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 ending June 30, 1999
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: __________
MULTEX.COM, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 7375 22-3253344
- ------------------------ --------------------------- -----------------------
(State of Incorporation) (Primary Standard Industrial I.R.S. Employer
Classification Code) Identification Number)
33 MAIDEN LANE, 5TH FLOOR
NEW YORK, NEW YORK 10038
(212) 859-9800
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
ISAAK KARAEV
CHIEF EXECUTIVE OFFICER
MULTEX.COM, INC.
33 MAIDEN LANE, 5TH FLOOR
NEW YORK, NEW YORK 10038
(212) 859-9800
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No[ ]
As of June 30, 1999, there were 21,852,688 shares of the registrant's common
stock outstanding.
INDEX TO FORM 10-Q
FOR
MULTEX.COM, INC. AND SUBSIDIARIES
PAGE
NUMBER
-------
PART I. FINANCIAL INFORMATION............................................................................................. 3
ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited):....................................................... 3
Condensed Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998................................ 3
Condensed Consolidated Statements of Operations for the three and six months
ended June 30, 1999 and 1998................................................................................... 4
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and 1998................ 5
Notes to Condensed Consolidated Financial Statements June 30, 1999............................................. 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................... 11
PART II. OTHER INFORMATION................................................................................................ 27
ITEM 1 LEGAL PROCEEDINGS.............................................................................................. 27
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...................................................................... 27
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................................................................ 27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................................ 27
ITEM 5. OTHER INFORMATION.............................................................................................. 27
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K................................................................................ 27
ITEM 7. SIGNATURES..................................................................................................... 28
2
PART I. FINANCIAL INFORMATION
MULTEX.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS JUNE 30, 1999 DECEMBER 31, 1998
-------------- ------------------
(unaudited) (see Note 1)
Current assets
Cash and cash equivalents $ 21,596,882 $ 2,317,675
Marketable securities 36,525,216 20,014,680
Accounts receivable, net 4,849,990 2,447,299
Other current assets 1,858,409 221,184
------------- ----------------
Total current assets 64,830,497 25,000,838
Property and equipment, net 3,672,091 2,843,477
Other 602,594 124,078
------------- ----------------
Total assets $ 69,105,182 $ 27,968,393
============= ================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,080,846 $ 981,905
Accrued expenses 3,776,861 1,599,609
Deferred revenues 4,745,913 2,682,939
Total current liabilities 10,603,620 5,264,453
-------------- ----------------
Other 44,721 58,619
Redeemable preferred stocks, authorized 2,000,000 shares:
Series A redeemable preferred stock; $.01 par value,
$2,500,000 aggregate liquidation preference:
Issued and outstanding- 25,000 shares at December 31, 1998 - 3,459,696
Series B redeemable preferred stock; $.01 par value,
$5,500,000 aggregate liquidation preference:
Issued and outstanding- 36,666 shares at December 31, 1998 - 7,294,411
Series C redeemable preferred stock; $.01 par value,
$15,000,000 aggregate liquidation preference:
Issued and outstanding- 100,000 shares at December 31, 1998 - 18,064,794
Series D redeemable preferred stock; $.01 par value,
$10,000,000 aggregate liquidation preference:
Issued and outstanding- 55,556 shares at December 31, 1998 - 11,101,685
Series E redeemable preferred stock; $.01 par value,
$20,000,000 aggregate liquidation preference:
Issued and outstanding- 80,000 shares at December 31, 1998 - 19,939,452
Stockholders' equity (deficit):
Preferred Stock- $.01 par value:
Authorized- 5,000,000 shares; none issued and outstanding
at June 30, 1999 and December 31, 1998 - -
Common stock $.01 par value
Authorized - 50,000,000 shares issued and outstanding-
21,852,688 shares at June 30, 1999 and 3,251,125
at December 31, 1998, respectively 218,527 32,511
Additional paid-in-capital 98,527,722 (3,634,083)
Accumulated deficit (39,065,654) (32,137,197)
Deferred compensation (1,220,038) (1,460,000)
Accumulated other comprehensive loss (3,716) (15,948)
-------------- --------------
Total stockholders' equity (deficit) 58,456,841 (37,214,717)
-------------- --------------
Total liabilities and stockholders' equity (deficit) $ 69,105,182 $ 27,968,393
============== ==============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
MULTEX.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
----------- ------------ ----------- -----------
Revenues $ 6,115,670 $ 3,114,417 $11,141,161 $ 5,828,885
Cost of Revenues 1,514,619 751,750 2,840,128 1,446,051
------------ ------------ ------------ ------------
Gross profit 4,601,051 2,362,667 8,301,033 4,382,834
Operating expenses:
Sales and marketing 4,615,569 1,334,354 8,395,782 2,497,742
Research and development 867,230 512,720 1,599,952 953,048
General and administrative 3,118,600 2,378,884 6,213,773 4,383,006
------------- ------------ ----------- -----------
Total operating expenses 8,601,399 4,225,958 16,209,507 7,833,796
------------- ------------ ----------- -----------
Loss from operations (4,000,348) (1,863,291) (7,908,474) (3,450,962)
Other income (expense):
Gain on sale of equipment -- -- -- 124,796
Interest expenses (4,432) (37,529) (22,247) (348,083)
Interest and investment income 716,914 93,790 1,002,264 208,493
------------- ----------- ------------- -----------
Net loss (3,287,866) (1,807,030) (6,928,457) (3,465,756)
Redeemable preferred stock dividends -- 658,189 1,188,165 1,309,146
------------- ------------ ------------- -----------
Net loss available to common shareholders $(3,287,866) $(2,465,219) $(8,116,622) $(4,774,902)
============= ============ ============= ============
Basic and diluted net loss per common share $(0.15) $(0.88) $(0.59) $(1.81)
============= ============ ============= ============
Number of shares used in computed basic and diluted 21,817,587 2,812,128 13,673,379 2,639,371
loss per share ============= ============ ============= ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
MULTEX.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended June 30,
--------------------------------
1999 1998
--------------- -------------
Operating activities
Net loss $ (6,928,457) $(3,465,756)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization of deferred compensation 239,962 196,205
Gain on sale of equipment -- (124,796)
Depreciation and amortization 1,278,586 709,115
Amortization of issuance costs 12,632 23,093
Bad debt expense 263,634 69,000
Changes in operating assets and
liabilities:
Accounts receivable (2,666,325) (1,419,780)
Other assets (2,115,741) 242,531
Accounts payable 769,959 27,130
Accrued expenses 2,177,252 449,016
Deferred revenues 2,062,974 1,395,985
Other liabilities (13,898) 58,619
--------------- --------------
Net cash used in operating activities (4,919,422) (1,839,638)
Investing activities
Purchase of marketable securities (22,060,536) (1,268,529)
Proceeds from sale of marketable securities 5,550,000 7,663,585
Proceeds from sale of equipment -- 200,953
Purchase of property and equipment (1,778,218) (585,264)
--------------- --------------
Net cash (used in) provided by investing activities (18,288,754) 6,010,745
Financing activities
Proceeds from issuances of stock, net of offering costs 42,475,151 405,773
Proceeds from long-term debt -- 1,250,000
Repayments of long-term debt -- (2,303,188)
Deferred Offering Costs -- (466,277)
Other liabilities -- (312,783)
Net cash provided by (used in) financing activities 42,475,151 (1,426,475)
Effect of exchange rate changes on cash and cash equivalents 12,232 (5,271)
-------------- --------------
Increase in cash and cash equivalents 19,279,207 2,739,361
Cash and cash equivalents, beginning of period 2,317,675 2,532,983
-------------- --------------
Cash and cash equivalents, end of period $ 21,596,882 $ 5,272,344
============== ==============
Supplemental disclosures of cash flow information
Noncash investing and financing activity:
Accrued purchases of fixed assets $ 328,982 $ 17,837
============== ==============
Sale of stock and issuance of options in connection with $ -- $ 345,000
acquisition of certain assets of Multex Data Group, Inc. ============== ==============
Interest paid $ 4,432 $ 314,744
============== ==============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
MULTEX.COM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1999
NOTE 1 -- BASIS OF PRESENTATION
Multex.com, Inc. and its wholly owned subsidiaries (collectively referred
to as the "Company") is a leading provider of online investment research and
information services designed to meet the needs of individual and institutional
investors, including investment banks, brokerage firms and corporations.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended June 30,
1999 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto for the year ended December 31, 1998 included in the Company's
Registration Statement on Form S-1.
