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 JUNE 30, 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 July 31, 2000, there were 15,589,162 shares of the registrant's
common stock outstanding.
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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 June 30, 2000 (unaudited) 3
Unaudited Condensed Consolidated Statements of
Operations for the three and six months ended
June 30, 1999 and 2000 4
Unaudited Condensed Consolidated Statements of
Cash Flows for the six months ended June 30,
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
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PART I
FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUPITER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 57,222,154 $ 24,852,938
Short-term investments 8,852,937 18,803,680
Accounts receivable, net 17,849,722 21,890,882
Marketable securities -- 1,302,347
Prepaid expenses and other current assets 3,156,851 5,117,373
Total current assets 87,081,664 71,967,220
Property and equipment, net 5,131,095 9,602,445
Goodwill and other intangible assets, net 4,526,071 52,753,765
Investments -- 5,458,961
Deferred tax assets 202,000 2,285,437
Other assets 238,744 183,801
Total assets $ 97,179,574 $ 142,251,629
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,764,013 $ 4,371,630
Accrued expenses 1,178,619 6,258,617
Accrued compensation 2,515,680 2,432,604
Convertible note payable -- 1,123,466
Deferred revenue 25,594,018 34,652,218
Total current liabilities 32,052,330 48,838,535
Deferred rent 129,716 847,229
Convertible notes payable 3,500,000 --
Common stock, $0.001 par value: 100,000,000 shares
authorized, 15,561,752 shares issued and outstanding at
June 30, 2000 14,500 15,561
Additional paid-in capital 63,212,533 93,659,241
Deferred compensation (504,819) (432,700)
Retained earnings (1,290,623) 1,675,384
Accumulated other comprehensive income (loss) 65,937 (2,351,621)
Total stockholders' equity 61,497,528 92,565,865
Commitments and contingencies -- --
Total liabilities and stockholders' equity $ 97,179,574 $ 142,251,629
See accompanying notes to unaudited condensed consolidated financial
statements.
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JUPITER COMMUNICATIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Six months ended
June 30, June 30,
1999 2000 1999 2000
Revenues:
Research Services 4,719,522 13,565,694 8,166,289 24,798,563
Conferences 2,828,310 10,305,075 4,552,796 15,422,791
Other 826,788 1,853,657 1,672,178 2,662,772
Total revenues 8,374,620 25,724,426 14,391,263 42,884,126
Cost of services and fulfillment 3,898,659 9,186,889 6,853,869 15,851,305
Gross profit 4,475,961 16,537,537 7,537,394 27,032,821
Other operating expenses:
Sales and marketing 2,257,944 6,027,581 4,008,079 11,236,301
General and administrative expenses 1,840,345 8,311,809 3,351,368 13,491,322
Amortization of intangibles and stock-based compensation 7,500 1,865,290 15,000 2,348,337
Depreciation and amortization 185,029 524,746 301,987 922,862
Total other operating expenses 4,290,818 16,729,426 7,676,434 27,998,822
Interest income 5,627 704,707 8,545 1,613,501
Other income - 37,500 - 5,932,101
Income (loss) before income taxes 190,770 550,318 (130,495) 6,579,601
Income tax expense - 778,553 - 3,613,594
Net income (loss) 190,770 (228,235) (130,495) 2,966,007
Pro forma basic net income (loss) per common share 0.02 (0.01) (0.01) 0.20
Pro forma diluted net income (loss) per common share 0.02 (0.01) (0.01) 0.18
Pro forma basic weighted average common shares outstanding 10,386,548 15,408,986 10,454,736 15,005,993
Pro forma diluted weighted average common shares outstanding 10,386,548 16,665,151 10,454,736 16,320,524
See accompanying notes to unaudited condensed consolidated financial statements.
