SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 8-K
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 28, 1996
---------------
Individual, Inc.
----------------
(Exact Name of Registrant as Specified in Charter)
Delaware 0-27734 04-3036959
- ---------------------------- ----------- ----------
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
8 New England Executive Park
West,
Burlington, Massachusetts 01803
- ------------------------------- ----------
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code: (617) 273-6000
--------------
Item 2. Acquisition or Disposition of Assets.
On June 28, 1996, Individual, Inc. ("Individual") completed the
acquisition of FreeLoader, Inc. a Delaware corporation ("FreeLoader"), by means
of a merger (the "Merger") of FL Merger Corp., a Delaware corporation and
wholly-owned subsidiary of Individual ("Merger Sub"), with and into FreeLoader,
with FreeLoader continuing as the surviving corporation, pursuant to that
certain Agreement and Plan of Reorganization dated as of May 30, 1996 by and
among Individual, Merger Sub, FreeLoader and Mark Pincus and Sunil Paul (the
"Principal Stockholders") (the "Merger Agreement"). As a result
of the Merger, FreeLoader became a wholly-owned subsidiary of Individual. The
Merger was effected by the filing of a Certificate of Merger with the Secretary
of State of the State of Delaware on June 28, 1996.
Individual develops and markets a suite of customized information
services that provide knowledge workers with daily personalized current
awareness reports, while offering information providers and advertisers new
ways, to reach targeted audiences. FreeLoader's client-based software provides
user-specified retrieval of Internet and World Wide Web content for downloading
directly to the users hard drive, and advertising-based screen savers.
Pursuant to the terms of the Merger Agreement, upon the effectiveness of
the Merger, each outstanding share of FreeLoader Common Stock, $ .001 par value
per share (the "FreeLoader Common Stock"), was converted into the right to
receive 0.1305 (the "Exchange Ratio") shares of Individual Common Stock, $.01
par value (the "Individual Common Stock") (subject to payment in cash in lieu of
any fractional shares). For purposes of calculating the Exchange Ratio, each
issued and outstanding share of FreeLoader Common Stock prior to the Merger was
valued at $2.545. As a result of the Merger, the former stockholders of
FreeLoader received an aggregate of 1,514,309 shares of Individual Common Stock.
In addition, pursuant to the terms of the Merger Agreement, upon the
effectiveness of the Merger, Individual assumed all outstanding options (the
"FreeLoader Options") under FreeLoader's 1996 Stock Plan. In connection with
Individual's assumption of the FreeLoader Options, based on the Exchange Ratio,
the shares of FreeLoader Common Stock reserved for issuance upon exercise of the
outstanding FreeLoader Options were converted into an aggregate of approximately
360,180 shares of Individual Common Stock reserved for issuance thereunder.
The terms of the Merger and the consideration received by FreeLoader's
securityholders in connection therewith were the result of arm's-length
negotiations between the representatives of Individual and the representatives
of FreeLoader, and took into account various factors concerning the relative
valuations of the businesses and the securities of Individual and FreeLoader.
The terms of the Merger and the exchange of FreeLoader Common Stock for
Individual Common Stock are more fully described in the Merger Agreement, a copy
of which is filed as Exhibit 2.1 to this Report and is incorporated herein by
reference.
The acquisition of FreeLoader is intended to qualify as a tax-free
reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended.
The shares of Individual Common Stock issued to the FreeLoader
stockholders in connection with the Merger
(the "Merger Shares") contain "shelf" resale registration rights pursuant to the
terms of that certain Registration Rights Agreement dated as of June 28, 1996
among Individual and the FreeLoader stockholders listed therein (the
"Registration Rights Agreement"), a copy of which is filed as Exhibit 99.1 to
this Report and is incorporated herein by reference. Pursuant to the
Registration Rights Agreement, Individual is obligated to use its best efforts
to file a Registration Statement on Form S-1 no later than July 18, 1996 to
register the resale of the Merger Shares, and to keep the Registration Statement
effective for a period of up to three years after the date of the Merger,
subject to certain conditions and limitations set forth therein.
