At October
31, 1997 and December 31, 1996, the Company had no investments with original or
remaining maturities greater than three months.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Computer equipment is depreciated on a straight-line basis over
the estimated useful lives of the assets (generally three years). Leasehold
improvements are amortized on a straight-line basis over the lesser of the
estimated useful life of the asset or the lease term.
Revenue Recognition
The Company's internet advertising revenues are derived principally from
short-term advertising contracts in which the Company guarantees a number of
impressions for a fixed fee or on a per impression basis with an established
minimum fee. Revenues from internet advertising are recognized as the services
are performed.
The Company's other revenue includes subscription fees from members for
premium memberships, which include enhanced homepage building tools.
Subscription fees are recognized ratably over the term of the subscription.
Deferred Revenues
Deferred revenues are comprised of subscription fees to be earned in the
future on noncancelable premium member subscriptions.
Research and Development Costs
Research and development expenditures are expensed as incurred. Software
development costs are required to be capitalized when a product's technological
feasibility has been established by completion of either a detailed program
design or a working model of the product and ending when a product is available
for general release to consumers. To date, completion of a detailed program
design or a working model of the Company's products and general release have
substantially coincided. As a result, the Company has not capitalized any
software development costs since such costs have not been significant.
Advertising Costs
The Company expenses advertising production costs as incurred. Advertising
expenses were approximately $563,000 and $458,000 for the ten-month period ended
October 31, 1997 and the year ended December 31, 1996, respectively.
F-6
TRIPOD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Income Taxes
The Company records income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and the tax effect of net operating loss carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Concentration of Credit Risk
Substantially all of the Company's excess cash has been invested in highly
liquid investments with remaining maturities of three months or less.
The Company performs ongoing credit evaluations of its customers' financial
conditions and generally does not require collateral on accounts receivable. The
Company maintains allowances for credit losses and such losses have been within
management's expectations. Direct write-offs of accounts receivable were $11,750
for the ten month period ended October 31, 1997. There were no direct write-offs
of accounts receivable for the year ended December 31, 1996. No single customer
accounted for greater than 10% of total revenues during the ten month period
ended October 31, 1997 and two customers each accounted for more than 10% of
total revenue for the year ended December 31, 1996.
Financial Instruments
The recorded amounts of financial instruments, including cash equivalents,
accounts receivable, accounts payable, accrued expenses and deferred revenues,
approximate their fair market values as of October 31, 1997. The Company has no
investments in derivative financial instruments.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Stock Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123") requires that companies either recognize
compensation expense for grants of stock, stock options, and other equity
instruments based on fair value, or provide pro forma disclosure of net income
or loss and earnings or loss per share in the notes to the financial statements.
The Company applies the disclosure provisions of SFAS 123 and applies APB
Opinion 25 and related interpretations in accounting for its stock option plan.
Accordingly, no compensation cost has been recognized under SFAS 123 for the
Company's stock option plans.
F-7
TRIPOD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
"Reporting Comprehensive Income". This Statement establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. This Statement is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
is required. The Company believes that this pronouncement will not have a
material adverse effect on its results of operations.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
OCTOBER 31, DECEMBER 31,
1997 1996
------------------- -------------------
Computers and equipment $ 863,330 $348,792
Leasehold improvements 348,030 --
------------------- -------------------
1,211,360 348,792
Less accumulated depreciation and
amortization (294,808) (85,064)
------------------- -------------------
$ 916,552 $263,728
=================== ===================
3. ACCRUED EXPENSES
Accrued expenses consist of the following:
OCTOBER 31, DECEMBER 31,
1997 1996
----------------------------------------
Compensation and benefits $203,300 $ 4,927
Advertising and promotion 170,444 --
Professional fees 146,049 50,000
Taxes 100,000 --
Other 75,664 29,757
----------------------------------------
$695,457 $84,684
========================================
F-8
TRIPOD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain other equipment under operating
lease agreements expiring through 2000. Future noncancelable minimum payments as
of October 31, 1997 under these leases for each fiscal year end are as follows:
1997 $ 47,076
1998 212,008
1999 134,751
2000 88,100
-------------------
$481,935
===================
Rent expense under noncancelable operating leases was $79,950 for the ten
month period ended October 31, 1997 and $45,061 for the year ended December 31,
1996.
