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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
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or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number:
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Hoover's, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 74-2559474
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1033 La Posada Drive, Suite #250, Austin, Texas 78752
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(Address of principal executive offices) (Zip Code)
(512) 374-4500
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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. |X| Yes |_| No
As of June 30, 2000, 13,016,667 shares of the registrant's common stock
were outstanding, net of 150,000 shares of Treasury Stock.
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PART I. FINANCIAL INFORMATION NUMBER
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ITEM 1 Financial Statements (Unaudited)
Balance Sheets at June 30, 2000, and March 31, 2000........................3
Statements of Operations for the Three Months Ended
June 30, 2000 and 1999...................................................4
Statements of Cash Flows for the Three Months Ended
June 30, 2000 and 1999...................................................5
Notes to Financial Statements..............................................6
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations............................8
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk................21
PART II. OTHER INFORMATION
ITEM 1 Legal Proceedings.........................................................22
ITEM 2 Changes in Securities and Use of Proceeds.................................22
ITEM 3 Defaults Upon Senior Securities...........................................22
ITEM 4 Submission of Matter to a Vote of Securities Holders......................22
ITEM 5 Other Information.........................................................22
ITEM 6 Exhibits and Reports on Form 8-K..........................................22
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOOVER'S, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
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JUNE 30, 2000 MARCH 31, 2000
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(UNAUDITED)
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ASSETS
Current assets:
Cash and cash equivalents.................................................................... $39,987 $42,881
Short-term investments...................................................................... 11,032 14,043
Accounts receivable, less allowance for doubtful accounts of $354 and $292 at
June 30 and March 31, 2000, respectively............................................ 4,255 3,581
Book inventory, less allowances for excess and obsolete inventory of $70 and $67 at June 30
and March 31, 2000, respectively.................................................... 27 58
Prepaid expenses and other current assets.................................................... 214 243
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Total current assets........................................................................... 55,515 60,806
Property, plant and equipment:
Computer and office equipment................................................................ 4,212 3,371
Equipment under capital lease................................................................ 147 147
Furniture and fixtures....................................................................... 914 785
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5,273 4,303
Less accumulated depreciation................................................................ (2,362) (1,919)
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Total property, plant and equipment............................................................ 2,911 2,384
Investments.................................................................................... 5,570 627
Other assets................................................................................... 549 698
Total assets................................................................................... $64,545 $64,515
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and commissions............................................................. $1,526 $592
Accrued expenses............................................................................. 2,489 2,656
Current portion of long-term debt and capital leases......................................... 25 25
Deferred revenue............................................................................. 3,473 3,258
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Total current liabilities...................................................................... 7,513 6,531
Obligations under capital leases, less current portion......................................... 31 38
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Stockholders' equity:
Common stock, $.01 par value, 150,000,000 shares authorized 13,166,667 and 12,706,792 shares
issued at June 30 and March 31, 2000, respectively................................... 132 127
Additional paid-in capital................................................................... 78,540 77,491
Unearned stock compensation.................................................................. (1,088) (1,530)
Accumulated deficit.......................................................................... (20,433) (17,992)
Treasury stock at cost-- 150,000 shares...................................................... (150) (150)
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Total stockholders' equity..................................................................... 57,001 57,946
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Total liabilities and stockholders' equity..................................................... $64,545 $64,515
====================================
SEE ACCOMPANYING NOTES.
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HOOVER'S, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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<CAPTION>
THREE MONTHS ENDED
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JUNE 30, 2000 JUNE 30, 1999
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Revenues:
Advertising and e-commerce................ $3,046 $546
Subscription revenue...................... 3,064 1,798
Licensing and syndication................. 524 433
CD-ROM and print, net..................... 228 374
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Net revenues................................ 6,862 3,151
Cost of revenues.......................... (2,615) (1,695)
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Gross profit................................ 4,247 1,456
Expenses:
Product development....................... 623 477
Sales and marketing....................... 3,910 1,246
General and administrative................ 2,856 1,157
Noncash compensation...................... 91 479
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Total expenses.............................. 7,480 3,359
Operating loss.............................. (3,233) (1,903)
Interest income ............................ 792 103
Interest expense............................ (2) (12)
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Net loss.................................... $(2,443) $(1,812)
=================================================
Basic and diluted net loss per share........ $(0.19) $(0.25)
=================================================
Shares used in computation of basic and
diluted loss per share................ 12,792,518 7,316,364
</TABLE>
SEE ACCOMPANYING NOTES.
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HOOVER'S, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
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THREE MONTHS ENDED
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JUNE 30, 2000 JUNE 30, 1999
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OPERATING ACTIVITIES
Net loss................................................................. $(2,443) $(1,812)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization.......................................... 593 247
Amortization of unearned stock compensation, net....................... 92 479
Changes in operating assets and liabilities:
Accounts receivable................................................. (674) 168
Inventories......................................................... 31 68
Prepaid expenses and other current assets........................... 29 (147)
Accounts payable and commissions.................................... 934 171
Accrued expenses.................................................... (167) 393
Deferred revenue.................................................... 215 195
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Net cash used in operating activities.................................... (1,390) (238)
INVESTING ACTIVITIES
Purchases of property, plant and equipment............................... (970) (263)
Purchase of investments.................................................. (4,944) --
Sales of short term securities........................................... 3,011 --
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Net cash used in investing activities.................................... (2,903) (263)
FINANCING ACTIVITIES
Payments on bank term loans.............................................. -- (95)
Payments on capital leases............................................... (7) (8)
Net proceeds from capital stock transactions............................. 1,406 9,365
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Net cash provided by financing activities................................ 1,399 9,262
Increase (decrease) in cash and cash equivalents......................... (2,894) 8,761
Cash and cash equivalents at beginning of year........................... 42,881 7,814
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Cash and cash equivalents at end of year................................. $39,987 $16,575
</TABLE>
5
SEE ACCOMPANYING NOTES.
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HOOVER'S, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The interim financial statements for the three months ended June 30,
2000 and 1999, have been prepared by us pursuant to the rules and regulations
of the Securities and Exchange Commission (the SEC). Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. These statements are
unaudited and, in the opinion of management, include all adjustments
(consisting of normal recurring adjustments and accruals) necessary to
present fairly the results for the periods presented.
The balance sheet at June 30, 2000, has been derived from the
unaudited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles. The results of operations for such periods are not necessarily
indicative of the results expected for a full year or for any future period.
For further information, refer to the financial statements and
related notes included in our Registration Statement on Form S-1 and our
Annual Report filed on Form 10-K.
2. RECLASSIFICATIONS
Reclassifications have been made to the 1999 financial statements to
conform to the 2000 presentation.
3. CAPITAL STOCK AND STOCK PLANS
During the years ended March 31, 2000 and 1999, the company recorded
$468,000 and $3.2 million of unearned stock compensation, respectively,
related to the issuance of options to purchase common stock at an exercise
price below the deemed market value. During the quarters ended June 30, 2000
and 1999, $92,000 and $479,000 was amortized to noncash compensation expense,
respectively. The remaining unearned compensation will be recognized as
noncash compensation expense over the remaining vesting period of the options
of approximately three years.
