UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2001
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 0-25131
INFOSPACE, INC.
(Exact name of registrant as specified in its charter)
Delaware 91-1718107
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
601 108th Avenue NE, Suite 1200 98004
Bellevue, Washington (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (425) 201-6100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class April 30, 2001
----- --------------
Common Stock, Par Value $.0001 324,904,998
INFOSPACE, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
PART I - Financial Information
Item 1. -- Financial Statements
Consolidated Balance Sheets as of March 31, 2001 and
December 31, 2000........................................................... 3
Consolidated Statements of Operations and Comprehensive Loss for the
Three Months Ended March 31, 2001 and 2000.................................. 4
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2001 and 2000..................................................... 5
Notes to Consolidated Financial Statements...................................... 6
Item 2. -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview........................................................................ 14
Results of Operations........................................................... 17
Liquidity and Capital Resources................................................. 22
Factors Affecting InfoSpace's Operating Results, Business Prospects and
Market Price of Stock......................................................... 23
Item 3. -- Quantitative and Qualitative Disclosures About Market Risk............... 30
Part II - Other Information
Item 1. - Legal Proceedings.......................................................... 31
Item 2. - Changes in Securities and Use of Proceeds.................................. 32
Items 3 through 5 are not applicable with respect to the current reporting period.
Item 6. -- Exhibits and Reports on Form 8-K.......................................... 33
Signature............................................................................ 34
2
Item 1. - Financial Statements
INFOSPACE, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS March 31, 2001 December 31,
(unaudited) 2000
------------------ -----------------
(Amounts in thousands,
except share data)
Current assets:
Cash and cash equivalents.................................................. $ 180,363 $ 153,913
Short-term investments, available-for-sale................................. 101,797 216,235
Accounts receivable, net................................................... 23,253 33,881
Payroll tax receivable..................................................... 13,214 620
Notes and other receivables................................................ 22,506 21,701
Prepaid expenses and other current assets.................................. 8,684 14,491
---------- ----------
Total current assets.................................................... 349,817 440,841
Property and equipment, net.................................................. 54,118 51,137
Long-term investments, available-for-sale.................................... 82,322 32,451
Other investments............................................................ 84,967 121,574
Intangible assets, net....................................................... 673,800 621,032
Other long term assets....................................................... 4,007 5,075
---------- ----------
Total........................................................................ $1,249,031 $1,272,110
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................... $ 4,756 $ 4,537
Accrued expenses and other current liabilities............................. 41,003 37,999
Deferred revenue........................................................... 26,161 31,430
---------- ----------
Total current liabilities............................................... 71,920 73,966
Long-term deferred revenue................................................. 5,026 7,974
Minority interest.......................................................... -- 21,599
---------- ----------
Total liabilities....................................................... 76,946 103,539
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, par value $.0001-Authorized, 15,000,000 shares, issued
and outstanding, 2 and 1 share............................................ -- --
Common stock, par value $.0001- authorized, 900,000,000 shares; issued and
outstanding, 324,558,822 and 316,669,408 shares........................... 32 32
Additional paid-in capital................................................. 1,715,852 1,596,213
Accumulated deficit........................................................ (533,024) (408,647)
Deferred expense--warrants................................................. (1,292) (1,495)
Unearned stock-based compensation.......................................... (3,286) (1,500)
Accumulated other comprehensive loss....................................... (6,197) (16,032)
---------- ----------
Total stockholders' equity.............................................. 1,172,085 1,168,571
---------- ----------
Total liabilities and stockholders' equity................................... $1,249,031 $1,272,110
========== ==========
See accompanying notes to consolidated financial statements.
3
INFOSPACE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
Three Months Ended March 31, 2001 and 2000
(unaudited)
March 31,
-----------------------------
2001 2000
---------- ----------
(Amounts in thousands, except
per share data)
Revenues......................................................... $ 46,565 $ 38,778
Cost of revenues................................................. 11,721 6,134
--------- ---------
Gross profit............................................ 34,844 32,644
Operating expenses:
Product development.......................................... 11,787 6,951
Sales, general and administrative............................ 35,021 22,983
Amortization of intangibles.................................. 63,897 28,010
Acquisition and other related charges........................ 889 86,397
Other non-recurring charges.................................. 1,056 2,888
Restructuring charges........................................ 1,717 --
--------- ---------
Total operating expenses................................ 114,367 147,229
--------- ---------
Loss from operations.................................... (79,523) (114,585)
Gain (loss) on investments....................................... (47,616) 23,597
Other income, net................................................ 5,983 7,584
--------- ---------
Loss before income tax expense, minority interest and
cumulative effect of change in accounting principle.......... (121,156) (83,404)
Minority interest................................................ -- 9,842
Income tax expense............................................... 50 18
--------- ---------
Loss before cumulative effect of change in accounting principle (121,206) (93,264)
Cumulative effect of change in accounting principle.............. (3,171) (2,055)
--------- ---------
Net loss......................................................... $(124,377) $ (95,319)
========= =========
Basic and diluted net loss per share............................. $(0.38) $(0.33)
========= =========
Shares used in computing basic and diluted net loss per share.... 323,299 289,461
========= =========
Net loss......................................................... $(124,377) $ (95,319)
Foreign currency translation adjustment........................ 238 4
Unrealized gains (losses) on investments....................... (10,073) 3,982
--------- ---------
Comprehensive loss............................................... $(134,212) $ (91,333)
========= =========
See accompanying notes to consolidated financial statements.
4
INFOSPACE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2001 and 2000
(unaudited)
March 31,
----------------------
2001 2000
--------- --------
(Amounts in thousands)
Operating activities
Net loss....................................................................................... $(124,377) $(95,319)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Depreciation and other amortization......................................................... 68,187 29,821
Warrant and stock related revenue........................................................... (9,517) (4,196)
Warrants expense............................................................................ 203 3,119
Stock based compensation expense............................................................ 672 260
Bad debt expense............................................................................ 2,094 558
Loss (gain) on investments.................................................................. 47,616 (23,598)
Other non-recurring charges................................................................. 1,792 --
Minority interest........................................................................... 17 9,762
Loss on disposal of assets.................................................................. -- 14
In process research and development......................................................... 600 74,100
Business acquisition costs.................................................................. 289 14,685
Cumulative translation adjustment........................................................... (238) 502
Cumulative effect of change in accounting principle......................................... 3,171 2,055
Non cash service exchanged.................................................................. -- 110
Cash provided (used) by changes in operating assets and liabilities:
Accounts receivable....................................................................... 10,206 (2,710)
Other receivables......................................................................... (17,124) 562
Prepaid expenses and other current assets................................................. 3,112 (3,499)
Other long-term assets.................................................................... 1,314 (15)
Accounts payable.......................................................................... (670) 2,971
Accrued expenses and other current liabilities............................................ (1,980) (3,182)
Deferred taxes............................................................................ -- (1,291)
Deferred revenue.......................................................................... (5,742) 7,027
--------- --------
Net cash provided (used) by operating activities............................................ (20,375) 11,736
Investing activities
Business acquisitions....................................................................... (537) (11,738)
Contribution (purchase) of minority interest ownership in VC Fund........................... (16,335) 19,315
Notes receivable............................................................................ -- (14,854)
Other investments........................................................................... -- (17,500)
Purchase of fixed assets.................................................................... (5,407) (6,524)
Short-term investments, net................................................................. 114,438 --
Long-term investments, net.................................................................. (49,320) 19,863
--------- --------
Net cash provided (used) by investing activities............................................ 42,839 (11,438)
Financing activities:
Proceeds from issuance of ESPP shares....................................................... 1,117 343
Payments from issuance of common stock...................................................... -- (22)
Proceeds from exercise of options and warrants.............................................. 5,944 18,314
Debt payments............................................................................... (3,075) (21,423)
--------- --------
Net cash provided (used) by financing activities............................................ 3,986 (2,788)
--------- --------
Net increase (decrease) in cash and cash equivalents........................................... 26,450 (2,490)
Cash and cash equivalents:
Beginning of period......................................................................... 153,913 104,350
--------- --------
End of period............................................................................... $ 180,363 $101,860
========= ========
Supplemental disclosure of noncash activities
Acquisitions from purchase transactions:
Stock issued.............................................................................. $ 88,772 $359,669
Net assets acquired....................................................................... (1,569) (17,457)
Compensation expense for Prio warrants -- 2,888
See accompanying notes to consolidated financial statements.
5
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company and Basis of Presentation
InfoSpace, Inc.(InfoSpace, or the Company), a Delaware corporation, was founded
in March 1996. The Company is an international provider of commerce and consumer
infrastructure services to merchants and on wireless, broadband, and narrowband
platforms. InfoSpace provides its services across multiple platforms
simultaneously, including PC's and non-PC devices, such as screen telephones,
television set-top boxes and online kiosks, which use ground wire Internet
connections (wireline devices) and wireless devices such as cell phones, pagers
and personal digital assistants.
The accompanying unaudited consolidated financial statements include all
adjustments, consisting of normal recurring adjustments that, in the opinion of
management, are necessary to present fairly the financial information set forth
therein. Certain information and note disclosures normally included in financial
statements, prepared in accordance with accounting principles generally accepted
in the United States of America (GAAP), have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission. Results
of operations for the three-month period ended March 31, 2001 are not
necessarily indicative of future financial results. The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts may differ from estimates.