NOTE 2 -- STOCKHOLDERS' EQUITY
During March 1999, the Company completed an initial public offering of
3,450,000 shares of its common stock, of which 3,283,500 shares were issued and
sold by the Company, which yielded gross proceeds of approximately $45,969,000.
As a result, all outstanding shares of redeemable preferred stock were
automatically converted in to 14,861,112 shares of the Company's common stock.
In connection with the initial public offering the Company incurred costs of
approximately $4,322,000.
The Company issued 456,951 shares of its common stock in connection with
the exercise of stock options during the six months ended June 30, 1999.
6
MULTEX.COM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
JUNE 30, 1999
NOTE 3 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share for the periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ ---------------------------
1999 1998 1999 1998
-------------- -------------- ------------- ------------
Numerator:
Net loss $(3,287,866) $(1,807,030) $(6,928,457) $(3,465,756)
Redeemable preferred stock dividends -- 658,189 1,188,165 1,309,146
------------- ------------- ------------- -------------
Numerator for basic and diluted net loss per share - $(3,287,866) $(2,465,219) $(8,116,622) $(4,774,902)
net loss available for common stockholders ============= ============= ============= =============
Denominator:
Denominator for basic and dilutive net loss per 21,817,587 2,812,128 13,673,379 2,639,371
share - weighted average shares ------------ ---------- ------------ ------------
Basic and diluted net loss per share $ (0.15) $ (0.88) $ (0.59) $ (1.81)
============ ============ ============ ============
NOTE 4 - COMPREHENSIVE LOSS
Total comprehensive loss was approximately $3,281,000 and $8,104,000 for
the three and six months ended June 30, 1999, respectively, and $2,470,000 and
$4,780,000 for the three and six months ended June 30, 1998, respectively.
NOTE 5 - 1999 EMPLOYEE STOCK PURCHASE PLAN
Effective January 1999, in connection with the 1999 Employee Stock Purchase
Plan (the "Stock Purchase Plan"), the Company reserved 750,000 shares of its
common stock. The Stock Purchase Plan allows eligible employees of the Company
to purchase shares of common stock at a purchase price equal to eighty-five
percent of the fair market value of the Company's common stock, as defined. In
no event, however, may any participant purchase more than 1,500 shares, nor may
all participants in the aggregate purchase more than 187,500 shares, on any one
semi-annual purchase date.
NOTE 6 - 1999 STOCK OPTION PLAN
Effective January 1999, the Company adopted the 1999 Stock Option Plan (
the "1999 Stock Plan"), which is intended to serve as the successor plan to the
Company's 1993 Stock Incentive Plan (the "1993 Stock Plan"). In March 1999,
outstanding stock options under the 1993 Stock Plan were incorporated into the
1999 Stock Plan, and no further options will be granted under the 1993 Stock
Plan.
7
MULTEX.COM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
JUNE 30, 1999
NOTE 7 - ACQUISITION
On June 23, 1999, the Company entered into a merger agreement to acquire
Market Guide, Inc. Under the terms of the agreement, Market Guide shareholders
will receive one share of the Company's common stock for each outstanding share
of Market Guide stock. In the event that the merger is consummated, the Company
will issue a total of approximately 5.6 million shares of its common stock. The
acquisition has been approved by both companies' Boards of Directors and is
subject to the approval by the stockholders of both companies and to certain
other conditions. The merger is expected to be accounted for as a pooling of
interests.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT OF 1993 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. THE COMPANY'S ACTUAL RESULTS AND TIMING OF CERTAIN EVENTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE
SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS QUARTERLY REPORT.
OVERVIEW
Multex.com is a leading provider of online investment research and
information services designed to meet the needs of individual and institutional
investors, including investment banks, brokerage firms and corporations. We
offer four main services as follows:
. MultexNET, which was launched in June 1996;
. MultexEXPRESS, which was launched in January 1997;
. Multex Research-On-Demand, which was launched in April 1997; and
. Multex Investor Network, which was launched in November 1998.
MultexNET, typically offered as a one to three year subscription, allows
entitled institutional investors to access full-text investment research reports
on a real-time basis from investment banks, brokerage firms and other third-
party research providers over the Internet or through other distribution
channels. MultexEXPRESS, also provided pursuant to one to three year
subscriptions, enables financial institutions to distribute their proprietary
financial research, as well as other corporate documents, over the Internet,
through intranets and other private networks. Multex Research-On-Demand gives
corporations, financial institutions and advisors, and institutional investors
the ability to access research reports on a pay-per-view basis from a majority
of the contributors to MultexNET, over the Internet or through other
distribution channels. Multex Investor Network gives individual investors who
register as members access to a range of financial reports and services,
including research reports on a pay-per-view basis, over the Internet from a
majority of the contributors to MultexNET. Multex Investor Network also
includes banner advertising and sponsorship advertising throughout the site.
Sponsors to Multex Investor Network include full-service brokerage firms and
other financial institutions interested in attracting individual investors to
their products, services and brands.
Revenues from subscriptions to MultexNET and MultexEXPRESS are recognized
in equal installments over the term of the subscription. Revenues from Multex
Research-On-Demand and pay-per-view transactions on Multex Investor Network are
recognized upon sale. Revenues from sponsorships to Multex Investor Network are
recognized in equal installments over the term of the sponsorship. Some of the
users of Multex Research-On-Demand pay a flat annual fee for the service, which
entitles them to receive research and other reports at a discounted rate.
Revenues from these users are recognized in equal installments over the term of
the subscription. All costs associated with revenues from MultexNET,
MultexEXPRESS, Multex Research-On-Demand and Multex Investor Network are
expensed as and when incurred. We pay distribution fees to our distributors
and, with respect to Multex Research-On-Demand and pay-per-view transactions on
Multex Investor Network, royalties to the investment banks, brokerage firms or
third-party research providers that authored the research.
On March 17, 1999, we completed our initial public offering of 3,450,000
shares of Common Stock, of which 3,283,500 shares were issued and sold by the
Company, at a price of $14.00 per share. The net proceeds of approximately
$41.6 million from the initial public offering were added to our working
capital. Pending use of the proceeds, we have invested the funds in short term,
interest bearing investment grade obligations.
9
We continue to expand our operations and have grown from 149 employees at
December 31, 1998 to 187 employees at June 30, 1999. We expect to add additional
personnel both in the United States and abroad as our operations expand. We
currently expect to significantly increase our operating expenses both on an
absolute basis and as a percentage of revenues in order to expand our sales and
marketing operations, to continue to expand internationally and to continuously
upgrade and enhance our services and technologies. As a result of these and
other factors, there can be no assurance that we will not incur significant
losses on a quarterly and annual basis for the foreseeable future.
We have incurred significant losses since our inception, and as of June 30,
1999 had an accumulated deficit of $39.1 million. In addition, we have recorded
cumulative deferred compensation of $1.9 million, which represents the
difference between the exercise price of stock options for shares of common
stock granted to some of our employees and the fair market value of our common
stock at the date of grant. Of the total deferred compensation amount, $465,000
was amortized prior to December 31, 1998 and $240,000 was amortized during the
six months ended June 30, 1999. The remaining deferred compensation amount will
be amortized over the remaining vesting periods of the related options. We
believe that period-to-period comparisons of our operating results are not
necessarily meaningful and that the results for any period should not be relied
upon as an indication of future performance.
Historically, a few of our subscribers and distributors have accounted for
a substantial majority of our revenues. For the year ended December 31, 1998,
Merrill Lynch accounted for 9.7% of our consolidated revenues, and for the six
months ended June 30, 1999, Merrill Lynch accounted for 13.4% of our
consolidated revenues. The loss of Merrill Lynch, or any of our other
subscribers or distributors, could have a material and adverse effect on our
business, results of operations and financial condition.
RECENT DEVELOPMENTS
Market Guide Acquisition
On June 23, 1999, Multex.com announced that it had signed a definitive
agreement with Market Guide Inc. for Multex.com to acquire Market Guide, a
leading provider of financial information on the Internet. The transaction is
structured as a merger of a newly formed subsidiary with and into Market Guide,
with Market Guide shareholders receiving approximately 5.6 million shares of
Multex.com stock.
