<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
</TABLE>
COMMISSION FILE NUMBER 000-26303
--------------------------
VIANT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 77-0427302
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
89 SOUTH STREET, BOSTON, MA 02111
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
--------------------------
(617) 531-3700
Registrant's Telephone Number, Including Area Code
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $1,047,236,000 on March 23, 2000 as reported by
NASDAQ. Shares of voting stock held by each officer and director and each person
who owns 5% or more of the outstanding voting stock have been excluded in that
such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes. There
were approximately 46,836,000 shares of Common Stock outstanding as of March 23,
2000.
--------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the Annual Meeting of
Shareholders tentatively scheduled on May 24, 2000 are incorporated by reference
in Items 10, 11, 12 and 13 of Part III of this Report.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
VIANT CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 12
Item 3. Legal Proceedings........................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......... 12
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 16
Item 6. Selected Financial Data..................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 19
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 22
Item 8. Financial Statements and Supplementary Data................. 23
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 39
PART III
Item 10. Executive Officers of the Registrant........................ 39
Item 11. Executive Compensation...................................... 41
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 41
Item 13. Certain Relationships and Related Transactions.............. 41
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................... 41
Signatures...................................................................... II-1
</TABLE>
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in this Annual Report on Form 10-K, including
information with respect to the Company's future business plans, constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. For this purpose, any statements
contained herein that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words
"believes," "plans," "expects" and similar expressions are intended to identify
forward-looking statements. There are a number of important factors that could
cause the results of the Company to differ materially from those indicated by
such forward-looking statements. These factors include those set forth in the
section entitled "Factors affecting Viant's Operating Results, Business
Prospects and Market Price of Stock" below. You should also carefully review the
risk factors set forth in other reports or documents we file from time to time
with the Securities and Exchange Commission, particularly the quarterly reports
on Form 10-Q and any current reports on Form 8-K.
2
<PAGE>
ITEM I. BUSINESS
Viant is a leading Internet professional services firm providing strategic
consulting, creative design and technology services to companies seeking to
capitalize on the Internet. Viant creates value by helping clients rapidly
develop and deploy Internet solutions. Viant accomplishes this value creation
through a business model that emphasizes multi-disciplinary teams, an integrated
service model, organic growth that reinforces the firm's culture and continuous
innovation.
Viant believes it has gained considerable experience and market presence
from completing significant engagements for Global 1000 and other large
companies such as American Express, BankBoston, CMGI, Compaq, Deutsche Bank,
General Motors, Hewlett-Packard, Kinko's, Lucent Technologies, Polo/Ralph
Lauren, LVMH, RadioShack, Sears Roebuck & Co. and Sony Pictures Entertainment.
INDUSTRY BACKGROUND--INTERNET GROWTH AND OPPORTUNITIES
The number of Internet users worldwide has grown rapidly over the past
several years. Increasing numbers of individuals and companies now use the
Internet to search for information, communicate with others, conduct business
and seek entertainment. According to International Data Corporation, the
estimated number of Internet users worldwide was 142 million at the end of 1998,
and is projected to grow to over 500 million users by the end of 2003.
The broad acceptance of the Internet has created numerous opportunities for
companies that are seeking growth and are challenged by highly competitive and
rapidly changing markets, geographically dispersed operations and demands for
increased efficiencies. As a result, many senior executives now rank their
company's Internet strategy among their highest corporate priorities.
Internet solutions permit companies to acquire new customers, conduct
electronic commerce and consistently manage customer relationships. These
solutions can also dramatically improve a company's ability to access, analyze
and distribute important information to suppliers, business partners, employees
and customers. A manager can, for example, check suppliers' inventories for the
availability, pricing and estimated delivery time for important parts needed to
fulfill orders. A sales person can perform research on her company's corporate
database even though she is thousands of miles from corporate headquarters.
Employees worldwide can verify their retirement account balances simply by
checking their company's website. A consumer can comparison shop and purchase an
item from the comfort of her own home. These examples translate into revenue
growth and improved operating efficiencies.
While there are numerous benefits that may be gained by utilizing the
Internet, the analysis, design and implementation of an effective Internet
solution requires a range of skills and expertise which few businesses possess.
The successful design of Internet solutions requires careful analysis and
definition of the strategic implications of the Internet for a business, the
creative possibilities for brand, content and user experience and the technology
required to support the solution. The rapid development and launch of Internet
solutions further requires substantial expertise to develop and integrate new
business processes with existing capabilities, to design and execute Internet
marketing communications plans and to evaluate, select and implement the
appropriate technologies for the Internet solution.
The current supply of high quality, experienced Internet professionals is
relatively limited, making the market extremely competitive for these
individuals. Furthermore, it is costly and inefficient for companies seeking to
implement their own Internet solutions to hire, train and retain these
professionals. As a result, an increasing number of businesses, from start-ups
to Global 1000 companies, engage Internet professional services firms to help
them design and implement Internet solutions.
3
<PAGE>
The rapidly growing demand for Internet professional services has attracted
many firms to this market. Viant believes that many of these firms suffer from
one or more of the following limitations:
- Strength in only one or two of the core competencies of strategic
consulting, creative design and technology. Many of these firms have
expertise in only one or two of these critical disciplines and therefore
must partner with other firms to deliver a complete Internet solution. As
a result, separate teams or firms with differing approaches, skill sets
and cultures work on the same project. This separation often results in
project delays, increased costs and other inefficiencies.
- A time and materials business model. Service providers who utilize a time
and materials model typically bill their clients for the time spent on a
project. As a result, these service providers have a reduced incentive to
complete a project early or on time as they will continue to be paid even
if a project takes longer than planned. Clients, therefore, generally
perceive that the time and materials model fails to align the service
provider's goals with the client's, namely the rapid, efficient delivery
of a working Internet solution.
- Dependence on acquisitions to add competencies and geographic reach.
Certain Internet professional services firms grow primarily through
acquisitions of other firms in order to gain expertise in core disciplines
or to expand geographically. The mere acquisition of these additional
disciplines may not necessarily result in the creation of an integrated
service approach. In addition, the integration of an acquired firm's
employees and business systems is often difficult and time-consuming,
resulting in inconsistent and inefficient delivery of services and
solutions to the client.
Accordingly, Viant believes that companies seeking to effectively capitalize
on the Internet require and seek a firm with expertise in strategic consulting,
creative design and technology to provide an integrated, seamless delivery of
Internet solutions.
THE VIANT SOLUTION
Viant is a leading Internet professional services firm providing strategic
consulting, creative design and technology services to companies seeking to
capitalize on the opportunities presented by the Internet. Viant has experienced
increased demand for its services. Viant's revenues have grown from $8.8 million
in 1997 to $20.0 million in 1998 and $61.3 million in 1999. Key elements of the
Viant solution are:
INTEGRATED APPROACH
Viant combines three core disciplines--strategic consulting, creative design
and technology--to help clients reevaluate their strategies and transform their
businesses to take advantage of the Internet. Viant delivers its services for
each project through a multi-disciplinary team of strategists, creative
designers and information technologists who typically work with key client
representatives in a local Viant office. Viant believes that this integrated
approach enables it to deliver comprehensive Internet solutions which can be
implemented seamlessly and quickly. This approach also reduces costs,
miscommunications and delays which can occur when the strategic consulting,
creative design and technology disciplines are handled by different teams or
firms.
VIANT SERVICE MODEL
We created the Viant Service Model to organize and address the broad-ranging
and complex needs of clients hoping to utilize the Internet effectively. The
service model divides each engagement into three well-defined phases--Envision,
Experience, and Launch--which provide our consultants with a consistent yet
flexible service approach. The Viant Service Model takes a client efficiently
from strategy all the way through implementation. Our approach identifies and
prioritizes initiatives, rapidly delivers them to market, captures valuable
market experience and feedback, and immediately applies this
4
<PAGE>
feedback to refine the solution. Viant executes this approach through an
iterative process, which results in Internet solutions that are better suited to
today's fast-changing market environment than solutions based on a traditional,
lengthy and non-iterative approach. The service model also allows us to
identify, capture, and reuse valuable Internet frameworks, designs, processes
and techniques which we develop in our client projects.
FIXED-PRICE AND FIXED-TIME
In substantially all of its engagements, Viant charges a fixed price for its
services and provides the client with a substantive deliverable within a short,
predetermined timeframe. Viant believes that clients favor fixed-price,
fixed-time contracts because they focus on clearly defined deliverables and
permit the client to more accurately manage project costs. These contracts also
create incentives for Viant to finish within budgeted timeframes, thereby more
closely aligning Viant's interests with the client's. Furthermore, this model
creates the opportunity for Viant to achieve higher margins by delivering its
solutions more efficiently.
STRATEGIC BUSINESS FOCUS
Viant works with clients to reevaluate and transform their strategic
business processes and operations to take advantage of the Internet. Viant's
focus on initiatives that are critical to a client's strategy, operations and
organization enables Viant to work with a client's most senior executives. Viant
believes that its participation in and development of these critical initiatives
results in the opportunity to provide premium value services.
ORGANIC GROWTH MODEL
Viant believes its organic growth model is essential to its ability to
maintain quality while increasing revenues. To date, Viant has built its
business entirely through the training and assimilation of new employees, as
opposed to adding employees and disciplines through mergers or acquisitions. A
principal element of this training and assimilation is the QuickStart program,
an intensive three-week program of activities and instruction attended by all
new employees.
In order to open new offices effectively and quickly, Viant staffs new
locations with employees who have relocated from other offices. This process
allows Viant to bring new offices on-line quickly, ready to service local
clients. Additionally, Viant believes this process maintains consistent
firm-wide quality and culture, and an ongoing entrepreneurial environment.
VIANT CULTURE
Viant's culture is founded on professional growth, rapid learning and
enterprise-wide knowledge-sharing. Employees are evaluated not only on their
individual performance, but also on how well they teach other employees and
share knowledge. Viant believes that its integrated team approach and policy of
servicing clients from local offices has reduced travel time and allowed Viant
managers to allocate work efficiently.
VIANT'S STRATEGY
Viant's goal is to build upon its position as a leading provider of Internet
professional services. To achieve this goal, Viant is pursuing the following
strategies:
EXPAND EXISTING CLIENT RELATIONSHIPS AND ATTRACT NEW CLIENTS
Viant continues to focus on delivering high quality solutions to help its
clients redefine and transform their businesses in order to capitalize on the
Internet. Viant believes this focus improves client satisfaction and results in
two distinct benefits: follow-on engagements with existing, satisfied clients
and referrals for engagements with new clients. Viant also plans to continue to
build its brand
5
<PAGE>
recognition, grow its sales efforts and expand its skill set to acquire new
clients seeking comprehensive Internet solutions.
ATTRACT AND RETAIN THE HIGHEST QUALITY EMPLOYEES
Viant seeks to hire high quality employees with a broad range of experience
and knowledge. Consistent with its organic growth plan, Viant recruits a
substantial number of its new employees through an employee referral program.
This program rewards employees for new hires referred by them. The QuickStart
training and orientation program accelerates the dissemination of knowledge
among new employees and instills an understanding of Viant's culture and shared
values. Viant's culture provides long-term appeal for its employees by providing
extensive client contact and allowing them to pursue mastery of one discipline
or gain a broad exposure across two or more disciplines. Viant also encourages
its employees to pursue entrepreneurial opportunities by helping to launch new
offices. Viant believes that equity ownership is an important component of
employee compensation. As a result, all Viant employees are granted options to
purchase Viant stock upon commencement of employment. In addition, as a further
incentive to attract and retain the highest quality employees, Viant has begun
to explore investment vehicles through which it could invest in Internet-related
businesses. Although Viant has not decided which vehicle, if any, is most
appropriate, Viant may pass along to its employees a portion of the potential
gains associated with any of these investments.
LEVERAGE COMPANY-WIDE KNOWLEDGE
Viant's multi-disciplinary teams gain valuable experience and knowledge
through client engagements. Viant's culture, systems and processes promote the
sharing of this knowledge throughout the company. Viant has developed a unique,
proprietary knowledge sharing and collaboration system, consisting of electronic
documents and shared workspaces, called FOCUS. During every client engagement,
Viant project teams seek to expand Viant's knowledge base by identifying
innovative processes, techniques and analyses that they believe will be valuable
to other project teams. The FOCUS system enables the:
- efficient distribution of company-wide knowledge and experience;
- reuse of processes and knowledge from past projects;
- acceleration and enhancement of professional development; and
- close collaboration and knowledge sharing with clients during projects.
The client benefits from Viant's FOCUS system which gives it access to a
broad array of proven assets, methods and project experience. Viant benefits
from this knowledge sharing strategy through the reuse of processes, components
and methodologies. This strategy accelerates the delivery of Internet solutions
and over time could result in improved operating margins.
CONTINUE TO REFINE OUR OPERATING SYSTEMS AND PROCESSES
Viant has built and continues to refine its management processes and
supporting systems in order to streamline and standardize operations. These
include systems and processes for:
- revenue forecasting;
- recruiting;
- project financial management;
- relationship management;
- career management;
- knowledge sharing;
6
<PAGE>
- project staffing; and
- accounting.
Viant believes that the evolution of its infrastructure has allowed and will
continue to allow it to scale its operations and compete effectively.
