SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
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 28, 2001
Commission file number: 1-11106
PRIMEDIA Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3647573
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
745 Fifth Avenue, New York, New York
------------------------------------
(Address of principal executive offices)
10151
-----
(Zip Code)
Registrant's telephone number, including area code (212) 745-0100
2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) On February 28, 2001, PRIMEDIA Inc. ("PRIMEDIA" or the "Company") and
About.com, Inc. ("About") completed the merger of a newly formed, wholly
owned subsidiary of the Company with and into About, with About surviving
as a wholly owned subsidiary of the Company. About common stockholders
received 2.3409 shares of the Company's common stock for each share of
About common stock that they owned.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) Pro forma financial information.
An introduction to the pro forma consolidated financial statements is
attached as page 3. The unaudited pro forma statement of consolidated
operations for the year ended December 31, 2000 and an unaudited pro forma
consolidated balance sheet at December 31, 2000, along with a description
of all pro forma adjustments, are attached as pages 4 through 9.
(c) Audited consolidated financial statements of About.
Audited consolidated balance sheets of About as of December 31, 2000 and
1999 and the audited consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the years ended December 31, 2000,
1999 and 1998 and the related notes thereto are attached as pages 10
through 44.
(d) Exhibits
23.1 Consent of Ernst & Young LLP
23.2 Consent of KPMG LLP
3
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The unaudited pro forma statement of consolidated operations for the year ended
December 31, 2000 gives effect to the acquisition of all of the outstanding
common stock of About as if it had occurred on January 1, 2000. The unaudited
pro forma consolidated balance sheet as of December 31, 2000 gives effect to the
acquisition of About as if it had occurred on December 31, 2000, based on the
purchase method of accounting.
The Company believes the accounting used for the pro forma adjustments provides
a reasonable basis on which to present the unaudited pro forma consolidated
financial statements. The pro forma adjustments do not include any synergies
expected to be derived from the merger. In addition, the pro forma adjustments
do not include the pro forma impact of PRIMEDIA's acquisitions during 2000 or
2001 because the impact of such acquisitions is not significant to the
consolidated entity. The pro forma statement of consolidated operations and
pro forma consolidated balance sheet are unaudited and were derived by
adjusting the historical consolidated financial statements of the Company and
About. The unaudited pro forma consolidated financial statements are provided
for informational purposes only and should not be construed to be indicative
of the Company's consolidated results of operations or consolidated financial
position had the transaction been consummated on the date assumed and do not
project the Company's consolidated results of operations or consolidated
financial position for any future date or period.
The unaudited pro forma consolidated financial statements and accompanying notes
thereto should be read in conjunction with the PRIMEDIA historical consolidated
financial statements and the notes thereto included in PRIMEDIA's Annual Report
on Form 10-K for the year ended December 31, 2000, as well as About's historical
consolidated financial statements as of December 31, 2000 and 1999 and for
the three years in the period ended December 31, 2000 and the notes thereto
included herein.
4
PRIMEDIA INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AT DECEMBER 31, 2000
(dollars in thousands)
Historical
-------------------------- Pro forma Pro forma
PRIMEDIA About Adjustments Consolidated
----------- ----------- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 23,690 $ 45,177 $ -- $ 68,867
Short-term marketable securities -- 60,166 -- 60,166
Accounts receivable, net 265,946 18,708 (3,233) (b) 281,421
Inventories, net 28,681 -- -- 28,681
Prepaid expenses and other 48,630 4,263 -- 52,893
----------- ----------- ----------- -----------
Total current assets 366,947 128,314 (3,233) 492,028
Property and equipment, net 175,560 23,555 -- 199,115
Other intangible assets, net 506,156 -- -- 506,156
Excess of purchase price over net assets acquired, net 1,141,436 120,133 (120,133) (a) 1,636,018
494,582 (a)
Deferred income tax asset, net 135,000 -- -- 135,000
Other investments 265,468 25,436 (73,904) (b) 217,000
Other non-current assets 86,912 5,524 -- 92,436
----------- ----------- ----------- -----------
$ 2,677,479 $ 302,962 $ 297,312 $ 3,277,753
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 120,786 $ 14,920 $ -- $ 135,706
Accrued interest payable 18,822 -- -- 18,822
Accrued expenses and other 222,773 1,112 11,934 (a) 234,240
(3,233) (b)
1,654 (a)
Deferred revenues (a) 235,548 459 (18,671) (b) 217,336
Current maturities of long-term debt 115,465 502 -- 115,967
----------- ----------- ----------- -----------
Total current liabilities 713,394 16,993 (8,316) 722,071
----------- ----------- ----------- -----------
Long-term debt 1,503,188 70 -- 1,503,258
----------- ----------- ----------- -----------
Deferred revenues 112,296 -- (34,223) (b) 78,073
----------- ----------- ----------- -----------
Other non-current liabilities 23,303 759 -- 24,062
----------- ----------- ----------- -----------
Exchangeable preferred stock 561,324 -- -- 561,324
----------- ----------- ----------- -----------
Shareholders' equity (deficiency):
Common stock 1,678 22 450 (a) 2,128
(22) (b)
Additional paid-in capital 1,366,950 491,229 632,826 (a) 2,051,009
(491,229) (b)
23,157 (c)
28,076 (d)
Accumulated deficit (1,603,096) (151,573) 151,573 (b) (1,603,096)
Accumulated other comprehensive loss (1,558) (332) 332 (b) (2,251)
(693) (b)
Unearned compensation -- (1,312) (7,592) (a) (58,825)
1,312 (b)
(23,157) (c)
(28,076) (d)
Prepaid marketing -- (52,894) 52,894 (b) --
----------- ----------- ----------- -----------
Total shareholders' equity (deficiency) (236,026) 285,140 339,851 388,965
----------- ----------- ----------- -----------
$ 2,677,479 $ 302,962 $ 297,312 $ 3,277,753
=========== =========== =========== ===========
See notes to unaudited pro forma consolidated financial statements.
5
PRIMEDIA INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF CONSOLIDATED OPERATIONS
YEAR ENDED DECEMBER 31, 2000
(dollars in thousands, except per share amounts)
Historical
--------------------------- Pro forma Pro forma
PRIMEDIA About Adjustments Consolidated
------------ ----------- ------------ ------------
Sales, net $ 1,690,952 $ 96,968 $ (15,405) (b) $ 1,781,642
9,127 (k)
Operating costs and expenses:
Cost of goods sold (excluding $3,695 of non-cash
compensation) 394,494 31,086 -- 425,580
Marketing and selling 386,843 52,020 (9,997) (b) 428,866
Distribution, circulation and fulfillment 255,511 -- -- 255,511
Editorial 137,845 -- -- 137,845
Product development -- 18,530 -- 18,530
Other general expenses (excluding $935 of
non-cash compensation) 225,606 17,617 400 (e) 262,965
2,300 (f)
17,042 (k)
Corporate administrative expenses (excluding $27,810 of
non-cash compensation) 33,974 1,596 (1,596) (j) 33,974
Depreciation of property and equipment 52,920 6,552 -- 59,472
Amortization of intangible assets, excess of purchase
price over net assets acquired and other 128,355 39,086 125,775 (g) 293,216
Non-cash compensation and non-cash non-recurring charges 35,210 4,630 12,061 (c) 70,554
14,623 (d)
4,030 (i)
Provision for severance, closures and integration costs 20,798 -- -- 20,798
Gain on sale of businesses and other, net (14,438) -- -- (14,438)
------------ ----------- ------------ ------------
Operating income (loss) 33,834 (74,149) (170,916) (211,231)
Other income (expense):
Provision for the impairment of securities (188,526) -- (188,526)
Interest income (expense), net (143,988) 8,722 -- (135,266)
Amortization of deferred financing costs (3,836) -- -- (3,836)
Other, net (3,110) (4,394) -- (7,504)
------------ ----------- ------------ ------------
Loss before income tax expense (305,626) (69,821) (170,916) (546,363)
Income tax expense (41,200) -- (41,200)
------------ ----------- ------------ ------------
Net loss (346,826) (69,821) (170,916) (587,563)
Preferred stock dividends - cash (53,063) -- -- (53,063)
------------ ----------- ------------ ------------
Loss applicable to common shareholders $ (399,889) $ (69,821) $ (170,916) $ (640,626)
============ =========== ============ ============
Basic and diluted loss applicable to common shareholders
per common share (h) $ (2.48) $ (3.82) $ (3.11)
============ =========== ------------
Basic and diluted common shares outstanding 161,104,053 18,283,244 (18,283,244) (b) 206,080,462
============ =========== ============
44,976,409 (h)
============
See notes to unaudited pro forma consolidated financial statements.
6
PRIMEDIA Inc. and Subsidiaries
Notes to Unaudited Pro Forma Consolidated Financial Data
(dollars in thousands, except per share amounts)
(a) For purposes of these pro forma consolidated financial statements,
PRIMEDIA determined that the value of the total purchase consideration
approximated $531,000 based on shares issued on February 28, 2001 to
consummate the acquisition of About. PRIMEDIA issued 2.3409 shares of
PRIMEDIA common stock for each share of About stock. Under the terms of
the arrangement, stockholders of About received 44,951,034 shares of
PRIMEDIA common stock. PRIMEDIA has determined that the value of its
shares of common stock issued is $11.81 per share, based on the
weighted-average market values for the two days prior and two days
succeeding the acquisition announcement date.
PRIMEDIA has replaced outstanding options to purchase shares of About
common stock held by certain individuals with options to purchase shares
of PRIMEDIA common stock. The PRIMEDIA options have the same terms and
conditions as the About stock options, except that the number of options
and their exercise price were adjusted based on the exchange ratio (2.3409
to 1) used to consummate the merger. The following assumptions were used
regarding the PRIMEDIA options to be issued based on About's outstanding
options at February 28, 2001:
Weighted-Average
Number of Exercise Price of
Original Number PRIMEDIA Options PRIMEDIA Options
of About Options to be Issued to be Issued
---------------- ---------------- -----------------
Vested 1,748,063 4,092,041 $11.79
Unvested 3,969,216 9,291,538 $12.81
---------------- ----------------
Total 5,717,279 13,383,579 $12.50
================ ================
The fair value of the vested and unvested options issued is approximately
$102,000. This value was determined using a Black Scholes pricing model
based on the following weighted-average assumptions:
Risk free interest rate of 5.14%;
Volatility of 82.46%;
Expected term ranging from .04 to 9.99 years;
Expected dividend yield of 0%; and
Value of PRIMEDIA common stock of $11.81 per share
On February 28, 2001, the date that the Company granted these unvested
replacement options, the intrinsic value of the "in-the-money" unvested
replacement options was $19,741. Based on a four-year service period from
the original date that these options were granted, the Company classified
$7,592 as unearned compensation relating to unvested options. The
remaining $12,148 is included within the total purchase price.
7
The following is a summary of the calculation of the purchase price, as
described above, as well as the allocation of the purchase price to the
fair value of the net assets acquired:
Total number of shares of PRIMEDIA common stock
issued to consummate the merger 44,951,034
Fair value per share of PRIMEDIA common stock $ 11.81
------------
Value of shares of PRIMEDIA common stock issued $ 530,872
Fair value of replacement options issued 102,404
Unearned compensation relating to unvested options (7,592)
Cost of About shares acquired prior to the merger
(inclusive of $1,654 purchased subsequent to
December 31, 2000) 74,865
Direct merger costs 11,934
------------
Total purchase price 712,483
Less: Fair value of net tangible assets of About 217,901
------------
Excess of purchase price over net assets acquired $ 494,582
============
PRIMEDIA's management determined that the utilization of About's
historical net operating losses was not likely. Therefore, no deferred tax
assets have been recorded in connection with the merger.