Market Guide is an industry-leading Internet provider of value-added
financial content for both individual investors and institutional investors,
covering over 12,000 publicly traded companies. Following the consummation of
the acquisition, Market Guide expects to make Multex.com's investment research
and earnings estimates available through its Web site,
http://www.marketguide.com, as well as through its over 100 leading Internet
distribution partners, which include leading brands such as America Online,
Ameritrade, Bridge Information Systems, CBS MarketWatch, Charles Schwab & Co.,
CNNfn, E-Trade, FactSet Research Systems, Reuters, The Motley Fool, The
Street.com, Wall Street Journal Interactive, Waterhouse Securities and Yahoo!.
The acquisition will enable Multex.com to leverage Market Guide's extensive
Internet distribution network, unique financial content and brand. In addition,
the acquisition will allow Multex.com to substantially increase the quantity and
scope of its proprietary financial content and analysis, strengthening the
Company's position as a leading online investment research network for
individual and institutional investors. Multex.com expects to integrate Market
Guide's proprietary financial databases into all its Internet research services,
including MultexNET, MultexEXPRESS, Multex Research-on-Demand and Multex
Investor Network.
Under the terms of the merger agreement, Market Guide shareholders will
receive one share of Multex.com stock for each outstanding share of Market Guide
stock. The acquisition, which is expected to close during the fourth quarter of
1999, has been approved by both companies' Boards of Directors and is subject to
customary conditions including approval by the stockholders of Multex.com and
Market Guide. Multex.com, Inc. expects to account for this transaction under the
pooling method of accounting. Market Guide Inc. will retain its key management
and be operated as a wholly owned subsidiary of Multex.com, Inc. In addition to
continuing to serve as Market Guide's President and CEO, Homi Byramji is
expected to join Multex.com's Board of Directors.
10
Intuit Transaction
In April 1999, Multex.com entered into an agreement with Intuit, Inc.
Pursuant to this agreement, for a period of two years, Multex.com will be the
exclusive provider of commingled broker research to Intuit's Quicken.com Web
site and Quicken.com's partner Web sites -- Excite, AOL.com, Webcrawler and
Prodigy Internet.
RESULTS OF OPERATIONS
Revenues
Multex.com's revenues consist of subscription fees for MultexNET and
MultexEXPRESS, and sales of investment research on a pay-per-view basis through
Multex Research-On-Demand and sales of sponsorships, advertising and investment
research through the Multex Investor Network. We also provide professional
services to select MultexEXPRESS clients, including software development,
customization and integration services. These services are typically billed to
clients on a time and material basis. On occasion, as a service to our clients,
we have acquired equipment for resale.
Revenues increased 96.4% to $6.1 million in the three months ended June 30,
1999 from $3.1 million in the equivalent period in 1998. Revenues increased
91.1% to $11.1 million in the six months ended June 30, 1999 from $5.8 million
in the equivalent period in 1998. The increase in revenues in this period was
due to an increase in demand for all of our products and from revenues generated
by the Multex Investor Network, which was launched in November 1998.
Cost of Revenues
Cost of revenues consists of fees payable to distributors of MultexNet and
Multex Research-On-Demand, royalties payable to the authors of investment
research offered through Multex Research-On-Demand and Multex Investor Network,
fees payable to web sites for making the Multex Investor Network available to
their users, web site development costs of MultexEXPRESS customers,
telecommunications costs, and, on occasion, the cost of equipment purchased and
resold to our clients.
Cost of revenues increased 101.5% to $1.5 million in the three months ended
June 30, 1999 from $752,000 in the equivalent period in 1998. Cost of revenues
increased 96.4% to $2.8 million in the six months ended June 30, 1999 from $1.4
million in the equivalent period in 1998. As a percentage of revenues, cost of
revenues increased to 24.8% in the three months ended June 30, 1999 from 24.1%
in the equivalent period in 1998. As a percentage of revenues, cost of revenues
increased to 25.5% in the six months ended June 30, 1999 from 24.8% in the
equivalent period in 1998. The increase in cost of revenues in dollar terms in
the six months ended June 30, 1999 was primarily due to the increased demand for
all of our products and from fees payable as a result of revenues generated by
the Multex Investor Network. The gross margin for the three and the six months
ended June 30, 1999 was slightly less than that achieved for the equivalent
period in 1998 due to lower margins being achieved on the distribution of
certain of our services, specifically the distribution of MultexNET through
Reuters, offset by the fact that no sales of equipment occurred in the first six
months of 1999, unlike the equivalent period in 1998. Such equipment sales are
conducted at relatively low gross margins.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions, advertising, public relations, tradeshow expenses and
costs of marketing materials. Sales and marketing expenses increased 246% to
$4.6 million in the three months ended June 30, 1999 from $1.3 million in the
equivalent period in 1998. As a percentage of revenues, sales and marketing
expenses increased to 75.5% in the three months ended June 30, 1999 from 42.8%
in the equivalent period in 1998. Sales and marketing expenses increased 236% to
$8.4 million in the six months ended June 30, 1999 from $2.5 million in the
equivalent period in 1998. As a percentage of revenues, sales and marketing
expenses increased to 75.4% in the six months ended June 30, 1999 from 42.9% in
the equivalent period in 1998. The increase in sales and marketing expenses in
dollar terms in both the three and six months ended June 30, 1999 was due to an
expansion of our sales force, both domestically and internationally,
11
increased marketing activities, including the complete redesign of our marketing
materials, and in particular, significant expenditure to increase the brand
awareness of the Multex Investor Network. We expect sales and marketing expenses
to increase significantly in dollar terms as we continue to expand the Multex
Investor Network, increase brand awareness, hire additional sales and marketing
personnel, and expand internationally.
Research and Development. Research and development expenses consist
primarily of salaries and benefits. Research and development expenses increased
to $867,000 in the three months ended June 30, 1999 from $513,000 in the
equivalent period in 1998, representing an increase of 69.1%. As a percentage
of revenues, research and development expenses decreased to 14.2% in the three
months ended June 30, 1999 from 16.5% in the equivalent period in 1998. Research
and development expenses increased to $1.6 million in the six months ended June
30, 1999 from $953,000 in the equivalent period in 1998, representing an
increase of 67.9%. As a percentage of revenues, research and development
expenses decreased to 14.4% in the six months ended June 30, 1999 from 16.4% in
the equivalent period in 1998. The increase in research and development
expenses in dollar terms was primarily due to an increase in the number of
developers employed. We believe that continued investment in product development
is critical to attaining our strategic objectives and, as a result, expect
research and development expenses to increase significantly in dollar terms in
future periods.
General and Administrative. General and administrative expenses consist
primarily of salaries and benefits, fees for professional services and facility
expenses, including depreciation of assets. General and administrative expenses
increased 31.1% to $3.1 million in the three months ended June 30, 1999 from
$2.4 million in the equivalent period in 1998. As a percentage of revenues,
general and administrative expenses decreased to 51.0% in the three months ended
June 30, 1999 from 76.4% in the equivalent period in 1998. General and
administrative expenses increased 41.8% to $6.2 million in the six months ended
June 30, 1999 from $4.4 million in the equivalent period in 1998. As a
percentage of revenues, general and administrative expenses decreased to 55.8%
in the six months ended June 30, 1999 from 75.2% in the equivalent period in
1998. The increase in general and administrative expenses in dollar terms in
both the three and six months ended June 30, 1999 was primarily due to increased
personnel, professional service fees and facility expenses necessary to support
our domestic and international growth. We expect that general and
administrative expenses will increase in future periods as we hire additional
personnel and incur additional costs related to the growth of our business and
our operations as a public company.
Loss from Operations
As described above, we have invested heavily in establishing a brand name
for our services, expanding internationally, continuing to develop new services
and maintaining our technological advantage, and increasing the number of our
employees as we seek to increase our market share. For the foregoing reasons,
loss from operations increased 115% to $4.0 million in the three months ended
June 30, 1999 from $1.9 million in the equivalent period in 1998. As a
percentage of revenues, loss from operations was 65.4% in the three months ended
June 30, 1999 and 59.8% in the equivalent period in 1998. For the same foregoing
reasons, loss from operations increased 129% to $7.9 million in the six months
ended June 30, 1999 from $3.5 million in the equivalent period in 1998. As a
percentage of revenues, loss from operations was 71% in the six months ended
June 30, 1999 and 59.2% in the equivalent period in 1998.