In addition, in accordance with the terms of the Merger Agreement,
Individual, the FreeLoader securityholders, Frederick Wilson, as representative
of the FreeLoader securityholders, and Fleet National Bank, as escrow agent
("Fleet Bank"), entered into an Escrow Agreement dated as June 28, 1996 (the
"Escrow Agreement"), pursuant to which ten percent (10%) of the Merger Shares
and the shares of Common Stock issued and issuable under the FreeLoader Options
(the "Escrow Shares") are to be held in escrow with Fleet Bank to secure
indemnification obligations of and representations and warranties made by
FreeLoader and the Principal Stockholders under the Merger Agreement. The Escrow
Shares shall be released from escrow one (1) year after the effectiveness of the
Merger, except with respect to any Escrow Shares required to be retained in
escrow after one year to secure pending or unresolved claims against the escrow,
subject to all terms and conditions set forth in the Escrow Agreement. A copy of
the Escrow Agreement is filed as Exhibit 99.2 to this Report and is incorporated
herein by reference.
Individual also entered into a risk sharing arrangement (the "Risk
Sharing Arrangement") with the Principal Stockholders with respect to sales by
each of the Principal Stockholders of up to an aggregate of 130,500 shares of
Individual Common Stock in one or more transactions between December 31, 1996
and May 31, 1997 (the "Risk Sharing Period"). The general purpose of the Risk
Sharing Arrangement is for the parties to share the risks of fluctuations
(either up or down) in the market price of Individual Common Stock of greater
than approximately twenty percent with respect to sales made by the Principal
Stockholders during the Risk Sharing Period. A copy of the Risk Sharing
Arrangement is attached as Exhibit 99.3 to this Report and is incorporated by
reference herein.
Acquisitions, including Individual's acquisition of FreeLoader, involve
a number of potential risks, including difficulties in the assimilation of the
acquired company's operations, products and personnel, diversion of management's
resources, uncertainties associated with operating in new markets and working
with new employees and customers, and the potential loss of the acquired
company's key employees. In order for Individual to achieve anticipated
benefits from its acquisition of FreeLoader, Individual will need to integrate
FreeLoader's business and key employees with Individual's existing operations
and employees and to make significant expenditures for sales and marketing and
product development to further develop FreeLoader's products and services and
business. No assurance can be given that Individual will be successful in this
regard. Moreover, even if successfully integrated, the acquired FreeLoader
operations may not achieve levels of revenues or productivity comparable to
those achieved by Individual's existing operations, or otherwise perform as
expected.
Management may from time to time consider other acquisitions of assets
or businesses that it believes may enable Individual to acquire complementary
skills and capabilities, offer new products, expand its customer base or obtain
other competitive advantages. There can be no assurance that Individual will be
able to successfully identify suitable acquisition candidates or complete future
acquisitions. In order to finance such acquisitions, it may be necessary for
Individual to raise additional funds either through public or private
financings, including bank borrowings. Any financing, if available at all, may
be on terms which are not favorable to Individual. In addition, issuances of
Individual's equity securities for future acquisitions could result in dilution
to Individual's existing stockholders.
There can also be no assurance that the FreeLoader acquisition and any
future acquisitions will not have a material adverse effect upon Individual's
business and results of operations.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
-----------------------------------------
FREELOADER, INC.
(A Development Stage Enterprise)
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Financial Statements:
Balance Sheets at December 31, 1995 and March 31, 1996 (unaudited)
Statements of Operations for the Period from November 13, 1995
(Date of Inception) to December 31, 1995, the three months
ended March 31, 1996 (unaudited), and the Period from
November 13, 1995 (Date of Inception) to March 31, 1996
(unaudited)
Statements of Stockholders' Equity (Deficit) for the Period from
November 13, 1995 (Date of Inception) to December 31, 1995
and the three months ended March 31, 1996 (unaudited)
Statements of Cash Flows for the Period from November 13, 1995
(Date of Inception) to December 31, 1995, the three
months ended March 31, 1996 (unaudited), and the Period from
November 13, 1995 (Date of Inception) to March 31, 1996
(unaudited)
Notes to Financial Statements
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
FreeLoader, Inc. (A Development Stage Enterprise):
We have audited the accompanying balance sheet of FreeLoader, Inc. (a
development stage enterprise) as of December 31, 1995, and the related
statements of operations, stockholders' deficit and cash flows for the period
from November 13, 1995 (date of inception) to December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with 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 audit provides 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 FreeLoader, Inc. (a development
stage enterprise) as of December 31, 1995, and the results of its operations and
its cash flows for the period from November 13, 1995 (date of inception) to
December 31, 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
May 29, 1996
Except as to the information in Note J,
for which the date is June 28, 1996
FREELOADER, INC.