The purchase price has been allocated based on management's best estimate
of the fair value of assets acquired and the liabilities assumed based on
the historical financial statements of About as of December 31, 2000. The
excess purchase price over the fair value of net tangible assets acquired
has been allocated to goodwill. This adjustment is based upon preliminary
estimates to reflect the allocation of purchase consideration to the
acquired assets and liabilities of About. The final allocation of the
purchase consideration will be determined based on appraisals and a
comprehensive final evaluation of the fair values and useful lives of
About's tangible assets acquired, identifiable intangible assets and
excess of purchase price over net assets acquired at the time of the
merger. The final determination may result in asset and liability fair
values that are different than the preliminary estimates of these amounts.
For purposes of purchase price allocation, it has been assumed that the
fair value of deferred revenues approximates About's historical carrying
value. At the merger date, the fair value of About's deferred revenues
represented the fair value of the contractual performance obligation based
upon the nature of the activities to be performed and the related costs to
be incurred. No adjustment to the historical carrying value of deferred
revenues was required.
(b) To eliminate the historical equity accounts of About and various
intercompany accounts and investments in and transactions with About.
8
(c) To reflect the unearned compensation expense in connection with the
employment agreements of Scott P. Kurnit and William C. Day. In connection
with their employment agreements, Messrs. Kurnit and Day were granted
options to purchase 2,605,300 shares and 877,000 shares, respectively, of
PRIMEDIA common shares at an exercise price equal to thirty percent of the
fair market value per share on that date. Accordingly, the adjustment
reflects a 70% market value discount ($6.65 per share) based on a PRIMEDIA
per share market value of $9.50 which was the closing price on February
28, 2001. These options vest at a rate of 25% per year and are subject to
Messrs. Kurnit's and Day's continued employment. Accordingly, the
compensation expense reflected for the year ended December 31, 2000
reflects this pro rata vesting on a graded basis.
(d) To reflect the unearned compensation expense in connection with the
employment agreements of Messrs. Kurnit and Day. In connection with their
employment agreements, Messrs. Kurnit and Day were granted 2,211,100
shares and 744,350 shares, respectively, of restricted PRIMEDIA common
stock. Accordingly, the adjustment reflects a PRIMEDIA per share market
value of $9.50 which was the closing price on February 28, 2001. These
shares of restricted PRIMEDIA common stock vest at a rate of 25% per year
and are subject to Messrs. Kurnit's and Day's continued employment.
Accordingly, the compensation expense for the year ended December 31, 2000
reflects this pro rata vesting on a graded basis.
(e) To reflect additional compensation expense to be incurred in
connection with the employment agreements of Messrs. Kurnit and Day.
(f) To reflect additional compensation expense relating to eligible
bonuses, the minimum amount of which is $2,300. Potential pro forma
adjustments relating to bonuses in excess of the minimum amount have been
omitted since the payment of such bonuses is dependent upon the
achievement of performance goals to be established by PRIMEDIA management.
In addition, Messrs. Kurnit and Day also entered into share lock-up
agreements with PRIMEDIA, pursuant to which each agreed to specific
restrictions regarding the transferability of their shares of PRIMEDIA
common stock issued in the merger. Under the terms of these agreements,
during the first year after the closing of the merger, Messrs. Kurnit and
Day may sell a portion of their shares of PRIMEDIA common stock, subject
to PRIMEDIA's right of first refusal with respect to any sale. In
addition, Messrs. Kurnit and Day were guaranteed a minimum per share sales
price of $15.25 on 1,639,344 shares ($25,000) and 532,786 shares ($8,125),
respectively. In the event of any per share shortfall upon sale, PRIMEDIA
will pay them the difference between the $15.25 per share and the actual
per share sales price for each share sold and that difference will be
charged to additional paid-in-capital representing a contingent payment
based on the market price of PRIMEDIA common stock. The pro forma
financial statements do not reflect the impact, if any, of these
agreements.
(g) To adjust pro forma amortization expense based on the excess of
purchase price over net assets acquired related to the merger. This excess
will be amortized over an estimated useful life of three years. PRIMEDIA
believes that a three-year life is responsive to the rapid rate of change
in the Internet industry and is consistent with other recent mergers of a
comparable nature. The final allocation of purchase price may result in
amortization expense that is different than the preliminary estimate of
this amount. The pro forma adjustment represents the difference between
the amortization of the $494,582 excess of purchase price over net assets
acquired over a three year period and About's historical amortization.
9
(h) The pro forma adjustments reflect the additional shares to be issued
based on the exchange ratio used to consummate the merger and include the
additional shares of restricted PRIMEDIA common stock to be issued to
Messrs. Kurnit and Day in connection with their employment agreements that
will vest in the first year of the acquisition. Pro forma loss per share
has been determined based on pro forma net loss after preferred stock
dividends divided by the weighted average number of shares of PRIMEDIA
common shares outstanding. Stock options were not included in the
computation of pro forma loss per share because the effect of their
inclusion would be antidilutive. The weighted averages shares outstanding
is calculated as follows:
Weighted average shares of About assuming shares issued in connection with
2000 acquisitions were outstanding for the entire year 19,383,962
Less: Weighted averages shares of About owned by PRIMEDIA 486,296
----------
Total shares 18,897,666
Exchange ratio 2.3409
----------
Subtotal 44,237,546
Shares of restricted PRIMEDIA common stock issued
to Messrs. Kurnit and Day that will vest in the
first year of the acquisition (see note (d)) 738,863
----------
Total About weighted average shares outstanding at
December 31, 2000 44,976,409
==========
(i) The pro forma adjustment reflects the amortization of the unearned
compensation, on a graded basis relating to the intrinsic value of
the "in-the-money" unvested replacement options (see note (a)).
(j) The pro forma adjustment reflects the elimination of merger related
costs incurred by About that were charged to operations in 2000.
(k) The pro forma adjustment reflects the pro forma impact of About's
acquisitions during 2000 for the periods prior to the date of
acquisition.
10
Report of Independent Auditors
The Board of Directors and Stockholders
About.com, Inc.
We have audited the accompanying consolidated balance sheet of About.com, Inc.
and subsidiaries as of December 31, 2000, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
About.com, Inc. and subsidiaries at December 31, 2000, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
January 29, 2001, except for
Note 6 as to which the date is
March 29, 2001
11
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
About.com, Inc.:
We have audited the accompanying consolidated balance sheet of About.com, Inc.
and subsidiaries as of December 31, 1999, and the related consolidated
statements of operations, stockholders' (deficit) equity and cash flows for each
of the years in the two-year period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of About.com, Inc. and
subsidiaries as of December 31, 1999, and the results of their operations and
their cash flows for each of the years in the two-year period ended December 31,
1999 in conformity with accounting standards generally accepted in the United
States of America.
/s/ KPMG LLP
New York, New York
January 24, 2000
12
About.com, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share
amounts)
December 31,
----------------------
2000 1999
--------- ---------
Assets
Current assets:
Cash and cash equivalents $ 45,177 $ 74,780
Short-term marketable securities 60,166 86,937
Accounts receivable, less allowance for doubtful
accounts of $3,300 and $780, respectively 18,708 11,067
Other current assets 4,263 1,354
--------- ---------
Total current assets 128,314 174,138
--------- ---------
Property and equipment, net 23,555 9,401
Long-term marketable securities 13,992 14,197
Note receivable 4,633 --
Investments 6,811 --
Goodwill, net 120,133 39,184
Other assets, net 5,524 5,162
--------- ---------
Total assets $ 302,962 $ 242,082
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 14,920 $ 13,421
Guide fees payable 1,112 1,188
Deferred revenue 459 1,019
Current portion of notes payable 424 412
Current installments of obligations under capital leases 78 157
--------- ---------
Total current liabilities 16,993 16,197
--------- ---------
Notes payable, excluding current portion 30 695
Deferred rent 759 21
Obligations under capital leases, excluding current installments 40 10
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized,
no shares issued and outstanding -- --
Common stock, $0.001 par value; 100,000,000 shares authorized,
22,300,969 and 16,175,367 shares issued and outstanding,
at December 31, 2000 and 1999, respectively 22 16
Additional paid-in capital 491,229 309,755
Deferred compensation (1,312) (2,859)
Prepaid marketing (52,894) --
Accumulated deficit (151,905) (81,753)
--------- ---------
Total stockholders' equity 285,140 225,159
--------- ---------
Total liabilities and stockholders' equity $ 302,962 $ 242,082
========= =========
See accompanying notes to consolidated financial statements.
13
About.com, Inc.
Consolidated Statements of Operations
(in thousands, except share and per share amounts)
Year ended December 31,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
Revenue $ 96,968 $ 26,962 $ 3,722
Cost of revenue 35,081 13,981 4,188
Non-cash compensation 3,695 3,631 27
------------ ------------ ------------
Gross profit (loss) 58,192 9,350 (493)
------------ ------------ ------------
Operating expenses:
Sales and marketing (includes $5,296 of non-cash
marketing expense in 2000)
52,020 48,597 7,890
Product development 18,530 8,386 3,114
General and administrative 20,174 8,772 2,944
Merger related costs 1,596 -- --
Amortization of goodwill 39,086 967 --
Non-cash compensation 935 1,099 451
------------ ------------ ------------
Total operating expenses 132,341 67,821 14,399
------------ ------------ ------------
Loss from operations (74,149) (58,471) (14,892)
------------ ------------ ------------
Other income (expense):
Other (expense) income, net (4,394) 95 --
Interest income 8,866 3,444 50
Interest expense (144) (164) (736)
------------ ------------ ------------
Other income (expense), net 4,328 3,375 (686)
------------ ------------ ------------
Net loss (69,821) (55,096) (15,578)
------------ ------------ ------------
Cummulative dividends and accretion of
convertible preferred stock to
liquidation value -- (660) (1,230)
------------ ------------ ------------
Net loss attributable to common stockholders $ (69,821) $ (55,756) $ (16,808)
============ ============ ============
Net loss per basic and diluted common share $ (3.82) $ (5.30) $ (9.71)
============ ============ ============
Weighted average basic and diluted
common shares outstanding 18,283,244 10,518,713 1,731,598
============ ============ ============
See accompanying notes to consolidated financial statements.
14
About.com, Inc.