Interest Income (Expense) and Other Income
Net interest income was $712,000 in the three months ended June 30, 1999 as
compared to net interest income of $56,000 in the equivalent period in 1998. Net
interest income was $980,000 in the six months ended June 30, 1999 as compared
to net interest expense of $140,000 in the equivalent period in 1998. The
changes in net interest income/expense are attributable to the changes in cash
available for investing and fluctuations in borrowings. In the six months ended
June 30, 1998, a gain on the sale of leased equipment of $125,000 was realized.
There was no comparable transaction in the equivalent period in 1999.
Net Loss
The Company recorded a net loss of $3.3 million and $1.8 million for the
three months ended June 30, 1999 and 1998, respectively, or $0.15 and $0.88 per
share, respectively. The Company recorded a net loss of $6.9
12
million and $3.5 million for the six months ended June 30, 1999 and 1998,
respectively, or $0.59 and $1.81 per share, respectively. The increase in the
net loss was primarily due to our investing heavily in establishing a brand name
for our services, expanding internationally, continuing to develop new services
and maintaining our technological advantage, and increasing the number of our
employees as we seek to increase our market share.
The Company computed a pro forma loss per share that assumes that all
shares of common stock outstanding at June 30, 1999 and 1998 were outstanding
from January 1, 1999 and 1998, respectively, and also assumes that all stock
options outstanding at June 30, 1999 and 1998 were exercised on January 1, 1999
and 1998, respectively, and assumes the conversion of all redeemable preferred
stock into 14,861,112 shares of the Company's common stock at January 1, 1998.
This pro forma loss was $0.14 and $0.09 per share for the three months ended
June 30, 1999 and 1998, respectively, and $0.28 and $0.17 per share for the six
months ended June 30, 1999 and 1998, based upon 24,327,487 shares outstanding
for the three and six months ended June 30, 1999 and 19,850,987 shares
outstanding for the three and six months ended June 30, 1998.
INCOME TAXES
At December 31, 1998, we had net operating loss carryforwards of
approximately $26,200,000 and research and development credits of approximately
$700,000 for income tax purposes that expire in 2009 through 2013. The
utilization of these loss carryforwards and credits are subject to annual
limitations pursuant to Section 382 of the Internal Revenue Code of 1986.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily through the sale of equity
securities as we have not generated cash flow from operations since our
inception. Through June 30, 1999, we have received an aggregate of $94.3
million in net proceeds from the sale of five series of convertible preferred
stock and our initial public offering. At June 30, 1999, we had $21.6 million
of cash and cash equivalents. Our principal commitments consist of obligations
under operating leases.
Net cash used in operating activities was $4.9 million in the six months
ended June 30, 1999, and $1.8 million in the equivalent period in 1998. The
principal use of cash for all periods was to fund our losses from operations.
Net cash used in investing activities was $18.3 million in the six months
ended June 30, 1999, as compared to net cash provided by investing activities of
$6 million in the equivalent period in 1998. Cash used in investing activities
was primarily related to purchases of marketable securities and cash generated
by investing activities was primarily related to the sale of marketable
securities and equipment.
Net cash provided by financing activities was $42.5 million in the six
months ended June 30, 1999, and net cash used by financing activities was $1.4
million for the equivalent period in 1998. Net cash provided by and used by
financing activities primarily consisted of net proceeds from the sale of equity
securities in 1999 and borrowings under bank lines of credit, which were offset
in part by repayments of bank debt and lease obligations in 1998.
Although we have no material commitments for capital expenditures, we
anticipate that we will experience a substantial increase in our capital
expenditures and lease commitments consistent with our anticipated growth in
operations, infrastructure and personnel, including the implementation of an
off-site backup computer system and various capital expenditures associated with
expanding our facilities. We currently anticipate that we will continue to
experience significant growth in our operating expenses for the foreseeable
future and that our operating expenses will be a material use of our cash
resources. We believe that our existing cash, cash equivalents and marketable
securities, will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures at least for the next twelve months.
13
IMPACT OF THE YEAR 2000
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems may recognize a date using "00" as the year 1900 rather than the year
2000. As a result, computer systems and/or software used by many companies and
governmental agencies may need to be upgraded to comply with Year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities.
State of Readiness. We have begun to assess the Year 2000 readiness of our
information technology systems, including the hardware and software that enable
us to provide and deliver our MultexNET, MultexEXPRESS, Multex Research-On-
Demand and Multex Investor Network services, and our non-information technology
systems. Our assessment plan consists of the following:
. quality assurance testing of our internally developed proprietary software
incorporated in our MultexNET, MultexEXPRESS, Multex Research-On-Demand and
Multex Investor Network services;
. contacting third-party vendors and licensors of material hardware, software
and services that are both directly and indirectly related to the delivery of
our MultexNET, MultexEXPRESS, Multex Research-On-Demand and Multex Investor
Network services;
. contacting providers of material non-information technology systems;
. assessment of repair or replacement requirements;
. repair or replacement;
. implementation; and
. creation of contingency plans in the event of Year 2000 failures.
We have performed a comprehensive Year 2000 simulation on our software
incorporated in our MultexNET, MultexEXPRESS, Multex Research-On-Demand and
Multex Investor Network services during the first half of 1999 to test system
readiness. Based on the results of this simulation, we intend to revise the
code of our software for our product offerings as necessary to improve our Year
2000 compliance. We have been informed by many of our vendors of material
hardware and software components of our information technology systems that the
products used by us are currently Year 2000 compliant. We will require vendors
of our other material hardware and software components of our information
technology systems to provide assurances of their Year 2000 compliance. We plan
to complete this vendor process during the first half of 1999. We are currently
assessing the materiality of our non-information technology systems and will
seek assurances of Year 2000 compliance from providers of material non-
information technology systems. Until this testing is complete and these
vendors and providers are contacted and have responded, we will not be able to
completely evaluate whether our information technology systems or non-
information technology systems will need to be revised or replaced.
Costs. To date, we have not incurred any material costs in identifying or
evaluating Year 2000 compliance issues. Most of our expenses have related to,
and are expected to continue to relate to, the operating costs associated with
time spent by employees in the evaluation process and Year 2000 compliance
matters generally. At this time, we do not possess the information necessary to
estimate the potential costs of revisions to our software relating to MultexNET,
MultexEXPRESS, Multex Research-On-Demand and Multex Investor Network should
revisions be required or the replacement of third-party software, hardware or
services that are determined not to be Year 2000 compliant. Although we do not
anticipate that these expenses will be material, these expenses, if higher than
anticipated, could have a material and adverse effect on our business, results
of operations and financial condition.
Risks. We are not currently aware of any significant Year 2000 compliance
problems relating to our software for our product offerings or our information
technology or non-information technology systems that would have a material and
adverse effect on our business, results of operations and financial condition,
without taking into
14
account our efforts to avoid or fix these problems. There can be no assurance
that we will not discover Year 2000 compliance problems in our software for our
product offerings that will require substantial revisions or replacements. In
addition, there can be no assurance that third-party software, hardware or
services incorporated into our material information technology and non-
information technology systems will not need to be revised or replaced, which
could be time-consuming and expensive. Our inability to fix our software for our
product offerings or to fix or replace third-party software, hardware or
services on a timely basis could result in lost revenues, increased operating
costs and other business interruptions, any of which could have a material and
adverse effect on our business, results of operations and financial condition.
Moreover, the failure to adequately address Year 2000 compliance issues in our
software relating to MultexNET, MultexEXPRESS, Multex Research-On-Demand and
Multex Investor Network, and our information technology and non-information
technology systems could result in claims of mismanagement, misrepresentation or
breach of contract and related litigation, which could be costly and time-
consuming to defend.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside our control will be Year 2000 compliant. The failure by these entities
to be Year 2000 compliant could result in a systemic failure beyond our control,
including, for example, a prolonged Internet, telecommunications or electrical
failure, which could also prevent us from delivering our MultexNET,
MultexEXPRESS, Multex Research-On-Demand and Multex Investor Network services,
decrease the use of the Internet or prevent users from accessing our MultexNET,
MultexEXPRESS, Multex Research-On-Demand and Multex Investor Network services,
any of which would have a material and adverse effect on our business, results
of operations and financial condition.