Investors should read these interim statements in conjunction with the audited
financial statements and notes thereto included in our Annual Report (Commission
File Number 0-25131) filed on Form 10-K for the year ended December 31, 2000.
Certain prior period balances have been reclassified to conform to current
period presentation.
Other non-recurring charges: Other non-recurring charges consist of one-time
costs and/or charges that are not directly associated with other operating
expense classifications. Other non-recurring charges for the quarter ended March
31, 2001 includes an allowance for an employee loan in the amount of $1.1
million, an allowance of $1.0 million for a note receivable, $950,000 for
settlement charges on a litigation matter (Note 9) and a $2.0 million decrease
to the estimated liability for past overtime worked. During the quarter ended
December 31, 2000, the Company recorded a $3.0 million accrual for the estimated
liability for past overtime worked (Note 8).
Restructuring charges: Restructuring charges of $1.5 million for the quarter
ended March 31, 2001 reflect actual and accrued severance costs associated with
the reduction in work force during the quarter (Note 4), and $255,000 for a
lease termination fee related to the Company's closure of its Dallas office in
2000.
6
Gain (loss) on investments: Gain (loss) on investments consists of realized
gains and losses on investments sold, losses recorded from writedowns of
investments to fair value for other-than-temporary declines in fair value,
changes in fair value for investments held in the InfoSpace Venture Capital Fund
2000 LLC and changes in fair value for derivative instruments held which are
warrants to purchase equity securities of public and private companies.
During the three months ended March 31, 2001, the Company determined that the
declines in value from the Company's accounting basis for four of the Company's
other investments were other than temporary. The Company recognized non-cash
losses totaling $41.6 million to record these investments at their current fair
values as of March 31, 2001. This amount is included in gain (loss) on
investments in the Company's statements of operations. The Company periodically
evaluates whether the declines in fair value of these investments are other than
temporary. This evaluation consists of a review by members of senior management
in finance and treasury. For investments with publicly quoted market prices, the
Company compares the market price to the Company's accounting basis and, if the
quoted market price is less than the Company's accounting basis for an extended
period of time, the Company then considers additional factors to determine
whether the decline in fair value is other than temporary, such as the financial
conditions, results of operations and operating trends for the company. The
Company also reviews publicly available information regarding the investee
companies, including reports from investment analysts. The Company also
evaluates whether: 1) The Company has both the intent and ability to hold the
investment for a period of time sufficient to allow for any anticipated recovery
in fair value; 2) the decline in fair value is attributable to specific adverse
conditions affecting a particular investment; 3) the decline is attributable to
more general conditions, such as conditions in an industry or geographic area;
4)the decline in fair value is attributable to seasonal factors; 5) a debt
security has been downgraded by a rating agency; 6) the financial condition of
the issuer has deteriorated; and 7) if applicable, dividends have been reduced
or eliminated, or scheduled interest payments on debt securities have not been
made. For investments in private companies with no quoted market price, the
Company considers similar qualitative factors and also consider the implied
value from any recent rounds of financing completed by the investee as well as
market prices of comparable public companies. The Company requires the Company's
private investees to deliver annual and quarterly financial statements to assist
the Company in reviewing relevant financial data and to assist the Company in
determining whether such data may indicate other-than temporary declines in fair
value below the Company's accounting basis.
Cumulative effect of change in accounting principle: On January 1, 2001, the
Company adopted Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
established accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts. All
derivatives, whether designated in hedging relationships or not, are required to
be recorded on the balance sheet at fair value and changes in fair value are
recognized in earnings unless certain hedge criteria are met. As a result of
adopting SFAS No. 133, the Company recorded an expense of $3.2 million on
January 1, 2001. This amount was recorded as a
7
cumulative effect of change in accounting principle and represents the
adjustment to record warrants held to purchase stock in other companies at their
fair values as of January 1, 2001. As of December 31, 2000 warrants to purchase
stock in public companies were held at fair value, with unrealized gains and
losses included in accumulated other comprehensive loss, and warrants to
purchase stock in private companies were held at cost.
2. Acquisitions
Locus Dialogue, Inc. On January 1, 2001, the Company acquired all of the common
stock of Locus Dialogue, Inc.(Locus) for purchase consideration of 5,114,233
shares, which included 253,175 restricted shares and 1,173,216 replacement stock
options, of the Company's common stock and acquisition expenses of $556,000.
Locus is a developer of speech recognition-enabled applications. The acquisition
was accounted for as a purchase in accordance with Accounting Principles Board
Opinion (APB) No. 16.
The purchase price was allocated to the assets and liabilities assumed based on
their estimated fair values as follows:
(in thousands)
Tangible assets acquired $ 5,491
Liabilities assumed (7,010)
--------
Book value of net liabilities acquired (1,519)
Fair value adjustments:
Purchased technology, including in-process research and development 5,900
Distribution agreements 2,400
Assembled workforce 2,800
--------
Fair value of net assets acquired $ 9,581
========
Purchase price:
Fair value of shares issued $ 88,772
Fair value of options assumed 23,589
Fair value of net assets acquired (9,581)
Fair value of restricted stock recorded as unearned compensation (2,239)
Acquisition costs 556
--------
Excess of purchase price over net assets acquired, allocated to goodwill $101,097
========
The $5.9 million value of purchased technology includes purchased in-process
research and development. GAAP requires purchased in-process research and
development with no alternative future use to be recorded and charged to expense
in the period acquired. Accordingly, the results of operations for the quarter
ended March 31, 2001, include the write-off of $600,000 of purchased in-process
research and development. The remaining $5.3 million represents the purchase of
core technology and existing products, which are being amortized over an
estimated useful life of five years. The Company is amortizing the goodwill,
assembled workforce and distribution agreements over an estimated life of five
years.
The Company also recorded $3.9 million of unearned compensation in conjunction
with the acquisition of Locus. $1.7 million of the unearned compensation relates
to the intrinsic value of Locus stock options replaced by the Company at the
converted share value and share price. $2.2 million relates to the value of
253,175 restricted shares held by four Locus employees. The restricted stock
vests after the employee completes one year of employment with the Company and
is recorded as compensation expense over the vesting period.
8
The Company recorded a non-recurring charge of $600,000 for in-process research
and development that had not yet reached technological feasibility and had no
alternative future use.
Among the factors the Company considered in determining the amount of the
allocation of the purchase price to in-process research and development were
various factors such as estimating the stage of development of each component of
the technology, including the complexity and technical obstacles to overcome,
estimating the amount of core technology leveraged into the in-process projects,
estimating the expected life of each component, estimating cash flows resulting
from the expected revenues, margins and operating expenses generated from each
component, and discounting to present value the cash flows associated with the
in-process technologies. The Company utilized a rate of return of 35% to
discount to present value the cash flows associated with the in-process
technologies. The discount rate was selected based on evaluation of the
Company's weighted average cost of capital, the weighted average return on
assets, the internal rate of return implied from this transaction, and
management's assessment of the risk inherent in the future performance estimates
utilized in the valuation.
Within the Locus technology there are two main product lines, Liaison and
SpeechPortal, both of which run on the SoftDialogue platform (core speech
engine). Liaison addresses the needs of enterprises which require speech-enabled
communication solutions. SpeechPortal enables businesses and consumers to use
the Internet via telephone or voice, without requiring an internet enabled
device. The Company plans to offer a co-branded version of SpeechPortal to the
Company's wireless carriers and device manufacturer customers. As of the date of
acquisition, the Company estimated that Liaison was 80% complete. The percentage
completed pre-acquisition was based primarily on the evaluation of three major
factors: time-based data, cost-based data, and complexity-based data.
The expected life of the modules being developed was assumed to be five years,
after which substantial modification and enhancement would be required for the
technology to remain competitive.
The Company's revenue assumptions were based on the estimated growth potential
of the industry and estimated market acceptance of the Locus Dialogue
technology. The Company's expense assumptions included cost of revenue of 20% of
revenue, sales, general and administrative of 35% of revenue, and product
development of 2% of revenue. However, cost of revenues, sales, general and
administrative and product development expenses may vary, both in absolute
dollars and as a percentage of revenues.
While the Company believes that the assumptions discussed above were made in
good faith and were reasonable when made, the assumptions the Company made may
prove to be inaccurate, and there can be no assurance that the Company will
realize the revenue, gross profit, growth rates, expense levels or other
variables set forth in such assumptions.
The following summary, prepared on an unaudited pro forma basis, reflects the
consolidated results of operations for the three months ended March 31, 2000
assuming Locus Dialogue had been acquired at the beginning of the period.
9
Quarter ended March 31,
2000
(in thousands)
----------------------------
Revenue $ 39,386
Net loss before cumulative effect of change in accounting principle $(95,298)
Net loss $(97,353)
Basic and diluted loss per share $ (0.33)
3. Venture Capital Fund
On January 26, 2001 the Company's Board of Directors approved the liquidation of
the Venture Capital Fund. In the quarter ended March 31, 2001, the Company
disbursed $16.4 million to the accredited investors for their original
investment amount, representing 100% of the accredited investor ownership. The
Board of Directors also approved the acceleration of the vesting of the
Company's contribution on behalf of its employees. The contribution was paid out
in conjunction with the dissolution of the fund, resulting in compensation
expense of $1.0 million in the first quarter of 2001.
