SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-K
(Mark One)
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For Fiscal Year Ended July 31, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the Transition Period From________________ to ________________
Commission File 0-22846
CMG Information Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-2921333
(State or other jurisdiction of (I.R.S.Employer Identification No.)
incorporation or organization)
100 Brickstone Square 01810
Andover, Massachusetts
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 684-3600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
(Title of Class) (Name of each exchange on which registered)
Common Stock, $0.01 par value NASDAQ
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was $ 87,162,405 as of October 22, 1996.
On October 22, 1996, the Registrant had outstanding 9,174,990 shares of Common
Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 Annual Report to Shareholders are incorporated by reference
into Parts I, II and IV of this Report. Portions of the definitive proxy
statement (the "Definitive Proxy Statement") to be filed with the Securities and
Exchange Commission relative to the Company's 1996 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Report.
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT
FISCAL YEAR ENDED JULY 31, 1996
CMG INFORMATION SERVICES, INC.
PART I
Item Page
- ---- ----
1. Business
General.................................................................................... 2
Direct Marketing Industry.................................................................. 3
The Internet and World Wide Web............................................................ 3
Interactive Marketing Industry............................................................. 4
Products and Services...................................................................... 4
Business Strategy.......................................................................... 11
Sales and Marketing........................................................................ 12
Competition................................................................................ 12
Research and Development................................................................... 13
Intellectual Property and Proprietary Rights............................................... 13
Employees.................................................................................. 13
Segment Information........................................................................ 13
Significant Customers...................................................................... 14
2. Properties.................................................................................... 14
3. Legal Proceedings............................................................................. 14
4. Submission of Matters to Vote of Security Holders............................................. 14
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters......................... 14
6. Selected Consolidated Financial Data.......................................................... 15
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................................... 15
8. Financial Statements and Supplementary Data................................................... 15
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure......................................................................... 15
PART III
10. Directors and Executive Officers of the Registrant............................................ 15
11. Executive Compensation........................................................................ 15
12. Security Ownership of Certain Beneficial Owners and Management................................ 15
13. Certain Relationships and Related Transactions................................................ 15
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................... 16
1
This Report contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject
to certain risks and uncertainties, including without limitation those discussed
in "Risk Factors that may Affect Further Results" section of Item 7 of this
report. Such forward-looking statements speak only as of the date on which they
are made, and the Company cautions readers not to place under reliance on such
statements.
PART I
ITEM 1. - BUSINESS
General
CMG Information Services, Inc. and its subsidiaries ("CMG" or the "Company")
is a direct marketing service provider that invests in, develops and integrates
advanced, Internet, interactive, and database management technologies. CMG
offers its clients a wide variety of direct marketing opportunities to choose
from, including: highly segmented and accurate mailing lists, database
management, design and development capabilities, consultative list management
and brokerage services, literature fulfillment, sales lead/inquiry management,
business-to-business telemarketing services and Internet and interactive media
direct marketing software technologies. The Company is advancing products and
services that will both create and profit from direct marketing opportunities on
the Internet.
Direct marketing is the use of mail order, telemarketing, electronic
interactive media and other methods of direct contact of targeted customers and
prospects to promote products and services. Direct marketing, unlike other forms
of advertising which are disseminated to a broad audience through print and
broadcast media, enables businesses to reallocate marketing and advertising
dollars to more effective forms of advertising sent directly to a defined set of
consumers. This defined set is identified through analysis and segmentation of
large amounts of data on past customers and future prospects. From this
information, specific targeted marketing strategies and personalized
communications can be generated which focus on those customers and prospects
who, according to their buying habits and customer profile, are most likely to
respond.
CMG's emergence into the direct marketing products and services arena is being
driven by the distinctive yet synergistic competencies of its operating
businesses.
CMG's List Division provides educational and business-to-business publishers
with comprehensive, highly segmented, and accurate lists for direct marketing to
millions of customers nationwide. Our services help publishers develop and
implement effective direct marketing programs using both conventional and on-
line media. CMG believes that its databases of university faculty and
information-buyers make it a leading supplier of mailing lists and related
services to educational and professional publishers. The Company's twenty years
of experience supplying lists to the direct marketing industry, together with
its expertise in the use of computer technology to develop, segment, enhance,
maintain and market customer and prospect list databases, permit the Company to
offer its publisher clients a full range of list services.
CMG Direct Interactive (CMGDI or Direct Interactive) is at the forefront of
leveraging its expertise in direct marketing, database design/development and
project management to invest in the creation of new database management products
and a suite of product and service offerings that will enable sophisticated
direct interactive marketing environments. These new products will enable Direct
Interactive to take advantage of the demand for data management services created
from the Internet and interactive media, while continuing to grow and invest in
its computer list services, including list order fulfillment, merge/purge and
other direct mail cost saving services.
SalesLink provides literature fulfillment, sales lead/inquiry management,
business-to-business telemarketing, and print-on-demand, primarily to the mutual
fund, high-tech and bio-tech industries.
CMG @Ventures' focus is on strategic investment and development
opportunities. Its mission is to assist the commercialization of electronic
content, products and services via the Internet and interactive media. Drawing
upon significant investment resources, strong technical talent, and a management
team steeped in the Internet, electronic publishing and managing consortia,
@Ventures has successfully made ten strategic investments.
@Ventures has invested in five consolidated subsidiaries: 58% owned Lycos,
Inc. (Lycos), 61% owned GeoCities, 100% owned NetCarta Corporation (NetCarta),
92% owned Black Sun Interactive, Inc. (Black Sun), and 54% owned Freemark
Communications, Inc. (Freemark). At July 31, 1996 @Ventures had invested in
minority ownership positions in three affiliates: 45% owned Vicinity
Corporation (Vicinity), 46% owned TeleT Communications (TeleT) and 37% owned
Ikonic, Inc. (Ikonic). Subsequent to July 31, 1996 @Ventures sold its
investment in TeleT for a gain, receiving cash and Premiere Technologies common
stock and invested in two additional minority ownership positions: 46%
ownership in Parable, LLC (Parable) and 27% ownership in Silknet. The Company
is entitled to 77.5% of the net capital gains of @Ventures and 22.5% are
attributable to @Ventures partners. In fiscal 1997, the Company's share will be
increased to 80%. All of CMG @Ventures investments are early stage companies
and there can be no assurance that their products or services will be
commercially successful.
2
CMG's three wholly owned start-up Internet companys, ADSmart Corporation
(ADSmart), InfoMation Publishing Corporation (InfoMation) and Planet Direct
Corporation (Planet Direct) are being developed to further benefit from direct
marketing opportunities on the Internet by providing advertising services,
personal electronic newspapers and comprehensive Internet service content
offerings.
Direct Marketing Industry
The use of direct marketing by businesses to target and communicate with
potential customers has increased due in part to the relative cost efficiency of
direct marketing as compared to other advertising methods, as well as the rapid
development of affordable computer technology. Prior to and during much of the
1970's, the costs associated with selling products and services either through
mass marketing or through personal sales calls were relatively low, while the
costs of database development were prohibitive for all but the largest
businesses. In the 1980's, the costs of developing and implementing computer
technologies to analyze and target potential customers declined while the costs
of traditional marketing increased significantly. In addition, concerns have
been raised about the efficacy of traditional forms of marketing. Direct
marketing remains one of the few advertising media allowing an accurate measure
of results through a review of response rates thereby increasing the
effectiveness of the selling effort.
The increasing popularity of direct marketing has created a substantial need
for comprehensive, current and accurate information to identify high probability
purchasers from the millions of consumers in North America. This information, if
properly packaged in a database with the appropriate software, can be used in
all aspects of direct marketing: market sizing, distribution channel selection
and balancing, sales lead generation, territorial resource allocation and
customer prioritization and qualification. In the absence of this information,
the selling process results in higher expense per sales contact and lost revenue
from unidentified customers. These factors have created increasing demand for
lower cost information regarding the identity, location and purchasing history
of potential customers. For many businesses, this information can be crucial to
their marketing success.