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JUPITER COMMUNICATIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
1999 2000
Cash flows from operating activities:
Net income (loss) (130,495) 2,966,007
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 316,987 3,288,373
Provision for allowance for doubtful accounts (8,981) 219,252
Amortization of deferred compensation -- 72,119
Changes in operating assets and liabilities, net
of effect of acquisitions:
Accounts receivable (3,896,180) (2,514,312)
Prepaid expenses and other current assets (955,305) (1,698,067)
Other assets (66,841) 70,037
Accounts payable (429,002) 1,187,900
Accrued expenses and accrued compensation 708,072 4,810,608
Deferred revenues 7,514,609 5,892,868
Deferred rent 146,128 717,513
Net cash provided by operating activities 3,225,502 9,267,697
Cash flows from investing activities:
Capital expenditures (2,263,121) (5,262,684)
Purchase of short-term investments -- (9,950,743)
Purchase of investments -- (5,458,961)
Cash paid for acquisition, net of cash acquired -- (19,811,479)
Net cash used in investing activities (2,263,121) (40,483,867)
Cash flows from financing activities:
Repayment of notes payable -- (2,460,524)
Exercise of options 375,000 158,339
Issuance of common stock -- 1,168,503
Net cash provided by (used in) financing activities 375,000 (1,133,682)
Effect of exchange rate changes on cash and cash equivalents -- (19,364)
Increase (decrease) in cash and cash equivalents 1,337,381 (32,369,216)
Cash and cash equivalents at beginning of period 216,144 57,222,154
Cash and cash equivalents at end of period 1,553,525 24,852,938
See accompanying notes to unaudited condensed consolidated financial
statements.
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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"). 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 June 30, 2000 and for the three and six months ended June 30,
1999 and 2000 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. Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations relating to interim consolidated financial statements.
In the opinion of management, the accompanying unaudited interim
condensed consolidated financial statements reflect all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the financial
position of the Company at June 30, 2000, and the results of its operations
for the three and six months ended June 30, 1999 and 2000 and its cash flows
for the six months ended June 30, 1999 and 2000.
The results of operations for such periods are not necessarily
indicative of results expected for the full year or for any future period.
These financial statements should be read in conjunction with the audited
financial statements as of December 31, 1999, and for the three years then
ended and related notes included in the Company's 10-K filed with the
Securities and Exchange Commission. Certain reclassifications have been made to
the 1999 financial statements to conform to the 2000 presentation.
(c) PRINCIPLES OF CONSOLIDATION
The Company's unaudited condensed consolidated financial statements as
of and for the three and six months ended June 30, 2000 include the accounts of
the Company and the accounts of Jupiter Communications, AB, formerly named
Intelligence SE AB ("Intelligence"), a Swedish research company, Jupiter
Communications (Australia) Pty Ltd, formerly named New Media Holdings PTY, Ltd.
("New Media Holdings"), an Australian research company, Internet Research Group
("IRG"), a California research company, from March 16, 2000 (date of
acquisition) (See Note 2), and Net Market Makers ("NMM"), a California
conference company, from April 14, 2000 (date of acquisition) (See Note 2). The
unaudited condensed consolidated financial statements for the three and six
months ended June 30, 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.
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(f) GOODWILL AND OTHER INTANGIBLE ASSETS
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 $2,598,354 at December 31, 1999 and
June 30, 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 (loss) 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 2000 1999 2000
PRO FORMA PRO FORMA
Basic net income (loss) per common share .02 (.01) (.01) .20
Diluted net income (loss) per common share .02 (.01) (.01) .18
Net income (loss) 191 (228) (130) 2,966
Basic weighted average common shares outstanding 10,387 15,409 10,455 15,006
Common stock equivalents:
Stock options - 1,256 - 1,315
Diluted weighted average common shares outstanding 10,387 16,665 10,455 16,321
The information for the three and six months ended June 30, 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.
(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 and six months ended June 30, 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 June 30, 2000.
(i) RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities", as amended by SFAS No. 138 effective July 1, 2000, and
determined that SFAS No. 133 will not have an effect 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.
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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
fourth 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) ACQUISITIONS
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 $20,447,203 and is being
amortized on a straight line basis over its estimated expected life of 10 years.
NET MARKET MAKERS
On April 14, 2000, Jupiter acquired all of the stock of Net Market
Makers ("NMM"), in exchange for 274,680 shares of common stock and $20,500,000
in cash, at an aggregate value of $29,221,090. The total purchase price for this
transaction was approximately $29,398,000 which includes expenses incurred by
the Company of approximately $177,000 related to the merger.