In May 2000, the company reversed $142,000 in compensation expense
related to unvested options that were forfeited. The remaining $351,000 in
unearned stock compensation relating to this forfeiture was reversed.
4. RELATED PARTY TRANSACTIONS
We purchase certain information included in our databases from a
subsidiary of a stockholder. Hoover's paid approximately $195,000 and $99,000
during the three months ended June 30, 2000 and 1999, respectively. We had
outstanding amounts payable of approximately $75,000 and $152,000 at March
31, 2000, and June 30, 2000, respectively, to a vendor who is also a
stockholder.
We have a commitment from a stockholder to purchase from us at least
$2.0 million of advertising, subscriptions, sponsorships, content licensing
or other services through September 30, 2001. For the quarters ended June 30,
2000 and 1999, we recognized $275,000 and $0, respectively, of advertising
revenues pursuant to this agreement. We have recorded a total of $1,080,000
revenue under the terms of this agreement since inception.
As part of our strategic agreement with NBC to license a portion of
our content for distribution and marketing by NBC, CNBC and CNBC.com, we are
amortizing $1.2 million in deferred costs. Included in sales and marketing
expenses for the three months ended June 30, 2000 and 1999, is amortization
of $150,000 and $0, respectively, related to this agreement.
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5. SUBSEQUENT EVENTS
A stockholder of the Company exercised a warrant to purchase 750,000
shares of Hoover's common stock on July 14, 2000, for an aggregate price of
$3,500,000.
On August 2, 2000, the Company completed its acquisition of
Powerize.com, Inc. Hoover's is committed to issue approximately 1.48 million
shares of Hoover's common stock and $2.42 million in cash in exchange for all
of the outstanding common stock of Powerize. In addition, Hoover's has
reserved approximately 395,000 additional shares of its common stock for
issuance upon exercise of all outstanding Powerize options and warrants.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS
QUARTERLY REPORT ON FORM 10-Q. EXCEPT FOR THE HISTORICAL FINANCIAL
INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED IN THIS QUARTERLY REPORT
ON FORM 10-Q MAY BE CONSIDERED "FORWARD-LOOKING" STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH STATEMENTS
INCLUDE DECLARATIONS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF
HOOVER'S AND ITS MANAGEMENT AND MAY BE SIGNIFIED BY THE WORDS "EXPECTS,"
"ANTICIPATES," "INTENDS," "BELIEVES," OR SIMILAR LANGUAGE. PROSPECTIVE
INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE A NUMBER OF RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE INDICATED BY
SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED IN
THE HOOVER'S PROSPECTUS DATED JULY 20, 1999, AND FORM 10-K FOR THE YEAR ENDED
MARCH 31, 2000.
OVERVIEW
Hoover's, Inc. (Nasdaq: HOOV) operates Hoover's Online, an Internet
site where businesspeople come to conduct research, make decisions and act on
their decisions. We provide searching, sorting and personalization tools that
businesspeople apply to our proprietary and aggregated third-party
information to help get their jobs done. Our Web site is located at
www.hoovers.com.
Hoover's Online is a portal that provides approximately 2.8 million
businesspeople with timely and reliable information and research tools, which
allows them to get answers to their questions and make informed decisions on
a daily basis. We also provide an e-commerce marketplace in which
businesspeople can act on those decisions to purchase business information,
products and services.
Our core asset is a proprietary database of authoritative and useful
business information regarding what we believe to be the world's largest,
most influential and fastest-growing companies and industries. Our database,
combined with third-party business information, news, a directory of business
Web sites, and biographical and product information, as well as business
travel, personal finance and career tools, makes Hoover's Online a one-stop
source for businesspeople seeking to have their questions answered.
Hoover's Online provides high-quality, proprietary business
information via the Internet and various hand-held Web-enabled devices, such
as personal digital assistants, to the businessperson who seeks answers to
specific business-related questions. Visitors to our Web site use our
information for their professional endeavors, including financial and
competitive research, as well as for their personal activities, including
career development and personal investment. We believe we provide our
advertisers with a large, demographically desirable business audience, who,
as a group, are affluent, highly educated and willing to conduct business
over the Internet.
Our proprietary editorial content is a recognized source of
authoritative, engagingly written and useful information on over 300
industries and approximately 16,000 public and private enterprises worldwide.
We have a staff of more than 120 writers, editors, researchers and online
producers that maintains our company and industry database. We have one of
the largest online databases of company-specific information measured in
terms of both breadth and depth of coverage, and we continually expand and
update our database. Our database is complemented by third-party company
databases, including CorpTech, Harris InfoSource and infoUSA.com, which allow
our users to access information on a greater number of companies. We also
provide information on initial public offerings through IPO Central, which is
a widely trafficked source for the latest information on initial public stock
offerings. We offer feature stories, news, career information, personal
finance information, SEC documents and management biographical information as
well as brokerage research and credit reports. Additionally, we offer our
branded searching, sorting and personalization tools to make our information
more useful to businesspeople.
We have recently completed our acquisition of Powerize.com, Inc.
("Powerize"), a developer of content integration and syndication technology,
and operator of a business research Web site with more than
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600,000 registered members. Powerize will operate as Hoover's new tools
syndication and content integration subsidiary and will provide Hoover's
Online with additional technology, tools and content.
We generate revenues from the following sources:
- Advertising and e-commerce;
- Subscriptions, consisting of individual and enterprise-wide
accounts;
- Licensing and syndication of our editorial content and
tools; and
- Sales of our proprietary company information in both CD-ROM
and print.
ADVERTISING AND E-COMMERCE
We derive revenues from the sale of banner and button
advertisements, sponsorships, and e-commerce opportunities on our Web site.
Advertisement and sponsorship prices are based on a price per thousand
impressions or a fixed monthly fee. Revenues are recognized either as the
impressions are delivered or ratably over the contract period, provided that
no significant obligations remain. We also derive e-commerce revenues from
advertisers and other partners that pay either a fee per transaction or a
percentage of sales generated directly from their advertisement on our Web
site or from their special sponsorship of an area within our Web site.
SUBSCRIPTION REVENUE
We derive revenues from individual and enterprise subscriptions.
Individual subscriptions are currently sold directly on our Web site for
$14.95 per month or $109.95 per year. We periodically offer pricing discounts
and promotions to new subscribers in order to introduce our product and
services. These offers usually run for a short duration. We also offer annual
enterprise subscriptions ranging from $1,500 for 10 seats to $30,000 for
1,000 seats per year. In addition, larger enterprise subscriptions are sold
using a negotiated price, based on the number of active seats. We recognize
subscription revenues on a monthly basis, and we record annual individual and
enterprise subscriptions as deferred revenues, which are amortized into
revenues over the term of the subscription.