Direct marketers of information products, including book and magazine
publishers, financial institutions, seminar coordinators and professional
associations, generate significant demand for affordable, current, highly-
segmented mailing list databases, and mailing list database services. In
addition, these information product vendors have sought new ways to obtain value
from their customer databases by more effectively analyzing and/or selling their
customer and prospect lists.
The Internet and World Wide Web
The Internet is a global collection of thousands of computer networks
interconnected to enable commercial organizations, educational institutions,
government agencies and individuals to communicate electronically, access and
share information and conduct business. While the Internet was historically
used by a limited number of academic institutions, defense contractors and
government agencies primarily for remote access to host computers and for
sending and receiving electronic mail, commercial organizations and individuals
are increasingly dominating the use of the Internet. Recent technological
advances, including increases in microprocessor speed and the development of
easy-to-use graphical user interfaces, combined with cultural and business
changes, have led to the Internet being integrated into the operations and
strategies of commercial organizations and the activities of individuals.
Much of the recent growth in Internet use by businesses and individuals has
been driven by the emergence of a network of servers and information available
on the Internet called the World Wide Web. The Web is a network medium that is
rich in content, activities and format. The Web medium includes a wide range of
content such as magazines, news feeds, radio broadcasts, and corporate, product,
educational, research, and political information, as well as activities,
including customer service, electronic commerce, reservations, banking, games
and discussion groups. International Data Corporation estimates that the number
of individuals with access to the Internet is projected to reach 199 million
users in 1999, of which 125 million users are estimated to be accessing the Web.
The Company believes that recent trends in the establishment of Internet access
services such as AT&T's WorldNet will facilitate access to the Internet and
result in an increase in the number of users of the Internet. An increase in
the number of users of the Internet could result in higher traffic to the
Company's sites.
The Web can be accessed using software that allows non-technical users to
exploit the capabilities of the Internet easily. Electronic documents or "Web
pages" which may contain textual, audio and video information, are published on
Web sites in a common format. Each Web site could contain hundreds of Web
pages. Users can view these Web pages by using widely available software called
"Web browsers" such as the Netscape Navigator or the Microsoft Internet
Explorer. Users specify which electronic documents they wish to view with their
Web browser by entering each document's unique electronic Web address, or
Universal Resource Locator ("URL"). Alternatively, users can navigate the Web
by making use of the hypertext link capability of Web documents. Hypertext
links are active areas on a Web page which can be located anywhere else on the
Web. This feature enables
3
users to move from one page to of content and activity to another related or
"linked" page, without having to know the underlying address or URL of either
document.
The rapid deployment of the Web has introduced fundamental and structural
changes in the way information can be produced, distributed and consumed,
lowering the cost of publishing information and extending its potential reach.
Companies from many industries are publishing product and the company
information or advertising materials and collecting customer feedback and
demographic information interactively. The structure of Web documents allows an
organization to publish significant quantities of product information while
simultaneously allowing each user to view selectively only those elements of the
information which are of particular interest. This feature makes possible the
dynamic tailoring of information delivery to each user's interests in a cost
effective and timely fashion. The Web, by facilitating the publishing and
exchange of information, is dramatically increasing the amount of information to
users.
Interactive Marketing Industry
Direct Marketing is undergoing rapid, fundamental change, as customers needs
evolve and technology advances. Marketing channels and media outlets are
expanding in number and diversifying in scope, and powerful database
technologies are able to target both broad markets and individual customers with
ever-greater precision.
The emergence of the Internet into homes and offices has provided direct
marketers with a powerful new distribution mechanism - interactive media.
Interactive marketing is a subset of direct marketing. It differentiates itself
from traditional direct marketing channels in that the consumer has flexibility
and control over what is being presented, when they view the products or
services and which types of products or services they are viewing.
In contrast to conventional media, the Internet offers capabilities to target
advertising to specific audiences, to measure the popularity of content, to make
timely changes in response, to reach worldwide audiences cost-effectively and to
create innovative and interactive advertisements. By collecting customer
feedback and demographic information, advertisers can direct highly customized
marketing campaigns at defined targets. In addition, the Internet enables
advertisers to transact with prospective customers much more rapidly than with
conventional media.
The Company believes that advertisers will seek to advertise on Web sites that
offer a high volume of traffic and feature flexible advertisement programs
capable of reaching targeted audiences. Likewise, the Company believes that as
advertisers increasingly embrace the Internet as an advertising vehicle, their
participation will subsidize in part the creation and expansion of the
information and resources available on the Web which in turn is expected to
stimulate further traffic flow. However, the Internet as an advertising medium
is still evolving and, consequently, advertisers seek demonstration of its
effectiveness as a media purchase. Due to the limited information and
experience on Web advertising and a general unfamiliarity with the concept of
interactive advertising, advertisers require assistance with the design and
placement of advertisements on the Internet.
Interactive marketing provides direct marketers with the ability to create
electronic databases of customer information. Using this information will
enable direct marketers to develop more effective advertising, make better
decisions about distribution methods and media selection and target customers
more effectively. The dialogue created between the marketer and the consumer
through interactive marketing creates advertising accountability, enabling
marketers to track advertisement interaction, anticipate consumer needs and make
changes immediately. It is expected that across scores of industries, the
relationship between marketers and consumers will soon be direct, and one-to-
one. When that day arrives, marketers will benefit from this newfound ability
to establish deep, intimate relationships with their customers.
Products and Services
CMG Lists
The Company's principal products are mailing lists derived from the Company's
databases and sold primarily to publishers. The Company has three primary
mailing list databases, the College List, the Information Buyers List and the
ElHi List. The databases are highly segmented, permitting the Company to use its
application software to extract specifically defined lists of potential
customers who are most likely to purchase products advertised by the Company's
clients. The Company is continually working to expand the size and
comprehensiveness of its database offerings based on the needs of its clients
and the availability of new lists.
CMG understands that there is only one other supplier of faculty mailing lists
and two other suppliers of college and university administrator lists. In
addition, CMG believes that it has identified virtually all North American
textbook publishers and that it supplies mailing lists derived from the College
List database to a majority of them.
4
CMG also believes that most of the largest North American publishers of books
for professionals contribute their customer lists exclusively to the Information
Buyers List database and have agreed not to contribute their customer lists to
any other book buyer databases. These publishers also purchase mailing lists
and list services from the Company. Accordingly, CMG believes that the
Information Buyers List database is the only database of its kind and that the
College List database is the dominant database of its kind and that these
databases make CMG a leading supplier of mailing lists and related services to
educational and professional publishers.
The College List Database. The College List database, which the Company
believes is the dominant list of its type, includes approximately 700,000 names
and addresses of college and university deans, administrators and faculty at
every college, university, and junior college in North America. The Company
classifies each course taught, and the faculty teaching it, into one of
approximately 4,000 subject codes, which permits the Company to identify all
faculty teaching any particular course or subject and create lists identifying
the faculty so they can be targeted.
The resulting lists are valuable to publishers, as the classification system
of specific subject codes permits them to choose the professors most likely to
select a given book for a course and then to send promotional materials and/or a
sample copy of the textbook to them. In addition, the database classification
system helps publishers identify areas of study where new titles are needed and
define the size of the potential market.
The College List is compiled by the Company from course schedules and other
source documents published by colleges and universities and is updated twice
annually (i.e. each semester). The Company augments the information available
from the schedules with school catalogs, supplemental questionnaires, telephone
calls, and various other source documents collected from colleges and
universities.
The Information Buyers List Database. The Information Buyers List database
includes approximately 11 million names and addresses of professionals who
purchase books, periodicals, seminars and other information products through
mail order. The Information Buyers List is assembled from over 150 proprietary
lists of over 100 publishers and other organizations. Combining these separate
customer lists into a single database permits the Company to offer its clients a
larger group of potential customers across a broader range of target categories
than could be obtained from any single list. In addition to its size and
diversity, the database is also valuable because it is limited primarily to
those consumers who have actually purchased through mail order and are therefore
thought to be more likely to do so in the future. The Information Buyers List is
segmented under the same 4,000 subject codes as the College List.