Consolidated Statement of Stockholders' Equity (Deficit)
(in thousands)
Accumulated
deficit and
Common Stock Additional other Total
------------------- paid-in Deferred Deferred comprehensive stockholders'
Shares Amount capital compensation marketing loss equity (deficit)
------- -------- ------- ------------ --------- ------------- ----------------
Balance at December 31, 1997 1,475 $ 2 $ 133 $ -- $ -- $ (11,079) $(10,944)
Issuance of warrants in connection with
debt transactions -- -- 216 -- -- -- 216
Deferred compensation, net of amortization -- -- 1,717 (1,239) -- -- 478
Exercise of stock options and warrants 728 -- 2,333 -- -- -- 2,333
Issuance of stock options and
warrants in lieu of services rendered -- -- 63 -- -- -- 63
Cumulative dividends on
convertible preferred stock -- -- (1,197) -- -- -- (1,197)
Accretion of convertible preferred
stock to liquidation value -- -- (34) -- -- -- (34)
Net loss -- -- -- -- -- (15,578) (15,578)
------- -------- -------- ------- -------- --------- --------
Balance at December 31, 1998 2,203 2 3,231 (1,239) -- (26,657) (24,663)
Cumulative dividends on
convertible preferred stock -- -- (646) -- -- -- (646)
Accretion of convertible preferred
stock to liquidation value -- -- (14) -- -- -- (14)
Issuance of common stock in private 107 -- 2,500 -- -- -- 2,500
placement
Conversion of preferred stock in
connection with About's IPO 6,140 6 32,725 -- -- -- 32,731
Forgiveness and cancellation of interest
on Series A Notes in connection with
About's IPO -- -- 341 341
Issuance of common stock in
initial public offering, net 3,450 3 78,546 -- -- -- 78,549
Compensation expense related guide option -- -- 3,612 -- -- -- 3,612
grant
Issuance of common stock in
connection with acquisitions
(see Note 11) 567 1 39,421 -- -- -- 39,422
Exercise of stock options and warrants 572 1 1,043 -- -- -- 1,044
Deferred compensation, net of
amortization and terminations -- -- 2,740 (1,620) -- -- 1,120
Issuance of common stock in connection
with employee stock purchase plan 26 -- 563 -- -- -- 563
Issuance of common stock in
connection with follow-on offering, net 3,110 3 145,693 -- -- -- 145,696
Net loss -- -- -- -- -- (55,096) (55,096)
------- -------- -------- ------- -------- --------- --------
Balance at December 31,1999 16,175 16 309,755 (2,859) -- (81,753) 225,159
------- -------- -------- ------- -------- --------- --------
Exercise of stock options and warrants 872 1 5,832 -- -- -- 5,833
Compensation expense related
to guide and employee option grants -- -- 3,765 -- -- -- 3,765
Deferred compensation, net of
amortization and terminations -- -- (683) 1,547 -- -- 864
Issuance of common stock in connection
with employee stock purchase plan 63 -- 1,342 -- -- -- 1,342
Issuance of common stock in
connection with acquisitions
(see Note 11) 2,322 2 113,356 -- -- -- 113,358
Repurchase of common stock (5) -- (325) -- -- -- (325)
Issuance of common stock in connection
with marketing and related service
contracts 2,874 3 58,187 -- (52,894) -- 5,296
Net loss (69,821) (69,821)
-------- --------- --------
Foreign currency translation adjustment -- -- -- -- -- (331) (331)
Comprehensive loss -- -- -- -- -- (70,152) (70,152)
------- -------- -------- ------- -------- --------- --------
Balance at December 31, 2000 22,301 $ 22 $491,229 $(1,312) $(52,894) $(151,905) $285,140
======= ======== ======== ======= ======== ========= ========
See accompanying notes to consolidated financial statements.
15
About.com, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Year ended December 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
Operating activities:
Net loss $ (69,821) $ (55,096) $ (15,578)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 45,639 3,858 568
Amortization of debt discount and issuance costs -- -- 236
Non-cash compensation expense 4,630 4,730 478
Amortization of deferred marketing 5,296 -- --
Mark down to market-value of note receivable 3,791 -- --
Deferred interest on debt -- -- 402
Stock options and warrants issued in lieu of services rendered -- -- 63
Loss in equity investment 603 -- --
Changes in operating assets and liabilities, net of effect of
acquisitions:
Accounts receivable, net (6,514) (9,770) (799)
Other current assets (2,728) (1,227) (100)
Other assets, net (78) (4,294) (36)
Accounts payable and accrued expenses (4,420) 6,229 5,223
Guide fees payable (74) 725 305
Deferred revenue (626) 1,019 (529)
Deferred rent 737 (26) (2)
--------- --------- ---------
Net cash used in operating activities (23,565) (53,852) (9,769)
--------- --------- ---------
Investing activities:
Cash paid for (used in) acquisitions, net of cash acquired 628 (769) --
Purchase of marketable securities (508,018) (206,982) --
Sale of marketable securities 534,994 105,848
Note receivable (8,424) -- --
Investments (7,745) -- --
Purchase of URL names (165) (800) --
Capital expenditures (18,850) (8,461) (2,942)
--------- --------- ---------
Net cash used in investing activities (7,580) (111,164) (2,942)
--------- --------- ---------
Financing activities:
Proceeds from issuance of common stock related to initial
public offering and concurrent placement, net -- 81,049 --
Proceeds from issuance of common stock related to
follow-on offering, net -- 145,696 --
Proceeds from issuance of convertible preferred stock, net -- -- 18,182
Proceeds from issuance of common stock in connection with
the exercise of options and warrants 5,833 1,044 2,333
Repurchase of common stock (2) -- --
Proceeds from issuance of common stock in connection with
the Employee Stock Purchase Plan 1,342 563 --
Proceeds from the issuance of loans payable -- -- 2,881
Proceeds from secured credit facility -- 781 438
Repayment of acquired company debt (4,680) -- --
Principal payments under secured credit (767) (349) --
facility
Principal payments under capital leases (184) (201) (213)
Deferred offering/financing costs -- 569 (569)
--------- --------- ---------
Net cash provided by financing activities 1,542 229,152 23,052
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (29,603) 64,136 10,341
Cash and cash equivalents at beginning of year 74,780 10,644 303
--------- --------- ---------
Cash and cash equivalents at end of year $ 45,177 $ 74,780 $ 10,644
========= ========= =========
See accompanying notes to consolidated financial statements.
16
About.com, Inc.
Consolidated Statements of Cash Flows (Continued)
(in thousands, except share amounts)
Year ended December 31,
------------------------------------
2000 1999 1998
------------ ------------ ------
Supplemental disclosures of cash flow information:
Cash paid for interest $ 144 $ 164 $ 94
============ ============ ======
Supplemental disclosures of non-cash investing and financing activities:
Barter revenue $ 7,500 $ 1,895 $ 366
============ ============ ======
Barter expense $ 5,309 $ 1,895 $ 366
============ ============ ======
Equipment acquired under capital leases $ -- $ -- $ 179
============ ============ ======
Conversion of $4,950 of the convertible notes payable-
Series A notes together with $70 of interest thereon into
3,346,715 shares of Series A preferred stock on April 23, 1998 $ -- $ -- $5,020
============ ============ ======
Conversion of $1,700 of the 8.25% notes payable together
with $305 of interest thereon into 1,114,327 shares of
Series B preferred stock on April 23, 1998 $ -- $ -- $2,006
============ ============ ======
Conversion of $2,800 of the convertible notes payable-
Series B notes together with $70 of interest thereon into
1,594,380 shares of Series B preferred stock on April 23, 1998 $ -- $ -- $2,870
============ ============ ======
Conversion of $1,556 of the 8.25% notes payable together
with $226 of interest thereon into 913,856 shares of
Series C preferred stock on November 13, 1998 $ -- $ -- $1,782
============ ============ ======
Conversion of $1,081 of the convertible notes payable-
Series C notes together with $9 of interest thereon into
558,917 shares of Series C preferred stock on November 13, 1998 $ -- $ -- $1,090
============ ============ ======
Conversion of Series A, B and C preferred stock into
1,191,433, 2,348,572 and 2,599,455 shares of common stock
on March 24, 1999 $ -- $ 32,731 $ --
============ ============ ======
Forgiveness and cancellation of interest on March 24, 1999 $ -- $ 341 $ --
============ ============ ======
Issuance of common stock in connection with
acquisitions (see Note 11) $ 113,358 $ 39,422 $ --
============ ============ ======
Issuance of common stock in connection with marketing and related
service contracts $ 58,190 $ -- $ --
============ ============ ======
See accompanying notes to consolidated financial statements.
17
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 and 1999
(1) Organization and Business
About.com, Inc. ("About" or the "Company") was incorporated in New York on
June 27, 1996 (inception) as General Internet Inc. and commenced operations on
that date. In December 1998, General Internet Inc. changed its corporate name to
MiningCo.com, Inc. and reincorporated in Delaware. In May 1999, MiningCo.com,
Inc. changed its corporate name to About.com, Inc. About's Internet service,
About.com, is a platform comprised of a network of more than 700
highly-targeted, topic-specific web sites. About's primary source of revenue is
from the sale of advertising, which is conducted within one operating segment.
About's business is characterized by rapid technological change, new
product and service developments and evolving industry standards. Inherent in
the Company's business are various risks and uncertainties, including its
uncertain profitability, history of losses, dependence on the Internet and
risks associated with Internet advertising.
On February 23, 1999, About and Comcast Interactive Investments, Inc.
("Comcast") entered into a common stock purchase agreement pursuant to which
About agreed to sell $2.5 million of common stock to Comcast. These common
shares were purchased directly from About in a private placement transaction at
a price 93% of About's initial public offering ("IPO") price per share (or
$23.25 per share). The underwriters did not receive any discount or commission
related to this transaction. The closing of the concurrent placement was
contingent upon the closing of About's IPO.
On March 24, 1999, About completed its IPO, which resulted in the issuance
of 3,450,000 shares of common stock at $25.00 per share (which included 450,000
shares issued in connection with the exercise of the underwriters'
over-allotment option) and the concurrent placement of 107,527 shares to
Comcast, as described above. In addition, upon the closing of the IPO,
3,346,715, 6,597,596 and 7,301,811 shares of Series A, B and C convertible
preferred stock, respectively, automatically converted into 6,139,640 shares of
common stock and $341,300 in unsecured promissory notes payable were forgiven.
Net proceeds from the IPO and concurrent placement, after underwriting fees of
$6.0 million and offering costs of $1.7 million, were approximately $81.0
million.
On October 29, 1999, About completed a follow-on public offering resulting
in the issuance of 3,000,000 shares of common stock at $49.875 per share. Net
proceeds from the offering, after underwriting fees of $8.3 million and offering
costs of $700,000, were approximately $140.6 million. On November 19, 1999, the
underwriters purchased 110,000 shares of common stock at $49.875 per share to
cover over-allotments. Net proceeds from this purchase, after underwriting fees
of $300,000, were approximately $5.1 million.
On October 29, 2000, About entered into an Agreement and Plan of Merger
(the "Merger"), with PRIMEDIA Inc., ("Primedia") whereby About will merge with
and become a subsidiary of Primedia, in a transaction valued at approximately
$690.0 million, which is based upon the closing stock prices of Primedia and
About on October 27, 2000. The Merger has been approved by the Board of
Directors of both companies, and will enable the About stockholders to receive
2.3409 shares of Primedia's common stock for each share of About's common stock.
18
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
On February 20, 2001, About's stockholders approved the proposed Merger
with Primedia. As both companies obtained the required regulatory approvals, the
transaction closed on February 28, 2001. The consolidated financial statements
do not reflect any affects of the Merger.
(2) Transactions with Primedia
Simultaneous with and subsequent to the Merger (as described in Note 1),
the Company entered into various business arrangements with Primedia, including
agreements to deliver advertising impressions and contracts to purchase
marketing and promotional services.
In exchange for advertising impressions to be delivered by About during
the fourth quarter of 2000, Primedia agreed to pay the Company $5.9 million. In
addition, About entered into a twelve month agreement with Primedia beginning
December 1, 2000, whereby it would deliver certain banner advertisements, text
links and email newsletter promotions that link to Primedia web locations
designed for magazine subscription sign-ups, in exchange for a payment of
$833,000 each month. For the year ended December 31, 2000, About recognized
approximately $6.7 million related to these agreements, which is included in
revenue in the accompanying consolidated statement of operations.
In October and December 2000, About agreed to purchase an aggregate of
approximately $55.7 million in marketing and promotional services from Primedia.
In exchange for these services, About issued a total of 2,752,608 shares of its
common stock. These contracts extend over a period of 5 years, and non-cash
marketing expense is recognized at the time the marketing services are provided.
For the year ended December 31, 2000, approximately $5.3 million in non-cash
marketing expense was recognized as a component of sales and marketing expense
in the accompanying consolidated statement of operations, with the remaining
$50.4 million recorded as prepaid marketing within the stockholders' equity
section in the accompanying consolidated balance sheet at December 31, 2000.
On December 6, 2000, About entered into an agreement to use the Primedia
consumer and special interest magazine mailing list ("Mailing List"),
exclusively for mailings promoting the Company. In consideration for the use of
the Mailing List, About issued 120,987 shares of its common stock, valued at
approximately $2.5 million. According to the terms of the agreement, About has
certain limitations to the use of such Mailing List, none of which had been used
as of December 31, 2000, resulting in the recognition of $2.5 million of prepaid
marketing within the stockholders' equity section in the accompanying
consolidated balance sheet at December 31, 2000.