(A Development Stage Enterprise)
BALANCE SHEETS
December 31, March 31,
ASSETS 1995 1996
------------ -----------
(unaudited)
Current assets:
Cash $ 233,695 $ 2,246,748
Prepaid expenses 7,463 17,810
------------ -----------
Total current assets 241,158 2,264,558
Property and equipment, net 11,733 115,889
Other assets, net 7,963 70,809
------------ -----------
Total assets $ 260,854 $ 2,451,256
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable 31,686 210,700
Deposits - 50,000
Note payable 250,000 -
------------ -----------
Total current liabilities 281,686 260,700
Commitments (Note D)
Stockholders' equity (deficit):
Common stock, $.001 par value; authorized 6,000,000 shares at
December 31, 1995, 17,000,000 shares at March 31, 1996;
6,000,000 shares issued and outstanding at December 31, 1995
and March 31, 1996 6,000 6,000
Convertible preferred stock, $.001 par value; 6,000,000 shares
authorized; 5,363,637 shares issued and outstanding at
March 31,1996 - 5,364
Additional paid-in capital 28,000 2,972,636
Deficit accumulated during the development stage (54,832) (793,444)
------------ -----------
Total stockholders' equity (deficit) (20,832) 2,190,556
------------ -----------
Total liabilities and stockholders' equity (deficit) $ 260,854 $ 2,451,256
============ ===========
The accompanying notes are an integral part of the financial statements.
FREELOADER, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
Period from Period from
November 13, November 13,
1995 (date of Three Months 1995 (date of
inception) to Ended inception) to
December 31, March 31, March 31,
1995 1996 1996
------------- ------------ -------------
(unaudited) (unaudited)
Operating expenses:
Research and development $ 35,315 $ 352,783 $ 388,098
General and administrative 19,649 390,719 410,368
----------- ----------- -----------
Total operating expenses 54,964 743,502 798,466
Interest income, net 132 4,890 5,022
----------- ----------- -----------
Net loss $ (54,832) $ (738,612) $ (793,444)
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
FREELOADER, INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Deficit
Common Stock Preferred Stock Accumulated
-------------------- -------------------- Additional during the Total
Shares Shares Paid-In Development Stockholders'
Issued Amount Issued Amount Capital Stage Equity (Deficit)
------ ------ ------ ------ ---------- ------------ ----------------
Balance at November 13, 1995
(date of inception)
Issuance of common stock on
November 30, 1995 6,000,000 $ 6,000 $ 28,000 $ 34,000
Net loss $ (54,832) (54,832)
--------- -------- ---------- ------------- --------------
Balance at December 31, 1995 6,000,000 6,000 28,000 (54,832) (20,832)
Issuance of Series A Convertible
Preferred Stock for cash and
exchange of note on
February 29, 1996 5,363,637 $ 5,364 2,944,636 2,950,000
Net loss (738,612) (738,612)
--------- -------- --------- -------- ---------- ------------- --------------
Balance at March 31, 1996
(unaudited) 6,000,000 $ 6,000 5,363,637 $ 5,364 $2,972,636 $ (793,444) $ 2,190,556
========= ======== ========= ======== ========== ============= ==============
The accompanying notes are an integral part of the financial statements.
FREELOADER, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
Period from
Period from November Three Months November 13, 1995
13, 1995 (date of inception) Ended (date of inception)
to December 31, 1995 March 31, 1996 to March 31, 1996
---------------------------- -------------- -------------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $ (54,832) $ (738,612) $ (793,444)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 469 5,867 6,336
Stock issued for expenses 34,000 - 34,000
Interest paid with Preferred Stock 4,111 4,111
Changes in assets and liabilities:
Increase in prepaid expenses (7,463) (10,347) (17,810)
Increase in other assets (8,089) (63,754) (71,843)
Increase in accounts payable 31,686 179,014 210,700
Increase in deposits - 50,000 50,000
-------- ---------- ----------
Net cash used in operating activities (4,229) (573,721) (577,950)
Cash flows from investing activities:
Purchase of property and equipment (12,076) (109,115) (121,191)
-------- ---------- ----------
Net cash used in investing activities (12,076) (109,115) (121,191)
Cash flows from financing activities:
Issuance of note payable 250,000 - 250,000
Proceeds from issuance of Preferred Stock - 2,695,889 2,695,889
-------- ---------- ----------
Net cash provided by financing activities 250,000 2,695,889 2,945,889
-------- ---------- ----------
Net increase in cash 233,695 2,013,053 2,246,748
Cash at beginning of period - 233,695 -
-------- ---------- ----------
Cash at end of period $233,695 $2,246,748 $2,246,748
======== ========== ==========
Supplemental cash flow information:
Noncash financing activities:
Note payable and accrued interest
converted into Preferred Stock $254,111 $254,111
======== ========
The accompanying notes are an integral part of the financial statements.