Of the purchase price, $481,314 was allocated to net liabilities. The
historical carrying amounts of such net liabilities approximated their fair
values. The difference between the purchase price and the fair value of the
acquired net assets of NMM was recorded as goodwill in the amount of $29,879,684
and is being amortized on a straight line basis over its estimated expected life
of 7 years.
The following unaudited pro forma consolidated financial information
gives effect to the above described acquisitions as if they had occurred at the
beginning of the respective periods by consolidating the results of operations
of the Company, IRG and NMM for the three and six months ended June 30, 2000 and
1999.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 2000 1999 2000
---- ---- ---- ----
Revenues 9,489,482 25,762,077 16,452,575 45,715,899
Net loss (1,161,656) (620,914) (2,976,190) (532,953)
Basic net loss per common share (.11) (.04) (.28) (.03)
Basic weighted average common shares outstanding 10,386,548 15,460,400 10,454,736 15,408,431
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(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 and six
months ended June 30, 2000, the Company has amortized approximately $36,000 and
$72,000, respectively, of the deferred compensation.
ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss as of June 30, 2000 is comprised
of an after-tax unrealized loss of $2,398,817 to record the fair market value of
the 142,723 shares of Xceed, Inc. at June 30, 2000, as well as a gain of
$47,196 related to the foreign currency translation adjustment of Intelligence
which was acquired by the Company in July 1999.
Comprehensive net income (loss) was $190,770 and $(1,392,841) for the
three months ended June 30, 1999 and 2000, respectively, and $(130,495) and
$548,449 for the six months ended June 30, 1999 and 2000, respectively.
(4) SUBSEQUENT EVENTS
MERGER WITH MEDIA METRIX, INC.
On June 26, 2000, the Company, Media Metrix, Inc. ("Media Metrix"), and
MMX Acquisition Corp., a wholly-owned subsidiary of Media Metrix ("Merger Sub"),
entered into an Agreement and Plan of Merger, pursuant to which it has been
agreed that Merger Sub will be merged with and into Jupiter (the "Merger"). As
a result of the Merger, each share of common stock, par value $0.001 per share,
of Jupiter issued and outstanding immediately prior to the consummation of the
Merger will be converted into the right to receive 0.946 shares of common stock,
par value $0.01 per share, of Media Metrix.
In connection with the execution of the Merger Agreement, certain
stockholders of both Jupiter and Media Metrix have entered into Voting
Agreements (and have granted proxies) to vote in favor of the Merger and against
certain other matters.
The Merger is intended to constitute a reorganization under Section
368(a) of the Internal Revenue Code of 1986, as amended, and to be accounted for
as a purchase transaction by Media Metrix. Consummation of the Merger is subject
to various conditions, including, among other things, receipt of the necessary
approvals of the stockholders of both Jupiter and Media Metrix and certain
regulatory approvals.
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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 six months ended June 30, 2000, Research Services represented
approximately 57.8% 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 six months ended June 30, 2000, conferences represented
approximately 36.0% of our total revenues. Other revenues, which consist
primarily of book-length studies, newsletters and custom research, represented
approximately 6.2% of our total revenues for the three months ended June 30,
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 six months ended June 30, 2000, our
revenues of $24.8 million represented an increase of 202.4% over revenues of
$8.2 million for the six months ended June 30, 1999. The number of our Jupiter
Research Services contracts has increased from 654 as of June 30, 1999 to 1,270
as of June 30, 2000. Our total contract value has increased from $22.1 million
on June 30, 1999 to $58.8 million on June 30, 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 June 30, 2000, deferred revenue related
to Research Services contracts totaled $28.1 million, which was 47.8% 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 amount. Approximately 73% of contracts
expiring during the twelve months ended June 30, 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.
