<PAGE>
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY US FEDERAL SECURITIES LAWS TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
<PAGE>
Filed pursuant to Rule 424(a)
Registration Statement No. 333-72883
SUBJECT TO COMPLETION -- FEBRUARY 24, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS
, 1999
LOGO
SHARES OF COMMON STOCK
- ----------------------------------------------------------------------
THE COMPANY: THE OFFERING:
- - We are the leading provider of - Media Metrix is offering shares
Internet audience measurement of its common stock.
products and services. - The underwriters have an option
- - Media Metrix, Inc. to purchase an additional
35 East 21(st) Street shares from Media Metrix
New York, New York 10010 and shares from existing
(212) 460-7980 stockholders to cover
PROPOSED SYMBOL & MARKET: over-allotments.
- - MMXI/Nasdaq National Market - This is our initial public
offering, and no public market
currently exists for our shares.
- We plan to use the proceeds from
this offering for international
expansion, new product
development, to redeem all
outstanding shares of redeemable
preferred stock and for general
corporate purposes, including
working capital.
- Closing: , 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Per Share Total
- ----------------------------------------------------------------------
<S> <C> <C>
Public offering price (Estimated): $ $
Underwriting fees:
Proceeds to Company:
- ----------------------------------------------------------------------
</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
- --------------------------------------------------------------------------------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS DETERMINED WHETHER THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. NOR HAVE THEY MADE, NOR WILL THEY MAKE, ANY
DETERMINATION AS TO WHETHER ANYONE SHOULD BUY THESE SECURITIES. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
- --------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
<PAGE>
[INSERT GRAPHICS]
Media Metrix: The Power of Relevant Knowledge The Authoritative Source for
Internet Audience Measurement
[Graphic Showing click-by-click details from two panelists data logs.]
[Graphic of four computer screens on gatefold. First screen in top left corner
has picture of Top Rankings list from the Media Metrix Web site. Second screen
in top right corner has picture of a press release captioned "Media Metrix
Releases Results of '98 Holiday Shopping Season." Third screen in middle right
of page shows Web Report: Travel/Tourism. Fourth screen in middle bottom shows a
site analysis report from the Media Metrix Web site.]
Text to left of first screen: Internet Ratings. Our customers rely on our
audience measurement data to make critical business decisions.
Text to right of second screen:
Text above third screen: Competitive Intelligence. Media Metrix's in depth
clickstream data provides market and competitive intelligence to companies
competing in the digital age.
Text to the right of fourth screen: Ad Buying and Selling. Media Metrix audience
ratings are used as a basis for buying and selling Internet advertising.
[Graphic in center of page is a three dimensional axis.]
One spoke ends in caption "What We Deliver." Listed along axis are, in order
from center: audience ratings, e-commerce tracking, demographic segmentation,
custom analysis and technology usability. Arrow points from "audience ratings"
on spoke to fourth screen.
Second spoke ends in "What We Measure." Listed along axis are, in order from
center: software and hardware, digital media, internet, online services and
world wide web. Arrow points from "internet" on axis to first screen.
Third axis ends in "Who Uses It." Listed on axis are, in order from center:
technology companies, financial analysts, web sites, ad agencies, e-commerce
marketers and media organizations. Arrow points from "financial analysts" on
axis to third screen. Arrow points from "e-commerce marketers" on axis to second
screen.
Logo in lower left corner.
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
Prospectus Summary............................
Risk Factors..................................
Use of Proceeds...............................
Dividend Policy...............................
Capitalization................................
Dilution......................................
Selected Financial Data.......................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................
Business......................................
<CAPTION>
PAGE
<S> <C>
Management....................................
Certain Transactions..........................
Principal Stockholders........................
Description of Capital Stock..................
Shares Eligible for Future Sale...............
Underwriting..................................
Legal Matters.................................
Experts.......................................
Where You Can Find Additional Information.....
Index to Financial Statements................. F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
THE INFORMATION BELOW IS ONLY A SUMMARY OF MORE DETAILED INFORMATION
INCLUDED IN OTHER SECTIONS OF THIS PROSPECTUS. THE OTHER INFORMATION IS
IMPORTANT, SO PLEASE READ THIS ENTIRE PROSPECTUS CAREFULLY. UNLESS STATED
OTHERWISE, THE INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED AND THAT WE HAVE COMPLETED
A 1.4648-FOR-ONE SPLIT OF OUR COMMON STOCK, WHICH IS EXPECTED TO OCCUR PRIOR TO
THE CLOSING OF THIS OFFERING.
MEDIA METRIX
OUR BUSINESS
We are the leading provider of Internet audience measurement products and
services. We measure usage of the entire Internet, including the Web and
proprietary on-line services like America Online. Our products and services
enable the continued growth and development of the Internet by providing
reliable, third-party audience measurement data that our customers use as a
basis for making critical business decisions. We collect these data by measuring
Internet usage from a representative sample, or panel, of personal computer
users with our proprietary tracking technology. We maintain the largest panel of
Internet users under continuous measurement in the world. We have the only panel
currently reporting Internet usage both at work and at home, as well as the
usage of proprietary on-line services. We are the authoritative source for
Internet audience measurement data. In January 1999, our data were cited in more
than 400 print and on-line articles.
We have been at the forefront of the development and coordination of
technology and standards needed to facilitate advertising and transactions
between companies doing business over the Internet. Our customers include most
of the leading Internet advertisers and advertising agencies, the most heavily
trafficked Internet properties, leading technology companies and financial
institutions. They include Amazon.com, America Online, Buena Vista/Disney, eBay,
E*Trade, Fidelity, IBM, Infoseek, Interpublic Group, Microsoft, Omnicom, Time
Warner and Yahoo! The quality and depth of our customer base and our high
customer retention rate reflect our position as the leading Internet audience
measurement service.
OUR MARKET OPPORTUNITY
Advertising is a critical revenue stream for providers of Internet content
and services. As Web sites and on-line content providers seek to increase
advertising revenues, and as on-line advertisers seek to determine where they
should spend their marketing dollars, demand is growing for reliable statistics
and standardized methods to evaluate Internet usage. As a result, a standard for
Internet audience measurement must emerge which will:
- measure a large and representative sample of Internet users;
- track activity on the entire Internet, not just the Web, so that key
properties like America Online and other proprietary on-line services and
technologies are included;
- measure the Internet audience both at work and at home, because Internet
usage differs in these two environments; and
- be unbiased and independent from advertisers and content providers.
OUR STRATEGY
Our goal is to capitalize on our current leadership position in order to
become the accepted standard for Internet audience measurement. We intend to
achieve this goal through the following strategies:
- continue our industry leadership;
- develop products to accelerate e-commerce growth;
- expand and increase penetration of our client base;
- expand internationally; and
- develop new products and services.
OUR HISTORY
Our business was originally conducted as a division within The NPD Group,
Inc., a leading marketing research firm. In March 1996, NPD formed PC Meter, a
Delaware limited partnership, to conduct our business. We were formed as a
Delaware corporation in March 1997. In April 1997, we
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merged with PC Meter. In November 1998, we merged with RelevantKnowledge, Inc.,
our leading competitor.
Our principal executive offices are located at 35 East 21(st) Street, New
York, New York 10010, and our telephone number is (212) 460-7980.
Media Metrix, PC Meter, RelevantKnowledge, E-Trends, The Power of Relevant
Knowledge, and the Media Metrix logo are our trademarks. Any other trademark,
trade name or service mark of any other company appearing in this prospectus
belongs to its holder.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Media Metrix......... shares
Common stock to be outstanding after the
offering................................... shares
Use of proceeds.............................. We intend to use the net proceeds from this
offering to fund international expansion, new
product development, the redemption of our
outstanding redeemable preferred stock and
for general corporate purposes, including
working capital.
Proposed Nasdaq National Market Symbol....... MMXI
</TABLE>
The outstanding share information is based on our shares outstanding as of
January 31, 1999. This information excludes:
- 153,072 shares of common stock subject to options granted under our 1998
Equity Incentive Plan and outstanding as of January 31, 1999 at a weighted
average exercise price of $2.39 per share;
- 496,283 shares of common stock subject to options granted under our
earlier Stock Option Plan and outstanding as of January 31, 1999 at a
weighted average exercise price of $0.84 per share;
- 579,328 additional shares of common stock reserved for issuance under our
1998 Equity Incentive Plan; and
- 899,759 shares of common stock reserved for outstanding warrants at a
weighted average exercise price of $2.32 per share.
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes the statement of operations data for our
business and our predecessor business. The pro forma data give effect to our
merger with RelevantKnowledge as if it took place on January 1, 1998. For a more
detailed explanation of these financial data, see "Selected Financial Data" and
our financial statements located elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEAR ENDED PRO FORMA
THROUGH DECEMBER 31, YEAR ENDED
DECEMBER 31, ------------------------------- DECEMBER 31,
1995 1996 1997 1998 1998
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................ $ -- $ 1,033 $ 3,188 $ 6,331 $ 8,145
Gross profit (loss)................................. (140) (711) (275) 2,210 1,145
Loss from operations................................ (372) (3,376) (4,679) (7,203) (16,038)
Net loss applicable to common stockholders.......... (372) (3,376) (4,874) (7,452) (16,191)
Basic and diluted net loss per common share
applicable to common stockholders................. $ (0.06) $ (0.52) $ (0.75) $ (0.98) $ (1.49)
Shares used in calculating basic and diluted net
loss per common share applicable to common
stockholders...................................... 6,523 6,523 6,523 7,618 10,856
</TABLE>
The following balance sheet data give effect to our sale of shares of
common stock in this offering at an assumed initial public offering price of
$ per share, after deducting the underwriting discount and estimated offering
expenses, and the application of net proceeds from this offering.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
-------------------------
ACTUAL AS ADJUSTED
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................... $ 8,012
Working capital......................................................................... 1,057
Total assets............................................................................ 16,060
Redeemable preferred stock.............................................................. 4,680
Total stockholders' equity.............................................................. 2,622
</TABLE>
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RISK FACTORS
BEFORE YOU INVEST IN OUR COMMON STOCK, YOU SHOULD BE AWARE OF VARIOUS RISKS,
INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CAREFULLY CONSIDER THESE RISK
FACTORS, TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS,
BEFORE YOU DECIDE WHETHER TO PURCHASE SHARES OF OUR COMMON STOCK. ANY OR ALL OF
THESE RISKS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF
OPERATIONS OR FINANCIAL CONDITION. THE RISKS SET OUT BELOW MAY NOT BE
EXHAUSTIVE. KEEP THESE RISK FACTORS IN MIND WHEN YOU READ FORWARD-LOOKING
STATEMENTS ELSEWHERE IN THIS PROSPECTUS. THESE ARE STATEMENTS THAT RELATE TO OUR
EXPECTATIONS FOR FUTURE EVENTS AND TIME PERIODS. GENERALLY, THE WORDS
"ANTICIPATE," "EXPECT," "INTEND" AND SIMILAR EXPRESSIONS IDENTIFY
FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND
UNCERTAINTIES, AND FUTURE EVENTS AND CIRCUMSTANCES COULD DIFFER SIGNIFICANTLY
FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS.
WE DO NOT HAVE A LONG OPERATING HISTORY.
We began our operations as a division of NPD in October 1995. We have only
operated as an entity independent of NPD since March 31, 1996. Our operating
history is therefore limited. In addition, we recently merged with
RelevantKnowledge and have been operating as one company only since early
November 1998.
You must consider the risks and difficulties frequently encountered by
early-stage companies in new and rapidly evolving markets. Some of these risks
and uncertainties relate to our ability to:
- anticipate and adapt to our evolving market;
- implement sales and marketing initiatives;
- enhance the Media Metrix brand;
- attract, retain and motivate qualified personnel;
- respond to actions taken by our competitors;
- effectively manage our growth by building a solid base of operations and
technology; and
- integrate acquired businesses, consumer panels, technologies and services.
We cannot assure you that we will be successful in addressing these risks
and uncertainties. Our failure to do so could have a material adverse effect on
our business, results of operations and financial condition.
WE HAVE A HISTORY OF OPERATING LOSSES AND NEGATIVE CASH FLOW.
Our ability to generate significant revenues is uncertain. Although our
revenues have continued to grow, we are not yet profitable. We incurred losses
from operations of $3.4 million in 1996, $4.7 million in 1997 and $7.2 million
in 1998. We expect our operating and net losses to continue. If the merger with
RelevantKnowledge had taken place on January 1, 1998, our pro forma loss from
operations for 1998 would have been $16.0 million. Our ability to generate
profits in the future will depend on a number of factors, including:
- maintaining and enhancing our position as the leading Internet audience
measurement service;
- keeping our costs in line with our budget;
- retaining our existing customers;
- increasing our sales to existing customers;
- obtaining new customers;
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- increasing business and consumer acceptance of the Internet as a source of
information and as a place to buy and sell goods and services;
- the growth of advertising and e-commerce on the Internet;
- regulation of the Internet by Federal or local governments;
- the health of the general economy; and
- economic conditions that uniquely affect the Internet.
We intend to invest heavily in our technologies, additional products and
services and international expansion. As a result, we will need to achieve
significant revenue increases to achieve and maintain profitability. Although
our revenues and the number of our clients have continued to increase, we may
not be able to continue to grow and to expand our business. The number of
clients or the number of products and services for which our clients subscribe
may grow more slowly than we anticipate or may decrease in the future. Even if
we become profitable, we may not sustain or increase our profits on a quarterly
or annual basis in the future.
THE INTERNET AUDIENCE MEASUREMENT INDUSTRY IS NEW AND RAPIDLY EVOLVING.
To date, no Internet audience measurement service has been adopted as the
universally accepted standard. Our existing and potential customers may
challenge or refuse to accept our audience measurement reports. Our customers
may be dissatisfied with our methodology for measuring Internet audiences or may
feel that our panel is not representative of Internet users. Furthermore,
another Internet audience measurement service may be adopted as the industry
standard. As a result, our customers may turn to alternative services provided
by current or potential competitors.
WE DEPEND ON CONTINUED GROWTH IN USE OF THE INTERNET.
Our business would be adversely affected if Internet usage for the exchange
of information and for commerce does not continue to grow rapidly. Internet
usage may be inhibited for a number of reasons, including:
- inadequate network infrastructure;
- security concerns;
- inconsistent quality of service; or
- lack of availability of cost-effective, high-speed service.
Even if Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth. As a result, its performance
and reliability may decline. In addition, Web sites and proprietary on-line
services have experienced interruptions in their service as a result of outages
and other delays occurring throughout their infrastructure. If these outages or
delays frequently occur in the future, Internet usage as a medium for the
exchange of information and for commerce could grow more slowly or decline.
THE ACCEPTANCE AND EFFECTIVENESS OF INTERNET ADVERTISING IS UNPROVEN.
Our future success will depend on an increase in the use of the Internet as
an advertising medium. The Internet advertising market is new and rapidly
evolving. It cannot yet be compared with the traditional advertising market to
gauge its effectiveness. As a result, there is significant uncertainty about the
demand and market acceptance for Internet advertising. Many of our current or
potential customers have little or no experience using the Internet for
advertising purposes. The adoption of
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Internet advertising, particularly by entities that have historically relied on
traditional media for advertising, requires the acceptance of a new way of
conducting business. These companies may find Internet advertising to be less
effective for promoting their products and services as compared to traditional
advertising. In addition, most current and potential Web publisher customers
have little or no experience in generating revenues from the sale of advertising
space on their Web sites. We cannot assure you that the market for Internet
advertising will continue to emerge or will become sustainable. If the market
for Internet advertising fails to develop or develops more slowly than we
expect, then our business, results of operations and financial condition could
be materially and adversely affected.
WE MAY FAIL TO SUCCESSFULLY INTEGRATE RELEVANTKNOWLEDGE.
We recently merged with RelevantKnowledge. Our success will depend, in part,
on our ability to fully integrate the operations and management of
RelevantKnowledge. A successful integration requires, among other things, the
integration of RelevantKnowledge's product offerings and technology into ours
and the coordination of their research and development, sales and marketing and
financial reporting efforts with ours. We cannot assure you that we will
accomplish the integration smoothly or successfully. We cannot assure you that
we will realize the anticipated benefits of the RelevantKnowledge merger. The
success of the integration will require the dedication of management and other
personnel resources which may temporarily distract their attention from our
day-to-day business.
OUR OPERATING RESULTS MAY FLUCTUATE FROM QUARTER TO QUARTER.
Our operating results have varied from quarter to quarter. Our operating
results may continue to vary as a result of a variety of factors. These factors
include:
- our ability to retain our current clients;
- our ability to sell additional products and services to current clients;
- our ability to attract new clients;
- our ability to maintain customer satisfaction;
- the announcement or introduction of new products and services by us or our
competitors;
- price competition;
- our ability to upgrade and to develop our systems and infrastructure to
accommodate our growth;
- our ability to attract new personnel;
- the timing, cost and availability of advertising in traditional media;
- the impact of possible acquisitions both on our operations and on our
reported operating results due to associated accounting charges;
- technical difficulties or service interruptions; and
- the amount and timing of operating costs and capital expenditures relating
to expansion of our business, including our planned international
expansion.