EXPAND GEOGRAPHICALLY
Viant believes that significant revenue growth opportunities exist from
expansion into new geographic markets. To date, Viant has opened offices in six
cities in the United States and an office in London and has established a
presence in two additional U.S. cities. Viant has plans to expand to additional
domestic and international markets. Through its organic growth model, each
office is initially staffed with experienced employees from other Viant offices
and then with new employees from the local geographic area. Viant believes this
expansion strategy provides ongoing entrepreneurial opportunities for employees
and closer relationships with clients.
EXTEND SERVICE OFFERING
Viant believes that additional growth opportunities may also exist through
strategic alliances with complementary service providers. As an example, Viant
has entered into an alliance with Hewlett-Packard Company and Technology
Crossover Ventures, called "NetSpinoff.com," as a means of offering additional
services to meet new market demands. The alliance's planned service offerings
include, among others: venture capital, digital brand strategy, digital
organization design, web development, legacy-system integration and application
hosting. NetSpinoff.com will target these services at Fortune 1000 corporations
who are looking to create or spin-off Internet business.
PROVIDE SERVICES ACROSS A BROAD RANGE OF INDUSTRIES
Viant focuses on building knowledge of and skills relating to the design and
development of Internet solutions to help companies redefine and transform their
businesses. Viant believes the broad-based business knowledge and Internet
expertise it attains from its client engagements is scalable across a wide range
of industries. Clients have effectively utilized this expertise in a broad range
of industries which, to date, have included:
- financial services;
- retail;
- music and entertainment;
- pharmaceutical;
- media and publishing;
- high technology;
- utilities;
- distribution;
- telecommunications; and
- professional placement services.
VIANT SERVICE MODEL
The Viant Service Model is comprised of three distinct, customizable and
iterative phases, which facilitate the rapid delivery of Internet solutions.
These three phases are called Envision, Experience, and Launch. Viant works with
the client to understand their specific business needs and determine the most
appropriate activities within each phase of the service model. Each phase takes
approximately
7
<PAGE>
60-90 days, is provided on a fixed-price, fixed-time basis and involves all
three core disciplines. These three phases may be repeated as required to refine
and deliver an Internet solution.
ENVISION
During the first phase, ENVISION, project teams examine the client's
marketplace, including competitors, customer needs and brand identity. Viant
interprets the client's core value proposition and business practices for the
Internet environment based on Viant's integrated perspective of customer
behavior and needs, competitive dynamics and technology trends and issues. Viant
works with the client to establish a focused objective--for example, increased
customer value, strengthened partner relationships or improved operating
efficiencies--and a comprehensive set of business options to achieve this
objective.
Once this set of options is developed and articulated, Viant works with the
client to further analyze and prioritize the potential options by:
- defining the decision framework and criteria to select near-term and
long-term Internet investments;
- developing a profile of the client's capabilities and comparing those
capabilities against the requirements of the solution;
- performing a rigorous business case analysis to determine which option to
pursue; and
- creating a conceptual design to help visualize the options.
At the end of this phase, Viant delivers an action plan that is understood
and supported by key managers throughout the client organization and is grounded
in the client's business strategy. The action plan outlines specific Internet
solutions and their expected benefits. The plan also identifies the work needed
to determine the solution's requirements.
EXPERIENCE
In the second phase, EXPERIENCE, the project team utilizes the action plan
from Envision and carefully investigates the Internet solutions through market
tests. The project team creates an initial layout and subsequent prototypes of
the Internet solution. These prototypes can then be tested with the client's
existing and potential customers. The testing process allows clients to
incorporate customer feedback into the Internet solution.
Another important aspect of the Experience phase is the continued assessment
of prototypes against the client's broad business strategy, internal operations
and processes, marketing initiatives and technology systems. Viant helps the
client refine its initial strategy and action plan into a better defined
Internet solution and launch plan.
LAUNCH
In the third phase, LAUNCH, activities center on creating the capabilities
needed not only to implement an Internet solution, but also to establish that
Internet solution as an ongoing and integrated dimension of the client's
business operations. Project teams build and deploy Internet solutions through
incremental releases. Project teams perform rigorous testing on each release to
ensure proper functioning and reliability. Viant trains the client throughout
the Launch phase enabling the client to manage ongoing maintenance once the
Internet solution is complete. Activities in this phase include:
- development of Internet software applications;
- integration between the Internet solution and the client's existing
technology systems;
8
<PAGE>
- refinement of the client's business and Internet strategy, based on
operational needs and ongoing customer feedback;
- management of changes in work processes;
- rigorous testing of an Internet solution to ensure reliability and proper
functionality;
- transitioning the Internet solution to client personnel for ongoing
maintenance and revision; and
- execution of the integrated marketing strategy.
The Viant Service Model's iterative build and release process provides a
high degree of flexibility to meet changing client needs and ensures a
high-quality solution.
BENEFITS OF THE VIANT SERVICE MODEL
The Viant Service Model provides us with considerable benefits and
advantages including:
- A consistent approach for the rapid, effective delivery of all of Viant's
services. This approach is taught to all Viant consultants through the
QuickStart program and subsequent training programs;
- Standard methods to identify and capture valuable reusable assets
developed in client projects. These reusable assets include proprietary
Internet frameworks, designs, tools, processes, techniques and software;
and
- A powerful means to facilitate sales forecasting and resource management.
Viant also believes that the service model provides benefits to clients,
which include:
- COMPLETENESS. The Viant Service Model incorporates all the elements needed
to design and implement an effective Internet solution, including the
creation of the business strategy, development of the marketing plan,
design of a business organization, layout of the technical architecture,
implementation of the Internet solution and the introduction of the
redesigned business. The Viant Service Model provides clients with an
integrated set of activities that effectively move them from analysis
through execution.
- SPEED. The Viant Service Model takes a client efficiently from strategy
all the way through implementation, avoiding costly hand-offs that
typically occur when a client uses one consulting team or firm for
strategy and operations, another for creative design and marketing, and a
third for systems development and integration. Clients utilizing the Viant
Service Model gain a benefit by rapidly getting the right Internet
initiative to market.
- INNOVATION. The Viant Service Model draws on multi-disciplinary teams of
strategic consulting, creative design and technology experts. Clients
benefit by having innovative ideas formed from three, distinct
disciplinary perspectives, and from having these perspectives integrated
early and throughout all phases of the engagement.
- ALIGNMENT. The Viant Service Model draws on key representatives from
various functional areas within the client's organization, including
marketing, information technology, strategy and operations. As a result,
the Internet strategy and execution receives deep and broad support across
the client organization. This organizational support helps to ensure that
Internet initiatives and investments are aligned with the client's
business goals and operations.
- UNIQUENESS. The Viant Service Model is highly flexible and can incorporate
a client's prior Internet work and investments as well as its unique
brand, organization and technology requirements. As a result, each client
gets a unique work plan that is most efficient for its operations and
organization, as well as unique Internet initiatives to specifically
address that client's needs.
9
<PAGE>
- RISK MITIGATION. The Viant Service Model relies on proven frameworks,
techniques and processes. As a result, clients benefit from reliable
mechanisms that can be used to identify and manage project risk and to
ensure the quality delivery of Internet initiatives, on time and within
budget.
We seek to protect the software applications, methods and internal business
processes that comprise the Viant Service Model through a combination of
copyright and trade secret laws. We use all reasonable efforts to protect the
proprietary and confidential aspects of the service model by requiring any party
having access to them to execute a nondisclosure agreement or an employee
confidentiality agreement.
SALES AND MARKETING
Viant markets its Internet professional services through sales professionals
and consultants located in Atlanta, Boston, Chicago, Dallas, Houston, London,
Los Angeles, New York, and San Francisco. Viant believes that this regional
sales focus combined with our local service approach allows Viant to develop
strong market presence and name recognition in each of our local markets.
Viant's sales professionals operate through a coordinated and structured process
to evaluate large numbers of prospective clients, target qualified prospects and
secure new engagements.
Viant primarily markets its services to Global 1000 corporations. In
addition, Viant markets its services to early stage companies whose businesses
are designed and built around the Internet. Viant believes that the
opportunities and issues created by the Internet, including new brand
enhancement possibilities and dramatic shifts in product distribution
strategies, span a broad range of industries.
Our sales efforts are supplemented by marketing and communications
activities which we pursue to further build Viant's brand name and recognition
in the marketplace. These activities include direct mail campaigns targeting
corporate executives, public speaking opportunities, attendance at industry
conferences and business events, a public relations program, sales and marketing
materials and our own focused Internet brand initiative.
SIGNIFICANT CLIENTS
We derive a significant portion of our revenues from large projects for a
limited number of clients. In 1998, our five largest clients accounted for
approximately 59% of our revenues. During this period, Kinko's Corporation,
Lucent Technologies Inc. and Compaq Computer Corporation each accounted for more
than 10% of our revenues. In 1999, our five largest clients accounted for
approximately 48% of our revenues. During this period, Compaq and BankBoston
each accounted for more than 10% of our revenues.
COMPETITION
Viant competes in the Internet professional services market, which is
relatively new and intensely competitive. Viant expects competition to intensify
as the market evolves. Viant believes that the competitors fall into several
categories, including the following:
- Internet service firms, such as AGENCY.COM, iXL, Organic Online, Proxicom,
Razorfish and USWeb/CKS;
- technology integrators, such as Andersen Consulting, Cambridge Technology
Partners, EDS, IBM, Sapient and Scient; and
- strategic consulting firms, such as Bain, Booz-Allen & Hamilton, Boston
Consulting Group, Diamond Technology Partners and McKinsey.
Many of Viant's competitors have longer operating histories, larger client
bases, longer relationships with clients, greater brand or name recognition and
significantly greater financial,
10
<PAGE>
technical, marketing and public relations resources than Viant. Viant believes
that only a few of these competitors offer an integrated package of professional
Internet services. Several competitors, however, have announced their intention
to offer a broader range of services than they currently provide.
Viant believes that the principal competitive factors in the Internet
professional services market are: the provision of integrated services, breadth
of service offerings, cost certainty and a referenceable customer base. Viant
believes that its service model allows it to compete favorably in all of the
above areas.
There are relatively low barriers to entry into the Internet professional
services market. As a result, new market entrants pose a threat to Viant's
business. Existing or future competitors may develop or offer services that are
comparable or superior to ours at a lower price, which could have a material
adverse effect on our business, financial condition and results of operations.
PEOPLE AND CULTURE
Viant had 119 employees at the end of 1997, 213 at the end of 1998 and 405
employees as of December 31, 1999. None of Viant's employees is represented by a
labor union and Viant believes its employee relations are excellent. Although
Viant has experienced rapid growth, it continues to grow organically and to
introduce every new employee into the Viant culture via its intensive three-week
QuickStart training program. Viant believes that this shared introductory
experience is critical to its corporate culture and service quality.
Viant recognizes that its employees are key to its future success. This
future success is based on the following factors:
- an effective recruiting program that attracts bright, creative and
entrepreneurial candidates;
- a strong corporate culture reinforced through our organic growth model;
- ongoing training and development; and
- equity ownership for all employees.
PHILOSOPHY
Viant's personnel and culture philosophy is simple: to provide every
employee with an environment for professional growth and development. Viant
believes that intelligent and motivated individuals achieve their fullest
potential by collaborating with high-caliber professionals in a work environment
charged with creativity and innovation. Viant also believes that individual
learning is accelerated when the firm's collective knowledge and experience is
shared in a team environment that is stimulating, challenging and fun.
RECRUITING
Viant dedicates significant resources to its recruiting efforts. A
substantial number of Viant's new hires come from referrals by current
employees. Viant believes that its existing employees are an excellent
recruiting resource and rewards employees that bring new people into the
organization. Viant believes that the success of its employee referral program
is a direct reflection of current employee satisfaction. Viant also actively
recruits from many of the country's leading graduate and undergraduate programs
and through professional search firms.
11
<PAGE>
TRAINING AND DEVELOPMENT
Viant's training and professional development programs advance the skills of
its employees and enable Viant to deliver high-quality services to its clients.
A principal element of this training is Viant's QuickStart program. QuickStart
is an intensive three-week program attended by all new employees. In the
program, new employees learn about the culture and values of the firm, meet
other new employees from across the firm and gain first-hand experience with
Viant's Service Model. Additionally, Viant continues to develop programs that
ensure each consulting professional has the opportunity to develop skills in
each of Viant's core disciplines.
COMPENSATION
Viant's compensation program has been structured to attract and retain
highly skilled professionals by offering competitive base salaries with annual
cash bonus opportunities. Each Viant employee receives stock options upon
commencement of employment and may receive additional options based upon
performance.
ITEM 2. PROPERTIES
Viant's headquarters are located in 20,000 square feet of leased office
space in Boston, Massachusetts. This facility is used by Viant's senior
management, administrative, human resources and training personnel as well as
the Boston business unit consultants. The lease term extends to March 31, 2003
with a five-year renewal at the option of Viant. Additionally, Viant leases
25,000 square feet in New York, 23,466 square feet in San Francisco, 17,576
square feet in Dallas, 5,177 square feet in Chicago, 6,174 square feet in Los
Angeles and 5,000 square feet in London. The New York lease term extends to July
28, 2007 with a ten-year renewal at the option of Viant. The San Francisco lease
term extends to August 30, 2003 with a five-year renewal at the option of Viant.