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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 $3.0 million in the first six months of 2000 and,
as of June 30, 2000, we had retained earnings of $1.7 million. The net profit in
the first six months 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 AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Revenues. Total revenues increased 206.0% to $25.7 million in the three
months ended June 30, 2000, from $8.4 million in the three months ended June 30,
1999, and increased 197.9% to $42.9 million in the six months ended June 30,
2000 from $14.4 million in the six months ended June 30, 1999. Research Services
revenues increased 187.4% to $13.6 million in the three months ended June 30,
2000 from $4.7 million in the three months ended June 30, 1999, and increased
203.7% to $24.8 million in the six months ended June 30, 2000 from $8.2 million
in the six months ended June 30, 1999. The increases are attributable primarily
to an increase in the number of Research Services contracts to 1,270 at June 30,
2000 from 654 at June 30, 1999 and an increase in average contract value to
$46,300 at June 30, 2000 from $33,900 at June 30, 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 $58.8 million at June 30,
2000 from $22.1 million at June 30, 1999. The Research Services deferred revenue
related to the contract value at June 30, 2000 and June 30, 1999 was $28.1
million and $11.5 million, respectively.
Conference revenues increased 264.4% to $10.3 million in the three
months ended June 30, 2000 from $2.8 million in the three months ended June 30,
1999, and increased 238.8% to $15.4 million in the six months ended June 30,
2000 from $4.6 million in the six months ended June 30, 1999. These revenues
reflect the results of six conferences in the three months ended June 30, 2000
versus four conferences in the three months ended June 30, 1999, and ten
conferences in the six months ended June 30, 2000 versus five conferences in the
six months ended June 30, 1999. The increases are attributable to an increase in
attendee, sponsor and exhibitor revenues and the production of three additional
conferences in the six months ended June 30, 2000, two of which were staged by
Net Market Makers.
Other revenues increased 123.9% to $1.8 million in the three months
ended June 30, 2000 from $828,000 in the three months ended June 30, 1999, and
increased 58.8% to $2.7 million in the six months ended June 30, 2000 from $1.7
million in the six months ended June 30, 1999. These increases reflect our
integration of Internet Research Group's core business of multiclient studies
and custom consulting projects into our revenue, offset partially by our
decision to discontinue the sale of newsletters.
Cost of Services and Fulfillment. Cost of services and fulfillment
increased 135.9% to $9.2 million in the three
12
months ended June 30, 2000 from $3.9 million in the three months ended June 30,
1999, and increased 130.4% to $15.9 million in the six months ended June 30,
2000 from $6.9 million in the six months ended June 30, 1999. The increases in
both periods are attributable to the overall growth of our business, in
particular the increased research staffing for new and existing research
practices, and the costs incurred in staging additional conferences in both
periods. Gross margin increased to 64.2% in the three months ended June 30, 2000
from 53.6% in the three months ended June 30, 1999, and increased to 62.9% in
the six months ended June 30, 2000 from 52.1% in the six months ended June 30,
1999 because the growth in our client base and new business exceeded the growth
in the cost of providing our research services and conferences.
Sales and Marketing. Sales and marketing expenses increased 165.2% to
$6.0 million in the three months ended June 30, 2000 from $2.3 in the three
months ended June 30, 1999, and increased 180.0% to $11.2 million in the six
months ended June 30, 2000 from $4.0 million in the six months ended June 30,
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. As a percentage of total revenues, these expenses decreased to 23.3%
in the three months ended June 30, 2000 from 27.4% in the three months ended
June 30, 1999, and to 26.1% in the six months ended June 30, 2000 from 27.8% in
the six months ended June 30, 1999. The decreases are primarily attributable to
the rate of growth in our conference revenues exceeding the rate of growth for
corresponding sales and marketing costs.
General and Administrative. General and administrative expenses
increased 361.1% to $8.3 million in the three months ended June 30, 2000 from
$1.8 million in the three months ended June 30, 1999, and increased 297.1% to
$13.5 million in the six months ended June 30, 2000 from $3.4 million in the
six months ended June 30, 1999. The increases were primarily attributable to
increased personnel for the finance, human resources and operations areas,
increased leasehold costs for our new facility in New York, increased operating
costs relating to our internal technology systems, higher costs for recruiting,
retaining and training our staff, and higher costs for professional fees
(primarily pertaining to the negotiation of a sales tax reduction benefit in
connection with our new facility in New York). As a percentage of total
revenues, these expenses increased to 32.3% in the three months ended June 30,
2000 from 21.4% in the three months ended June 30, 1999, and to 31.5% in the six
months ended June 30, 2000 from 23.6% in the six months ended June 30, 2000.