Contingency Plan. As discussed above, we are engaged in an ongoing Year
2000 assessment and have not developed any contingency plans. The results of
our Year 2000 simulation testing and the responses received from third-party
vendors and service providers will be taken into account in determining the need
for and nature and extent of any contingency plans.
Our inability to correct a significant Year 2000 problem, if one develops,
could result in an interruption in, or a failure of, certain of our normal
business activities or operations. In addition, a significant Year 2000 problem
concerning our database or the research reports and other information provided
to us by our research and information providers could cause our customers to
seek alternate providers of investment research or cause an unmanageable burden
on our customer service and technical support capabilities. Any material Year
2000 problem could require us to incur significant unanticipated expenses to
remedy and could divert our management's time and attention, either of which
could have a material and adverse effect on our business, results of operation
and financial condition.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
Because we have a limited operating history, there is limited information
upon which you can evaluate our business
Although we commenced our operations in April 1993, all of our current
services were launched since June 1996. Accordingly, we have a limited
operating history upon which you can evaluate our business. In order to be
successful, we must increase our revenues from subscription fees for MultexNET
and MultexEXPRESS, generate additional sales of investment research on a pay-
per-view basis through Multex Research-On-Demand and attract more users to
Multex Investor Network. However, as an early stage company in the new and
rapidly evolving market for the distribution of investment research and other
information over the Internet, we face numerous risks and uncertainties. Some
of these risks relate to our ability to:
. anticipate and adapt to the changing Internet market;
. attract more subscribers;
. continue to collect investment research and other financial information from
our research and information providers;
15
. implement our sales and marketing initiatives, both domestically and
internationally;
. attract, retain and motivate qualified personnel;
. respond to actions taken by our competitors;
. continue to build an infrastructure to effectively manage our growth and
handle any future increased usage; and
. integrate acquired businesses, technologies, products and services.
If we are unsuccessful in addressing these risks or in executing our
business strategy, our business, results of operations and financial condition
would be materially and adversely affected.
We have a history of losses and expect future losses
Since our incorporation, we have not been profitable on an annual or
quarterly basis. We incurred net losses of $6.4 million, $8.0 million and $9.7
million for the years ended December 31, 1996, 1997 and 1998 and a net loss of
$6.9 million for the six months ended June 30, 1999. We expect operating losses
and negative cash flows to continue for the foreseeable future as we continue to
incur significant operating expenses and make capital investments in our
business. We may not ever generate sufficient revenues to achieve
profitability. Even if we do achieve profitability, we may not sustain or
increase profitability on a quarterly or annual basis in the future. At June
30, 1999, we had an accumulated deficit of $39.1 million. We have financed our
operations to date primarily through the sale of equity securities.
Fluctuations in our operating results may negatively impact our stock price
Our revenues, margins and operating results have fluctuated significantly
in the past and are expected to continue to fluctuate significantly in the
future due to a variety of factors, many of which are outside of our control.
These factors include:
. demand for our services;
. the size and timing of both new and renewal subscriptions;
. the number, timing and significance of new services introduced by both us and
our competitors;
. our ability to develop, market and introduce new and enhanced services on a
timely basis;
. the level of service and price competition;
. changes in operating expenses;
. changes in the mix of services offered;
. changes in our sales incentive strategy;
. sharp declines in the volume of securities transactions or the prices of
securities generally; and
. general economic factors.
Our cost of revenues consists principally of distribution fees and
royalties which fluctuate depending upon the demand for our services, and fixed
telecommunications costs. In addition, a substantial portion of our operating
expenses is related to personnel costs, marketing programs and overhead, which
cannot be adjusted quickly and are
16
therefore relatively fixed in the short term. Our operating expense levels are
based, in significant part, on our expectations of future revenues on a
quarterly basis. If actual revenues on a quarterly basis are below management's
expectations, or if our expenses precede increased revenues, both gross margins
and results of operations would be materially and adversely affected because a
relatively small amount of our costs and expenses varies with our revenues in
the short term.
Due to all of the foregoing factors and the other risks discussed in this
prospectus, you should not rely on period-to-period 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
public market analysts and investors. In this event, the market price of our
common stock is likely to fall.
We are dependent on research and information providers and our business
would be materially and adversely affected if we lost one or more significant
research or information providers.
The loss of a major research or information provider would harm our business
We are dependent upon the continued provision of high-quality investment
research reports from investment banks, brokerage firms and third-party research
providers. Some of these arrangements are not embodied in written contracts and
many of these arrangements can be terminated by the provider on short notice.
At present, approximately 60% of our over 500 information providers permit us to
offer the research for sale after a specified embargo period, generally 7 to 15
days. The remaining information providers do not permit these sales. Many of
our providers of research reports and other information compete with one another
and, to some extent, with us for subscribers. None of these information
providers have arrangements to provide research or information exclusively to
us. The loss of one or more significant information providers would decrease
the research and other information which we can offer our users and would have a
material and adverse effect on our business, results of operations and financial
condition.
Royalty payments and distribution fees to research providers and strategic
partners increase our costs
Royalties and distribution fees payable to our information providers and
strategic partners to obtain distribution rights to research reports included in
Multex Research-On-Demand constitute a significant portion of our cost of
revenues. If we are required to increase the royalties payable to these
information providers or strategic partners, these increased payments could have
a material and adverse effect on our business, results of operations and
financial condition.
Because some of our competitors are parties to exclusive distribution
agreements, we may not be able to get content from important research providers
A number of leading investment banks, brokerage firms and third-party
research providers are parties to exclusive distribution arrangements with our
competitors, including First Call Corporation and The Investext Group, both of
which are subsidiaries of Thomson Financial Services, Inc., a leading worldwide
provider of financial information services. Consequently, we cannot provide our
users with the investment research and other information provided by these
investment banks, brokerage firms and third-party research providers, which may
put us at a competitive disadvantage. In the event that additional investment
banks, brokerage firms and third-party research providers enter into exclusive
distribution arrangements or that we are hindered in our ability to offer our
own services due to the lack of content from these investment banks, brokerage
firms and third-party research providers, our business, results of operations
and financial condition would be materially and adversely affected.
The inadvertent distribution of research reports could result in a claim for
damages against us or harm our reputation
Our proprietary software technology enables us to distribute a particular
research report or other financial information only to those users who have been
authorized or entitled to access the report by the information provider. In
particular, approximately 40% of our information providers currently supply us
with research reports and other financial information that is available only to
the customers of important information provider. We might
17
inadvertently distribute a particular report to a user who is not so authorized
or entitled, which could subject us to a claim for damages by the information
provider or which could harm our reputation in the marketplace, either of which
could have a material and adverse effect on our business, results of operations
and financial condition.
Our business would be materially and adversely affected if the emerging market
for online investment research does not continue to grow
The market for the distribution of investment research and other
information over the Internet has only recently begun to develop, is rapidly
evolving and is characterized by an increasing number of market entrants who
have introduced or developed electronic investment research distribution
services by facsimile and over public and private networks, online services and
the Internet. As is typical of a rapidly evolving market, demand and market
acceptance for new services are subject to a high level of uncertainty.
Because the market for our services is new and rapidly evolving, it is
difficult to predict with any assurance the growth rate, if any, and the
ultimate size of this market. We cannot assure you that the market for our
services will develop or that our services will ever achieve market acceptance.
If the market fails to develop, develops more slowly than expected, or becomes
saturated with competitors, if our services do not achieve market acceptance, or
if pricing becomes subject to significant competitive pressures, our business,
results of operations and financial condition would be materially and adversely
affected.