5. NOTES PAYABLE
On November 1, 1996, the Company entered into a loan agreement with a Bank
which provided for borrowings of up to $1,750,000 to finance operations. Any
such borrowings were subject to an interest rate equal to the Bank's prime rate
plus 1 1/2%. Borrowings made under this agreement were due on July 30, 1997, or
at the closing of the Series E Preferred stock offering (see Note 8), whichever
event occurred sooner. The loan was secured by all the assets of the Company. At
December 31, 1996, there was $600,000 outstanding under the facility and on May
23, 1997 the loan was paid in full.
6. DEFERRED COMPENSATION
As of October 31, 1997 the Company was indebted to its Chairman and its
President for certain wages that had been earned during 1994 through October 31,
1997 for which the related cash payment had been deferred. Deferred
compensation does not accrue interest nor is there a pre-determined date on
which the liability is to be paid.
7. STOCKHOLDERS' EQUITY
Common Stock
In connection with the formation of the Company in September 1992, the
Company's founding stockholders contributed $79.50 for 79,500 shares of common
stock.
Preferred Stock
During the year ended December 31, 1994, the Company issued 27,000 shares of
Series A Convertible Preferred Stock ("Series A Preferred Stock") at $4.67 per
share to private investors for $126,090.
The Series A Preferred Stock is voting. Dividends do not accrue. In the
event a dividend is declared the dividend must be paid to the Series A Preferred
Stock holders before any dividend can be paid to the common stock holders. The
Series A Preferred Stock is convertible at any time into common stock on a one
for one ratio. Upon the closing of a sale of common stock at a price of at
least $20.00 per share pursuant to an effective registration statement under the
Securities Act of 1933, as amended, resulting in at least $10,000,000 of gross
proceeds to the Company, all outstanding shares of Series A Preferred Stock
shall automatically be converted into common stock, at the then effective
conversion rate. The Series A Preferred Stock is not redeemable at the option
of the holder. At any time after January 1, 2000, the Company may, at the option
of the Board of Directors, redeem the Series A Preferred Stock in whole or in
part by paying $4.17 per share in cash to the holders of the Series A Preferred
Stock. Upon voluntary or involuntary liquidation, after the payment of all
preferences on the Series C Preferred Stock, Series D Preferred Stock, and
Series E Preferred Stock (the "Senior Preferred"), holders of Series A Preferred
Stock are entitled to receive, out of generally available funds, the greater of
$4.17 per share, or such amount per share as would be payable had each such
share been converted into Common Stock immediately prior to such liquidation. In
the event of a liquidation, Series B Preferred Stock and Series A Preferred
Stock rank on parity. In the event the proceeds are not sufficient to liquidate
the holders of Series A Preferred Stock and Series B Preferred Stock, the Series
A Preferred Stock and the Series B Preferred Stock shall share the proceeds on a
pro-rata weighted-average basis.
During the six month period ended June 30, 1995, the Company issued 26,500
shares of Series B Convertible Preferred Stock ("Series B Preferred Stock") at
$12.50 per share to private investors for $331,250.
The Series B Preferred Stock is voting. Dividends do not accrue. In the event
a dividend is declared, the dividend must be paid to the Series B Preferred
Stock holders before any dividend can be paid to the Series A Preferred Stock
and common stock holders. The Series B Preferred Stock is convertible at any
time into common stock on a one for one ratio. Upon the closing of a sale of
common stock at a price of at least $20.00 per share pursuant to an effective
registration statement under the Securities Act of 1993, as amended, resulting
in at least $10,000,000 of gross proceeds to the Company, all outstanding shares
of Series B Preferred Stock shall automatically be converted into common stock,
at the then effective conversion rate. The Series B Preferred Stock is not
redeemable at the option of the holder. At any time after January 1, 2000, the
Company may, at the option of the Board of Directors, redeem the Series B
Preferred Stock in whole or in part by paying $12.50 per share in cash to the
holders of the Series B Preferred Stock. Upon voluntary or involuntary
liquidation, after the payment of all preferences on the Senior Preferred,
holders of Series B Preferred Stock are entitled to receive, out of generally
available funds, the greater of $12.50 per share or such amount per share as
would be payable had each such share been converted into Common Stock
immediately prior to such liquidation. In the event of a liquidation, Series B
Preferred Stock and Series A Preferred Stock rank on parity. In the event the
proceeds are not sufficient to liquidate the holders of Series A Preferred Stock
and Series B Preferred Stock, the Series A Preferred Stock and the Series B
Preferred Stock shall share the proceeds on a pro-rata weighted-average basis.