When a participant's customer list is added to the database, the Company uses
its software to segment the list into the subject codes and to supplement the
database with information derived from the participant's customer list, such as
recency of purchase, gender and home or office address distinctions. This
classification system permits the Company to identify professionals that have
purchased information products pertaining to any given subject and to create
lists identifying the purchasers so they can be targeted.
The lists derived from the Information Buyers List database are used by
publishers and other companies in the business-to-business and consumer
publishing direct mail markets. The high degree of segmentation of the database
enables the Company to extract very specific, and thus, more responsive niches
of professionals with a demonstrated interest in purchasing very specific types
of information products. This level of selectivity also enables the Company to
identify and build other valuable lists that are not obvious properties of the
individual component lists used by the Company to maintain the database.
The Elementary/High School List Database. In 1992, the Company introduced the
Elementary/High School List or "ElHi List" database. In January 1994, the ElHi
List included the names and addresses of approximately 84,000 public elementary
and high schools, approximately 16,000 public school district offices,
approximately 8,400 public libraries and approximately 140,000 administrators.
The ElHi List is segmented into over 30 public school district demographic
categories and is used by publishers of textbooks, supplemental educational
materials and magazines and school supply distributors, among others. The ElHi
List is compiled from federal, state and local government files and the names of
school administrators and staff are developed through state directories,
mailings and telephone. CMG successfully completed the compilation of the ElHi
list in fiscal 1995. The Elementary and High School list consists of more than
2.8 million names of teachers and administrators associated with public
elementary through high schools. This database greatly enhances CMG's ability to
service its educational publishing clients and builds on CMG's reputation and
distinctive competence in the educational publishing industry.
List Management and Brokerage. The Company provides list management and list
brokerage to businesses that use direct marketing to promote their products. As
a list manager, the Company acts as the exclusive marketing agent for the
mailing lists of its list management clients. In conjunction with performing
list management services, the Company also provides list brokerage. This service
allows the Company to be a single source for virtually any brokered list
requested by a customer and provides the opportunity to generate additional
sales of the Company's other products.
5
Database Services
CMG Direct Interactive.
CMG Direct Interactive's goal is to be the premier provider of direct,
interactive marketing environments, supplying innovative, world-class database
and direct marketing solutions to customers in a diverse range of businesses. In
all products and services, CMGDI's goal is to increase clients' ability to
identify and interact with their own customers on an individual basis. To
accomplish this task, the company draws on the CMG family's long history of
successful database direct marketing, and augments that experience with a
serious commitment to unlock the potential of bold new technologies.
Most businesses do not have the technology or expertise to build, maintain or
enhance their mailing lists or databases in-house. CMG Direct Interactive offers
these businesses a comprehensive service set including database design, program
specification, programming, testing, debugging and ongoing maintenance and
enhancement.
For clients that want to build a customer database, the Company provides
database analysis, design, software development, testing, debugging, and
maintenance. Once the database software is completed, the Company collects
customer and prospect data from its clients in a variety of forms for
standardization and inclusion into each client's customized database. This
involves working in depth with clients to discern their database maintenance,
fulfillment and reporting requirements, converting these requirements to
computer program specifications, and managing the project from start to finish.
Database management involves processing customer data, segmenting the
processed information to provide the level of detail and selectivity desired,
storing the information, and updating it to make it readily accessible for the
client's promotional, analytical and list rental activities. Lists may be
combined and enhanced with additional demographic information and other lists to
form databases which can be used as the basis of additional client promotions or
marketed to other list users.
If a client's mailing list is being combined with other lists or if a client
purchases several lists for a direct marketing campaign, the lists are often
combined into one master list. Typically, these lists will contain duplicate
names. The Company's merge/purge (duplicate elimination) software recognizes and
eliminates duplicate names, thereby preventing duplicate mailings and, thus,
lowering client mailing costs. In addition, identifying these multiple prospects
enables the direct-response client to recognize the duplicate name as a multi-
buyer. CMGDI also minimizes postal costs through postal pre-sorting, bar coding
and address standardization.
Direct Interactive also offers private database management as a service for
large volume mailers who mail to the same target lists regularly. A private
database is a targeted collection of mailing lists that is used repeatedly by a
restricted group of mailers. Ordinarily, this type of mailer would have to
contact a list broker, order lists and perform a number of processing functions
for each mailing. A private database maintained and updated by the Company
provides the mailer or group of mailers with a pool of mailing lists which have
proven effective for their mailing needs. Using the Company's services, the
mailer can perform research on the private database, select the names most
likely to respond and pay only for names used for targeting. Mailing costs are
reduced, lead times are shortened and the mailer gains more precise targeting
capability.
Private databases are part of Direct Interactive's overall strategy to give
the Company's clients greater ability to analyze, access, and eventually update
their customer and prospect databases. In addition to continual enhancements to
existing software, this strategy is being achieved in part by reengineering the
Company's proprietary database management software from a mainframe to a client
server environment. The Company believes that this transition will result in
more cost efficient and effective access to data for its clients and a
corresponding increase in the market for the Company's systems and services.
With a number of pathbreaking applications in development or the early stage
of beta testing, CMGDI enables marketers to rapidly assimilate, analyze, manage,
and apply vast quantities of information from disparate sources. In so doing,
the company helps marketers identify and fulfill customers' specific needs.
Very large-scale data warehouses are a vital cornerstone in the creation of
one-to-one marketing environments. CMGDI is developing creative products and
services to efficiently manage these immense repositories, helping customers
maximize access to critical information the data warehouses contain.
CMGDI is developing advanced software products and systems that will create
direct, interactive marketing environments (DIMEs). These DIMEs combine
techniques of very large scale database marketing with interactive data
collection and analysis to enable the complete direct marketing and sales cycle
including commerce on the Internet. This total environment makes possible one-
to-one marketing and ongoing, customer beneficial relationships.
Planned offerings to customers in fiscal 1997 include an advanced Data
Warehouse Manager, a graphical, object-based end-user
6
data access and query tool; and an advanced interactive targeting framework.
SalesLink
Mutual funds receive thousands of requests daily for fund prospectuses,
marketing materials and other product literature. The volume of such requests,
and the increasing competitiveness of the mutual fund industry, place a premium
on filling requests rapidly and cost-effectively. The Company believes that
rather than building the costly and specialized computer and management systems
necessary to conduct cost effective literature fulfillment internally, mutual
funds have increasingly turned to outside providers of fulfillment, sales
lead/inquiry management and business-to-business telemarketing services. Most of
SalesLink's mutual fund clients previously performed these services in-house and
the Company has been informed by other mutual funds that they are analyzing the
relative costs and benefits of outsourcing these services rather than performing
them in-house. SalesLink contracts with mutual funds to take and fulfill orders
for fund literature and other materials, and to assist in the management of
sales leads and inquiries arising from this activity. In addition to mutual
funds, SalesLink also provides literature and product fulfillment to high
technology, bio technology and consumer electronics businesses.
SalesLink provides clients with three specialized direct marketing services:
(i) product and literature fulfillment; (ii) sales lead/inquiry management; and
(iii) inbound/outbound telemarketing. Most of SalesLink's revenue is derived
from clients that are mutual funds.
Product and Literature Fulfillment. On behalf of its fulfillment clients,
SalesLink takes orders for promotional literature and products from its client's
customers and prospects and "fulfills" the orders by assembling and shipping the
items requested. Depending on the client, the product or literature may be sent
directly to the end-user or to a broker or distributor. SalesLink's mutual fund
product and literature fulfillment services begin with the receipt of orders by
SalesLink's inbound telemarketing staff. Telemarketers answer calls by mutual
fund company name and key order requests into computers. Some clients
electronically transmit orders received by their own telemarketing staffs
directly into SalesLink's computers. Orders are then generated and presented to
the fulfillment production floor where fulfillment packages, including mailing
labels, are assembled and shipped. As necessary adjuncts to fulfillment
services, SalesLink provides product and literature inventory control and
warehousing. SalesLink also offers customer support and management reports
detailing orders, shipments, billings, back orders, and returns.