Many of these factors are beyond our control. While we expect our revenues
to increase in proportion to the increase in advertising on the Internet, we
cannot assure you that this will occur. In addition, we cannot assure you that
advertising on the Internet will continue to grow at forecasted levels, or at
all. A substantial portion of our current and future costs are fixed. These
costs consist of the expense of recruiting and maintaining our panel and
collecting and processing data generated by the panel. We may have to increase
our current budget if we need to change the size or composition of
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the panel. In addition, if our revenues fall short of expectations, we may not
be able to adjust our budgeted expenses to compensate for this shortfall on a
timely basis. Further, as a strategy for remaining competitive, we may have to
make certain pricing, service or marketing decisions that could have a material
adverse effect on our business, results of operations and financial condition.
Due to these factors, period-to-period comparisons of our revenues and
operating results are not necessarily meaningful. Therefore, you should not rely
on these comparisons as indicators of our future performance. We also cannot
assure you that we will be able to:
- sustain the rates of revenue growth we have experienced in the past;
- improve our operating results; or
- sustain our profitability on a quarterly basis.
In addition, our operating results in future periods may be below the
expectations of securities analysts and investors. If that occurs, the market
price of our common stock could be materially and adversely affected.
WE OPERATE IN HIGHLY COMPETITIVE MARKETS.
The market for Internet audience measurement services is new and rapidly
evolving. We expect competition in this market to intensify in the future.
Currently, our only known direct competition in measuring the Web is NetRatings.
NetRatings recently announced a strategic relationship with Nielsen Media
Research, Inc. Nielsen Media Research is the leading provider of television
audience measurement services and has significantly more financial and other
resources than do we. In light of this announcement, it is possible that
NetRatings may become a significant competitor.
We also compete indirectly with operators of site-centric and other
consumer-centric measurement systems. Site-centric measurement systems measure
audience visits at a specific Web site by monitoring the Web site's server.
Consumer-centric systems measure the market either in a manner similar to us or
qualitatively through on-line and telephonic interviews.
In addition, we may face competition from individual Web sites that develop
an independent method of measuring their own audience or from other companies
that develop alternative audience measurement technologies to those already
provided by us.
Competitive pressures could have a material adverse effect on our business,
results of operations and financial condition. We believe that the principal
competitive factors in our market are:
- creating representative consumer and business panels; and
- providing audience measurement services for the entire Internet, including
the Web and proprietary on-line services.
Certain of our competitors have:
- longer operating histories;
- larger customer bases;
- greater brand recognition in similar businesses; and
- significantly greater financial, marketing, technical and other resources.
In addition, some of our competitors may be able to:
- devote greater resources to marketing and promotional campaigns;
- adopt more aggressive pricing policies; and
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- devote substantially more resources to technology and systems development.
Increased competition may result in reduced operating margins, loss of
market share and diminished value in our services, as well as different pricing,
service or marketing decisions. We cannot assure you that we will be able to
compete successfully against current and future competitors.
WE FACE MANY CHALLENGES IN CONNECTION WITH OUR PLANNED INTERNATIONAL EXPANSION.
Our current strategy includes expansion of our services to measure Internet
audiences outside of the United States. Our expansion into international markets
will require management attention and resources. The international markets for
audience measurement services have historically been extremely localized and
difficult to penetrate. We cannot assure you that we will be able to develop new
products and services based on data obtained in those markets. We cannot assure
you that we will be successful in marketing our products and services to clients
in markets outside the United States. In addition, our international operations
will be subject to a number of inherent risks, including:
- the impact of recessions in economies outside the United States;
- changes in regulatory requirements;
- reduced protection for intellectual property rights in some countries;
- potentially adverse tax consequences;
- economic and political instability; and
- fluctuations in currency exchange rates.
These risks may have a material adverse effect on our business, results of
operations or financial condition.
WE WILL DEPEND ON STRATEGIC RELATIONSHIPS IN INTERNATIONAL MARKETS.
The success of our international expansion will depend on our ability to:
- recruit and maintain at-home and at-work panels that are representative of
a geographic area;
- control costs and effectively manage foreign operations; and
- effectively market and sell any new products or services.
These challenges require skills and expertise in foreign countries that we
do not currently have. We believe that our success in penetrating markets
outside of the United States will depend on our ability to develop and to
maintain strategic relationships with local audience measurement or marketing
research companies. If we do not succeed in attracting or retaining strategic
partners in markets outside the United States, our business, financial condition
and results of operations could be materially adversely affected.
OUR MARKET IS SUBJECT TO RAPID CHANGE.
Our market is characterized by:
- rapidly changing technology;
- evolving industry standards;
- introductions and enhancements of competitive products and services; and
- changing customer demands.
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Accordingly, our future success depends on our ability to:
- adapt to rapidly changing technologies;
- adapt our services to evolving industry standards; and
- improve the features, reliability and timeliness of our product and
service offerings in response to competitive product and service offerings
and evolving demands of the marketplace.
We cannot assure you that we will succeed in addressing these issues. In
addition, the widespread adoption of new Internet networking technologies or
other technological changes could require us to expend substantial amounts of
capital to change our services or infrastructure. These changes may also involve
new technologies that may not be measurable by our current methods.
WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR INTERNAL GROWTH.
We are currently experiencing a period of rapid expansion. We anticipate
that future expansion will be necessary in order to accommodate our needs and to
take advantage of new opportunities in the market for audience measurement
services on the Internet. In order to succeed, we will need to attract and hire
additional technical and management personnel. As a result, we expect to add key
personnel in the near future to manage our expected growth. We also will need to
expand our technical, finance, administrative and operations staff. We cannot
assure you that current and planned personnel, systems, procedures and controls
will be adequate to support our future operations. We may not be able to hire
and retain our personnel. We also may not be able to exploit existing and
potential strategic relationships and market opportunities. If we fail to
effectively manage our internal growth, our business, results of operations and
financial condition could be materially adversely affected.
WE DEPEND ON RENEWALS OF OUR SUBSCRIPTION BASED SERVICES.
We have historically derived substantially all of our revenues from
subscriptions for our syndicated products. In our limited history, we have
experienced high renewal rates. However, we cannot assure you we will continue
to experience high renewal rates. Our subscription renewal rates may also
decline as a result of a consolidation in our customer base or if a significant
number of our customers cease operations. If our renewal rate percentage
declines, it could have a material adverse effect on our business, results of
operations and financial condition.
WE MUST FURTHER DEVELOP OUR BRAND NAME.
We believe that maintaining and strengthening the Media Metrix brand is an
important aspect of our business. Our brand name is critical in our efforts to
attract clients. We believe that the importance of brand recognition will
increase due to the increasing number of competitors entering the market for
Internet audience measurement. Our ability to promote and position the Media
Metrix brand depends largely on:
- the success of our marketing efforts; and
- our ability to provide our customers with high quality products.
To promote the Media Metrix brand in response to competitive pressures, we
may find it necessary to increase our marketing budget or otherwise increase our
financial commitment to creating and maintaining brand loyalty among our
clients. If we fail to promote and maintain our brand, or incur excessive
expenses attempting to promote and maintain our brand, our business, results of
operations and financial condition will be materially adversely affected.
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WE MAY ENCOUNTER RISKS ASSOCIATED WITH NEW PRODUCT DEVELOPMENT.
Our future success depends in part on our ability to offer new products and
services on a timely and cost-effective basis. In order to gain market
acceptance, our new products and services must address:
- specific industries and businesses;
- changes in client requirements; and
- changes in technologies.
The process of developing and launching new products or services is
inherently risky and costly. Moreover, we cannot assure you that once launched,
our products and services will be accepted by our customers.
OUR SYSTEMS MAY FAIL.
Our success depends on the efficient and uninterrupted operation of our
computer and communications systems. Some personal computers, servers and
portions of our network are provided to us by NPD under a management services
agreement. NPD also provides us with the use of mini-computers that we use to
process data received from panelists. Later this year, we plan to separate our
systems from those of NPD and to construct an independent network. Any failure
of the current or the new networks could impede the processing of data, customer
orders and day-to-day management of our business. This could have a material
adverse effect on our business, results of operations and financial condition.
Our systems and operations are vulnerable to damage or interruption from:
- telecommunication failures;
- power loss;
- fires;
- floods;
- physical and electronic break-ins;
- sabotage; and
- intentional acts of vandalism and similar events.
We do not presently have fully redundant systems. We do not carry sufficient
business interruption insurance to compensate us fully for losses that may
occur. Despite any precautions we take, a natural disaster or other
unanticipated problems which lead to the corruption or loss of data at the NPD
facility or our own facilities could result in interruptions in the services we
provide. In addition, our data bases are growing rapidly, and the systems
currently in place may not be sufficient to handle any further expansion. This
could lead to systems failure or to a corruption of our data and could have a
material adverse effect on our business, results of operations and financial
condition.
WE DEPEND ON OUR KEY PERSONNEL.
Our future success depends on the continued services and on the performance
of our senior management and other key employees, in particular the services of
Tod Johnson, our Chief Executive Officer. Mr. Johnson also serves as the Chief
Executive Officer of NPD. We anticipate Mr. Johnson will spend a substantial
portion of his time on our matters. However, he will not be able to devote all
of his time to our affairs. As a result, Mr. Johnson's other responsibilities
could divert his attention from our affairs.
10
<PAGE>
Our performance depends on our ability to retain and to motivate our key
employees. The loss of the services of any of our key employees could have a
material adverse effect on our business, results of operations and financial
condition. We do not have long-term employment agreements with any of our key
personnel. We do not maintain any "key person" life insurance policies. In
addition, we are likely to need to recruit additional senior management
personnel as our business grows, particularly in the international arena. Our
future success depends on our ability to hire and to retain highly skilled
personnel. Competition for these candidates is intense. We cannot assure you
that we will be able to successfully attract, integrate or retain sufficiently
qualified personnel. Our inability to retain and attract the necessary personnel
could have a material adverse effect on our business, results of operations and
financial condition.
WE MAY FAIL TO INTEGRATE ACQUISITIONS.
If appropriate opportunities present themselves, we intend to acquire other
complementary businesses, technologies, services or products. We currently have
no understandings or agreements relating to any acquisition. We cannot assure
you that we will be able to complete future acquisitions successfully or to
integrate an acquired entity with our current business. An acquisition may
result in unforeseen operating difficulties and expenditures. They may also
require significant management attention that would otherwise be available for
ongoing development of our business. Moreover, we cannot assure you that the
anticipated benefits of any acquisition will be realized. We may:
- issue additional equity securities which would dilute stockholders;
- incur debt;
- incur contingent liabilities; and
- incur amortization expenses related to goodwill and other intangible
assets.
WE DEPEND ON THE NPD GROUP, INC.
We were originally formed as a division of NPD. Throughout our development,
we have relied on services and financing provided to us by NPD. When we became
an independent operating entity, we entered into a management services
agreement, license agreement and services agreement with NPD. These agreements
allow us to continue to use some of NPD's software and services on an as-needed
basis. Under the management services agreement, NPD provides us with managerial
services. Under the license agreement, we license some of NPD's technologies
necessary for the operation of our services. The services agreement provides for
payment of a licence fee by NPD for access to information collected from our
panel.
NPD may be able to exert influence over our business and affairs due to
these arrangements. Also, the loss of the services provided by NPD under the
management services agreement or the loss of the license of certain computer
software under the license agreement could have a material adverse effect on our
business, financial condition and results of operations. See "Certain
Transactions--Transactions with Directors and Executive Officers."
WE MAY NOT BE ABLE TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS.
We regard the protection of our patents, copyrights, service marks,
trademarks and trade secrets as important to our future success. We rely on a
combination of patent, copyright, trademark, service mark and trade secret laws
and contractual restrictions to establish and protect our proprietary rights. We
have entered into confidentiality and invention assignment agreements with our
employees and contractors, and nondisclosure agreements with parties we do
business with in order to limit access to and disclosure of our proprietary
information. We cannot assure you that these contractual arrangements or the
other steps we have taken will be sufficient to protect our intellectual
property from
11
<PAGE>
infringement or misappropriation. Moreover, others may independently develop
similar or superior technologies.
We seek to obtain the issuance of patents and the registration of our
trademarks and service marks in the United States and in selected other
countries. We cannot assure you that patents or trademark registrations will be
issued with respect to pending or future applications or that our patents and
trademarks will be upheld as valid. Effective patent, trademark, service mark,
copyright and trade secret protection may not be available in every country in
which our services are offered. We also expect to license certain of our
proprietary rights to strategic partners in the course of our planned
international expansion. While we will attempt to ensure that the quality of our
service is maintained by our strategic partners, we cannot assure you that they
will not take actions that might materially adversely affect the value of our
proprietary rights or reputation. This could have a material adverse effect on
our business, results of operations and financial condition.
We also rely on technologies that we license from third parties, like NPD.
NPD licenses to us some key software products and database technologies. We
cannot assure you that these licenses will not infringe on the proprietary
rights of others. We also cannot assure you that these third-party technology
licenses will continue to be available to us on commercially reasonable terms,
if at all. As a result, we may need to obtain substitute technology of lower
quality or performance standards or at greater cost. This could materially
adversely affect our business, results of operations and financial condition.
To date, we have not been notified that our technologies infringe the
proprietary rights of third parties. We cannot, however, assure you that third
parties will not claim that we have infringed their proprietary rights. We
expect that the number of infringement claims in our market will increase as the
number of services and competitors in our industry grows. These claims, whether
meritorious or not, could be:
- time-consuming;
- result in costly litigation; or
- require us to enter into royalty or licensing agreements.
Royalty or licensing agreements might not be available on terms we find
acceptable or at all. As a result, any such claim could have a material adverse
effect upon our business, results of operations and financial condition.
WE MAY BE EXPOSED TO POSSIBLE LIABILITY FOR SUPPLYING INACCURATE INFORMATION TO
OUR CUSTOMERS.
We may face liability for information that we supply to customers if the
information is inaccurate. The information in our databases, like that in any
database, may contain inaccuracies that our customers may not accept. Any
dissatisfaction by our customers with our measurement methodologies or databases
would have a material adverse effect on our ability to attract new customers and
retain existing customers. We have not experienced a situation where a customer
has made a claim against us after receiving inaccurate data. Our customer
contracts generally provide that each customer must indemnify us for any damages
arising from the use of data, reports or analyses by the customer or the
performance of any consulting, analytic or other services by us. However, we
cannot be certain our contract provisions provide sufficient protection. Any
liabilities which we may incur because of irregularities or inaccuracies in the
data we supply to our customers could have a material adverse effect on our
business, operating results and financial condition.
12
<PAGE>
WE FACE RISKS RELATED TO STORAGE OF PERSONAL INFORMATION ABOUT OUR PANELISTS.
We do not attempt to capture information regarding our panelists' banking,
credit card or password data. This information, however, may come into our
possession. We have a non-disclosure policy regarding personal information
received from our panelists. Our panel data are released only in an aggregated
format or in a form not identifiable on an individual basis. However, if someone
penetrates our network security or otherwise misappropriates sensitive data
about our panelists, we could be subject to liability. These liabilities could
include claims for unauthorized purchases with credit card information,
impersonation or other similar fraud claims. They could also include claims for
other misuses of personal information, like for unauthorized marketing purposes.
These claims could result in litigation and could have a material adverse effect
on our business, results of operations and financial condition.
WE FACE RISKS OF INDUSTRY INITIATIVES.
Certain key industry organizations, including the Internet Advertising
Bureau, the Media Ratings Council, the Advertising Research Foundation and FAST
Forward, have begun initiatives focusing on appropriate standards for Internet
audience measurement. We have been working closely with all of these
organizations in an effort to ensure that we are in compliance with any
recommended measurement guidelines. However, we may not comply with industry
guidelines which we believe are not economically feasible or otherwise not
consistent with our business strategy. To the extent that our measurement
approach diverges from the course of action recommended by some or all of these
trade groups, our business, results of operations and financial condition could
be materially and adversely affected.
THERE ARE RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE.
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot reliably
distinguish dates beginning on January 1, 2000 from dates prior to the year
2000. Many companies' software and computer systems may need to be upgraded or
replaced in order to correctly process dates beginning in 2000. We have reviewed
our proprietary technology and systems and have determined that we do not face
any significant year 2000 issues. We are currently in the process of correcting
any deficiencies which have been identified in our systems and expect to conduct
a test of the updated software by the end of the first quarter of 1999.
Although we believe that our systems are year 2000 compliant, we rely on
equipment and software provided by third parties that may not be year 2000
compliant. The failure of third-party equipment or software to properly process
dates for the year 2000 and any failure by these third parties to resolve any
year 2000 issues could cause us to incur unanticipated expenses. These expenses
could have a material adverse effect on our business, results of operations and
financial condition. Finally, to the extent that year 2000 issues have a
negative impact on consumers and undermine the public's faith in the Internet as
a medium for the exchange of information and commerce, growth of the Internet
could slow. As a result, our business, results of operations and financial
condition could be materially adversely affected.
In addition, we collect our panel data from a diverse group of individual
personal computer users who use a variety of computer hardware and software that
may not be year 2000 compliant. As a result, we may encounter difficulties in
gathering and accurately measuring data from our panel. In addition, it is
possible that data collected from some of these users may contain inaccuracies
resulting from year 2000 issues. These difficulties could have a material
adverse effect on our business, results of operations and financial condition.
13
<PAGE>
WE FACE RISKS ASSOCIATED WITH POTENTIAL GOVERNMENTAL REGULATION.
We are currently not subject to direct federal, state or local regulation or
laws or regulations applicable to the Internet, other than regulations
applicable to businesses generally. However, due to the increasing popularity
and use of the Internet, it is possible that a number of laws and regulations
may be adopted covering:
- user privacy;
- freedom of expression;
- pricing;
- content;
- quality of products and services;
- taxation;
- advertising;
- intellectual property rights; and
- information security.