In October 1995, the Company issued 15,525 shares of Series C Convertible
Preferred Stock ("Series C Preferred Stock") at $44.00 per share to private
investors for $683,100.
The Series C Preferred Stock is voting. Dividends do not accrue. In the event
a dividend is declared, the dividend must be paid to the Series C Preferred
Stock holders before any dividend can be paid to the Series A Preferred Stock,
Series B Preferred Stock (collectively the "Junior Preferred Stock) and common
stock holders. The Series C Preferred Stock is convertible at any time into
common stock on a one for one ratio. Upon the closing of a sale of common stock
at a price of at least $50.00 per share pursuant to an effective registration
statement under the Securities Act of 1993, as amended, resulting in at least
$10,000,000 of gross proceeds to the Company, all outstanding shares of Series C
Preferred Stock shall automatically be converted into common stock, at the then
effective conversion rate. The Series C Preferred Stock is not redeemable at the
option of the holder. At any time after January 1, 2001, the Company may, at the
option of the Board of Directors, redeem the Series C Preferred Stock in whole
or in part by paying $44.00 per share in cash to the holders of the Series C
Preferred Stock. Upon voluntary or involuntary liquidation, holders of Series C
Preferred Stock are entitled to receive, out of generally available funds, the
greater of $44.00 per share or such amount per share as would be payable had
each such share been converted into Common Stock immediately prior to such
liquidation. The Senior Preferred ranks on parity. In the event that the
proceeds from liquidation are not sufficient to pay amounts due to the Senior
Preferred, the Senior Preferred shall share the proceeds based on a pro-rata
weighted-average basis.
F-9
TRIPOD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1995 Stock Option Plan
During 1995, the Company adopted the 1995 Stock Option Plan (the "1995 Plan")
under which incentive stock options and nonqualified stock options to purchase
common stock may be granted to officers, key employees and advisors. Under the
Plan, options to purchase 100,000 shares of common stock may be granted at an
exercise price determined by the Board of Directors. Options under the 1995
Plan are generally exercisable in eight semi-annual installments beginning six
months after date of grant. Options under the 1995 Plan expire ten years from
the date of grant. The total weighted average contractual life of options
outstanding at October 31, 1997 was 8.91 years.
A summary of option activity under the 1995 Plan is as follows:
WEIGHTED-
AVERAGE RANGE OF
OPTIONS EXERCISE PRICE EXERCISE PRICE
------------------- ------------------- -------------------
Outstanding at December 31, 1995 17,907 $4.00 $ 4.00
Granted 16,400 $4.00 $ 4.00
Exercised (3,872) $4.00 $ 4.00
Terminated (1,283) -- --
-------------------
Outstanding at December 31, 1996 29,152 $4.00 $ 4.00
Granted 31,400 $4.11 $4.00 - $ 10.00
Exercised (138) $4.00 $ 4.00
Terminated (2,498) -- --
-------------------
Outstanding at October 31, 1997 57,916 $4.06 $4.00 - $ 10.00
===================
Exercisable at October 31, 1997 24,462 $4.00 $ 4.00
===================
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------- --------------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
EXERCISE OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE AT EXERCISE
PRICES OCTOBER 31, 1997 LIFE (YEARS) PRICE OCTOBER 31, 1997 PRICE
$ 4.00 57,366 8.90 $ 4.00 24,462 $4.00
$ 10.00 550 9.92 $10.00 -- --
-------------- -------------
57,916 24,462
============== =============
The Company has recorded deferred compensation of approximately $152,000 for
the difference between the exercise price and the estimated fair value of
certain stock option grants. This amount is being amortized over the vesting
period of the individual options on a straight-line basis, determined separately
for each portion of the options that vest each year. Deferred compensation
expense recognized for the ten month period ended October 31, 1997 and the year
ended December 31, 1996 was approximately $10,000 and $0, respectively.