Prior to dissolution, the fund's investments were adjusted to fair value as of
March 31, 2001. $2.3 million of recognized losses and $17.1 million of
impairment on an investment were recognized in the quarter ending March 31, 2001
(Note 5). As of March 31, 2001, the Venture Capital Fund was dissolved and the
investments that were held by the Fund transferred to the Company at their fair
value. Future changes in the fair value of publicly held investments will be
recorded through accumulated other comprehensive income. The privately held
securities will remain at the values that transferred to the Company on March
31, 2001.
4. Restructuring Charges
Restructuring charges of $1.5 million for the quarter ended March 31, 2001
reflect actual and accrued severance costs associated with the reduction in work
force during the first quarter of 2001. As of March 31, 2001, the Company paid
out $1.3 million of this expense. The balance is accrued at March 31, 2001 and
is expected to be paid out in the second quarter of 2001. A charge of $255,000
also included in the quarter ended March 31, 2001 is for a lease termination fee
related to the closure of the Company's Dallas office.
5. Gain (Loss) on Investments
Gain (loss) on investments for the quarters ended March 31, 2001 and 2000
consists of the following:
Quarter ended March 31,
2001 2000
-------- -------
(in thousands)
InfoSpace, Inc.:
Net loss on investments $ (3,307) $ --
Write-off of investment (403) --
10
Other-than-temporary impairment writedowns (24,480) --
-------- -------
(28,190) --
Venture Capital Fund:
Net gain (loss) on investments (2,306) 23,597
Other-than-temporary impairment writedowns (17,120) --
-------- -------
(19,426) 23,597
-------- -------
Total gain (loss) on investments $(47,616) $23,597
======== =======
6. Stockholders' Equity
In February 2001, the Company implemented the 2001 Stock Option Plan, under
which nonqualified stock options to purchase common stock may be granted to
employees. Under the 2001 Stock Option Plan, 25 million options are available
for grant. Options under this stock option plan expire ten years from the date
of the grant. Options under the 2001 Plan vest over two years, with 2.08%
vesting on a monthly basis for the first 24 months and the 50% balance vesting
at the end of the two-year period.
7. Payroll Tax Receivable
As of March 31, 2001, the Company has $13.2 million recorded as a tax receivable
due from the federal government. In October of 2000, an employee of the Company
deemed to be an affiliate under pooling of interests exercised non-qualified
stock options and remitted $12.6 million for federal income tax based on the
market price of the stock on the day of exercise and the Company remitted the
employer payroll tax of $620,000. Due to the affiliate lock-up period from the
Go2Net merger, the affiliate did not have the ability to sell the stock until
February 2001. Internal Revenue Code Section 83(a) states that the excess of the
fair market value over the amount paid shall be included in the gross income
when the property acquired is not subject to a substantial risk of forfeiture. A
substantial risk of forfeiture was deemed to exist until the reporting
conditions of Accounting Series Releases (ASR's) 130 and 135 had been met. The
Company refunded the payroll tax remitted to the employee during the first
quarter of 2001 and has filed an amendment to the Company's payroll tax return
to reflect the tax refund.
8. Commitments and Contingencies
Litigation:
On December 18, 2000, an employee filed a complaint against the Company in
federal court in Washington alleging claims for breach of contract, breach of
the covenant of good faith and fair dealing, and fraudulent and negligent
misrepresentation. The employee contends that he agreed to work for the Company
on the basis of an oral representation that he would be granted more stock
options than any other employee and that he would always have more stock options
than any other employee. The employee also contends that he was falsely promised
certain levels of authority and support in his position. The employee seeks
unspecified compensatory damages from the Company as well as equitable relief
requiring the Company to award him the largest number of stock options of any
employee in the future. Additionally, on the basis of a claim against Naveen
Jain for violations of the Racketeer Influenced Corrupt Organizations Act, the
employee also seeks trebling of any award of compensatory damages and recovery
of his
11
attorneys' fees and costs. No trial date has been set. The Company's management
believes the Company has meritorious defenses to such claims. Nevertheless,
litigation is uncertain and the Company may not prevail in this suit.
One of the shareholders of INEX Corporation (INEX) filed a complaint in
Canada on September 22, 1999 alleging that the original shareholders of INEX and
INEX itself were bound by a shareholders agreement that entitled the shareholder
to pre-emptive rights and rights of first refusal. The complaint alleges that
INEX improperly made private placements, issued employee options and permitted
share transfers after February 1997. The plaintiff alleges it should have
acquired rights in approximately 88% of the INEX share capital, which would be
less than 1% of the Company's common stock after conversion. The plaintiff also
alleges other breaches of contract, breach of fiduciary duty, corporate
oppression, unlawful interference with economic relations and conspiracy. The
complaint was amended on December 20, 1999 to allege that the Company assumed
the obligations of INEX under the alleged shareholders agreement as a result of
the Company's acquisition of INEX on October 14, 1999. The plaintiff seeks
damages against the Company and the former INEX shareholders named in the suit
for the difference between the issue or sale price of INEX shares issued or
transferred after February 1997 and before the acquisition, and the highest
trading value of the shares of the Company's common stock received or receivable
in the exchange prior to the date of trial. In the alternative, the plaintiff
seeks special damages of $50 million Canadian. The plaintiff also seeks $500,000
Canadian in punitive damages and other remedies with regard to the disputed
shares of stock. The Company has filed our response with the court, and
discovery has yet to take place. The Company believes it has meritorious
defenses to such claims, but litigation is uncertain and the Company may not
prevail in this suit.
On March 19, 2001, a purported derivative action was filed in the Superior
Court of King County, Washington, against certain present and former directors
and officers of the Company, their spouses and certain purported affiliates, and
the Company as a nominal defendant. The Second Amended Complaint in this action
alleges that certain defendants engaged in improper insider trading, and that
certain defendants breached their fiduciary duties in connection with the
Company's acquisitions of Go2Net and Prio. The plaintiff in this action seeks
damages of an unspecified amount, as well as ancillary equitable relief and
attorneys' fees. As noted above, current and former officers and directors are
named as defendants in this action. The Company had entered into indemnification
agreements with those officers and directors in the ordinary course of business
and may be obligated pursuant to those agreements and Delaware law to advance
funds for defense of this action.
Two of nine founding shareholders of Authorize.Net Corporation, a
subsidiary acquired through the Company's merger with Go2Net, filed a lawsuit on
May 2, 2000 in Provo, Utah. This action was brought to reallocate among the
founding shareholders the consideration received in the acquisition of
Authorize.Net by Go2Net. The plaintiffs allege that the corporate officers of
Authorize.Net fraudulently obtained a percentage of Authorize.Net shares greater
than what was anticipated by the founding shareholders, and are making claims
under the Utah Uniform Securities Act as well as claims of fraud, negligent
misrepresentation, breach of
12
fiduciary duty, conflict of interest, breach of contract and related claims.
Plaintiffs seek compensatory and punitive damages in the amount of $200 million,
rescission of certain transactions in Authorize.Net securities, and declaratory
and injunctive relief. The plaintiffs subsequently amended the claim to name
Authorize.Net as a defendant with regard to the claims under the Utah Uniform
Securities Act. The case is currently in the discovery phase, which is to end on
April 20, 2001. The Company has filed a motion for summary judgment on behalf of
Authorize.Net. The Company believes it has meritorious defenses to these claims.
Nevertheless, litigation is uncertain and the Company may not prevail in this
suit.
Contingencies: The Company was audited by the Department of Labor in
February 2001. The Department of Labor determined that numerous employees,
primarily former employees of Go2Net, were improperly classified as exempt that
should have been classified as non-exempt. As a result, the Company recorded an
estimated accrual in the amount of $3.0 million for the past wages that are due
for overtime worked in the quarter ended December 31, 2000. Based on the
overtime questionnaires we have received from the applicable employees through
April 30, 2001, The Company has revised our estimate for this liability to be
$1.0 million. The Company expects to pay out the majority of the amounts due in
the second quarter of 2001 and this matter to be resolved in 2001.
9. Subsequent Events
In May 2001, the Company reached a settlement agreement with a former
employee of Go2Net from a complaint that was originally filed in October 1999.
Under terms of the settlement, net of insurance coverage proceeds, the Company
will pay the former employee $950,000. As this subsequent event relates to
services provided in prior periods, the expense has been recorded in the first
quarter of 2001.
13
Item 2. -- Management's Discussion and Analysis of Financial Condition and
Results of Operations.
You should read the following discussion and analysis in conjunction with our
Consolidated Financial Statements and Notes to Consolidated Financial Statements
thereto included elsewhere in this report. In addition to historical
information, the following discussion contains certain forward-looking
statements that involve known and unknown risks and uncertainties, such as
statements of our plans, objectives, expectations and intentions. You should
read the cautionary statements made in this report as being applicable to all
related forward-looking statements wherever they appear in this report. Our
actual results could differ materially from those discussed in the forward-
looking statements. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below and in the section
entitled "Factors Affecting Our Operating Results, Business Prospects and Market
Price of Stock" and in our reports filed with the Securities and Exchange
Commission including our annual report on Form 10-K for the year ended December
31, 2000 (the "Form 10-K"). You should not rely on these forward-looking
statements, which reflect only our opinion as of the date of this report. We do
not assume any obligation to revise forward-looking statements.
