1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 000-27537
JUPITER COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
13-4069996
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
627 BROADWAY
NEW YORK, NEW YORK 10012
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICER AND ZIP CODE)
(212) 780-6060
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act 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.
[X] Yes [ ] No
As of April 30, 2000, there were 15,455,657 shares of the registrant's
common stock outstanding.
2
JUPITER COMMUNICATIONS, INC.
FORM 10-Q
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements 3
Condensed Consolidated Balance Sheets at December 31, 1999 and March 31,
2000 (unaudited) 3
Unaudited Condensed Consolidated Statements of Operations for the three
months ended March 31, 1999 and 2000 4
Unaudited Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1999 and 2000 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 10
Item 3. Qualitative and Quantitative Disclosures about Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
2
3
PART I
FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUPITER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 MARCH 31, 2000
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 57,222,154 $ 48,929,611
Short-term investments 8,852,937 18,556,877
Accounts receivable, net 17,849,722 20,839,417
Marketable securities -- 3,425,352
Prepaid expenses and other current assets 3,156,851 4,334,645
Total current assets 87,081,664 96,085,902
Property and equipment, net 5,131,095 7,134,427
Goodwill and other intangible assets, net 4,526,071 24,548,624
Deferred tax assets 202,000 1,268,855
Other assets 238,744 253,889
Total assets $ 97,179,574 $ 129,291,697
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,764,013 $ 7,680,210
Accrued expenses 1,178,619 1,882,373
Accrued compensation 2,515,680 1,163,858
Convertible note payable -- 1,442,291
Deferred revenue 25,594,018 33,095,495
Total current liabilities 32,052,330 45,264,227
Deferred rent 129,716 148,799
Convertible notes payable 3,500,000 --
Common stock, $0.001 par value: 100,000,000 shares
authorized, 15,083,419 shares issued and outstanding at
March 31, 2000 14,500 15,083
Additional paid-in capital 63,212,533 83,615,744
Deferred compensation (504,819) (468,759)
Retained earnings (1,290,623) 1,903,618
Accumulated other comprehensive income (loss) 65,937 (1,187,015)
Total stockholders' equity 61,497,528 83,878,671
Commitments and contingencies -- --
Total liabilities and stockholders' equity $ 97,179,574 $ 129,291,697
See accompanying notes to unaudited condensed consolidated financial statements.
3
4
JUPITER COMMUNICATIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
1999 2000
Revenues:
Research Services 3,446,767 11,232,869
Conferences 1,724,486 5,117,716
Other 845,390 809,115
Total revenues 6,016,643 17,159,700
Cost of services and fulfillment 2,955,210 6,664,417
Gross profit 3,061,433 10,495,283
Other operating expenses:
Sales and marketing 1,750,135 5,208,720
General and administrative expenses 1,511,023 5,179,513
Depreciation and amortization 124,458 881,163
Total other operating expenses 3,385,616 11,269,396
Interest income 2,918 908,794
Gain on sale of investments -- 5,894,601
Income (loss) before income tax (321,265) 6,029,282
Income tax expense -- 2,835,041
Net income (loss) (321,265) 3,194,241
Pro forma basic net income (loss) per common share (.03) .22
Pro forma diluted net income (loss) per common share (.03) .20
Pro forma basic weighted average common shares outstanding 10,318,359 14,602,999
Pro forma diluted weighted average common shares outstanding 10,318,359 15,901,104
See accompanying notes to unaudited condensed consolidated financial statements.
4
5
JUPITER COMMUNICATIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
1999 2000
Cash flows from operating activities:
Net income (loss) (321,265) 3,194,241
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Equity loss from investment in Methodfive LLC 26,510 --
Non-cash gain related to investment in Methodfive LLC -- (5,744,601)
Depreciation and amortization 124,458 899,178
Provision for allowance for doubtful accounts (3,381) 35,710
Amortization of deferred compensation -- 36,060
Changes in operating assets and liabilities, net
of effect of acquisition:
Increase in accounts receivable (329,382) (2,476,959)
Increase in prepaid expenses and other assets (716,022) (1,171,034)
Increase in security deposits (78,873) --
Increase in accounts payable 215,249 4,675,724
Decrease in accrued expenses (356,285) (1,145,519)
Increase in deferred revenues 2,390,697 7,476,954
Increase in deferred rent 129,256 19,083
Net cash provided by operating activities 1,080,962 5,798,837
Cash flows from investing activities:
Capital expenditures (447,073) (2,313,926)
Repayment of loan, related party 910 --
Purchase of investments -- (9,703,940)
Cash paid in connection with acquisition, net -- 23,675
Net cash used in investing activities (446,163) (11,994,191)
Cash flows from financing activities:
Repayment of notes payable -- (2,110,524)
Exercise of options -- 4,419
Net cash used in financing activities -- (2,106,105)
Effect of exchange rate changes on cash and cash
equivalents -- 8,915
Increase (decrease) in cash and cash equivalents 634,799 (8,292,544)
Cash and cash equivalents at beginning of period 216,144 57,222,155
Cash and cash equivalents at end of period 850,943 48,929,611
See accompanying notes to unaudited condensed consolidated financial statements.
5
6
JUPITER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Jupiter Communications, LLC (the "LLC") was organized on December 1, 1994
as a New York limited liability company. On October 8, 1999, the LLC was merged
with and into Jupiter Communications, Inc., a Delaware corporation ("Jupiter" or
the "Company") (see Note 4(a)). Jupiter is an internet commerce research firm
that provides companies with comprehensive views of industry trends, forecasts
and best practices. The Company's research services encompass Jupiter Research
Services, conferences, book-length studies, and custom research reports and
provide clients and customers with focused research and strategic planning
support as they develop interactive products and services.
(b) Unaudited Interim Condensed Consolidated Financial Information
The unaudited interim condensed consolidated financial statements of the
Company as of March 31, 2000 and for the three months ended March 31, 2000 and
1999 included herein have been prepared in accordance with the instructions for
Form 10-Q under the Securities Exchange Act of 1934, as amended, and Article 10
of Regulation S-X under the Securities Act of 1933, as amended. Accordingly,
they do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all necessary adjustments, consisting only of normal recurring
adjustments, have been included in the accompanying unaudited financial
statements.
The results of operations for such periods are not necessarily indicative of
results expected for the full year or for any future period. For further
information, refer to the financial statements and notes thereto which are
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission on March 30, 2000.