For the year ended December 31, 2000, the Company recorded approximately
$1.6 million of direct costs associated with the pending merger with Primedia.
These charges primarily consist of investment banker fees and fees for legal and
accounting services directly related to the pending transaction.
19
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
(3) Significant Accounting Policies
(a) Principles of Consolidation
The Company's consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries from their respective dates of
acquisition (see Note 11). The Company uses the equity method of accounting for
investments in affiliates where it exercises significant influence over
operating and financial policies, but not control. Investments in affiliates
that the Company does not control or possess significant influence over are
accounted for by the cost method. All intercompany transactions and balances
have been eliminated in consolidation.
(b) Reclassification
About has made certain reclassifications in prior years' consolidated
financial statements to conform with current year presentation.
(c) Revenue and Expense Recognition
Revenue Recognition
Advertisements
To date, substantially all of About's revenues have been derived from the
sale of advertisements on About web properties. About offers numerous sizes and
types of advertising placement, including banner advertisements, button
advertisements, text links and sponsorship programs. Advertising revenues are
derived principally from short-term advertising contracts in which About
typically guarantees a minimum number of impressions to advertisers over a
specified period of time, for a fixed fee. Revenues from advertising sales are
recognized ratably in the period in which the advertisement is displayed,
provided that no significant About obligations remain, at the lesser of the
ratio of impressions delivered over total guaranteed impressions or the
straight-line basis over the term of the contract, and collection of the
resulting receivable is probable. Payments received from advertisers prior to
displaying their advertisements on About.com are recorded as deferred revenue.
Pursuant to its agreements with advertisers, About generally guarantees a
minimum number of impressions (times that an advertisement appears in pages
viewed by the users of About.com) to be delivered over a specified period of
time for a fixed fee. To the extent minimum guaranteed impression levels are not
met ratably over the contract period, About defers recognition of the
corresponding pro-rata portion of the revenues relating to such unfulfilled
obligations until the guaranteed impression levels are achieved. When there is
no guarantee of a minimum number of impressions over a specified period of time,
About recognizes revenues in the period in which the advertisement is displayed.
About's short-term advertising agreements are generally terminable by either
party upon relatively short notice. In certain cases, these agreements are
longer in duration and entitle About to a share of revenues generated by sales
over a particular threshold, resulting from direct links from About.com. About's
revenue derived from these revenue sharing agreements is recognized by About
upon the notification from its advertisers and electronic commerce partners of
sales attributable to About.com, and the collection of the resulting receivables
is probable.
20
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
At December 31, 2000 and 1999, accounts receivable included approximately
$707,000 and $331,000 of unbilled receivables, respectively. Such unbilled
receivables represent the recognized sales value of short-term advertising
contracts that were earned but not billable to customers. The terms of the
related advertising contracts typically require billing at the end of 30, 60 or
90 days from the signing of the contract.
Product Development
A portion of About's revenues are from production and development fees.
Production and development fees represent HTML design services, graphic
services, engineering and database development and related services. About
charges clients for these services based upon either a fixed price or a time and
materials basis. Revenue is recognized over the life that these services are to
be performed. These revenues fluctuate based on the number of new programs
initiated, types of services and scope and complexity of each program.
Barter Transactions
A portion of About's revenues are from barter advertisements (agreements
whereby About trades advertisements on About.com in exchange for advertisements
on third-party web sites) or from services provided by third parties. Barter
revenues and expenses are recognized in accordance with Emerging Issues Task
Force ("EITF") 99-17, "Accounting for Barter Advertising." Revenue from barter
advertising transactions is recognized as income when advertisements are
delivered on About.com. Barter expense is recognized when About's advertisements
are run on third-party web sites or when services are provided by third parties.
Barter expense is included as a component of cost of revenue. Barter advertising
revenue was approximately $7.5 million, $1.9 million and $366,000 for the years
ended December 31, 2000, 1999 and 1998, respectively. Barter expense was
approximately $5.3 million, $1.9 million and $366,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.
Expense Recognition
Guide Compensation
About's guides are compensated at an amount equal to the greater of a
monthly minimum guarantee or a percentage of net advertising revenues generated
by the entire network, which is distributed among the guides based on the user
traffic on their respective sites. Net advertising revenues has been defined as
total advertising revenues received less particular types of non-cash revenues,
third-party advertising sales representative organization fees and marketing
expenses. Guides are currently entitled to a percentage of net transaction
revenues and net syndication revenues. In addition, management may distribute a
semi-annual discretionary bonus to guides. Guide compensation is included as a
component of cost of revenue, except for the non-cash compensation portion which
is recorded in connection with the grant of stock options to the guides and
presented as a separate line item above the gross profit (loss) line.
21
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
Distribution and Syndication Partnerships
About has entered into distribution and syndication partnership agreements
that drive traffic to About.com. Through these partnerships, About provides
content to a partner's web site, and users can link to About.com by clicking on
the content. About has agreements to provide content to some of the leading
Internet service providers, content web sites, search engines/Internet
directories and broadband cable-related sites. These short-term agreements
typically require About to make payments, which are included in sales and
marketing expense in the accompanying statements of operations, that are either
fixed or are based on the amount of user traffic directed from the partner's
site to About.com. About's fixed fees are paid on a monthly basis and contracts
in which fees are paid in advance are deferred and amortized over the contract
term.
Product Development
Product development expenses include personnel and consulting costs
associated with the design, development and testing of About.com and About's
systems and editorial personnel costs. About generally expenses its product
development expenses as they are incurred. In the first quarter of 1999, the
Company adopted the American Institute of Certified Public Accountants Statement
of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 provides guidance for
determining whether computer software is internal-use software and for
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use.
(d) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying footnotes. Actual results could differ from those
estimates.
(e) Cash and Cash Equivalents
About considers all highly liquid securities with original maturities of
three months or less to be cash equivalents. At December 31, 2000 and 1999, such
amounts, approximating $28.2 million and $70.6 million, were included in cash
and cash equivalents.
(f) Investments in Marketable Securities
Short-term investments in marketable securities are classified as
available-for-sale with a maturity date from 90 days to one year and are
available to support current operations or to take advantage of other investment
opportunities. These investments consist of commercial paper, treasury notes and
other government agency notes which are stated at book value. Realized gains and
losses and declines in value, judged to be other-than-temporary, are included in
other income,
22
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
net in the accompanying statements of operations. The cost of securities sold is
based on the specific-identification method and interest earned is included in
interest income. Short-term investments were approximately $60.2 million and
$86.9 million at December 31, 2000 and 1999, respectively.
Long-term investments in marketable securities consist entirely of
treasury notes. Long-term investments were approximately $14.0 million and $14.2
million at December 31, 2000 and 1999, respectively.
For the years ended December 31, 2000, 1999 and 1998, About did not
recognize any material gains or losses upon the sale of securities. Dividend and
interest income is recognized when earned. At December 31, 2000 and 1999, the
fair value of investments in marketable securities approximated cost and the
unrealized holding gains or losses were not material.
(g) Property and Equipment, net
Property and equipment are stated at cost and depreciated over their
estimated useful lives of three to seven years on a straight-line basis.
Leasehold improvements are amortized on a straight-line basis over their
estimated useful lives, or the term of the related lease, whichever is shorter.
Equipment under capital leases is stated at the present value of minimum lease
payments and is amortized using the straight-line basis over the shorter of the
lease term or the estimated useful life of the assets.
(h) Goodwill, net
Goodwill, net represents the excess of cost over fair value of net assets
acquired and is being amortized on a straight-line basis over an expected period
of benefit of three years. Approximately $40.0 million and $1.0 million of
accumulated amortization is included in goodwill, net at December 31, 2000 and
1999.
(i) Other Assets, net
At December 31, 2000 and 1999, other assets include security deposits and
costs incurred in connection with the purchase of URL names. In December 1999,
About set up a security deposit of $4.0 million related to the lease for its New
York office space. The deposit is held as a certificate of deposit. Security
deposits for additional lease locations totaled $812,000 at December 31, 2000
and $443,900 at December 31, 1999. URL costs capitalized as of December 31, 2000
and 1999 amounted to $965,000 and $800,000, respectively, and are being
amortized over a 5-year period. As of December 31, 2000 and 1999, URL costs, net
of amortization, amounted to $712,000 and $718,200, respectively.
(j) Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of," About periodically reviews long-lived assets and
certain identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an
23
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
asset may not be fully recoverable. Impairment of long-lived assets exist if, at
a minimum, the future expected cash flows (undiscounted and without interest
charges) from an entity's operations are less than the carrying value of these
assets. Except as described in Note 6, the Company does not believe that any
such impairment has occurred.
(k) Income Taxes
About accounts for income taxes using the asset and liability method, in
accordance with SFAS No. 109, "Accounting for Income Taxes."
(l) Advertising Expense
Advertising costs are expensed as incurred. The Company incurred
approximately $32.2 million, $41.1 million, and $5.3 million in advertising
costs for the years ended December 31, 2000, 1999 and 1998, respectively, which
are included in sales and marketing in the accompanying consolidated statements
of operations.
(m) Stock-based Compensation
About accounts for its employee stock option grants in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations because the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," requires the use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, if the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized. Compensation expense related to employee stock options is recorded
only if, on the date of grant, the fair value of the underlying stock exceeds
the exercise price.
About accounts for non-employee stock-based awards in which goods or
services are the consideration received in exchange for equity instruments
issued based on the fair value of the consideration received or the fair value
of the equity instrument issued, whichever is more reliably measured.
(n) Stock Split
All common share and per share amounts in the accompanying consolidated
financial statements have been adjusted retroactively for a 1.00-for-2.809
reverse stock split of About's common stock which was approved by the Board of
Directors and stockholders and effected on March 19, 1999.
24
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
(o) Prepaid Marketing
In October and December 2000, the Company issued an aggregate of 2,873,595
shares of common stock valued at $58.2 million to Primedia, in exchange for
marketing and related services. These marketing credits are presented as prepaid
marketing in the equity section in the accompanying consolidated balance sheet
at December 31, 2000, and are recorded as non-cash marketing expense as the
services are provided to About. For the year ended December 31, 2000, About
recorded approximately $5.3 million in non-cash marketing expense, which is
included in sales and marketing on the accompanying consolidated statement of
operations.
(p) Comprehensive Loss
In accordance with the Financial Accounting Standards Board's ("FASB")
SFAS No. 130, "Reporting Comprehensive Income," which establishes rules for the
reporting and display of net income (loss) and other gains and losses affecting
stockholders' equity that are excluded from net income (loss), the Company has
reported a translation loss of $331,000 for the year ended December 31, 2000.
This translation loss is included in the accompanying consolidated statement of
stockholders' equity (deficit), under the column "Accumulated deficit and other
comprehensive loss."
(q) Recent Accounting Pronouncements
In June 1999, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which established accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, and for hedging activities. In June 2000, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133," which amended the
effective date of FASB 133 to all fiscal quarters of all fiscal years beginning
after June 15, 2000. The Company has adopted this statement, noting no effect on
operations as it currently does not engage or plan to engage in derivative
instruments or hedging activities.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition in Financial Statements." SAB 101 provided guidance
regarding certain existing accounting principles for the recognition and
classification of revenue within financial statements. The Company adopted SAB
101 during 2000, noting no material impact on its results of operations.
In March 2000, the FASB issued Interpretation No. 44, "Accounting For
Certain Transactions Involving Stock Compensation" ("FIN No. 44"), which
provided guidance for applying APB Opinion No. 25. With certain exceptions, FIN
No. 44 applies prospectively to new awards, exchanges of awards in a business
combination, modifications to outstanding awards and changes in grantee status
on or after July 1, 2000. The adoption of FIN No. 44 in 2000 did not have a
significant impact on the Company's results of operations.