Overview
InfoSpace, Inc. is an international provider of commerce and consumer
infrastructure services to merchants and on wireless, wireline and broadband
platforms. We provide our services across multiple platforms simultaneously,
including PCs and non-PC devices, such as screen telephones, television set-top
boxes and online kiosks, which use ground wire Internet connections (wireline
devices) and wireless devices such as cell phones, pagers and personal digital
assistants. We are also preparing to enter the market for infrastructure
services which take greater advantage of high-speed (known as broadband)
wireline and wireless Internet connections, such as interactive gaming,
television and other entertainment services. Our customers include AT&T
Wireless, Cingular Wireless, Intel, Virgin Mobile, Verizon Wireless, Hasbro,
National Discount Brokers and Bloomberg, among others. Our affiliate network is
comprised of more than 3,200 Web sites, including America Online, Microsoft's
MSN, NBCi, Lycos and ABC's LocalNet.
Naveen Jain, our Chief Executive Officer and Chairman, founded InfoSpace in
March 1996. During the period from our inception through December 31, 1996, we
had insignificant revenues and were primarily engaged in the development of
technology for the aggregation, integration and distribution of Internet content
and the hiring of employees. In 1997, we expanded our operations, adding
business development and sales personnel in order to capitalize on the
opportunity to generate Internet advertising revenues. We began generating
material revenues in 1997 with our wireline consumer services. Revenues in 1998
were also primarily generated through our wireline consumer services and we also
started distributing our services on wireless platforms. Throughout 1999, 2000
and the first quarter of 2001, we expanded and enhanced our infrastructure
services through both internal development and acquisitions and focused on
developing and deploying our infrastructure services to merchants and on
wireless platforms. We have offices in the United States, Canada, Australia,
Brazil, the United Kingdom and the Netherlands. As of April 30, 2001, we had
1,020 employees worldwide.
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Our Infrastructure Services
The following provides greater detail on our consumer and commerce products
and services:
Consumer Products and Services: The consumer products and services we
offer include unified communication services, including device-independent
e-mail and instant messaging; information services, such as integrated
directory, news, and lifestyle information; and community services, including
the "sticky" services such as online address books and calendars.
We deliver our consumer products and services through our wireline,
wireless and broadband distribution channels. Our affiliates encompass an
international network of wireless, PC and non-PC devices, including cellular
phones, pagers, screen telephones, television set-top boxes, online kiosks and
personal digital assistants.
Commerce Products and Services: Our commerce products and services enable
merchants to leverage the Internet to promote their businesses and to conduct
commerce through exposure to participating consumers throughout our
international network, whether on wireless devices or on PCs.
Our commerce products and services include the online delivery of
promotions to wireless devices and PCs for online and offline use, shopping that
includes e-wallet and price comparison features, and our Authorize.Net payment
authorization service for businesses.
Our Distribution Channels
We currently focus on distributing our consumer and commerce products and
services to merchant aggregators, Regional Bell Operating Companies (RBOCs) and
other merchant networks as well as to our wireline, wireless and broadband
partners. These distribution channels comprise our four areas of business focus.
The following provides detail on each of our business areas.
Wireline: Through our wireline business unit, we distribute our consumer
products and services such as portable instant messaging (PIM), instant
messaging and search to our affiliates that include Web sites (including
portals) and businesses. Our affiliate network now consists of over 3,200
portals and affinity sites that include America Online, Microsoft's MSN, NBCi,
Lycos, and ABC's LocalNet.
Wireless: Our wireless services include data and transaction services that
users can access from varying locations, on a variety of devices, over different
protocols or standards. Our wireless services platform serves as the underlying
infrastructure for wireless carriers and device and equipment manufacturers to
offer their customers the ability to conduct commerce, access information,
communicate and manage their lives.
We currently have relationships with more than 20 domestic and
international wireless carriers, including Verizon Wireless, AT&T Wireless,
Cingular Wireless, VoiceStream, Austria One, ALLTEL, Virgin Mobile and Powertel,
and equipment manufacturers such as
15
Nokia, Nortel, Lucent and Ericsson. Our consumer and commerce products and
services are private-labeled for each carrier, preserving the brand of the
carrier and their relationship with their customer.
Merchant: Our commerce services enable merchants to create, promote, sell
and distribute their products and services across multiple channels through our
distribution network to the end users of our services. We have reseller
agreements with RBOCs, merchant banks and major merchant aggregators such as
Bank of America and American Express, and local media networks such as
newspapers and television and radio stations. Currently, over two million
merchants use one or more of our commerce products and services.
Broadband: We plan to deliver integrated, cross-platform broadband (DSL,
2.5/3G, cable modem, iTV, satellite) services to customers worldwide. These
services will include a comprehensive infrastructure services suite for
businesses, and interactive TV services which combine broadcast programming with
interactive applications for media companies and service providers.
All of our services are built on our core technology platform and use the
same operational infrastructure. We do not allocate development or operating
costs to any of these services.
We have incurred losses since our inception and, as of March 31, 2001, we
had an accumulated deficit of approximately $533.0 million. For the quarter
ended March 31, 2001, our net loss was $124.4 million, including amortization of
intangibles of $63.9 million and $47.6 million loss on investments. For the
quarter ended March 31, 2000, our net loss was $95.3 million, including $28.0
million in amortization of intangibles, $13.8 million gain on investments and
$86.4 million in acquisition and other related charges associated with the
acquisitions of Saraide and Millet software, of which $74.1 million was a non-
cash charge for in-process research and development.
We believe that our future success will depend largely on our ability to
continue to offer consumer and commerce products and services to merchants and
on wireline, wireless and broadband platforms that are attractive to our
existing and potential future merchants and partners. Accordingly, we plan to
increase our operating expenses in order to, among other things:
. develop and continually enhance our technology and products and
services;
. expand our services and sell to our existing carrier partners a unified
private label solution that will work across all their networks,
including wireless, broadband DSL and narrowband ISP;
. expand internationally;
. increase capital equipment expenditures to meet service level agreement
requirements and build-out infrastructure in Europe, South America and
Asia; and
. expand our commerce services and sell additional services to our
existing merchants and
16
merchant aggregator partners and grow our network of merchants.
After giving effect to our recent acquisitions and associated amortization
of intangibles, we expect to incur significant operating losses on a quarterly
basis in the future. In light of the rapidly evolving nature of our business and
limited operating history, we believe that period-to-period comparisons of our
revenues and operating results are not necessarily meaningful, and you should
not rely upon them as indications of future performance. We do not believe that
our historical growth rates are necessarily sustainable or indicative of future
growth. Our future operating results may fall below the expectations of
securities analysts or investors, which would likely cause the trading price of
our common stock to decline.
Results of Operations for the Quarters Ended March 31, 2001 and 2000
Revenues. Our revenues are derived from our consumer and commerce products
and services, which are distributed to users and subscribers on wireline,
wireless and broadband platforms and to merchants via merchant aggregators
including merchant banks and local media networks. We tailor agreements to fit
the needs of our wireless carriers, merchant aggregators, affiliates and
distribution partners; and, under any one agreement we may earn revenue from a
combination of our consumer and commerce products and services. We identify
revenues by our four distribution channels, which are merchant, wireline,
wireless and broadband.
Revenues increased by $7.8 million to $46.6 million for the quarter ended
March 31, 2001 compared to $38.8 million for the quarter ended March 31, 2000.
The increase is primarily due to growth in our international operations and
increased use of our consumer and commerce products and services by wireless
carriers and device manufacturers.
Also included in revenue are barter revenues generated from non-cash
transactions as defined by Emerging Issues Task Force (EITF) Issue No. 99-17,
Accounting for Advertising Barter Transactions. Revenue is recognized when we
complete all of our obligations under the agreement. For non-cash agreements, we
record a receivable or liability at the end of the reporting period for the
difference in the fair value of the services provided or received. We recognized
revenue of $2.4 million in 2001 and $877,000 in 2000 from these non-cash
agreements. Non-cash transactions are common in our industry. Generally, these
transactions consist of the right to place Internet advertisements. For the
quarter ended March 31, 2001, $2.3 million of the non-cash transactions was
generated from an exchange of advertising, and the balance from the exchange of
advertising for content licenses. For the quarter ended March 31, 2001, $2.4
million of advertising expense was recognized from barter agreements.
We hold stock and warrants in public and privately held companies for
business and strategic purposes. Certain of these stock and warrants were issued
in conjunction with a business agreement whereby we provide our products and
services to the issuer. Certain of these stock and warrants contain provisions
that require us to meet specific performance criteria under the business
agreement in order for the stock or warrants to vest. When we meet our
performance obligations we record revenue equal to the fair value of the stock
or warrant. If no future performance is required, we recognize the revenue on a
straight-lined basis over the contract term. We recorded revenue in the amount
of $9.5 million for vesting in stocks and warrants for the quarter ended March
31, 2001 and $4.2 million for the quarter ended March 31, 2000.
17
Revenue recognized from stocks and warrants attached to a business agreement is
based upon the valuation of the business issuing the stock or warrant.