Sales Lead/Inquiry Management. In sales lead/inquiry management, SalesLink
provides prospects with information about a product or service that one of
SalesLink's clients is marketing. In response, SalesLink receives sales
inquiries and maintains central customer databases of the names and addresses of
each person inquiring about the product. SalesLink's clients use the databases
for market research, sales follow-up and management reports. Depending on the
criteria supplied by the client, SalesLink eliminates non-productive leads,
distributes sales inquiries to the client's sales force and ships fulfillment
packages containing the client's literature or products. After the disposition
of the inquiry, SalesLink is able to produce reports allowing the client to
evaluate the effectiveness of the marketing program which generated the inquiry
and evaluate the performance of the client's sales force in handling the
inquiry.
Telemarketing. SalesLink's telemarketing group offers comprehensive inbound
business-to-business telemarketing services to support its sales inquiry
management and order processing activities. Telemarketing services include lead
qualification, order processing fulfillment and marketing analysis. SalesLink
also offers outbound business telemarketing services that are tailored to an
individual client's needs. Outbound telemarketing programs can be used to update
a client's existing database, survey possible markets or prequalify sales leads.
New Products and Services. SalesLink has evolved a number of new products and
services to further its strategy to diversify into new vertical industry
markets. Most notably, the business delivered its new SL Flagship proprietary
software and the supporting data warehouse architecture. The system enables
customers and client service personnel to instantly access, manipulate and
analyze response data about customers prospects. With SL Flagship, customers
avoid the time and costs of extensive programming by making critical marketing
decisions using PC-based tools. Additionally, SalesLink has begun expanding its
capability of providing print-on-demand fulfillment services. SalesLink
further strengthened its management infrastructure over the past year and began
a new Total Quality Management initiative aimed at improving its already "best
in the industry" client service. SalesLink has begun cross-selling with CMGDI
and @Ventures companies. In fiscal 1997 SalesLink intends to integrate @Ventures
technologies into various information and end product delivery mechanisms to
enable customers to make increasingly efficient and effective sales and
marketing decisions.
Internet Investments
Lycos, Inc.
Lycos, CMG's publicly traded subsidiary offers one of the most popular catalog
and search tools on the World Wide Web (the
7
Web). Lycos' underlying "spider" technology was designed to find, index, and
filter information on the Web, providing users with easy access to what's
available on the Internet.
In the beginning, the technology enabled users to explore the Web by topical,
word-specific searches. In September 1996, however, Lycos unveiled major
additions to its service. The catalog now can find any picture, sound, or topic
on the Web. In addition, Lycos has also expanded to become a full-fledged
source of editorial content. Services include Point Reviews, critical
assessments of web sites; City Guides, links to sites of regional interest; and
Sites by Subject, a directory of sites organized around 16 major categories and
hundreds of subcategories.
This ever-expanding suite of services has made Lycos site one of the most-
frequently visited on the Web and a significant advertising revenue generator.
Additionally, Lycos generates revenues through the licensing of its technology.
Lycos had 160 advertising customers at the end of fiscal 1996, including IBM,
Hilton, Ford, and Disney. Likewise, Lycos has attracted 24 licensee partners
worldwide including AT&T, Bertlesmann, and the Swedish Postal Service. Lycos
has also successfully partnered with other CMG companies. GeoCities offers
Lycos searches in each of its neighborhoods and Black Sun provides users a 3D
interface to Lycos' Point Reviews.
GeoCities
GeoCities builds and operates innovative, advertiser-supported special-
interest communities on the Web. As the most popular and largest collection of
free home pages on the web, GeoCities hosts 27 theme-based online communities
and has attracted more than 140,000 "homesteaders", or GeoCitizens.
Since launching its first four neighborhoods in June 1995, GeoCities has
steadily expanded its free services to foster a greater feeling of community.
Users receive a free megabyte of disk storage space, three levels of home page
editing capability, live help chat, visitor counters, guest books, free e-mail,
and mapping utilities. GeoCitizens can search their favorite neighborhood with
a custom-designed Lycos search engine, and soon will be able to create their own
3D home pages with Black Sun's VRML programs.
In communities with names like Silicon Valley, Wall Street, Napa Valley, and
TimesSquare, GeoCitizens create special-interest content and share their home
page thoughts and passions with like-minded friends and neighbors worldwide.
User traffic has increased to 54 million page views and 250 million hits per
month, according to GeoCities' Nielsen I/PRO audited report for August 1996. As
a result, the overall service is now consistently ranked among the 15 most-
visited sites on the Web.
Advertisers are attracted to GeoCities self-defined audiences, high traffic,
and innovative custom marketing programs. These programs provide brands with
high impact marketing opportunities within and well beyond GeoCities
neighborhoods. GeoCities' GeoRewards program is expected to generate even more
traffic as well as allowing advertisers access to GeoCitizens' home pages. And
a new online GeoStore will offer loyal GeoCitizens the opportunity to shop
online and will serve as an additional revenue source for the company.
Vicinity Corporation
Since its inception in August 1995, Vicinity Corporation has rapidly
established itself as a premier supplier of graphically-oriented ("GeoEnabled"),
content and services exclusively for the Web. Vicinity's GeoEnabling services
apply a spatial filter to business listings, classified ads, current events
listings and other data, to give end users a customizable, local view of
information.
Vicinity licenses its Your Town family of services to leading web search and
directory services, travel services, Yellow Pages providers, newspapers, and
other businesses, who brand the Vicinity services with their own company and
service names, their own graphical wrappers, and their own look and feel and
attitude. Included in the Your Town family are Vicinity interactive geographic
maps, business directories, proximity searching, driving directions, advertising
functionality, and other services.
Among Vicinity's current customers are such leading web sites as BellSouth,
GTE SuperPages, InfoSeek, Levi's Dockers, and Yahoo! as well as companies from
the CMG family - Lycos, Planet Direct, and GeoCities.
The Your town suite was launched in July 1996. The same month, Vicinity
announced its expansion into European markets. The company will offer high
quality, detailed, street-level interactive, web-based maps of most of
continental Europe in September 1996.
NetCarta Corporation
NetCarta makes web sites and intranets easier to manage and navigate, by
providing tools that improve Web quality and consistency. As web sites become
more numerous and complex, these tools will be critical to companies and
individuals interested in improving their productivity and online
communications.
8
NetCarta Corporation is the leading provider of client/server-based tools that
simplify Web site management. NetCarta's software solutions enhance individual
online productivity and enable corporations to efficiently and cost-effectively
manage diverse web content.
The company's core technology is the NetCarta WebMap -- a compact database
that provides a visual guide to the structural relationships among all resources
in a web site. NetCarta WebMaps help webmasters analyze and manage their sites,
and help individuals find information on the Web more efficiently. Fiscal 1996
offerings to customers were:
* NetCarta WebMapper is a powerful site/server content management tool that
allows webmasters to clarify relationships among web objects, analyze and verify
links, and track site changes.
* CyberPilot Pro, released in April 1996, is a combination browser accelerator
and map maker that allows users to browse, create, and publish maps of any site
on the Web.
* CyberPilot, a low-cost viewing tool, enables users to view existing WebMaps.
Cyberpilot was developed as a cost-effective client complement to NetCarta
WebMapper for reading published maps of corporate intranet or Internet sites.
* The NetCarta WebMap Library, launched in July, is an expanding online library
of more than 25,000 NetCarta WebMaps of corporate, entertainment, education, and
government sites.
NetCarta has also developed and licensed its technology for product
development and partnering with original equipment manufactures (OEMs), who
incorporate the technology into their own products. OEM clients include
DocuMagix Corp., which recently released DocuMagic HotMap, a NetCarta WebMap
maker and viewing tool.
Within the CMG family, NetCarta technology has been incorporated in Ikonic's
Ringmaster web content coordination software, and NetCarta software is available
in GeoCities' online storefront. Lycos also offers users NetCarta WebMaps for
the majority of the content on its a2z Sites by Subject service.
Black Sun Interactive
Black Sun Interactive, with headquarters in San Francisco and Munich, develops
servers and authoring tools for use in three-dimensional web site environments.