(c) Principles of Consolidation
The Company's unaudited condensed consolidated financial statements as of
and for the three months ended March 31, 2000 include the accounts of the
Company and the accounts of Intelligence SE AB ("Intelligence"), a Swedish
research company, New Media Holdings PTY, Ltd. ("New Media Holdings"), an
Australian research company, and Internet Research Group ("IRG"), a California
research company, from March 16, 2000 (date of acquisition) (See Note 2). The
unaudited condensed consolidated financial statements for the three months ended
March 31, 1999 include only the accounts of Jupiter. All significant
intercompany balances and transactions have been eliminated.
(d) Foreign Currency Translation
Revenues and expenses related to the Company's foreign subsidiaries were
translated at the average monthly exchange rates prevailing during the period.
The assets and liabilities of the Company's foreign subsidiaries were translated
into U.S. dollars at the rate of exchange at the consolidated balance sheet
date. The resulting translation adjustment is reflected as a separate component
of stockholders' equity.
(e) Use of Estimates
The preparation of condensed consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the condensed consolidated financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
(f) Goodwill and Other Intangible Assets
6
7
Goodwill and other intangible assets are being amortized on a straight-line
basis over their expected period of benefit ranging from four to ten years.
Goodwill and other intangible assets are stated net of total accumulated
amortization of $326,742 and $772,472 at December 31, 1999 and March 31, 2000,
respectively.
(g) Actual and Pro Forma Basic and Diluted Net Income (Loss) Per Common Share
Basic net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding for
the period. Diluted net income per common share is computed in the
same manner except that the weighted average number of common shares
assumes the exercise and conversion of certain options.
The following table sets forth the computation of actual and pro forma net
income (loss) per common share (in thousands, except per share data):
THREE MONTHS ENDED
MARCH 31,
1999 2000
Proforma
Basic net income (loss) per common share (.03) .22
Diluted net income (loss) per common share (.03) .20
Net income (loss) (321) 3,194
Basic weighted average common shares outstanding 10,318 14,603
Common stock equivalents:
Stock options - 1,298
Diluted weighted average common shares outstanding 10,318 15,901
The information for the three months ended March 31, 1999 is pro forma. Pro
forma basic and diluted net loss per common share is computed by dividing net
loss by the pro forma weighted average number of shares of common stock. Pro
forma weighted average number of shares of common stock gives effect to the
Company's reorganization from a limited liability company to a corporation in
October 1999. Pro forma weighted average number of shares of common stock does
not include any common stock equivalents because inclusion of common stock
equivalents would have been anti-dilutive.
7
8
(h) Concentration of Risk
The Company's customers are concentrated in the United States. The Company
performs ongoing credit evaluations of its customers' financial condition and
generally does not require collateral and establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of customers, historical
trends and other information. To date, such losses have been within management's
expectations.
For the three months ended March 31, 1999 and 2000, there were no customers
that accounted for over 10% of revenues generated by the Company, or of gross
accounts receivable at December 31, 1999 and March 31, 2000.
(i) Recent Accounting Pronouncements
The Company is required to adopt SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" effective July 1, 2000, and has not yet
determined the effect SFAS No. 133 will have on its results of operations and
financial position. This statement is not required to be applied retroactively
to financial statements of prior periods.
FASB Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation" ("FIN No. 44"), provides guidance for applying APB Opinion
No. 25, "Accounting for Stock Issued to Employees." With certain exceptions,
FIN No. 44 applies prospectively to new awards, exchanges of awards in a
business combination, modifications to outstanding awards and changes in
grantee status on or after July 1, 2000. The Company does not believe that the
implementation of FIN No. 44 will have a significant effect on its results of
operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB No. 101"), which summarizes certain
of the SEC staff's views in applying generally accepted accounting principles
to revenue recognition in financial statements. The Company will be required to
adopt the accounting provisions of SAB No. 101 no later than the second
quarter of 2000. The Company does not believe that the implementation of SAB
No. 101 will have a significant effect on its results of operations.
(j) Segment Reporting
The Company has determined that it has no separately reportable business
segments.
(2) ACQUISITION
Internet Research Group
On March 16, 2000, Jupiter acquired all of the stock of Internet Research
Group ("IRG"), in exchange for 581,044 shares of common stock and 61,456 options
to purchase additional shares of common stock, at an aggregate value of
$20,399,375. The total purchase price for this transaction was approximately
$20,499,375 which includes expenses incurred by the Company of approximately
$100,000 related to the merger.
Of the purchase price, $52,172 was allocated to net assets. The historical
carrying amounts of such net assets approximated their fair values. The
difference between the purchase price and the fair value of the acquired net
assets of IRG was recorded as goodwill in the amount of $18,766,038 and is being
amortized on a straight line basis over its estimated expected life of 10 years.
The following unaudited pro forma consolidated financial information gives
effect to the above described acquisition as if it had occurred at the
beginning of the respective periods by consolidating the results of operations
of the Company and IRG for the three months ended March 31, 2000 and 1999.
Three Months Ended
March 31,
1999 2000
--------- ---------
Revenues......................... 6,878,799 18,579,157
Net income (loss)................ (725,931) 2,862,943
Basic net income (loss) per
common share.................... (.07) .19
Diluted net income (loss) per
common share.................... (.07) .17
Basic weighted average common
shares outstanding.............. 10,899,403 15,184,043
Diluted weighted average common
shares outstanding.............. 10,899,403 16,482,148
(3) STOCKHOLDERS' EQUITY
Deferred Compensation
The Company recorded deferred compensation of approximately $577,000,
representing the difference between the exercise price of unit options granted
in July 1999 and the fair value for accounting purposes of the underlying units
at the date of grant, assuming a fair value of the Company's units on the date
of grant of $11.00 per share. The $577,000 deferred compensation cost is being
amortized over the vesting period of the options. During the three months ended
March 31, 2000, the Company has amortized approximately $36,000 of the deferred
compensation.
Accumulated Other Comprehensive Loss
8
9
Accumulated other comprehensive loss as of March 31, 2000 is comprised of an
after-tax unrealized loss of $1,252,394 to record the fair market value of the
142,723 shares of Xceed, Inc. at March 31, 2000, as well as a loss of $65,379
related to the foreign currency translation adjustment of Intelligence which was
acquired by the Company in July 1999.