Cost of Revenues. Cost of revenues consists of expenses associated with
the delivery, maintenance and support of our consumer and commerce products and
services, including direct personnel expenses, communication costs such as high-
speed Internet access, server equipment depreciation, and content license fees.
Cost of revenues were $11.7 million, or 25% of revenues, for the quarter ended
March 31, 2001, compared to $6.1 million, or 16% of revenues, for the quarter
ended March 31, 2000. Approximately 80% of the absolute dollar increase is
attributable to increased personnel costs and other costs incurred in order to
support greatly increased delivery of our consumer and commerce solutions,
including communication lines, data licenses, depreciation and equipment. The
increase in the number of personnel is primarily a result of the personnel added
through our acquisitions of Prio, Saraide and Locus and personnel added to
support our expanded service offerings. In addition, approximately three percent
of the expense recorded in the first quarter of 2001 is attributable to one-time
payments to certain employees for retention obligations from acquisitions and to
the employees for accelerated vesting of our contribution to the Venture Fund on
their behalf. The increase in our server and depreciation cost is primarily a
result of our data center build-out at our Bellevue headquarters and the data
centers acquired in Mountain View and the Netherlands from our acquisitions of
Prio and Saraide, respectively. The increase in our data licenses and
communication costs is a result of expanding and enhancing our content and
delivery.
Product Development Expenses. Product development expenses consist
principally of personnel costs for research, design, maintenance and ongoing
enhancement of the proprietary technology we use to integrate and distribute our
consumer and commerce services to merchants and on wireline, wireless and
broadband platforms. Product development expenses were $11.8 million or 25% of
revenues for the quarter ended March 31, 2001, compared to $7.0 million or 18%
of revenues, for the quarter ended March 31, 2000. Approximately 82% of the
increase in absolute dollars is attributable to increases in engineering and web
development personnel needed for continued development of our product and
service offerings and approximately 13% is attributable to one-time payments to
certain employees for retention obligations from acquisitions and to the
employees for accelerated vesting of our contribution to the Venture Fund on
their behalf. Generally, product development costs are not consistent with
changes in revenue. This is due to these costs generally being incurred prior to
our ability to recognize revenue. Three percent of the seven percent change from
quarter to quarter in product development as a percentage of revenues is due to
the one-time payments mentioned above.
Sales, General and Administrative Expenses. Sales, general and
administrative expenses consist primarily of salaries and related benefits for
sales, general and administrative personnel, carriage fees, professional service
fees, occupancy and general office expenses, business development and management
travel expenses and advertising and promotion expenses. Sales, general and
administrative expenses were $35.0 million or 75% of revenues, for the quarter
ended March 31, 2001 compared to $22.7 million or 59% of revenues, for the
quarter ended March 31, 2000. Approximately 70% of the absolute dollar increases
were due to increased staffing levels necessary in our sales and support teams,
carriage fees paid to certain affiliates, advertising costs, occupancy costs,
depreciation, taxes and licenses, bad debt expense and professional services.
Approximately 10% of the increase was due to the one-time payments to
18
certain employees for retention obligations from acquisitions and to the
employees for accelerated vesting of our contribution to the Venture Fund on
their behalf.
Amortization of Intangibles. Amortization of intangibles includes
amortization of goodwill, core technology, purchased domain names, trademarks,
contract lists and assembled workforce. Amortization of intangibles was $63.9
million in the quarter ended March 31, 2001, compared to $28.0 million in the
comparable quarter in the prior year. The increases are a result of amortization
of intangibles recorded from the acquisitions of Locus Dialogue, Inc. in January
2001, assets of the boxLot Company and the iJapan technology in September 2000,
TDLI.com and Orchest in August 2000, IQorder in July 2000 and Saraide and Millet
Software in March 2000. The intangibles consist of goodwill, core technology,
contract list and acquired workforce for each acquisition and are being
amortized over three to five years. In the event that we complete additional
acquisitions, expenses relating to the amortization of intangibles could
increase in the future.
Acquisition and Other Related Charges. Acquisition and other related
charges consist of in-process research and development and other one-time
charges related directly to acquisitions, such as professional fees for
transactions accounted for as pooling-of-interests. Total acquisition and
related charges in the first quarter of 2001 were $889,000. This includes
$600,000 of one-time in-process research and development charges in the purchase
acquisition of Locus Dialogue and $200,000 of severance pay to the former chief
executive officer of Locus. Total acquisition and related charges in the first
quarter of 2000 were $86.4 million. This included $74.1 million of one-time in-
process research and development charges in the purchase acquisitions of Saraide
and Millet Software. Also included were costs incurred in the acquisition of
Prio, which was accounted for as a pooling-of-interests.
Other Non-Recurring Charges. Other non-recurring charges consist of one-
time costs and/or charges that are not directly associated with other expense
classifications or ongoing operations. Other non-recurring charges for the
quarter ended March 31, 2001 were $1.1 million and included an allowance
recorded on an employee loan of $1.1 million, $950,000 for a settlement on a
litigation matter, an allowance of $1.0 million for a note receivable and a $2.0
million decrease to the estimated liability of past overtime worked.
We were audited by the Department of Labor in February 2001. The Department of
Labor determined that numerous employees, primarily former employees of Go2Net,
were improperly classified as exempt that should have been classified as non-
exempt. As a result, for the quarter ended December 31, 2000, we recorded an
estimated accrual in the amount of $3.0 million for the past wages that are due
for overtime worked. Based on the overtime questionnaires we have received from
the applicable employees through April 30, 2001, we have revised our estimate
for this liability to be $1.0 million. We expect to pay out the majority of the
amounts due in the second quarter of 2001 and this matter to be resolved in
2001.
Other non-recurring charges in the first quarter of 2000 represent an
expense recorded for the fair value of warrants issued to a vendor by Prio Inc.
(Prio), for services provided that were recorded under variable plan accounting.
Subsequent to the acquisition of Prio, the agreement pursuant to which these
warrants were granted was terminated and the remaining unvested warrants were
accelerated to full vesting.
19
Restructuring Charges. Restructuring charges of $1.7 million for the
quarter ended March 31, 2001 reflect actual and accrued severance costs
associated with the reduction in work force during the first quarter of 2001. As
of March 31, 2001, we had paid out $1.3 million of this expense. The balance is
accrued at March 31, 2001 and is expected to be paid out in the second quarter
of 2001. A charge of $255,000 is also included in the quarter ended March 31,
2001 and is a lease termination fee for the closure of our Dallas office.
Gain (Loss) on Investments. Gain (loss) on investments consists of
recognized gains and losses on investments in accordance with SFAS No. 133,
recognized gains and losses on investments marked to fair value in the Venture
Capital Fund, realized gains and losses on investments and impairment on
investments.
Unrealized gain and losses in accordance with SFAS No. 133: Effective
January 1, 2001, we adopted SFAS No. 133 which requires us to adjust our
derivative instruments to fair value and recognize the change in the fair value
in earnings. We hold warrants to purchase stock in other companies which qualify
as derivatives. For the quarter ended March 31, 2001, we recognized $6.5 million
of unrealized loss on these warrants.
Dissolution of Venture Capital Fund: On January 26, 2001, our Board of
Directors approved the liquidation of the Venture Capital Fund. In the first
quarter of 2001, we disbursed $16.4 million to the accredited investors,
representing 100% of the accredited investor ownership. The Board of Directors
also approved the acceleration of vesting of the contribution we made on behalf
of our employees. The contribution was paid out in conjunction with the
dissolution of the fund, resulting in compensation expense of $1.0 million in
the first quarter of 2001. We recorded $517,000 of compensation expense in the
year ended December 31, 2000 related to the contribution.
Prior to dissolution of the fund, the fund's investments were adjusted to
their fair value, resulting in recognizing $2.3 million of unrealized losses and
$17.1 million of impairment on an investment in the quarter ended March 31,2001.
As of March 31, 2001, the Venture Fund is dissolved and the investments that
were held by the Venture Fund were transferred to InfoSpace.
Realized loss on investments: We wrote-off an investment of $403,000 in a
company that became insolvent in the quarter ended March 31, 2001.
Impairment on investments: Our management regularly reviews our
investments for other than temporary declines in fair value. During the quarter
ended March 31, 2001, we recorded impairment charges of $24.5 million for
investments held by InfoSpace and $17.1 million for investments held by the
Venture Fund, prior to dissolution of the fund.
Other Income, Net. Other income, consisting primarily of interest income,
was $6.0 million
20
in the quarter ended March 31, 2001 and $7.6 million in the comparable quarter
in the prior year. The decrease is primarily due to reinvestment of funds to
equity securities from interest bearing fixed income securities and from cash
used for operating activities and acquisitions in the final three quarters of
2000.
We have reinvested and may in the future reinvest part of our fixed income
securities in non-interest bearing equity instruments and investments. We
anticipate that our expansion plans may require greater cash uses in the
remainder of 2001. With these two factors, we anticipate that our interest
income from our fixed securities will decrease in 2001 compared with 2000.