FREELOADER, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the three months ended
March 31, 1996 is unaudited)
A. Nature of Business:
------------------
Freeloader, Inc. (the "Company") was incorporated under the laws of Delaware
on November 13, 1995. The Company was formed primarily to offer Internet
users an application with which they may subscribe to home pages of their
choice. Through automatic daily or weekly downloads, users will be able to
view their chosen Web pages off-line in real time with their current
browsers.
Since its inception, the Company has devoted its efforts to establishing its
business, raising capital, recruiting personnel, developing technology, and
marketing. Accordingly, the Company is considered to be a development stage
enterprise for the periods presented.
B. Significant Accounting Policies:
-------------------------------
Research and Development Costs
Research and development costs, which principally represent consulting fees
incurred in the conceptual formulation and development of the Company's
technology, are expensed as incurred. Software development costs that would
be required to be capitalized under Statement of Financial Accounting
Standards (SFAS) No. 86, "Accounting for the Costs of Computer Software to
Be Sold, Leased or Otherwise Marketed", have not been material.
Property and Equipment
Property and equipment is recorded at cost. Expenditures for maintenance and
repairs are charged to operations. Depreciation is computed using the
straight-line method over the estimated useful lives of 5 years for computer
equipment and 2 years for purchased software.
Upon retirement or sale, the cost of the assets disposed and the related
accumulated depreciation and amortization are removed from the accounts and
any resulting gain or loss is included in the determination of net income.
Other Assets
Other assets principally include organization costs and trademarks at cost,
net of amortization on a straight-line basis over a five-year period.
Accumulated amortization relating to organization costs and trademarks was
$126 and $1,034 for the period from November 13, 1995 (date of inception) to
December 31, 1995 and the three months ended March 31, 1996, respectively.
Continued
FREELOADER, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Information with respect to the three months ended March 31, 1996 is
unaudited).
Income Taxes
The Company accounts for income taxes according to SFAS No. 109, "Accounting
for Income Taxes." Under the liability method specified by SFAS No. 109, a
deferred tax asset or liability is determined based on the difference
between the financial statement and tax basis of assets and liabilities as
measured by the enacted tax rates which will be in effect when these
differences reverse. SFAS No. 109 also requires a valuation account against
deferred tax assets if, based on available weighted evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized.
Risk and Uncertainties
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash. The Company deposits its cash
in banks which it believes are creditworthy.
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 contingent
liabilities at the date of the financial statements and the reported amounts
of expenses during the reporting periods. Actual results could differ from
those estimates.
C. Property and Equipment:
----------------------
Property and equipment consisted of the following:
December 31, March 31,
1995 1996
------------ ------------
Computer equipment and purchased software $ 12,076 $ 121,191
Accumulated depreciation (343) (5,302)
--------- ----------
$ 11,733 $ 115,889
========= ==========
Depreciation expense amounted to $343 and $4,959 for the period from November
13, 1995 (date of inception) to December 31, 1995 and the three months ended
March 31, 1996, respectively.
Continued
FREELOADER, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Information with respect to the three months ended March 31, 1996
is unaudited).
D. Commitments:
-----------
During 1995, the Company entered into an operating lease for office space.
The lease expires on March 31, 1996. Rental expense for the period from
November 13, 1995 (date of inception) to December 31, 1995 under the
operating lease was $3,500. The remaining commitment of $3,000 was paid in
1996.
On March 7, 1996, the Company entered into a new operating lease for office
space. The term of the lease commenced on May 1, 1996 and expires on
May 1, 1999. The minimum future rental expenses are as follows:
1996 $ 93,123
1997 124,164
1998 124,164
1999 31,041
--------
$372,492
========
E. Series A Convertible Preferred Stock:
------------------------------------
On February 29, 1996, the Board of Directors authorized 6,000,000 shares of
Preferred Stock, of which 5,900,000 shares were designated as Series A
Convertible Preferred Stock with the rights, terms and privileges set forth
in the Series A Convertible Preferred Stock Purchase Agreement (the
"Agreement"). Subject to and in accordance with the provisions of the
Agreement, any share of Series A Convertible Preferred Stock may, at the
option of the holder, be converted at any time into fully-paid and
nonassessable shares of common stock on a one-to-one basis, subject to
adjustment from time to time in accordance with the Agreement. On
April 29, 1996, the Company issued 136,364 shares of Series A Convertible
Preferred Stock, $.001 par value, for an aggregate purchase price of
$75,000.