The Dallas lease was amended effective August 15, 1999 such that the lease term
extends to September 30, 2004 with a five-year renewal at the option of Viant.
The Chicago lease term is from September 1, 1999 through February 29, 2000,
after which the lease will continue on a month-to-month basis terminable upon 30
days notice by either party. The Los Angeles lease term extends to March 31,
2001. The London lease extends to June 30, 2003.
ITEM 3. LEGAL PROCEEDINGS
From time to time, Viant may be involved in litigation incidental to the
conduct of its business. Viant is not currently party to any material legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
FACTORS AFFECTING VIANT'S OPERATING RESULTS, BUSINESS PROSPECTS AND MARKET PRICE
OF STOCK
The following important factors, among others, could cause actual results to
differ materially from those contained in forward-looking statements made in
this Annual Report on Form 10-K or presented elsewhere by management from time
to time.
12
<PAGE>
OUR LIMITED OPERATING HISTORY IN THE NEW AND EXPANDING INTERNET PROFESSIONAL
SERVICES MARKET INCREASES THE POSSIBILITY THAT THE VALUE OF YOUR INVESTMENT WILL
DECLINE
We were formed in 1996. Our limited operating history in the new and
expanding Internet professional services market makes it difficult to evaluate
our business. The uncertainty of our future performance and the uncertainties
regarding the Internet, such as taxation, technical limitations and competition,
increase the risk that the value of your investment will decline. Our failure to
accurately address the issues facing our business could cause our business
results to significantly decline.
TO SUCCEED IN OUR LABOR INTENSIVE BUSINESS, WE MUST RECRUIT AND RETAIN QUALIFIED
PROFESSIONALS, WHO ARE CURRENTLY IN HIGH DEMAND
The labor-intensive Internet professional services industry currently faces
a shortage of qualified personnel, which is expected to continue. We compete
intensely with other companies to recruit and hire from this limited pool. If we
cannot hire and retain qualified personnel or if a significant number of our
current employees leave, we may be unable to complete or retain existing
projects or bid for new projects of similar scope and revenue. Any inability to
hire and retain employees would cause our business results to suffer.
OUR BUSINESS MAY BE NEGATIVELY IMPACTED IF WE FAIL TO ACCURATELY ESTIMATE THE
TIME AND RESOURCES NECESSARY FOR THE PERFORMANCE OF OUR SERVICES
A key element of our strategy is to enter into fixed-price, fixed-time
contracts, rather than contracts in which the client pays us on a time and
materials basis. If we fail to accurately estimate the resources required for a
project or fail to satisfy our contractual obligations in a manner consistent
with the project plan, then our costs to complete the project could increase
substantially. We have occasionally had to commit unanticipated additional
resources to complete projects, and we may have to take similar action in the
future.
IF CLIENTS DO NOT REHIRE US FOR NEW PROJECTS, OR THEY TERMINATE OR REDUCE THE
SCOPE OF EXISTING PROJECTS OUR REVENUES MAY DECLINE
Substantially all of our revenues are derived from fixed-price, fixed-time
contracts for discrete client engagements. These engagements vary in size and
scope. If clients do not retain us for subsequent engagements, then our revenues
could decline. In addition, while our service model is designed as an integrated
approach, each sequential phase of that process represents a separate
contractual commitment. The client may elect not to proceed to the next phase of
a project. The decision of clients not to proceed to the next phase of a project
could impair our revenues.
Most of our contracts cannot be terminated by a client unless we have
materially breached the contract. However, a client may nevertheless attempt to
cancel or reduce the scope of a project. It is possible that we may agree to the
cancellation or reduction in scope, or that in the event of a dispute over
whether it has the right to cancel or reduce the scope of a project, the client
may prevail. The cancellation, or reduction in scope, of a project could have a
negative impact on our revenues.
OUR REVENUES COULD BE NEGATIVELY AFFECTED BY THE LOSS OF A MAJOR CLIENT
We derive a significant portion of our revenues from large projects for a
limited number of clients. The loss of any major client could dramatically
reduce our revenues. In 1998, our five largest clients accounted for
approximately 59% of our revenues. During such period Kinko's Corporation,
Lucent Technologies Inc. and Compaq Computer Corporation each accounted for more
than 10% of our revenues and four other clients each accounted for more than 5%
of our revenues. For the year ended December 31, 1999, our five largest clients
accounted for approximately 48% of our revenues. During
13
<PAGE>
such period Compaq and BankBoston each accounted for more than 10% of our
revenues and three other clients each accounted for more than 5% of our
revenues.
FLUCTUATIONS IN OUR QUARTERLY REVENUES AND OPERATING RESULTS MAY LEAD TO REDUCED
PRICES FOR OUR STOCK
We believe that period-to-period comparisons of our operating results are
not necessarily meaningful. These comparisons cannot be relied upon as
indicators of future performance. However, if our operating results in any
future period fall below the expectations of securities analysts and investors,
the market price of our securities would likely decline.
Factors that have caused our results to fluctuate in the past and which are
likely to affect us in the future include the following:
- variability in market demand for the Internet and for Internet
professional services;
- length of the sales cycle associated with our service offerings;
- the number, size and scope of our projects; and
- the efficiency with which we utilize our employees, including our ability
to transition employees from completed engagements to new engagements.
In addition, other factors may also affect us, including:
- the introduction of new services by our competitors;
- changes in pricing policies by our competitors; and
- our ability to attract and retain clients.
Some of these factors are within our control and others are outside our
control.
THE INTERNET PROFESSIONAL SERVICES MARKET IS HIGHLY COMPETITIVE AND HAS LOW
BARRIERS TO ENTRY. IF WE CANNOT EFFECTIVELY COMPETE, OUR REVENUES MAY DECLINE
The Internet professional services market is relatively new and intensely
competitive. We expect competition to intensify even further as this market
evolves. Many of our competitors have longer operating histories, more clients,
longer relationships with their clients, greater brand or name recognition and
significantly greater financial, technical, marketing and public relations
resources than we do. As a result, our competitors may be in a stronger position
to respond quickly to new or emerging technologies and changes in client
requirements. They may also develop and promote their products and services more
effectively than we do.
There are relatively low barriers to entry into the Internet professional
services market. In addition, we do not own any patented technology that stops
competitors from entering the Internet professional services market or from
providing services similar to ours. As a result, new and unknown market entrants
pose a threat to our business. Current or future competitors may develop or
offer services that are comparable or superior to ours at a lower price, which
could significantly decrease our revenues.
OUR BUSINESS WILL BE NEGATIVELY AFFECTED IF WE DO NOT KEEP UP WITH THE
INTERNET'S RAPID TECHNOLOGICAL CHANGE, EVOLVING INDUSTRY STANDARDS AND CHANGING
CLIENT REQUIREMENTS
The Internet professional services market is characterized by rapidly
changing technology, evolving industry standards and changing client needs.
Accordingly, our future success will depend, in part, on our ability to meet
these challenges. Among the most important challenges facing us are the need to:
- effectively use leading technologies;
14
<PAGE>
- continue to develop our strategic and technical expertise;
- influence and respond to emerging industry standards and other
technological changes;
- enhance our current services;
- develop new services that meet changing customer needs; and
- advertise and market our services.
All of these challenges must be met in a timely and cost-effective manner.
We cannot assure you that we will succeed in effectively meeting these
challenges and our failure to do so could harm our business results.
OUR REVENUES MAY DECREASE IF GROWTH IN THE USE OF THE INTERNET DECLINES
Our business is dependent upon continued growth in the use of the Internet
by our clients, prospective clients and their customers and suppliers. Published
reports indicate that capacity constraints caused by growth in Internet usage
may, unless resolved, impede further growth in Internet use. If the number of
users on the Internet does not increase and commerce over the Internet does not
become more accepted and widespread, demand for our services may decrease and,
as a result, our revenues would decline. The factors that may affect Internet
usage or electronic commerce adoption include:
- actual or perceived lack of security of information;
- lack of access and ease of use;
- congestion of Internet traffic;
- inconsistent quality of service;
- increases in access costs to the Internet;
- excessive governmental regulation;
- uncertainty regarding intellectual property ownership;
- reluctance to adopt new business methods; and
- costs associated with the obsolescence of existing infrastructure.
WE MAY FACE INTELLECTUAL PROPERTY CLAIMS THAT MAY BE COSTLY TO RESOLVE OR LIMIT
OUR ABILITY TO USE INTELLECTUAL PROPERTY IN THE FUTURE
We are obligated under some agreements to indemnify other parties as a
result of claims that we infringe on the proprietary rights of third parties.
Although we do not believe that the solutions that we develop for clients
infringe on any third-party proprietary rights, we cannot assure you that third
parties will not assert infringement claims against us in the future or that
these claims will not be successful. We could incur substantial costs and
diversion of management resources to defend any claims relating to proprietary
rights. These costs and diversions could cause our business results to suffer.
If any party asserts a claim against us relating to proprietary technology or
information, we may need to obtain licenses to the disputed intellectual
property. We cannot assure you, however, that we will be able to obtain these
licenses on commercially reasonable terms or that we will be able to obtain any
licenses at all. The failure to obtain necessary licenses or other rights could
cause our business results to suffer.
Our business often involves the development of software applications for
specific client engagements. We generally retain the right to use any
intellectual property that is developed during a client engagement that is of
general applicability and is not specific to the client's project. We also
15
<PAGE>
develop software applications for our own internal use and we retain ownership
of these applications. There can be no assurance that clients will not demand
assignment of ownership or restrictions on our use of the work that we produce
for clients in the future. Issues relating to the ownership of and rights to use
software can be complicated and there can be no assurance that disputes will not
arise that affect our ability to reuse this software which could harm our
business results.
DIFFICULTIES PRESENTED BY INTERNATIONAL FACTORS COULD NEGATIVELY AFFECT OUR
BUSINESS
One component of our strategy is to expand into international markets, as
evidenced by the opening of our London office. We believe that we will face
certain risks in doing business abroad that we do not face domestically. Among
the international risks we believe are most likely to affect us are:
- difficulties in staffing and managing international operations;
- longer payment cycles;
- problems in collecting accounts receivable;
- international currency issues, including fluctuations in currency exchange
rates and the conversion to the euro by all countries of the European
Union by year end 2003; and
- restrictions on the import and export of sensitive U.S. technologies, such
as data security and encryption technologies that we may wish to use in
solutions we develop for customers.
Any of these factors or other factors not enumerated here could damage our
business results.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a)(1) Market Price of Common Stock
Viant's Common Stock is quoted on the Nasdaq National Market System under
the symbol "VIAN". The following table sets forth for the periods indicated the
high and low sale prices for Viant's Common Stock and has been adjusted to
reflect Viant's 2-for-1 stock split in the form of a dividend paid to
stockholders of record on February 8, 2000.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
Second Quarter (since June 18, 1999)........................ $17.50 $10.94
Third Quarter............................................... $26.07 $12.38
Fourth Quarter.............................................. $59.44 $26.61
</TABLE>
On March 23, 2000, the last reported sale price of Viant's Common Stock was
$38.38 per share. As of March 23, 2000, there were 373 holders of record of the
Common Stock.
Viant has never declared or paid any cash dividend on its capital stock.
Viant currently intends to retain any future earnings and therefore does not
anticipate paying cash dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
Since our incorporation in April 1996, we have sold and issued the following
securities:
(1) On April 15, 1996 we issued 11,018,782 shares of common stock to one
founder for an aggregate consideration of $550.94. On May 16, 1996 we issued
2,587,500 shares of common stock to one investor for an aggregate consideration
of $129.38.
16
<PAGE>
(2) On May 16, 1996 we issued 5,746,874 shares of Series A preferred stock
to ten investors for an aggregate consideration of $3,064,997.55.
(3) On June 19, 1996 we issued 1,499,925 shares of Series B preferred stock
to two investors for an aggregate consideration of $1,000,000.00
(4) On June 4, 1997 we issued 2,080,103 shares of Series C preferred stock
to 32 investors for an aggregate consideration of $6,031,258.61. On October 10,
1997 we also issued 679,488 shares of Series C preferred stock to 32 investors
and employees for an aggregate consideration of $1,970,174.91.
(5) On December 11, 1997 we issued 375,000 shares of common stock to one
investor for an aggregate consideration of $18,750.00.
(6) On March 25, 1998 we issued a warrant for 35,986 shares of Series C
preferred stock to an equipment lessor in connection with an equipment lease
agreement. This warrant has an exercise price of $3.625 per share and currently
remains outstanding in full. On March 26, 1998 we issued a warrant for 5,517
shares of Series C preferred stock to another equipment lessor in connection
with an equipment lease agreement. Such warrant had an exercise price of $3.625
per share and was exercised in June 1999.
(7) From November 4, 1998 to February 1, 1999 we issued 3,168,704 shares of
Series D preferred stock to 31 investors and employees for an aggregate
consideration of $20,248,018.56.
(8) Since our incorporation and as of December 31, 1999, we have issued
options to purchase an aggregate of 18,452,310 shares of common stock with
exercise prices ranging from $0.025 to $58.75 per share. Since our incorporation
and as of December 31, 1999, options to purchase 4,657,878 shares of common
stock have been exercised for an aggregate consideration of $1,356,157.50.
No underwriters were employed in connection with any of the transactions set
forth above.