This increase reflects the fact that some of these expenses, such as personnel
and leasehold costs, increased at a higher rate than our revenues.
Amortization of intangibles and stock-based compensation. Amortization
of intangibles and stock-based compensation increased 23,213% to $1.9 million in
the three months ended June 30, 2000 from $8,000 in the three months ended June
30, 1999, and increased 15,553% to $2.3 million in the six months ended June 30,
2000 from $15,000 in the six months ended June 30, 1999. As a percentage of
total revenues, these expenses increased to 7.3% in the three months ended June
30, 2000 from 0.1% in the three months ended June 30, 1999, and to 5.3% in the
six months ended June 30, 2000 from 0.1% in the six months ended June 30, 1999.
The increases are primarily attributable to amortization of goodwill related to
the acquisitions of IRG and NMM, as well as acquisitions made in Sweden and
Australia in 1999, and the acquisition of 45% of the Plug-In conference from our
partners.
Depreciation and Amortization. Depreciation and amortization expense
increased 183.8% to $525,000 in the three months ended June 30, 2000 from
$185,000 in the three months ended June 30, 1999, and increased 206.3% to
$923,000 in the six months ended June 30, 2000 from $302,000 in the six months
ended June 30, 1999. The increases are primarily attributable to increased
investment in capital assets, such as leasehold improvements and IT
infrastructure. As a percentage of total revenues, these expenses were
essentially unchanged at 2.1% in the three and six months ended June 30, 2000
and June 30, 1999.
Interest income. Interest income increased to $705,000 in the three
months ended June 30, 2000 from $6,000 in the three months ended June 30, 1999,
and to $1.6 million for the six months ended June 30, 2000 from $9,000 in the
six months ended June 30, 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 $779,000 for the
three months ended June 30, 2000 from $0 in the three months ended June 30,
1999, and increased to $3.6 million for the six months ended June 30, 2000 from
$0 in the three months ended June 30, 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.
13
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
$9.3 million for the six months ended June 30, 2000 from $3.2 million for the
six months ended June 30, 1999, due principally to an increased level of
business activity.
Net cash used in investing activities increased to $40.5 million for
the six months ended June 30, 2000 from $2.3 million for the six months ended
June 30, 1999 due principally to our acquisition of NMM, investments in other
private entities and 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 $1.1 million for the
six months ended June 30, 2000 versus net cash used in financing activities of
$375,000 for the six months ended June 30, 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, partially offset by the proceeds from the
issuance of shares via our Employee Stock Purchase Plan.
As of June 30, 2000, we had $24.9 million in cash and cash equivalents,
and $18.8 million invested in highly liquid investment-grade securities. As of
June 30, 2000, $26.3 million in net proceeds from our initial public offering
had been utilized in the acquisition of IRG and other corporate investments.
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 six months
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.
14
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
WE MAY BE UNABLE TO ATTRACT AND RETAIN EXPERIENCED PERSONNEL.
Our success depends in large part on the continued contributions of our
senior management team, research analysts and sales representatives and
therefore, on our ability to retain our existing management, research analysts
and sales representatives and to increase the number of new research analysts
and sales representatives that we have. As of June 30, 2000, we had 68 research
analysts and 107 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.
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 425
employees at June 30, 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 may also continue to open additional offices in
foreign countries. For example, we recently opened offices in Munich, Germany,
Tokyo, Japan and Sydney, Australia. 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 as well as 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.
WE HAVE ONLY RECENTLY INTRODUCED MANY OF OUR PRODUCTS AND SERVICES.
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 including the products and
services offered by our subsidiaries, Internet Research Group and Net Market
Markers. 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 may not be successful in addressing
these risks and uncertainties.
WE HAVE A HISTORY OF ANNUAL NET 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. As a percent of total revenues, our net losses equaled 14.5%
in 1998 and 1.7% in 1999.
We intend to invest heavily in new products and services, leasehold and
technology improvements, new research and sales personnel and international
expansion. Because of this, we will need to achieve significant revenue
increases to achieve and maintain profitability. 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, although we recorded net income of approximately $3.0
million in the first six months of 2000, substantially all of which was
attributable to a non-recurring gain from the sale of an investment, we may not
sustain or increase our profits on a quarterly or annual basis in the future.