25
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
In March 2000, the EITF reached a consensus on Issue 00-2, "Accounting for
Web Site Development Costs," which provided guidance on when to capitalize
versus expense costs incurred to develop a web site. The consensus is effective
for web site development costs in quarters beginning after June 30, 2000. The
Company has applied the guidance as described by Issue 00-2 for the year ended
December 31, 2000, noting no material impact on its results of operations.
(4) Business and Credit Concentrations
Financial instruments which subject the Company to a concentration of
credit risk consist primarily of cash, cash equivalents, short and long-term
investments and accounts receivable.
About maintains its cash and cash equivalents and short and long-term
investments within domestic financial institutions. About performs periodic
evaluations of the relative credit standing of these institutions. From time to
time, About's cash balances with these financial institutions may exceed Federal
Deposit Insurance Corporation insurance limits.
About's accounts receivables result from customers that are concentrated
mainly in the United States. About performs ongoing credit evaluations of these
customers, generally does not require collateral and establishes an allowance
for doubtful accounts based upon factors surrounding credit risk, historical
trends and other information. To date, such amounts have been within
management's expectations. At December 31, 2000, one customer accounted for more
than 10% of the Company's accounts receivable balance. At December 31, 1999, no
customers accounted for 10% or more of the Company's accounts receivable
balance.
For the years ended December 31, 2000 and 1999 no customers accounted for
over 10% of total revenues generated by About. For the year ended December 31,
1998, one customer accounted for approximately 12% of total revenues generated
by About, and a third-party Internet advertising sales representative
organization accounted for approximately 21% of About's total revenues.
(5) Property and Equipment
Property and equipment consist of the following (in thousands):
December 31,
--------------------
2000 1999
-------- --------
Equipment and computer hardware, including
assets under capital leases of $708 and $665,
respectively $ 22,620 $ 12,286
Leasehold improvements 8,880 406
Furniture and fixtures 2,058 329
-------- --------
33,558 13,021
Less accumulated depreciation and amortization, including
assets under capital leases of $628 and $487,
respectively (10,003) (3,620)
-------- --------
Total $ 23,555 $ 9,401
======== ========
26
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
(6) Note Receivable
Note receivable consists of a $5.15 million Senior Secured Promissory Note
("Note") entered into by the Company on June 8, 2000 with Smartshop.com, Inc.
("Smartshop"), which matures on March 8, 2001. Effective October 31, 2000, the
Note was amended to increase the principal to approximately $8.5 million, and
the Company simultaneously entered into a Series C Preferred Stock Purchase
Agreement ("Preferred Stock Agreement") with Smartshop, whereby the Company has
agreed to purchase 6,296,295 shares of Smartshop's Series C Preferred Stock, for
approximately $8.5 million, through the conversion of the unpaid Note. On March
29, 2001, the Note was further amended to extend the date of maturity to March
21, 2002. At the same time, the Company also amended the conversion provision,
whereby at the Company's option, it may elect to convert all or a potion of the
unpaid principal and interest into the number of Series C Preferred Stock equal
to the quotient of the unpaid Note, divided by $1.04.
In accordance with the Company's policy of reviewing long-lived assets for
impairment whenever events or changes in circumstances indicates that the
carrying amount of an asset may not be fully recoverable, About has determined
the Note to be impaired. As a result, the Company recorded a mark-down to market
value of approximately $3.8 million, which is included in other (expense)
income, net in the accompanying consolidated statement of operations for the
year ended December 31, 2000.
(7) Investments
Equity Investment
In June 2000, the Company entered into a joint venture, Recruit About.com
Japan, Inc. ("Recruit"), to launch a Japanese internet service. About currently
holds a 47.5% interest in this venture and accounts for it under the equity
method of accounting, utilizing a quarterly lag on the recognition of About's
share of loss from the investment. For the year ended December 31, 2000, About
recognized approximately $603,000 in equity loss, which is included in other
income, net in the accompanying statement of operations. About contributed
approximately $8.6 million to Recruit during the twelve months ended December
31, 2000.
In connection with the joint venture, About entered into an agreement to
provide Recruit with a license to use the About.com Intellectual Property,
solely for the development, operation, management, marketing and maintenance of
the Japan service. In exchange, Recruit paid a royalty fee to About of $2.8
million, which is recorded as an offset to the investment.
Cost Investment
In December 2000, About contributed $2.0 million to Keen.com in exchange
for 160,000 Series E Preferred Shares in Keen.com. This investment, which
represents a less than twenty percent ownership, is recorded at its historical
cost.
27
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
(8) Net Loss Per Basic and Diluted Common Share
About adopted SFAS No. 128, "Computation of Earnings Per Share," during
the year ended December 31, 1997. In accordance with SFAS No. 128 and the SEC's
SAB No. 98, basic earnings per share is computed using the weighted average
number of common and dilutive common equivalent shares outstanding during the
period. Common equivalent shares consist of the incremental common shares
issuable upon the conversion of the convertible preferred stock (using the
if-converted method) and shares issuable upon the exercise of stock options and
warrants (using the treasury stock method); common equivalent shares are
excluded from the calculation if their effect is anti-dilutive. Pursuant to SAB
No. 98, all options, warrants or other potentially dilutive instruments issued
for nominal consideration, prior to the anticipated effective date of an initial
public offering (including the IPO), are required to be included in the
calculation of basic and diluted net loss per share, as if they were outstanding
for all periods presented. As a result, About has included 218,890 shares of
common stock in the calculation of net loss per basic and diluted common share
for the 1998 period presented which relate to certain investor warrants issued
for nominal consideration, all of which were exercised in December 1998 when
About exercised its right to call those warrants.
Net loss per diluted common share for the years ended December 31, 2000,
1999 and 1998 does not include the effects of options to purchase 5,888,063,
3,142,591 and 1,128,649 shares of common stock, respectively, and 21,360, 30,260
and 68,708 common stock warrants, respectively, on an "as if" converted basis.
Net loss per diluted common share for the year ended December 31, 1998 does not
include 6,139,640 shares of convertible preferred stock on an "as if" converted
basis. These securities are not included because their effect is anti-dilutive
during each period.
(9) Income Taxes
No provision for US federal or state income taxes has been recorded for
any period as About has incurred operating losses since inception.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Realization of deferred tax assets is dependent upon future earnings, if
any. About has recorded a full valuation allowance against its deferred tax
assets since management believes that it is more likely than not that these
assets will not be realized. Significant components of About's deferred tax
assets for federal and state income taxes are as follows (in thousands):
28
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
Year ended December 31,
-------------------------
2000 1999
-------- --------
Deferred tax assets:
Net operating loss carryforwards $ 58,119 $ 32,975
Allowance for doubtful accounts 1,436 389
Deferred compensation 2,319 837
Depreciation 596 24
Deferred rent 330 9
-------- --------
62,800 34,234
Less valuation allowance (62,800) (34,234)
-------- --------
Deferred tax asset $ -- $ --
======== ========
The reconciliation of the effective tax rate is as follows (in thousands):
December 31,
-----------------------
2000 1999
-------- --------
Tax at statutory rate $(23,111) $(19,284)
Goodwill 13,680 339
Losses for which no benefit is provided 7,636 18,945
Other non-deductible expenses 1,795 0
-------- --------
Provision for income taxes $ -- $ --
======== ========
For the years ended December 31, 2000 and 1999, the valuation allowance
for the deferred tax assets increased by approximately $28.6 million and $23.0
million, respectively. Of the total valuation allowance of approximately $62.8
million, subsequently recognized tax benefits, if any, in the amount of
approximately $18.2 million will be applied directly to contributed capital.
This amount relates to the tax effect of employee stock option deductions
included in the Company's net operating loss carryforward.
At December 31, 2000, About had net operating loss carryforwards for
federal income tax purposes of approximately $138.4 million. There can be no
assurance that About will realize the benefit of the net operating loss
carryforwards. The federal net operating loss carryforwards are available to
offset future taxable income and expire at various times through 2020 if not
utilized.
Due to the "change in ownership" provisions of the Internal Revenue Code
382, the availability of About's net operating loss and credit carryforwards may
be subject to an annual limitation against taxable income in future periods,
which could substantially limit the eventual utilization of these carryforwards.
29
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
(10) Related-Party Transactions
On April 20, 1998, About and a director of an investor in About executed
an advisory agreement pursuant to which the individual agreed to provide
consulting and advisory services to About including, but not limited to,
introducing About to members of the investment community and assisting About
with respect to financial and strategic matters. In consideration for his
services under the advisory agreement, the individual was issued a warrant to
purchase up to an aggregate of 21,360 shares of About's common stock, at an
exercise price of $5.06 per share. The warrant is exercisable at any time during
the 10-year period commencing on the date of the closing of a qualified initial
public offering (which would include the IPO). The fair value of the warrant,
using a black-scholes pricing model, resulted in a compensation charge of
$36,000 during 1998. Assumptions used in this calculation include the following:
a risk-free interest rate of 6%, no dividend yield rate, expected life of ten
years and no volatility. This warrant had not been exercised as of December 31,
2000.
(11) Acquisitions
On October 26, 2000, GBG Acquisition Corporation, a Delaware corporation
and wholly owned subsidiary of About, was merged with and into Glowbug.com, Inc.
("Glowbug"), a Delaware corporation, with Glowbug as the surviving corporation.
The consideration paid in connection with the merger approximated $21.1 million,
and consisted of the new issuance of 860,268 shares of common stock and
approximately $20,000 of acquisition related costs.
On August 31, 2000, OSW Acquisition Corporation, a New York corporation
and wholly owned subsidiary of the Company, was merged with and into
OneStopWinning.com, Inc. ("OSW"), a New York corporation, with OSW as the
surviving corporation. The consideration of $2.8 million paid by the Company in
connection with the merger consisted of 69,367 newly issued shares of common
stock and approximately $10,000 of acquisition related costs.
On August 5, 2000, WANM Acquisition Corporation, a Delaware corporation
and wholly owned subsidiary of the Company, was merged with and into WiseAds New
Media, Inc. ("WiseAds"), a Delaware corporation, with WiseAds as the surviving
corporation. The consideration of $9.7 million paid by the Company in connection
with the merger consisted of 236,066 newly issued shares of common stock, valued
at $7.4 million, approximately $300,000 of acquisition related costs and the
assumption of options to purchase shares of common stock of WiseAds which were
exchanged for options to purchase 88,683 shares of About's common stock, valued
at approximately $2.0 million.
On May 12, 2000, About formed Jazz II Acquisition Corporation ("JAC"), a
Delaware corporation and wholly owned subsidiary of the Company. JAC was merged
into Sitetracker Marketing, Inc. ("Sitetracker"), with Sitetracker as the
surviving corporation. As a result of the merger, Sitetracker is a wholly owned
subsidiary of About. The consideration paid in connection with the merger
approximated $8.0 million, through the new issuance of 199,726 shares of the
Company's common stock, valued at $40.14 per share.
30
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
On April 24, 2000, the Company acquired all of the assets of
AllExperts.com ("AllExperts"), for a purchase price of approximately $1.2
million, which includes 38,968 newly issued shares of About's common stock,
valued at $29.35 per share, and cash consideration of approximately $45,000.
On March 24, 2000, About acquired Sombasa Media Inc. ("Sombasa") for
approximately $38.1 million, including approximately $20,000 of acquisition
costs. The consideration consisted of 406,673 newly issued shares of the
Company's common stock, valued at $87.61 per share, as well as the assumption of
options to purchase shares of common stock of Sombasa that were exchanged for
options to purchase approximately 31,495 shares of About's common stock, valued
at approximately $2.5 million.