The issuances of securities described in items (1) through (7) were deemed
to be exempt from registration under the Securities Act of 1933 in reliance on
Section 4(2) of the Securities Act of 1933 as transactions by an issuer not
involving a public offering. The issuances of securities described in item (8)
were deemed to be exempt from registration under the Securities Act of 1933 in
reliance on Section 4(2) or Rule 701 promulgated thereunder as transactions
pursuant to compensatory benefit plans and contracts relating to compensation.
The recipients of securities in each such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and other instruments issued in such
transactions. All recipients either received adequate information about the
Registrant or had access, through employment or other relationships, to such
information.
USE OF PROCEEDS
(UNAUDITED)
The following information is provided as an amendment to the initial report
on Form SR, "Report of Sales of Securities and Use of Proceeds Therefrom,"
regarding the use of proceeds from the sale of common stock under the Company's
Registration Statement on Form S-1 (SEC file number 333-76049), which was
declared effective on June 17, 1999. The information provided is for the period
from May 29, 1999 through December 31, 1999.
During this period the Company had a positive cash flow of $177,228,000. All
proceeds from this offering and Viant's secondary offering, effective
December 17, 1999, were invested primarily in certificates of deposit and
short-term high grade commercial paper and U.S. government backed securities.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with Viant's financial statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this 10K filing. Selected financial data as of and for each of the
four fiscal years ended December 31, 1996, December 31, 1997, January 1, 1999
and December 31, 1999 have been derived from Viant's audited financial
statements. The historical results are not necessarily indicative of the
operating results to be expected in the future.
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 10, 1996 YEAR ENDED
(INCEPTION) TO ----------------------------------------
DECEMBER 31, DECEMBER 31, JANUARY 1, DECEMBER 31,
1996 1997 1999 1999
-------------- ------------ ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.................................. $ 642 $ 8,808 $20,043 $61,332
------- ------- ------- -------
Operating expenses:
Professional services..................... 516 4,530 11,250 28,509
Sales and marketing....................... 461 1,577 3,324 6,688
General and administrative................ 1,077 6,298 10,365 22,837
Research and development.................. 338 581 1,429 3,623
------- ------- ------- -------
Total operating expenses................ 2,392 12,986 26,368 61,657
------- ------- ------- -------
Loss from operations........................ (1,750) (4,178) (6,325) (325)
Interest and other income (expense), net...... 91 98 (162) 1,793
Provision for income taxes.................... -- -- -- 57
------- ------- ------- -------
Net income (loss)............................. $(1,659) $(4,080) $(6,487) $ 1,411
======= ======= ======= =======
Net income (loss) per share:
Basic....................................... $ (0.21) $ (0.59) $ (0.88) $ 0.05
Diluted..................................... $ (0.21) $ (0.59) $ (0.88) $ 0.04
Shares used in computing net income (loss) per
share:
Basic....................................... 7,962 6,936 7,362 27,208
Diluted..................................... 7,962 6,936 7,362 31,904
Pro forma net income per share (1):
Basic....................................... $ 0.04
Diluted..................................... $ 0.03
Shares used in computing pro forma net income
per share:
Basic....................................... 39,298
Diluted..................................... 43,992
</TABLE>
<TABLE>
<CAPTION>
DECEMBER, 31 DECEMBER 31, JANUARY 1, DECEMBER 31,
1996 1997 1999 1999
------------ ------------ ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investment................................. $2,145 $6,174 $18,811 $188,176
Working capital.............................. 2,179 4,517 17,622 187,084
Total assets................................. 2,806 10,318 29,753 214,226
Capital lease obligations, net of current
portion.................................... -- 670 2,237 1,533
Total stockholders' equity................... 2,394 6,006 19,665 193,079
</TABLE>
- ------------------------
(1) Unaudited pro forma net income per share for the year ended December 31,
1999 is computed using the weighted average number of common shares
outstanding, adjusted to include the pro forma effects of the conversion of
preferred stock to common stock as if such conversion had occurred on
January 2, 1999, or at the date of original issuance, if later.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF VIANT SHOULD BE READ IN CONJUNCTION WITH "SELECTED FINANCIAL DATA"
AND VIANT'S AUDITED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, INCLUDED
ELSEWHERE IN THIS REPORT. EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED
HEREIN, THE DISCUSSION IN THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS SUCH AS STATEMENTS OF VIANT'S
PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE
IN THIS REPORT SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING
STATEMENTS WHEREVER THEY APPEAR IN THIS REPORT. VIANT'S ACTUAL RESULTS, LEVELS
OF ACTIVITY, PERFORMANCE, ACHIEVEMENTS AND REPORT COULD DIFFER MATERIALLY FROM
THOSE DISCUSSED BELOW. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED IN "FACTORS AFFECTING VIANT'S OPERATING
RESULTS, BUSINESS PROSPECTS AND MARKET PRICE OF STOCK," AS WELL AS THOSE
DISCUSSED ELSEWHERE HEREIN.
OVERVIEW
Viant is a leading Internet professional services firm providing strategic
consulting, creative design and technology services to companies seeking to
capitalize on the Internet. Viant creates value by helping clients rapidly
develop and deploy Internet solutions.
Viant derives substantially all of its revenues from services performed on a
fixed-price, fixed-time basis. Viant generally enters into a Master Services
Agreement with its clients which establishes the legal and general business
terms of the relationship. As specific engagements are identified, the Company
and the client then enter into separate statements of work which outline the
time frame and fees applicable to the specific engagement. Typically these
engagements are of a short predetermined time frame, generally lasting three to
six months. To determine the proposed fixed price for an engagement, Viant uses
an estimation process which takes into account the type and overall complexity
of the project, the anticipated number of consultants needed and their
associated billing rates, and the estimated duration of and risks associated
with the engagement. All fixed-price proposals are approved by a member of
Viant's senior management team. Revenues from fixed-price engagements are
recognized using the percentage of completion method (based on the ratio of
costs incurred to the total estimated project costs). Project costs are based on
the direct payroll and associated fringe benefits of the consultants on the
engagement. Finance department personnel meet regularly with project managers to
ensure that the budgeted costs to complete, which are used to calculate revenue
recognition, reflect the actual status of the project and the anticipated costs
to complete. Provisions for estimated losses on contracts are made during the
period in which such losses become probable and can be reasonably estimated. To
date, such losses have not been significant. Viant reports revenue net of
reimbursable expenses.
Viant's revenues and earnings may fluctuate from quarter to quarter based on
such factors within and outside its control, including: the variability in
market demand for the Internet and for Internet professional services, the
length of the sales cycle associated with our service offerings, the number,
size and scope of our projects, and the efficiency with which we utilize our
employees. See "Factors Affecting Viant's Operating Results, Business Prospects
and Market Price of Stock--Fluctuations in our quarterly revenues and operating
results may lead to reduced prices for our stock." Viant does not track backlog
information. Any information regarding anticipated future revenue from clients
would not be meaningful and potentially misleading.
19
<PAGE>
The number of Viant employees increased from 213 as of January 1, 1999 to
405 as of December 31, 1999. Personnel compensation and facilities costs
represent a high percentage of Viant's operating expenses and are relatively
fixed in advance of each quarter. Accordingly, if revenues do not increase at a
rate equal to expenses, Viant's business, financial condition or results of
operations could be materially and adversely affected. In addition, Viant's
liquidity may also be adversely affected if revenues do not increase at a rate
equal to these additional expenses, to the extent Viant is unable to reduce
operating expenses.
During 1998, Viant changed its fiscal year to the 52-week period ending on
the Friday nearest the last day of December of that year. Prior to this, the
fiscal year of Viant was the calendar year. All references below to the results
of operations for 1998 are the actual operating results for the fiscal year
ended January 1, 1999.
RESULTS OF OPERATIONS
The following table sets forth the percentage of net revenues of certain
items included in Viant's statement of operations for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
DECEMBER, 31 JANUARY 1, DECEMBER, 31
1997 1999 1999
------------ ---------- ------------
<S> <C> <C> <C>
Net revenues.............................................. 100% 100% 100%
=== === ===
Operating expenses:
Professional services................................... 51 56 46
Sales and marketing..................................... 18 16 11
General and administrative.............................. 71 52 37
Research and development................................ 7 7 6
--- --- ---
Total operating expenses.............................. 147 131 100
--- --- ---
Loss from operations...................................... (47) (31) (1)
Interest and other income (expense), net.................. 1 (1) 3
Provision for income taxes................................ -- -- --
--- --- ---
Net income (loss)......................................... (46)% (32)% 2%
=== === ===
</TABLE>
COMPARISON OF FISCAL YEARS 1997, 1998 AND 1999
NET REVENUES. Net revenues were $61.3 million in 1999, representing an
increase of 207% over revenues of $20.0 million for the year ended January 1,
1999. The increase in net revenues reflected growing demand for Internet
professional services and increases in both the size and number of Viant's
client engagements. Net revenues increased from $8.8 million for the year ended
December 31, 1997 to $20.0 million for the year ended January 1, 1999. The $11.2
million increase reflected increases in both the size and number of client
engagements. Revenues derived from Viant's three largest clients, as a
percentage of total net revenues, decreased from 68% in 1997, to 42% in 1998 and
to 35% in 1999, reflecting an increase in business from other clients.
Billings in advance of services performed are recorded as deferred revenues.
Viant had $931,000 in deferred revenues at December 31, 1997, $1.1 million at
January 1, 1999 and $2.7 million at December 31, 1999. The increase in deferred
revenues from year to year reflects new client engagements as well as
contractual terms that allow Viant to bill clients in advance of performing
services. During 1997, 1998 and 1999, substantially all of Viant's revenues were
derived from fixed-price, fixed-time contracts.
20
<PAGE>
PROFESSIONAL SERVICES. Professional services expenses consist primarily of
compensation and benefits for employees engaged in the delivery of Internet
professional services and non-reimbursable expenses related to client projects.
Professional services expenses represented 51% of total net revenues in 1997,
56% in 1998 and 46% in 1999. The decrease in professional services expenses as a
percentage of net revenues in 1999 compared to 1998 reflects the higher revenues
generated in 1999 as compared to 1998, increased utilization of professional
staff and better planning and execution on client engagements. The increase in
professional services expenses as a percentage of net revenues in 1998 compared
to 1997 was primarily due to Viant's strategy of increased hiring in
anticipation of future growth as well as higher salaries. Professional services
expenses increased by $6.7 million from 1997 to 1998 and $17.3 million from 1998
to 1999. These increases were primarily due to the hiring of additional
professional staff.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
compensation, benefits and travel costs for employees in the sales and marketing
groups, marketing program costs and an allocation of facilities costs. Sales and
marketing expenses represented 18% of total net revenues in 1997, 16% in 1998
and 11% in 1999. The decrease in sales and marketing expenses as a percentage of
revenues from 1998 to 1999 and from 1997 to 1998 was primarily due to higher
revenues generated per sales employee and revenue growth. Sales and marketing
expenses increased by $1.7 million from 1997 to 1998 and $3.4 million from 1998
to 1999. These increases were attributable to the increase in the number of
sales personnel and an overall increase in Viant's marketing and branding
efforts.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of compensation, benefits and travel costs for employees in Viant's
management, human resources, finance and administration groups, and facilities
costs not allocated to sales and marketing or research and development. General
and administrative expenses represented 71% of total net revenues in 1997, 52%
in 1998 and 37% in 1999. The decrease of general and administrative expenses as
a percentage of net revenues was the result of higher revenue growth versus
infrastructure support costs and more efficient operations. General and
administrative expenses increased by $4.1 million from 1997 to 1998 and $12.5
million from 1998 to 1999. These increases were primarily the result of
increased personnel and facilities costs in connection with the opening of
additional offices. After adjustment to exclude non-recurring 1997 severance
expenses of $1.5 million related to an agreement between Viant and a former
employee, general and administrative expenses represented 54% of total net
revenues in 1997.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of compensation, benefits and an allocation of facilities costs for
employees associated with Viant's innovation groups. Research and development
expenses represented 7% of total net revenues in 1997, 7% in 1998 and 6% in
1999. Research and development expenses increased $848,000 from 1997 to 1998
because of the addition of two innovation groups. Research and development
expenses increased $2.2 million from 1998 to 1999 primarily because of
additional personnel in these groups. The decrease in research and development
expenses as a percentage of total net revenues from 1998 to 1999 was primarily
due to revenue growth.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Viant has funded its operations and investments in property
and equipment through private and public equity financings, bank borrowings and
capital lease financing arrangements. Viant's cash, cash equivalents and
short-term investments increased from $18.8 million at the end of 1998 to $188.2
million as of December 31, 1999. This increase is primarily due to the receipt
of net proceeds of $50.2 million from the issuance of 6,900,000 shares of common
stock in Viant's initial public offering on June 18, 1999 and from the net
proceeds of $120.3 million for the issuance of 2,685,920 shares of common stock
in a public offering on December 8, 1999. Additionally, there was
21
<PAGE>
$5.7 million in cash provided by operations. Viant used $125.3 million in cash
for investing activities in 1999.
Viant has a $3.2 million capital lease facility with a leasing company that
is secured by the capital assets purchased with the borrowings. Outstanding
borrowings under the above credit facility totaled $2.1 million as of
December 31, 1999.
Viant believes that its current cash, cash equivalents and short-term
investments will be sufficient to meet Viant's working capital and capital
expenditure requirements for at least the next 24 months. However, there can be
no assurance that Viant will not require additional financings within this time
frame or that such additional financing, if needed, will be available on terms
acceptable to Viant, if at all.