Black Sun is the first company to offer multi-user interaction based on VRML
(virtual reality modeling language) programs. Now, it is leveraging its core
business expertise in extensible client/server architectures and distributed
databases to create the infrastructure for 3D environments that allow
individuals to meet, work, and play on the Web as naturally as they do in the
real world.
All Black Sun products are built on open industry programming standards (such
as VRML and Java), run on all major operating systems, and provide well-
documented plug-ins for maximum extensibility and integration.
Black Sun's fiscal 1996 product offerings were:
* CyberGate, a stand-alone multi-user VRML browser for visiting virtual worlds
and interacting with other people in those worlds.
* CyberHub Client, released for beta in September 1996, adds multi-user
functionality to the leading VRML browsers. It is available for Netscape's
Navigator 3.0 live 3D browser and Silicon Graphics' Cosmo Player.
* CyberHub, a high-performance multi-user interaction server that allows web
site operators to turn their sites into online 3D communities of any size.
* CyberSockets (in beta), is Black Sun's API (application plug-in) for
accessing the multi-user services of CyberHub. Based on VRML and Java, it
allows developers to add multi-user capabilities to existing applications and
games, and to customize product offerings for vertical markets such as
education, conferencing, and entertainment.
Also during fiscal 1996, Black Sun teamed with Lycos to release Point World,
the first large-scale multi-user VRML environment based on the popular web site
review service. In August 1996, Black Sun announced a strategic partnership
with GeoCities to bring VRML-based multi-user interaction to GeoCities' popular
web destinations.
Freemark Communications, Inc.
Freemark aims to provide the world's simplest e-mail service at no cost to
end-users. Freemark developed the first business model for advertiser-supported
Internet mail, and provides consumers with completely free e-mail service by
allowing national and local brand advertisers to sponsor personal mail delivery.
9
Unlike the majority of online and Internet players whose businesses serve the
technically elite segment of the computing market, Freemark's service is aimed
at the roughly 50 million Americans who live in PC-equipped households but for
whom online use is daunting. The company also targets small businesses and
affinity organizations. Freemark's broad consumer appeal has enabled it to
attract national brand advertisers, including RJR Nabisco food products, The
Wall Street Journal and Citibank.
TeleT Communications
In September of 1996, CMG sold its equity interest in TeleT Communications to
Premiere Technologies in a stock and cash transaction. With TeleT, Premiere
establishes itself as a pioneer in leveraging the power of the Internet to
develop a product that links telephones and computers into one interchangable
business tool. Although TeleT is no longer a formal member of the CMG family of
companies, Planet Direct's Internet service offering will benefit from the
enhanced value of the combined services of Premiere and TeleT and joint
marketing and distribution programs will continue with NetCarta Corporation,
GeoCities and Lycos, Inc.
Ikonic Interactive
Ikonic provides site design and development services, consultation, and
products for companies that want to establish brand-building Web sites. With 11
years of experience designing intuitive interfaces for a range of interactive
media, Ikonic is a recognized leader in creating personalized, dynamic content.
In September 1996, Ikonic's Products Group released Ringmaster, the first web
site content coordination tool. Ringmaster enables editors, webmasters, and
contributors to coordinate web content submissions easily, within a single
application.
Ikonic's revenue base has shifted over the past few years, solidifying
Ikonic's position in the web community. By the fourth quarter of fiscal 1996,
77% of Ikonic's revenues were derived from the Internet. New service customers
included American Express, Microsoft, Virgin Records, and Pacific Bell.
Parable
In August 1996, CMG @Ventures invested in Parable, LLC. Parable is a start-up
software firm developing unique and unprecedented multimedia tools and
technology. Potential customers include entertainment, media, publishing and
software companies developing interactive titles for distribution on the
Internet, CD-ROM, and other digital delivery channels.
Planet Direct
In June, CMG announced the formation of Planet Direct, an Internet service
designed to draw on the strengths of the companies within the corporate CMG
family to create a comprehensive, new offering. Planet Direct plans to provide
Internet users a rich, deeply personalized experience, through a content model
organized around customers' personal interests and the places they live. The
goal is to create a global network of communities on the Web, each with its own
local content flavor.
Rather than becoming a "top-down" information provider, Planet Direct follows
a community-generated content model, giving users a true platform from which to
make themselves heard. It has been designed to elicit interesting and expansive
content, created in large part by members of the local communities it serves.
Marketed as "Where You Live On-Line", Planet Direct is intended to be a home
page in the actual and metaphoric senses of the word. It is the virtual barber
shop, or coffee house, or town hall.
In other words, Planet Direct will be a central meeting point where users will
congregate with fellow residents to share all manner of experiences. On subjects
from entertainment, to civic affairs, to personal finance, to sports, the
service will consist of vibrant interactive communities at the "X/Y"
intersection of personal interests and geography. This means localized content
that is appealing to users' interests, as well as specific to their locations.
To build the network, Planet Direct is partnering with Internet Service
Providers (ISPs) in domestic and international local markets. In each of these
markets, Planet Direct will be offered as a cobranded service of both CMG and
the respective local ISP. Cobranding the service with ISPs will accomplish a
number of goals. It helps Planet Direct leverage business and content
opportunities in local markets, via the ISPs' existing ties to their own
geographic regions. Additionally, compared to commercial online services, Planet
Direct's cost-of-acquisition for new customers will be minimal, because ISP
partners come to Planet Direct with existing client bases. For the ISPs, a
Planet Direct affiliation opens new advertising revenue streams and helps
differentiate them from competitors. This gives Planet Direct partners the
preemptive edge they need to acquire, retain, and expand their customer bases.
Planet Direct's development strategy exemplifies the synergies within the CMG
family. ADSmart and other Direct Interactive products will form the basis of
Planet Direct's advertising strategy. The personalized targeting ADSmart
technology will allow advertising through Planet Direct to be more responsive
than through traditional mass-market ads. And the involvement of ISPs
10
greatly enhances Planet Direct's ability to acquire precise clickstream
information --the linchpin behavioral data that drives the entire Direct
Interactive strategy. Because advertisers can use it to pinpoint their audiences
with such accuracy, CMG believes this data will allow Planet Direct to sell
advertising at substantially higher-than-average rates.
On the content side, InfoMation's personalized Internet newspaper forms a
crucial segment of the Planet Direct service. So, too, does Lycos, with its
geographically organized City Guides and broader search capabilities. GeoCities
brings its vast experience providing personalized home pages to the Planet
Direct suite, and Parable's easy-to-use software will help Planet Direct users
create those home pages. Black Sun's three-dimensional chat and other VRML
offerings are also an exciting component of the Planet Direct model. And
although it is no longer owned by CMG, former affiliate TeleT (Premiere
Technologies) will also work closely with Planet Direct to provide advanced
telephony services.
InfoMation
CMG's personal electronic newspaper business was initiated in February 1996
when CMG acquired the exclusive perpetual license to sell BBN Corporation's
PINpaper technology. This new technology collects and organizes information
from the Web, from major news wires, and within corporate databases, delivering
it to end-users to their specification.
InfoMation will use CMG Direct Interactive's data warehouse and data access
and targeting tools to capture and analyze compelling amounts of clickstream
data. This data will be extremely useful for one-to-one target marketing
because it will be derived from sustained personal profile and preference data
obtained by monitoring user behavior. The product is thus positioned to
accumulate what every advertiser wants - demographic and psychographic profiles
of customers.
Further, InfoMation will be an integral part of the Planet Direct service,
will be distributed on Lycos and other web sites, and will be sold to
corporations wishing to manage information flow in corporate intranet
environments. This is expected to allow InfoMation to gain market share and
advertising revenue.
ADSmart
Web publishers are seeking to develop the means to sell, schedule, serve and
track the highly targeted advertising that is so critical to their
profitability. Advertising agencies are looking for information and results to
understand and measure the role web advertising should play in meeting their
clients' marketing goals. ADSmart is being developed to bridge the gap by
drawing on the combined targeting and tracking resources of CMG's core direct
marketing business and the web advertising expertise of CMG portfolio companies.