Comprehensive net income (loss) was ($321,265) and $4,447,193 for the three
months ended March 31, 1999 and 2000, respectively.
(4) SUBSEQUENT EVENTS
(a) Acquisition of Net Market Makers, Inc.
In April 2000, the Company acquired all of the stock of Net Market Makers,
Inc. ("NMM"), a California company, in exchange for $20,500,000 and 274,680
shares of common stock valued at $8,721,090. The agreement calls for additional
consideration of up to $10,500,000 in cash to be paid if certain revenue targets
are met by NMM during 2000 and 2001. The acquisition will be accounted for
under the purchase method of accounting.
9
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN
THIS QUARTERLY REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS
FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS THAT
MAY AFFECT FUTURE RESULTS" AND ELSEWHERE IN THIS QUARTERLY REPORT, AND IN OTHER
REPORTS AND DOCUMENTS FILED FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE
COMMISSION.
OVERVIEW
We provide research and advice on Internet commerce. Senior executives at
our client companies utilize our research to make informed business decisions in
a complex and rapidly changing Internet economy. Our research, which is focused
solely on the global Internet economy, provides our clients with comprehensive
views of industry trends, forecasts and best practices. Our analysis, supported
by proprietary data, emphasizes specific, actionable findings.
Our revenues consist of Research Services, conferences and other revenues.
For the three months ended March 31, 2000, Research Services represented
approximately 65.5% of our total revenues. Jupiter Research Services is a
combination of proprietary written analysis, supporting data and access to our
analysts. We typically bill clients annually in advance and deliver the products
and services over the term of the contract. We also produce a wide range of
conferences which offer senior executives the opportunity to hear first-hand the
insights of our analysts and the leading decision makers in the Internet and
technology industries. Conference revenues consist of revenues from individual
attendees, sponsors, which display their logo in our conference program and/or
host a reception, and exhibitors, which receive a booth to promote their
companies. For the three months ended March 31, 2000, conferences represented
approximately 29.8% of our total revenues. Other revenues, which consist
primarily of book-length studies, newsletters and custom research, represented
approximately 4.7% of our total revenues for the three months ended March 31,
2000.
Research Services contracts are renewable contracts, typically annual, and
payable in advance. Accordingly, a substantial portion of our billings is
initially recorded as deferred revenue and amortized into revenue over the term
of the contract. Commission expense related to Jupiter Research Services is also
initially deferred and amortized into expense over the contract period in which
the related revenues are earned and amortized to income. Our contracts are
non-cancelable and non-refundable. Billings attributable to our conferences and
other products and services are initially recorded as deferred revenue and
recognized upon the completion of the event or project.
We have experienced rapid growth since our organization, and particularly
since our decision in late 1996 to focus our business on Research Services,
formerly known as Strategic Planning Services or SPS. Between 1995 and 1999, our
total revenues grew from $3.7 million to $38.1 million, a compound annual growth
rate of 79.1%. For the three months ended March 31, 2000, our revenues of $17.2
million represented an increase of 185.2% over revenues of $6.0 million for the
three months ended March 31, 1999. The number of our Jupiter Research Services
contracts has increased from 514 as of March 31, 1999 to 1,158 as of March 31,
2000. Our total contract value has increased from $15.2 million on March 31,
1999 to $50.5 million on March 31, 2000. We believe that total contract value is
a meaningful measure of the volume of our business. Total contract value
represents the annualized value of all outstanding Research Services contracts
without regard to the remaining duration of such contracts. Total contract
value, however, does not necessarily correlate to deferred revenue. Deferred
revenue represents unamortized revenue remaining on all outstanding and billed
contracts. As of March 31, 2000, deferred revenue related to Research Services
contracts totaled $26.7 million, which was 52.9% of our total contract value as
of such date.
To date, a substantial portion of expiring Research Services contracts have
been renewed for an equal or higher
10
11
amount. Approximately 75% of contracts expiring during the twelve months ended
March 31, 2000 were renewed and approximately 95% of these contracts were
renewed for an equal or larger dollar amount. With this high customer renewal
rate, we believe we have a growing base of recurring revenues from our Research
Services.
We have a highly diversified client base, including companies in the
Internet, media, telecommunications, technology, financial services, retail,
travel, consumer products and professional services industries. No client
accounts for more than 2% of our total annual revenues.
Cost of services and fulfillment represents the costs associated with
production and delivery of our products and services, including the costs of
salaries, bonuses and related benefits for our research and conference
personnel, all associated editorial, travel and support services, and the costs
of producing our conferences. Sales and marketing expenses include salaries,
bonuses, employee benefits, travel expenses, promotional costs, sales
commissions and other costs incurred in marketing and selling our products and
services. General and administrative expenses include the costs of our finance
and technology groups and other administrative functions.
We have recorded deferred compensation of approximately $577,000,
representing the difference between the exercise price of unit options granted
in July 1999 and the fair value for accounting purposes of the underlying units
at the date of grant, assuming a fair value of our units on the date of grant of
$11.00 per share. The $577,000 deferred compensation cost is being amortized
over the vesting period of the options.
We have incurred net losses each year since our formation. Our net loss was
$613,000 in 1996, $2.3 million in 1997, $2.1 million in 1998 and $630,000 in
1999. We had a net profit of $3.2 million in the first quarter of 2000 and, as
of March 31, 2000, we had retained earnings of $1.9 million. The net profit in
the first quarter was due primarily to a $3.1 million after tax gain on the sale
of our shares of Methodfive LLC in exchange for shares of Xceed, Inc. We expect
to incur significant expenditures in the future associated with our domestic and
international expansion strategies. In particular, we intend to continue to
expand our research and sales personnel, and we intend to continue to invest in
technology, leasehold improvements and the development of additional research
practices and modules.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Revenues. Total revenues increased 185.2% to $17.2 million in the three
months ended March 31, 2000, from $6.0 million in the three months ended March
31, 1999. Research Services revenues increased 225.8% to $11.2 million in the
three months ended March 31, 2000 from $3.4 million in the three months ended
March 31, 1999. The increases are attributable primarily to an increase in the
number of Research Services contracts to 1,158 at March 31, 2000 from 514 at
March 31, 1999 and an increase in average contract value to $43,600 at March 31,
2000 from $29,500 at March 31, 1999. These increases reflect an increase in the
number of users at, and research services purchased by, our client companies.