On January 28, 2000, About acquired ExpertCentral.com, Inc.
("ExpertCentral") for approximately $32.8 million, which includes approximately
$200,000 of acquisition costs. The consideration consisted of 510,771 newly
issued shares of the Company's common stock, valued at $62.80 per share, as well
as the assumption of options to purchase shares of common stock of ExpertCentral
that were exchanged for options to purchase approximately 8,287 shares of
About's common stock, valued at approximately $500,000.
On December 15, 1999, AAC (as defined below), was merged with and into
North Sky, Inc. ("North Sky"), a Delaware corporation, with North Sky as the
surviving corporation. The consideration of $37.6 million paid by the Company in
connection with the merger consisted of 501,585 newly issued shares of common
stock, valued at approximately $22.9 million, approximately $80,000 of
acquisition related costs and the assumption of options to purchase shares of
common stock of North Sky which were exchanged for options to purchase
approximately 330,166 shares of About's common stock, valued at approximately
$14.6 million.
On June 14, 1999, About formed About Acquisition Corporation ("AAC"), a
Delaware corporation and wholly owned subsidiary of the Company. AAC was merged
into VantageNet, Inc. ("VantageNet"), with VantageNet as the surviving
corporation. As a result of the merger, VantageNet is a wholly owned subsidiary
of About. The consideration paid in connection with the merger approximated $2.5
million, which includes cash consideration of $550,000 and the issuance of
65,550 shares of the Company's common stock, valued at $29.75 per share.
The acquisitions of Glowbug, OSW, WiseAds, Sitetracker, AllExperts,
Sombasa, ExpertCentral, North Sky and VantageNet (collectively the
"Acquisitions"), have been accounted for as purchase business combinations. The
aggregate purchase price of the Acquisitions of approximately $153.8 million,
has been allocated to the identifiable tangible and intangible assets acquired
and liabilities assumed, based upon their respective estimated fair values.
Substantially all of the aggregate purchase price was allocated to goodwill and
is being amortized over a three-year period.
The allocation of the aggregate purchase price was performed using values
and estimates available as of the respective dates of the Acquisitions.
Adjustments for pre-acquisition contingencies which could affect the amounts
recorded by the Company may still be made through the end of one year from the
consummation of the Acquisitions.
31
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
The Company's consolidated results of operations includes results of
operations from the Acquisitions' as of their respective acquisition dates. The
following unaudited proforma information represents the consolidated results for
the years ended December 31, 2000, 1999 and 1998, as if the acquisitions
completed in 2000 had occurred as of January 1, 1999 and the acquisitions
completed in 1999 had occurred as of January 1, 1998. The unaudited pro forma
information has been included for comparative purposes and is not indicative of
the results of operations of the consolidated Company had the Acquisitions been
made as of such date, nor is it necessarily indicative of future results
(amounts in thousands, except per share amounts):
Year ended December 31, (unaudited)
-----------------------------------
2000 1999 1998
--------- --------- ---------
Total revenues .......................... $ 106,095 $ 32,334 $ 3,976
========= ========= =========
Net loss attributable to common
stockholders .......................... $ (91,691) $ (91,878) $ (29,074)
========= ========= =========
Net loss per basic and diluted common
share ................................. $ (4.73) $ (7.66) $ (12.65)
========= ========= =========
Weighted average shares used in net loss
per basic and diluted common share
calculation (1) ....................... 19,384 11,991 2,299
--------- --------- ---------
(1) The weighted average common shares used to compute pro forma net
loss per basic and diluted common share include the actual weighted
average common shares outstanding for the historical years ended
December 31, 2000, 1999 and 1998, respectively, plus the common
shares issued in connection with the Acquisitions, from January 1,
1998 or the date of inception of the acquired companies, if later.
(12) Notes Payable
Notes Payable
During January 1998, About entered into an asset backed credit facility
with Phoenix Leasing Incorporated which was secured by About's fixed assets.
During the year ended December 31, 1998, About received a total loan of
$508,000. The effective interest rate of the credit facility is 18%. The
remaining amount on the credit facility of $140,000 is due in full in 2001.
In January and February 1999, About entered into a lease line of credit
for $781,000 to finance capital equipment. The effective interest rate of the
line of credit is 16%. At December 31, 2000, the outstanding balance
approximates $314,000, of which, $284,000 is due in 2001 and $30,000 is due in
2002.
32
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
8.25% Notes Payable
On October 17, 1996, About executed a secured 8.25% Promissory Note
("8.25% Note") for the principal amount of $3,906,000. Between August 1997 and
November 1998, the 8.25% Note was amended to reduce the principal and accrued
interest amounts to zero, in exchange for a $650,000 Series A Note payable and
944,444 and 913,856 shares of Series B and C Convertible Preferred Stock,
respectively. In connection with this exchange, warrants to purchase an
aggregate total of 33,005 shares of About's common stock, at an exercise price
of $4.21 per share, were issued. The fair value of the warrants, using a
black-scholes pricing model, approximated $18,000 and was included in interest
expense for the year ended December 31, 1998. In December 1998, 24,105 of the
above warrants were cancelled.
The following summarizes the 8.25% Notes activity (in thousands):
Principal Interest Total
--------- -------- -------
Balance at January 1, 1997 .................................... $ 3,906 $ 66 $ 3,972
Conversion into convertible notes payable - Series A on
August 27, 1997 ............................................. (650) -- (650)
Accrued interest during 1997 .................................. -- 308 308
------- ------- -------
Balance at December 31, 1997 .................................. $ 3,256 $ 374 $ 3,630
Conversion into Series B Preferred stock on April 23, 1998 .... (1,700) (306) (2,006)
Accrued interest from January 1, 1998 through November 13, 1998 -- 158 158
Conversion into Series C Preferred stock on November 13, 1998 . (1,556) (226) (1,782)
------- ------- -------
Balance at December 31, 1998 .................................. $ -- $ -- $ --
======= ======= =======
Series A Notes
Between March 27, 1997 and January 15, 1998, About issued several secured
subordinated notes, ("Series A Notes"), for a total principal amount of
$4,950,000, which bore interest at variable rates equal to the prime rate plus
two percent per annum. A portion of these Series A Notes resulted from the
conversion of $650,000 from the 8.25% Note as described above, as well as the
conversion of $300,000 of deferred compensation owed to Scott Kurnit, CEO of the
Company.
In connection with the issuance of the Series A Notes, About issued
warrants to purchase 218,890 and 66,753 shares of About's common stock at
exercise prices of $0.03 and $4.21 per share. Using a black-scholes pricing
model, the value recognized on these warrants approximated $137,000, which was
recorded as an original issue debt discount and amortized to interest expense
over the life of the Series A Notes. In December 1998, About exercised its right
to call certain investor warrants which resulted in the issuance of 218,890
shares of common stock at $0.03 per share and 66,753 shares of common stock at
$4.21 per share, for net cash proceeds of approximately $288,000.
33
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
On April 23, 1998, About issued an aggregate of 3,346,715 shares of Series
A Convertible Preferred Stock ("Series A Preferred"), to holders of the Series A
Notes, in consideration for the principal owed and $70,000 of accrued interest.
All remaining interest under the Series A Notes was supported by the issuance of
an unsecured promissory note for $337,000, that bore interest at 6% and had no
due date. In accordance with the terms of the promissory note, it was
automatically forgiven and canceled upon the closing of About's IPO, and such
amount was recorded as a contribution to additional paid-in capital.
The following summarizes the Series A Notes activity (in thousands):
Principal Interest Total
--------- -------- -------
Balance at January 1, 1997 ................................... $ -- $ -- $ --
Issuance of notes between March 27, 1997 and December 31, 1997 4,000 -- 4,000
Conversion of 8.25% Note into Series A Note on August 27, 1997 650 -- 650
Accrued interest during 1997 ................................. -- 240 240
------- ------- -------
Balance at December 31, 1997 ................................. 4,650 240 4,890
Conversion of $300 of Mr. Kurnit's deferred compensation into
Series A Note .............................................. 300 -- 300
Interest accrued through April 23, 1998 ...................... -- 155 155
Conversion into Series A Preferred stock on April 23, 1998 ... (4,950) (70) (5,020)
Conversion of remaining accrued interest into newly issued
unsecured promissory note on April 23, 1998 ................ -- (325) (325)
------- ------- -------
Balance at December 31, 1998 ................................. $ -- $ -- $ --
======= ======= =======
The following summarizes the unsecured promissory note activity (in thousands):
Principal Interest Total
--------- -------- -------
Balance at January 1, 1998 ...................................... $ -- $ -- $ --
Conversion of remaining accrued interest on Series A Notes into
newly issued unsecured promissory note on April 23, 1998 ...... 325 -- 325
Accrued interest during 1998 .................................... -- 13 13
--------- -------- -------
Balance at December 31, 1998 .................................... 325 13 338
Accrued interest from January 1, 1999 through March 24, 1999 .... -- 4 4
Contribution to additional paid in capital in connection with the
forgiveness and cancellation of interest on March 24, 1999 .... (325) (17) (342)
--------- -------- -------
Balance at December 31, 1999 .................................... $ -- $ -- $ --
========= ======== =======
34
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
Series B Notes
Between November 1997 and February 1998, About issued several secured
subordinated notes ("Series B Notes") for an aggregate principal amount of $2.8
million of which $1.0 million bore interest at a variable rate equal to the
prime rate plus two percent per annum and $1.8 million bore interest at 10%
percent per annum and were due on demand. Pursuant to their terms, the Series B
Notes were automatically convertible into shares of About's Series B Convertible
Preferred Stock ("Series B Preferred ") upon the closing of About's IPO in March
1999. The conversion price for these notes, as provided for in the original note
agreement, was $1.80 per preferred share.
In connection with the issuance of these Series B Notes, About issued
warrants to purchase 250,192 shares of About's common stock at an exercise
price of $5.06 per share. The fair value of the warrants, using the
black-scholes pricing model, approximated $150,000 and was recorded as
interest expense. Assumptions used in this calculation include the following:
a risk-free interest rate of 6%, no dividend yield rate, expected life of ten
years and no volatility. In December 1998, About exercised its right to call
certain investor warrants, which resulted in the issuance of 250,192 shares
of common stock at $5.06 per share for net cash proceeds of approximately
$1.3 million.
On April 23, 1998, About issued 1,594,380 shares of Series B Preferred, at
a purchase price of $1.80 per share, to holders of the Series B Notes, in
consideration for the cancellation of all indebtedness of About under the Series
B Notes. Upon the closing of the IPO, these 1,594,380 shares of Series B
preferred converted into 567,601 shares of common stock.
The following summarizes the Series B Notes activity (in thousands):
Principal Interest Total
--------- -------- ---------
Balance at January 1, 1997 .................................. $ -- $ -- $ --
Issuance of Series B Notes on November 26, 1997 ............. 1,000 -- 1,000
Accrued interest during 1997 ................................ -- 10 10
--------- -------- ---------
Balance at December 31, 1997 ................................ 1,000 10 1,010
Issuance of Series B Notes February 1998 .................... 1,800 -- 1,800
Accrued interest through April 23, 1998 ..................... -- 60 60
Conversion of the Series B Notes and accrued interest thereon
into Series B Preferred stock on April 23, 1998 ........... (2,800) (70) (2,870)
--------- -------- ---------
Balance at December 31, 1998 ................................ $ -- $ -- $ --
========= ======== =========
35
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
Series C Notes
On October 5, 1998, About issued convertible promissory notes ("Series C
Notes") for an aggregate principal of $1,081,000. Pursuant to the terms of the
Series C Notes, they automatically converted into Series C Convertible Preferred
Stock ("Series C Preferred"), upon the next equity financing conducted by About.