ADSmart expects to grow the Internet advertising market by helping agencies
and web sites better understand each other's needs, streamlining the advertising
buying process, and licensing its technology to individual web sites to manage
their own targeted ad sales and delivery. Lycos, GeoCities, Vicinity, NetCarta,
Planet Direct and InfoMation are charter members of ADSmart.net, a network of
web sites which agencies can evaluate and book online.
ADSmart's proprietary methodology enables direct mapping of audiences defined
by ad campaigns. The benefits are increased response rates -- due to higher ad
relevance to viewers, cost effectiveness for advertisers -- who spend less to
reach the same number of interested viewers, and improved agency productivity --
due to a centralized contact point and on-line booking of ads on ADSmart.net
sites.
Business Strategy
Each CMG business unit's mission is to become the predominant direct marketing
services provider within its respective market niche. The critical success
factors are: understanding, developing and applying information technology to
the Internet, interactive media markets, and data access and retrieval enabling
tools; narrowing market focus while consummating strategic alliances to
complement product and service offerings; investing in strategic Internet or
interactive media investments or acquisitions and , most importantly, a
continued understanding of customers' needs.
With respect to the businesses of CMG, the Company will seek to expand its
participation in the direct marketing products and services industry and
increase market share. Key elements of this strategy include:
Continue to enhance and expand the Company's products and services. The
Company has invested significant resources in new subsidiaries or investments
which seek to capitalize on opportunities surrounding the growth of the Internet
and the interactive marketing industry. The Company intends to continue to
pursue the growth and development of its technologies and services and continue
to introduce its products commercially. Additionally, the Company intends to
continue to evaluate new opportunities to further its investment in its direct
marketing strategy and also to seek out opportunities to realize significant
shareholder value
11
through the sale of selected investments or technologies or
having separate subsidiaries sell a minority interest to outsiders.
Pursue Innovative Advertising Solutions. The Company is actively seeking to
develop innovative ways for advertisers to reach their target audiences through
the Internet effectively. The Company designs and offers customized packages
which include the ability to change advertisements quickly and frequently, to
link a specific search term to an advertisement, to conduct advertising test
campaigns with rapid result delivery and to track daily usage statistics. The
Company is currently developing software that will provide it with the ability
to target ads based on demographics and usage patterns.
Augment database offerings. The Company has expended significant resources to
develop the most comprehensive and accurate databases of their kind available to
publishers. The Company believes that its College List database is the dominant
list of its kind and that the Information Buyers List database is the only list
of its kind, complemented by the ElHi list database, which was successfully
compiled in fiscal 1995 and is positioned to be cross sold to gain market share.
The Company intends to maintain or improve its market position by expanding the
number, size, nature, comprehensiveness and segmentation of its database
offerings.
Maintain focus on marketers of information-based products. Publishers are
among the largest users of direct marketing services and constitute the
Company's largest client base. As society becomes more information driven, the
amount and value of business and educational information sold by publishers will
increase, as will the value of the effective direct marketing of this
information. The Company will continue to focus on the publishing industry to
participate in this growth.
Expand technological capabilities and computer services. The Company believes
that technological innovation will continue to increase the effectiveness of
direct marketing. Accordingly, the Company is increasing its technological
capabilities through the enhancement of existing software and the reengineering
of the Company's proprietary database software. This transition will give the
Company's clients greater ability to access, analyze and eventually update their
own databases through the use of the Company's computer services and software.
Cross-sell products and services. The Company is involved in many aspects of
the direct marketing sales cycle. The Company has experienced initial success in
increasing the number of products and services purchased by its existing clients
and intends to further this expansion.
Sales and Marketing
The Company markets its products and services through a marketing staff using
both telemarketing and direct sales. The Company maintains separate marketing
staffs for each product and service area, enabling the marketing personnel to
develop strong customer relationships and expertise in their respective areas.
The Company advertises its products and services through direct mail, space
advertising, directory listings, trade shows and Company sponsored user groups.
In addition, the Company's subsidiary, Lycos, has complemented the activities of
its direct sales force by retaining NetRep, a New York based Internet
advertising sales agency, to serve as a sales representative on a commission
basis.
The Company conducts numerous mailings of list catalogs, flyers, newsletters
and other product information throughout the year to primarily book, magazine,
journal, newsletter and software publishers and resellers, seminar companies,
professional associations, business supply catalogers, consumer electronic, high
technology and financial service organizations.
The Company also attends numerous trade shows in the book, library, mutual
fund, direct marketing and high technology markets, while further supplementing
its sales efforts with space advertising and product and services listings in
appropriate directories. In addition, the Company sponsors user group meetings
for its mutual fund clients and major list participants in the Information
Buyers List database, where new products and services are highlighted.
Competition
CMG Information Services, Inc. competes on the basis of the accuracy, size,
and comprehensiveness of its principal databases: the College List and the
Information Buyers List. The Company believes that the College List is the
dominant database of its kind and has only one competitor, while the ElHi list
is a new product offering that will compete with the same competitor as the
College List. The Information Buyers List is the only list of its kind. Direct
Interactive's products and services compete with numerous other service bureaus
and compete on the basis of their effectiveness in processing customer and
prospect list databases for publishers. The Company believes that no other
service bureau concentrates on the list processing needs of the publishing
industry to the same extent as the Company.
CMG's Internet investments compete in the electronic technology arena which is
comprised of numerous small and large companies providing different new
technologies including online, CD-Rom, interactive television, and screen based
telephones, all with varying applications. The market for Internet products and
services is highly competitive. In addition, the Company expects
12
--
the market for Internet advertising, to the extent it develops, to be intensely
competitive. Although the Company believes that the diverse segments of the
Internet market will provide opportunities for more than one supplier of
products and services similar to those of the Company, it is possible that a
single supplier may dominate one or more market segments. The Company believes
the prinicpal competitive factors in this market are name recognition,
performance, ease of use, variety of value-added services, functionality and
features and quality of support. CMG's products and services are being developed
specifically for direct marketing applications, on the Internet or through
interactive media. Competitors would include a wide variety of companies and
organizations, including Internet software, content, service and technology
companies, telecommunication companies, cable companies and equipment/technology
suppliers. In the future, the Company may encounter competition from providers
of Web browser software and other Internet products and services that
incorporate competing features into their offerings. Many of the Company's
existing competitors, as well as a number of potential new competitors, have
significantly greater financial, technical and marketing resources than the
Company.
The Company may also be affected by competition from licensees of its products
and technology. There can be no assurance that the Company's competitors will
not develop Internet products and services that are superior to those of the
Company or that achieve greater market acceptance than the Company's offerings.
Moreover, a number of the Company's current advertising customers, licensees and
partners have also established relationships with certain of the Company's
competitors and future advertising customers, licensees and partners may
establish similar relationships. The Company may also compete with online
services and other Web site operators as well as traditional offline media such
as print and television for a share of advertisers' total advertising budgets.
There can be no assurance that the Company will be able to compete successfully
against its current or future competitors or that competition will not have a
material adverse effect on the Company's business, results of operations and
financial condition.
SalesLink has two prominent competitors, Harte-Hanks Direct Marketing, a
division of Harte-Hanks Communications, Inc. and Output Technologies, Inc., for
the mutual fund literature fulfillment component of its business, and also
competes with the internal fulfillment operations of the mutual funds
themselves. SalesLink competes on the basis of pricing, geographic proximity to
its clients and the speed and accuracy with which orders are processed. There
are many businesses that compete with SalesLink's other services.
Research and Development
The Company develops and markets a variety of Internet related products and
services, as well as a number of database software technologies. These
industries are characterized by rapid technological development. The Company
believes that its future success will depend in large part on its ability to
continue to enhance its existing products and services and to develop other
products and services which complement existing ones. In order to respond to
rapidly changing competitive and technological conditions, the Company expects
to continue to incur significant research and development expenses during the
initial development phase of new products and services as well as on an on-going
basis.
During fiscal year 1996, the Company expended $6,971,000, or 24.5% of net
sales, on research and development. In addition, during fiscal year 1996, the
Company recorded $2,691,000 of in-process research and development expenses in
connection with acquisitions of subsidiaries and investments in affiliates.