Stock-Based Compensation
The Company has granted options to purchase shares of common stock to key
employees and directors. These options vest over periods of up to four years and
expire at various dates through 2007. The Company has adopted the disclosure
provisions of SFAS No. 123 with respect to stock-based compensation. The effects
of applying SFAS No. 123 in this pro forma disclosure may not be representative
of the effects on net loss for future years. Had compensation cost for the
Company's stock-based compensation plans been determined based on the grant date
fair value in accordance with SFAS 123, the Company's net loss for the ten
month period ended October 31, 1997 and for the year ended December 31, 1996
would have been increased to the pro forma amounts indicated below:
TEN MONTH
PERIOD ENDED OCTOBER YEAR ENDED
31, 1997 DECEMBER 31, 1996
---------------------- ----------------------
NET LOSS NET LOSS
---------------------- ----------------------
As Reported $(3,490,861) $(2,087,593)
Pro Forma $(3,504,821) $(2,094,438)
The grant date fair value of each stock option is estimated using the Black-
Scholes option-pricing model with the following assumptions: an expected life of
two or four years, a dividend yield of 0% and a weighted average risk-free
interest rate of 5.75%. The weighted average grant date fair values of options
were $0.76. The weighted-average remaining contractual life of options
outstanding at October 31, 1997 was 8.91 years.
F-10
TRIPOD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. REDEEMABLE PREFERRED STOCK
In February 1996, the Company issued 40,669 shares of Series D Convertible
Preferred Stock ("Series D Preferred Stock") at $43.03 per share to a private
investor for $1,694,581 net of issuance costs of $55,406. In connection with
the issuance of the Series D Preferred Stock, the Company issued two year
warrants to purchase 17,430 shares of Series D Preferred Stock at $43.03 per
share and five year warrants to purchase 17,429 shares of Series D Preferred
Stock at $43.03 per share. In October 1996 5,810 of two year Series D Preferred
Stock warrants were exercised at a price of $43.03. The value of the Series D
Preferred Stock warrants as determined by management of $158,683 has been
recorded as additional paid in capital.
The Series D Preferred Stock is voting. Dividends do not accrue. In the
event a dividend is declared, the dividend must be paid to the Series D
Preferred Stock holders before any dividend can be paid to the Series A
Preferred Stock , Series B Preferred Stock (collectively the "Junior Preferred
Stock") and common stock holders. The Series D Preferred Stock is convertible at
any time into common stock on a one for one ratio. Upon the closing of a sale of
common stock at a price of at least $86.06 per share pursuant to an effective
registration statement under the Securities Act of 1933, as amended, resulting
in at least $15,000,000 of gross proceeds to the Company, all outstanding shares
of Series D Preferred Stock shall automatically be converted into common stock,
at the then effective conversion rate. The Series D Preferred Stock is
redeemable at the option of the holder at a price equal to $43.03 per share. The
Series D Preferred Stock holders may redeem 33 1/3% of their holdings on January
1, 2002, 50% of their holdings on January 1, 2003 and 100% of their holdings on
January 1, 2004. At any time after January 1, 2002, the Company may, at the
option of the Board of Directors redeem the Series D Preferred Stock, in whole
or in part, by paying $43.03 per share in cash to the holders of the Series D
Preferred Stock. Upon voluntary or involuntary liquidation, holders of Series D
Preferred Stock are entitled to receive, out of generally available funds, the
greater of $43.03 per share, or such amount per share as would be payable had
each such share been converted into common stock immediately prior to such
liquidation. The Senior Preferred ranks on parity in the event of liquidation.
In the event that the proceeds from liquidation are not sufficient to pay
amounts due to the Senior Preferred, the Senior Preferred shall share the
liquidation proceeds based on a pro-rata weighted-average basis.
As a result of the Series D Preferred Stock issuance, the Series C Preferred
Stock conversion rate increased from one to one (1:1) to 1.0475:1.00.
In May 1997, the Company issued 199,203 shares of Series E Convertible
Preferred Stock ("Series E Preferred Stock") at $50.20 per share to private
investors for total consideration of $9,939,952 net of issuance costs of
$60,039.