PENDING ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("FAS 133"), which initially would have been effective
for all fiscal quarters beginning after June 15, 1999. In June 1999, the
Financial Accounting Standards Board released Statement of Financial Accounting
Standards No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of Effective Date of FAS 133 ("FAS 137"). FAS 137 defers
the effective date of FAS 133 until June 15, 2000. FAS 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring that an entity recognize those items
as assets or liabilities in the statement of financial position and measure them
at a fair value. Viant expects that the adoption of FAS 133 will not have a
material impact on Viant's financial position of results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes the SEC's view in applying generally accepted
accounting principles to selected revenue recognition issues. The application of
the guidance in SAB 101 will be required in Viant's first quarter of 2000. The
effects of applying this guidance, if any, will be reported as a cumulative
effect adjustment resulting from a change in accounting principle. Viant does
not expect the adoption of SAB 101 to have a material effect on its financial
statements, however, the final evaluation of SAB 101 is not yet complete.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Viant does not believe that there is any material market risk exposure with
respect to derivative or other financial instruments which would require
disclosure under this item.
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Accountants........................... 24
Statement of Operations for the Years Ended December 31,
1997, January 1, 1999 and December 31, 1999............... 25
Balance Sheet as of January 1, 1999 and December 31, 1999... 26
Statement of Cash Flows for the Years Ended December 31,
1997, January 1, 1999 and December 31, 1999............... 27
Statement of Stockholders' Equity for the Years Ended
December 31, 1997, January 1, 1999 and December 31,
1999...................................................... 28
Notes to Financial Statements............................... 29
</TABLE>
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Viant Corporation
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Viant Corporation at December 31,
1999 and January 1, 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of Viant's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 8, 2000
24
<PAGE>
VIANT CORPORATION
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------
DECEMBER 31, JANUARY 1, DECEMBER 31,
1997 1999 1999
------------ ---------- ------------
<S> <C> <C> <C>
Net revenues.............................................. $ 8,808 $20,043 $61,332
------- ------- -------
Operating expenses:
Professional services................................. 4,530 11,250 28,509
Sales and marketing................................... 1,577 3,324 6,688
General and administrative............................ 6,298 10,365 22,837
Research and development.............................. 581 1,429 3,623
------- ------- -------
Total operating expenses............................ 12,986 26,368 61,657
------- ------- -------
Loss from operations................................ (4,178) (6,325) (325)
Interest income........................................... 160 234 2,197
Interest expense.......................................... (25) (371) (402)
Other expense, net........................................ (37) (25) (2)
------- ------- -------
Income (loss) before income taxes..................... (4,080) (6,487) 1,468
Provision for income taxes................................ -- -- 57
------- ------- -------
Net income (loss)......................................... $(4,080) $(6,487) $ 1,411
======= ======= =======
Net income (loss) per share:
Basic............................................. $ (0.59) $ (0.88) $ 0.05
Diluted........................................... $ (0.59) $ (0.88) $ 0.04
Shares used in computing net income (loss) per share:
Basic............................................. 6,936 7,362 27,208
Diluted........................................... 6,936 7,362 31,904
Pro forma net income per share:
Basic............................................. $ 0.04
Diluted........................................... $ 0.03
Shares used in computing pro forma net income per share:
Basic............................................. 39,298
Diluted........................................... 43,992
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
VIANT CORPORATION
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 1, 1999 DECEMBER 31, 1999
---------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $18,209 $ 66,450
Short-term investments.................................... 602 121,726
Accounts receivable, net.................................. 5,472 16,927
Prepaid expenses and other current assets................. 1,190 1,595
------- --------
Total current assets.................................... 25,473 206,698
Property and equipment, net................................. 4,048 6,767
Other assets................................................ 232 761
------- --------
Total assets.............................................. $29,753 $214,226
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 2,850 $ --
Current portion of capital lease obligation............... 416 608
Accounts payable.......................................... 626 2,877
Accrued expenses.......................................... 2,907 13,381
Deferred revenues......................................... 1,052 2,748
------- --------
Total current liabilities............................... 7,851 19,614
Long-term debt, less current portion...................... 603 --
Capital lease obligations, less current portion........... 1,634 1,533
------- --------
Total liabilities....................................... 10,088 21,147
------- --------
Commitments (Note 6)...................................... -- --
Stockholders' equity:
Convertible preferred stock:
Series D: no par value; 3,240,000 and 0 shares authorized,
respectively; 3,167,100 and 0 shares issued and
outstanding, respectively............................... 20,125 --
Series A: no par value; 5,746,874 and 0 shares authorized,
respectively; 5,746,874 and 0 shares issued and
outstanding, respectively............................... 3,047 --
Series B: no par value; 1,499,925 and 0 shares authorized,
respectively; 1,499,925 and 0 shares issued and
outstanding, respectively............................... 987 --
Series C: no par value; 2,830,408 and 0 shares authorized,
respectively; 2,759,625 and 0 shares issued and
outstanding, respectively............................... 7,977 --
Preferred stock, $0.001 par value; 0 and 5,000,000 shares
authorized, respectively; no shares issued and
outstanding............................................. -- --
Common stock; $0.001 par value; 25,000,000 and 50,000,000
shares authorized, respectively; 8,588,472 and
46,071,286 shares issued and outstanding, respectively.. 8 46
Additional paid-in capital.................................. 425 208,489
Deferred compensation....................................... -- (3,958)
Other comprehensive income.................................. -- (5)
Accumulated deficit......................................... (12,904) (11,493)
------- --------
Total stockholders' equity.................................. 19,665 193,079
------- --------
Total liabilities and stockholders' equity.................. $29,753 $214,226
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
VIANT CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------
DECEMBER 31, JANUARY 1, DECEMBER 31,
1997 1999 1999
------------ ---------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... $(4,080) $(6,487) $ 1,411
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Tax benefit from disqualifying dispositions.......... -- -- 57
Depreciation and amortization........................ 205 1,065 1,958
Stock-based compensation expense..................... 200 -- 253
Changes in operating assets and liabilities:
Accounts receivable................................ (1,436) (3,652) (11,455)
Prepaid expenses and other assets.................. (251) (1,109) (934)
Accounts payable................................... 1,079 (539) 2,251
Accrued expenses................................... 970 1,710 10,474
Deferred revenues.................................. 832 121 1,696
------- ------- ---------
Net cash (used in) provided by operating
activities..................................... (2,481) (8,891) 5,711
------- ------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments.................... (615) (602) (126,619)
Maturity of short-term investments..................... -- 615 5,495
Purchases of property and equipment.................... (2,001) (901) (4,210)
------- ------- ---------
Net cash used in investing activities............ (2,616) (888) (125,334)
------- ------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options................ -- -- 1,161
Proceeds from issuance of convertible preferred stock,
net.................................................. 7,977 20,125 75
Proceeds from issuance of common stock, net............ 195 21 170,462
Proceeds from borrowings on lines of credit............ 1,046 2,749 --
Principal payments on lines of credit.................. (27) (315) (3,453)
Repurchase of common stock............................. (680) -- --
Principal payments on capital lease obligations........ -- (151) (376)
------- ------- ---------
Net cash provided by financing activities........ 8,511 22,429 167,869
------- ------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................ -- -- (5)
------- ------- ---------
Net increase in cash and cash equivalents................ 3,414 12,650 48,241
Cash and cash equivalents at beginning of year........... 2,145 5,559 18,209
------- ------- ---------
Cash and cash equivalents at end of year................. $ 5,559 $18,209 $ 66,450
======= ======= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest................................... $ 22 $ 371 $ 402
NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital lease obligations....... $ -- $ 2,201 $ 467
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
VIANT CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER
---------------------- --------------------- PAID-IN DEFERRED COMPREHENSIVE
SHARES VALUE SHARES PAR CAPITAL COMPENSATION INCOME
----------- -------- ---------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.......... 7,246,799 $ 4,034 7,962,500 $ 8 $ 11 $ -- $ --
Issuance of common stock upon exercise
of stock options.................... 1,646,250 2 193
Issuance of Series C preferred stock,
net of issuance costs of $25........ 2,759,625 7,977
Common stock repurchased and
retired............................. (2,496,234) (2)
Compensation expense on employee
severance arrangement............... 200
Net loss..............................
----------- -------- ---------- --- -------- ------- ----
Balance at December 31, 1997.......... 10,006,424 12,011 7,112,516 8 404 -- --
Issuance of common stock upon exercise
of stock options.................... 412,064 21
Issuance of Series D preferred stock,
net of issuance costs of $68........ 3,160,043 20,125
Net loss..............................
----------- -------- ---------- --- -------- ------- ----
Balance at January 1, 1999............ 13,166,467 32,136 7,524,580 8 425 -- --
Issuance of common stock upon exercise
of stock options.................... 2,599,496 2 1,159
Tax benefit from exercise of stock
options............................. 57
Issuance of Series C preferred stock
upon exercise of warrants........... 5,517 20
Issuance of Series D preferred
stock............................... 8,661 55
Conversion of preferred stock into
common stock........................ (13,180,645) (32,211) 26,361,290 26 32,185
Initial public offering of common
stock............................... 6,900,000 6 50,150
Secondary public offering of common
stock............................... 2,685,920 4 120,302
Cumulative translation adjustment..... (5)
Compensation related to grant of
nonemployee common stock options.... 211
Deferred compensation related to grant
of employee common stock options and
subsequent amortization............. 4,000 (3,958)
Net income............................
----------- -------- ---------- --- -------- ------- ----
Balance at December 31, 1999.......... -- -- 46,071,286 $46 $208,489 $(3,958) $ (5)
=========== ======== ========== === ======== ======= ====
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
----------- -------------
<S> <C> <C>
Balance at December 31, 1996.......... $ (1,659) $ 2,394
Issuance of common stock upon exercise
of stock options.................... 195
Issuance of Series C preferred stock,
net of issuance costs of $25........ 7,977
Common stock repurchased and
retired............................. (678) (680)
Compensation expense on employee
severance arrangement............... 200
Net loss.............................. (4,080) (4,080)
-------- --------
Balance at December 31, 1997.......... (6,417) 6,006
Issuance of common stock upon exercise
of stock options.................... 21
Issuance of Series D preferred stock,
net of issuance costs of $68........ 20,125
Net loss.............................. (6,487) (6,487)
-------- --------
Balance at January 1, 1999............ (12,904) 19,665
Issuance of common stock upon exercise
of stock options.................... 1,161
Tax benefit from exercise of stock
options............................. 57
Issuance of Series C preferred stock
upon exercise of warrants........... 20
Issuance of Series D preferred
stock............................... 55
Conversion of preferred stock into
common stock........................ --
Initial public offering of common
stock............................... 50,156
Secondary public offering of common
stock............................... 120,306
Cumulative translation adjustment..... (5)
Compensation related to grant of
nonemployee common stock options.... 211
Deferred compensation related to grant
of employee common stock options and
subsequent amortization............. 42
Net income............................ 1,411 1,411
-------- --------
Balance at December 31, 1999.......... $(11,493) $193,079
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
VIANT CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Viant Corporation ("Viant") is a leading Internet professional services firm
providing strategic consulting, creative design and technology services to
companies seeking to capitalize on the Internet. Viant's current customers are
based in the United States and Europe and include primarily Fortune 1000
companies.
FISCAL YEAR
During 1998, Viant changed its fiscal year to the 52-week period ending on
the Friday nearest to the last day of December of that year. Prior to this, the
fiscal year of Viant was the calendar year. Viant's fiscal year 1998 ended on
January 1, 1999.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Viant considers all highly liquid instruments with an original maturity of
three months or less to be cash equivalents. At January 1, 1999 and
December 31, 1999, Viant's short-term investments consisted primarily of
certificates of deposit and money market funds secured by U.S. Government-backed
securities and commercial paper with maturities of 60 to 360 days.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject Viant to concentrations of
credit risk consist primarily of cash equivalents, short-term investments and
accounts receivable. Substantially all of Viant's cash equivalents and
short-term investments are held at high credit quality financial institutions.
Accounts receivable are typically unsecured and are derived from revenue earned
from clients primarily located in the United States and Europe. Viant performs
ongoing credit evaluations of its clients' financial condition and maintains
reserves for potential credit losses based upon the expected collectibility of
total accounts receivable. To date, losses resulting from uncollected
receivables have not exceeded management's expectations.
At January 1, 1999 and December 31, 1999, two clients and three clients
accounted for 39% and 41% of total accounts receivable, respectively. Three
clients accounted for 30%, 27% and 11% of total net revenues in 1997. Three
clients accounted for 15%, 14% and 13% of total net revenues in 1998. Two
clients accounted for 15% and 13% of total net revenues in 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments that are subject to fair value disclosure requirements
are carried in the financial statements at amounts that approximate fair value
and include cash and cash equivalents, short-term investments, accounts
receivable, accounts payable, capital lease obligations and other credit
facilities. Fair values are based on quoted market prices and assumptions
concerning the amount and timing of estimated future cash flows and assumed
discount rates reflecting varying degrees of perceived risk.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
assets, generally 3-5 years. Equipment under capital leases is amortized over
the shorter of the useful life of the equipment or the lease term.