Intellectual Property and Proprietary Rights
The Company regards its software technologies, databases and database
management software as proprietary. CMG's lists are sold under terms and
conditions which permit the Company's clients to use the list for a single
mailing only and prohibit the further use or resale of the lists or the names
included therein. The Company depends on trade secrets for protection of its
database management software. It has entered into confidentiality agreements
with its management and key employees with respect to this software, and limits
access to, and distribution of this, and other proprietary information.
Employees
As of July 31, 1996, the Company employed a total of 505 persons on a full-
time basis. In addition, depending on client demand, SalesLink utilizes manpower
agencies to contract between 50 and 75 persons on a temporary, part-time basis.
None of the Company's employees are represented by a labor union. The Company
believes that its relations with its employees are good.
Segment Information
Segment information is set forth in Note 3 of the Notes to Consolidated
Financial Statements referred to in Item 8(a) below and incorporated herein by
reference.
13
--
Significant Customers
Significant customers information is set forth in Note 3 of the Notes to
Consolidated Financial Statements referred to in Item 8(a) below and
incorporated herein by reference.
ITEM 2. - PROPERTIES
Facilities
The location and general character of the Company's principal properties by
industry segment as of July 31, 1996 are as follows:
Lists and Database Services and Corporate Headquarters
The Company leases approximately 34,000 square feet of executive office,
engineering, sales and operations space in Wilmington, Massachusetts, under a
lease which expires in 2000.
Subsequent to July 31, 1996, the Company entered into a lease for
approximately 30,000 square feet of executive office, engineering, sales and
operations space in Andover, Massachusetts, which expires in 2002.
Fulfillment Services
The Company's operations are conducted from an approximately 175,000 square
foot leased facility in Boston, Massachusetts. The lease for this facility
expires in 1998. Additionally, the Company leases an approximately 51,000
square foot operating facility in Bedford Park, Illinois under a lease which
expires in 1999.
Investment and Development
The Company leases approximately 40,000 square feet of office, engineering,
sales and operations space in Cambridge, Massachusetts, Marlboro, Massachusetts,
New York, New York, Pittsburgh, Pennsylvania, Beverly Hills, California, Menlo
Park, California, San Francisco, California, Scotts Valley, California and
Munich, Germany under leases which expire from 1996 to 2000. This industry
segment also shares a portion of the Company's Wilmington, Massachusetts
facility described above.
Computer Operations
The Company's computer systems are primarily maintained at its Wilmington,
Massachusetts, Boston, Massachusetts, and Pittsburgh, Pennsylvania locations.
The Company's operations are dependent in part upon its ability to protect its
operating systems against physical damage from fire, floods, earthquakes, power
loss, telecommunications failures, break-ins and similar events. The Company
does not presently have a disaster recovery plan. Despite the implementation of
network security measures by the Company, its servers are also vulnerable to
computer viruses, break-ins and similar disruptive problems. The occurrence of
any of these events could result in interruptions, delays or cessations in
service to users of the Company's products and services which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
ITEM 3. - LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
ITEM 4. - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
PART II
ITEM 5. - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market information is set forth in Note 16 of the Notes to Consolidated
Financial Statements referred to in Item 8(a) below and incorporated herein by
reference.
(b) On October 22, 1996, there were 133 holders of record of common stock.
(c) The Company has never paid cash dividends on its common stock, and the
Company has no intention to pay cash dividends in the forseeable future.
14
--
ITEM 6. - SELECTED CONSOLIDATED FINANCIAL DATA
The information set forth on page 20 of the 1996 Annual Report to Shareholders
is incorporated herein by reference and is filed herewith as Exhibit 13.1.
ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth on pages 21-27 of the 1996 Annual Report to
Shareholders is incorporated herein by reference and is filed herewith as
Exhibit 13.2.
ITEM 8. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) The following consolidated financial statements of the Company and
independent auditors' report set forth on pages 28-42 of the 1996 Annual Report
to Shareholders are incorporated herein by reference and are filed herewith as
Exhibit 13.3:
- Consolidated Balance Sheets as of July 31, 1996 and 1995
- Consolidated Statements of Operations for the three years ended July 31,
1996
- Consolidated Statements of Stockholders' Equity for the three years ended
July 31, 1996
- Consolidated Statements of Cash Flows for the three years ended July 31,
1996
- Notes to Consolidated Financial Statements
- Independent Auditors' Report
(b) Selected Quarterly Financial Data (unaudited) is set forth in Note 16 of
the Notes to Consolidated Financial Statements referred to in Item 8 (a) above
and incorporated herein by reference.
ITEM 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the portions of the Definitive Proxy Statement
entitled "Proposal 1--Election of Directors" and "Additional Information."
ITEM 11. - EXECUTIVE COMPENSATION
Incorporated by reference from the portion of the Definitive Proxy Statement
entitled "Executive Compensation."
ITEM 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the portion of the Definitive Proxy Statement
entitled "Security Ownership by Management and Principal Stockholders."
ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
15
--
PART IV
ITEM 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) Financial Statements, Financial Statement Schedules, and Exhibits
1. Financial Statements. The financial statements as set forth under Item
--------------------
8 of this report on Form 10-K are incorporated herein by reference.
2. Financial Statement Schedules. Financial Statement Schedule II of the
------------------------------
Company and the corresponding Report of Independent Auditors on
Financial Statement Schedule are included in this report.
All other financial statement schedules have been ommitted since they
are either not required, not applicable, or the information is
otherwise included.
3. Exhibits. Pursuant to Rule 12b-32 and General Instruction G, the
--------
following Exhibits are required to be filed with this Report by Item
----
14 above and are incorporated by reference by the reference source
--
cited in the Exhibit Index below or are filed herewith.
On November 10, 1993, the Company filed with the SEC a Registration Statement
on Form S-1, as amended by Amendment No. 1 filed with the SEC on December 14,
1993, Amendment No. 2 filed with the SEC on January 10, 1994, Amendment No. 3
filed with the SEC on January 19, 1994, Amendment No. 4 filed with the SEC on
January 24, 1994 and Post Effective Amendment No. 1 filed with the SEC on
January 25, 1994.
EXHIBIT INDEX
-------------
Exhibit No. Title Method of Filing
- ----------- ----- ----------------
3 (i) (1) Amendment to the Restated Certificate of Incorporated by reference to Exhibit 3 (i) (1)
Incorporation to the Registrant's quarterly report on Form 10-Q
for the quarter ended April 30, 1996.
3 (i) (2) Restated Certificate of Incorporation Incorporated by reference from Registration
Statement Form S-1 as amended, filed on
November 10, 1993
3 (ii) Restated By-Laws Incorporated by reference from Registration
Statement Form S-1, as amended, filed on
November 10, 1993
4. Specimen Stock Certificate representing Incorporated by reference from Registration
the Common Stock Statement Form S-1, as amended, filed on
November 10, 1993
10.01 Form of Indemnification Agreement Incorporated by reference from Registration
between the Registrant and its Statement Form S-1, as amended, filed on
Directors November 10, 1993
10.04 Lease, dated November 21, 1991, Incorporated by reference from Registration
Between the Registrant and Statement Form S-1, as amended, filed on
Ballardvale Park Associates II November 10, 1993
Limited Partnership
10.05 Lease Agreement, dated September 2, 1992, Incorporated by reference from Registration
between SalesLink Corporation, the Statement Form S-1, as amended, filed on
subsidiary of the Registrant, and November 10, 1993
American National Bank & Trust Company of
Chicago as Trustee under Trust No. 1001971-01
16
--
10.06 Amendment to Lease, dated May 10, 1992, Incorporated by reference from Registration
between SalesLink Corporation, the subsidiary Statement Form S-1, as amended, filed on
of the Registrant, and Drydock Associates November 10, 1993
Limited Partnership
10.07 1986 Stock Option Plan, as amended Incorporated by reference from Registration
Statement Form S-1, as amended, filed on
November 10, 1993
10.08 CMG Stock and Profit-Sharing Plan and Trust Incorporated by reference from Registration
Statement Form S-1, as amended, filed on
November 10, 1993
10.09 CMG/SalesLink Savings and Retirement Incorporated by reference from Registration
401(k) Plan Statement Form S-1, as amended, filed on
November 10, 1993
10.10 Employment Agreement, dated August 1, Incorporated by reference from Registration
1993, between the Registrant and Statement Form S-1, as amended, filed on
David S. Wetherell November 10, 1993
10.11 Incentive Compensation Agreement dated Incorporated by reference from Registration
August 1, 1990, between the Registrant Statement Form S-1, as amended, filed on
and Richard Torre November 10, 1993
10.12 Fulfillment and Inventory Management Incorporated by reference from Registration
Agreement between SalesLink Corporation, Statement Form S-1, as amended, filed on
the subsidiary of the Registrant, and November 10, 1993
MFS Financial Services, Inc.