F-11
TRIPOD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Series E Preferred Stock is voting. Dividends do not accrue. In the
event a dividend is declared, the dividend must be paid to the Series D
Preferred Stock and Series E Preferred Stock holders before any dividend can be
paid to the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock (collectively the "Junior Preferred Stock") and common stock
holders. The Series E Preferred Stock is convertible at any time into common
stock on a one for one ratio. Upon the closing of a sale of common stock at a
price of at least $100.40 per share pursuant to an effective registration
statement under the Securities Act of 1933, as amended, resulting in at least
$15,000,000 of gross proceeds to the Company, all outstanding shares of Series E
Preferred Stock shall automatically be converted into common stock, at the then
effective conversion rate. The Series E Preferred Stock is redeemable at the
option of the holder at a price equal to $50.20 per share. On January 1, 2003,
2004 and 2005 (the "Series E Installment Dates") holders of Series E Preferred
Stock holders can cause the Company to redeem shares of Series E Preferred Stock
in three annual installments. As a result of the issuance of Series E
Preferred Stock, the Series D Preferred Stock redemption rights, as discussed
above, have been amended to the reflect the same redemption schedule of the
Series E Preferred Stock. Upon voluntary or involuntary liquidation, holders of
Series E Preferred Stock are entitled to receive, out of generally available
funds, the greater of $52.20 per share, or such amount per share as would be
payable had each such share been converted into common stock immediately prior
to such liquidation. In the event that the proceeds from liquidation are not
sufficient to pay amounts due to the Senior Preferred, the Senior Preferred
shall share the liquidation proceeds based on a weighted-average pro-rata
allocation. The Senior Preferred rank on parity. In the event that the proceeds
from liquidation are not sufficient to pay amounts due to the Senior Preferred,
the Senior Preferred shall share the liquidation proceeds based on a pro-rata
weighted-average basis.
Following payments to holders of Senior Preferred Stock, Series B
Preferred Stock, Series A Preferred Stock and common stock, all holders of
Preferred Stock are then entitled to share in remaining available funds on an
"as-if converted" basis with holders of common stock. In the event that the
proceeds from liquidation are not sufficient to liquidate amounts due to the
Liquidating Preferred Stock, the Liquidating Preferred Stock shall share the
liquidation proceeds based on a weighted average pro-rata allocation.
F-12
TRIPOD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES
As of October 31, 1997, the Company had approximately $5.7 million in Federal
and State net operating loss carryforwards. The Federal net operating losses
will expire beginning in 2010 if not utilized. The State net operating losses
will expire beginning in 2000 if not utilized.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities used for financial
reporting purposes and those used for income tax purposes. As of October 31,
1997 and December 31, 1996, the Company had deferred tax assets of $3.9
and $1.8 million, respectively, which have been offset in total by a valuation
allowance. Deferred tax assets consist primarily of net operating loss
carryforwards and accrued expenses of $3.4 million and $.5 million,
respectively, at October 31, 1997 and net operating loss carryforwards of $1.8
million at December 31, 1996. A portion or all of net operating loss
carryforwards which can be utilized in any year may be limited by changes in
ownership of the Company, pursuant to Section 382 of the Internal Revenue Code
and similar statutes.
In the opinion of management, it is more likely than not that deferred tax
assets will not be realized due to the potential limitations of the utilization
of net operating loss carryforwards and the uncertainty surrounding the
Company's ability to generate future income sufficient to realize deferred tax
assets.
10. SUBSEQUENT EVENT
On February 2, 1998 the Company entered into an Agreement and Plan of Merger
(the "Agreement") by and among the Company, Lycos, Inc, a Delaware corporation
("Lycos"), and Pod Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Lycos, ("PAC"), Bo Peabody and Richard Sabot, providing for the
merger of PAC with and into the Company (the "Merger"). On February 11, 1998,
the Company completed the closing of the Merger and Tripod became a wholly-owned
subsidiary of Lycos. In accordance with the terms of the Agreement, Richard
Sabot will be elected to the Company's Board of Directors for a term expiring at
the first Annual Meeting of Lycos' stockholders held after Lycos' fiscal year
ending July 31, 2000.
F-13
TRIPOD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In the Merger, all outstanding shares of Common Stock and Preferred Stock of
the Company and options and warrants to purchase Common Stock and Preferred
Stock of the Company were converted into 1,560,363 shares and options and
warrants to purchase Common Stock, par value $.01 per share, of Lycos at an
exchange ratio of 3.2427566. All outstanding options to purchase Common Stock
of the Company have been assumed by Lycos and converted into options to purchase
Common Stock of Lycos, and all outstanding warrants to purchase Preferred Stock
of the Company have been assumed by Lycos and converted into warrants to
purchase Common Stock of Lycos. The total value of shares, options, and
warrants exchanged is $62.3 million.