Our future results of operations will depend, in substantial part, on our
ability to increase the market acceptance of our services. The future viability
of MultexNET will depend upon, among other factors, our ability to expand our
direct and indirect sales and marketing channels, to attract and retain high-
quality information providers and to deliver our services across multiple
delivery platforms. The future viability of MultexEXPRESS will depend upon,
among other factors, the continued desire of investment banks, brokerage firms
and other information providers to distribute proprietary investment research
and corporate documents over the Internet or through private networks to their
employees and customers. The future viability of Multex Research-On-Demand will
depend upon, among other factors, the acceptance of the Internet as a medium for
the distribution and sale of investment research, as well as on our ability to
build a direct and indirect sales force to sell our services, to attract and
retain high-quality information providers, and to develop and increase our base
of users. The future viability of Multex Investor Network will depend upon,
among other factors, the acceptance of the Internet as a medium for the
distribution and sale of investment research to individual investors, and our
ability to attract and retain advertisers and sponsors, new members and
additional distribution partners. In addition, in order to download research
reports and other information from Multex Investor Network, users are required
to first download the Adobe Acrobat reader, which may be difficult for some
users to accomplish. If we are unable to increase the number of users of
MultexNET, MultexEXPRESS, Multex Research-On-Demand and Multex Investor Network,
or to attract and retain information providers, our business, results of
operations and financial condition would be materially and adversely affected.
We are dependent on strategic distribution relationships and our business would
be materially and adversely affected if we were to lose one of our strategic
distributors
We have distribution arrangements for our services with a number of third-
party distributors, including America Online, Inc., Bloomberg L.P., Dow Jones &
Co. Inc. and Reuters Limited, all of which are currently generating revenues for
us, and with Bridge Information Systems, Inc., which is not currently generating
revenues for us. We are dependent on our strategic relationships for the
marketing and distribution of investment research reports and other information.
Our future results of operations will be affected by the extent to which
customers of these third-party distributors choose to subscribe to our various
services. We cannot assure you that the customers of these third-party
distributors will continue to subscribe to our services or that these third-
party distributors will continue to actively market our services. If we are
unable to retain and increase the utilization of our services by these
customers, our business, results of operations and financial condition would be
materially and adversely affected.
We cannot assure you that we will be successful in entering into additional
strategic relationships, or that any additional relationships, if entered into,
will be on terms favorable to us. Our receipt of revenues from our strategic
relationships is directly affected by the levels of effort of these
distributors. We cannot assure you that our strategic distributors will devote
the resources necessary to successfully market our services. Each of these
18
distributors offers services, either of their own or from our competitors, which
are in one or more respects competitive with our service offerings. In
addition, our strategic distributors have the right to terminate their
agreements with us under various specified circumstances, in some circumstances
on short notice. Furthermore, we cannot assure you that we will be able to
renew these agreements when they expire on acceptable terms, if at all. If we
are unable to maintain our existing strategic relationships or to enter into new
strategic relationships, our business, results of operations and financial
condition would be materially and adversely affected.
Our business would be materially and adversely affected if we are not successful
in establishing brand awareness for Multex Investor Network
The future success of the Multex Investor Network will depend, in part, on
our ability to increase its brand awareness. In order to build our brand
awareness we must succeed in our marketing efforts, provide high-quality
services and increase traffic to the Multex Investor Network. We intend to
increase our marketing budget substantially as part of our brand-building
efforts. Our ability to increase advertising and sponsorship revenue from the
Multex Investor Network will depend in part on our ability to increase the
number of users of our Web sites. If our marketing efforts are unsuccessful or
if we cannot increase our brand awareness, our business, financial condition and
results of operations would be materially and adversely affected.
Our business could be materially and adversely affected by increased competition
The market for the distribution of investment research and other
information over the Internet is intensely competitive. We expect competition
to continue to increase because our market poses no substantial barriers to
entry. Competition may also increase as a result of industry consolidation.
Increased competition could result in price reductions, reduced gross margins
and loss of market share, any of which would have a material and adverse effect
on our business, results of operations and financial condition.
Other companies provide and distribute investment research
We face direct and indirect competition for both providers of investment
research and other reports, and for subscribers, with the following types of
companies:
. large and well-established distributors of financial information, including
Thomson Financial Services, through its subsidiaries First Call and
Investext, and Institutional Brokers Estimate System, a subsidiary of Primark
Corp.;
. companies that provide investment research, including investment banks and
brokerage firms, many of whom have their own Web sites;
. other providers of either free or subscription research services on the
Internet;
. services provided by some of our strategic distributors which are competitive
in one or more respects with our service offerings;
. numerous prospective competitors, including Standard & Poor's, Market Guide,
Moody's and Zacks Investment Research, that offer investment research-based
services;
. various written publications, including traditional media, investment
newsletters, personal financial magazines and industry research appearing in
financial periodicals; and
. services provided by in-house management information services personnel and
independent systems integrators.
19
Various public sources provide extensive company information for free
We also face competition due to the fact that extensive company-specific
information, as well as general investment research relating to particular
industries, may be obtained, frequently without charge, from various public
sources, including:
. annual reports;
. Standard & Poor's company-specific reports; and
. Value Line investment research reports.
These reports are all available from public libraries and from the companies
about which these reports relate.
We believe that our ability to compete successfully will depend upon many
factors, many of which are outside of our control. These factors include our
ability to sustain our relationships with leading providers of investment
research, the timing and market acceptance of new services and enhancements to
existing services developed by us and our competitors, ease of use, performance,
price, reliability, customer service and support, and sales and marketing
efforts. Our competitors vary in size and in the scope and breadth of services
offered.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do. This may enable them to respond more quickly to new or
emerging technologies and changes in investor requirements, or to devote greater
resources to the development, promotion and sale of their services than we can.
Our competitors may be able to undertake more extensive marketing campaigns,
adopt more aggressive pricing policies and make more attractive offers to
potential employees, subscribers, strategic partners and information providers.
Our competitors may develop services that are equal or superior to the services
offered by us or that achieve greater market acceptance than our services do. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to improve
their ability to address the needs of our existing and prospective customers.
As a result, it is possible that new competitors may emerge and rapidly acquire
significant market share. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, which could
materially and adversely affect our business, results of operations and
financial condition.
We have a high level of customer concentration and our business could be
materially and adversely affected if we were to lose a major subscriber or
distributor
Historically, a few of our subscribers and distributors have accounted for
a substantial majority of our revenues. Specifically, 28% of our revenues in
the year ended December 31, 1998 were generated by Bloomberg, Reuters, Merrill
Lynch & Co. and Gruntal & Co. In addition, approximately 500,000 of the 600,000
end-users of MultexEXPRESS are generated from one MultexEXPRESS installation.
The loss of any major subscriber or distributor, or any reduction or delay in
subscriptions by any subscriber or distributor, or our failure to successfully
market our services to new subscribers or distributors could have a material and
adverse effect on our business, results of operations and financial condition.
Our business could be materially and adversely affected by a downturn in the
financial services industry
We are dependent upon the continued demand for the distribution of
investment research and other information over the Internet, making our business
susceptible to a downturn in the financial services industry. For example, a
decrease in the number of analysts that prepare investment research reports or
in the capital dedicated to the dissemination of this research could result in a
decrease in the number of research reports and other financial information
available for distribution and a concomitant decrease in demand by our
subscribers for these reports and other information. In addition, U.S.
financial institutions are continuing to consolidate, increasing the leverage of
our information providers to negotiate price and decreasing the overall
potential market for some of our services.
20
These factors, as well as other changes occurring in the financial services
industry, could have a material and adverse effect on our business, results of
operations and financial condition.
Rapid growth in our future operations could strain our managerial, operational
and financial resources
We have experienced rapid growth in our operations. At June 30, 1999, we
had a total of 187 employees, as compared to 149 employees at December 31, 1998
and 107 employees at December 31, 1997. We expect that the number of our
employees will continue to increase for the foreseeable future. This rapid
growth has placed, and our anticipated future growth will continue to place, a
significant strain on our managerial, operational and financial resources. As a
result, we will need to continue to improve our operational and financial
systems and managerial controls and procedures. In addition, our future success
will also depend on our ability to expand, train and manage our workforce, in
particular our sales and marketing organization, both domestically and
internationally. We will also have to maintain close coordination among our
technical, accounting, finance, marketing, sales and editorial personnel. If we
are unable to accomplish any of these objectives, our business, results of
operations and financial condition could be materially and adversely affected.