10.13 Fulfillment and Mailing Agreement, Incorporated by reference from Registration
dated January 1, 1993, between SalesLink Statement Form S-1, as amended, filed on
Corporation, the subsidiary of the November 10, 1993
Registrant, and Kemper Financial
Services, Inc.
10.14 Agreement, dated January 15, 1991, Incorporated by reference from Registration
between ListLab, a division of the Statement Form S-1, as amended, filed on
Registrant, and Prentice-Hall, November 10, 1993
Business and Professional
Publishing Division
10.16 Account Indebtedness Letter Agreement, Incorporated by reference from Registration
dated as of November 9, 1993, between Statement Form S-1, as amended,
the Registrant and David S. Wetherell filed on November 10, 1993
10.17 Amendment to Account Indebtedness Letter Incorporated by reference from Registration
Agreement, dated as of January 10, 1994, Statement Form S-1, as amended, filed on
between the Registrant and David S. November 10, 1993
Wetherell
10.18 Amendment No. 1 to the Employment Incorporated by reference from Registration
Agreement, dated January 20, 1994, Statement Form S-1, as amended, filed on
between the Registrant and David S. November 10, 1993
Wetherell
10.20 Amendment No. 2 to Account Indebtedness Incorporated by reference from Registration
Letter Agreement, dated January 25, 1994 Statement Form S-1, as amended, filed on
between the Registrant and David S. November 10, 1993
Wetherell
10.22 Loan Agreement dated as of July 31, 1995, Incorporated by reference to Exhibit 10.22 to
between the Registrant, SalesLink the Registrant's annual report on Form 10-K
Corporation, CMG Securities Corp. and for the year ended July 31, 1995.
United States Trust Company
17
--
10.24 Extension Agreement dated August 4, 1995 Incorporated by reference to Exhibit 10.24 to
to Fulfillment and Mailing Agreement dated the Registrant's annual report on Form 10-K for
January 1, 1993, between SalesLink Corporation the year ended July 31, 1995.
and Kemper Financial Services, Inc.
10.25 Fulfillment Master Purchase Agreement dated Incorporated by reference to Exhibit 10.25 to
March 28, 1994, between SalesLink Corporation the Registrant's annual report on Form 10-K
and Fidelity Investments Institutional Service for the year ended July 31, 1995.
Company, Inc.
10.26 Literature Fulfillment Agreement dated Incorporated by reference to Exhibit 10.26 to
August 1, 1995, between SalesLink Corporation the Registrant's annual report on Form 10-K
and Vista Capital Management for the year ended July 31, 1995.
10.27 License Agreement dated June 16, 1995, as Incorporated by reference to Exhibit 10.27 to
amended, between the Registrant, CMG@Ventures, the Registrant's annual report on Form 10-K
L.P., Carnegie Mellon University, and Lycos, Inc. for the year ended July 31, 1995.
10.28 Agreement and Plan of Reorganization dated Incorporated by reference from Report on
as of November 8, 1994, as amended, among the Form 8-K as filed with the commission
Registrant, BookLink Technologies, Inc., 01/01/95 (File No. 0-22846)
America Online, Inc. and BLT Acquisition
Corporation
10.29 1995 Employee Stock Purchase Plan Incorporated by reference to Exhibit 10.29 to
the Registrant's annual report on Form 10-K for
the year ended July 31, 1995.
10.30 1986 Stock Option Plan, as amended Incorporated by reference to Exhibit 10.30 to
the Registrant's annual report on Form 10-K
for the year ended July 31, 1995.
10.31 Termination Amendment as of July 31, 1994 Incorporated by reference to Exhibit 10.31 to
terminating CMG Stock and Profit-Sharing the Registrant's annual report on Form 10-K
Plan and Trust for the year ended July 31, 1995.
10.32 Partnership Agreement by and among CMG- Incorporated by reference to Exhibit 10.32 to
@Ventures, Inc., CMG@Ventures Capital the Registrant's quarterly report on Form 10-Q
Corp., the Registrant and various Profit for the quarter ended January 31, 1996.
Partners
10.33 Master Agreement dated as of February 13, Incorporated by reference to Exhibit 10.33 to
1996 between BBN Corporation and the the Registrant's quarterly report on Form 10-Q
Registrant. for the quarter ended January 31, 1996.
10.34 1995 Stock Option Plan for Non-Employee Incorporated by reference to Exhibit 10.34 to
Directors the Registrant's quarterly report on Form 10-Q
for the quarter ended January 31, 1996.
10.35 Amendments dated February 9, 1996 and Incorporated by reference to Exhibit 10.35 to
March 4, 1996 to License Agreement dated the Registrant's quarterly report on Form 10-Q
June 16, 1995, between the Registrant, CMG- for the quarter ended January 31, 1996.
@Ventures L.P., Carnegie Mellon University
and Lycos, Inc.
11 Statement of Computation of Earnings Per Share Filed herewith
18
--
13.1 Selected Consolidated Financial Data Filed herewith
13.2 Management's Discussion and Analysis Filed herewith
of Financial Condition and Results of
Operations
13.3 Consolidated Financial Statements, Filed herewith
Supplementary Data, and Independent
Auditors' Report
22 Subsidiaries of the Registrant Filed herewith
23 Consent of Independent Auditors Filed herewith
27 Financial Data Schedule Filed herewith
(B) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fiscal quarter
ended July 31, 1996.
19
--
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors
CMG Information Services, Inc.:
Under date of September 16, 1996, we reported on the Consolidated Balance
Sheets of CMG Information Services, Inc. as of July 31, 1996 and 1995, and the
related Consolidated Statements of Operations, Stockholders' Equity, and Cash
Flows for each of the years in the three year period ended July 31, 1996, which
are included in the Form 10-K for the year ended July 31, 1996. In connection
with our audits of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule of Valuation and
Qualifying Accounts in the Form 10-K. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Boston, Massachusetts
September 16, 1996
20
--
CMG INFORMATION SERVICES, INC.
SCHEDULE II
Valuation and Qualifying Accounts
For the years ended July 31, 1994, 1995, 1996
Additions Deductions
Charged to (Charged
Balance at Costs and against
Accounts Receivable, Allowance for Doubtful beginning of Expenses (Bad Accounts Balance at end
Accounts period Debt Expense) Receivable) of period
- -------- ------ ------------- ----------- ---------
1994 $ 96,000 $ 96,000 $ 55,000 $137,000
1995 $137,000 $ 60,000 $ 49,000 $148,000
1996 $148,000 $294,000 $ -- $442,000
21
--
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CMG INFORMATION SERVICES, INC.
(Registrant)
Date: October 28, 1996
By: /s/ David S. Wetherell
------------------------------
David S. Wetherell, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed below by the following persons on behalf of the Registrant
and in the capacities and on the date set forth above.
Signature Title
- ---------- -----
/s/ David S. Wetherell
- ------------------------------
David S. Wetherell Chairman of the Board, President, Chief
Executive Officer and Director (Principal
Executive Officer)
/s/ Andrew J. Hajducky III
- ------------------------------
Andrew J. Hajducky III, CPA Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
/s/ Gregory M. Avis
- ------------------------------
Gregory M. Avis Director
/s/ John A. McMullen
- ------------------------------
John A. McMullen Director
22
--