F-14
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
- ------- ------------------------------------------------------------------
(b) Pro forma Financial Information
In February 1998, the Company acquired Tripod, Inc. ("Tripod") for
approximately $62.3 million, including acquisition costs. The acquisition is
being accounted for as a purchase. See Note 7 to the Company's Consolidated
Financial Statements for the quarter ended January 31, 1998 filed on Form 10-Q
with the Securities and Exchange Commission.
The unaudited Pro Forma Condensed Consolidated Statements of Operations (the
"Pro Forma Statements of Operations") for the year ended July 31, 1997 and the
three months ended October 31, 1997 give effect to the acquisition of Tripod as
if it had occurred on August 1, 1996. The Pro Forma Statements of Operations are
based on historical results of operations of the Company and Tripod for the year
ended July 31, 1997 and the three months ended October 31, 1997. The unaudited
Pro Forma Condensed Consolidated Balance Sheet (the "Pro Forma Balance Sheet")
gives effect to the acquisition of Tripod as if it had occurred on that date.
The Pro Forma Statements of Operations and Pro Forma Balance Sheet and the
accompanying notes (the " Pro Forma Financial Information") should be read in
conjunction with and are qualified by the historical financial statements of the
Company and notes thereto.
The Pro Forma Financial Information is intended for informational purposes
only and is not necessarily indicative of the future financial position or
future results of operations of the consolidated company after the acquisition
of Tripod, or of the financial position or results of operations of the
consolidated company that would have actually occurred had the acquisition of
Tripod been effected as of October 31, 1997 or on August 1, 1996.
F-15
LYCOS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED OCTOBER 31, 1997
-------------------------------------------------------------------------------------
PRO FORMA PRO FORMA
LYCOS, INC. TRIPOD, INC. ADJUSTMENTS AS ADJUSTED
----------------- ----------------- ----------------- ------------------
Total revenues $ 9,303 $ 236 $ 9,539
Cost of revenues 1,877 348 2,225
----------------- ----------------- ----------------- ------------------
Gross profit (loss) 7,426 (112) 7,314
Operating expenses:
Research and development 1,436 684 2,120
Sales and marketing 5,479 710 6,189
General and administrative 944 280 516(a) 1,740
----------------- ----------------- ----------------- ------------------
Total operating expenses 7,859 1,674 516 10,049
Operating loss (433) (1,786) (516) (2,735)
Interest income 540 88 628
----------------- ----------------- ----------------- ------------------
Net income (loss) $ 107 $(1,698) $(516) $ (2,107)
================= ================= ================= ==================
Net income (loss) per share $ 0.01 $ (0.13)(f)
================= ==================
Weighted average shares used in
computing net income (loss) per
share 14,681,976 15,960,637
================ ==================
F-16
LYCOS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JULY 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
TWELVE MONTHS ENDED JULY 31, 1997
-------------------------------------------------------------------------------------
PRO FORMA PRO FORMA
LYCOS, INC. TRIPOD, INC. ADJUSTMENTS AS ADJUSTED
----------------- ----------------- ----------------- ------------------
Total revenues $ 22,273 $ 517 $ 22,790
Cost of revenues 4,732 370 5,102
----------------- ----------------- ----------------- ------------------
Gross profit 17,541 147 17,688
Operating expenses:
Research and development 4,304 1,511 5,815
In process research and
development -- -- 51,600(b) 51,600
Sales and marketing 19,130 1,150 20,280
General and administrative 2,856 478 2,062(a) 5,396
----------------- ----------------- ----------------- ------------------
Total operating expenses 26,290 3,139 53,662 83,091
Operating loss (8,749) (2,992) (53,662) (65,403)
Interest income, net 2,130 4 2,134
----------------- ----------------- ----------------- ------------------
Net loss $ (6,619) $(2,988) $(53,662) $ (63,269)
================= ================= ================= ==================
Net loss per share $ (0.48) $ (4.20)(f)
================= ==================
Weighted average shares used in
computing net loss per share 13,794,743 15,073,404
================= ==================
F-17
LYCOS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1997
(IN THOUSANDS)
OCTOBER 31, 1997
----------------------------------------------------------------------------------
PRO FORMA PRO FORMA
LYCOS, INC. TRIPOD, INC. ADJUSTMENTS AS ADJUSTED
----------------- ----------------- ----------------- ------------------
ASSETS
- ------