Total contract value increased to $50.5 million at March 31, 2000 from $15.2
million at March 31, 1999. The Research Services deferred revenue related to the
contract value at March 31, 2000 and March 31, 1999 was $26.7 million and $6.6
million, respectively.
Conference revenues increased 196.8% to $5.1 million in the three months
ended March 31, 2000 from $1.7 million in the three months ended March 31, 1999.
These revenues reflect the results of four conferences in the three months ended
March 31, 2000 and one conference in the three months ended March 31, 1999. The
increases are attributable to an increase in attendee, sponsor and exhibitor
revenues and the production of three additional conferences in the three months
ended March 31, 2000.
Other revenues decreased 4.3% to $809,000 in the three months ended March
31, 2000 from $845,000 million in the three months ended March 31, 1999. These
decreases reflect our decision to focus our business on Research Services and to
discontinue the sale of newsletters.
Cost of Services and Fulfillment. Cost of services and fulfillment
increased 125.5% to $6.7 million in the three months ended March 31, 2000 from
$3.0 million in the three months ended March 31, 1999. The increases are
attributable to the overall growth of our business, in particular the increased
research staffing for new and existing research practices. Gross margin
increased to 61.2% in the three months ended March 31, 2000 from 50.9% in the
three months ended March 31, 1999 because the growth in our client base and new
business exceeded the growth in
11
12
the cost of providing our research services and conferences.
Sales and Marketing. Sales and marketing expenses increased 197.7% to $5.2
million in the three months ended March 31, 2000 from $1.8 in the three months
ended March 31, 1999. As a percentage of total revenues, these expenses
increased to 30.3% in the three months ended March 31, 2000 from 29.1% in the
three months ended March 31, 1999. The increases are primarily attributable to
an increased number of sales personnel and the corresponding commission costs
associated with increased revenues, as well as increased promotional costs for
our Research Services products.
General and Administrative. General and administrative expenses increased
242.8% to $5.2 million in the three months ended March 31, 2000 from $1.5
million in the three months ended March 31, 1999. The increases were primarily
attributable to increased personnel for the finance, human resources and
operations areas, increased operating costs relating to our internal technology
systems, higher costs for recruiting, retaining and training our staff, and
higher costs for staff travel and professional fees. As a percentage of total
revenues, these expenses increased to 30.2% in the three months ended March 31,
2000 from 25.1% in the three months ended March 31, 1999. This increase reflects
the fact that some of these expenses, such as personnel costs, increased at a
higher rate than our revenues.
Depreciation and Amortization. Depreciation and amortization expense
increased 608% to $881,000 in the three months ended March 31, 2000 from
$124,000 in the three months ended March 31, 1999. As a percentage of total
revenues, these expenses increased to 5.1% in the three months ended March 31,
2000 from 2.1% in the three months ended March 31, 1999. The increases are
primarily attributable to the acquisition of 45% of the Plug-In conference from
our partners, increased investment in capital assets, such as leasehold
improvements and IT infrastructure, as well as by amortization of goodwill
related to acquisitions in Sweden and Australia, as well as the IRG acquisition.
Interest income. Interest income increased to $909,000 in the three months
ended March 31, 2000 from $3,000 in the three months ended March 31, 1999. This
increase was caused by the investment of the net proceeds from our initial
public offering, all of which were invested in short-term, highly liquid
investment-grade securities.
Income tax expense. Income tax expense increased to $2.8 million for the
three months ended March 31, 2000 from $0 in the three months ended March 31,
1999. This increase was due primarily to a gain on the sale of our shares in
Methodfive LLC in exchange for shares of Xceed, Inc.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through private
placements of equity securities and the sale of common stock in our initial
public offering. Net cash provided by operating activities increased to $5.8
million for the three months ended March 31, 2000 from $1.1 million for the
three months ended March 31, 1999, due principally to an increased level of
business activity.
Net cash used in investing activities increased to $12.0 million for the
year ended March 31, 2000 from $446,000 for the three months ended March 31,
1999 due principally to investments made in investment-grade securities. In
addition, we increased capital expenditures for leasehold improvements, other
computer hardware and capitalizable software.
Net cash used in financing activities increased to $2.1 million for the
three months ended March 31, 2000 versus net cash used in financing activities
of $0 for the three months ended March 31, 1999. The increase was due to the
early repayment of one promissory note in its entirety and early repayment of a
portion of a second promissory note.
As of March 31, 2000, we had $48.9 million in cash and cash equivalents,
and $18.6 million invested in highly liquid investment-grade securities. We have
a $7.0 million committed line of credit, secured by substantially all of our
assets, under which there were no outstanding balances as of March 31, 2000. As
of March 31, 2000 none of the $62.4 million in net proceeds from our initial
public offering had been utilized.
12
13
We expect to spend approximately $14 million in 2000 on technology,
including computer system enhancements, leasehold improvements, expansion of
operations and telecommunications upgrades. We anticipate that we will continue
to increase our capital expenditures and lease commitments consistent with our
anticipated growth in operations, infrastructure and personnel. In addition, we
anticipate that we will continue to evaluate investments in other businesses,
and continue to expand our sales and marketing programs and conduct more
aggressive brand promotions, any of which could reduce our liquidity. We also
anticipate that we will continue to experience growth in our operating expenses
to support our revenue growth, including the introduction of new Research
Services.
EFFECTS OF INFLATION
Due to relatively low levels of inflation in 1999 and the first quarter of
2000, inflation has not had a significant impact on our results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Currency Rate Fluctuation. Our results of operations, financial
position and cash flows are not materially affected by changes in the relative
values of non-U.S. currencies to the U.S. dollar. We do not use derivative
financial instruments to limit our foreign currency risk exposure.
Market Risk. Our accounts receivable are subject, in the normal course
of business, to collection risks. We regularly assess these risks and have
established policies and business practices to protect against the adverse
effects of collection risks. As a result, we do not anticipate any material
losses in this area.
Interest Rate and Credit Risks. Our exposure to market risk for changes
in the interest rates relates primarily to our investment portfolio. We have not
used derivative financial instruments in our investment portfolio. We invest our
excess cash in debt instruments of the U.S. Government and its agencies and in
high-quality corporate issuers and, by policy, limit the amount of credit
exposure to any one issuer. We protect and preserve our invested funds by
limiting default, market and reinvestment risk.
Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may have
their fair market value adversely impacted due to a rise in their interest
rates, while floating rate securities may produce less income than expected if
interest rates fall. Due in part to these factors, our future investment income
may fall short of expectations due to changes in interest rates or we may suffer
losses in principal if forced to sell securities which have declined in market
value due to changes in interest rates.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
IF WE ARE UNABLE TO ATTRACT AND RETAIN EXPERIENCED PERSONNEL, THE QUALITY OF OUR
RESEARCH PRODUCTS AND SERVICES MAY DECLINE, AND OUR ABILITY TO SELL OUR PRODUCTS
AND SERVICES MAY BE HARMED.
Our success depends in large part on the continued contributions of our
senior management team, research analysts and sales representatives. As of March
31, 2000, we had 65 research analysts and 94 sales representatives. We expect to
increase our hiring of research analysts and sales representatives significantly
in the next few years. We face intense competition in hiring and retaining
personnel from, among others, technology and Internet companies, market research
and consulting firms, print and electronic publishing companies and financial
services companies. Many of these firms have substantially greater financial
resources than we do to attract and retain qualified personnel from a limited
pool of attractive candidates. In addition, some people that we may attempt to
hire could be subject to non-competition agreements that could impede our
recruitment efforts. To the extent that we are unable to retain our existing
management, research analysts or sales representatives or that we are unable to
increase the number of research analysts and sales representatives that we hire,
our business and financial results may suffer.
13
14
RAPID GROWTH IN OUR BUSINESS COULD STRAIN OUR MANAGERIAL, OPERATIONAL AND
FINANCIAL RESOURCES.
The anticipated future growth of our business will place a significant
strain on our managerial, operational and financial resources. We had 142
employees at December 31, 1998, 270 employees at December 31, 1999 and 354
employees at March 31, 2000. We anticipate hiring a substantial number of
research analysts, sales representatives and other employees in the foreseeable
future to expand our product and service offerings and to expand our sales of
such products and services. We also expect to continue to open additional
offices. For example, we recently opened an office in Munich, Germany and expect
to open an office in Tokyo, Japan in the second quarter of 2000. Furthermore, we
recently signed a lease for a new facility in New York City where we plan to
consolidate our current locations in New York City plus provide for future
growth. As we expand, we expect that we will need to continually improve our
financial and managerial controls, billing systems, reporting systems and
procedures. In addition, as we expand we will also need to increase our employee
training efforts. If we are unable to manage our growth effectively, our
business and financial results may suffer.
BECAUSE WE HAVE RECENTLY INTRODUCED MANY OF OUR PRODUCTS AND SERVICES, YOU HAVE
LIMITED INFORMATION UPON WHICH YOU CAN EVALUATE OUR BUSINESS.
We have recently launched many of the Research Services that we offer. As a
result, we have a limited operating history upon which you can evaluate our
business and the products and services that we offer. Due to our limited
operating history, it is difficult or impossible for us to predict future
results of operations. Moreover, due to our limited operating history, any
evaluation of our business and prospects must be made in light of the risks and
uncertainties frequently encountered by companies in new and rapidly evolving
markets such as ours. Many of these risks and uncertainties are discussed
elsewhere in this section. We cannot assure you that we will be successful in
addressing these risks and uncertainties. Our failure to do so could cause our
business and financial results to suffer.
WE HAVE A HISTORY OF ANNUAL OPERATING LOSSES WHICH MAY CONTINUE FOR THE
FORESEEABLE FUTURE.
We have incurred substantial costs to create, market and distribute our
products and services, to retain qualified personnel, including management,
research analysts and sales representatives, and to grow our business. As a
result, we incurred net losses of approximately $2.1 million in 1998 and
$630,000 in 1999. We intend to invest heavily in new products and services,
leasehold and technology improvements, new research and sales personnel and
international expansion. As a result, we will need to achieve significant
revenue increases to achieve and maintain profitability on an annual basis. The
number of clients for our research products and services, as well as the number
of attendees to our conferences, may grow more slowly than we anticipate or may
even decrease in the future. In addition, even if we become profitable on an
annual basis, we may not sustain or increase our profits on an annual basis in
the future.
OUR OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS, WHICH MAY CAUSE
VOLATILITY OR A DECLINE IN THE PRICE OF OUR STOCK.
Our revenues, expenses and operating results have varied in the past and
may fluctuate significantly in the future due to a variety of factors that are
outside of our control. These factors include, among others:
- the level and timing of new business and renewals of subscriptions to
our research products and services;
- changes in the market demand for research products or analysis
regarding Internet commerce;
- the levels of attendance at our Internet conferences; and
- the extent to which we experience increased competition.
The above factors could affect our quarterly as well as long-term financial
results. In particular, changes in the demand for our products, competition or
the levels of attendance at our Internet conferences each could have both
14
15
short-term and long-term adverse effects on our business.
Our revenues, expenses and operating results may also fluctuate
significantly in the future as a result of business decisions made by us. These
decisions include, among others:
- the timing of the introduction and marketing of our new research
products and services;
- the timing of our conferences;
- changes in operating expenses; and
- the timing of acquisitions and the impact on our operations and our
operating results.
The sales of our research products and services and the success of our
conferences are difficult to forecast accurately. If our revenues fall short of
expectations, we may not be able to adjust our fixed expenses to compensate for
this shortfall on a timely basis. Further, as a strategy for remaining
competitive, we may have to make pricing, service or marketing decisions that
could cause our business and financial results to suffer.
Due to all the foregoing factors and other risks discussed in this section,
you should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance. It is possible that in some
future periods our results of operations may be below the expectations of
investors. In this event, the price of our common stock is likely to fall.
BECAUSE OUR REVENUES ARE SUBSTANTIALLY DEPENDENT ON THE SALE OF OUR RESEARCH
SERVICES, OUR BUSINESS MAY SUFFER IF WE HAVE DIFFICULTY IN ACQUIRING OR
RETAINING SUBSCRIBERS.
Our business and financial results are dependent on our ability to attract
and retain clients for our Research Services. In addition, our business model
assumes that we will be able to increase the level of research sales over time
to our existing clients. Revenues from the sale of Research Services, as a
percentage of our total revenues, were 41.9% in 1998, 60.7% in 1999 and 65.5% in
the first quarter of 2000.