Cumulative Effect of Change in Accounting Principle. On January 1, 2001,
we adopted Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
established accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts. All
derivatives, whether designated in hedging relationships or not, are required to
be recorded on the balance sheet at fair value and changes in fair value are
recognized in earnings unless certain hedge criteria are met. As a result of
adopting SFAS No. 133, we recorded an expense of $3.2 million on January 1,
2001. This amount was recorded as a cumulative effect of change in accounting
principle and represents the adjustment to record warrants held to purchase
stock in other companies at their fair values as of January 1, 2001. As of
December 31, 2000 warrants to purchase stock in public companies were held at
fair value, with unrealized gains and losses included in accumulated other
comprehensive loss, and warrants to purchase stock in private companies were
held at cost.
On January 1, 2000, we adopted SAB 101, Revenue Recognition in Financial
Statements. Prior to January 1, 2000, we recorded revenues from customers for
development fees, implementation fees and/or integration fees when the service
was completed. If this revenue were recognized on a straight-lined basis over
the term of the related service agreements, in accordance with SAB 101, we would
have deferred revenue of $2.1 million as of January 1, 2000 originally recorded
in prior years. In accordance with SAB 101, we recorded a cumulative effect of
change in accounting principle of $2.1 million.
Income Tax Expense. We have recorded tax expense of approximately $50,000
for our international operations in Europe. For the remainder of 2001, we do not
anticipate recording a tax provision.
Balance Sheet Commentary
Payroll Tax Receivable.
As of March 31, 2001, our balance sheet had $13.2 million recorded as a tax
receivable due from the Federal government. In October 2000, one of our
executives exercised non-qualified stock options and remitted $12.6 million for
federal income tax based on the market price of the stock on the day of
exercises and we remitted the employer payroll tax of $620,000. Due to the
affiliate lock-up period from the Go2Net merger, the executive did not have the
ability to sell the stock until February 2001. A tax ruling states, however,
that the tax valuation and remittance is not required until the affiliate has
the ability to sell the stock. We, therefore, refunded the
21
executive the payroll tax remitted and filed an amendment to our payroll tax
return to reflect the tax credit.
Liquidity and Capital Resources
From our inception in March 1996 through May 1998, we funded operations
with approximately $1.5 million in equity financing and, to a lesser extent,
from revenues generated for services performed. In April 1997, Go2Net completed
its initial public offering which yielded net proceeds of approximately $12.8
million. In May 1998, we completed a $5.1 million private placement of our
common stock, and in July and August 1998, we completed an additional private
placement of our common stock for $8.2 million. Sales of our common stock to
employees pursuant to our 1998 Stock Purchase Rights Plan also raised $1.7
million in July 1998. Our initial public offering in December 1998 yielded net
proceeds of $77.8 million and a follow-on public offering in April 1999 yielded
net proceeds of $185.0 million. As of March 31, 2001, we had cash, cash
equivalents and short-term investments of $282.2 million, long-term investments
of $82.3 million and a payroll tax receivable due from the Federal government of
$13.2 million.
Net cash used by operating activities was $20.4 million in quarter ended
March 31, 2001. This use of cash included a cash outlay of $12.6 for a payroll
tax receivable due from the Federal government, $1.3 million of one-time
severance pay for the reduction of force in the quarter, $1.5 million of one-
time payouts to the employees for the accelerated vesting of our contribution to
the Venture Fund for the employees, $1.8 million of one-time payments to certain
employees for retention obligations from acquisitions and $500,000 of payments
associated with the closure of our Ottawa office. Net cash provided by operating
activities was $11.7 million in the first quarter of 2000, which was financed
through cash generated from operations.
Net cash provided by investing activities was $42.8 million in the quarter
ended March 31, 2001. Cash provided by investing activities was primarily a
result of reinvesting short-term investments in commercial paper with a term of
90 days or less. Offsetting the $114.4 million of short-term investment
maturities was $49.3 million invested in long-term investments and $16.3 million
for the buyout of the minority interest ownership in the Venture Fund. Net cash
used by investing activities was $11.4 million in the quarter ended March 31,
2000. During this period, cash used in investing activities was primarily
comprised of costs associated with the acquisition of Prio, notes receivable
additions and equity investments. The cash used in investing activities was
partially offset by cash received from the minority interest of the Venture
Capital Fund and maturities of debt investments.
Net cash provided by financing activities in the first quarter of 2001 was
$4.0 million. $7.1 million was comprised of proceeds from the exercise of stock
options and warrants and from share purchases from the employee stock purchase
plan. Cash used in financing activities of $3.1 million was used to payoff the
acquired debt of Locus Dialogue. Cash used by financing activities in the first
quarter of 2000 was $2.8 million and was primarily comprised of payments of debt
acquired in the Prio and Saraide acquisitions, offset by proceeds from the
exercise of stock options and warrants.
22
We plan to use our cash for strategic investments and acquisitions,
investments in internally developed technology, global expansion of our services
and continued build-out of infrastructure in Europe, Asia and South America.
We believe that existing cash balances, cash equivalents and cash generated
from operations will be sufficient to meet our anticipated cash needs for
working capital and capital expenditures for at least the next 12 months.
However, the underlying assumed levels of revenues and expenses may not prove to
be accurate. We may seek additional funding through public or private financings
or other arrangements prior to such time. Adequate funds may not be available
when needed or may not be available on favorable terms. If we raise additional
funds by issuing equity securities, dilution to existing stockholders will
result. If funding is insufficient at any time in the future, we may be unable
to develop or enhance our products or services, take advantage of business
opportunities or respond to competitive pressures, any of which could harm our
business.
Acquisitions
Locus Dialogue, Inc. On January 1, 2001, we acquired all of the stock of
Locus Dialogue, Inc., a developer of speech recognition-enabled applications.
The acquisition was accounted for as a purchase. We issued 5,114,233 shares of
our common stock (1) directly to those Locus Dialogue shareholders who elected
to receive our common stock in exchange for their Locus Dialogue shares at the
closing of the acquisition, (2) upon the exchange or redemption of the
exchangeable shares of Locus Holdings Inc., an indirect subsidiary of ours,
which exchangeable shares were issued to those Locus Dialogue shareholders who
elected to receive exchangeable shares, or who did not make an election to
receive shares of our common stock at the closing, and (3) upon the exercise of
options granted to replace options of Locus Dialogue held at the closing. We
issued shares with a fair value of $88.8 million, acquired $9.6 million of net
assets and incurred $556,000 in acquisition costs. Included in the calculation
of goodwill is $23.6 million for the fair value of 1,173,216 options we assumed.
We also recorded $3.9 million in unearned compensation for the intrinsic value
of the options assumed and for the valuation of 253,175 shares of restricted
stock that vest after a one year service period with certain former Locus
employees.
Factors Affecting Our Operating Results, Business Prospects and Market Price of
Stock
In addition to other information in this report, investors evaluating us and our
business should carefully consider the following risk factors. If any of the
following risks actually occur, our business, financial condition or operating
results could be materially harmed. This could cause the trading price of our
common stock to decline, and you may lose all or part of your investment.
We have a history of losses and expect to continue to incur significant
operating losses, and we may never be profitable.
We have incurred net losses from our inception through March 31, 2001. As
of March 31, 2001, we had an accumulated deficit of approximately $533.0
million. We have not achieved profitability and we expect to continue to incur
operating losses in the future. These losses may
23
be significantly higher than our current losses. We will need to generate
sufficient additional revenues to become profitable. We cannot assure you that
we will successfully generate sufficient revenues. Consequently, we may never
achieve profitability; and if we do achieve profitability, we may not be able to
sustain it.
We have a relatively limited operating history and our business model is new and
unproven, which makes it difficult to evaluate our future prospects.
We were incorporated in March 1996 and accordingly, we have a relatively
short operating history and limited financial data upon which you may evaluate
our business and prospects. In addition, our business model to provide consumer
and commerce services is new and unproven and is likely to continue to evolve.
We expect to derive a significant portion of our revenue from products and
services that we have only recently introduced. As a result, our potential for
future profitability must be considered in light of the risks, uncertainties,
expenses and difficulties frequently encountered by companies in their early
stages of development, particularly companies in new and rapidly evolving
markets such as ours. Some of these risks relate to our potential inability to:
. develop and integrate new features with our existing services;
. expand our services to new and existing merchants, merchant aggregators
and wireless carrier partners;
. manage our growth, control expenditures and align costs with revenues;
. expand into international markets;
. attract, retain and motivate qualified personnel; and
. respond to competitive developments.
If we do not effectively address the risks we face, our business will
suffer and we may not achieve or sustain profitability.
Our financial results are likely to continue to fluctuate and could cause our
stock price to decline.
Our financial results have varied on a quarterly basis and are likely to
fluctuate substantially in the future. These fluctuations could cause our stock
price to decline. Several factors, many of which are beyond our control, that
could cause our quarterly results to fluctuate materially include:
. variable demand for our consumer and commerce services by end users,
subscribers and merchants;
. our ability to attract and retain advertisers, content providers,
affiliates and distribution partners, including wireless carriers and
merchant aggregators;
. the amount and timing of fees we pay to affiliates to include our
information services on their Web sites;
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. the amount and timing of increased expenditures for expansion of our
operations, including the hiring of new employees, capital expenditures
and related costs;
. effects of acquisitions and other business combinations, and our ability
to successfully integrate and manage newly acquired companies;
. the introduction of new or enhanced services by us, our affiliates or
distribution partners, or other companies that compete with us or our
partners;
. the result of litigation against us that is currently ongoing, or any
litigation that is filed against us in the future;
. the inability of our affiliates to pay us or to fulfill their
contractual obligations to us due to difficulty in raising sufficient
capital to support their long-term operations;
. the effect of any changes in accounting rules or standards;
. technical difficulties, system downtime, system failures or Internet
brown-outs; and
. general economic conditions and economic conditions specific to the
Internet and telecommunications industries.