The nature and effect of any proposed legislation or regulation cannot be
fully determined. These could have a material adverse effect on our business,
results of operations and financial condition.
The adoption of any such legislation could also dampen the growth in use of
the Internet generally and decrease its acceptance as a communications,
commercial and advertising medium. Any legislation which could have any adverse
effect on the growth of the Internet could decrease the demand for our services
and could have a material adverse effect on our business, results of operations
and financial condition.
Several states have proposed legislation that would limit the uses of
personal user information gathered using the Internet. These regulations have
required proprietary on-line service and Web site owners to establish privacy
policies. The Federal Trade Commission has also recently settled a proceeding
with one on-line service regarding the manner in which personal information is
collected from users and provided to third parties. Also, the European Union
recently enacted its own privacy regulations that may result in limits on the
collection and use of certain user information. Because all of our panelists
consent to the retrieval of their personal data, to date these regulations and
proceedings have not impacted our operations. However, changes to existing laws
or the passage of new laws intended to address these issues could, among other
effects:
- create uncertainty in the marketplace that could reduce demand for our
services;
- limit our ability to collect and to use data from our panels;
- increase the cost of doing business as a result of litigation costs or
increased service delivery costs;
- decrease the efficacy of Internet advertising; or
- in some other manner have a material adverse effect on our business,
results of operations and financial condition.
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<PAGE>
WE FACE UNCERTAINTY ABOUT ADDITIONAL FINANCING FOR OUR FUTURE CAPITAL NEEDS.
We currently anticipate that our available funds, together with the proceeds
of this offering, will be sufficient to meet our anticipated needs for working
capital, capital expenditures and business expansion for at least the next 18
months. If we are unable to increase our revenues as anticipated, we will need
to raise additional funds. Although we have historically received financing from
NPD, we will not be able to rely on NPD's assistance in the future. We may need
more money sooner if we:
- decide to expand faster than planned;
- develop new or enhanced services or products ahead of schedule;
- need to respond to competitive pressures; or
- need to acquire complementary products, businesses or technologies.
If we raise more money through the sale of equity or convertible debt
securities, your percentage ownership will be reduced. In addition, these
transactions may dilute the value of the stock outstanding. We may have to issue
securities that may have rights, preferences and privileges senior to our common
stock. We cannot assure you that we will be able to raise more money on terms
favorable to us or at all. If future financing is not available or is not
available on acceptable terms, we may not be able to fund our future needs. This
could have a material adverse effect on our business, results of operations and
financial condition.
OUR PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS HAVE SUBSTANTIAL
CONTROL OVER OUR AFFAIRS.
Our executive officers and directors and entities affiliated with them will,
in the aggregate, beneficially own approximately % of our common stock
following this offering. In particular, NPD, which is controlled by Tod Johnson,
our Chairman and Chief Executive Officer, will own approximately % of our
outstanding common stock. These stockholders acting together will have the
ability to exert substantial influence over all matters requiring approval by
our stockholders. These matters include the election and removal of directors
and any merger, consolidation or sale of all or substantially all of our assets.
In addition, they may dictate the management of our business and affairs. This
concentration of ownership could have the effect of delaying, deferring or
preventing a change in control, or impeding a merger or consolidation, takeover
or other business combination.
THERE MAY BE AN ADVERSE EFFECT ON THE MARKET PRICE OF OUR STOCK AS A RESULT OF
SHARES BEING AVAILABLE FOR SALE IN THE FUTURE.
After this offering, we will have shares of common stock
outstanding, or shares if the underwriters over-allotment option is
exercised in full. Of these shares, the shares sold in this offering will be
freely tradeable without further restriction or further registration under the
Securities Act, except for shares purchased by an affiliate of ours, which will
be subject to the limitations of Rule 144 under the Securities Act. The
remaining shares are "restricted shares," and will become eligible
for sale in the public market at various times after 180 days after the date of
this prospectus, subject to the limitations and other conditions of Rule 144
under the Securities Act.
Subject to certain contractual limitations, holders of restricted shares
generally will be entitled to sell these shares in the public securities market
without registration either pursuant to Rule 144 or any other applicable
exemption under the Securities Act.
Within approximately 180 days after the date of this prospectus, we intend
to file one or more registration statements under the Securities Act to register
the shares of common stock subject to outstanding stock options or reserved for
issuance under our equity compensation plans. After this
15
<PAGE>
offering, options to purchase approximately 963,497 shares will be outstanding
under our equity compensation plans.
Our directors, officers and substantially all of our stockholders have
entered into lock-up agreements and have agreed that they will not sell,
directly or indirectly, any shares of common stock, other than those shares sold
in this offering, without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation for a period of 180 days from the date of this
prospectus, subject to certain exceptions. See "Underwriting."
In addition, after this offering, the holders of 13,038,184 shares of common
stock will have registration rights with respect to these shares. This will
allow these stockholders to sell these shares in the market simultaneously with
any further public offerings by us of our equity securities. Sales of a
substantial amount of common stock in the public market, or the perception that
these sales may occur, could adversely affect the market price of the common
stock prevailing from time to time in the public market and could impair our
ability to raise additional capital through the sale of our equity securities.
THERE MAY BE VOLATILITY IN OUR STOCK PRICE.
Prior to this offering, there has been no public market for our common
stock. We cannot predict the extent to which investor interest will lead to the
development of an active and liquid trading market. The initial public offering
price for the shares will be determined by negotiations between us and the
representatives of the underwriters and may not be indicative of the market
price of the common stock that will prevail in the trading market. The market
price of the common stock may decline below the initial public offering price.
The market prices of the securities of Internet-related companies have been
especially volatile. Some companies that have had volatile market prices for
their securities have been subject to securities class action suits filed
against them. If a suit were to be filed against us, regardless of the outcome,
it could result in substantial costs and a diversion of our management's
attention and resources. This could have a material adverse effect on our
business, results of operations and financial condition. See "Underwriting."
MANAGEMENT HAS BROAD DISCRETION AS TO THE USE OF PROCEEDS FROM THIS OFFERING.
Our management will have broad discretion with respect to the use of
proceeds from this offering. Most of the proceeds from this offering will be
used for expenses of the business and general working capital. You will be
relying on the judgment of our management about these uses. See "Use of
Proceeds."
THE TANGIBLE BOOK VALUE OF THE COMMON STOCK WILL BE SUBSTANTIALLY LOWER THAN THE
OFFERING PRICE.
The initial public offering price will be substantially higher than the pro
forma tangible book value per share of our outstanding common stock. If you
purchase our common stock in this offering, the shares you buy will experience
an immediate and substantial dilution in tangible book value per share. The
shares of common stock owned by the existing stockholders will receive a
material increase in the tangible book value per share. The dilution to
investors in this offering will be approximately $ per share. See
"Dilution."
EFFECTS OF ANTI-TAKEOVER PROVISIONS COULD INHIBIT THE ACQUISITION OF MEDIA
METRIX.
Some of the provisions of our certificate of incorporation, by-laws and
Delaware law could, together or separately:
- discourage potential acquisitions proposals;
- delay or prevent a change in control; and
16
<PAGE>
- limit the price that investors might be willing to pay in the future for
shares of our common stock.
In particular, our board of directors may issue up to 5,000,000 shares of
preferred stock with rights and privileges that might be senior to our common
stock, without the consent of the holders of the common stock. Our certificate
of incorporation and bylaws will provide, among other things, that our board of
directors will be divided into three classes which will serve staggered three
year terms, that stockholders may not take actions by written consent and that
special meetings of stockholders may only be called by our board of directors or
our Chairman. We are also subject to Section 203 of the Delaware General
Corporation Laws which generally prohibits a Delaware corporation from engaging
in any of a broad range of business combinations with any interested stockholder
for a period of three years following the date on which the stockholder became
an interested stockholder.
17
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of
common stock offered by us will be approximately $ , assuming an initial
public offering price of $ per share, and after deducting underwriting
discounts and commissions and other estimated offering expenses. If the
underwriters' over-allotment option is exercised in full, we estimate that such
net proceeds will be approximately $ million.
We will use approximately $ of the net proceeds from the offering
to redeem the 41,446 shares of our outstanding redeemable preferred stock held
by NPD. The redeemable preferred stock is redeemable at a price of $100 per
share plus accrued dividends at an annual rate of 7%, compounded quarterly. At
January 31, 1999, principal and accrued dividends equaled $4.7 million.
We expect to use the remaining amounts to fund our international expansion,
new product development and for general corporate purposes, including working
capital. We may also use a portion of the net proceeds, currently intended for
general corporate purposes, to acquire or to invest in complementary businesses,
technologies, products or services. We have no present plans or commitments and
we are not currently engaged in any negotiations with respect to such
transactions. Our management will retain broad discretion in the allocation of
the net proceeds of this offering.
Pending such uses, we intend to invest the net proceeds in short-term,
investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared nor paid any cash dividends on our common stock. We
currently anticipate that we will retain any future earnings for the development
and operations of our business. Accordingly, we do not anticipate paying cash
dividends on our capital stock in the foreseeable future.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998
and as adjusted to reflect our sale of the shares of common stock in this
offering at an assumed initial public offering price of $ per
share and the application of the estimated net proceeds as described under the
section, "Use of Proceeds." You should read the following table with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
--------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current portion......................... $ 353 $ 353
Redeemable preferred stock, $.01 par value; 41,446 shares
authorized, issued and outstanding, actual; no shares
authorized, issued and outstanding, as adjusted................. 4,680 --
Stockholders' equity:
Preferred stock, $.01 par value, 4,958,554 shares authorized;
none issued and outstanding, actual; 5,000,000 shares
authorized and none issued and outstanding, as adjusted....... -- --
Common stock, $.01 par value, 15,000,000 shares authorized (not
adjusted for stock split) and 13,093,514 shares issued and
outstanding, actual; shares issued and outstanding, as
adjusted...................................................... 131
Additional paid-in capital...................................... 16,940
Common stock issuable........................................... 2,000 --
Accumulated deficit............................................. (16,073) (16,073)
Deferred compensation........................................... (376) (376)
---------- --------------
Total stockholders' equity........................................ 2,622
---------- --------------
Total capitalization.......................................... $ 7,655 $
---------- --------------
---------- --------------
</TABLE>
The outstanding share information is based on our shares outstanding as of
December 31, 1998. This information excludes:
- 153,072 shares of common stock subject to options granted under our 1998
Equity Incentive Plan and outstanding as of December 31, 1998 at a
weighted average exercise price of $2.39 per share;
- 496,283 shares of common stock subject to options granted under our
earlier Stock Option Plan and outstanding as of December 31, 1998 at a
weighted average exercise price of $0.84 per share;
- 579,328 additional shares of common stock reserved for issuance under our
1998 Equity Incentive Plan;
- 903,314 shares of common stock reserved for outstanding warrants at a
weighted average exercise price of $2.31 per share; and
- 194,380 shares issued to an existing investor in January 1999, classified
as common stock issuable as of December 31, 1998.
19
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1998, was
approximately $(3.1) million, or $(0.23) per share of common stock. The share
information in this section includes 194,380 shares of common stock issued to an
investor on January 4, 1999, for which we received payment of $2.0 million on
December 31, 1998. Pro forma net tangible book value per share is equal to our
tangible net assets, less total liabilities, divided by the pro forma number of
shares of common stock outstanding as of December 31, 1998. After giving effect
to the sale of shares at an assumed initial offering price of $
per share and the application of the net proceeds from this offering, our pro
forma net tangible adjusted book value at December 31, 1998 would have been
approximately $ , or $ per share of common stock. This amount
represents an immediate increase in pro forma net tangible book value of $
per share to existing stockholders and an immediate dilution in net tangible
book value of $ per share to new investors. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................ $
Pro forma net tangible book value per share at December 31, 1998..... $ (0.23)
Increase per share attributable to new investors.....................
---------
Pro forma net tangible book value per share after the offering.........
---------
Dilution per share to new investors.................................... $
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1998, the total number of shares of common stock purchased from us, the total
consideration paid to us, and the average price per share paid by our existing
stockholders and by new investors purchasing shares from us in the offering, at
an assumed initial public offering price of $ per share, before deducting
underwriting discounts and commissions and the estimated offering expenses
payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)............................... 13,287,894 % $ 18,706,185 % $ 1.41
New investors..........................................
------------ --- ------------- ---
Total.............................................. % $ %
------------ --- ------------- ---
------------ --- ------------- ---
</TABLE>
- -----------------------
(1) Includes $10,500,000 representing the value of the 3,885,531 shares of our
common stock we issued in connection with our merger with RelevantKnowledge
and $2.0 million paid by an existing investor for 194,380 shares of our
common stock issued on January 4, 1999.
If the underwriters exercise their over-allotment option in full, the number
of shares of common stock held by existing stockholders will be reduced to
or % of the total number of shares of common stock to be outstanding
after this offering. In addition, the number of shares of common stock held by
the new investors will be increased to , or % of the total number of
shares of common stock to be outstanding immediately after this offering.
The outstanding share information is based on our shares outstanding as of
December 31, 1998. This information excludes:
- 153,072 shares of common stock subject to options granted under our 1998
Equity Incentive Plan and outstanding as of December 31, 1998 at a
weighted average exercise price of $2.39 per share;
- 496,283 shares of common stock subject to options granted under our
earlier Stock Option Plan and outstanding as of December 31, 1998 at a
weighted average exercise price of $0.84 per share;
- 579,328 additional shares of common stock reserved for issuance under our
1998 Equity Incentive Plan; and
- 903,314 shares of common stock reserved for outstanding warrants at a
weighted average exercise price of $2.31 per share.
20
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data set forth below as of December 31, 1996, 1997
and 1998 have been derived from our financial statements, which have been
audited by Ernst & Young LLP, independent auditors, whose report for the three
years ended December 31, 1998 is included elsewhere in this prospectus. The
financial statements for the period ended December 31, 1995 are unaudited and in
our opinion, those financial statements include all adjustments, consisting of
only normal recurring adjustments, necessary for a fair presentation of the
information. The financial statements for the period from inception to December
31, 1995 are based on operations of PC Meter, our predecessor, while it was
still a division of NPD. The financial statements for the year ended December
31, 1996 are those of PC Meter and include three months of operations during
which PC Meter was a division of NPD. The financial statements for the year
ended December 31, 1998 include the results of operations of RelevantKnowledge
from the date of the merger on November 5, 1998. The pro froma financial
statements for the year ended December 31, 1998 give effect to the
RelevantKnowledge merger as if it had taken place on January 1, 1998. You should
read the selected financial data set forth below with the financial statements
and related notes and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," which are included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEAR ENDED PRO FORMA
THROUGH DECEMBER 31, YEAR ENDED
DECEMBER 31, ------------------------------- DECEMBER 31,
1995 1996 1997 1998 1998
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $ -- $ 1,033 $ 3,188 $ 6,331 $ 8,145
Costs of revenues.................................... 140 1,744 3,463 4,121 7,000
------ --------- --------- --------- ------------
Gross profit (loss).................................. (140) (711) (275) 2,210 1,145
Operating expenses:
Research and development........................... 86 588 866 1,382 2,162
Sales and marketing................................ 45 929 2,022 2,888 4,512
General and administrative......................... 101 1,148 1,516 3,064 6,037
Amortization of intangibles........................ -- -- -- 479 2,872
Acquired in-process research and development....... -- -- -- 1,600 1,600
------ --------- --------- --------- ------------
Total operating expenses......................... 232 2,665 4,404 9,413 17,183
------ --------- --------- --------- ------------
Loss from operations................................. (372) (3,376) (4,679) (7,203) (16,038)
Interest income, net of interest expense............. -- -- 95 65 161
------ --------- --------- --------- ------------
Net loss............................................. (372) (3,376) (4,584) (7,138) (15,877)
Preferred stock dividends............................ -- -- (290) (314) (314)
------ --------- --------- --------- ------------
Net loss available to common stockholders............ $ (372) $ (3,376) $ (4,874) $ (7,452) $ (16,191)
------ --------- --------- --------- ------------
------ --------- --------- --------- ------------
Basic and diluted net loss per common share
applicable to common stockholders.................. $ (0.06) $ (0.52) $ (0.75) $ (0.98) $ (1.49)
------ --------- --------- --------- ------------
------ --------- --------- --------- ------------
Shares used in calculating basic and diluted net loss
per common share applicable to common
stockholders....................................... 6,523 6,523 6,523 7,618 10,856
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------
1996 1997 1998
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 583 $ 1,869 $ 8,012
Working capital (deficit)........................................................... (2,478) (47) 1,057
Total assets........................................................................ 1,213 2,787 16,060
Due to NPD.......................................................................... 2,782 1,284 4,706
Preferred stocks.................................................................... -- 8,366 4,680
Total stockholders' equity (deficit)................................................ (2,478) (8,274) 2,622
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND
RESULTS OF OPERATIONS WITH THE FINANCIAL STATEMENTS AND THE NOTES TO THE
FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT EXPECTATIONS,
ASSUMPTIONS, ESTIMATES AND PROJECTIONS. THESE FORWARD-LOOKING STATEMENTS INVOLVE
RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
AS MORE FULLY DESCRIBED IN THE "RISK FACTORS" SECTION AND ELSEWHERE IN THIS
PROSPECTUS. WE UNDERTAKE NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING
STATEMENTS FOR ANY REASON, EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER
EVENTS OCCUR IN THE FUTURE.