Our ability to acquire and retain Research Services clients and our ability
to increase sales to existing clients is subject to a number of risks, including
the following:
- We may be unsuccessful in delivering high-quality and timely research
analysis to our clients;
- We may be unsuccessful in anticipating and understanding market trends
and the changing needs of our clients;
- The use of the Internet as a medium for commerce, both in the United
States and abroad, may not continue to grow as we currently anticipate;
- Our marketing programs designed to attract and retain clients may not
succeed; and
- We may not be able to hire and retain a sufficiently large number of
research and sales personnel in a very competitive job market.
If we are unable to retain existing clients, increase sales to existing
clients or attract a significant number of new Research Services clients, our
business and financial results may suffer.
OUR BUSINESS MAY SUFFER IF WE ARE UNABLE TO ATTRACT ATTENDEES, SPONSORS AND
EXHIBITORS TO OUR CONFERENCES.
Our business and financial results depend in part on our ability to attract
attendees, sponsors and exhibitors to our growing number of conferences.
Revenues from conferences, as a percentage of our total revenues, were 33.2%
15
16
in 1998, 29.6% in 1999 and 29.8% in the first quarter of 2000. We cannot assure
you that we will be able to select topics for our conferences that potential
attendees, sponsors and exhibitors will find timely and interesting. We also
cannot assure you that our competitors will not produce conferences on similar
topics or that we will continue to be able to attract prominent industry leaders
to participate in our conferences. If we are unable to produce compelling
events, if we face increased competition for our conferences or if we are unable
to attract prominent speakers, the growth of our conference business will be
hindered. Our business and financial results may also suffer if we are forced to
cancel any conferences as a result of inclement weather or some other unexpected
event.
WE MAY NOT BE ABLE TO SUCCESSFULLY MAKE OR INTEGRATE ACQUISITIONS OF OTHER
COMPANIES, SERVICES OR PRODUCTS.
We have limited experience in acquiring other companies, services or
products. On March 16, 2000, we completed our acquisition of Internet Research
Group, a leading research and consulting firm focused exclusively on Internet
infrastructure markets. In April 2000, we completed our acquisition of Net
Market Makers, Inc., a leading provider of information and analysis regarding
business to business e-commerce. Although we have no present understanding or
agreement relating to any further acquisition, we do anticipate making other
acquisitions in the future. We cannot assure you, however, that we will be able
to complete future acquisitions successfully or to integrate an acquired entity
with our current business. In addition, the key personnel of the acquired
company may decide not to work for us. If we make other types of acquisitions,
we could have difficulty assimilating the acquired services or products. These
difficulties could disrupt our current business, distract our management and
employees, increase our expenses and adversely affect our results of operations.
Furthermore, we may incur debt or issue equity securities to pay for any future
acquisitions. The issuance of equity securities could be dilutive to our
existing shareholders.
OUR BUSINESS MAY SUFFER IF WE PROVE UNABLE TO ANTICIPATE MARKET TRENDS OR IF WE
FAIL TO PROVIDE INFORMATION THAT IS USEFUL TO OUR CLIENTS.
Our success depends in large part on our ability to anticipate, research
and analyze rapidly changing technologies and industries and on our ability to
provide this information in a timely and cost-effective manner. If we are unable
to continue to provide credible and reliable information that is useful to
companies engaged in online commerce, our business and financial results may
suffer.
Our research products and services, as well as our conferences, focus on
Internet commerce. Internet commerce is relatively new and is undergoing
frequent and dramatic changes, including the introduction of new products and
the obsolescence of others, shifting business strategies and revenue models, the
formation of numerous new companies and high rates of growth. Because of these
rapid and continuous changes in the Internet commerce markets, we face
significant challenges in providing timely analysis and advice. Many of the
industries and areas on which we focus are relatively new, and it is very
difficult to provide predictions and projections as to the future marketplace,
revenue models and competitive factors. In addition, many companies have not
embraced the use of the Internet as a medium for commerce and are unclear as to
how to allocate corporate resources effectively. As a result, some companies may
conclude that our research products are not useful to their businesses. Further,
the need to continually update our research requires the commitment of
substantial financial and personnel resources.
If our predictions or projections prove to be wrong, or if we are unable to
continually update our information, our reputation may suffer and demand for our
research products and services may decline. In addition, if companies do not
agree with our analysis of market trends and the areas on which we choose to
focus our efforts, our business and financial results may suffer.
WE FACE INTENSE COMPETITION IN PROVIDING OUR RESEARCH PRODUCTS AND SERVICES, AS
WELL AS IN PRODUCING CONFERENCES, AND SUCH COMPETITION IS LIKELY TO INCREASE IN
THE FUTURE.
We may not be able to compete successfully against current or future
competitors, and the competitive pressures that we face may cause our business
and financial results to suffer. Our principal current competitor is Forrester
Research, Inc. In 1999, Gartner Group, Inc., our largest stockholder, began
competing directly in providing research products related to Internet commerce.
Although Gartner Group has not been actively involved in our day-to-day
16
17
operations since it first invested in us in October 1997, in the past we had
provided them with select confidential and proprietary data. As a result,
Gartner Group could use this confidential and proprietary data in developing and
marketing competing products and services. A number of other companies compete
with us in providing research and analysis related to a specific industry or
geographic area. In addition, our competitors include information technology
research firms, business consulting and accounting firms, electronic and print
publishing companies and equity analysts employed by financial services
companies.
Our ability to compete both in the United States and abroad depends upon
many factors, many of which are outside of our control. We believe that the
primary competitive factors determining success in our markets include the
quality and timeliness of our research and analysis, our ability to offer
products and services that meet the changing needs of our customers, the prices
we charge for our various research products and general economic conditions.
We expect competition to increase because of the business opportunities
presented by the growth of Internet commerce around the world. Competition may
also intensify as a result of industry consolidation, because the markets in
which we operate face few substantial barriers to entry or because some of our
competitors may provide additional or complementary services, such as consulting
services. Increased competition may result in reduced operating margins, loss of
market share and diminished value in our products and services, as well as
different pricing, service or marketing decisions.
Our current and potential competitors include many companies that have
substantially greater financial, information gathering and marketing resources
than we have. For example, Gartner Group and Forrester Research each had higher
revenues than we did during the first quarter of 2000, and each currently has
greater marketing resources than we have. This may allow them to devote greater
resources than we can to the promotion of their brand and to the development and
sale of their products and services. We cannot assure you that we will be able
to compete successfully against current and future competitors.