If one or more of these factors is unfavorable to us or changes in an adverse
way, our business could suffer.
As a result of our recent acquisitions and continued international
expansion, we have significantly increased our research and development and
sales and general and administrative expenses and intend to continue to do so
for the foreseeable future. Our expenses, which are partially based on our
expectations regarding future revenues and estimated expenses from our
acquisitions, are largely fixed in nature, particularly in the short term. As a
result, if our revenues do not meet our expectations, our financial results will
likely suffer.
For these reasons, you should not rely on period-to-period comparisons of
our financial results to forecast our future performance. Our future operating
results may fall below the expectations of securities analysts or investors,
which would cause the trading price of our stock to decline.
Our stock price has been and is likely to continue to be volatile.
The trading price of our common stock historically has been highly volatile
and has declined significantly in recent months. Since we began trading on
December 15, 1998, our stock price has ranged from $1.563 to $138.50 (as
adjusted for stock splits). On May 1, 2001, the closing price of our common
stock was $5.64. Our stock price could continue decline or to be subject to wide
fluctuations in response to factors such as the following:
. actual or anticipated variations in quarterly results of operations;
. announcements of technological innovations, new products or services by
us or our competitors;
. changes in financial estimates or recommendations by securities
analysts;
. conditions or trends in the Internet and online commerce industries;
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. announcements of significant acquisitions, strategic partnerships, joint
ventures or capital commitments by us, our customers or our competitors;
. changes in the market valuations of other Internet or online service
companies;
. additions or departures of key personnel; and
. general market and economic conditions, including changes in interest
rates.
In addition, the stock market in general, and the Nasdaq National Market
and the market for Internet and technology companies in particular, have
experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of these companies. These
market and industry factors may materially and adversely affect our stock price,
regardless of our operating performance.
The trading prices of the stocks of many technology companies have recently
suffered significant declines after having been at or near historical highs. In
the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted against
companies with publicly traded securities. This type of litigation, if
instituted, could result in substantial costs and a diversion of management's
attention and resources.
We need to diversify our revenues to be less reliant upon our wireline consumer
services.
Historically, we have primarily derived revenues from our wireline consumer
services, including licensing and per query fees from our affiliates and
advertising revenue from our customers. We anticipate that our wireline consumer
services will generate over 50% of our revenues in 2001. Based upon our reliance
on revenues from wireline consumer services, our revenues may decline if growth
rates for use of wireline consumer services do not meet our expectations.
As a result of unfavorable market or economic conditions, some of our
wireline consumer services affiliates and customers are having difficulty
raising sufficient capital to support their long-term operations or are
otherwise experiencing adverse business conditions. As a result, these
affiliates and customers may not be able to pay us some or all of the fees they
are required to pay us under their existing agreements or may not be able to
enter into new agreements. If we are unable to collect these fees or enter into
new agreements, our operating results will be harmed.
If we are unable to diversify our revenue base, a significant portion of our
revenues will continue to be derived from wireline consumer services, which
could weaken our financial position.
For 2001, we expect revenues from our consumer and commerce services
distributed on wireless platforms and revenues from our commerce services
distributed on our wireline platform and to our merchant aggregators to
represent a larger portion of our total revenues. Our ability to increase the
distribution of these new services, and thus diversify our revenues, could be
hindered by numerous risks, including:
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. the ability of our business development personnel to effectively sell
consumer and commerce products and services to existing affiliates and
customers;
. the development of the Internet as an attractive platform for electronic
commerce;
. the use of our integrated commerce products and services by small and
medium sized online and offline merchants;
. our ability to effectively develop and market new products and services;
. the adoption of our commerce and consumer products and services by
wireless carriers and device manufacturers;
. the adoption of our infrastructure services for delivery over broadband
wireline platforms (DSL and cable) and broadband wireless standards
(2.5G and 3G);and
. the use of our commerce and consumer products and services by
subscribers on their wireless devices.
Our business will suffer if we are unsuccessful at integrating acquired
businesses.
We have acquired a large number of complementary technologies and
businesses in the past, and may do so in the future. Acquisitions typically
involve potentially dilutive issuances of stock, the incurrence of additional
debt and contingent liabilities or large one-time write-offs, and amortization
expenses related to goodwill and other intangible assets. Any of these factors
could adversely affect our results of operations or stock price. Acquisitions
involve numerous risks, including:
. difficulties in assimilating the operations, products, technology,
information systems and personnel of the acquired company;
. diverting management's attention from other business concerns;
. impairing relationships with our employees, affiliates, content
providers and distribution partners;
. being unable to maintain uniform standards, controls, procedures and
policies;
. entering markets in which we have no direct prior experience;
. losing key employees of the acquired company; and
. failing to achieve the anticipated benefits of the acquisition in a
timely manner.
We may not be able to successfully integrate the technology and personnel
we have acquired or the other businesses, technologies or personnel that we
acquire in the future. We and the businesses acquired by us may require
substantial additional capital that may not be available to us on commercially
reasonable terms. We have attempted to retain key employees, often including
existing management, of acquired companies, under the overall supervision of our
senior management. We have, however, not always been successful in these
attempts at retention. The success of the operations of these acquired companies
and technologies will depend, to a great extent, on the continued efforts of the
management of the acquired companies.
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We regularly evaluate the recorded amount of long-lived assets, consisting
primarily of goodwill, assembled workforce, acquired contracts and core
technology, to determine whether there has been any impairment of the value of
the assets and the appropriateness of their estimated remaining life. We
evaluate impairment whenever events or changed circumstances indicate that the
carrying amount of the long-lived assets might not be recoverable. At December
31, 2000 we determined that intangible assets from two purchase acquisitions had
been impaired. Accordingly, we recorded an impairment charge in the amount of
$8.97 million in the year ended December 31, 2000. No intangible impairments
were recorded in the quarter ended March 31, 2001. We will continue to regularly
evaluate the recorded amount of our long-lived assets and test for impairment.
In the event we determine that any long-lived asset has been impaired, we may
record additional impairment charges in future quarters.
We have accounted for several of our acquisitions using the pooling-of-
interests accounting method. If we were unable to account for these acquisitions
under the pooling-of-interests method, our operating results would be negatively
impacted.
Revenues derived from our consumer and commerce services are dependent on our
relationships with affiliates and distribution partners.
We will be not able to continue generating revenues from advertising,
transaction fees and promotions unless we can secure and maintain distribution
for our consumer and commerce services on acceptable commercial terms through a
wide range of affiliates and distribution partners. In particular, we expect
that a limited number of our affiliates, including America Online, Inc., its
CompuServe and Digital City divisions, and Microsoft Network, LLC will account
for a substantial portion of our affiliate traffic. We also rely on our
relationships with RBOCs and merchant aggregators for distribution of our
commerce services. Our distribution arrangements with our affiliates and
distribution partners typically are for limited durations of between six months
and two years and automatically renew for successive terms thereafter, subject
to termination on short notice. We cannot assure you that such arrangements will
not be terminated or that such arrangements will be renewed upon expiration of
their terms. We generally share with each affiliate a portion of the revenues
generated by advertising on the Web pages that deliver our services. We pay
carriage fees to certain affiliates, including AOL. These relationships may not
be profitable or result in benefits to us that outweigh the costs of the
relationships. In addition, if we lose a major affiliate, we may be unable to
timely or effectively replace the affiliate with other affiliates with
comparable traffic patterns and user demographics. The loss of any major
affiliate is likely to harm our business.
Our revenues are attributable to a small number of customers, the loss of any
one of which could harm our financial results.
We derive a substantial portion of our revenues from a small number of
customers. We expect that this will continue in the foreseeable future. Our top
ten customers represented 59% of our revenues for the first quarter of 2001, 32%
of our revenues for fiscal year 2000 and 30% of our revenues for fiscal year
1999. If we lose any of these customers, or if any of these customers are unable
or unwilling to pay us amounts that they owe us, our financial results will
suffer.
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Some of our affiliates may not be able to pay us.
As a result of unfavorable conditions in the venture capital and public
equity markets, some of our affiliates may have difficulty raising sufficient
capital to support their long-term operations. As a result, these affiliates may
not be able to pay us some or all of the fees they are required to pay us under
their existing agreements. In addition, our affiliates may experience adverse
business conditions due to market conditions, industry conditions or other
factors, which may render them unable to fulfill their contractual obligations
to us. Such conditions may also prevent potential affiliates from entering into
contractual relationships or other strategic business relationships with us.
Bad debt expense was 4.5% of all revenues for the first quarter of 2001,
3.4% of all revenues for fiscal year 2000 and 1.8% of all revenues for fiscal
year 1999. Management regularly reviews all receivables for collectability. We
generally reserve all accounts sixty days or more past due. In addition, we
reserve an amount based on revenues and the accounts receivable balance for
accounts not specifically identified. We have a credit review process and
require payment in advance from those customers that do not qualify under our
trade credit guidelines. As a result, we may have to forego business from
customers who do not agree to our payment terms.
