Prospectus Summary
You should read the following summary together with the more detailed information regarding our company and the common stock being sold in this offering and our consolidated financial statements and the notes to those statements appearing elsewhere in this prospectus. Unless otherwise indicated, all information contained in this prospectus assumes no exercise by the underwriters of their option to purchase additional shares of our common stock in the offering, reflects a three-for-two stock split of our common stock completed in September 1999, and reflects the conversion of all outstanding shares of preferred stock into common stock upon completion of this offering.
Snowball.com, Inc.
Snowball is an Internet media company that operates a network of destination web sites providing content, community and commerce to the Internet generation, or Generation i. We view Generation i as individuals between the ages of 12 and 29 who consider the Internet to be an integral part of their daily lives. According to the United States Census Bureau, Generation i consisted of 67.7 million individuals in 1998, and those individuals between the ages of 15 and 24 had $302.4 billion in disposable income in the same year. We serve the members of this community by providing them with opinionated, cutting-edge content, relevant services such as email and instant messaging, a forum for interacting with one another and carefully selected merchandise within our online store.
In addition to creating original content, we continuously work to expand the breadth and depth of our content offerings by selectively adding affiliated web sites to our network. Our network and affiliate business model enables us to add content and traffic to our network rapidly and cost-effectively, while keeping the content fresh and compatible with the evolving tastes of Generation i. To attract and retain affiliates, we provide an integrated package of sales and marketing services, technical support and audience development opportunities. As of November 30, 1999, we were affiliated with more than 130 web sites and over 80 partner college destinations organized under four vertical networks, each targeting a specific segment of Generation i:
. ChickClick, which provides content, community and commerce features to Generation i women;
. IGN, which provides information and entertainment to Generation i men;
. InsideGuide, which offers student-generated information concerning individual colleges; and . PowerStudents, which provides students at all levels with information concerning college admissions, jobs and careers.
Our vertical content destinations and their affiliated sites provide focused and deep content that attracts a large and segmented audience. By offering targeted access to a large audience with attractive demographic characteristics, we are able to generate marketing and advertising revenue in a variety of forms. These include promotions and sponsorships, slotting and lead- generation fees, and sales of various forms of banner, button and textlink advertising. We also generate merchandising revenue from the sale of carefully selected items within our online store, ChickShops.
According to Media Metrix, our networks attracted over four million unique visitors in October 1999, making us one of the top 50 highest-trafficked networks on the Internet and, we believe, the leading online destination for Generation i. Additionally, based on the same Media Metrix data, we are one of the top 15 "stickiest" networks on the Internet in terms of average minutes spent on our network per user day. As of November 30, 1999, we had over two million registered users.
The Snowball Strategy Our goal is to be the preeminent network of content, community and commerce sites on the Internet by, for and about Generation i, by:
. Building and developing our existing networks, while selectively adding new networks;
. Continuing to leverage our network and affiliate business model to achieve cost-effective and viral growth of content and traffic;
. Offering a range of value-added services to attract, retain and develop affiliated web sites;
. Promoting affinity and community across all networks and affiliates to increase "stickiness";
. Being the premier partner for marketing, advertising and commerce directed at Generation i; and . Pursuing strategic alliances and acquisitions that increase content, traffic and revenue opportunities.
Recent Developments
In October 1999, we issued 841,233 shares of our Series B-1 preferred stock to New Line New Media, Inc. for $3.6 million in cash. In connection with this transaction, we received a two-year license to distribute and display on our web sites New Line promotional materials, such as film trailers, interviews with cast members and promotional tie-ins.
In December 1999, we acquired Extreme Interactive Media, Inc., an Oklahoma corporation. Extreme Interactive Media owns the Scoops Wrestling Network, a network of web sites focusing on professional wrestling. In connection with this acquisition, we acquired all of the outstanding securities of Extreme Interactive Media in exchange for $1.0 million in cash, $250,000 in unsecured promissory notes and 75,000 shares of our common stock. In addition, we agreed to pay up to $3.5 million in cash to former security holders of Extreme Interactive Media in the event that stated performance milestones are achieved within the next twelve months.
In December 1999, we agreed to sell 3,529,000 shares of our Series C preferred stock to private investors for an aggregate purchase price of $32.3 million in cash and $3.0 million in debt conversion.