OVERVIEW
We are the leading provider of Internet audience measurement products and
services. Our products and services are critical to the continued growth and
development of the Internet because they provide an effective, third-party
audience measurement standard. Our customers use our data as a basis for making
critical business decisions. We have been at the forefront of the development
and coordination of technology and standards needed to facilitate advertising
and transactions between companies doing business over the Internet. Our
customers include most of the leading Internet advertisers and advertising
agencies, the most heavily trafficked Internet properties, leading technology
companies and financial institutions. The quality and depth of our customer base
and our high customer retention rate reflect our position as the leading
Internet audience measurement service.
Our business was originally conducted as a division within NPD, a leading
marketing research firm. In March 1996, PC Meter, L.P., was formed to conduct
our business in an entity separate from NPD. In April 1997, PC Meter was merged
into Media Metrix. The assets and liabilities and related revenues and expenses
of PC Meter have been reflected in our financial statements at their historical
book values. See "Certain Transactions--Formation by NPD" financial statements
and related notes thereto.
In November 1998, we merged with RelevantKnowledge, our leading competitor.
After giving effect to the merger, the former stockholders of RelevantKnowledge
were issued 3,885,531 shares of Media Metrix common stock. See Note 4 of notes
to our financial statements. Following the merger, we increased our panel size
and began to integrate the best technological features from each company into
our systems and processes. Due to the combination, in the fourth quarter of 1998
we had considerable expenses due to costs incurred by operating two distinct
panels, production systems and administrative infrastructures. We anticipate
that these costs will decrease as we more fully integrate the businesses and
operations of the two companies. In connection with the merger, we acquired $6.2
million of intangibles, which will be amortized over a period varying from one
to three years.
Our revenues are derived from our measurement products and services. Our
product offerings include both syndicated products and customized products. We
sell our syndicated products on an annual subscription basis. We typically bill
our syndicated clients, in advance, for the next three months of products. Since
1997, syndicated products have accounted for approximately 90% of our revenues,
while customized products and services have accounted for approximately 10%. Our
combined customer base increased from approximately 100 customers at the end of
1997 to more than 300 as of December 31, 1998. Of the 75 customers subscribing
under annual contracts for our syndicated products and services at the end of
1997, over 95% remained customers at the end of 1998. With this high customer
retention rate, we have a growing base of recurring revenues from our syndicated
products and services.
We recognize revenues for the syndicated products and services over the term
of the related contract as services are provided. Revenues for customized
products and services are recognized in the period in which the product or
service is delivered.
22
<PAGE>
Our business model is based on creating multiple products and services from
our core panel-based market research, technologies and databases. The core panel
of 40,000 individuals under measurement has been established over the past three
years. We recruit individuals to become members of our panel through random
direct mail and telephone solicitations. We incur costs in connection with
recruiting and retaining members of our panel. These costs are expensed in the
year incurred. We plan to introduce a new version of our patented metering
technology in 1999, which is expected to reduce the use of mail in connection
with the panel and provide cost savings. Our rate of expense growth, other than
panel and production, is primarily driven by increases in headcount and sales
and marketing expenditures.
We have incurred significant losses from operations since our inception. We
incurred losses from operations of $3.4 million in 1996, $4.7 million in 1997
and $7.2 million in 1998. If the merger with RelevantKnowledge had taken place
on January 1, 1998, our pro forma loss from operations for 1998 would have been
$16.0 million. This pro forma loss from operations includes a full year of
amortization of $2.9 million of intangibles and a non-cash expense recorded for
the issuance of warrants of $971,000. As of December 31, 1998, we had an
accumulated deficit of $16.1 million, of which $1.6 million related to the
write-off of acquired in-process research and development in connection with the
RelevantKnowledge merger. As of December 31, 1998, we had an outstanding payable
to NPD for $4.7 million under the management services agreement, $4.1 million of
which was paid in January 1999. Charges from NPD are expected to decrease in
1999 as we take on the direct management of our own payroll and computer
systems.
We expect that we will incur significant expenses in the future associated
with our planned international expansion. In particular, we plan on hiring
senior personnel to manage the anticipated international operations and on
entering into joint ventures with local partners. This will probably involve the
recruitment of a panel and the expenditure of significant funds. In addition, we
intend to invest heavily in further development and improvement of our
technologies and development of additional products and services.
RESULTS OF OPERATIONS
The following table sets forth our results of operations expressed as a
percentage of revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
Revenues........................................................................... 100.0% 100.0% 100.0%
Costs of revenues.................................................................. 168.9 108.6 65.1
--------- --------- ---------
Gross profit (loss)................................................................ (68.9) (8.6) 34.9
Operating expenses:
Research and development......................................................... 56.9 27.2 21.8
Sales and marketing.............................................................. 90.0 63.4 45.6
General and administrative....................................................... 111.1 47.6 48.4
Amortization of intangibles...................................................... -- -- 7.6
Acquired in-process research and development..................................... -- -- 25.3
--------- --------- ---------
Total operating expenses........................................................... 258.0 138.2 148.7
--------- --------- ---------
Loss from operations............................................................... (326.9) (146.8) (113.8)
Interest income, net............................................................... -- 3.0 1.0
--------- --------- ---------
Net loss........................................................................... (326.9)% (143.8)% (112.8)%
--------- --------- ---------
--------- --------- ---------
</TABLE>
23
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES. Revenues increased 98.6% from $3.2 million for the year ended
December 31, 1997 to $6.3 million for the year ended December 31, 1998. Sales of
syndicated audience measurement products and services accounted for
approximately 90% of revenues for the years ended December 31, 1997 and 1998,
respectively. Sales of customized products and services accounted for the
remaining revenues. The increase in revenues was due primarily to a substantial
increase in the number of our customers and an increase in the amount of
products and services sold to our customers on average, and, to a lesser extent,
the revenues associated with RelevantKnowledge's business for the period from
November 5, 1998 to the end of the year. No single customer accounted for more
than 10% of revenues during the year ended December 31, 1998. One customer
accounted for approximately 19% of revenues for the year ended December 31,
1997.
COSTS OF REVENUES. Costs of revenues consist primarily of costs associated
with the recruitment and maintenance of the panel, data collection and
production costs. Panel and data collection costs include costs associated with
mailing and printing, incentives, help desk and associated personnel. Production
costs include computer usage charges, printing, report distribution costs and
personnel costs. Gross loss was $275,000 for the year ended December 31, 1997,
or (8.6)% of revenues. Gross profit was $2.2 million for the year ended December
31, 1998, or 34.9% of revenues. The increase in gross profit for the year ended
December 31, 1998 over the prior period was due to an increase in sales,
including sales attributable to RelevantKnowledge's business for the period from
November 5, 1998 to the end of the year, without a commensurate increase in
costs. The increase in gross profit was partially offset by the costs associated
with operating two panels following the RelevantKnowledge merger.
RESEARCH AND DEVELOPMENT. Research and development costs consist primarily
of personnel and other related costs attributable to the development of new
products and services. All research and development costs have been expensed as
incurred. Research and development costs were $866,000 for the year ended
December 31, 1997, or 27.2% of revenues. Research and development costs were
$1.4 million for the year ended December 31, 1998, or 21.8% of revenues. The
increase in absolute dollars was due primarily to increases in research and
development personnel, including the addition of personnel in connection with
the RelevantKnowledge merger. The decrease in research and development costs as
a percentage of revenues was due to revenues increasing at a greater rate.
SALES AND MARKETING. Sales and marketing costs consist of personnel,
commissions, travel and entertainment expenses, public relations costs, trade
show expenses, seminars and marketing materials. Sales and marketing costs were
$2.0 million for the year ended December 31, 1997, or 63.4% of revenues. Sales
and marketing costs were $2.9 million for the year ended December 31, 1998, or
45.6% of revenues. The increase in absolute dollars was due primarily to the
increase in sales and marketing personnel, including personnel acquired in
connection with the RelevantKnowledge merger. The decrease in sales and
marketing costs as a percentage of revenues was due primarily to revenues
increasing at a greater rate.
GENERAL AND ADMINISTRATIVE. General and administrative costs consist
primarily of personnel, lease payments for our facilities, telephone and
utilities and professional services fees. General and administrative costs were
$1.5 million for the year ended December 31, 1997, or 47.6% of revenues. General
and administrative costs were $3.1 million for the year ended December 31, 1998,
or 48.4% of revenues. The increase in absolute dollars was due to the expenses
associated with increased personnel, expansion of our office facilities,
expenses incurred after the merger with RelevantKnowledge and a non-cash
compensation expense recorded in connection with stock options. The decrease in
general and administrative costs as a percentage of revenues was due primarily
to revenues increasing at a greater rate.
24
<PAGE>
AMORTIZATION OF INTANGIBLES. Amortization charges of $479,000 included two
months of the amortization of RelevantKnowledge's panel, which is being
amortized over 12 months and other intangibles acquired in our merger with
RelevantKnowledge which are being amortized over three years.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. In connection with our merger
with RelevantKnowledge, we expensed $1.6 million of acquired in-process research
and development for the year ended December 31, 1998. Acquired in-process
research and development represents the value attributed to three technologies
in development at the time of the merger.
LOSS FROM OPERATIONS. Our loss from operations was $4.7 million for the
year ended December 31, 1997, or (146.8)% of revenues. Loss from operations was
$7.2 million for the year ended December 31, 1998, or (113.8)% of revenues. Loss
from operations was higher in 1998 due to the continued expansion of our
business, the inclusion of two months of RelevantKnowledge losses and
amortization of acquired intangibles. Loss from operations in 1998 included a
$1.6 million write-off of acquired in-process research and development. The
decrease in loss from operations as a percentage of revenues was due primarily
to an increase in sales relative to the increases in costs of revenues and
operating costs.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES. Revenues increased 208.7% from $1.0 million for the year ended
December 31, 1996 to $3.2 million for the year ended December 31, 1997. Sales of
syndicated audience measurement products and services accounted for
approximately 90% of revenues for the years ended December 31, 1996 and 1997.
Sales of customized products and services accounted for most of the remaining
revenues. The increase in revenues was due primarily to a substantial increase
in the number of our customers and an increase in the amount of services sold to
our customers on average. No single customer accounted for more than 10% of
revenues during either of the years ended December 31, 1996 or 1997.
COSTS OF REVENUES. Gross loss was $711,000 for the year ended December 31,
1996, or (68.9)% of revenues. Gross loss was $275,000 for the year ended
December 31, 1997, or (8.6)% of revenues. Costs of revenues increased
substantially in 1997 due to costs associated with panel expansion. The decrease
in the costs of revenues as a percentage of revenues was due primarily to
revenues increasing at a greater rate.
RESEARCH AND DEVELOPMENT. Research and development costs were $588,000 for
the year ended December 31, 1996, or 56.9% of revenues. Research and development
costs were $866,000 for the year ended December 31, 1997, or 27.2% of revenues.
The decrease in research and development costs as a percentage of revenues was
due to revenues increasing at a greater rate.
SALES AND MARKETING. Sales and marketing costs were $929,000 for the year
ended December 31, 1996, or 90.0% of revenues. Sales and marketing costs were
$2.0 million for the year ended December 31, 1997, or 63.4% of revenues. The
increase in absolute dollars was due primarily to the increase in sales and
marketing personnel and expansion of marketing efforts. The decrease in sales
and marketing costs as a percentage of revenues was due primarily to revenues
increasing at a greater rate.
GENERAL AND ADMINISTRATIVE. General and administrative costs were $1.1
million for the year ended December 31, 1996, or 111.1% of revenues. General and
administrative costs were $1.5 million for the year ended December 31, 1997, or
47.6% of revenues. The increase in absolute dollars was due primarily to the
expenses associated with increased personnel and associated expansion of our
infrastructure. The decrease in general and administrative costs as a percentage
of revenues was due primarily to revenues increasing at a greater rate.
LOSS FROM OPERATIONS. Our loss from operations was $3.4 million for the
year ended December 31, 1996, or (326.9)% of revenues. Loss from operations was
$4.7 million for the year ended December 31,
25
<PAGE>
1997, or (146.8)% of revenues. The decrease in the loss from operations as a
percentage of revenues was due primarily to the large increase in revenues
relative to the increases in costs of revenues and operating costs.
QUARTERLY RESULTS OF OPERATIONS
The following is a table of unaudited quarterly statement of operations data
for each of the quarters in the year ended December 31, 1998. This information
is unaudited, but in our opinion, has been prepared substantially on the same
basis as our audited financial statements, which are included elsewhere in this
prospectus. All necessary adjustments, consisting only of normal recurring
adjustments, have been included in these amounts to present fairly the unaudited
quarterly results of operations. You should read these quarterly data in
conjunction with our audited financial statements. You should not view the
results of operations for any quarter as an indication of the results of
operations for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------
<S> <C> <C> <C> <C>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues................................................................. $ 1,160 $ 1,345 $ 1,493 $ 2,333
Costs of revenues........................................................ 800 801 885 1,635
----------- ----------- ----------- ---------
Gross profit............................................................. 360 544 608 698
Operating expenses:
Research and development............................................... 248 260 274 600
Sales and marketing.................................................... 575 711 664 938
General and administrative............................................. 434 412 633 1,585
Amortization of intangibles............................................ -- -- -- 479
Acquired in-process research and development........................... -- -- -- 1,600
----------- ----------- ----------- ---------
Total operating expenses................................................. 1,257 1,383 1,571 5,202
----------- ----------- ----------- ---------
Loss from operations..................................................... (897) (839) (963) (4,504)
Interest income, net of interest expense................................. 45 4 7 9
----------- ----------- ----------- ---------
Net loss................................................................. $ (852) $ (835) $ (956) $ (4,495)
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------
<S> <C> <C> <C> <C>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998
Revenues............................................................. 100.0% 100.0% 100.0% 100.0%
Costs of revenues.................................................... 69.0 59.6 59.3 70.1
----- ----- ----- -----------
Gross profit......................................................... 31.0 40.4 40.7 29.9
Operating expenses:
Research and development........................................... 21.4 19.3 18.3 25.7
Sales and client service........................................... 49.6 52.9 44.5 40.2
General and administrative......................................... 37.4 30.6 42.4 68.0
Amortization of intangibles........................................ -- -- -- 20.5
Acquired in-process research and development....................... -- -- -- 68.6
----- ----- ----- -----------
Total operating expenses............................................. 108.4 102.8 105.2 223.0
----- ----- ----- -----------
Loss from operations................................................. (77.4) (62.4) (64.5) (193.1)
Interest income, net of interest expense............................. 3.9 0.3 0.5 0.4
----- ----- ----- -----------
Net loss............................................................. (73.5)% (62.1)% (64.0)% (192.7)%
----- ----- ----- -----------
----- ----- ----- -----------
</TABLE>
26
<PAGE>
Our revenues have increased in all quarters presented as a result of the
continuous expansion of our customer base, the sale of additional products and
services to our existing customers and the release of new products and services.
Results for the quarter ended December 31, 1998 are not comparable to other
quarterly results due to the inclusion of RelevantKnowledge for the last two
months of the quarter, as well as amortization of intangibles and the write-off
of acquired in-process research and development in association with the merger,
and a non-cash compensation expense recorded in connection with stock options.
In addition, in the fourth quarter of 1998 we incurred considerable expenses due
to costs incurred by operating two distinct panels, production systems and
infrastructures.
Our results of operations may fluctuate significantly in the future as a
result of a variety of factors, many of which are beyond our control. See "Risk
Factors--Our Operating Results May Fluctuate From Quarter to Quarter."
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through an
initial investment and loan by NPD, the private placement of equity securities,
RelevantKnowledge's cash on hand at the time of the merger and cash from
operations. In April 1997, we completed a $4.0 million private placement of our
equity securities. On November 4, 1998, some of our warrant holders exercised
warrants and acquired common stock for an aggregate purchase price of $1.5
million. On January 4, 1999, we issued to an existing stockholder common stock
for an aggregate of $2.0 million, which had been received by December 31, 1998.
Net cash used in operating activities was $342,000 for the year ended
December 31, 1996, $4.8 million for the year ended December 31, 1997 and
$411,000 for the year ended December 31, 1998. For each year, net cash used in
operating activities was substantially impacted by the amount owed to NPD. In
the year ended December 31, 1998, the amounts owed to NPD increased by $3.4
million. We expect that net cash used in operating activities in the first
quarter of 1999 will substantially increase due to the repayment of amounts due
to NPD for 1998. After this offering, we expect to pay NPD on a current basis.
Net cash provided by (used in) investing activities was zero for the year
ended December 31, 1996, $(135,000) for the year ended December 31, 1997 and
$3.1 million for the year ended December 31, 1998. Cash provided by investing
activities for the year ended December 31, 1998 resulted primarily from the
acquisition of $3.2 million of cash in the RelevantKnowledge transaction.
Net cash provided by financing activities was $925,000 for the year ended
December 31, 1996, $6.2 million for the year ended December 31, 1997 and $3.5
million for the year ended December 31, 1998. Cash provided by financing
activities for the year ended December 31, 1998 resulted from the $1.5 million
proceeds from the exercise of warrants and the receipt of $2.0 million on
December 31, 1998 relating to the sale of common stock in January 1999.
As of December 31, 1998, we had $8.0 million of cash and cash equivalents.
As of December 31, 1998, our principal commitments consisted of accrued
obligations for 1998 under our agreements with NPD in the amount of $4.7
million, of which $4.1 million was paid in January 1999. In addition, as of
December 31, 1998, our redeemable preferred stock had an aggregate liquidation
value of $4.7 million. All of our redeemable preferred stock is held by NPD. We
intend to use a portion of the net proceeds from this offering to redeem all of
the outstanding redeemable preferred stock.