Our operating results have been, and may continue to be, negatively impacted by
our recognition of losses on investments in other companies.
We hold a number of investments in third parties. The majority of the
companies we have invested in are engaged in the technology related industries
of the Internet, networking, e-commerce, telecommunications and wireless
technologies. These investments involve a high level of risk for a number of
reasons, including:
. some of our investments are in businesses based on new technologies or
products that may not be widely adopted in the evolving Internet and
wireless technology industries;
. the companies in which we have invested are generally development-stage
companies which are likely to continue to generate losses in the
foreseeable future and may not be profitable for a long time, if at all;
. in recent months, companies in the Internet and e-commerce industries
have experienced difficulties, including difficulties in raising capital
in the public and private equity markets to fund expansion or to
continue operations; and
. most of our investments are in privately held companies, and if public
markets for their securities do not develop, it may be difficult to sell
those securities.
We regularly review all of our investments in public and private companies
for other than temporary declines in fair value. When we determine that the
decline in fair value of an investment below our accounting basis is other than
temporary, we reduce the carrying value of the securities we hold and record a
loss in the amount of any such decline. During the quarter ended March 31, 2001,
we determined that the declines in value of four of our investments were other
than temporary, and we recognized impairment losses totaling $41.6 million to
record these investments at their current fair values as of March 31, 2001.
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If we conclude in future quarters that the fair values of any of our
investments have experienced an other than temporary decline, we will record
additional investment losses, which could adversely affect our financial
condition and results of operations.
Item 3. -- Quantitative and Qualitative Disclosures About Market Risk
We are exposed to financial market risks, including changes in interest rates
and equity price fluctuations.
Interest Rate Risk: We invest our excess cash in equity and investment grade
debt instruments of corporate issuers, and in debt instruments of the U.S.
Government and its agencies. By policy, we limit our credit exposure to any one
issuer. We do not have any derivative instruments in our investment portfolio.
We protect and preserve invested funds by limiting default, market and
reinvestment risk. Investments in both fixed rate and floating rate interest
earning instruments carries a degree of interest rate risk. Fixed rate
securities may have their fair market value adversely impacted due to a rise in
interest rates, while floating rate securities may produce less income than
expected if interest rates fall. Due in part to these factors, our future
investment income may fall short of expectations due to changes in interest
rates or we may suffer losses in principal if forced to sell securities which
have declined in market value due to changes in interest rates. As of March 31,
2001, our short-term investment balance was $101.8 million.
Equity Investment Risk: We invest in equity instruments of public and
privately-held, technology companies for business and strategic purposes. These
investments are recorded as long-term assets and are classified as available-
for-sale. For the privately-held investments, our policy is to regularly review
the assumptions underlying the operating performance and cash flow forecasts in
assessing the carrying value. For our publicly-held investments, we are subject
to significant fluctuations in fair market value due to the volatility of the
stock market. Changes in fair market value are recorded as a component of other
comprehensive income and do not effect net income until the securities are sold
and a realized gain or loss is incurred. Changes in fair market value of
investments held by the Venture Fund and for warrants that qualify as
derivatives are recorded through the statement of operations and had material
effects on net loss in the first quarter of 2001. The closure of the Venture
Fund will alleviate some of this risk as the investments reverted back to
InfoSpace, where unrealized gains and losses will be recorded as a component of
other comprehensive income, as opposed of through the statement of operations.
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PART II -- OTHER INFORMATION
Item 1. - Legal Proceedings
From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of our business, including
claims of alleged infringement of third-party trademarks and other intellectual
property rights by us. These claims, even if not meritorious, could require the
expenditure of significant financial and managerial resources.
On December 18, 2000, an employee filed a complaint against us in federal
court in Washington alleging claims for breach of contract, breach of the
covenant of good faith and fair dealing, and fraudulent and negligent
misrepresentation. The employee contends that he agreed to work for InfoSpace on
the basis of an oral representation that he would be granted more stock options
than any other employee and that he would always have more stock options than
any other employee. The employee also contends that he was falsely promised
certain levels of authority and support in his position. The employee seeks
unspecified compensatory damages from us as well as equitable relief requiring
InfoSpace to award him the largest number of stock options of any employee in
the future. Additionally, on the basis of a claim against our Chairman and Chief
Executive Officer, Naveen Jain, for violations of the Racketeer Influenced
Corrupt Organizations Act, the employee also seeks trebling of any award of
compensatory damages and recovery of his attorneys' fees and costs. No trial
date has been set. We believe we have meritorious defenses to such claims.
Nevertheless, litigation is uncertain and we may not prevail in this suit.
One of the shareholders of INEX Corporation filed a complaint with the
Ontario Superior Court of Justice in Canada on September 22, 1999 alleging that
the original shareholders of INEX and INEX itself were bound by a shareholders
agreement that entitled the shareholder to pre-emptive rights and rights of
first refusal. The complaint alleges that INEX improperly made private
placements, issued employee options and permitted share transfers after February
1997. The plaintiff alleges it should have acquired rights in approximately 88%
of the INEX share capital, which would be less than 1% of our common stock after
conversion. The plaintiff also alleges other breaches of contract, breach of
fiduciary duty, corporate oppression, unlawful interference with economic
relations and conspiracy. The complaint was amended on December 20, 1999 to
allege that we assumed the obligations of INEX under the alleged shareholders
agreement as a result of our acquisition of INEX on October 14, 1999. The
plaintiff seeks damages against us and the former INEX shareholders named in the
suit for the difference between the issue or sale price of INEX shares issued or
transferred after February 1997 and before the acquisition, and the highest
trading value of the shares of our common stock received or receivable in the
exchange prior to the date of trial. In the alternative, the plaintiff seeks
special damages of $50 million Canadian. The plaintiff also seeks $500,000
Canadian in punitive damages and other remedies with regard to the disputed
shares of stock. We have filed our response with the court, and discovery has
yet to take place. We believe we have meritorious defenses to such claims, but
litigation is uncertain and we may not prevail in this suit.
31
On March 19, 2001, a purported derivative action was filed in the Superior
Court of King County, Washington, against certain present and former directors
and officers of InfoSpace, their spouses and certain purported affiliates, and
InfoSpace as a nominal defendant. The Second Amended Complaint in this action
alleges that certain defendants engaged in improper insider trading, and that
certain defendants breached their fiduciary duties in connection with our
acquisitions of Go2Net and Prio. The plaintiff in this action seeks damages of
an unspecified amount, as well as ancillary equitable relief and attorneys'
fees. As noted above, current and former officers and directors are named as
defendants in this action. We entered into indemnification agreements with those
officers and directors in the ordinary course of business and may be obligated
pursuant to those agreements and Delaware law to advance funds for defense of
this action.
Two of nine founding shareholders of Authorize.Net Corporation, a
subsidiary recently acquired through our merger with Go2Net, filed a lawsuit on
May 2, 2000 Utah state court in Provo, Utah. This action was brought to
reallocate amongst the founding shareholders the consideration received in the
acquisition of Authorize.Net by Go2Net. The plaintiffs allege that the corporate
officers of Authorize.Net fraudulently obtained a percentage of Authorize.Net
shares greater than what was anticipated by the founding shareholders, and are
making claims under the Utah Uniform Securities Act as well as claims of fraud,
negligent misrepresentation, breach of fiduciary duty, conflict of interest,
breach of contract and related claims. Plaintiffs seek compensatory and punitive
damages in the amount of $200 million, rescission of certain transactions in
Authorize.Net securities, and declaratory and injunctive relief. The plaintiffs
subsequently amended the claim to name Authorize.Net as a defendant with regard
to the claims under the Utah Uniform Securities Act. The case is currently in
the discovery phase, which is to end on April 20, 2001. We have filed a motion
for summary judgment on behalf of Authorize.Net. We believe we have meritorious
defenses to these claims. Nevertheless, litigation is uncertain and we may not
prevail in this suit.
Item 2. - Changes in Securities and Use of Proceeds
The following issuances of equity securities during the quarter ended March
31, 2001 were not registered under the Securities Act:
(i) In connection with the acquisition of Locus Dialogue, Inc. on January
1, 2001, we issued 1,073,257 shares of our common stock to some of the
former shareholders of Locus Dialogue in exchange for their shares of
Locus Dialogue capital stock. Locus Holdings Inc., our wholly owned
indirect subsidiary, issued 2,867,760 exchangeable shares to some of
the former shareholders of Locus Dialogue in exchange for their shares
of Locus Dialogue capital stock. The exchangeable shares are
exchangeable on a one-to-one basis for shares of our common stock. The
shares were issued pursuant to Section 4(2) of the Securities Act of
1933, as amended, on the basis that the transaction did not involve a
public offering.
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Item 3. - Defaults Upon Senior Securities
Not applicable
Item 4. - Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. - Other Information
Not applicable
Item 6. -- Exhibits and Reports on Form 8-K:
a. Exhibits
None.
b. Reports on Form 8-K
Form 8-K filed with the SEC on January 23, 2001, dated January 22, 2001, with
respect to certain management changes, reported pursuant to Item 5.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INFOSPACE, INC.
By: /s/ Tammy D. Halstead
-------------------------------------
Tammy D. Halstead
Chief Financial Officer
Dated: May 15, 2001
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