29
<PAGE>
VIANT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Leasehold improvements are amortized over the shorter of the lease period or the
useful life of the improvement.
REVENUE RECOGNITION
Substantially all of Viant's revenues are derived from professional services
which are generally provided to clients on a fixed-price, fixed-time basis.
Revenues on fixed-price engagements are recognized using the percentage of
completion method (based on the ratio of costs incurred to the total estimated
project cost at completion). Unbilled receivables represent revenue recognized
in advance of amounts billed. Billings received in advance of services performed
are recorded as deferred revenues. Provisions for estimated losses on contracts
are made during the period in which such losses become probable and can be
reasonably estimated. To date, such losses have not been significant. Viant
reports revenues net of reimbursable expenses which are billed to and collected
from clients.
PROFESSIONAL SERVICES
Professional services expenses consist primarily of compensation and
benefits costs for employees engaged in the delivery of professional services
and non-reimbursable expenses related to client projects.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of compensation,
benefits and travel costs for employees in Viant's management, human resources,
finance and administration groups and facilities costs not allocated to sales
and marketing or research and development.
RESEARCH AND DEVELOPMENT
Viant's research and development efforts focus on evaluating and testing
technologies to be deployed to clients. Accordingly, all research and
development costs are charged to expense as incurred.
STOCK-BASED COMPENSATION
Viant accounts for stock-based compensation in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, compensation expense is recorded for options issued to employees in
fixed amounts and with fixed exercise prices to the extent such exercise prices
are less than the fair market value of Viant's common stock at date of grant.
Viant follows the disclosure requirements of Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" (Note 10).
All stock-based awards to non-employees are accounted for at their fair value in
accordance with SFAS No. 123.
EARNINGS PER SHARE
Viant computes net income (loss) per share in accordance with SFAS No. 128,
"Earnings Per Share." Under SFAS 128, basic net income (loss) per common share
is computed by dividing net income (loss) by the weighted average number of
common shares outstanding for the period. Diluted income (loss) per common share
reflect the maximum dilution that would have resulted from the
30
<PAGE>
VIANT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
assumed exercise and share repurchase related to dilutive stock options and is
computed by dividing net income (loss) by the weighted average number of common
shares and all dilutive securities outstanding.
The reconciliation of the numerators and denominators of the basic and
diluted net income (loss) per common share computations for the Company's
reported net income (loss) is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Weighted average number of shares
outstanding--basic............................. 6,936 7,362 27,208
Incremental shares upon exercise of common stock
options........................................ -- -- 4,696
------- ------- -------
Weighted average number of shares outstanding--
diluted........................................ 6,936 7,362 31,904
======= ======= =======
Net income (loss)................................ $(4,080) $(6,487) $ 1,411
======= ======= =======
Basic income (loss) per share.................... $ (0.59) $ (0.88) $ 0.05
======= ======= =======
Diluted income (loss) per share.................. $ (0.59) $ (0.88) $ 0.04
======= ======= =======
</TABLE>
For 1998 and 1997, stock options to purchase shares of common stock totaling
8.5 million and 6.6 million, respectively, were outstanding but were not
included in the calculation of diluted earnings per share since the effect was
anti-dilutive.
Unaudited pro forma net income per share for the year ended December 31,
1999 included in the statement of operations is computed using the weighted
average number of common shares outstanding, adjusted to include the pro forma
effects of the conversion of preferred stock to common stock as if such
conversion had occurred on January 2, 1999, or at the date of original issuance,
if later.
COMPREHENSIVE INCOME
Viant adopted SFAS No. 130, "Reporting Comprehensive Income" during 1999.
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components. The adoption of SFAS No. 130 had no
impact on Viant's net income or stockholders' equity.
Total comprehensive income, which was comprised of net income and foreign
currency translation adjustments, was $1,406,000 for the year ended
December 31, 1999. Total comprehensive income was comprised solely of net income
for the years ended December 31, 1997 and January 1, 1999.
FOREIGN CURRENCY
Assets and liabilities of Viant's international operations are translated
into U.S. dollars at exchange rates in effect at the balance sheet date. Income
and expense items are translated at average exchange rates during the year.
Translation adjustments are accumulated in a separate component of stockholders'
equity. Realized gains and losses recorded in the statements of operations were
not material for each period presented.
31
<PAGE>
VIANT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from those estimates.
2. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
1999 1999
---------- ------------
<S> <C> <C>
Billed................................................ $5,116 $16,769
Unbilled.............................................. 1,265 1,162
Allowance for doubtful accounts....................... (909) (1,004)
------ -------
$5,472 $16,927
====== =======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
1999 1999
---------- ------------
<S> <C> <C>
Computer equipment and software....................... $ 2,319 $ 5,667
Furniture and equipment............................... 936 1,726
Leasehold improvements................................ 2,112 2,651
------- -------
5,367 10,044
Less: accumulated depreciation and amortization....... (1,319) (3,277)
------- -------
$ 4,048 $ 6,767
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1997, January 1, 1999
and December 31, 1999 was $205,000, $1,065,000, and $1,958,000, respectively.
Included in the above is equipment and leasehold improvements acquired under
capital leases of $2,201,000 and $2,668,000 at January 1, 1999, and
December 31, 1999 respectively. Accumulated depreciation and amortization on
equipment and leasehold improvements acquired under capital lease was $456,000
and $787,000 at January 1, 1999 and December 31, 1999, respectively.
32
<PAGE>
VIANT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
1999 1999
---------- ------------
<S> <C> <C>
Payroll and related................................... $2,238 $ 11,670
Other................................................. 669 1,711
------ --------
$2,907 $ 13,381
====== ========
</TABLE>
5. CREDIT FACILITIES
In September 1996, Viant secured a revolving line of credit with a bank
which provided for borrowings of up to $1,250,000. In July 1997, the revolving
line of credit was increased to $3,000,000. In March 1998, Viant amended the
revolving line of credit to provide for borrowings up to $5,000,000 including a
$2,000,000 letter of credit facility. Borrowings under the revolving line of
credit were limited to 80% of eligible accounts receivable plus $1,000,000. The
revolving line of credit was repaid in full on July 1, 1999. Warrants to
purchase 5,517 shares of Series C preferred stock were issued as part of the
agreement and were exercised during 1999. At December 31, 1999, letters of
credit totaling $1,264,000 were collateralized by bank deposits. The letters of
credit expire periodically through July 28, 2000.
In September 1996, under the same bank agreement, Viant also secured an
equipment line of credit which provided for borrowings of up to $750,000. In
July 1997, the equipment line of credit was amended to provide for borrowings up
to $1,250,000. The equipment line of credit was repaid in full on July 1, 1999
and was terminated.
6. LEASE COMMITMENTS
Viant leases office facilities and certain equipment under operating and
capital leases, respectively. Viant entered into lease agreements for facilities
in Chicago, Los Angeles, Boston, San Francisco, London, Dallas and New York
which expire in 2000, 2001, 2003, 2003, 2003, 2004, and 2007, respectively. Rent
expense under operating leases for the years ended December 31, 1997,
January 1, 1999 and December 31, 1999 was $535,000, $1,718,000 and $2,647,000,
respectively. Viant is party to letters of credit in support of their minimum
future lease payments under leases for permanent office space amounting to
$1,264,000 as of December 31, 1999, declining annually.
In March 1998, Viant entered into an agreement with a leasing company which
provides for capital lease borrowings related to equipment purchases up to
$3,250,000, which expired in December 1999. Pursuant to the agreement, Viant
issued warrants to purchase 35,986 shares of Series C preferred stock at $3.625
per share which expires five years from the date of an underwritten initial
public offering of common stock. The value ascribed to these warrants was not
material to Viant's financial position or results of operations.
33
<PAGE>
VIANT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LEASE COMMITMENTS (CONTINUED)
Minimum future lease commitments under noncancelable capital and operating
leases at December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
-------- ---------
<S> <C> <C>
2000...................................................... $ 811 $ 2,521
2001...................................................... 811 2,423
2002...................................................... 790 2,421
2003...................................................... 115 1,637
2004...................................................... -- 1,134
Thereafter................................................ -- 2,462
------ -------
Total minimum lease payments.............................. 2,527 $12,598
=======
Less amount representing interest......................... 386
------
Present value of minimum capital lease payments........... $2,141
======
</TABLE>
7. RELATED PARTY TRANSACTIONS
In March 1998, Viant entered into two agreements with one of its executives
for a housing loan of $50,000 and a personal loan of $40,000. Interest on both
loans accrue annually at 8.5%. Interest payments only are due on the housing
loan for the first four years. Upon commencement of the fifth year, repayment of
principal and interest on the housing loan will be made in accordance with a
monthly repayment schedule in which principal and interest will be repaid and
amortized over a two-year period. Viant will forgive 25% of the personal loan
principal and accrued interest annually commencing on the first anniversary of
the loan and for the next three anniversaries thereafter. The housing loan
becomes immediately due and payable and the remaining principal balance of the
personal loan will become immediately due and payable if the employee ceases to
be employed by Viant for any reason, fails to perform any of their obligations
under the loan agreements, or files for bankruptcy or otherwise becomes
insolvent.
A Viant employee serves on the Board of Directors for a client. Viant
generated $3,141,000 in revenue from this client during 1999.
8. CONVERTIBLE PREFERRED STOCK
As of January 1, 1999, Viant's Articles of Incorporation, as amended, had
authorized Viant to issue 13,317,207 shares of preferred stock, no par value, of
which 5,746,874, 1,499,925, 2,830,408 and 3,240,000 shares were designated as
Series A, B, C and D preferred stock, respectively.
In May 1996, Viant issued 5,746,874 shares of Series A preferred stock for
net cash proceeds of $2,547,000 and the conversion of a $500,000 note payable to
a third party investor. In June 1996, Viant issued 1,499,925 shares of Series B
preferred stock for net cash proceeds of $987,000. In May and September 1997,
Viant issued a total of 2,759,625 shares of Series C preferred stock for net
cash proceeds of $7,977,000. In November 1998 and January 1999, Viant issued a
total of 3,160,043 shares and 8,661 shares of Series D preferred stock for net
cash proceeds of $20,125,000 and $55,000, respectively.
34
<PAGE>
VIANT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. CONVERTIBLE PREFERRED STOCK (CONTINUED)
In June 1999, in connection with Viant's initial public offering, all shares
of preferred stock were converted into common stock. As of December 31, 1999,
there were no outstanding shares of preferred stock.
9. COMMON STOCK
On June 18, 1999, Viant closed its initial public offering of common stock
at a public offering price of $8 per share. The net proceeds to Viant from the
offering were $50.2 million, net of underwriting discounts and offering costs.
On December 8, 1999, Viant closed its secondary public offering of common
stock at a public offering price of $47.3125 per share. The net proceeds to
Viant from the offering were $120.3 million, net of underwriting discounts and
offering costs.
In March 1999, the Board of Directors authorized, subject to stockholder
approval, the 1999 Employee Stock Purchase Plan (the "1999 ESPP"), which
provides for the issuance of a maximum of 400,000 shares of common stock. The
1999 ESPP permits eligible employees to purchase common stock through payroll
deductions of up to 15% of the participant's compensation. Amounts deducted and
accumulated by the participant are used to purchase shares of common stock at
the end of semi-annual enrollment periods. The price of stock purchased under
the 1999 ESPP is 85% of the lower of the fair market value of the common stock
at the beginning or end of the enrollment period.
In June 1997, under a severance agreement, Viant paid a founder $1,766,000
in cash, which included $680,000 for the repurchase of 2,496,234 shares of
vested and unvested shares of common stock. Viant also agreed to pay one year's
salary as severance, on a monthly basis, for a total amount of $175,000. In
addition, Viant extended the vesting of an additional 400,000 shares of common
stock, ratably over four quarters, which would have otherwise been subject to
repurchase. Accordingly, Viant recognized compensation expense of $200,000 as
the estimated fair value of such shares. With respect to all of these
arrangements, Viant recognized total severance related expenses of $1,461,000 in
the year ended December 31, 1997.
10. STOCK OPTIONS
In June 1996, the Board of Directors and stockholders adopted the 1996 Stock
Option Plan (the "1996 Plan") which provides for granting incentive stock
options ("ISOs") and nonqualified stock options ("NSOs") for up to 8,583,752
shares of common stock to employees and consultants of Viant. In November 1997,
the 1996 Plan was amended to authorize options for up to 11,983,752 shares. In
January 1999, the Board of Directors authorized, subject to stockholder
approval, the 1999 Stock Option Plan (the "1999 Plan") which provides for the
granting of ISOs to employees, and for the granting of NSOs and stock purchase
rights to employees, directors and consultants of Viant. A total of 9,737,858
shares of common stock are authorized for issuance pursuant to the 1999 Plan.
The 1999 Plan also provides for early exercise of options for certain employees,
the stock for which is subject to the same vesting and repurchase terms under
the 1999 Plan. In accordance with the 1999 Plan, the stated exercise price shall
not be less than 100% of the fair market value of common stock on the date of
grant for ISOs and shall be at least 85% of the fair market value for NSOs. The
1999 Plan provides that the options shall be exercisable over a period not to
exceed ten years. Options generally vest 25% after one year of service and
quarterly for the three years thereafter.