Although we have no material commitments for capital expenditures,
management anticipates that we will experience a substantial increase in our
capital expenditures and lease commitments consistent with our anticipated
growth in operations, infrastructure and personnel, including in connection with
the anticipated separation of our systems from those of NPD. We currently
anticipate that we will continue to experience growth in our operating expenses
for the foreseeable future and that operating
27
<PAGE>
expenses will be a material use of our cash resources. We believe that the net
proceeds of this offering, together with our existing cash and cash equivalents
and short-term investments, will be sufficient to meet our anticipated cash
needs for working capital and capital expenditures for at least the next 18
months.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot reliably
distinguish dates beginning on January 1, 2000 from dates prior to the year
2000. Many companies' software and computer systems may need to be upgraded or
replaced in order to correctly process dates beginning in 2000.
STATE OF READINESS
We rely on NPD's computer and communications networks for collecting and
processing much of our data. NPD has advised us that it has substantially
completed a comprehensive review of its products, information systems and
critical suppliers for year 2000 compliance and has reported that its computer
and communications networks are year 2000 compliant. At this time, we have
contracted with NPD under the management services agreement to undertake a full
review of RelevantKnowledge's products, information systems and critical
suppliers. An initial report has indicated that there are no major issues. A
review will be completed in March 1999.
We have reviewed our meter, as well as our internal programs, and have
preliminarily determined that there are no significant year 2000 issues within
the meter or our systems or services. We are currently in the process of
correcting deficiencies which were identified in the course of our review of our
systems and expect to conduct a test of the updated software by the end of the
first quarter of 1999. We are currently installing new billing, accounting and
administrative systems which are scheduled to be fully operational during 1999
and which have been represented will be fully year 2000 compliant when fully
operational.
Our assessment plan consists of:
- quality assurance testing of our proprietary software, including our
metering technology;
- contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related to the
collection and processing of the data received from panelists;
- contacting vendors of material non-IT systems;
- assessment of repair or replacement requirements;
- repair or replacement;
- implementation; and
- creation of contingency plans in the event of year 2000 failures.
COSTS
To date, we have not incurred any material expenditures in connection with
identifying or evaluating year 2000 compliance issues. Most of our expenses have
related to, and are expected to continue to relate to, the operating costs
associated with time spent by employees in the evaluation process and year 2000
compliance matters generally. At this time, we do not anticipate that we will
incur significant operating expenses or be required to invest heavily in
computer systems improvements to be year 2000 compliant. However, significant
uncertainty exists concerning the potential costs and effects associated
28
<PAGE>
with year 2000 compliance. If expenses relating to year 2000 compliance are
higher than anticipated, it could have a material adverse effect on our
business, results of operations and financial condition.
RISKS
We are not currently aware of any year 2000 compliance problems relating to
our meter or our data collection and retrieval systems that would have a
material adverse effect on our business, results of operations and financial
condition, other than those that are currently being corrected. However, we
cannot assure you that we will not discover year 2000 compliance problems in the
meter or the data retrieval and collection systems that will require substantial
expenditures to correct. In addition, there can be no assurance that third-party
software, hardware or services incorporated into our systems will not need to be
revised or replaced, all of which could be time consuming and expensive. Our
failure to fix the meter or to fix or replace third-party software, hardware or
services on a timely basis could result in lost revenues, increased operating
costs, the loss of customers and other business interruptions, any of which
could have a material adverse effect on our business, results of operations and
financial condition. Moreover, the failure to adequately address year 2000
compliance issues in our meter and our operating systems could result in claims
of mismanagement, misrepresentation or breach of contract and related
litigation, which could be costly and time-consuming to defend.
In addition, we can not assure you that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside of our control will be year 2000 compliant. The failure by such entities
to be year 2000 compliant could result in a systemic failure beyond our control,
such as a prolonged Internet, telecommunications or electrical failure, which
could also prevent us from receiving data from our panelists, processing the
data and providing reports to our clients, which would have a material adverse
effect on our business, results of operations and financial condition.
CONTINGENCY PLAN
As discussed above, we are engaged in an ongoing year 2000 assessment and
have not yet developed any contingency plans. The results of our year 2000
testing to take place in the first quarter of 1999 and the responses received
from third-party vendors and service providers will be taken into account in
determining the nature and extent of any contingency plans.
29
<PAGE>
BUSINESS
INTRODUCTION
We are the leading provider of Internet audience measurement products and
services. We measure usage of the entire Internet, including the Web and
proprietary on-line services like America Online. Our products and services
enable the continued growth and development of the Internet by providing
reliable, third-party audience measurement data that our customers use as a
basis for making critical business decisions. We collect these data by measuring
Internet usage from a representative sample, or panel, of personal computer
users with our proprietary tracking technology. We maintain the largest panel of
Internet users under continuous measurement in the world. We have the only panel
currently reporting Internet usage both at work and at home, as well as the
usage of proprietary on-line services. We are the authoritative source for
Internet audience measurement data. In January 1999, our data were cited in more
than 400 print and on-line articles.
We have been at the forefront of the development and coordination of
technology and standards needed to facilitate advertising and transactions
between companies doing business over the Internet. Our customers include most
of the leading Internet advertisers and advertising agencies, the most heavily
trafficked Internet properties, leading technology companies and financial
institutions. The quality and depth of our customer base and our high customer
retention rate reflect our position as the leading Internet audience measurement
service.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET
The Internet has emerged as a global medium that allows millions of people
worldwide to obtain information, communicate and conduct business
electronically. The largest segments of the Internet are the World Wide Web and
proprietary on-line services, like America Online. International Data
Corporation, or IDC, estimates that the number of Web users worldwide will grow
from approximately 68.7 million in 1997 to approximately 319.8 million by the
end of 2002. Additionally, America Online, the largest on-line service provider,
had approximately 16 million service subscribers at the end of 1998. The
continued growth in Internet usage will be driven by:
- the large and growing number of personal computers installed in homes and
offices;
- easier, faster, more reliable and less expensive access to the Internet;
- the availability of more and better content on the Internet;
- the increased use of the Internet to buy and sell products and services;
- improvements in network infrastructure;
- the increasing ability to access the Internet with devices like
televisions and telephones; and
- the increasing familiarity and acceptance of the Internet by businesses
and consumers.
GROWTH OF INTERNET ADVERTISING AND ELECTRONIC COMMERCE
The unique interactive nature of the Internet has led to its rapid emergence
as a compelling vehicle for advertisers. The Internet offers advertisers the
ability to target:
- people with specific sets of interests;
- users with desirable demographic characteristics; and
- populations within specific regions, localities or countries.
30
<PAGE>
The Internet also gives marketers the potential to:
- establish dialogues and individual relationships with customers;
- receive direct feedback on their advertising;
- quickly and cost-effectively adapt their advertising to respond to
customer feedback; and
- reach broad, global audiences.
According to Forrester Research, Internet advertising spending worldwide is
expected to increase dramatically over the next five years, as illustrated by
the following chart:
WORLDWIDE INTERNET ADVERTISING SPENDING
($ IN MILLIONS)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003
<S> <C> <C> <C> <C> <C> <C>
North America................ $ 1,300 $ 2,335 $ 3,995 $ 5,365 $ 7,775 $ 10,500
Europe....................... 105 235 525 1,050 1,840 2,765
Asia/Pacific................. 80 130 250 475 815 1,245
Latin America................ 20 45 110 230 420 645
--------- --------- --------- --------- --------- ---------
Total........................ $ 1,505 $ 2,745 $ 4,880 $ 7,120 $ 10,850 $ 15,155
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
The growing adoption of the Internet also represents an enormous opportunity
for marketers to conduct commerce over the Internet. This is commonly referred
to as e-commerce. E-commerce can be fast, inexpensive and convenient. A growing
number of users have transacted business over the Internet, including trading
securities, buying goods, purchasing airline tickets and paying bills. As
business and consumer acceptance of e-commerce grows, advertisers and direct
marketers are increasingly using the Internet to locate customers, advertise and
facilitate transactions. According to IDC, e-commerce is expected to increase
dramatically over the next five years, as illustrated by the following chart:
WORLDWIDE E-COMMERCE REVENUES (WEB ONLY)
($ IN MILLIONS)
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002
<S> <C> <C> <C> <C> <C> <C>
E-commerce revenues........... $ 12,403 $ 32,383 $ 67,113 $ 132,966 $ 237,233 $ 425,730
</TABLE>
The growth in Internet advertising spending will ultimately depend on the
ability of advertisers to plan their advertising expenditures by using reliable
data that demonstrate audience size and the value of Internet advertisement
placement. Timely audience measurement data have emerged as "must have"
information. This information enables the buying and selling of advertising and
sponsorship support. Additionally, reliable Internet audience measurement data
are key drivers of the e-commerce industry because they enable Internet
marketers to analyze consumer behavior and focus their Internet investments.
THE NEED FOR A MEASUREMENT STANDARD
Traditional media - including television, radio and print - are largely
supported by advertising spending. One of the principal elements that drives the
growth of advertising in all media is the availability of audience measurement
data, or ratings. In each medium, a single standard of audience
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measurement has emerged. For over 40 years, Nielsen's estimates of televison
audience size and composition have served as the standard for audience
measurement of national and local television advertising. Arbitron serves as the
radio audience measurement standard, and MRI serves as the magazine readership
measurement standard. These third-party standards provide a uniform basis of
measurement which advertisers, media companies, ad agencies and the financial
community rely on to make critical business decisions.
Given the widespread availability of essentially free information on the
Internet, it has been difficult for Web sites and proprietary on-line services
to induce people to pay for on-line content. Advertising is a critical revenue
stream for providers of on-line content and services. As Web sites and on-line
content providers seek to increase advertising revenues, and as on-line
advertisers seek to determine where they should spend their advertisement
dollars, demand is growing for reliable statistics and standardized methods to
evaluate Internet usage. As a result, a standard for Internet audience
measurement must emerge, which will:
- measure a large and representative sample of Internet users;
- track activity on the entire Internet, not just the Web, so that key
properties like America Online and other proprietary on-line services and
technologies are included;
- measure the Internet audience both at work and at home, because Internet
usage differs in these two environments; and
- be unbiased and independent from advertisers and content providers.
As in traditional media, an independent standard of audience measurement
must be adopted by advertisers and marketers on the Internet. A significant
business opportunity exists for the company that provides this standard.
THE MEDIA METRIX SOLUTION - SETTING THE STANDARD
We are the leading provider of Internet audience measurement products and
services. Our products and services are critical to the continued growth and
development of the Internet because they provide a reliable, third-party
audience measurement standard. Our customers use our data as a basis for making
effective business decisions. We are the authoritative source for Internet
audience measurement data. In January 1999, our data were cited in more than 400
print and on-line articles. We have been at the forefront of the development and
coordination of technology and standards needed to facilitate advertising and
transactions between companies doing business over the Internet. Our customers
include most of the leading Internet advertisers and advertising agencies, the
most heavily trafficked Internet properties, leading technology companies and
financial institutions.
We have become the leading provider of Internet audience measurement
products and services because of the following:
WE PROVIDE COMPREHENSIVE AUDIENCE MEASUREMENT. Our leading position is
based on our unique ability to measure the entire Internet audience, including
people who use the Web and proprietary on-line services. We have the largest
panel of Internet users under continuous measurement, and the only panel
measuring at-work usage. Furthermore, we believe that we are the only third
party that currently provides reliable audience measurement data of the America
Online proprietary on-line service.
WE DELIVER ACKNOWLEDGED EXPERTISE IN MARKETING AND MEDIA RESEARCH. The
members of our management team are leaders in the field of Internet audience
measurement and share a vast repository of knowledge in panel-based research,
media research, media research technology, television and print media and in
various fields of marketing research. As a result, we have extensive expertise
in the development and management of representative consumer and business panels
to collect data. This is a
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complicated process that is performed effectively by only a limited number of
marketing research companies. Panel recruitment must be managed carefully in
order to construct a panel broad enough to provide sufficient sample size and
varied enough to provide meaningful data on different population segments. Our
management team's experience in the art of managing panels results largely from
its experience at NPD, one of the ten largest U.S.-based marketing research
firms and a leading provider of panel-based marketing information. Because of
this expertise, we have successfully built and maintained a high quality
Internet panel.
WE MEET THE NEEDS OF AN INFLUENTIAL CUSTOMER BASE. Our success is due in
part to our large base of established client companies, including leading new
and traditional media companies, advertising agencies, technology companies,
e-commerce marketers and financial institutions. These customers are responsible
for a significant percentage of total Internet advertising revenues. As a
result, they are influential in determining the standard for Internet audience
measurement. These customers rely on our data to make effective business
decisions. We work with our customers and key trade associations to gain
critical insights into evolving markets and to remain at the forefront of
ongoing changes in the industry. This allows us to continue to effectively meet
our customers' needs.
WE DEMONSTRATE TECHNOLOGICAL LEADERSHIP. We collect data through our
patented metering method, which measures activity at the operating system level
of a panelist's personal computer. By measuring activity at the operating system
level, we believe we are well positioned to measure any new digital media that
may emerge. Our metering technology produces data on Internet usage, on-line
service usage and hardware and software applications usage. Once data are
collected, we construct dynamic databases from which we produce our reports
quickly and cost-effectively.
WE PROVIDE BROAD PRODUCT OFFERINGS AND DELIVERY OPTIONS. We offer a broad
range of comprehensive, reliable and timely audience measurement products and
services. Our product offerings include both syndicated products and customized
products. Syndicated products are standardized products that appeal to a broad
range of customers. Customized products are tailored to meet individual customer
needs. We continually expand our services in anticipation of our customers'
needs and the changes and growth of the industry we serve. We offer our
customers a variety of options for delivery of our reports, including via the
Web, e-mail, computer disk and hard copy reports.
STRATEGY
Our goal is to capitalize on our current leadership position in order to
become the accepted standard for Internet audience measurement. We intend to
achieve this goal through the following strategies:
CONTINUE OUR INDUSTRY LEADERSHIP. We expect to continue our history of
innovation as the pioneer of Internet audience measurement. We plan to continue
to develop our market-leading technology and leverage our panel and databases to
develop broader and more in-depth products and services. We maintain the largest
panel of Internet users under continuous measurement in the world. We are the
only company that reports at-work Internet usage, and the only third party that
reports usage of proprietary on-line services like America Online. We plan to
remain at the forefront of change in the industry by continuing to work closely
with our customers and by actively working with key trade associations and
non-profit organizations to establish standards for Internet audience
measurement.
DEVELOP PRODUCTS TO ACCELERATE E-COMMERCE GROWTH. We believe that the
success and growth of e-commerce, like Internet advertising, will be driven
largely by the availability of comprehensive and reliable quantitative and
qualitative data. These data must provide key statistics for the evaluation of
e-commerce businesses and business strategies. We are working with our clients
to develop products that will enable our clients to target Internet users most
likely to engage in e-commerce by providing
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<PAGE>
behavioral and demographic data on people who purchase products, actively shop,
or merely click on to a particular e-commerce site.
EXPAND AND INCREASE PENETRATION OF OUR CLIENT BASE. We will continue to add
new customers, build on our successful client retention strategy and further
expand our existing customer relationships by offering products and services
that are valuable to our customers. We believe that our success in becoming the
leading Internet audience measurement service has been validated by our
historical ability to retain substantially our entire client base from year to
year. Of our customers under contract at the end of 1997, over 95% remained
customers at the end of 1998. We anticipate expanding our client base as
Internet advertising spending and e-commerce transactions increase and as more
Internet related businesses and advertisers require audience measurement data.
EXPAND INTERNATIONALLY. Unlike most media, which are delivered to a
national or local market, the Internet is the first medium that is regularly
delivered to a worldwide audience. For this reason, integrated, worldwide
audience measurement will be critical for advertisers to understand whom they
are reaching and for media properties to be able to effectively sell their
available advertising inventory. Additionally, over the next five years,
Internet advertising spending growth rates worldwide are projected to exceed
spending growth rates in the United States alone. We are responding to the
demands of our customers to obtain reliable Internet audience measurement data
in key non-U.S. markets. To capitalize on this trend, we intend to leverage our
proprietary panel, technology and brand recognition to become a worldwide
provider of Internet audience measurement services. We intend to rapidly expand
our presence in the international marketplace by developing additional products
in conjunction with local strategic partners who are leaders in panel-based
marketing and media research.
DEVELOP NEW PRODUCTS AND SERVICES. In addition to e-commerce related
products, we intend to continue to develop new products and services to meet the
growing needs of our customer base. As of December 31, 1998, we employed 14
people in new product development. We intend to expend significant additional
resources, including a portion of the proceeds from this offering, to expand our
new product development efforts. We are developing products that will offer
qualitative data measurement and expanded local market coverage. We are also
developing additional products and services based on our ability to gather
real-time data. We also intend to increase sales of customized products and
services to present and future clients. In addition, we intend to leverage the
capabilities of our patented metering method by creating and developing new
products based on a database that contains information on each panelist's
system's hardware configuration and software usage.
PRODUCTS AND SERVICES
Our principal products and services are derived from data collected from our
panel and stored in our core databases, which we use to produce the following:
- syndicated Internet audience measurement reports and services;
- customized Internet audience measurement reports and services; and
- hardware and software technology usage measurement reports and services.