LICENSING AND SYNDICATION
We license and syndicate portions of our database and certain tools
to third parties for redistribution. Our customers range from traditional
online service providers such as Dow Jones and LEXIS-NEXIS, to other Web
sites, such as CNBC.com and the Microsoft Network. We provide our customers
with either a customized data feed of our proprietary company information, or
a co-branded set of Web pages designed for the customer. License and
syndication fees are based upon variables, such as the amount of information
and number of tools, the number of seats, the number of capsules viewed or
the number of terminals.
CD-ROM AND PRINT SALES
We sell CD-ROMs and print products containing company information.
We recognize these revenues when the goods are shipped. For our sale of
CD-ROMs and print products, we provide an allowance for returns when the
products are shipped.
COSTS AND EXPENSES
Our cost of revenues includes editorial personnel costs, expenses
associated with licensing of third-party content, direct expenses associated
with our Web site, such as hosting, and other advertising related service fees.
Our product development expenses include technology personnel costs and related
consulting fees. Sales and marketing expenses include sales and marketing
personnel costs, including commissions, as well as all marketing, advertising
and promotional expenses. General and administrative expenses consist of
compensation for administrative and executive staff, which we consider to be
finance,
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project management, office network and human resource personnel, as well as
fees for professional services, travel, depreciation and general office
expenses. Noncash compensation of $92,000 was amortized during the three
months ended June 30, 2000.
RESULTS OF OPERATIONS
The following table sets forth, for the periods illustrated, certain
statement of operations data expressed as a percentage of net revenues:
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THREE MONTHS ENDED:
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June 30, 2000 June 30, 1999
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Revenues:
Advertising and e-commerce........ 44% 17%
Subscription revenue.............. 45% 57%
Licensing and syndication......... 8% 14%
CD-ROM and print, Net............. 3% 12%
Net revenues........................... 100% 100%
Cost of revenues.................. 38% 54%
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Gross profit........................... 62% 46%
Expenses:
Product development................ 9% 15%
Sales and marketing................ 57% 40%
General and administrative......... 42% 37%
Non-cash compensation.............. 1% 15%
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Total expenses......................... 109% 107%
Operating loss......................... (47%) (60%)
Interest income........................ 11% 3%
Interest expense....................... -- --
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Net loss .............................. (36%) (57%)
================ ================
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REVENUES. Net revenues for the three months ended June 30, 2000,
increased 117% to $6.9 million from $3.1 million for the three months ended
June 30, 1999.
Revenues from advertising and e-commerce increased 458% to $3.0
million for the three months ended June 30, 2000, from $546,000 for the three
months ended June 30, 1999. The increased number of page views, the redesign
of Hoover's Online, and new advertising sales personnel contributed to the
increase.
Our subscription revenues increased 70% to $3.1 million for the
three months ended June 30, 2000, from $1.8 million for the comparable
quarter one year ago. This increase in revenues is due to the increase in the
number of individual subscribers and enterprise accounts. Total subscribers
grew 136% to 248,000 as of June 30, 2000, from approximately 105,000 as of
June 30, 1999. The growth in the number of individual subscribers to 48,455
as of June 30, 2000, from 31,357 as of June 30, 1999, was primarily due to
increased traffic to our Web site. For the three months ended June 30, 2000,
Hoover's Online attracted 2.8 million unique visitors, who accounted for
approximately 86 million page views, compared to 1.9 million unique visitors
and 35 million page views during the three months ended June 30, 1999.
Sales leads provided by the additional traffic to our Web site and
our increased number of salespeople contributed to the increase in new
enterprise subscription accounts. As of June 30, 2000, we had 2,927
enterprise accounts, representing an estimated 200,000 seats, compared to
1,561 enterprise accounts, representing an estimated 74,000 seats, as of June
30, 1999, increases of 88% and 170% respectively.
Licensing revenues increased 21% to $524,000 for the three months
ended June 30, 2000, from $433,000 for the three months ended June 1999.
Royalty payments are based on use of Hoover's content or
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other revenue-sharing arrangements. With the acquisition of Powerize, we
expect to see growth in this line item, in absolute terms, as well as a
percentage of our total revenues.
Revenues from CD-ROM and print products decreased 39% to $228,000
for the three months ended June 30, 2000, from $374,000 for the comparable
quarter one-year ago. Decreases were due to a reduced emphasis in this area
and a migration of customers to our Web-based services.
COST OF REVENUES. Cost of revenues for the three months ended June
30, 2000, increased 54% to $2.6 million, from $1.7 million in the three
months ended June 30, 1999. The increase in cost of revenues was primarily
due to an increase in compensation for existing and new editorial personnel,
as well as increases in expenses associated with third-party content. As a
percentage of revenues, cost of revenues for the three months ended June 30,
2000, was lower, at 38% of revenues, compared to 54% in the comparable
quarter one year ago. This decrease occurred primarily because the editorial
costs associated with creation and maintenance of the company database and
certain third-party content costs are relatively fixed without regard to the
level of revenues. Over the next several quarters we expect to see pressure
on our gross margins, but expect to see long-term continued growth in this
area by the fiscal year ending March 31, 2002.
PRODUCT DEVELOPMENT. Product development expenses for the three
months ended June 30, 2000, increased 31% to $623,000 from $477,000 in the
three months ended June 30, 1999. This increase was due to the hiring of
additional programmers and analysts, and to increased amounts paid to outside
consultants, programmers, and designers. We increased our personnel and
consulting costs in order to plan for, implement and maintain our technology
upgrades and the continual expansion of Hoover's Online. We expect that we
will increase product development costs for the remainder of our fiscal year.
SALES AND MARKETING. Sales and marketing expenses for the three
months ended June 30, 2000, increased 214% to $3.9 million, from $1.2 million
for the three months ended June 30, 1999. The increase in sales and marketing
expenses was due to an increase in the number of enterprise and advertising
sales representatives, an increase in commissions as a result of higher
revenues, and an increase in the number of marketing and business development
personnel. We expect that sales and marketing expenses will continue to grow
for the remainder of our fiscal year.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for
the three months ended June 30, 2000, increased 147% to $2.9 million, from
$1.2 million for the three months ended June 30, 1999. The increase was
primarily due to an increase in fees for professional services, including
consulting, investor relations, and recruiting fees, and an increase in
salaries of existing executive and administrative staff, as well as the
addition of administrative and finance personnel. General office expenses
increased due to facility expansion in Austin, New York, San Francisco and
Europe, and credit card processing fees increased due to a higher number of
individual subscription payments. Depreciation increased due to an increase
in capital expenditures.
INTEREST INCOME AND EXPENSE. Interest income for the three months
ended June 30, 2000, increased 669% to $792,000, from $103,000 for the three
months ended June 30, 1999. The increase was due to our increased cash and
short-term investments. We received net cash proceeds of $48 million from the
Company's initial public offering in July 1999, $9 million in proceeds
received upon our sale of common stock to NBC, Knowledge Net Holdings and
Nextera in June 1999 and $1.2 million in proceeds from the exercise of
warrants by Warner Multimedia in May 2000. Interest expense decreased to
$2,000 in the three months ended June 30, 2000, from $12,000 in the three
months ended June 30, 1999, due to the elimination of our bank debt.