The loss of any of our key personnel could have a material and adverse effect
Our future success will depend, in substantial part, on the continued
service of our senior management, including Mr. Isaak Karaev, our Chairman,
President and Chief Executive Officer, and key technical and sales personnel,
none of whom has entered into an employment agreement with us other than a non-
competition/non-disclosure agreement. We maintain a key person life insurance
policy in the amount of $2.0 million on the life of Mr. Karaev. The loss of the
services of one or more of our key personnel could have a material and adverse
effect on our business, results of operations and financial condition. Our
future success will also depend on our continuing ability to attract, retain and
motivate highly qualified technical, sales and marketing, customer support,
financial and accounting, and managerial personnel. Competition for this
personnel, in particular information technology professionals, is intense, and
we cannot assure you that we will be able to retain our key personnel or that we
will be able to attract, assimilate or retain other highly qualified personnel
in the future. We have from time to time in the past experienced, and we expect
to continue to experience in the future, difficulty in hiring and retaining
highly skilled employees with appropriate qualifications.
Our international operations are new and may not be successful
We have only limited business experience outside of the United States
We have only recently commenced operations in a number of international
markets and a key component of our strategy is to continue to expand our
international operations. To date, we have only limited experience in
developing and obtaining research and other financial information relating to
companies whose securities are traded on foreign markets and in marketing,
selling and distributing our services internationally. We cannot assure you
that we will be able to successfully market, sell and deliver our services in
these markets. In some markets, including Hong Kong, we intend to rely on the
sales and marketing efforts of independent representatives. The failure of our
independent representatives to successfully solicit information providers or
market our services in these markets could have a material and adverse effect on
our business, results of operations and financial condition.
Doing business internationally subjects us to additional regulatory
requirements, tax liabilities and other risks
There are risks inherent in doing business in international markets,
including unexpected changes in regulatory requirements, potentially adverse tax
consequences, export restrictions and controls, tariffs and other trade
barriers, difficulties in staffing and managing foreign operations, political
instability, fluctuations in currency exchange rates, and seasonal reductions in
business activity during the summer months in Europe and various other parts of
the world, any of which could have a material and adverse effect on the success
of our international operations and, consequently, on our business, results of
operations and financial condition. Furthermore, we cannot assure you that
governmental regulatory agencies in one or more foreign countries will not
determine that the services provided by us constitute the provision of
investment advice, which could result in our having to register in
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these countries as an investment advisor or in our having to cease selling our
services in these countries, either of which could have a material and adverse
effect on our business, results of operations and financial condition.
Our failure to successfully integrate the Market Guide acquisition and any
future acquisitions could strain our managerial, operational and financial
resources
In addition to the Market Guide acquisition, we may, from time to time,
pursue acquisitions of businesses, customer lists, products or technologies that
complement or expand our existing business. We evaluate potential acquisition
opportunities from time to time, including those that could be material in size
and scope. Acquisitions involve a number of risks, including the diversion of
management's attention from day-to-day operations to the assimilation of the
operations and personnel of the acquired companies and the incorporation of
acquired operations, customer lists, products or technologies. Acquisitions
could also have a material and adverse effect on our business, results of
operations or financial condition, and could result in dilutive issuances of
equity securities, the incurrence of debt and the loss of key employees. In
addition, many acquisitions must be accounted for using the purchase method of
accounting and, because most software-related acquisitions involve the purchase
of significant intangible assets, these acquisitions typically result in
substantial amortization charges and charges for acquired research and
development projects, which could have a material and adverse effect on our
business, results of operations and financial condition. We cannot assure you
that the Market Guide acquisition or any other acquisitions will be successfully
completed or that, if one or more acquisitions are completed, the acquired
businesses, customer lists, products or technologies will generate sufficient
revenue to offset the associated costs or other adverse effects.
If we cannot keep pace with the evolving standards of our industry and demands
of our customers, we may be unable to enhance our existing services or introduce
new services
The market in which we operate is characterized by rapidly changing
technology, evolving industry standards, frequent new service announcements,
introductions and enhancements, and evolving customer demands. These market
characteristics are exacerbated by the emerging nature of the Internet and the
electronic distribution of investment research. Accordingly, our future success
will depend on our ability to adapt to rapidly changing technologies and
industry standards, and our ability to continually improve the performance,
features and reliability of our services in response to both evolving customer
demands and competitive service offerings. Our inability to successfully adapt
to these changes in a timely manner could have a material and adverse effect on
our business, results of operations and financial condition. Furthermore, we
cannot assure you that we will not experience difficulties that could delay or
prevent the successful design, development, testing, introduction or marketing
of new services, or that any enhancements to existing services will adequately
meet the requirements of our current and prospective customers and achieve any
degree of significant market acceptance. If we are unable, for technological or
other reasons, to develop and introduce new services or enhancements to existing
services in a timely manner or in response to changing market conditions or
customer requirements, or if our services or enhancements contain defects or do
not achieve a significant degree of market acceptance, our business, results of
operations and financial condition would be materially and adversely affected.
Because our business is dependent upon one computer system, we are particularly
susceptible to problems caused by system failures, security breaches or other
damage to our system
Our electronic distribution of investment research utilizes proprietary
technology which resides principally on one computer system. The continued and
uninterrupted performance of our computer system is critical to our success. Any
system failure that causes interruptions in our ability to provide our services
to our customers, including failures that affect our ability to collect research
from our information providers or provide electronic investment research to our
users, could reduce customer satisfaction and, if sustained or repeated, would
reduce the attractiveness of our services. An increase in the volume of
research reports handled by our computer system, or in the rate of requests for
this research, could strain the capacity of our software or hardware, which
could lead to slower response times or system failures. Furthermore, we face
the risk of a security breach of our computer system which could disrupt the
distribution of research and other reports. Our business, results of operations
and financial condition could be materially and adversely affected if any of
these problems occur.
Our operations are dependent on our ability to protect our computer system
against damage from computer viruses, fire, power loss, telecommunications
failures, vandalism and other malicious acts, and similar unexpected
22
adverse events. In addition, a failure of our telecommunications providers to
provide the data communications capacity in the time frame required by us for
any reason could cause interruptions in the delivery of our services. Despite
precautions we have taken, unanticipated problems affecting our systems have
from time to time in the past caused, and in the future could cause, delays and
interruptions in the delivery of our services. Although we carry general
liability insurance, our insurance may not cover any claims by dissatisfied
providers or subscribers or may not be adequate to indemnify us for any
liability that may be imposed in the event that a claim were brought against us.
Our business, results of operations and financial condition could be materially
and adversely affected by any system failure, security breach or other damage
that interrupts or delays our operations.
If we fail to adequately protect our intellectual property rights or face a
claim of intellectual property infringement by a third-party, we could lose our
intellectual property rights or be liable for significant damages
Our future success will depend, in substantial part, on our intellectual
property rights. We seek to protect our intellectual property rights, but these
actions may be inadequate to protect the rights covered by our patents, patent
applications, trademarks or other proprietary rights or to prevent others from
claiming violations of their proprietary rights. Our intellectual proprietary
rights may not be viable or of value in the future since the validity,
enforceability and scope of protection of proprietary rights in Internet-related
industries is uncertain and still evolving.
Furthermore, we cannot assure you that third parties will not claim that we
have infringed their patents or other proprietary rights. From time to time we
have been, and we expect to continue to be, subject to claims by third parties
in the ordinary course of our business, including claims of alleged infringement
of the trademarks and other proprietary rights of third parties. Although there
has not been any litigation relating to these claims to date, these claims and
any resultant litigation, should they occur, could subject us to significant
liability for damages and could result in the invalidation of our proprietary
rights. In addition, even if we prevail, this litigation could be time-
consuming and expensive to defend, and could result in the diversion of our time
and attention, any of which could materially and adversely affect our business,
results of operations and financial condition. Any claims or litigation from
third parties may also result in limitations on our ability to use the
trademarks and other intellectual property subject to these claims or litigation
unless we enter into agreements with the third parties responsible for these
claims or litigation which may be unavailable on commercially reasonable terms.
We generally enter into confidentiality agreements with our employees,
consultants and strategic partners, and generally control access to and
distribution of our proprietary information. Despite our efforts to protect our
proprietary information from unauthorized use or disclosure, parties may attempt
to disclose, obtain or use our proprietary information which, if successful,
could have a material and adverse effect on our business, results of operation
and financial condition. The steps we have taken may not prevent
misappropriation of our proprietary information.