35
<PAGE>
VIANT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTIONS (CONTINUED)
In connection with the grant of stock options to an employee in late 1999,
Viant recorded deferred compensation of $4.0 million, representing the
difference between the option exercise price and the fair value of the common
stock at the grant date multiplied by the number of shares under option. Such
amount is presented as a decrease to stockholders' equity and amortized over the
vesting period of the options. Viant recorded compensation expense of $42,000 in
1999 related to these options.
During 1999, Viant issued options to purchase a total of 103,000 shares to
non-employees. These options were immediately exercisable and Viant recorded
compensation expense of $211,000 in 1999 related to these options.
Activity under the Plan is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 JANUARY 1, 1999 DECEMBER 31, 1999
----------------------- ---------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
OPTION EXERCISE OPTION EXERCISE OPTION EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- --------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period........................... 5,862,000 $0.08 6,592,500 $0.19 8,461,710 $ 0.50
Granted............................ 2,584,500 0.37 2,580,700 1.24 7,420,610 12.95
Exercised.......................... (1,646,250) 0.12 (412,064) 0.05 (2,599,496) 0.44
Cancelled.......................... (207,750) 0.05 (299,426) 0.38 (1,071,090) 1.78
----------- ---------- -----------
Outstanding at end of year......... 6,592,500 $0.19 8,461,710 $0.51 12,211,734 $ 7.86
=========== ========== ===========
Options exercisable at end of
year............................. 831,126 $0.04 2,509,624 $0.17 2,922,064 $ 1.24
Weighted-average fair value of
options granted during the
year............................. $ 0.08 $ 0.23 $ 11.44
Options available for future
grant............................ 3,745,002 1,463,728 2,628,676
</TABLE>
The following summarizes information about Viant's stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------
WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE (IN YEARS) PRICE EXERCISABLE PRICE
-------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.00 - 5.87............................... 9,747,634 8.1 $ 1.96 2,825,064 $ 0.61
$5.88 - 23.50.............................. 532,100 9.5 14.46 57,000 9.63
$23.51 - 29.37............................. 766,500 9.7 24.45 20,000 26.61
$29.38 - 41.12............................. 39,000 9.8 34.10 13,000 33.30
$41.13 - 58.75............................. 1,126,500 9.5 43.57 7,000 55.82
---------- ---------
12,211,734 8.4 $ 7.86 2,922,064 $ 1.24
========== =========
</TABLE>
Viant recognizes stock-based compensation expense for options granted under
the 1996 and 1999 plans in accordance with the provisions of Accounting
Principles Board Opinion No. 25. Had compensation expense been determined based
on the fair value at the grant dates, consistent with the
36
<PAGE>
VIANT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTIONS (CONTINUED)
methodology prescribed under SFAS No. 123, Viant's pro forma net income (loss)
would have been as follows:
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------
DECEMBER 31, JANUARY 1, DECEMBER 31,
1997 1999 1999
------------ ---------- ------------
<S> <C> <C> <C>
Net income (loss):
As reported............................................. $(4,080) $(6,487) $ 1,411
Pro forma............................................... (4,128) (6,632) (11,000)
Net income (loss) per share:
As reported
Basic............................................... $ (0.59) $ (0.88) $ 0.05
Diluted............................................. $ (0.59) $ (0.88) $ 0.04
Pro forma
Basic............................................... $ (0.60) $ (0.90) $ (0.40)
Diluted............................................. $ (0.60) $ (0.90) $ (0.40)
</TABLE>
The following assumptions were used by Viant to determine the fair value of
stock options granted under the Black-Scholes options-pricing model for the
years ended December 31, 1997, January 1, 1999 and December 31, 1999.
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate..................................... 6.1% 5.2% 5.9%
Expected option life........................................ 4 years 4 years 4 years
Expected volatility......................................... 0.0% 0.0% 115.6%
Expected dividend yield..................................... 0.0% 0.0% 0.0%
</TABLE>
Because additional stock options are expected to be granted each year and
the pro forma net income (loss) only includes the effect of options granted in
1997, 1998 and 1999, the above pro forma disclosures are not representative of
the pro forma effects on reported financial results for future years.
11. EMPLOYEE SAVINGS PLAN
Viant's Retirement/Savings Plan (the "401(k) Plan") under Section 401(k) of
the Internal Revenue Code covers all full-time employees. The 401(k) Plan allows
eligible employees to make contributions up to a specified annual maximum
contribution, as defined. Under the 401(k) Plan, Viant may, but is not obligated
to, match a portion of the employee contributions up to a defined maximum. Viant
did not contribute to the 401(k) Plan in 1997, 1998 or 1999.
12. INCOME TAXES
As a result of losses generated, Viant had no current or deferred tax
provisions for the years ended December 31, 1997 and January 1, 1999. For the
year ended December 31, 1999, Viant had current federal and state tax provisions
of $41,000 and $16,000, respectively.
37
<PAGE>
VIANT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES (CONTINUED)
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
1999 1999
---------- ------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 364 $ 423
Accrued expenses.......................................... 52 247
Loss carryforwards........................................ 4,539 4,929
Other..................................................... -- --
------ ------
Gross deferred tax assets................................. 4,955 5,599
Deferred tax asset valuation allowance.................... (4,735) (5,599)
------ ------
Total deferred tax assets............................. 220 --
------ ------
Deferred tax liabilities:
Property and equipment.................................... 220 --
------ ------
Total deferred tax liabilities........................ 220 --
------ ------
Net deferred tax asset...................................... $ -- $ --
====== ======
</TABLE>
Realization of deferred tax assets is contingent upon the generation of
future taxable income. Due to the uncertainty of realization of these tax
benefits, Viant has provided a valuation allowance for the full amount of its
net deferred tax asset.
At December 31, 1999, Viant had net operating loss carryforwards of
approximately $12,324,000 available for federal purposes to reduce future
taxable income. If not utilized, these carryforwards will expire at various
dates ranging from 2011 to 2019. Under the provisions of the Internal Revenue
Code, certain substantial changes in Viant's ownership may have limited, or may
limit in the future, the amount of net operating loss carryforwards which could
be utilized annually to offset future taxable income. The amount of any annual
limitation is determined based upon Viant's value prior to an ownership change.
At December 31, 1999, approximately $3,900,000 of the net operating loss
carryforwards available for federal income tax purposes relate to exercises of
non-qualified stock options and disqualifying dispositions of incentive stock
options, the tax benefit from which, if realized, will be credited to additional
paid-in capital.
Income taxes computed using the federal statutory income tax rate differs
from Viant's effective tax rate as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
DECEMBER 31, JANUARY 1, DECEMBER 31,
1997 1999 1999
------------ ---------- ------------
<S> <C> <C> <C>
U.S. federal statutory rate............................... $(1,387) $(2,206) $470
State income tax, net of federal income tax effect........ (237) (373) 119
Change in valuation allowance............................. 1,617 2,489 (647)
Permanent differences..................................... -- -- 115
Other..................................................... 7 90 --
------- ------- ----
Provision for income taxes................................ $ -- $ -- $ 57
======= ======= ====
</TABLE>
13. SUBSEQUENT EVENT
The Board of Directors and stockholders of Viant approved a 2-for-1 stock
split to be effected in the form of a 100% stock dividend to shareholders of
record as of February 8, 2000. This stock split has been given effect
retroactively in these financial statements for all periods presented. In
addition, the Board of Directors and stockholders of Viant approved an increase
in the authorized shares to 200,000,000.
38
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
PART III
We have omitted certain information from this Report that is required by
Part III. We intend to file a definitive proxy statement pursuant to Regulation
14A with the Securities and exchange Commission relating to our annual meeting
of stockholders not later than 120 days after the end of the fiscal year covered
by this Report, and such information is incorporated by reference herein.
ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers as of March 1, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH VIANT
- ---- -------- -------------------
<S> <C> <C>
Robert L. Gett......................... 49 President and Chief Executive Officer, and Director
Ben Levitan............................ 38 Vice President and Chief Operating Officer
M. Dwayne Nesmith...................... 37 Vice President and Chief Financial Officer
Robbie O. Vann-Adibe................... 37 Vice President, New Business Development
Richard J. Chavez...................... 34 Vice President and Chief Strategy Officer
Timothy A. Andrews..................... 43 Vice President and Chief Technology Officer
Christopher Newell..................... 49 Vice President and Chief Knowledge Officer
Diane M. Hall.......................... 36 Vice President and Chief People Officer
Mark G. Leiter......................... 34 Vice President and Chief Strategy Officer
Sherwin A. Uretsky..................... 42 Vice President and Chief Business Development Officer
Tara Knowles........................... 35 Vice President and Chief Marketing Officer
</TABLE>
ROBERT L. GETT has served as President and Chief Executive Officer and
director of Viant since November 1996. From August 1990 to October 1996,
Mr. Gett was the President-North America and was on the board of directors for
Cambridge Technology Partners (Massachusetts), Inc., a technology consulting and
systems integration firm. From April 1988 to July 1990, Mr. Gett was President
of Fidelity Software Development Company, a subsidiary of Fidelity Investments,
a financial services company. From January 1982 to March 1988, Mr. Gett served
as Managing Director and Chief Information Officer of Smith Barney, Inc., a
financial services company. Mr. Gett currently serves on the board of directors
of Optika, Inc., an imaging and document management software company. Mr. Gett
holds a BS in Mathematics from Indiana University of Pennsylvania and an MS in
Technology Management from American University.
BEN LEVITAN has served as Vice President and Chief Operating Officer of
Viant since December 1999. From December 1997 to October 1999, Mr. Levitan was
President and Chief Executive Officer of James Martin Worldwide, plc. From March
1997 to December 1997, Mr. Levitan was President, North America of James Martin
Worldwide, plc. From April 1993 to March 1997, Mr. Levitan was a Director, Vice
President and Senior Vice President of Cambridge Technology Partners. Mr.
Levitan currently serves on the board of directors of Primavera Systems, Inc., a
software and business-to-business e-commerce company. Mr. Levitan holds a BA in
Political Science from Union College.
M. DWAYNE NESMITH has served as Vice President and Chief Financial Officer
of Viant since March 1999. From December 1996 to March 1999, Mr. Nesmith served
as Viant's Vice President of Operations and Planning, and from May 1996 to
June 1998, Mr. Nesmith served as Viant's Vice President of Product Marketing.
From January 1992 to April 1996, Mr. Nesmith was a product manager for Compuware
Corporation, a technology consulting and software development company. From
39
<PAGE>
August 1989 to December 1991, Mr. Nesmith was a product marketing manager for
Oracle Corporation, a database and technology company. From July 1984 to May
1987, Mr. Nesmith was a consultant for Arthur Andersen, an audit, tax and
consulting firm. Mr. Nesmith holds a BS in Computer Science from the University
of Mississippi and an MBA from the Harvard Business School.
ROBBIE O. VANN-ADIBE has served as Vice President, New Business Development
since March 2000. From April 1999 to February 2000 he served as Vice President
and Co-General Manager, London. From January 1997 to March 1999, Mr. Vann-Adibe
served as Vice President and General Manager, San Francisco of Viant. From
April 1996 to January 1997, Mr. Vann-Adibe served as the Senior Vice President
of Financial Services of Viant. From June 1995 to March 1996, Mr. Vann-Adibe
served as Vice President of Product Marketing at Illustra Information
Technologies, a software product company. From September 1992 to June 1995,
Mr. Vann-Adibe worked at Oracle Corporation where he last served as a Director
of Oracle Industries. Mr. Vann-Adibe holds a BSc in Mathematical Economics and
Econometrics from The London School of Economics and an MSc in Management
Science and Operational Research from The University of Warwick.
RICHARD J. CHAVEZ has served as Vice President and Chief Strategy Officer of
Viant since February 1997. From January 1995 to January 1997, Mr. Chavez was a
Principal for CSC Index, a management consulting firm. From August 1994 to
December 1994, Mr. Chavez was a Senior Client Partner and Manager for Cambridge
Technology Partners (Massachusetts), Inc., a technology consulting and systems
integration firm. From January 1989 to June 1994, Mr. Chavez was the Chief
Operating Officer and President of Marble Associates, Inc., a technology
consulting and systems integration firm. Mr. Chavez holds an AB degree in
Political Science from Harvard College.
TIMOTHY A. ANDREWS has served as Chief Technical Officer of Viant since
August 1998. The Chief Technical Officer is responsible for overseeing all
aspects of engineering, software development and technical implementation
activities. From July 1996 to July 1998, Mr. Andrews was a partner at Diamond
Technology Partners, Inc., a strategic management consulting firm. From
July 1994 to July 1996, Mr. Andrews was the Vice President of Technology for the
consulting and systems integration unit of Computer Sciences Corporation, a
consulting and systems integration firm. From January 1986 to February 1994,
Mr. Andrews was the Chief Technical Officer of ONTOS, Inc., a software company.
Mr. Andrews holds an AB in Engineering Science from Dartmouth College and an MS
in Computer Science and Electrical Engineering from Worcester Polytechnic
University.
CHRISTOPHER NEWELL has served as Vice President and Chief Knowledge Officer
of Viant since April 1999. The Chief Knowledge Officer is responsible for
overseeing the systems and processes that capture and distribute the experience
gained in client engagements. From January 1994 to March 1999, Mr. Newell
founded and served as Executive Director for, the Lotus Institute, the research
and executive education division of Lotus Development Corporation, a software
company. From October 1988 to January 1994, Mr. Newell served as Director of
Organizational Development and Training for Lotus Development Corporation. Since
October 1998, Mr. Newell has served as the Co-Director of the IBM Institute for
Knowledge Management. Mr. Newell holds a BA in Psychology from Wheeling Jesuit
College, an MS in Counseling Education from Suffolk University, and a PhD in
Psychology from Massachusetts School of Professional Psychology.