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<PAGE>
SYNDICATED PRODUCTS. We provide syndicated Internet audience measurement
products and services as our core business. Our key syndicated products consist
of:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
<S> <C>
THE WEB REPORT...................... Our flagship syndicated audience measurement product contains the following
two components:
- THE KEY MEASURES REPORT: provides measures for all reportable Web sites,
categorized within major sectors. Key measures include:
- unique visitors;
- the percentage of the total Web audience in a month that could be reached
via each reported Web site, commonly referred to as reach;
- average usage days per user;
- average unique Web pages visited per day and per month;
- age and gender composition; and
- demographic composition.
- THE TREND REPORT: provides information on trends within the sectors in
the Key Measures Report for a six-month period. One section of the Trend
Report includes trends over a three-month period for key measures. Another
section provides an alphabetical listing of over 10,000 measured Web sites
and properties and the reach trends for each during the relevant six-month
period.
THE DIGITAL MEDIA REPORT............ Provides measurement of audience usage of proprietary on-line services like
America Online, push technology like PointCast, other proprietary services
like Juno, as well as all information collected in the Web Report. Allows
for the comparison of all digital media. Measures reported include:
- unique visitors;
- reach;
- usage days per person;
- minutes per usage day and per month; and
- age and gender composition.
THE LOCAL MARKET REPORT............. Tracks national and local market reach, demonstrating how national and
local Web sites perform within each of 14 top local markets. Data are
compiled on a monthly basis. We intend to expand our coverage to 25 local
markets in 1999.
THE AD NETWORK REPORT............... Details reach, frequency and demographic information across ad sales
networks and other ad-supported networks like DoubleClick, 24/7 Media,
Flycast, LinkExchange and AdSmart. The measures reported include the full
network reach and reach of those Web pages where ads have been served.
LIFEGRAPHICS........................ Provides behavioral data for lifestyles and purchase tendencies of Web
users.
</TABLE>
Currently, we also capture certain information about ad banners and use it
as input to our Ad Network Reports and to custom analyses. Ad banners are the
primary format for delivering advertisements over the Internet. In the future,
we may provide a report on ad banner usage.
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<PAGE>
CUSTOMIZED SERVICES, REPORTS AND ANALYSES. We leverage our vast database of
information on Internet usage and technology usage to provide clients with a
broad range of special services, reports and analyses, including the following:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
<S> <C>
INDUSTRY SECTOR/VERTICAL MARKET
REPORTS........................... Reports in-depth information on Web site performance within a specific
industry sector or vertical market.
RETENTION ANALYSES.................. Reports the percentage of audience that visits a Web site during a
particular month and returns during following months.
USAGE REPORTS....................... Segments Web and Web site traffic into heavy, medium and light usage groups
and compares behavior, usage pattern and demographics.
SITE CONTENT REPORTS................ Analyzes specific user-defined content areas, or channels, within a Web
site and reports on all items in the Key Measures Report.
PERSONAL CLICKSTREAM REPORTS........ Reports actual click-by-click, page level behavior of a sample of users
within a particular Web site as well as their behavior across the entire
Web.
TRAFFIC REFERRAL REPORTS............ Reports a summary of Web sites that users visit just prior to visiting a
particular Web site and indicates where they go after exiting the site.
SITE INTERACTION REPORTS............ Quantifies the degree to which a Web site shares audience with other Web
sites and properties, detailing exclusive and duplicated audience share.
</TABLE>
TECHNOLOGY USAGE MEASUREMENT REPORTS. Our meter captures data on all
software applications used each time a panelist logs onto his or her computer.
The meter also captures data on all hardware configurations and software
availability on the user's computer. We use these data to compile reports on
technology usage for companies that develop and market hardware and software
applications and for Web sites that seek to understand the technical
specifications of their visitors' computer systems.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
<S> <C>
HARDSCAN REPORT HardScan, SoftScan and SoftUsage Reports provide details on hardware
SOFTSCAN REPORT ownership, peripheral ownership, branding information, installed
SOFTUSAGE REPORT applications and system software, including Internet browsers, and use of
LINKAGE REPORTS software applications categorized by Software Publishers' Association
US CONSUMER PC REPORT segments. The analyses in the Linkage Reports and the US Consumer PC Report
provide a unique look at the relationships between hardware, software,
media, ownership and usage.
</TABLE>
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<PAGE>
CUSTOMERS
We have over 300 customers who use our data for many purposes like planning,
buying and selling advertising; developing e-commerce strategies; understanding
consumer behavior; gaining competitive market intelligence; and analyzing
investment decisions. Our customers are typically leaders in their respective
fields, and include the following:
<TABLE>
<CAPTION>
CLIENT SECTOR TYPICAL CLIENTS
<S> <C>
Media Organizations................. All of the top 20 Internet properties, including America Online, Buena
Vista/Disney, Excite, GeoCities, Infoseek, Lycos, Netscape, Time Warner and
Yahoo!
Advertising Agencies................ Interpublic Group, J. Walter Thompson, Modem Media.Poppe Tyson, Omnicom and
Young & Rubicam
Advertisers and Marketers........... Amazon.com, CDNow, eBay and General Motors
Technology Companies................ AT&T, Compaq, GTE, Hewlett-Packard, IBM and Microsoft
Financial Community................. E*Trade, Fidelity, Goldman Sachs and Morgan Stanley Dean Witter
</TABLE>
We typically enter into 12-month or longer subscription contracts with our
customers, some of whom are covered by multi-client master contracts with parent
corporations, like Time Warner and Buena Vista/Disney, to provide standard,
syndicated products and services or customized reports and analyses. It is
typical for our customers initially to purchase one of our standard products and
to upgrade over time. Of our customers under contract at the end of 1997, over
95% remained customers at the end of 1998.
MARKETING AND SALES
A critical element of all of our marketing efforts is to build awareness of
the Media Metrix brand. Our Internet audience measurement data receive extensive
publicity due to press reporting of Internet activity which either references or
is based on our data. During the month of January 1999, for example, our data
were cited in more than 400 print and on-line articles. Other publicity is
generated through public relations activity and public speaking engagements by
our executive officers.
We sell and market our products through our direct sales force, which was
comprised of 19 sales representatives as of December 31, 1998. A portion of our
sales force is dedicated to servicing and maintaining current clients. The
remainder is dedicated to developing new clients. Our sales force operates out
of our New York, San Francisco and Atlanta offices. Sales representatives
receive a base salary and are eligible for commissions based on revenues and
sales goals.
AUDIENCE MEASUREMENT METHODOLOGY
Our methodology has been developed from our background in panel recruitment
and management and includes our proprietary measurement technology. Key elements
of our methodology include:
PANELS AND DATA COLLECTION. Our panel is a representative sample of
personal computer users, including at-home and at-work users. We recruit panels
by random direct mail and telephone solicitation, both of which are standard
recruitment methods in marketing research. Our panel currently consists of over
40,000 individuals under measurement. In connection with our panel recruitment
process, each panelist is required to fill out a detailed questionnaire to
provide background demographic information. The questionnaire provides
information such as age, gender, household income, geographic region, level of
education, size of household and job classification of the panelists.
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Our proprietary metering system, or meter, is a software application
installed on a panelist's personal computer. It monitors activity of the
personal computer's operating system and browser. The meter passively records
what users do on their personal computers on a second-by-second basis,
including:
- the start and stop time of each activity;
- which application is being used;
- detailed usage activity for proprietary on-line services; and
- page-by-page viewing on the Internet.
Once the meter has collected the data from the panelist's personal computer,
data are transmitted to our offices for processing either via disk or via
automatic transfer over the Web. We plan to introduce a new version of our
metering system in 1999. The new meter will capture additional details of
Internet usage to accurately report audience behavior of emerging media such as
streaming audio and video. This version will also provide real time transmission
of data on usage. We also collect data via questionnaires distributed through
direct mail and over the Web. We utilize our own software to collect information
on hardware configurations and software installations of our panelists.
The statistical quality of the information that we collect is a function of
minimizing both sampling error and measurement error. Sampling error is a
function of the size and quality of the sample. Measurement error is a function
of the scope of the universe under measurement. We minimize sampling error by
maintaining a large, high quality panel. We minimize measurement error by
measuring all Internet usage, including the Web, proprietary on-line services
like America Online and all other activity on our panelists' personal computers.
We believe that we are the only company in the marketplace concentrating on
minimizing both sources of error for the measurement of the Internet market.
DATA ANALYSIS AND REPORT GENERATION AND DELIVERY. Data retrieved from the
meter are transmitted or downloaded to file servers and then combined with those
of all the other panelists. The data are then used to construct several
databases, which we use to provide our reports. We deliver our reports in one or
more of the following formats: via proprietary Web-based delivery systems;
e-mail; computer disk or hard copy.
OPERATIONS AND TECHNOLOGY
We have built our primary data collection, retrieval and processing system
based on systems and software developed by NPD. Our system has been designed
around industry standard data architectures. Backup procedures are built into
the processing environment in order to reduce downtime in the event of outages
or catastrophic occurrences. Our hardware systems are hosted at NPD's Uniondale,
New York facility, our Atlanta, Georgia facility, NPD's Port Washington, New
York facility, and at two offsite professionally-managed computer centers in
Atlanta, Georgia and Santa Clara, California. We outsource the operation of much
of our technical infrastructure to NPD.
As of December 31, 1998, we had 19 employees dedicated to research and
development. We incurred research and development expenses of $588,000 in 1996,
$865,000 in 1997 and $1.4 million in 1998. We anticipate that we will continue
to devote significant resources to product development and the development of
delivery technology in the future as we add new reports and databases.
INTELLECTUAL PROPERTY
We regard the protection of our patents, copyrights, service marks,
trademarks and trade secrets as important to our future success and rely on a
combination of patent, copyright, trademark, service mark and trade secret laws
and contractual restrictions to establish and protect our proprietary rights.
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<PAGE>
We require all employees and contractors to enter into confidentiality and
invention assignment agreements, and we enter into nondisclosure agreements with
third-parties with whom we do business in order to limit access to and
disclosure of our proprietary information. We cannot assure you that these
contractual arrangements or the other steps we have taken or will take in the
future will be sufficient to protect our technology from infringement or
misappropriation or to deter independent development of similar or superior
technologies by others.
We seek to obtain the issuance of patents registration and the trademarks
and service marks in the United States and selected other countries. Effective
patent, trademark, service mark, copyright and trade secret protection may not
be available in every country in which our products and services are or will be
made available. We also expect to license certain proprietary rights such as
patents, trademarks or copyrighted material to strategic partners in the course
of our planned international expansion. While we will attempt to ensure that the
quality of our service is maintained by such licensees, we cannot assure you
that such licensees will not take actions that might materially adversely affect
the value of our proprietary rights or reputation, which could have a material
adverse effect on our business, results of operations and financial condition.
We also rely on certain technologies that we license from third parties,
like NPD, which licenses to us key software products and database technology. We
cannot assure you that these third-party technology licenses will not infringe
the proprietary rights of others or will continue to be available to us on
commercially reasonable terms, if at all. The loss of such technology could
require us to obtain substitute technology of lower quality or performance
standards or at greater cost, which could materially adversely affect our
business, results of operations and financial condition.
We have been issued a patent in the United States with regard to our meter
methodology. We also have patent applications pending in the European Patent
office and in Australia, Brazil, Canada, Japan, Mexico, Norway and the United
States.
We have also applied for a patent in the United States and other foreign
jurisdictions on the methodology for monitoring of remote data access on a
public computer network which comprises the former RelevantKnowledge meter. This
application is currently pending.
In connection with our federal trademark application for the name "Media
Metrix," a third party has filed an opposition to our application.
To date, we have not been notified that our technologies infringe the
proprietary rights of third parties. We cannot assure you that others will not
claim that we have infringed proprietary rights with respect to past, current or
future technologies. We expect that the number of infringement claims in our
market will increase as the number of services and competitors in our industry
grows. Any of those claims, whether meritorious or not, could be time-consuming,
result in costly litigation or require us to enter into royalty or licensing
agreements. Royalty or licensing agreements might not be available on terms we
find acceptable or at all. As a result, any such claim could have a material
adverse effect upon our business, results of operations and financial condition.
COMPETITION
The market for measurement services for Internet technologies is new,
rapidly evolving and competitive. We expect that competition will intensify in
the future. We compete with other providers of Internet audience measurement
services, which are considered either consumer-centric measurement services or
site-centric measurement services. Consumer-centric services track usage among a
sample of users to provide an account of overall Internet usage behavior.
Site-centric services measure activity at a single web site and provide
measurement of activity at a particular Web site. We are a consumer-centric
service and compete directly with other consumer-centric measurement services
and indirectly with operators of site-centric measurement systems.
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<PAGE>
Currently, we compete directly with NetRatings. Nielsen Media Research, the
leading provider of television audience measurement services, has announced
plans to introduce a product to compete with ours. Nielsen has significantly
more financial and other resources than we do. If Nielsen does in fact launch a
product, it could prove to be a significant competitor. Nielsen has also
announced that it intends to make an investment in NetRatings in order to
utilize the NetRatings tracking software. Other potential competitors include PC
Data, a marketing research firm that provides research on personal computer
software and hardware sales, and @Plan, a consumer-centric, qualitative
measurement service.
In addition, we may face competition from individual Web sites that may
develop new and independent methods of measuring their own audience. We also
face competition from other companies that develop alternative audience
measurement technologies to those already provided by us or our current
competitors. Competitive pressures created by any one of these companies, or by
our competitors collectively, could have a material adverse effect on our
business, results of operations and financial condition.
We believe that the principal competitive factors in our market are the
ability to:
- create high-quality, timely and reliable consumer and business panels of a
sufficient size and representative nature to provide the necessary data;
- provide measurement services of proprietary on-line services and
Internet-related activity as well as measuring Web activity; and
- establish credibility and provide a trusted independent source of data.
Some of our competitors and potential competitors have longer operating
histories, larger customer bases and greater brand recognition in other
businesses and significantly greater financial, marketing, technical and other
resources than we do. We also face competition in the area of development of
representative consumer and business panels to provide data. In addition, other
measurement services may be acquired by, receive investments from or enter into
other commercial relationships with larger, well-established and well-financed
companies as use of the Internet increases. Therefore, certain of our
competitors with other revenue sources may be able to devote greater resources
to marketing and promotional campaigns, adopt more aggressive pricing policies
and devote substantially more resources to technology and systems development
than we can. Increased competition may result in reduced operating margins, loss
of market share and diminished value in our services. We cannot assure you that
we will be able to compete successfully against current and future competitors.
Further, as a strategic response to changes in the competitive environment, we
may, from time to time, make certain pricing, service or marketing decisions or
acquisitions that could have a material adverse effect on our business, results
of operations and financial condition. New technologies and the expansion of
existing technologies may also increase the competitive pressures on us by
enabling our competitors to offer a lower-cost service.
EMPLOYEES
As of December 31, 1998, we had 88 full-time employees, with:
- 19 in research and development;
- 21 in operations;
- 34 in sales, marketing and client service; and
- 14 in management, administration and finance.
Our employees are not covered by a collective bargaining agreement. We have
never experienced an employment-related work stoppage and consider our employee
relations to be good.
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PROPERTIES
Currently, our operations and research and development facilities are
located in Port Washington and Uniondale, New York, which are leased to us by
NPD under the terms of a management services agreement. See "Certain
Transactions--Management Services Agreement." In addition, we lease office space
in Atlanta, Georgia, San Francisco, California, and New York, New York. We also
sublease additional office space at another location in New York, New York. We
are in the process of looking for additional leaseable space in New York, New
York.
The property we currently utilize in Port Washington is leased by NPD from
NPD Realty Group, LLC, a limited liability company which is owned by Tod
Johnson, The 1995 Scott Johnson Trust and The 1995 Stacey Johnson Trust. See
"Certain Transactions--Transactions with Directors and Executive
Officers--Management Services Agreement."
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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MANAGEMENT
OUR EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The executive officers, key employees and directors of Media Metrix, and
their ages and positions, are:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Tod Johnson............................ 54 Chairman of the Board, Chief Executive Officer and Director
Mary Ann Packo......................... 44 President and Chief Operating Officer
Steve Coffey........................... 43 Executive Vice President
Thomas A. Lynch........................ 38 Chief Financial Officer, Secretary and Treasurer
Doug McFarland......................... 49 Senior Vice President, Sales
Jeffrey C. Levy(1)..................... 36 Director and Vice Chairman
Michael C. Brooks(2)................... 54 Director
Stig Kry(2)............................ 70 Director
William W. Helman(1)................... 40 Director
James Mortensen(1)(2).................. 73 Director
Timothy F. S. Cobb..................... 34 Executive Consultant
</TABLE>
- -----------------------
(1) Compensation committee member.
(2) Audit committee member.
TOD JOHNSON has been our Chairman of the Board and Chief Executive Officer
since March 1997 and has been involved in managing our business since our
inception as a division of NPD and then as PC Meter. He has served as the
Chairman and Chief Executive Officer of NPD since 1971. He has also served as
Chairman of the Advertising Research Foundation and was the Founding Co-Chairman
of the Council for Marketing and Opinion Research. Mr. Johnson earned a B.S. and
an M.S. from Carnegie Mellon University.
MARY ANN PACKO has been our President and Chief Operating Officer since
March 1997. She has been involved in managing our business since July 1996. She
served as Executive Director of IPSOS-NFO Europe, Paris, from July 1995 to July
1996 and as Vice President of New Ventures with NFO Worldwide from July 1994 to
July 1995. Prior to July 1994, Ms. Packo was the President of the Custom
Services Division of NPD Canada. Ms. Packo co-founded and was President of
National Yellow Pages Monitor and has served on the Board of Directors of the
Internet Advertising Bureau. Ms. Packo received her B.S. from Miami University,
Oxford, Ohio.