Corporate Information From our inception in January 1997 through December 1998, we operated as a division of Imagine Media, Inc., a California corporation. We were incorporated as an independent company in Delaware in January 1999 as Affiliation, Inc. and changed our name to Affiliation Networks, Inc. in February 1999. We then changed our name to Snowball.com, Inc. in September 1999. References in this prospectus to "Snowball," "we," "our" and "us" collectively refer to Snowball.com, Inc., a Delaware corporation, and its predecessors and subsidiaries, and not to the underwriters. Our principal executive offices are located at 250 Executive Park Boulevard, Suite 4000, San Francisco, California 94134 and our telephone number is (415) 508-2000. Our World Wide Web address is "www.snowball.com." The information on our web site is not part of this prospectus.
The Offering
Common stock offered by Snowball........................ shares Common stock to be outstanding after the offering.............. shares Use of proceeds.................. To promote our brand, expand sales and marketing, repay any debt that may be incurred under our credit facility and for working capital and general corporate purposes, including network expansion and content development, relocation of our offices and possible acquisitions of affiliates. See "Use of Proceeds." Proposed Nasdaq National Market symbol.......................... "SNBL" The number of shares of common stock to be outstanding after the offering includes:
. 5,106,786 shares outstanding as of September 30, 1999;
. 25,559,896 shares of common stock to be issued upon the automatic conversion of all outstanding shares of preferred stock upon completion of this offering, including 1,003,081 shares of Series B-1 preferred stock issued in October 1999 and 3,529,000 shares of Series C preferred stock that we agreed to sell in December 1999; and . 75,000 shares of common stock issued in December 1999 in connection with our acquisition of Extreme Interactive Media, Inc.
The shares of common stock to be outstanding exclude:
. 5,965,812 shares of common stock reserved for issuance under our stock option plan, of which 1,554,878 shares at a weighted average exercise price of $0.75 per share were subject to outstanding options as of September 30, 1999; and . 322,692 shares of common stock issuable upon exercise of outstanding warrants as of September 30, 1999 at a weighted average exercise price of $7.84 per share.
Summary Financial Data (in thousands, except per share data)
Year ended Nine months ended
December 31, September 30,
1997 1998 1998 1999
(unaudited)
Statements of Operations Data: Revenue............................... $ 927 $ 3,256 $ 1,342 $ 3,214 Cost of revenue....................... 171 1,322 520 2,286 Gross margin.......................... 756 1,934 822 928 Total operating expenses.............. 2,035 5,594 3,980 19,692 Loss from operations.................. (1,279) (3,660) (3,158) (18,764) Interest income, net.................. -- -- -- 337 Net loss.............................. $(1,279) $(3,660) $(3,158) $(18,427) Basic and diluted net loss per share.. $ (23.53) Shares used in per share calculation.. 783 Pro forma basic and diluted net loss per share (unaudited)................ $ (1.08) Shares used in pro forma per share calculation (unaudited).............. 17,126
See Note 1 of Notes to our Financial Statements for a description of the method that we used to compute our basic and diluted net loss per share.
The following table sets forth a summary of our balance sheet data as of September 30, 1999:
. on an actual basis;
. on a pro forma basis to reflect the subsequent closings of the sale of 1,003,081 shares of Series B-1 preferred stock in October 1999 for $4.2 million in cash, the proceeds of $15.2 million under a term loan, the sale of 3,529,000 shares of Series C preferred stock in December 1999 for $32.3 million in cash and $3.0 million in debt conversion, the repayment of $12.0 million under the term loan, our acquisition of Extreme Interactive Media in consideration of $1.0 million cash, $250,000 in unsecured promissory notes and the issuance of 75,000 shares of common stock and the automatic conversion of all outstanding shares of preferred stock into common stock immediately prior to the closing of this offering; and . on a pro forma as adjusted basis to reflect the closing of the sale of the Series B-1 and Series C preferred stock, the proceeds and repayment under the term loan, our acquisition of Extreme Interactive Media, the automatic conversion of all outstanding shares of preferred stock into common stock and our receipt of the estimated net proceeds from the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses. See "Capitalization."
September 30, 1999 Pro Forma Actual Pro Forma As Adjusted (unaudited)
Balance Sheet Data: Cash, cash equivalents and short-term investments.................................... $10,790 $46,342 $ Working capital................................. 6,525 44,889 Total assets.................................... 20,094 60,474 Long-term debt, less current portion............ 1,253 1,253 1,253 Stockholders' equity............................ 12,027 52,150