In November and December 1998, About issued 7,301,811 shares of Series C
Preferred, at a purchase price of $1.95 per share, to holders of the Series C
Notes, the holder of the 8.25% Note and other investors, for cancellation of
About indebtedness. Upon the closing of the IPO, these 7,301,811 shares of
Series C Preferred converted into 2,599,455 shares of common stock.
The following summarizes the Series C Notes activity (in thousands):
Principal Interest Total
--------- -------- ---------
Balance at January 1, 1998 .................................. $ -- $ -- $ --
Issuance of Series C Notes on October 5, 1998 ............... 1,081 -- 1,081
Accrued interest through November 13, 1998 .................. -- 9 9
Conversion into Series C Preferred Stock on November 13, 1998 (1,081) (9) (1,090)
--------- -------- ---------
Balance at December 31, 1998 ................................ $ -- $ -- $ --
========= ======== =========
(13) Capitalization
Authorized Shares
At December 31, 1998, the total number of shares which About was
authorized to issue was 53,662,260; 35,000,000 of these shares were common
stock, each having a par value of $0.001; and 18,662,260 shares were preferred
stock, each having a par value of $0.001, of which 3,346,715, 6,597,596, and
8,717,949 were designated as Series A Preferred, Series B Preferred and Series C
Preferred, respectively. Upon the closing of the IPO in March 1999, 3,346,715,
6,597,596 and 7,301,811 shares of Series A, B and C convertible preferred stock,
respectively, converted into 6,139,640 shares of common stock. In addition,
About issued 3,557,527 shares of common stock in connection with its IPO and
concurrent placement. At that time, About also amended and restated its
certificate of incorporation so that the Company was authorized to issue
50,000,000 shares of common stock and 5,000,000 shares of undesignated preferred
stock. In May 2000, the board of directors adopted an amendment to the Second
Amended and Restated Certificate of Incorporation to increase the number of
shares of authorized common stock to 100,000,000 shares. This amendment was
subsequently ratified by About's stockholders. The number of shares of
undesignated preferred stock remained unchanged at 5,000,000.
36
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
Redeemable Convertible Preferred Stock
On April 23, 1998, About issued an aggregate of 3,346,715 shares of Series
A Preferred, at a purchase price of $1.50 per share, to holders of its Series A
Notes, in exchange for the cancellation of all principal and certain accrued
interest owed, approximating $5.0 million. In March 1999, upon the closing of
About's IPO, all Series A Preferred shares were converted to 1,191,433 shares of
common stock.
In April and June 1998, About issued an aggregate of 6,597,596 shares of
Series B Preferred, at a purchase price of $1.80 per share, to (i) holders of
its Series B Notes in exchange for the cancellation of all indebtedness of About
under the Series B Notes, amounting to $2,870,000, (ii) the 8.25% Note holder,
in exchange for the cancellation of $1,700,000 in principal and $306,000 in
accrued interest, and (iii) $7.0 million in cash from other investors. In March
1999, upon the closing of the IPO, the 6,597,596 shares of Series B Preferred
were converted into 2,348,752 shares of common stock.
In connection with the issuance of the Series B Preferred, About issued
warrants to purchase 107,695 shares of About's common stock at an exercise price
of $7.02 per share. In December 1998, About exercised its right to call certain
investor warrants which resulted in the issuance of 103,801 shares of common
stock at $7.02 per share for net cash proceeds of approximately $703,000. The
warrant for the remaining 3,894 shares was cancelled.
On November 13, 1998 and December 4, 1998, About issued an aggregate of
7,301,811 shares of Series C Preferred, at a purchase price of $1.95 per share,
to (i) holders of the Series C Notes in exchange of a payment of $2,322,000 and
the cancellation of all indebtedness under the Series C Notes, amounting to
$1,090,000 (ii) the 8.25% Note holder, in consideration for the cancellation of
$1,782,000 in principal and accrued interest, and (iii) other investors in
consideration for the payment of $9,045,000, including $763,000 from existing
stockholders pursuant to participation rights granted to those stockholders. In
March 1999, upon the closing of the IPO, the 7,301,811 shares of Series C
Preferred were converted into 2,599,455 shares of common stock.
Each share of Series A Preferred, Series B Preferred and Series C
Preferred was entitled to a cumulative dividend at the rate of $0.135, $0.162,
and $0.176 per share per annum, respectively, payable in preference and priority
to any payment of any cash dividend on common stock, when and as declared by the
Board of Directors of About. Cumulative dividends on convertible preferred stock
amounted to $1,197,000 and $1,843,000 as of December 31, 1998 and March 24,
1999, respectively. Upon the closing of the IPO, all cumulative dividends were
canceled. Each holder of Series A Preferred, Series B Preferred and Series C
Preferred shares were entitled to the number of votes equal to the number of
whole shares of common stock into which the shares of preferred stock were
convertible into on the date of the IPO.
37
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
Each share of Series A Preferred, Series B Preferred and Series C
Preferred was convertible into 0.356 shares of common stock, as adjusted for
dilutive issuances of stock and other securities. In March 1999, upon the
closing of the IPO, 3,346,715, 6,597,596 and 7,301,811 shares of Series A, B and
C convertible preferred stock, respectively, representing all of the outstanding
shares of convertible preferred stock, automatically converted into 6,139,640
shares of common stock.
The following summarizes About's Convertible Preferred Stock Activity (in
thousands except share amounts):
Series A Series B Series C
------------------------ ------------------------ ------------------------
Shares Amount Shares Amount Shares Amount
---------- ---------- ---------- ---------- ---------- ----------
Balance at January 1, 1998 ................... -- $ -- -- $ -- -- $ --
Conversion of the $4,950 of the convertible
notes payable Series A together with $70 of
interest thereon into Series A preferred
stock on April 23, 1998 .................... 3,346,715 5,020 -- -- -- --
Conversion of $1,700 of the 8.25% notes
payable together with $306 of interest
thereon into Series B preferred stock on
April 23, 1998 ............................. -- -- 1,114,327 2,006 -- --
Conversion of $2,800 of the convertible notes
payable-Series B together with $70 of
interest thereon into Series B preferred
stock on April 23, 1998 .................... -- -- 1,594,380 2,870 -- --
Issuance of Series B preferred stock on April
23, 1998 in consideration of cash proceeds
of $7.0 million ............................ -- -- 3,888,889 7,000 -- --
Conversion of the remaining $1,556 of 8.25%
notes payable together with $226 of interest
thereon into Series C preferred stock on
November 13, 1998 .......................... -- -- -- -- 913,856 1,782
Conversion of $1,081 of the convertible notes
payable-Series C together with $9 of
interest thereon into Series C preferred
stock on November 13, 1998 ................. -- -- -- -- 558,917 1,090
Issuance of Series C preferred on November 13,
and December 4, 1998 in consideration of
cash proceeds of $11.4 million ............. -- -- -- -- 5,829,038 11,367
--------------------------------------------------------------------------------
Balance at December 31, 1998 ................. 3,346,715 5,020 6,597,596 11,876 7,301,811 14,239
--------------------------------------------------------------------------------
Conversion of Series A, B, and C preferred
stock into 1,191,433, 2,348,752, and
2,599,455 shares of common stock,
respectively, upon the closing of the IPO .. (3,346,715) (5,020) (6,597,596) (11,876) (7,301,811) (14,239)
--------------------------------------------------------------------------------
Balance at December 31, 1999 ................. -- $ -- -- $ -- -- $ --
================================================================================
38
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
Warrants
Warrant activity during the periods indicated is as follows:
Weighted
Average
Warrants Exercise
Granted Price
-------- ------
Outstanding at December 31, 1996 .............. -- $ --
Granted ....................................... 427,003 3.14
Exercised ..................................... -- --
Cancelled ..................................... -- --
-------- ------
Outstanding at December 31, 1997 .............. 427,003 3.14
Granted ....................................... 309,340 5.60
Exercised ..................................... (639,636) 3.53
Cancelled ..................................... (27,999) 4.60
-------- ------
Outstanding at December 31, 1998 .............. 68,708 9.66
Granted ....................................... -- --
Exercised ..................................... (38,448) 13.48
Cancelled ..................................... -- --
-------- ------
Outstanding at December 31, 1999 .............. 30,260 4.81
Granted ....................................... -- --
Exercised ..................................... (8,900) 4.21
Cancelled ..................................... -- --
-------- ------
Outstanding at December 31, 2000 .............. 21,360 $ 5.06
======== ======
All warrants are exercisable and have expiration dates generally ten years
from the date of grant, provided that, under certain circumstances, About may
cancel the warrants after providing the holders with a reasonable period of time
to exercise the warrants prior to cancellation.
As of December 31, 2000, warrants to purchase 21,360 shares of common
stock at $5.06 per share remained outstanding. In January 2001, all of these
warrants were exercised.
(14) Stock Option Plans
About's Second Amended and Restated 1998 Stock Option/Stock Issuance Plan
(the "1998 Plan"), the successor plan to About's 1997 Employee Incentive Stock
Option Plan, was initially adopted by the Board of Directors in July 1998. Under
the 1998 Plan, 7,723,484 shares of common stock are authorized for issuance,
pursuant to the terms of the 1998 Plan. Such share reserve consists of (i)
7,224,885 shares available for issuance on December 31, 2000, including the
shares subject to outstanding options, and (ii) 498,599 shares assumed in
connection with the assumption of option plans from the North Sky,
ExpertCentral, Sombasa, WiseAds and Glowbug acquisitions.
39
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
On August 20, 1999, the Board of Directors also adopted About's 1999
Non-Officer Stock Option/Stock Issuance Plan (the "1999 Plan"). Currently,
800,000 shares of common stock have been authorized for issuance under the 1999
Plan, only to non-officer employees of the Company and consultants or other
independent advisors (excluding Board members) who provide services to About.
Such share reserve consists of (i) 400,000 initially reserved for issuance under
the 1999 Plan on August 20, 1999 and (ii) an additional 400,000 shares of common
stock approved by the Board of Directors on November 30, 1999. At December 31,
2000, options to purchase 753,176 shares of common stock had been granted
pursuant to the 1999 Plan.
Options under both the 1998 and 1999 Plans (collectively, the "Plans")
have ten year terms and have been issued at the fair market value of About's
common stock on the date of the applicable grant (except for certain options
issued with exercise prices less than the deemed fair value at the date of
grant). Incentive options granted to stockholders who own more than 10% of the
outstanding stock of About must be issued at 110% of the fair market value of
the stock on the date that the options are granted.