TAXES. We have incurred significant operating losses for all periods
from inception (February 1990) through June 30, 2000. We have recorded a
valuation allowance for 100% of our net deferred tax assets because our
historical operating results indicate that the net deferred tax assets may
not be realized because of uncertainties regarding our ability to generate
sufficient taxable income during the carryforward period to utilize the net
operating loss carryforwards.
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LIQUIDITY AND CAPITAL RESOURCES
We used $1.4 million net cash in operating activities during the
three months ended June 30, 2000, compared to $238,000 in the comparable
period one year ago. Net cash used in operating activities resulted from net
operating losses partially offset by increases in deferred revenues and
accrued expenses.
During the three months ended June 30, 2000, we invested $970,000 in
cash related to purchases of computer equipment and payments for software
licenses as well as investing $4.9 million in the following strategic
partners: Vercomnet B.V., 10-K Wizard Technology, L.L.C., and a second
investment in Intellifact International, Inc. We also sold $3.0 million in
short-term securities during the quarter ended June 30, 2000, as part of our
cash investment and management practices. This compared to $263,000 invested
in computer equipment in the three months ended June 30, 1999.
As of June 30, 2000, we had $51 million in cash, cash equivalents
and short-term investments. Our principal commitments at June 30, 2000,
consisted of obligations under capital leases. Our accounts payable balance
as of June 30, 2000, was $1.5 million that consisted of short-term accounts,
due within 30 days, and commissions due to employees.
During June 2000, the Company entered into a noncancelable lease for
additional long-term office space in Austin, Texas. This lease commences on
May 1, 2001 with minimum aggregate lease payments of $11.2 million, plus
operating expenses, over a 10-year term.
In connection with the Powerize acquisition in August, we assumed
$7.8 million in gross liabilities and will pay up to $2.6 million in cash to
Powerize shareholders. We may in the future pursue additional acquisitions of
businesses, products and technologies or enter into joint-venture
arrangements that could complement or expand our business. Any material
acquisition or joint venture could result in a decrease to our working
capital, depending on the amount, timing and nature of the consideration to
be paid.
We believe that our existing cash and cash equivalents will be
sufficient to meet our anticipated cash requirements for working capital and
capital expenditures for at least the next 12 months. Beyond the next 12
months, our significant commitments consist of repayment of lease commitments
for facilities and telephone equipment. We also intend to invest in sales and
marketing promotions and continue to build an infrastructure to meet the
needs of a public company. Although we currently expect to meet the cash
requirements of such commitments, expenditures and ongoing operating expenses
from working capital, in order to meet our long-term liquidity needs, we may
need to raise additional funds, seek an additional credit facility or seek
other financing arrangements.
FACTORS THAT MAY AFFECT FUTURE RESULTS
In addition to the other information in this Form 10-Q, the
following factors should be considered in evaluating our company and our
business.
WE HAVE A HISTORY OF LOSSES AND EXPECT FUTURE LOSSES.
We incurred net losses for each of the previous fiscal years and net
losses of $2.4 million for the three months ended June 30, 2000. At June 30,
2000, we had an accumulated deficit of $20.4 million. We expect operating
losses and negative cash flow to continue into the next two quarters as we
continue to incur significant operating expenses and to make investments to
enhance Hoover's Online. We intend to continue our marketing and promotional
spending to increase our audience. We may never generate sufficient revenues
to achieve profitability. Even if we do achieve profitability, we may not
sustain or increase profitability on a quarterly or annual basis in the
future.
OUR BUSINESS IS SUBJECT TO QUARTERLY FLUCTUATIONS IN OPERATING RESULTS THAT
MAY NEGATIVELY IMPACT THE PRICE OF OUR STOCK.
Our quarterly operating results may fluctuate significantly in the
future due to a variety of factors. These include the following factors,
which are generally outside of our control:
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- seasonal trends relating to subscriber usage of our services;
- the demand for Internet advertising and seasonal trends
relating to Internet advertising spending;
- the extent to which we experience increased competition in the
markets for Internet services and advertising; and
- economic conditions specific to the Internet, as well as
general economic and market conditions.
Other factors that cause our quarterly operating results to
fluctuate significantly, which are at least partially under our control,
include:
- the rate of subscriber acquisitions;
- the timing and effectiveness of our marketing efforts to
acquire visitors and subscribers and to promote our brand;
- the timing and effectiveness of any co-branding arrangements
or other strategic alliances into which we enter;
- expenses related to upgrading our computer systems and related
infrastructure; and
- changes in our operating expenses.
In addition, our operating expenses are based on our expectations of
our future revenues, some of which are relatively fixed in the short term. We
may be unable to reduce our expenses quickly enough to offset any unexpected
revenue shortfall, which could have a material adverse effect on our
business, operating results and financial condition.
Due to all of the foregoing factors and the other risks discussed in
this section, quarter-to-quarter comparisons of our operating results as an
indication of future performance may not be appropriate. It is possible that
in some future periods our quarterly operating results may fall below the
expectations of public market analysts and investors. In this event, the
price of our common stock is likely to fall.
SEASONAL TRENDS IN OUR ADVERTISING REVENUES MAY CAUSE VOLATILITY IN OUR STOCK
PRICE.
We have experienced seasonal trends in our traffic and advertising
revenues. We believe that advertising sales in traditional media, such as
television and radio, are generally lower in the first and third quarters of
each calendar year. Moreover, traffic on Hoover's Online and the Web sites of
others with whom we license or co-brand our products is lower during the
summer and year-end vacation and holiday periods when business usage of the
Internet and Hoover's Online typically declines. Subscriber growth may
decline during low-traffic periods. Our operating results may be affected if
we experience seasonality in future periods.
OUR FAILURE TO SIGNIFICANTLY INCREASE THE NUMBER OF OUR SUBSCRIBERS OR RETAIN
OUR CURRENT SUBSCRIBERS WOULD ADVERSELY AFFECT OUR BUSINESS.
Our future success is highly dependent on attracting Internet users
who are willing to subscribe to online business information services. We
believe that marketing relationships, direct marketing, advertising, public
relations campaigns and offering new and enhanced content and services help
attract visitors and subscribers. On a percentage basis, we do not believe
that our increased marketing expense has or will lead to an equivalent
percentage increase in visitors and subscribers due to the large component of
brand awareness. In addition, the number of Internet users willing to pay for
online business information may not continue to increase. If the market for
subscription-based online business information develops more slowly than we
expect, or if our efforts to attract new subscribers are not successful or
cost-effective, our operating results and financial condition may be
materially and adversely affected.
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We also believe that our long-term success depends largely on our
ability to retain our existing subscribers. We continue to invest significant
resources in our network infrastructure and customer and technical support
capabilities to provide high levels of customer service. We cannot be certain
that these investments will maintain or improve subscriber retention. In
addition, as Internet subscribers are offered competing information products
and services they may discontinue or limit their use of our Web site. Any
loss of significant numbers of subscribers would have a material adverse
effect on our business, operating results and financial condition.