STEVE COFFEY has been our Executive Vice President since 1997 and has been
involved in managing our business since our inception as a division of NPD and
then as PC Meter. Mr. Coffey also headed the Advanced Research and Development
team at NPD from October 1994 to January 1996, where he founded and launched PC
Meter. Mr. Coffey received an M.S. from Columbia Business School.
THOMAS A. LYNCH has been our Chief Financial Officer since March 1997 and
has been involved in managing our business since our inception as a division of
NPD and then as PC Meter. He also served as Senior Vice President and Chief
Financial Officer of NPD from May 1995 to November 1998. Prior to joining NPD,
Mr. Lynch was a partner at KPMG Corporate Finance in Tokyo, Japan. Mr. Lynch
earned a Bachelors of Commerce degree from University College Dublin, Ireland
and an M.B.A. from the London Business School, England.
42
<PAGE>
DOUG MCFARLAND has been our Senior Vice President, Sales since February
1997. From July 1994 until joining us, Mr. McFarland was an executive vice
president with FreeMark Communications. From February 1992 until July 1994, Mr.
McFarland was a senior vice president of Next Century Media. Prior to that time,
he held various positions at Arbitron, including vice president-sales and
marketing. Mr. McFarland received his B.A. from Emory and Henry College and an
M.A. from Virginia Tech.
JEFFREY C. LEVY has been a director and Vice Chairman since November 1998.
Mr. Levy co-founded RelevantKnowledge with Timothy F.S. Cobb and served as its
Chief Executive Officer from November 1996 to November 1998. He served as legal
counsel at Turner Broadcasting System, Inc. from January 1995 to November 1996.
Prior to January 1995, he was an associate at the law firm of Dow, Lohnes &
Albertson. Mr. Levy holds an A.B. from Harvard College and a J.D. from Harvard
Law School.
MICHAEL C. BROOKS has been a director since November 1998. He was a director
of RelevantKnowledge prior to the merger. He has been a general partner of J.H.
Whitney & Co., a venture capital fund, since 1984. He is also a director of
SunGard Data Systems, Inc., Pegasus Communications, Inc., NMT Medical,
USinternetworking, Inc. and several other private companies. Mr. Brooks holds a
B.A. from Yale College and an M.B.A. from Harvard Business School.
WILLIAM W. HELMAN has been a director since April 1997. He has been a
general partner of Greylock IX Limited Partnership, a venture capital fund,
since 1984. He is also a director of Millennium Pharmaceuticals, Inc., Vertex
Pharmaceuticals, Inc. and various privately held companies. Mr. Helman holds an
A.B. from Dartmouth College and an M.B.A. from Harvard Business School.
STIG KRY has been a director since March 1997. He has been employed by Kurt
Salmon Associates, Inc., a management consulting firm, since 1958, holding
various positions, including Chief Executive from 1975 to 1987 and his current
position as Chairman Emeritus since 1993. He is a director of Guilford Mills,
Inc. and Osh Kosh B'Gosh, Inc. as well as several private companies. Mr. Kry
holds a degree in textile engineering from NKI, Skolan, Stockholm, Sweden.
JAMES MORTENSEN has been a director since March 1997. Mr. Mortensen is a
private consultant. He was employed by Young & Rubicam Inc. from 1957 to 1982
where he held various positions, including Chief Financial Officer, Vice
Chairman and Chair of the Executive Committee. Mr. Mortensen attended Denver
University.
TIMOTHY F. S. COBB is an executive consultant and former director. He was a
director from November 1998 through February 1999. He co-founded
RelevantKnowledge with Jeffrey C. Levy and served as its President from November
1996 to November 1998. Prior to founding RelevantKnowledge, Mr. Cobb held
various positions at Turner Broadcasting System, Inc., including Vice
President--Business Ventures and legal counsel. Mr. Cobb holds a B.S. from the
University of North Carolina at Chapel Hill and a J.D. from the University of
Pennsylvania Law School.
After the closing of this offering, our board will be divided into three
classes, denominated Class I, Class II and Class III. Members of each class hold
office for three-year terms which are staggered. At each annual meeting of our
stockholders starting with the meeting in 2000, the successors to the directors
whose terms expire at that meeting will be elected to serve for a three-year
period following their election or until a successor has been duly elected and
qualified. Messrs. Levy and Mortensen are Class I directors whose terms expire
at the 2000 annual meeting of stockholders. Messrs. Brooks and Kry are Class II
directors whose terms expire at the 2001 annual meeting of stockholders. Messrs.
Johnson and Helman are Class III directors whose terms expire at the 2002 annual
meeting. The expiration of a director's term is subject in all cases to the
election and qualification of his successor or his earlier death, removal or
resignation. All of our directors were elected to the board pursuant to a
43
<PAGE>
stockholders' agreement, which will terminate at the closing of the offering.
Our officers are appointed to serve at the discretion of the board.
The board has established an audit committee and a compensation committee.
The audit committee reviews our annual audit and meets with our independent
auditors to review our internal controls and financial management practices. The
compensation committee recommends to the board the compensation for our key
employees.
DIRECTOR COMPENSATION
In the past, non-employee, non-stockholder directors have received cash
compensation of $6,000 per year and options to purchase our common stock
received from both NPD and Media Metrix. See "Principal Stockholders." We intend
to institute a policy of compensation for non-employee directors prior to the
offering.
EXECUTIVE COMPENSATION
The following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid to our Chief Executive Officer and
our next four most highly compensated executive officers for services rendered
to us during the fiscal year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION --------------------------
------------------------------------ SECURITIES
OTHER UNDERLYING ALL
NAME AND PRINCIPAL ANNUAL OPTIONS/ OTHER
POSITION YEAR SALARY BONUS COMPENSATION SARS COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
Tod Johnson.................................... 1998 -- -- -- -- --
Chief Executive Officer and 1997 -- -- -- -- --
Chairman of the Board (1) 1996 -- -- -- -- --
Mary Ann Packo................................. 1998 $ 157,500 $ 59,000 -- 43,715 --
President and Chief 1997 153,000 35,000 -- 25,170 --
Operating Officer 1996(2) 150,000 51,000 -- 66,534 --
Steve Coffey................................... 1998 $ 145,000 $ 54,500 -- 43,715 --
Executive Vice President 1997 130,000 35,000 -- 25,170 --
1996 120,000 47,000 -- 66,534 --
Thomas A. Lynch................................ 1998 -- -- -- 39,367 --
Chief Financial Officer(1) 1997 -- -- -- 2,175 --
1996 -- -- -- -- --
Doug McFarland................................. 1998 $ 154,500 $ 42,000 -- 24,345 --
Senior Vice President, Sales 1997 150,000 30,000 -- 36,964 --
1996 -- -- -- -- --
</TABLE>
- -----------------------
(1) Compensation for Mr. Johnson's services as Chief Executive Officer and Mr.
Lynch's services as Chief Financial Officer in 1998 was paid under our
management services agreement with NPD. We will continue to pay for Mr.
Johnson's services pursuant to this agreement at the rate of $15,000 per
month. See "Certain Transactions--Transactions with Officers and
Directors--Management Services Agreement." Mr. Lynch's salary was paid by
NPD through November 1998. For December 1998 and for 1999, Mr. Lynch's is
being paid at the rate of $165,000 per annum.
(2) Ms. Packo joined us in July 1996.
44
<PAGE>
STOCK OPTIONS
The following table sets forth summary information concerning individual
grants of stock options made during the year ended December 31, 1998 to each of
our executive officers named in the Summary Compensation Table.
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE
AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES
------------------------------------------------------------ OF STOCK
NUMBER OF % OF TOTAL PRICE
SHARES OPTIONS EXERCISE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION
OPTIONS EMPLOYEES IN PRICE PER TERM (1)
NAME GRANTED 1998 SHARE EXPIRATION DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Tod Johnson.................... -- -- -- -- -- --
Mary Ann Packo................. 21,743 11.7% $ 2.30 July 22, 2008 $ 31,460 $ 79,725
21,972 $ 2.39 December 3, 2008 33,017 83,671
Steve Coffey................... 21,743 11.7 $ 2.30 July 22, 2008 31,460 79,725
21,972 $ 2.39 December 3, 2008 33,017 83,671
Thomas A. Lynch................ 17,395 10.5 $ 2.30 July 22, 2008 25,168 63,780
21,743 $ 2.39 December 3, 2008 33,017 83,671
Doug McFarland................. 19,570 8.2 $ 2.30 July 22, 2008 28,315 71,755
10,986 $ 2.39 December 3, 2008 16,508 41,836
</TABLE>
- -----------------------
(1) These amounts represent assumed rates of appreciation in the price of our
common stock during the terms of the options in accordance with rates
specified in applicable federal securities regulations. Actual gains, if
any, on stock option exercises will depend on the future price of the common
stock. There is no representation that the rates of appreciation reflected
in this table will be achieved.
The following table sets forth at December 31, 1998 the number of options
and the value of unexercised options held by each of the executive officers
named in the Summary Compensation Table:
AGGREGATED YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
SUBJECT TO UNEXERCISED IN-THE-MONEY
OPTIONS AT YEAR END OPTIONS AT YEAR END (1)
------------------------------ ----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Tod Johnson............................................... -- -- -- --
Mary Ann Packo............................................ 0 136,341 $ 0
Steve Coffey.............................................. 0 136,341 $ 0
Thomas A. Lynch........................................... 0 88,670(2) $ 0
Doug McFarland............................................ 0 67,517 $ 0
</TABLE>
- -----------------------
(1) The dollar values have been calculated by determining the difference between
the fair market value of the securities underlying the options at December
31, 1998 and the exercise prices of the options. Solely for purposes of
determining the value of options at December 31, 1998, we have assumed that
the fair market value of shares of common stock issuable upon exercise of
options was $ per share, the assumed initial public offering price,
since the common stock was not traded in an established market prior to the
offering.
(2) Includes 47,130 shares of our common stock issuable upon the exercise of
options granted pursuant to an NPD plan that gives Mr. Lynch an option to
purchase shares of Media Metrix common stock held by NPD.
45
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We have established a compensation committee consisting of William W.
Helman, Jeffrey C. Levy and James Mortensen. Until February 1999, matters
concerning executive officer compensation were addressed by the entire board
because we did not have a compensation committee.
EQUITY INCENTIVE PLANS
We adopted our 1998 Equity Incentive Plan in November 1998. Under the 1998
Plan, we may award incentive and non-statutory stock options, stock appreciation
rights, restricted stock, performance stock units and other stock units which
are valued by reference to the value of our common stock. We also maintain the
Media Metrix Stock Option Plan which provides for the award of up to 519,222
shares of our common stock in the form of incentive stock options and
non-statutory stock options. The 1998 Plan and the Media Metrix Plan are
hereinafter referred to collectively as the equity plans.
In February 1999, the board adopted an amendment to the 1998 Plan to
increase the number of shares of our common stock available for awards under the
1998 Plan from 732,400 to 1,318,320.
As of February 15, 1999, options to purchase an aggregate of 963,497 shares
of common stock were outstanding under the equity plans, and an aggregate of
874,045 shares of common stock are authorized but have not yet granted as awards
under the equity plans. We do not intend to issue any more options under the
Media Metrix Plan.
Our officers, employees, non-employee directors and consultants are eligible
to participate in the equity plans. The compensation committee administers the
equity plans and determines, subject to the provisions of the equity plans, who
shall receive awards, the types of awards to be made, and the terms and
conditions of each award. Options that are intended to qualify as incentive
stock options under the equity plans may not be exercisable for more than 10
years after the date the option is granted and may not be granted at an exercise
price less than the fair market value of our common stock at the time the option
is granted. In the case of incentive stock options granted to holders of more
than 10% of our common stock, the options may not be granted at an exercise
price less than 110% of the fair market value of our common stock at the time
the options are granted.
The 1998 Plan provides that all outstanding awards shall become immediately
exercisable on the day prior to the consummation of any merger or consolidation
in which we are not the surviving corporation or which results in the
acquisition of substantially all our outstanding shares by a single person or
entity or by a group of persons and/or entities acting in concert, or in the
event of the sale or transfer of substantially all of our assets. The number of
shares subject to each award shall be adjusted upon the occurrence of a stock
split or recapitalization of our common stock.
The board may amend, modify or terminate any outstanding award under the
equity plans with the participant's consent, except consent shall not be
required if the board determines that such action will not materially and
adversely affect the participant. The board may amend, suspend or terminate
either of the equity plans, or any part of such plans, at any time.
46
<PAGE>
CERTAIN TRANSACTIONS
FORMATION BY NPD
Prior to April 14, 1997, the business currently conducted by Media Metrix
was operated as PC Meter. NPD originally held 100,000 Class A Limited
Partnership Units and 79,000 Class B Limited Partnership Units of PC Meter. The
1995 Scott Johnson Trust and The 1995 Stacey Johnson Trust each held 19,323.5
Class B Limited Partnership Units of PC Meter. In addition, PC Meter was
indebted to NPD in the amount of approximately $4.0 million which PC Meter used
for working capital purposes. On April 14, 1997, PC Meter was merged with and
into Media Metrix. Immediately prior to the merger, NPD purchased an additional
338,767.7324 Class A Limited Partnership Units for a purchase price of $3.2
million. Under the terms of the merger between Media Metrix and PC Meter, each
Class A Limited Partnership Unit was exchanged for 0.09446 shares of our
redeemable preferred stock for a total of 41,446 shares. Each Class B Limited
Partnership Unit was exchanged for 12.75 shares of our common stock. NPD
currently hold 41,446 shares of our redeemable preferred stock and 4,380,559
shares of common stock. Tod Johnson, our Chairman and Chief Executive Officer,
is the controlling stockholder of NPD. After the merger, we repaid the
indebtedness owed to NPD by PC Meter.
PRIVATE PLACEMENTS OF SECURITIES
On April 14, 1997 we issued:
- warrants to purchase 377,642 shares of common stock at an exercise price
of $2.88 per share to Veronis Suhler & Associates;
- 495,603 shares of Series A Preferred Stock convertible into 2,155,176
shares of common stock, at an effective purchase price per share of common
stock of $1.86; and
- warrants to purchase 159,640 shares of Series B Preferred Stock at an
exercise price of $12.53 per share.
Of the securities issued, and after giving effect to the conversion of our
convertible preferred stock on November 4, 1998, Greylock IX Limited Partnership
purchased 1,030,743 shares of our common stock for an aggregate of $1,331,997.
Warrants to purchase 119,713 shares of Series B Preferred Stock were exercised
on November 4, 1998 and such shares of Series B Preferred Stock were converted
into 520,590 shares of common stock on the same date. Warrants to purchase
39,926 shares of Series B Preferred Stock were converted into warrants to
purchase 173,629 shares of common stock at an exercise price of $2.88 per share.
Greylock received warrants to purchase 104,175 shares of our common stock.
On November 5, 1998, RelevantKnowledge merged into Media Metrix. We issued
an aggregate of 3,885,531 shares of common stock, or 0.3111 shares of common
stock for each outstanding share of common stock and preferred stock of
RelevantKnowledge. We also replaced 1,160,290 warrants to purchase shares of
RelevantKnowledge common stock with a weighted average exercise price of $2.31
with warrants to purchase 360,930 shares of our common stock with a weighted
average exercise price of $1.38. We also issued 46,775 options to purchase our
common stock to the employees of RelevantKnowledge who became our employees
after the merger. Messrs. Levy and Cobb and Whitney Equity Partners, L.P. all
received shares of our common stock in the merger.
TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
MANAGEMENT SERVICES AGREEMENT
With the formation of PC Meter on March 31, 1996, PC Meter entered into a
management services agreement with NPD and Tod Johnson. NPD and Mr. Johnson
agreed to provide services related to PC Meter's business to the extent PC Meter
wished to use such services. We succeeded to
47
<PAGE>
that agreement when we merged with PC Meter. The agreement was amended and
restated on April 14, 1997 in connection with the private placement of our
Series A Preferred Stock and warrants to purchase Series B Preferred Stock. We
entered into a new management services agreement with NPD and Mr. Johnson on
September 30, 1998, in anticipation of our merger with RelevantKnowledge, on
substantially the same terms as the prior management services agreement.
Services which NPD agreed to provide, if needed, include:
- the support of the operation and administration of our panel, including
recruitment, operation and compensation of the panel;
- access to panelists in NPD's panels;
- data capture and editing of data;
- data base structuring and storage of data;
- processing of reports and client support;
- provision of systems support and development as necessary;
- provision of computer time, storage and printing as reasonably necessary
in connection with the provision of the services specified in the
preceding items, support in connection with client service and sales;
- office space and facilities within NPD leased facilities; and
- the provision of NPD's hardware ownership survey.
In addition to the specific services outlined above, NPD also agreed to
provide administrative and office logistical support, including payroll
management. At this time, NPD no longer provides payroll and panel support
services.
The management services agreement may be terminated by either party with 90
days' prior written notice, except that NPD may not terminate the management
services agreement prior to March 31, 2002. When the management services
agreement is terminated, NPD will provide us with a perpetual, royalty free,
non-forfeitable license of all data and documentation in its possession and
developed during the performance of the services relating to our business. We
have also agreed to provide NPD with a reciprocal license relating to certain
information.