F. Note Payable:
------------
On December 15, 1995, the Company issued a $250,000 convertible promissory
note (the "Note") with an annual interest rate of 8%. The Note and any
accrued interest is due on or before April 15, 1996.
The principal outstanding under this Note and any accrued interest is
convertible, at the option of the holder, immediately upon the sale by the
Company of equity securities of the Company. The conversion price will be
equal to the per share purchase price of the sale.
Continued
FREELOADER, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Information with respect to the three months ended March 31, 1996
is unaudited).
The Note was converted as part of the first closing, which took place on
February 29, 1996, of the Series A Convertible Preferred Stock issuance. The
outstanding principal and interest of $254,111 were converted into shares of
Series A Convertible Preferred Stock for an aggregate of 462,000 shares.
In consideration of the purchase of the Note, the Company issued a warrant
to the investor for common stock of the Company, with an insignificant fair
value. The number of shares to be issued shall be approximately 129,000 at
an exercise price of $0.50 per share. The warrant shall expire at the close
of business on December 15, 2000. As of May 29, 1996, the warrant has not
been exercised.
G. Stock Option Plan:
-----------------
On December 14, 1995, the Board of Directors approved the establishment of
an Incentive Stock Option Plan (the "Plan"). The Plan will initially have
1,000,000 options which will vest over a four-year period. The Plan provides
for the granting of incentive stock options ("ISOs") and nonqualified stock
options ("NQSOs"). Any nonqualified options issued to outside directors,
advisors or consultants will be included in the 1,000,000 share allocation.
As of December 31, 1995, no options under the Plan had been granted. On
February 29, 1996, the Board of Directors approved an increase in the number
of authorized shares under the Plan to 2,050,000 shares of common stock for
issuance to employees, consultants, and contractors. As of March 31, 1996,
1,462,000 ISOs had been granted under the Plan with an option price per
share of $0.055, of which no shares were exercisable.
H. Income Taxes:
------------
No income tax provision or benefit has been provided for federal income tax
purposes as the Company has incurred losses since inception. As of
December 31, 1995, the net deferred tax asset totaled approximately $20,000,
principally related to net operating loss carryforwards of approximately
$55,000. As of March 31, 1996, the net deferred tax asset totaled
approximately $301,000, principally related to net operating loss
carryforwards of approximately $793,000. These net operating loss
carryforwards, if not utilized, will commence expiring in 2010. Due to the
uncertainty surrounding the realization of these favorable tax attributes in
future tax returns, all of the net deferred tax assets has been fully offset
by a valuation allowance.
Continued
FREELOADER, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Information with respect to the three months ended March 31, 1996
is unaudited).
I. Related Party Transactions:
--------------------------
The founders of the Company paid certain expenses of the Company and
accordingly were reimbursed with 6,000,000 shares of common stock, which
were determined to have a fair value of $34,000 by the Board of Directors.
Expenses paid by the founders in excess of $34,000, which totaled $4,339 and
were included in accounts payable at December 31, 1995, were reimbursed to
the founders in January 1996.
J. Subsequent Event:
----------------
On June 28, 1996, Individual, Inc., a Delaware corporation, completed the
acquisition of FreeLoader, Inc., by means of a merger (the "Merger"),
pursuant to the Agreement and Plan of Reorganization dated as of
May 30, 1996. As a result of the Merger, FreeLoader, Inc. became a wholly-
owned subsidiary of Individual, Inc.
(b) Pro Forma Financial Information.