WE ARE DEVELOPING AND ENHANCING OUR SERVICES AND FEATURES THAT MAY NOT BE
ATTRACTIVE TO OUR EXISTING AUDIENCE AND MAY NOT INCREASE OUR AUDIENCE.
We continue to expand content and tools offered on Hoover's Online
by developing online resource centers in areas such as professional
development, business travel, in-depth business news, creating directories of
business links, and personal finance. Management will continue to spend a
significant amount of time developing these and other potentially new online
services. We intend to use our marketing activities in order to publicize our
new and enhanced offerings and to attract new visitors to Hoover's Online. We
may not attract sponsors that provide compelling content or products for our
online resource centers. Furthermore, the increase in marketing expenditures
and activities may not continue to attract additional visitors or may fail to
attract visitors who enjoy our content and service offerings. Our business,
operating results and financial condition will be adversely affected if we
experience difficulties in introducing new and enhanced services or if new or
existing visitors do not accept these services.
OUR FAILURE TO SUCCESSFULLY DEVELOP OUR ADVERTISING SALES FORCE COULD REDUCE
OUR ADVERTISING REVENUES OR LIMIT THE GROWTH OF OUR ADVERTISING REVENUES.
Currently, we are developing and expanding our internal advertising
sales force. Our business would be adversely affected if we do not develop
and maintain an effective advertising sales force. We depend on our sales
force to sell advertising, sponsorships, and enter into e-commerce
agreements. This involves a number of risks, including:
- we may not be able to hire, retain, integrate and motivate
additional advertising sales personnel in light of intense
competition from other companies;
- new advertising sales personnel generally require a
significant amount of time to become productive; and
- our advertising sales force has only recently begun selling
significant sponsorships.
FAILURE TO PROVIDE A SUCCESSFUL ONLINE ADVERTISING AND E-COMMERCE ENVIRONMENT
WOULD ADVERSELY AFFECT OUR BUSINESS.
Advertising and e-commerce has grown as a larger percentage of our
revenue and we expect this trend to continue. If advertisers perceive the
Internet in general or Hoover's Online in particular to be a limited or
ineffective advertising medium, they may be reluctant to advertise online or
on our Web site. We compete with other Web sites, television, and radio and
print media for a share of advertisers' total advertising budgets. Unlike
traditional advertising media, standards continue to evolve to measure the
effectiveness of advertising on the Internet. If widely accepted standards do
not emerge, existing advertisers may discontinue or decrease their Internet
advertising. If standards emerge and we are unable to offer advertisers
effective advertising options as measured by the standards, advertisers may
not continue advertising on our Web site. Furthermore, advertisers that have
traditionally relied upon other advertising media may be reluctant to
advertise on the Internet. Our business, operating results and financial
condition would be materially and adversely affected if the market for
Internet advertising declines or develops more slowly than expected. In
recent months, the market for Internet advertising has experienced a
significant decrease in its rate of growth. If this trend continues, our
revenues from Internet advertising could be materially adversely affected.
Different pricing models are used to sell advertising on the Internet.
Prevalent pricing models consist of cost per click-through, cost per thousand
impressions, cost per placement and e-commerce or transaction share. If our base
audience decreases, we will have to charge lower advertising rates for those
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transactions utilizing cost per thousand impressions. Cost per placement is a
relatively new model and advertisers may not continue to accept it. The
e-commerce or transaction share model is based on revenue sharing. Therefore,
if we don't attract a sufficiently large audience willing to purchase from
our advertisers, our revenues generated from advertisements sold under this
model will decrease. In addition, there has been an increased emphasis on
performance-based advertising where pricing is based on the ability to
deliver highly targeted advertising to specific demographic groups. We cannot
assure you that we will able to effectively deploy the necessary technology
or to deliver appropriate inventory to produce competitive targeted
advertising. Failure to do so could have a material adverse effect on our
ability to compete in the Internet advertising market.
It is difficult to predict which advertising pricing models, if any,
will emerge as industry standards. This uncertainty makes it difficult to
project our future advertising rates and revenues. We cannot assure you that
we will be successful under alternative pricing models that may emerge.
Moreover, software programs that limit or prevent advertising from being
delivered to an Internet user's computer are available. Widespread adoption
of this software could materially adversely affect the commercial viability
of Internet advertising, which could materially adversely affect our
advertising revenues.
Tools and technology used on the site will be an important factor in
the success of e-commerce transactions. Failure to add these tools to the
site could result in a reduced number of goods and services purchased from
the site and could adversely affect our e-commerce revenues. It is important
to our advertisers that we accurately measure the demographics of our user
base and the delivery of advertisements on our Web sites. We depend on third
parties to provide these measurement services. If they were unable to provide
these services in the future, we would be required to perform them ourselves
or obtain them from another provider. This could cause us to incur additional
costs or cause interruptions in our business during the time we are replacing
these services. We are implementing additional systems designed to record
demographic data on our users. If we do not develop these systems
successfully, we may not be able to accurately measure the demographic
characteristics of our users. Companies may not advertise on our Web sites or
may pay less for advertising if they do not perceive our measurements or
measurements made by third parties to be reliable.
IF WE ARE NOT SUCCESSFUL IN INCREASING BRAND AWARENESS OF, AND TRAFFIC TO,
HOOVER'S ONLINE, OUR BUSINESS WOULD BE MATERIALLY AND ADVERSELY AFFECTED.
The future success of Hoover's Online will depend, in part, on our
ability to increase our brand awareness. In order to build brand awareness
and increase traffic to Hoover's Online, we must succeed in our marketing
efforts and provide high-quality services. Our ability to increase
advertising and subscription revenues from Hoover's Online will depend in
part on the success of this marketing campaign and our ability to increase
the number of visitors and subscribers to our Web site. If our marketing
efforts are unsuccessful or if we cannot increase our brand awareness and
traffic to our Web site, our business, operating results and financial
condition would be materially and adversely affected.
INCREASED COMPETITION COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS.
Many Web sites compete for the attention and spending of
businesspeople and advertisers, particularly in the business information
area. We expect this competition to continue to increase. We compete for
subscribers, visitors, advertisers, and content providers with many types of
companies, such as:
- subscription-based Web sites focused on business, such as The
Wall Street Journal Interactive Edition;
- providers of company information, such as Dun & Bradstreet,
Multex and Standard & Poor's;
- providers of proprietary business information, such as
Bloomberg Business News, and Dow Jones Reuters Business
Interactive, LLC;
- business information aggregators, such as Dialog, LEXIS-NEXIS
and OneSource;
- consumer-oriented Web sites, such as Excite and Lycos; and
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- other Web sites with a business orientation or a business
channel, such as Office.com, Works.Com and Business.Com
We also compete with a number of organizations with which we have
other business relationships, including LEXIS-NEXIS, Bloomberg, Microsoft and
America Online. We form strategic relationships with these organizations in
order to increase the size of our audience by introducing Hoover's Online to
a greater number of people. Hoover's information is valued by these
organizations and is licensed to them. If these entities view us as a
substantial competitive threat, they may not renew any strategic relationship
agreements currently in place and our audience may decrease.