Problems relating to the "Year 2000 Issue" could adversely affect our business
We performed a comprehensive Year 2000 simulation on our software during
the first half of 1999. We have also contacted our third-party vendors,
licensors and providers of software, hardware and services regarding their Year
2000 readiness. The results of our testing showed that all of our internal
software and databases will perform correctly through the Year 2000. Due to the
highly dynamic nature of our business, however, we will continue the testing
process through the Year 2000 and we will continue to confirm that third-party
vendors, licensors and providers are Year 2000 ready. Our inability to correct
a significant Year 2000 problem, if one exists, could result in an interruption
in, or a failure of, certain of our normal business activities and operations.
In addition, a significant Year 2000 problem concerning our database or the
research reports and other information provided to us by our information
providers could cause our users to consider seeking alternate providers of
investment research or cause an unmanageable burden on our customer service and
technical support capabilities. Any significant Year 2000 problem could require
us to incur significant unanticipated expenses to remedy these problems and
could divert management's time and attention, either of which could have a
material and adverse effect on our business, results of operation and financial
condition.
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The market price of our shares may experience extreme price and volume
fluctuations
The stock market has, from time to time, experienced extreme price and
volume fluctuations. The market prices of the securities of Internet-related
companies have been especially volatile, including fluctuations that are often
unrelated to the operating performance of the affected companies. Broad market
fluctuations of this type may adversely affect the market price of our common
stock.
The market price of our common stock could be subject to significant
fluctuations due to a variety of factors, including:
. public announcements concerning us or our competitors, or the Internet
industry;
. fluctuations in operating results;
. a downturn in the financial services industry generally or the market for
securities trading in particular;
. introductions of new products or services by us or our competitors;
. changes in analysts' earnings estimates; and
. announcements of technological innovations.
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
and have a material adverse effect on our business, results of operation and
financial condition.
Our executive officers, directors and 5% or greater stockholders can
significantly influence all matters requiring a stockholder vote
Our executive officers, directors and existing stockholders who each own
greater than 5% of the outstanding common stock and their affiliates, in the
aggregate, beneficially own 39.5% of our outstanding common stock. As a result,
our executive officers, directors and 5% or greater stockholders will be able to
significantly influence the outcome of all matters requiring approval by our
stockholders, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may also have the
effect of delaying or preventing a change in control of us.
Risks Related to the Internet Industry
If Internet usage does not continue to grow, we may not be successful
The Internet is relatively new and is rapidly evolving. Our business would
be materially and adversely affected if Internet usage does not continue to
grow. Internet usage may be inhibited for a number of reasons, including:
. the Internet infrastructure may not be able to support the demands placed on
it or its performance and reliability may decline as usage grows;
. security and authentication concerns with respect to transmission over the
Internet of confidential information, including credit card numbers, and
attempts by unauthorized computer users to penetrate our network security;
and
. privacy concerns, including those related to the placement by Web sites of
information on a user's hard drive without the user's knowledge or consent in
order to gather user information.
24
Our market is characterized by rapidly changing technologies, evolving
industry standards, frequent new product and service introductions, and changing
customer demands. To be successful, we must adapt to our rapidly changing
market by continually enhancing our existing services and adding new services to
address our customers' changing demands. We could incur substantial costs if we
need to modify our services or infrastructure in order to adapt to these
changes. Our business, results of operation and financial condition would be
materially and adversely affected if we incurred significant costs without
generating additional revenues or if we cannot rapidly adapt to these changes.
If the Internet infrastructure is not adequately maintained, we may be unable to
provide investment research and information services in a timely manner
Our future success will depend, in substantial part, upon the maintenance
of the Internet infrastructure, including a reliable network backbone with the
necessary speed, data capacity and security, and the timely development of
enabling products, including high-speed modems, for providing reliability and
timely Internet access and services. To the extent that the Internet continues
to experience increased numbers of users, frequency of use or increased
bandwidth requirements of users, we cannot assure you that the Internet
infrastructure will continue to be able to support the demands placed on it or
that the performance or reliability of the Internet will not be adversely
affected. Furthermore, the Internet has experienced a variety of outages and
other delays as a result of damage to portions of its infrastructure or
otherwise, and these outages or delays could adversely affect the Web sites of
our contributors, subscribers or distributors. In addition, the Internet could
lose its viability as a form of media due to delays in the development or
adoption of new standards and protocols that can handle increased levels of
activity. We cannot assure you that the infrastructure and complementary
products and services necessary to maintain the Internet as a viable commercial
medium will be developed or maintained. Moreover, critical issues concerning
the commercial use of the Internet, including security, cost, ease of use and
access, intellectual property ownership and other legal liability issues, remain
unresolved and could materially and adversely affect both the growth of Internet
usage generally and our business, results of operations and financial condition
in particular.
We may be subject to legal claims in connection with the content we publish and
distribute on the Internet
As a publisher and distributor of online content, we face potential direct
and indirect liability for claims of defamation, negligence, copyright, patent
or trademark infringement, violation of the securities laws and other claims
based upon the reports and data that we publish. For example, by distributing a
negative investment research report, we may find ourselves subject to defamation
claims, regardless of the merits of these claims. Computer failures may also
result in incorrect data being published and distributed widely. In these and
other instances, we may be required to engage in protracted and expensive
litigation, which could have the effect of diverting management's attention and
require us to expend significant financial resources. Our general liability
insurance may not necessarily cover any of these claims or may not be adequate
to protect us against all liability that may be imposed. Any claims or
resulting litigation could have a material and adverse effect on our business,
results of operations and financial condition.
We may become subject to burdensome government regulation and legal
uncertainties
The laws governing the Internet remain largely unsettled, even in areas
where there has been some legislative action. It may take years to determine
whether and how existing laws, including those governing intellectual property,
privacy, libel and taxation, apply to the Internet generally and the electronic
distribution of investment research in particular. Legislation could dampen the
growth in the use of the Internet generally and decrease the acceptance of the
Internet as a communications and commercial medium, which could have a material
and adverse effect on our business, results of operations and financial
condition. In addition, because the growing popularity and use of the Internet
has burdened the existing telecommunications infrastructure and many areas with
high Internet usage have begun to experience interruptions in phone service,
some local telephone carriers have petitioned governmental agencies to regulate
Internet service providers and online service providers in a manner similar to
long distance telephone carriers and to impose access fees on Internet service
providers and online service providers. If any of these petitions or the relief
that they seek is granted, the costs of communicating on the Internet could
increase substantially, potentially adversely affecting the growth in the use of
the Internet. Further, due to the global nature of the Internet, it is possible
that, although transmissions relating to our services originate in the State of
New York, governments of other states, the United States or foreign countries
might attempt to regulate our
25
services or levy sales or other taxes on our activities. We cannot assure you
that violations of local or other laws will not be alleged or charged by local,
state, federal or foreign governments, that we might not unintentionally violate
these laws or that these laws will not be modified, or new laws enacted, in the
future. Any of these developments could have a material and adverse effect on
our business, results of operations and financial condition.
26
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Changes in Securities:
NONE
(b) Use of Proceeds
On March 22, 1999, the Company completed the initial public offering
of 3,450,000 shares of Common Stock, of which 3,283,500 were issued and sold by
the Company (the "Offering"). Net proceeds to the Company from the Offering
were approximately $41.6 million. During the six months ended June 30, 1999,
the Company used $41.0 million of the proceeds from the Offering to purchase
marketable securities and cash equivalents.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In February 1999, in a Written Consent in Lieu of a Special Meeting of the
Stockholders of the Company, a majority of the holders of the then outstanding
shares of Common Stock of the Company (which majority included the majority of
the holders of the Preferred Stock of the Company, voting on an as converted
basis) approved the Amendment of the Restated Certificate of Incorporation of
the Company, and the Amended and Restated By-laws of the Company.
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) The following exhibits are filed as part of this report:
27.1 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the three
months ended June 30, 1999.
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ITEM 7. 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.
MULTEX.COM, INC.
(Registrant)
Date: August 4, 1999 /s/ Isaak Karaev
----------------
Name: Isaak Karaev
Title: Chief Executive Officer
Date: August 4, 1999 /s/ Philip Callaghan
--------------------
Name: Philip Callaghan
Title: Chief Financial Officer
28