-------------------------------
Individual, Inc. and FreeLoader, Inc. Pro Forma
Combined Condensed Consolidated Balance Sheet as
of March 31, 1996 (Unaudited)
Individual, Inc. and FreeLoader, Inc. Pro Forma
Combined Condensed Consolidated Statement of
Operations for the Year Ended March 31, 1996
(Unaudited)
Individual, Inc. and FreeLoader, Inc. Notes to
Unaudited Pro Forma Combined Condensed Consolidated
Financial Statements
UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed consolidated financial
statements give effect to the acquisition of FreeLoader, Inc. ("FreeLoader") by
Individual, Inc. ("Individual"), by means of a merger (the"Merger"), under the
purchase method of accounting. The unaudited pro forma combined condensed
consolidated balance sheet combines Individual's unaudited consolidated balance
sheet and FreeLoader's unaudited balance sheet at March 31, 1996 as if the
Merger occurred on March 31, 1996. The unaudited pro forma combined condensed
consolidated statement of operations combine the historical results of
operations of Individual and FreeLoader, for the three months ended March 31,
1996 as if the Merger had occurred at the beginning of such period. The
operating results of FreeLoader for the year ended December 31, 1995 was not
material to the results of operations of Individual. Therefore, the pro forma
combined condensed consolidated statement of operations for the year ended
December 31, 1995 has been omitted.
The unaudited pro forma combined condensed consolidated financial
statements do not reflect cost savings and synergies which might be achieved
from the Merger. The unaudited pro forma combined condensed consolidated
financial statements do not purport to be indicative of the operating results or
financial position that would have been achieved had the Merger been effected
for the period indicated or the results or financial position which may by
obtained in the future.
These combined condensed consolidated pro forma financial statements are
based on and should be read in conjunction with the audited and unaudited
consolidated financial statements of Individual, including the notes thereto,
and the audited and unaudited financial statements of FreeLoader, including the
notes thereto.
The Merger transaction did not result in any significant pro forma
adjustments to the pro forma combined condensed consolidated statement of
operations.
INDIVIDUAL, INC.
AND
FREELOADER, INC.
Pro Forma Combined Condensed Consolidated Balance Sheet
As of March 31, 1996
(Unaudited)
ASSETS Pro Forma Combined
Individual Inc. FreeLoader Adjustments Pro Forma
--------------- ---------- ----------- ---------
(note B)
Current assets:
Cash and cash equivalents $34,221,852 $2,246,748 $36,468,600
Investments in marketable securities 1,954,794 -- 1,954,794
Accounts receivable, net 4,589,052 -- 4,589,052
Prepaid expenses 199,672 17,810 217,482
------- ------ -------
Total current assets 40,965,370 2,264,558 43,229,928
Property and equipment, net 2,824,450 115,889 2,940,339
Other assets, net 256,323 70,809 327,132
------- ------ -------
Total assets $44,046,143 $2,451,256 $46,497,399
=========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $925,628 $210,700 $1,136,328
Accrued expenses 3,614,239 50,000 $2,400,000 6,064,239
Deferred revenue 9,002,318 -- 9,002,318
Bank loans 638,067 -- 638,067
Current obligations under capital leases 127,073 -- 127,073
---------- --------- ----------- ----------
Total current liabilities 14,307,325 260,700 2,400,000 16,968,025
Capital lease obligations 750,856 -- 750,856
Bank loans 48,028 -- 48,028
Stockholders' equity:
Common stock 121,166 6,000 9,143 136,309
Preferred stock -- 5,364 (5,364) 0
Additional paid-in capital 49,886,574 2,972,636 30,993,306 83,852,516
Accumulated deficit (21,054,929) (793,444) (33,397,085) (55,245,458)
---------- --------- ----------- ----------
28,952,811 2,190,556 (2,400,000) 28,743,367
Treasury stock (12,877) -- (12,877)
-------- -------- ----------- --------
Total stockholders' equity 28,939,934 2,190,556 (2,400,000) 28,730,490
---------- --------- ----------- ----------
Total liabilities and stockholders' equity $44,046,143 $2,451,256 $0 $46,497,399
=========== ========== =========== ===========
INDIVIDUAL, INC.
AND
FREELOADER, INC.
Pro Forma Combined Condensed Consolidated Statement of Operations
For the Three Months Ended March 31, 1996
(Unaudited)
Combined
Individual Inc. FreeLoader Pro Forma
--------------- ---------- ---------
Revenue $5,029,291 $5,029,291
Cost of revenue 2,257,506 2,257,506
--------- ---------
Gross margin 2,771,785 2,771,785
Operating expense:
Sales and marketing 1,060,544 1,060,544
New subscriber acquisition 2,230,703 2,230,703
Research and development 838,725 $352,783 1,191,508
General and administrative 655,422 390,719 1,046,141
------- ------- ---------
Total operating expense 4,785,394 743,502 5,528,896
--------- ------- ---------
Loss from operations (2,013,609) (743,502) (2,757,111)
Interest income and other income (expense), net 241,594 9,001 250,595
Interest expense (738,206) (4,111) (742,317)
--------- ------- ---------
Net loss ($2,510,221) ($738,612) ($3,248,833)
============ ========== ============
Historical pro forma net loss per common share ($0.25)
=======
Historical pro forma weighted average common
shares outstanding 9,844,520
=========
Pro forma net loss per common share ($0.29)
=======
Pro forma weighted average common
shares outstanding 11,358,829
==========
INDIVIDUAL, INC.