Some of our existing competitors, as well as a number of potential
new competitors, have longer operating histories, greater name recognition,
larger customer bases and significantly greater financial, technical and
marketing resources than we do. This may allow them to devote greater
resources than we can to the development and promotion of their services.
These competitors may also undertake more far-reaching marketing campaigns,
adopt more aggressive pricing policies, including offering their business
information for free, and make more attractive offers to existing and
potential new employees, businesses with whom we have strategic relationships
and advertisers. Our competitors may develop content that is equal or
superior to ours or that achieves greater market acceptance than ours. It is
also possible that new competitors may emerge and rapidly acquire significant
market share.
We believe that the Internet industry has seen, and will continue to
see, significant merger and acquisition activity. Some of our competitors may
make strategic acquisitions or establish cooperative relationships among
themselves or with third parties to increase their ability to rapidly gain
market share. If we do not reach critical mass, or do not achieve significant
market share, our ability to compete in a consolidating market could be
negatively impacted.
As a result of these factors, we may not be able to compete
successfully for advertisers, visitors or staff, which could materially
adversely affect our business, operating results and financial condition.
Increased competition could result in price reductions, reduced margins or
loss of market share, any of which could materially adversely affect our
business, operating results and financial condition.
OUR FUTURE SUCCESS DEPENDS ON OUR EDITORIAL STAFF.
We depend upon the efforts of our writers, researchers and other
editorial staff to produce original, timely, comprehensive and trustworthy
content. Competition for these personnel is intense, and we may not be able
to retain existing or attract additional highly qualified staff in the
future. If we lose the services of a significant number of our editorial
staff or are unable to continue to attract additional qualified staff, our
business, operating results and financial condition could be materially
adversely affected.
RAPID GROWTH IN OUR FUTURE OPERATIONS COULD CONTINUE TO STRAIN OUR
MANAGERIAL, OPERATIONAL AND FINANCIAL RESOURCES.
We have experienced rapid growth in our operations. We expect that
the number of our employees will continue to increase for the foreseeable
future. This rapid growth has placed, and any additional growth will continue
to place, a significant strain on our managerial, operational and financial
resources. As a result, we will need to continue to improve our operational
and financial systems and managerial controls and procedures. Our future
success will also depend on our ability to expand, train and manage our
workforce, in particular our sales and marketing organization. We will also
have to maintain close coordination among our technical, accounting, finance,
marketing, sales and editorial personnel. If we are unable to accomplish any
of these objectives, our business, operating results and financial condition
could be materially adversely affected.
WE ARE DEPENDENT ON OUR STRATEGIC RELATIONSHIPS AND OUR BUSINESS WOULD BE
MATERIALLY ADVERSELY AFFECTED IF WE WERE TO LOSE OUR EXISTING RELATIONSHIPS
OR FAIL TO GAIN ADDITIONAL STRATEGIC RELATIONSHIPS.
We depend on the following strategic relationships:
- CONTENT PROVIDERS. A number of organizations provide us with
content that we integrate into our products. If our
relationships with these content providers were terminated, we
would
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have to eliminate their information from our products
and services. We may also need to locate alternate content
providers and integrate their information into our products
and services. Extracting previously integrated information,
locating a new provider and integrating their information may
take time and may interrupt the provision of affected
services. We cannot assure that we would be able to replace
the content we currently receive from our content providers in
a timely manner.
- SPONSORS. To facilitate the expansion of our services and
features, we have obtained sponsors for resource centers on
Hoover's Online. Sponsors may provide content and/or
advertising for the resource center. In return, sponsors
receive the opportunity to interact with visitors to the
resource center. The success of our sponsorship relationships
depends on the quality of the content and products that the
sponsors and we provide. If we fail to attract and retain
sponsors for our online resource centers or if our sponsors
fail to provide content and products attractive to our
audience, we may lose subscribers and our audience may be
reduced.
- MARKETING RELATIONSHIPS. We have various marketing
relationships with other Web sites pursuant to which they
display our content and logo and provide a link back to
Hoover's Online. The success of some marketing relationships
depends on the amount of increased viewer traffic we receive
from that organization's Web site. These relationships may not
generate the number of new viewers that we expect. Termination
of our marketing relationships may decrease the number of
visitors to our Web site and may adversely affect our
revenues.
WE MAY NOT ACHIEVE THE EXPECTED BENEFITS FROM OUR ACQUISITION OF POWERIZE, IF
OUR TECHNOLOGY, OPERATIONS AND PERSONNEL ARE NOT EFFECTIVELY INTEGRATED WITH
THOSE OF POWERIZE.
In order to achieve the benefits of the acquisition, we must
efficiently combine Powerize's business with ours. The process of
coordinating research and development, sales and marketing and business
development efforts and integrating the companies' product and service
offerings will involve significant cost and effort on behalf of the combined
company. The integration of the companies' products and services may require
the partial or wholesale conversion or redesign of some of the technologies,
products and services of either Powerize or Hoover's. Integrating the two
businesses will entail significant diversion of management's time and
attention from our day-to-day business. Additionally, the process of
integrating operations could cause an interruption of or loss of momentum in
our activities. If we do not integrate the operations and technologies of the
two companies quickly and smoothly, the anticipated benefits of the
acquisition may not be realized.
ACQUISITIONS MAY DISRUPT OR OTHERWISE HAVE A NEGATIVE IMPACT ON OUR BUSINESS.
We plan to acquire or make further investments in complementary
businesses, products and technologies. Future acquisitions and investments
are subject to the following risks:
- acquisitions may cause a disruption in our ongoing business,
distract our management and make it difficult to maintain our
standards, controls and procedures;
- we may not be able to integrate successfully the services,
content, products and personnel of any acquisition into our
operations;
- we may be required to incur debt or issue debt or equity
securities, which may be dilutive to existing stockholders, to
pay for acquisitions. We also may be required to assume debt
or contingent liabilities, amortize goodwill and other
intangibles or writeoff in-process research and development
and other acquisition-related expenses; and
- we may not derive the intended benefits of any acquisition and
we may lose our entire investment.
EXPANSION INTO NON-U.S. MARKETS MAY BE DIFFICULT.
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The growth of the Internet outside of the United States has not
progressed and may not progress and may not be adopted by businesspeople
outside of the United States. Impact of language and other cultural
differences could result in a product offering that is not accepted and may
not be financially successful. These difficulties may be heightened by
differing regulatory schemes affecting the Internet in these countries.
Strategic relationships may be necessary to facilitate this expansion and our
business may be adversely affected if we fail to gain new relationships in
this area.
WE MAY EXPERIENCE CAPACITY CONSTRAINTS OR SYSTEM FAILURES THAT COULD DAMAGE
OUR BUSINESS.