Cash $41,017 $5,872 $46,889
Accounts receivable, net 7,293 111 7,404
License fees receivable 10,102 -- 10,102
Other current assets 5,523 17 5,540
----------------- ----------------- ----------------- ------------------
Current assets 63,935 6,000 69,935
Property, plant, and equipment, 2,239 917 3,156
net
Other non current assets 1,520 25 4,806(c) 6,351
----------------- ----------------- ----------------- ------------------
Total assets $67,694 $6,942 4,806 $79,442
================= ================= ================= ==================
LIABILITIES AND STOCKHOLDERS'
- ----------------------------
EQUITY
- -------
Accounts payable and accruals $11,396 $ 747 $12,143
Deferred revenues 12,794 93 12,887
Other current liabilities 1,641 -- 1,641
----------------- ----------------- ----------------- ------------------
Current liabilities 25,831 840 26,671
Non current liabilities 3,428 170 3,598
Redeemable preferred stock -- 11,476 (11,476)(d) --
Stockholders' equity 38,435 (5,544) 16,282(e) 49,173
----------------- ----------------- ----------------- ------------------
Total liabilities and
stockholders' equity $67,694 $6,942 4,806 $79,442
================= ================= ================= ==================
F-18
LYCOS, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(a) The Company paid approximately $62.3 million for the acquisition of Tripod
Inc. in February 1998, including costs of acquisition, of which
approximately $6.9 million was allocated to intangible assets. Goodwill and
developed technology will be amortized over a period of 5 years. The pro
forma adjustments reflect three months and twelve months of amortization
expense for the three months ended October 31, 1997 and year ended July 31,
1997, respectively, assuming the transaction had occurred on August 1,
1996. The value of the intangible assets at August 1, 1996 would have been
10,312.
(b) The Pro Forma adjustment reflects that portion of the purchase price
allocated to in process research and development.
(c) In February 1998 the Company acquired all of the outstanding shares,
options and warrants of Tripod for an aggregate purchase price of $62.3
million. The purchase price consisted of the issuance of common stock of
approximately $58 million, options and warrants of approximately $3.4
million and acquisition costs of approximately $.9 million.
The following represents the allocation of the purchase price over the
historical net book values of the acquired assets and liabilities of Tripod
at October 31, 1997. The illustration is for illustrative pro forma
purposes only. Actual fair values will be based on financial information as
of the acquisition date (February 11, 1998). Assuming the transaction had
occurred on October 31, 1997, the allocation would have been as follows (in
thousands);
Assets acquired;
Cash............................................. $ 5,872
Accounts receivable, net......................... 111
Property, plant and equipment.................... 917
Other assets..................................... 42
In process research and development.............. 51,600
Developed technology............................. 4,619
Goodwill......................................... 187
Liabilities assumed.................................. (1,010)
---------
Purchase price......................................... 62,338
=========
The pro forma adjustment reconciles the historical balance sheet of
Tripod at October 31, 1997 to the allocated purchase price assuming
the transaction had occurred on October 31, 1997.
(d) The pro forma adjustment reflects the conversion of the redeemable
preferred stock into common stock of Tripod which was then exchanged for
shares of Lycos common stock upon the acquisition of Tripod by Lycos.
(e) The pro forma adjustment reflects the conversion of shares of Tripod
commmon stock upon acquisition of Tripod by Lycos.
(f) The pro forma loss per common share is computed by dividing the net loss by
the weighted average number of common shares outstanding. The calculation
of the weighted average number of shares outstanding assumes that the
1,560,363 shares of the Company's common stock issued in its acquisition
were outstanding for the entire period presented.
F-19
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
- ------- ------------------------------------------------------------------
(c) Exhibits
2.1 Agreement and Plan of Merger dated as of February 2, 1998 by and among
Lycos, Inc., Pod Acquisition Corp., Tripod, Inc., Bo Peabody and Richard
Sabot.
F-20
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.
LYCOS, INC.
Date: March 10, 1998 By: /s/ Edward M. Philip
----------------------------------
Edward M. Philip
Chief Operating Officer and
Chief Financial Officer
(Principal Financial and Accounting
Officer, Authorized Officer)
F-21