DIANE M. HALL has served as Vice President and Chief People Officer of Viant
since April 1999. From January 1998 to April 1999, she served as Viant's Vice
President and Chief People and Knowledge Officer, and from March 1997 to
January 1998, she served as Viant's Vice President and Chief Knowledge Officer.
From March 1996 to March 1997, Ms. Hall was an independent business and
technology consultant. From August 1993 to March 1996, Ms. Hall was a Senior
Director at Cambridge Technology Partners (Massachusetts), Inc. Ms. Hall holds a
BS in Computer Science from the University of Massachusetts--Lowell.
40
<PAGE>
MARK G. LEITER has served as Vice President and Chief Strategy Officer of
Viant since June 1999. From June 1999 to February 2000, he served as Viant's
Chief Marketing Officer. The Chief Strategy Officer is responsible for leading
the development of global growth strategies. From November 1993 to
October 1996, Mr. Leiter was employed as an Engagement Consultant by McKinsey &
Company, Inc., and from November 1996 to June 1999 Mr. Leiter was employed as a
Senior Engagement Manager and co- leader of the North American Marketing
Practice for McKinsey. While at McKinsey, Mr. Leiter founded and was the
co-leader of the firm's Branding Strategy practice. Mr. Leiter holds an AM in
Sociology from Harvard University and a BA in Sociology from the State
University of New York at Albany.
SHERWIN A. URETSKY has served as Vice President, Worldwide Sales of Viant
since August 1997. From February 1992 to August 1997, Mr. Uretsky was a Senior
Vice President for Technology Solutions Company, a systems consulting firm.
Mr. Uretsky holds a BS degree in Computer Science from the State University of
New York and an MBA from New York University.
TARA KNOWLES has served as Vice President and Chief Marketing Officer since
January 2000. The Chief Marketing Officer is responsible for shaping growth
strategies for Viant, as well as building the Viant brand across worldwide
markets. From September 1999 to December 1999, she served as Viant's Marketing
Communications Director. From November 1993 to August 1999, she served as Vice
President of Corporate Communications at Cambridge Technology Partners
(Massachusetts), Inc., a technology consulting and systems integration firm. Ms.
Knowles has also held marketing and creative positions with Nolan, Norton, an IT
strategy consulting firm owned by KPMG, and Lintas: Marketing Communications,
now known as Ammarati Puris Lintas, a global advertising agency. Ms. Knowles
holds a BA from the College of the Holy Cross and an M. Phil from the University
College Dublin, Ireland.
The information concerning our directors required by this Item is
incorporated by reference to our proxy statement under the heading "Election of
Directors."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to our
proxy statement under the heading "Additional Information Relating to Directors
and Officers of the Company."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT PRINCIPAL STOCKHOLDERS
The information required by this Item is incorporated by reference to our
proxy statement under the heading "Security Ownership of Certain Beneficial
Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to our
proxy statement under the heading "Additional Information Relating to Directors
and Officers of the Company--Certain Relationships and Related Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
See Index to Financial Statements at Item 8 on page 23 of this report.
2. Financial Statement Schedules.
41
<PAGE>
The following financial statement schedules of Viant are filed as part of
this Report and should be read in conjunction with the Financial Statements:
SCHEDULE PAGE
II--VALUATION AND QUALIFYING ACCOUNTS 43
Schedules not listed above have been omitted because they are not applicable
or are not required or the information required to be set forth therein is
included in the Financial Statements or notes thereto.
42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Viant Corporation
Our audits of the financial statements referred to in our report dated
February 8, 2000 appearing on page 24 of this Annual Report on Form 10-K also
included an audit of the Financial Statement Schedule listed in item 14 (a)(2)
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 8, 2000
43
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
VIANT CORPORATION
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF CHARGED TO BALANCE AT
DESCRIPTION PERIOD OPERATIONS DEDUCTIONS(1) END OF PERIOD
- ----------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1997
Reserves and allowances deducted
from asset accounts Allowance
for doubtful accounts........... $ 75,000 294,000 56,000 $ 313,000
Year ended January 1, 1999
Reserves and allowances deducted
from asset accounts Allowance
for doubtful accounts........... $313,000 612,000 16,000 $ 909,000
Year ended December 31, 1999
Reserves and allowances deducted
from asset accounts Allowance
for doubtful accounts........... $909,000 231,000 136,000 $1,004,000
</TABLE>
- ------------------------
(1) Doubtful accounts written off, net of recoveries
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, hereunto duly authorized, in Boston,
Massachusetts, on the 27th day of March 2000.
<TABLE>
<S> <C> <C>
VIANT CORPORATION
By: /s/ ROBERT L. GETT
-----------------------------------------
Robert L. Gett
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints M. Dwayne Nesmith, as his
attorney-in-fact, with full power of substitution, for him in any and all
capacities, to sign any and all amendments to this Report on Form 10-K, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorney to any and
all amendments to said Report.
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed by the following persons in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President, Chief Executive
/s/ ROBERT L. GETT Officer and Director
------------------------------------------- (PRINCIPAL EXECUTIVE March 27, 2000
Robert L. Gett OFFICER)
Vice President and
/s/ M. DWAYNE NESMITH Chief Financial Officer
------------------------------------------- (PRINCIPAL FINANCIAL AND March 27, 2000
M. Dwayne Nesmith ACCOUNTING OFFICER)
/s/ WILLIAM H. DAVIDOW
------------------------------------------- Director March 27, 2000
William H. Davidow
/s/ KEVIN W. ENGLISH
------------------------------------------- Director March 27, 2000
Kevin W. English
/s/ VENETIA KONTOGOURIS
------------------------------------------- Director March 27, 2000
Venetia Kontogouris
WILLIAM E. KELVIE
------------------------------------------- Director March 27, 2000
William E. Kelvie
</TABLE>
II-1
<PAGE>
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C>
3.1** Amended and Restated Certificate of Incorporation, as
currently in effect
3.2** Bylaws of Registrant, as currently in effect
4.1** Form of Specimen Stock Certificate
4.2** Amended and Restated Shareholder Rights Agreement, dated as
of November 13, 1998
10.1** [Intentionally omitted]
10.2** Form of Master Services Agreement
10.3*** Master Services Agreement with BlueTape LLC, dated as of
June 21, 1998
10.4*** License Agreement, including attachments, with BlueTape LLC,
dated as of February 15, 1999
10.5** Key Employee Agreement with Robert Gett, dated as of
November 4, 1996; Confidential Information and Invention
Assignment Agreement with Robert Gett, dated as of
November 4, 1996
10.6** Relocation Agreement and Employee Loan Agreement with
Richard Chavez, dated March 31, 1998
10.7** Form of Indemnification Agreement
10.8** 1996 Stock Option Plan
10.9** 1999 Amended and Restated Stock Option Plan
10.10** 1999 Employee Stock Purchase Plan
10.11** Sublandlord's Consent to Assignment of Sublease, for
property located at 520 Madison Avenue, New York, New York
dated as of March 6, 1997
10.12** Lease Agreement with Chelsea Green Associates, L.P., for
property located at 625 Avenue of the Americas, New York,
New York, dated July 28, 1997
10.13** Subordination, Nondisturbance and Attornment Agreement with
Lehman Brothers Holdings, Inc., for property located at 625
Avenue of the Americas, New York, New York dated August 26,
1997
10.14** First Amendment of Lease with Chelsea Green Associates,
L.P., for property located at 625 Avenue of the Americas,
New York, New York dated November 1997
10.15** Instruction Letter for Rental Payments, for 625 Avenue of
the Americas, New York, New York dated November 1997
10.16** Standard Form Commercial Lease with Lincoln Plaza Limited
Partnership, for property located at 89 South Street,
Boston, Massachusetts, dated May 2, 1997
10.17** Notice of Lease with Lincoln Plaza Limited Partnership, for
property located at 89 South Street, Boston, Massachusetts,
dated May 2, 1997
10.18** Subordination, Nondisturbance and Attornment Agreement with
Lincoln Plaza Limited Partnership and BHF-BANK
Aktiengesellschaft, for property located at 89 South Street,
Boston, Massachusetts, dated September 23, 1997
10.19** First Amendment to Lease with Lincoln Plaza Limited
Partnership, for property located at 89 South Street,
Boston, Massachusetts, dated as of October 1, 1998
10.20** Lease Agreement with Williams Worldwide for property located
at 3130 Wilshire Boulevard, Santa Monica, California dated
March 1, 1999
10.21** Lease Agreement with CENTRUM G.S. LTD, for property located
at 3102 Oak Lawn, Dallas, Texas, dated August 15, 1998
10.22** Lease Agreement with Zoro, LLC for property located at 699
Eighth Street, San Francisco, California, dated April 8,
1997
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C>
10.23** First Addendum to Lease with Zoro, LLC for property located
at 699 Eighth Street, San Francisco, California, dated
April 1997
10.24** Month-to-Month Lease Agreement with Zoro, LLC for property
located at 699 Eighth Street, San Francisco, California,
dated June 5, 1997
10.25** Office Lease with Zoro, LLC for property located at 699
Eighth Street, San Francisco, California, dated June 26,
1997
10.26** First Amendment to Office Lease with Zoro, LLC for property
located at 699 Eighth Street, San Francisco, California,
dated October 14, 1997
10.27** Amendment to Lease with Zoro, LLC for property located at
699 Eighth Street, San Francisco, California, dated
January 29, 1998
10.28** Subordination Agreement; Acknowledgment Of Lease Assignment,
Estoppel, Attornment and Non-Disturbance Agreement with
Zoro, LLC and Wells Fargo Bank, National Association, for
property located at 699 Eighth Street, San Francisco,
California, dated August 21, 1998
10.29** Summary Plan Description of Registrant's 401(k)
Retirement/Savings Plan
10.30** Master Lease Agreement and Addendum with Comdisco, Inc.,
dated March 25, 1998
10.31** Amended and Restated Loan and Security Agreement with
Venture Banking Group, dated as of March 25, 1998
10.32** First Amendment to Amended and Restated Loan and Security
Agreement with Venture Banking Group, dated as of April 7,
1999
10.33** Lease Agreement with Regus UK Ltd. for property located at
upper ground floor (Room 29), Covent Garden, London WC2E
9RA, dated March 24, 1999
10.34** Lease Agreement with Regus UK Ltd. for property located at
upper ground floor (Room 31), Covent Garden, London WC2E
9RA, dated March 24, 1999
10.35** Revocable License with OmniOffices, Inc. (Chicago-Loop) for
property located at 10 South Riverside Plaza - 18th Floor,
Chicago, Illinois, dated March 18, 1999
10.36+ First Amendment to Office Building Lease Agreement with
CENTRUM G.S. LTD, effective as of August 15, 1999
10.37+ Temporary Lease Agreement with River East Plaza, L.L.C. for
property located at River East Plaza (Suite 650), dated
August 30, 1999
11.1 Statement of Computation of Earnings per Share (This exhibit
has been omitted because the information is shown in the
financial statements or notes thereto.)
23.1 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (contained in the signature page to this
Report).
27.1 Financial Data Schedule
</TABLE>
- ------------------------
** Incorporated by reference to the Registration Statement on Form S-1 and all
amendments thereto filed with the Securities and Exchange Commission on
April 9, 1999 and declared effective on June 17, 1999.
*** Confidential treatment requested and received as to certain portions. These
exhibits are incorporated by reference to the Registration Statement on
Form S-1 and all amendments thereto filed with the Securities and Exchange
Commission on April 9, 1999 and declared effective on June 17, 1999.
+ Incorporated by reference to the Registration Statement on Form S-1 and all
amendments thereto filed with the Securities and Exchange Commission on
November 8, 1999 and declared effective on December 7, 1999.
<PAGE>
EX-23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board Of Directors and
Stockholders of Viant Corporation
We hereby consent to the incorporation by reference in the registration
statement on Form S-8 (File No. 2-83974) of Viant Corporation of our reports
dated February 8, 2000, related to the financial statements and financial
statement schedule of Viant Corporation, which are included in this Annual
Report on Form 10-K for the year ended December 31, 1999.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
March 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 188,176
<SECURITIES> 0
<RECEIVABLES> 16,769
<ALLOWANCES> (1,004)
<INVENTORY> 0
<CURRENT-ASSETS> 206,698
<PP&E> 10,044
<DEPRECIATION> (3,277)
<TOTAL-ASSETS> 214,226
<CURRENT-LIABILITIES> 19,614
<BONDS> 1,533
0
0
<COMMON> 46
<OTHER-SE> 193,033
<TOTAL-LIABILITY-AND-EQUITY> 214,226
<SALES> 0
<TOTAL-REVENUES> 61,332
<CGS> 0
<TOTAL-COSTS> 28,509
<OTHER-EXPENSES> 32,914
<LOSS-PROVISION> 196
<INTEREST-EXPENSE> 402
<INCOME-PRETAX> 1,468
<INCOME-TAX> 57
<INCOME-CONTINUING> 1,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,411
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.04
</TABLE>