If our systems cannot be expanded to cope with increased demand or
fail to perform effectively, we could experience:
- disruptions in service;
- slower response times;
- reduced customer satisfaction;
- delays in the introduction of new products and services, or
- vulnerability to raids (including denial of service attacks)
by third parties,
any of which could impair our reputation, damage the Hoover's brand and
materially adversely affect our business, operating results and financial
condition.
Our ability to provide high-quality customer service also depends on
the efficient and uninterrupted operation of our computer and communications
hardware systems. We have also experienced minor interruptions due to
software bugs and upgrades and disk-drive failures. These minor interruptions
temporarily limited the capacity of our current technology infrastructure and
resulted in increased calls to our customer service personnel. Our systems
and operations also are vulnerable to damage or interruption from human
error, natural disasters, telecommunication failures, break-ins, sabotage,
computer viruses, intentional acts of vandalism and similar events. We
currently do not have complete redundancy and we do not have alternative
providers of hosting services that are available on short-term notice. We are
still developing a formal disaster recovery plan. We cannot assure that any
plan we adopt will be sufficient. We may not carry sufficient business
interruption insurance to compensate for losses that could occur.
WE MAY BE SUBJECT TO LEGAL CLAIMS IN CONNECTION WITH THE CONTENT WE PUBLISH
AND DISTRIBUTE AND OUR USE OF SOFTWARE LICENSES FOR OUR WEB SITE.
We may be subject to claims for defamation, negligence, copyright or
trademark infringement based on other theories relating to the information we
publish on our Web site, on the Web sites of others with whom we license or
co-brand our products or in our books. These types of claims have been
brought, sometimes successfully, against online services, as well as other
print publications in the past. We could also be subject to claims based upon
the content that is accessible from Hoover's Online through links to other
Web sites. We may also be subject to claims for software license infringement
based on the software and other technologies that we utilize on our Web site.
Our insurance may not adequately protect us against these types of claims.
CONCERNS REGARDING SECURITY OF TRANSACTIONS AND TRANSMITTING CONFIDENTIAL
INFORMATION OVER THE INTERNET MAY NEGATIVELY AFFECT OUR REVENUES.
We believe that concern regarding the security of confidential
information transmitted over the Internet, such as credit card numbers,
prevents many potential customers, especially those outside of the United
States, from engaging in online transactions.
Our infrastructure is potentially vulnerable to physical or
electronic break-ins, viruses or similar problems. If a person circumvents
our security measures, he or she could misappropriate proprietary
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information or cause interruptions in our operations. Security breaches that
result in access to confidential information could damage our reputation and
expose us to a risk of loss or liability. We may be required to make
significant investments and efforts to protect against or remedy security
breaches. As e-commerce becomes more prevalent, our audience will become more
concerned about security. If we do not adequately address these concerns, our
business, operating results and financial condition could be materially
adversely affected.
THE LOSS OF ANY OF OUR KEY PERSONNEL OR OUR FAILURE TO ATTRACT ADDITIONAL
PERSONNEL COULD HAVE A MATERIAL AND ADVERSE EFFECT ON OUR BUSINESS.
Our future success will depend, in substantial part, on the
continued service of our senior management, particularly Patrick J. Spain,
our Chairman of the Board, President and Chief Executive Officer. None of our
senior management has entered into an employment agreement with us. We do not
maintain key-person life insurance on any of our employees. The loss of the
services of one or more of our key personnel could have a material adverse
effect on our business, operating results and financial condition. Our future
success will also depend on our continuing ability to attract, retain and
motivate highly qualified technical, customer support, financial and
accounting and managerial personnel. Competition for these personnel is
intense, and we cannot assure you that we will be able to retain our key
personnel or that we will be able to attract, assimilate or retain other
highly qualified personnel in the future. We have from time to time in the
past experienced, and we expect to continue to experience in the future,
difficulty in hiring and retaining employees with appropriate qualifications.
IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR FACE A
CLAIM OF INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD PARTY, WE COULD LOSE
OUR INTELLECTUAL PROPERTY RIGHTS OR BE LIABLE FOR SIGNIFICANT DAMAGES.
We rely primarily on a combination of copyrights, trademarks, trade
secret laws, our user policy, licensing agreements and restrictions on
disclosure to protect our intellectual property. Despite these precautions,
it may be possible for a third party to copy or otherwise obtain and use the
content on our Web site or our other intellectual property without
authorization. We cannot assure that our precautions will prevent
misappropriation or infringement of our intellectual property. Failure to
protect our intellectual property in a meaningful manner could have a
material adverse effect on our business, operating results and financial
condition. In addition, we may need to engage in litigation in order to
enforce our intellectual property rights in the future or to determine the
validity and scope of the proprietary rights of others. Any litigation could
result in substantial costs and diversion of management and other resources,
either of which could have a material adverse effect on our business,
operating results and financial condition.
Because we license some data and content from third parties, our
exposure to copyright infringement actions may increase. We rely upon these
third parties for the origin and ownership of licensed content. We generally
obtain representations of the origins and ownership of licensed content and
generally obtain indemnification to cover any breach of any representations.
However, we cannot assure you that these representations will be accurate or
that indemnification will be sufficient to provide adequate compensation for
any breach of these representations.
We cannot assure you that infringement or other claims will not be
asserted or prosecuted against us in the future, whether resulting from our
internally developed intellectual property or licenses or content from third
parties. Due to the global nature of the Internet, we may be subject to such
claims asserted under the laws of foreign countries, which may differ
substantially from United States laws. Any future assertions or prosecutions
could materially adversely affect our business, operating results and
financial condition. Any claims, with or without merit, could be
time-consuming, result in costly litigation and diversion of technical and
management personnel, or require us to introduce new content or trademarks,
develop non-infringing technology or enter into royalty or licensing
agreements. These royalty or licensing agreements, if required, may not be
available on acceptable terms, if at all. In the event a claim of
infringement is successful and we fail or are unable to introduce new
content, develop non-infringing technology or license the infringed or
similar technology on a timely basis, our business, operating results and
financial condition could be materially and adversely affected.
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OUR COMMON STOCK PRICE IS VOLATILE AND COULD FLUCTUATE SIGNIFICANTLY.
The trading price of our stock has been and may continue to be
subject to wide fluctuations. Our stock price may fluctuate in response to a
number of events and factors, such as quarterly variations in operating
results; announcements of new products, technology or strategic relationships
by us or our competitors; changes in financial estimates and recommendations
by securities analysts; the operating and stock price performance of other
companies that investors may deem comparable; and news reports relating to
trends in our markets. In addition, the stock markets in general, and the
market prices for Internet-related companies in particular, have experienced
extreme volatility that often has been unrelated to the operating performance
of such companies. These broad market and industry fluctuations may adversely
affect the price of our common stock, regardless of our operating performance.
WE DEPEND ON THE CONTINUED GROWTH IN USE AND EFFICIENT OPERATION OF THE
INTERNET.
The Internet-based information market is rapidly evolving. Our
business would be materially adversely affected if Internet usage does not
continue to grow or grows more slowly than anticipated.