WE COULD FACE ADDITIONAL RISKS AND CHALLENGES IF WE CONTINUE TO EXPAND
INTERNATIONALLY.
Our business plan calls for accelerated international growth. For example,
we recently opened an office in Munich, Germany and expect to open an office in
Tokyo, Japan in the second quarter of 2000. Expansion into new geographic
territories requires considerable management and financial resources and may
negatively impact our near-term results of operations.
Our current international operations, as well as any future international
operations, are subject to numerous challenges and risks, including, but not
limited to, the following:
- political and economic conditions in various jurisdictions;
- fluctuations in currency exchange rates;
- tariffs and other trade barriers;
- adverse tax consequences; and
- difficulties in protecting intellectual property rights in
international jurisdictions.
We cannot assure you that one or more of these factors would not harm any
current or future international operations.
We also rely on local distributors in various countries, including
Singapore, Brazil and Israel, to distribute our Research Services. On March 29,
2000, we entered into an agreement with The Connection Group (BVI) Limited,
which does business as Web Connection, to market and distribute our research
products in China, Taiwan, Hong Kong and Korea. If any of these distribution
arrangements are terminated, we cannot assure you that we will able to replace
the terminated arrangement with an equally beneficial arrangement. We also
intend to enter into additional distribution arrangements in other countries but
we cannot
17
18
assure you that we will be able to do so on acceptable terms. Our receipt of
revenues from these distribution arrangements and our joint venture agreement
may also be dependent on factors which are beyond our control, including the
efforts of the distributors and our joint venture partner.
OUR BUSINESS MAY SUFFER IF THE USE OF THE INTERNET AS A COMMERCIAL MARKETPLACE
DOES NOT CONTINUE TO GROW.
Because our company focuses solely on Internet commerce, our future success
depends on the continued development and acceptance of the Internet as a viable
commercial medium. However, the continued development and acceptance of the
Internet as a widely-used medium for commerce and communication is uncertain. A
number of factors could prevent such continued development and acceptance,
including the following:
- unwillingness of companies and consumers to shift their purchasing from
traditional vendors to online vendors;
- security and authentication concerns with respect to the transmission
of confidential information, such as credit card numbers, over the
Internet;
- privacy concerns, including those related to the ability of Web sites
to gather user information without the user's knowledge or consent; and
- significant uncertainty about the demand and market acceptance for
Internet advertising and the lack of standards to measure the
effectiveness of Internet advertising.
LAWS AND REGULATIONS COULD SLOW THE GROWTH OF THE INTERNET AND NEGATIVELY AFFECT
THE ACCEPTANCE OF THE INTERNET AS A COMMERCIAL MEDIUM.
Laws and regulations regarding Internet companies and commercial
transactions conducted over the Internet could slow the growth in use of the
Internet generally and decrease the acceptance of the Internet as a commercial
medium. For example, as the popularity and use of the Internet increases, it is
possible that a number of laws and regulations may be adopted in the United
States or in other countries covering issues such as taxation, intellectual
property matters, advertising and other areas. We cannot predict the impact, if
any, that future laws or regulations may have on our business.
OUR BUSINESS MAY SUFFER IF WE ARE UNABLE TO MAINTAIN OR ENHANCE AWARENESS OF THE
JUPITER BRAND OR IF WE INCUR EXCESSIVE EXPENSES ATTEMPTING TO PROMOTE THE
JUPITER BRAND.
We expect to expand our marketing activities to promote and strengthen the
Jupiter brand. Promoting and strengthening the Jupiter brand is critical to our
efforts to attract and retain clients for our research products, as well as to
increase attendance at our conferences. We believe that the importance of brand
recognition will likely increase due to the increasing number of competitors
entering our markets. In order to promote the Jupiter brand, in response to
competitive pressures or otherwise, we may find it necessary to increase our
marketing budget, hire additional marketing and public relations personnel or
otherwise increase our financial commitment to creating and maintaining brand
loyalty among our clients. If we fail to effectively promote and maintain the
Jupiter brand, or incur excessive expenses attempting to promote and maintain
the Jupiter brand, our business and financial results may suffer.
WE FACE POTENTIAL LIABILITY FOR INFORMATION THAT WE PUBLISH, PROVIDE AT
CONFERENCES OR DISSEMINATE THROUGH OUR RESEARCH ANALYSTS.
As a publisher and distributor of original research, market projections and
trend analyses, we face potential liability based on a variety of theories,
including defamation, negligence, copyright or trademark infringement or other
legal theories based on the nature, publication or distribution of this
information. Such claims, whether brought in the United States or abroad, would
likely divert management time and attention and result in significant cost to
investigate and defend, regardless of the merit of any such claims. The filing
of any such claims may also damage our reputation as a high-quality provider of
unbiased, timely analysis and result in client cancellations or overall
decreased demand for our products and services. In addition, if we become
subject to these types of claims and are not successful in our defense, we may
be forced to pay substantial damages. Our insurance may not adequately
18
19
protect us against these claims.
DISRUPTION OF OUR WEB SITE DUE TO SECURITY BREACHES AND SYSTEM FAILURES COULD
HARM OUR BUSINESS AND RESULT IN CLIENT CANCELLATIONS.
Our infrastructure and the infrastructure of our service providers are
vulnerable to security breaches, computer viruses or similar disruptive problems
and system failures. These systems are also subject to telecommunications
failures, power loss and various other events. Any of these events, whether
intentional or accidental, could lead to interruptions or disruptions in the
general operation of our business. In addition, any of these events could also
lead to interruptions, delays or cessation of operation of our Web site, which
provides access to and distribution of many of our research products and
services. For example, many of our Research Services clients pay us so that
their employees can read our research solely on our Web site. As a result,
providing unimpeded access to our Web site is critical to servicing our clients
and providing superior customer service. Our inability to provide continuous
access to our Web site could cause some of our clients to discontinue purchasing
our research products and services, prevent or deter some people from purchasing
our research products and services and harm our business reputation.
WE ARE DEPENDENT ON KEY MANAGEMENT PERSONNEL FOR OUR FUTURE SUCCESS.
Our future success will depend in part on the continued service of a number
of key management personnel. We do not carry key person life insurance on any of
our management personnel. The loss of key management personnel, in particular
Gene DeRose, our Chief Executive Officer, or Kurt Abrahamson, our President and
Chief Operating Officer, could harm our business and financial results.
IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY OR FACE A CLAIM OF
INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD PARTY, WE MAY LOSE OUR
INTELLECTUAL PROPERTY RIGHTS AND BE LIABLE FOR SIGNIFICANT DAMAGES.
We provide our proprietary research products to hundreds of different
companies throughout the world, including some companies that compete with us in
some manner. As a result, any protective steps we have taken may be inadequate
to protect our intellectual property and to deter misappropriation of the
original research and analysis that we develop. We also may be unable to detect
the unauthorized use of our intellectual property or take appropriate steps to
enforce our intellectual property rights. Moreover, effective trademark,
copyright and trade secret protection may not be available in every country in
which we offer our research products and services to the extent these
protections are available in the United States.
Our failure to adequately protect our intellectual property, either in the
United States or abroad, could harm the Jupiter brand or our trademarks, devalue
our proprietary research and analysis and affect our ability to compete
effectively. Defending our intellectual property rights could result in the
expenditure of significant financial and managerial resources, which could harm
our financial results.
Furthermore, other parties may assert claims against us that we have
misappropriated a trade secret or infringed a patent, copyright, trademark or
other proprietary right belonging to them. Any infringement or related claims,
even if not meritorious, could be costly and time consuming to litigate, may
distract management from other tasks of operating the business and may result in
the loss of significant rights and the loss of our ability to operate our
business.
OUR DIRECTORS, OFFICERS AND PRINCIPAL STOCKHOLDERS EXERCISE SIGNIFICANT CONTROL
OVER US.
As of May 10, 2000, our officers, directors and existing stockholders who
owned greater than 5% of our outstanding common stock, and entities affiliated
with them, in the aggregate, beneficially owned approximately 43.0% of our
outstanding common stock. Specifically, Gartner Group, our largest stockholder,
beneficially owned approximately 19.1% of our outstanding common stock. These
stockholders acting together are, and Gartner Group acting alone may be, able to
exert substantial influence over all matters requiring approval by our
stockholders. These matters include the election and removal of directors and
any merger, consolidation or sale of all or substantially all of our assets. In
addition, they may dictate the management of our business and affairs. This
19
20
concentration of ownership could have the effect of delaying, deferring or
preventing a change in control, or impeding a merger, consolidation, takeover or
other business combination.
FUTURE SALES OF OUR COMMON STOCK MAY NEGATIVELY AFFECT OUR STOCK PRICE
Sales of a substantial number of shares of our common stock in the public
market could cause the market price of our common stock to decline and could
impair our ability to raise additional capital through the sale of equity
securities.
OUR STOCK HAS EXPERIENCED, AND MAY CONTINUE TO EXPERIENCE, PRICE AND VOLUME
FLUCTUATIONS.
The market price of our common stock has fluctuated in the past and is
likely to continue to be highly volatile and could be subject to wide
fluctuations. In addition, the market prices of the securities of
Internet-related companies have been especially volatile. These fluctuations
often have been unrelated or disproportionate to the operating performance of
these companies. These broad market and industry factors may materially
adversely affect the market price of our common stock regardless of our actual
operating performance. In the past, companies that have experienced volatility
in the market price of their stock have been the object of securities class
action litigation. If we were the object of securities class action litigation,
it could result in substantial costs and a diversion of our management's
attention and resources.
WE CANNOT PREDICT OUR FUTURE CAPITAL NEEDS, AND WE MAY NOT BE ABLE TO SECURE
ADDITIONAL FINANCING.
We may need to raise additional funds in the future to fund our operations,
to expand or enhance the range of products and services we offer or to respond
to competitive pressures and/or perceived opportunities. We cannot be sure that
additional financing will be available on terms favorable to us, or at all. If
adequate funds are not available when required or on acceptable terms, we may be
forced to cease our operations, and even if we are able to continue our
operations, our business and financial results may suffer.
WE HAVE ANTI-TAKEOVER PROVISIONS WHICH MAY MAKE IT DIFFICULT FOR A THIRD PARTY
TO ACQUIRE US.
Provisions of our certificate of incorporation, our bylaws and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
might be beneficial to our stockholders.
WE DO NOT PLAN TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE.
We have not declared or paid any cash dividends on our capital stock since
inception. We intend to retain any future earnings to finance the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.
20
21
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) Changes in Securities:
None.
(b) Recent Sales of Unregistered Securities:
In March 2000, we issued an aggregate of 581,044 shares of common stock
in exchange for all the outstanding capital stock of Internet Research Group.
(c) Use of Proceeds:
The effective date of our first registration statement, filed on Form
S-1 under the Securities Act of 1933 (File No. 333-84175) and relating to our
initial public offering of common stock, was October 7, 1999. A total of
3,258,750 shares of our common stock were sold by us to an underwriting
syndicate. The managing underwriters were Donaldson, Lufkin & Jenrette, Deutsche
Banc Alex. Brown, Thomas Weisel Partners LLC and DLJdirect Inc. The offering
commenced on October 8, 1999 at an initial public offering price of $21.00 per
share. The closing of the offering was held on October 14, 1999. The initial
public offering resulted in gross proceeds to us of approximately $68.4 million,
approximately $4.8 million of which was applied to the underwriting discount and
approximately $1.1 million of which was applied to related expenses. As a
result, net proceeds of the offering to us were approximately $62.5 million.
None of our net proceeds of the offering were paid by us, directly or
indirectly, to any of our directors, officers or general partners or any of
their associates, or to any persons owning ten percent or more of any class of
our equity securities, or any or our affiliates. Through March 31, 2000, none of
the proceeds had been utilized and they were invested in short-term, highly
liquid investment grade securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed as part of this report:
EXHIBIT
NUMBER DESCRIPTION
10.1 Lease Agreement between the registrant
and WXII/GDM Astor, L.L.C., dated March
17, 2000
27.1 Financial Data Schedule
(b) We filed a Current Report on Form 8-K on March 30, 2000 announcing
the consummation of our acquisition of Internet Research Group and the
execution of a stock purchase agreement, pursuant to which we agreed to
purchase all the issued and outstanding shares of capital stock of Net
Market Makers.
21
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: May 15, 2000
JUPITER COMMUNICATIONS, INC.
/s/ JEAN K. ROBINSON
----------------------------------------------------
Name: Jean K. Robinson
Title: Chief Financial Officer
(principal financial and accounting officer)
22