15
OUR OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS.
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.
These 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
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 our business decisions. 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.
OUR REVENUES ARE SUBSTANTIALLY DEPENDENT ON THE SALE OF OUR RESEARCH SERVICES.
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 57.8% in
the first six months 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.
16
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%
in 1998, 29.6% in 1999 and 36.0% in the first six months of 2000. We may not 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. Although we have no present agreement other than an agreement to
merge with Media Metrix, Inc., we may make other acquisitions in the future.
However, we may not 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 financial results. 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' interests.
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 or to provide this information in a timely
manner, 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.
17
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., a large holder of our common stock,
began competing directly in providing research products related to Internet
commerce. Although Gartner Group has not been actively involved in our
day-to-day operations since it first invested in us in October 1997, we have
provided it 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 companies that may have
greater financial, information gathering and 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 may not 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 offices in Munich, Germany, Tokyo, Japan, and Sydney,
Australia. 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 also rely on local distributors in various countries, including
Singapore, Brazil, China, Taiwan, South Korea and Israel, to distribute our
Research Services. If any of these distribution arrangements are terminated, we
may not be 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
18
may not be able to do so on acceptable terms. Our receipt of revenues from these
distribution arrangements may also be dependent on factors which are beyond our
control, including the efforts of the distributors.
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. Claims of this kind, 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 of
these claims. The filing of any claims of this kind 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
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. These systems are also subject to telecommunications failures, power
loss and various other system failures. Any of these occurrences, whether
intentional or accidental, could lead to interruptions or disruptions in the
general operation of our business. In addition, any of these occurrences 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.
WE MAT NOT BE ABLE TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS.
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 July 31, 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 35.5% of our
outstanding common stock. These stockholders acting together 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
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. Any securities class action litigation could result in
substantial costs and divert the attention and resources of our management.
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.
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 April 2000, we issued an aggregate of 274,680 shares of common stock
in exchange for all the outstanding capital stock of Net Market Makers.
(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 June 30, 2000, the
Company estimates that approximately $26.3 million of the proceeds had been
utilized, principally due to the acquisition of NMM and investments in other
private entities. The remaining proceeds 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.
We held our 2000 Annual Meeting of Stockholders on June 16, 2000. At that
meeting, the stockholders approved the following proposals: (i) the election of
Kurt Abrahamson to the class of directors whose term expires in 2003 and (ii)
the ratification of the appointment of KPMG LLP as our independent auditors for
the fiscal year ending December 31, 2000. In connection with the election of
Kurt Abrahamson, there were 11,779,978 votes cast for his election and 11,204
votes withheld. The remainder of the board of directors remains as previously
reported. There were 11,789,082 votes cast for, 1,205 votes cast against, and
835 absentees in connection with the ratification of the appointment of KPMG LLP
as independent auditors.
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
[S] [C]
2.1 Agreement and Plan of Merger, dated as of June 26, 2000, among
Media Metrix, Inc., MMX Acquisition Corp. and us.
27.1 Financial Data Schedule
(b) Current Reports on Form 8-K
We filed a Current Report on Form 8-K, Item 2, on April 25, 2000 announcing the
consummation of our acquisition of Net Market Makers. We amended this report
with the Current Report on Form 8-K/A, filed on May 15, 2000, to include Item
7(a), the Financial Statements of Business Acquired and Item 7(b), the Pro Forma
Financial Information.
We filed a Current Report on Form 8-K, Item 5, on June 27, 2000 announcing the
execution of an Agreement and Plan of Merger with Media Metrix, Inc., pursuant
to which a wholly owned subsidiary of Media Metrix will merge with and into us,
and we will become a wholly owned subsidiary of Media Metrix.
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: August 10, 2000
JUPITER COMMUNICATIONS, INC.
/s/ JEAN K. ROBINSON
----------------------------------------------------
Name: Jean K. Robinson
Title: Chief Financial Officer
(principal financial and accounting officer)
23
EXHIBIT INDEX
Number Description
------ -----------
2.1 Agreement and Plan of Merger, dated as
of June 26, 2000, among Media Metrix,
Inc., MMX Acquisition Corp. and Jupiter
Communications, Inc.
27.1 Financial Data Schedule