Internet usage may be inhibited for a number of reasons, including:
- inadequate network infrastructure;
- security concerns;
- inconsistent quality of service; and
- unavailability of cost-effective, high-speed access to the
Internet.
Our audience depends on Internet service providers, online service
providers and other Website operators for access to our Web site. Many of
these services have experienced significant service outages in the past and
could experience service outages, delays and other difficulties due to system
failure unrelated to our systems. These occurrences could cause our visitors
to perceive the Internet in general or our Web site in particular as
unreliable and, therefore, cause them to use other media to obtain their
company and business information. We also depend on third-party information
providers to deliver information and data feeds to us on a timely basis. Our
Web site could experience disruptions or interruptions in service due to the
failure or delay in the transmission or receipt of this information, which
could have a material adverse effect on our business, operating results and
financial condition.
WE CANNOT PREDICT THE SIZE OR VIABILITY OF THE ONLINE INFORMATION SERVICES
MARKET.
The market for our online business information services is rapidly
evolving and is characterized by an increasing number of market entrants. As
is typical of a rapidly evolving industry, demand and market acceptance for
recently introduced services are subject to a high level of uncertainty and
risk. Because of these factors, it is difficult to predict the future growth
rate, if any, and size of this market. We cannot assure you that the market
for our online business information services will continue to develop. If the
use of online business information services fails to continue to grow, our
ability to establish other online services would be materially and adversely
affected. In addition, our business strategy includes extending our online
business information services model to additional segments of business
information. We cannot assure that we will be successful in our efforts.
IF WE CANNOT KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGY AND THE DEMANDS OF
OUR CUSTOMERS, WE MAY BE UNABLE TO ENHANCE OUR EXISTING SERVICES OR INTRODUCE
NEW SERVICES.
The market in which we operate is characterized by rapidly changing
technology evolving industry standards, frequent new service announcements,
introductions and enhancements, and evolving customer demands. The emerging
nature of the Internet and the electronic distribution of business
information, including distribution through wireless channels and products,
exacerbate these market characteristics. Accordingly, our future success will
depend on our ability to adapt to rapidly changing technologies and industry
standards, and our ability to continually improve the performance, features
and reliability of our services in response to both evolving customer demands
and competitive service offerings.
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Our inability to adapt successfully to these changes in a timely manner could
have a material and adverse effect on our business, operating results and
financial condition. Furthermore, we may experience difficulties that could
delay or prevent the successful design, development, testing, introduction or
marketing of new services. Any enhancements to existing services may not
adequately meet the requirements of our current and prospective customers or
achieve any degree of significant market acceptance. If we are unable, for
technological or other reasons, to develop and introduce new services or
enhancements to existing services in a timely manner or in response to
changing market conditions or customer requirements, or if our services or
enhancements contain defects or do not achieve a significant degree of market
acceptance, our business, results of operations and financial condition would
be materially adversely affected.
PRIVACY CONCERNS MAY PREVENT OUR USE OF COOKIES.
Web sites typically place information known as cookies on a user's
hard drive without the user's knowledge or consent. Web sites use cookies for
a variety of reasons. This technology enables our subscribers to access our
premium services without entering their password upon each visit.
Additionally, it allows us to limit the frequency with which a viewer is
shown a particular ad. Any reduction or limitation in the use of cookies
could adversely affect our ability to target advertising effectively.
Commonly used Internet browsers allow users to modify their browser settings
to remove cookies at any time or to prevent cookies from being stored on
their hard drives. In addition, some Internet commentators, privacy advocates
and governmental bodies have suggested limiting or eliminating the use of
cookies. The use of cookies may become more restrictive in certain non-U.S.
markets, which could impact the rate or success of expansion into those
markets.
WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION AND LEGAL
UNCERTAINTIES.
The laws governing the Internet remain largely unsettled, even in
areas where there has been some legislative action. It may take years to
determine whether and how existing laws, including those governing
intellectual property, privacy, libel and taxation, apply to the Internet
generally and the electronic distribution of business information in
particular. Legislation could reduce the growth in the use of the Internet
generally and decrease the acceptance of the Internet as a communications and
commercial medium, which could have a material adverse effect on our
business, operating results and financial condition. In addition, the growing
popularity and use of the Internet has burdened the existing
telecommunications infrastructure and many areas with high Internet usage
have begun to experience interruptions in phone service. As a result, some
local telephone carriers have petitioned governmental agencies to regulate
Internet service providers and online service providers in a manner similar
to long-distance telephone carriers and to impose access fees on Internet
service providers and online service providers. If any of these petitions or
the relief that they seek is granted, the costs of communicating on the
Internet could increase substantially, potentially adversely affecting the
growth on the Internet. Further, due to the global nature of the Internet, it
is possible that, although transmissions relating to our services originate
in the State of Texas, governments of other states, the United States or
foreign countries might attempt to regulate our service or levy sales or
other taxes on our activities. In Texas, sales of goods over the Internet are
taxed the same as sales of personal property through traditional channels. As
a result, Internet companies like us, based in Texas, may be at a competitive
disadvantage to Internet companies based outside of Texas with respect to
sales to Texas-based customers. We cannot assure you that violations of local
or other laws will not be alleged or charged by governmental authorities,
that we might not unintentionally violate these laws or that in the future
these laws will not be modified or new laws enacted. Any of these
developments could have a material adverse effect on our business, operating
results and financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Hoover's has capital lease obligations, which result in the risk
that interest expense or the fair value of capital lease obligations might be
impacted by changes in market interest rates. However, because these are not
significant, market risks related to financial instruments are not material.
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On July 26, 1999, upon the closing of our initial public offering of
common stock, we received approximately $48 million in proceeds from the
underwriters of the offering. To date, these proceeds have been invested in
money market funds backed by short-term government securities and other
short-term, investment-grade, interest-bearing instruments. Market risks
related to these financial instruments are not material.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not currently subject to any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The effective date of our first registration statement, filed on
Form S-1 under the Securities Act of 1933 (No. 333-78109) relating to our
initial public offering of our common stock, became effective July 20, 1999.
Offering proceeds, net of aggregate expenses of approximately $1 million,
were $48 million. The Company has used approximately $5.5 million of the net
offering proceeds for working capital purposes, $2.5 million for the purchase
and installation of computer and related equipment and software and $40
million has been invested in money market funds backed by government
securities and other short-term, investment-grade, interest-bearing
instruments pending further application of such proceeds.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITIES HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
10.1 Office Lease dated June 19, 2000 for
Hoover's Center Project located at 5800
Airport Blvd., Austin, Texas between
Hoover's, Inc. and Riverside Resources
Investments, LTD.
27.1 Financial Data Schedule (EDGAR version only).
(b) We filed no reports on Form 8-K during the three months
ended June 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOOVER'S, INC
August 14, 2000 /s Patrick J. Spain
----------------------------------- ---------------------------------------
Date Patrick J. Spain
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER
AND PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
August 14, 2000 /s Lynn Atchison
----------------------------------- ---------------------------------------
Date Lynn Atchison
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
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