AND
FREELOADER, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. PRO FORMA BASIS OF PRESENTATION
On June 28, 1996, Individual completed the acquisition of FreeLoader, Inc.,
a Delaware corporation, by means of the Merger of FL Merger Corp., a Delaware
corporation and wholly owned subsidiary of Individual, ("Merger Sub"), with and
into FreeLoader, with FreeLoader continuing as the surviving corporation,
pursuant to that certain Agreement and Plan of Reorganization dated as of May
30, 1996 by and among Individual, Merger Sub, FreeLoader and certain
stockholders of FreeLoader (the "Merger Agreement"). As a result of the Merger,
FreeLoader became a wholly-owned subsidiary of Individual.
B. PRO FORMA ADJUSTMENTS
The pro forma adjustments described below are required to allocate the
purchase price and the estimated acquisition costs to the net assets of
FreeLoader based upon their estimated fair values at March 31, 1996 as
determined by the management of Individual. Such allocations will be revised to
reflect changes in purchased technology, assets, and liabilities through June
28, 1996 (the date of the acquisition), as well as the determination of the
actual acquisition costs and final evaluation of fair value.
Pursuant to the Merger Agreement, Individual acquired FreeLoader in
exchange for approximately 1,514,309 shares of common stock, options to
purchase 360,180 shares of common stock and other consideration and costs with
a total estimated purchase price of approximately $36,400,000 (based on the fair
value of Individual, Inc. Common Stock and options at May 30, 1996 and estimated
accrued deal costs of $2,400,000). The transaction will be accounted for as a
purchase. Approximately $2,200,000 of the purchase price has been allocated to
the net identifiable assets acquired and approximately $34,200,000 has been
allocated to purchased technology determined to be in-process and accordingly,
expensed at consumation. This nonrecurring charge was not reflected in the pro
forma combined condensed consolidated statement of operations, and is reflected
as a component of the pro forma balance sheet adjustments to accumulated
deficit.
The issuance of Individual's common stock, net of the elimination of
FreeLoader's common stock, preferred stock, additional paid-in capital, and
accumulated deficit, is reflected in the pro forma balance sheet adjustments.
(c) Exhibits.
--------
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Reorganization dated as of May 30, 1996 by and
among Individual, Inc., FL Merger Corp., FreeLoader, Inc. and
certain stockholders of FreeLoader, Inc.
99.1 Registration Rights Agreement dated as of June 28, 1996 by and among
Individual, Inc. and the securityholders of FreeLoader, Inc.
99.2 Escrow Agreement dated as of June 28, 1996 by and among Individual,
Inc., the securityholders of FreeLoader, Inc., Frederick Wilson, as
representative of the securityholders of FreeLoader, Inc., and Fleet
National Bank, as escrow agent.
99.3 Risk Sharing Arrangement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Individual, Inc.
---------------------------------
(Registrant)
/s/ Robert L. Lentz
Date: July 12, 1996 --------------------------------
Robert L. Lentz
Vice President, Finance and Chief
Financial Officer
EXHIBIT INDEX
Page Number in
Sequentially
Exhibit No. Description Numbered Copy
- ----------- ----------- -------------
2.1 Agreement and Plan of Reorganization
dated as of May 30, 1996 by and among
Individual, Inc., FL Merger Corp.,
FreeLoader, Inc. and certain
stockholders of FreeLoader, Inc.
99.1 Registration Rights Agreement dated as of
June 28, 1996 by and among Individual, Inc.
and the securityholders of FreeLoader, Inc.
99.2 Escrow Agreement dated as of June 28, 1996
by and among Individual, Inc., the
securityholders of FreeLoader, Inc.,
Frederick Wilson, as representative of the
securityholders of FreeLoader, Inc., and
Fleet National Bank, as escrow agent.
99.3 Risk Sharing Arrangement