Stock option activity under the Plans during the periods indicated is as
follows:
Weighted
Average
Options Exercise
Granted Price
---------- ------
Outstanding at December 31, 1997 .............. 768,851 $ 0.51
Granted ....................................... 485,921 1.43
Exercised ..................................... (87,583) 0.90
Cancelled ..................................... (38,540) 0.64
---------- ------
Outstanding at December 31, 1998 .............. 1,128,649 0.87
Granted ....................................... 2,775,707 24.71
Exercised ..................................... (503,071) 2.22
Cancelled ..................................... (258,684) 23.44
---------- ------
Outstanding at December 31, 1999 .............. 3,142,591 19.79
Granted ....................................... 4,574,601 34.10
Exercised ..................................... (863,844) 6.69
Cancelled ..................................... (965,285) 38.68
---------- ------
Outstanding at December 31, 2000 .............. 5,888,063 $30.11
========== ======
Exercisable at December 31, 2000 .............. 1,419,695 $25.30
========== ======
Exercisable at December 31, 1999 .............. 901,880 $ 7.23
========== ======
Total options available as of December 31, 2000 1,382,202
==========
40
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
The following table summarizes information about stock options outstanding
at December 31, 2000:
Weighted
average Weighted Weighted
Number of remaining average Number average
Actual Range of outstanding at contractual exercise exercisable exercise
exercise prices 12/31/00 life price at 12/31/00 price
----------------- -------------- ----------- -------- ----------- --------
$0.19 - 0.19 52 8.7 $ 0.19 52 $ 0.19
$0.32 - 0.47 44,077 6.8 $ 0.37 11,783 $ 0.35
$0.51 - 0.63 128,537 6.2 $ 0.52 123,300 $ 0.51
$1.01 - 1.01 95,147 7.5 $ 1.01 54,964 $ 1.01
$2.81 - 4.21 98,235 8.1 $ 3.97 23,647 $ 3.65
$4.31 - 5.51 47,613 9.4 $ 4.71 26,613 $ 4.36
$6.77 - 8.63 22,384 9.1 $ 7.72 16,531 $ 8.06
$10.79 - 15.00 10,113 8.5 $ 13.06 10,113 $ 13.06
$16.81 - 25.13 1,828,488 8.5 $ 21.24 497,217 $ 24.16
$25.40 - 38.00 2,775,116 8.9 $ 32.87 562,450 $ 33.12
$38.13 - 56.50 487,805 8.6 $ 45.65 79,701 $ 44.72
$58.75 - 86.69 337,099 8.9 $ 66.65 8,977 $ 62.67
$88.87 - 129.52 13,397 9.4 $103.75 4,347 $129.52
----------------- -------------- ----------- -------- ----------- --------
$0.19 - 129.52 5,888,063 8.7 $30.11 1,419,695 $25.30
================= ============== =========== ======== =========== ========
The weighted-average remaining life of the 5,888,063 and 3,142,591 options
outstanding at December 31, 2000 and 1999 is 8.7 and 8.5 years, respectively.
For the years ended December 31, 2000, 1999 and 1998, About recorded
deferred compensation of approximately $427,500, $2,775,400 and $1,716,900, in
connection with the grant of certain options to employees and directors,
representing the difference between the deemed fair value of About's common
stock at the date of grant for accounting purposes and the exercise price of the
related options. This amount is presented as a reduction of stockholders' equity
(deficit) and amortized over the vesting period of the applicable options. About
granted approximately 20,000, 133,500 and 485,921 options at weighted average
exercise prices of $7.50, $4.21 and $1.43 per share in 2000, 1999 and 1998
respectively; all of which were granted at less than the deemed fair value at
the date of grant. About amortized $478,000 of deferred compensation for the
year ended December 31, 1998 of which $27,000 was included in cost of revenue.
About amortized $1.1 million of deferred compensation for the year ended
December 31, 1999, of which $19,000 has been included in cost of revenue. For
the year ended December 31, 2000, About recognized $864,000 in deferred
compensation amortization, of which $18,600 was included in cost of revenue.
41
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
In December 1998, About also recorded non-cash compensation expense of
approximately $23,000 in connection with options granted under the Plans to
consultants to purchase 5,340 shares of common stock at an exercise price of
$4.21 per share. The fair value of the options was determined using the
black-scholes pricing model, with the following assumptions: a risk-free
interest rate of 6%, no dividend yield rate and no volatility.
In March 1999, About recorded a non-cash charge of $3.6 million,
calculated utilizing a black-scholes pricing model, for guide compensation. This
charge was the result of granting fully vested, non-qualified stock options to
purchase 199,500 shares of common stock at an exercise price of $25.00 per share
to a substantial majority of its guides. The options have a two-year term.
Accordingly, such amount was recorded as a non-cash compensation expense
included in cost of revenue in About's accompanying statement of operations.
In May and December 2000, About recorded an aggregate non-cash charge of
approximately $3.7 million for guide compensation, as calculated by a
black-scholes pricing model. These charges were the result of granting fully
vested, non-qualified stock options to purchase 127,400 shares of common stock
at an exercise price of $35.75 per share in May 2000 and 51,000 shares of common
stock at an exercise price of $23.50 per share in December 2000. The options
have a two-year exercise term. Accordingly, such amounts were recorded as
non-cash compensation expense in cost of revenue in About's statement of
operations for the year ended December 31, 2000, with an offsetting increase to
additional paid-in-capital.
Had compensation expense been determined based on the fair value at the
grant dates as prescribed under SFAS No. 123, About's net loss would have been
adjusted to the pro forma amounts as indicated below (in thousands):
Year Ended December 31,
--------------------------------------
2000 1999 1998
---------- ---------- ----------
Net loss attributed to common stockholders - as
reported ................................................ $ (66,030) $ (55,756) $ (16,808)
========== ========== ==========
Net loss attributed to common stockholders - pro forma per
SFAS No. 123 ............................................ $ (99,482) $ (69,553) $ (17,008)
========== ========== ==========
Net loss per basic and diluted common share - as
reported ................................................ $ (3.61) $ (5.30) $ (9.71)
========== ========== ==========
Net loss per basic and diluted common share - pro forma per
SFAS No. 123 ............................................ $ (5.44) $ (6.61) $ (9.82)
========== ========== ==========
The fair value of option grants was determined using a black-scholes
pricing model with the following assumptions:
2000 1999 1998
--------- --------- ---------
Risk-free interest rate ................. 6.21% 5.60% 6.00%
Dividend yield .......................... 0% 0% 0%
Volatility factor ....................... 115% 0% 0%
Average expected life ................... 4.0 years 4.0 years 4.4 years
42
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
The per share weighted-average fair value of stock options granted during
2000, 1999 and 1998 was $27.52, $25.24 and $3.87, respectively, on the date of
grant using the black-scholes pricing model and the assumptions as disclosed in
the table above.
About's Employee Stock Purchase Plan ("ESPP") was adopted by the Board of
Directors in February 1999. The ESPP provides eligible employees of the Company
the opportunity to apply a portion of their compensation to the purchase of
shares of the Company at a 15% discount. The Company has 125,000 authorized
shares of common stock reserved for issuance under the ESPP. During the years
ended December 31, 2000 and 1999, 62,607 and 26,512 shares, respectively, were
purchased by employees through the ESPP.
(15) Employee Savings Plan
In January 1999, About established a defined contribution plan under
Section 401(k) of the Internal Revenue Code, for employees 18 of age or older
who have completed at least 3 months of service with the Company. Participants
may elect to defer up to 15 percent of their annual salary. Currently, About
does not match contributions.
(16) Commitments and Contingencies
(a) Leases
About leases computer equipment and several office facilities within the
United States under non-cancelable operating leases. These leases generally
provide for rental increases at specified intervals. In addition, About is a
lessee, under several capital lease agreements with third parties, for
additional equipment. Total rent expense, under operating leases, for the years
ended December 31, 2000, 1999 and 1998 was approximately $3.1 million, $791,600,
and $320,600, respectively.
In March 1999, About entered into a four year lease agreement, expiring
April 30, 2003, which expanded its then existing office space. Subsequently, in
December 1999, About entered into a new fifteen year lease agreement for
approximately 169,000 square feet of office space at 1440 Broadway, New York,
New York. In accordance with the terms of the new agreement, the Company
received a period of free rent. As the Company is recognizing rent expense
related to the new lease on a straight-line basis over the life of the lease,
including the free rent period, About recognized deferred rent in the amount of
approximately $759,000 in the accompanying consolidated balance sheet at
December 31, 2000. The minimum lease payments under the 1440 Broadway lease have
been included as part of the future minimum lease payment schedule below.
43
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
Future minimum lease payments under non-cancelable operating leases and
capital leases as of December 31, 2000 are as follows (in thousands):
Capital Operating
Year Leases Leases
-------- --------
2001 ..................................................... $ 88 $ 6,163
2002 ..................................................... 38 8,127
2003 ..................................................... 4 9,028
2004 ..................................................... -- 8,313
2005 ..................................................... -- 8,192
Thereafter ............................................... -- 89,878
-------- --------
Total minimum lease payments ........................ $ 130 $129,701
========
Less amount representing interest (at rates ranging
from 10.9% to 24.6%) 12
--------
Present value of minimum lease payments .................. 118
Less current portion of obligations under capital leases . 78
--------
Obligations under capital leases, excluding current
portion ................................................ $ 40
========
(b) Employment Agreements
During January 1999, About entered into employment arrangements with two
employees. The employment arrangements provide for minimum salary levels,
incentive compensation and severance benefits, among other items. About granted
an aggregate of 133,500 options to the two employees. The exercise price of the
options is $4.21 per share. As a result, About recorded deferred compensation
expense in the first quarter of 1999 of $2,775,400 relating to the 133,500
options, for the difference between the deemed fair value of About's common
stock and the exercise price of that option, at the date of grant. This amount
has been presented as a reduction of stockholders' equity and is being amortized
over the four-year vesting period of the applicable options. About has amortized
$323,700 and $693,800 of deferred compensation for the years ended December 31,
2000 and 1999, respectively. Certain options were forfeited in January 2000,
which resulted in a $1.1 million reduction in deferred compensation.
During November 1999, the Company entered into an exclusive one-year
arrangement with a non-public company to provide personal homepage services. The
Company agreed to make payments, which are expensed, that are based on the
amount of advertising revenue generated on About's personal homepages. In
addition, the Company received vested and exercisable warrants to purchase
517,484 shares of preferred stock and warrants to purchase an additional
2,069,936 shares of preferred stock which periodically vest upon the achievement
of specified performance milestones, as defined. The warrants have an exercise
price of $2 per share and a 4-year exercise term. The fair value of these
517,484 warrants was deemed to be insignificant at the time of issuance.
44
ABOUT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2000 and 1999
At December 31, 2000, About had employment agreements with three senior
employees from an acquired company, that provide for severance benefits, among
other items. In the event these employees are terminated, About may be liable
for severance of up to $441,000, payable during the year following that
termination.
(17) Quarterly Information (unaudited)
Quarter ended
-------------------------------------------------
Fiscal 2000 March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
(Amounts in thousands, except per share amounts)
Revenue ........................... $ 15,807 $ 20,129 $ 26,819 $ 34,213
======== ======== ======== ========
Gross profit ...................... 9,802 9,951 16,487 21,952
======== ======== ======== ========
Loss from operations .............. (15,483) (21,145) (16,792) (20,729)
======== ======== ======== ========
Net loss attributable to
common stockholders ............... (13,126) (18,869) (14,624) (23,202)
======== ======== ======== ========
Net loss per basic and diluted
common share ...................... $ (0.78) $ (1.06) $ (0.80) $ (1.15)
======== ======== ======== ========
Weighted average basic and
diluted common shares
outstanding ....................... 16,889 17,877 18,257 20,091
-------- -------- -------- --------
Quarter ended
-------------------------------------------------
Fiscal 1999 March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
(Amounts in thousands, except per share amounts)
Revenue ........................... $ 2,367 $ 3,707 $ 7,884 $ 13,004
======== ======== ======== ========
Gross profit (loss) ............... (3,572) 779 3,789 8,354
======== ======== ======== ========
Loss from operations ............. (11,940) (21,493) (13,853) (11,185)
======== ======== ======== ========
Net loss attributable to
common stockholders ............... (12,582) (20,693) (13,173) (9,308)
======== ======== ======== ========
Net loss per basic and diluted
common share ...................... $ (4.07) $ (1.71) $ (1.08) $ (0.63)
======== ======== ======== ========
Weighted average basic and
diluted common shares
outstanding ....................... 3,095 12,083 12,205 14,673
======== ======== ======== ========
45
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 thereunto duly authorized.
PRIMEDIA Inc.
-------------
(Registrant)
Date: April 26, 2001 /s/ Thomas S. Rogers
----------------------------------------------------
(Signature)
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: April 26, 2001 /s/ Robert J. Sforzo
----------------------------------------------------
(Signature)
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
46
Exhibit Index
Exhibit No. Description
----------- -----------
23.1 Consent of Ernst & Young LLP
23.2 Consent of KPMG LLP