NPD and Mr. Johnson have also agreed that during the term of the management
services agreement and for a period of two years after its termination, neither
NPD nor Mr. Johnson will enter into the field of audience measurement for
digital on-line media and measurement of usage of computer software and personal
computers, except for investments in publicly traded companies not to exceed 10%
of any company's outstanding capital stock.
As compensation for the services provided by NPD, we pay NPD on a monthly
basis an amount equal to all expenses reasonably incurred by NPD in the
performance of its duties under the management services agreement, plus 105% of
the sum of (1) the amount of NPD's overhead allocable to us and (2) service
charges like computer rent, mail handling and printing and postage. NPD charged
us $6.0 million under the management services agreement in 1998. Salary for Tod
Johnson is reimbursed as part of overhead charges. NPD was reimbursed $62,000
for Mr. Johnson's services and $36,000 for Mr. Lynch's services in 1998. The
amounts charged by NPD for Mr. Johnson and Mr. Lynch's services were below the
amounts provided for under the management services agreement. NPD has waived any
additional amounts to which it is entitled under the agreement. See
"Management--Executive Compensation."
48
<PAGE>
The building in Port Washington, New York where we lease space from NPD
under the management services agreement is owned by NPD Realty Company, LLC,
which is owned 50% by Tod Johnson, 25% by The Scott Johnson Trust and 25% by The
Stacey Johnson Trust. The management services agreement provides that rent
allocable to us by NPD may not exceed fair market value of the space.
SERVICES AGREEMENT
We have entered into a services agreement with NPD dated as of September 30,
1998. We have granted NPD and its affiliates access to our databases for any
business purpose of NPD and its affiliates which is not in direct competition
with our business. We have also granted NPD a non-exclusive licence to use
certain computer software owned by us which is used for Internet audience
measurement. In addition, we have also agreed that we will not license our
software to any one else who will use the software to compete with NPD. Under
the terms of the services agreement, we receive a monthly fee of $2,500 plus
expenses. The services agreement is terminable by mutual consent of the parties
or on 120 days' prior written notice by either party.
LICENSE AGREEMENT
We have a license agreement dated as of November 5, 1998 with NPD. NPD has
granted to us an exclusive, non-transferable, perpetual, worldwide license to
use the NPD PowerView-Registered Trademark- computer software and standard set
ups, Flexsys-TM- and NPD SofTrends-TM- dictionary solely in connection with the
operation of the our metering system. This software enables us to construct our
databases from the data we collect from our panelists. We pay NPD licensing fees
of $11,000 per month payable quarterly. The license is terminable by NPD on our
breach of the terms of the agreement like failure to pay the license fees, or
bankruptcy.
EMPLOYMENT AND CONSULTING AGREEMENTS
We have entered into an employee agreement with Jeffrey C. Levy, a director
and a Vice Chairman, in connection with our merger with RelevantKnowledge. The
term of his agreement is the shorter of (1) fifteen months from November 5, 1998
and (2) six months after this offering. Mr. Levy receives an annual base salary
of $165,000 and is entitled to a bonus for 1998 and 1999 in accordance with our
bonus structure generally available for senior executives, to be determined by
the Chief Executive Officer and the non-employee director nominated by the
former stockholders of RelevantKnowledge. The agreement may be terminated with
or without cause by either party. After this offering, Mr. Levy will become a
non-executive vice chairman.
At the time of our merger with RelevantKnowledge, we also entered into an
employment agreement with Timothy F. S. Cobb, the co-founder of
RelevantKnowledge, under which he acted as a Vice Chairman and a director of
Media Metrix. The agreement provides for an annual base salary of $165,000 and a
bonus for 1998 calculated in a manner similar to Mr. Levy's bonus. Following the
termination of Mr. Cobb's employment on January 31, 1999, we agreed with Mr.
Cobb that he would continue as an executive consultant.
49
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of February 15, 1999, after giving effect to
the offering, by: (1) each person known to beneficially own more than 5% of our
common stock; (2) each of our directors; (3) each executive officer named in the
summary compensation table; and (4) all executive officers and directors as a
group. All persons listed have sole voting and investment power with respect to
their shares unless otherwise indicated. Unless indicated otherwise, the address
of the beneficial owners is: c/o Media Metrix, Inc., 35 East 21(st) Street, New
York, New York 10010.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock issuable pursuant to
options, to the extent those options are currently exercisable or convertible
within 60 days of February 15, 1999, are treated as outstanding for computing
the percentage of the person holding those securities but are not treated as
outstanding for computing the percentage of any other person. Unless otherwise
noted, each person or group identified possesses sole voting and investment
power with respect to shares, subject to applicable community property laws.
Beneficial ownership percentage is based on 13,294,431 shares of common stock
outstanding as of February 15, 1999 and shares of common stock outstanding
after completion of this offering and in each case after giving effect to the
1.4648-for-1 split of the common stock.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
-------------------------
<S> <C> <C> <C>
SHARES
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING
The NPD Group, Inc.(1)....................................................... 4,380,559 33.0%
Greylock IX Limited Partnership (2).......................................... 1,134,918 8.5
The 1995 Scott Johnson Trust (3)............................................. 1,071,385 8.1
The 1995 Stacey Johnson Trust (4)............................................ 1,071,385 8.1
Whitney Equity Partners, L.P. (5)............................................ 937,402 7.0
Oak Investment Partners VI, Limited Partnership (6).......................... 857,235 6.4
Oak VI Affiliates Fund, Limited Partnership (6).............................. 857,235 6.4
Venrock Associates II, L.P. (7).............................................. 857,235 6.4
Venrock Associates (7)....................................................... 857,235 6.4
Tod Johnson (8).............................................................. 4,380,559 33.0
Mary Ann Packo (9)........................................................... 71,753 *
Steve Coffey (10)............................................................ 71,753 *
Thomas A. Lynch (11)......................................................... 47,566 *
Doug McFarland (12).......................................................... 7,393 *
Jeffrey C. Levy (13)......................................................... 503,204 3.8
Michael Brooks (14).......................................................... 937,402 7.0
Stig Kry (15)................................................................ 10,138 *
William W. Helman (16)....................................................... 1,134,918 8.5
James Mortensen (17)......................................................... 10,138 *
Timothy F. S. Cobb (18)...................................................... 503,065 3.8
All directors and executive officers as a group (10 persons)................. 7,174,825 52.4%
</TABLE>
- -----------------------
* Less than 1.0%
50
<PAGE>
(1) Of the 4,380,559 shares of common stock owned by NPD, 601,838 shares of
common stock are required to be sold to certain officers of NPD upon the
exercise of options granted by NPD on these shares pursuant to an NPD
employee plan. These options vest and become fully exercisable upon the
consummation of this offering.
(2) Consists of 1,030,743 shares of common stock and warrants to purchase
104,175 shares of common stock. The partnership's address is One Federal
Street, Boston, Massachusetts 02110.
(3) The address of The 1995 Scott Johnson Trust is c/o Franklin Green, Esq.,
Trustee, Fried, Frank, Harris Shriver & Jacobson, One New York Plaza, New
York, New York 10004-1980.
(4) The address of The 1995 Stacey Johnson Trust is c/o Franklin Green, Esq.,
Trustee, Fried, Frank, Harris Shriver & Jacobson, One New York Plaza, New
York, New York 10004-1980.
(5) Consists of 796,208 shares of common stock and warrants to purchase 141,194
shares of common stock. The partnership's address is c/o J. H. Whitney &
Co., 177 Broad Street, Stamford, Connecticut 06901.
(6) Consists of 803,525 shares of common stock owned by Oak Investment Partners
VI, Limited Partnership and 34,164 shares of common stock issuable upon the
exercise of a warrant held by Oak and 18,985 shares of common stock owned by
Oak VI Affiliates Fund, Limited Partnership and 561 shares of common stock
issuable upon the exercise of a warrant held by Oak Affiliates. Each
partnership may be deemed to beneficially own each other's shares because
the general partners of each partnership are affiliated. Each partnership
disclaims beneficial ownership of the other's shares. The partnerships'
addresses are One Gorham Island, Westport, Connecticut 06880.
(7) Consists of 468,831 shares of common stock owned by Venrock Associates II,
L.P. and 19,795 shares of common stock issuable upon the exercise of a
warrant held by Venrock II and 353,674 shares of common stock owned by
Venrock Associates and 14,934 shares of common stock issuable upon the
exercise of a warrant held by Venrock. Each partnership may be deemed to
beneficially own each other's shares because the general partners of each
partnership are affiliated. Each partnership disclaims beneficial ownership
of the other's shares. The partnerships' addresses are 30 Rockefeller Plaza,
Room 5508, New York, New York 10112.
(8) Consists of 4,380,559 shares of common stock owned by NPD of which Mr.
Johnson is the principal stockholder and Chief Executive Officer. As such,
Mr. Johnson may be deemed to be the beneficial owner of such shares. Of the
4,380,559 shares of common stock owned by NPD, 601,838 shares of common
stock are issuable to certain officers of NPD upon the exercise of options
granted on such shares pursuant to an NPD employee plan. Such options vest
and become fully exercisable upon the consummation of this offering. In
addition, The 1995 Scott Johnson Trust and The 1995 Stacey Johnson Trust are
trusts for the benefit of family members of Mr. Johnson. Mr. Johnson does
not exercise either voting or dispositive power over the securities held by
either trust and disclaims beneficial ownership of the shares held by the
trusts.
(9) Consists of 71,753 shares of common stock issuable upon the exercise of
options. Does not include 86,560 shares of common stock issuable upon the
exercise of options not currently exercisable within 60 days of February 15,
1999. See "Management--Stock Options."
(10) Consists of 71,753 shares of common stock issuable upon the exercise of
options. Does not include 86,560 shares of common stock issuable upon the
exercise of options not currently exercisable within 60 days of February 15,
1999. See "Management--Stock Options."
(11) Consists of 47,566 shares of common stock issuable upon the exercise of
options, 47,130 of which were granted pursuant to an NPD benefit plan and
which give Mr. Lynch the right to purchase shares of our common stock held
by NPD. Does not include 77,724 shares of common stock issuable upon the
exercise of options not currently exercisable within 60 days of February 15,
1999. See "Management--Stock Options."
(12) Consists of 7,393 shares of common stock issuable upon the exercise of
options. Does not include 82,096 shares of common stock issuable upon the
exercise of options not currently exercisable within 60 days of February 15,
1999. See "Management--Stock Options."
(13) Consists of 394,315 shares of common stock owned by Mr. Levy and 108,889
shares of common stock owned by the Jeffrey C. Levy 1996 Children's Trust.
Mr. Levy may be deemed the beneficial owner of the shares held by the Levy
Trust. Mr. Levy disclaims beneficial ownership of the shares held by the
Levy Trust. Mr. Levy has
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<PAGE>
granted the underwriters an option to purchase up to shares to cover
over-allotments. If this option is exercised in full, Mr. Levy will
beneficially own shares, or % of our common stock after this
offering.
(14) Consists of 796,208 shares of common stock and warrants to purchase 141,194
shares of common stock issuable upon the exercise of a warrant. Mr. Brooks
is a general partner of Whitney Equity Partners, L.P. who possesses
investment and voting power with respect to all such shares. Mr. Brooks
disclaims beneficial ownership of the shares of common stock owned by
Whitney Equity Partners other than the shares attributable to his general
and limited partnership interests in that fund. See footnote (7) above. Mr.
Brooks' address is c/o J. H. Whitney & Co., 177 Broad Street, Stamford,
Connecticut 06901.
(15) Consists of 10,138 shares issuable upon the exercise of options, 9,703 of
which were granted pursuant to an NPD employee plan and which give Mr. Kry
the right to purchase shares of our common stock held by NPD. Does not
include 15,631 shares of common stock issuable upon the exercise of options
not currently exercisable within 60 days of February 15, 1999.
(16) Consists of 1,030,743 shares of common stock owned by Greylock IX Limited
Partnership and 104,175 shares of common stock issuable upon exercise of a
warrant held by Greylock. Mr. Helman is a general partner of Greylock and
possess investment and voting power with respect to all such shares. Mr.
Helman disclaims beneficial ownership of the shares of common stock owned by
Greylock other than the shares attributable to his proportionate partnership
interest in that fund. See footnote (4) above. Mr. Helman's address is c/o
Greylock IX Limited Partnership, One Federal Street, Boston, Massachusetts
02110.
(17) Consists of 10,138 shares exercisable upon the exercise of options, 9,703
of which were granted pursuant to an NPD benefit plan and which give Mr.
Mortensen the right to purchase shares of our common stock held by NPD. Does
not include 15,631 shares of common stock issuable upon the exercise of
options not currently exercisable within 60 days of February 15, 1999.
(18) Consists of 350,620 shares of common stock, owned by Mr. Cobb, 43,556
shares of common stock owned by Mr. Cobb's wife, Madelyn Adams Cobb, and
108,889 shares of common stock owned by The Timothy Fitzgerald Stephenson
Cobb 1996 Children's Trust. Mr. Cobb may be deemed the beneficial owner of
the shares held by Madelyn Adams Cobb and the Cobb Trust. Mr. Cobb disclaims
beneficial ownership of the shares held by Madelyn Adams Cobb and the Cobb
Trust. Mr. Cobb has granted the underwriters an option to purchase up to
shares to cover over-allotments. If this option is exercised in full,
Mr. Cobb will beneficially own shares, or , or % of our common
stock after this offering.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of the offering and the filing of the amendment to our
certificate of incorporation referred to below, our authorized capital stock
will consist of shares of common stock, $.01 par value, and 5,000,000
shares of preferred stock, $.01 par value.
As of December 31, 1998, we had 13,093,514 shares of common stock
outstanding held by stockholders of record, and 41,446 shares of redeemable
preferred stock outstanding held by one stockholder of record. Upon the closing
of this offering, and after giving effect to the issuance of shares
of common stock in this offering, there will be shares of common
stock and no shares of preferred stock issued and outstanding. See "--Preferred
Stock."
COMMON STOCK
Subject to preferences that may be applicable to any preferred stock
outstanding at the time, holders of our common stock are entitled to receive
dividends at times and in amounts as the board may determine. The holders of our
common stock have one vote for each share they hold on all matters submitted to
a vote of the stockholders. The holders of a majority of the shares of common
stock voted can elect all of the directors nominated for election. The holders
of our common stock are not entitled to preemptive rights and our common stock
is not subject to conversion or redemption. Upon a liquidation, dissolution or
winding-up, we will distribute pro rata to the holders of our common stock our
remaining assets, after payment of liquidation preferences, if any, on any
outstanding shares of preferred stock and payment of claims of creditors. Each
outstanding share of our common stock is, and all shares of our common stock
being purchased in this offering will be, duly and validly issued, fully paid
and nonassessable.
There is currently no active trading market for our common stock.
Application will be made to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "MMXI." See "Risk Factors--There May Be
Volatility In Our Stock Price."
PREFERRED STOCK
Upon the closing of this offering, we will not have any shares of our
preferred stock outstanding. The 5,000,000 authorized shares of preferred stock
may by issued in one or more series without further stockholder action. The
board is authorized to determine the terms, limitations and relative rights and
preferences of the preferred stock, to establish series of preferred stock and
to determine the variations among series. If we issue preferred stock, it would
have priority over our common stock with respect to dividends and to other
distributions, including the distribution of assets upon liquidation. In
addition, we may be obligated to repurchase or redeem it. The board can issue
preferred stock without the approval of the holders of our common stock. The
holders of preferred stock may have voting and conversion rights, including
multiple voting rights, which could adversely affect the rights of the holders
of our common stock. We do not have any present plans to issue any shares of
preferred stock.
REDEEMABLE PREFERRED STOCK
As of the date of this prospectus, there are 41,446 shares of our redeemable
preferred stock issued and outstanding and held of record and beneficially by
NPD.
The shares of redeemable preferred stock are entitled to accrued cumulative
dividends at a rate of 7% yearly, compounded quarterly, and payable when and as
declared by the board. If there is a liquidation, dissolution or winding up, the
holders of our redeemable preferred stock are entitled to be paid $100.00 per
share plus any accrued and unpaid dividends on our redeemable preferred stock
out of our available assets, before any payment may be made to the holders of
our common stock.
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Each holder of a share of redeemable preferred stock is entitled to 100
votes for each share held at each meeting of our stockholders with respect to
any and all matters presented to our stockholders for their consideration. The
holders of the redeemable preferred stock and the holders of the common stock
vote together as a single class, except as provided by law.
We are required to redeem all outstanding shares of redeemable preferred
stock at a price equal to $100 per share plus all accrued and unpaid dividends
on each share if we close a public offering of at least $15 million.
WARRANTS
As of February 15, 1999, we had outstanding warrants to purchase an
aggregate of 897,538 shares of common stock at a weighted average exercise price
of $2.32. Of these, warrants to purchase 360,934 shares of our common stock will
expire upon this offering, unless exercised earlier. In addition, warrants to
purchase 551,270 shares of our common stock contain restrictions on transfer.
These warrants and any shares issued on their exercise may not be sold or
transferred unless the holder of the warrant first gives us and NPD the
opportunity to purchase the warrants or the underlying shares. Also, these
warrants or the underlying shares may not be transferred to any of our
competitors. These warrants contain anti-dilution provisions for stock splits
and other recapitalizations.
REGISTRATION RIGHTS
Under an agreement between us and certain of our securities holders,
13,038,186 shares of common stock, referred to as registrable securities, are
entitled to rights with respect to the registration of the registrable
securities under the Securities Act commencing 180 days after this offering. If
we receive from the holders of more than 25% of the registrable securities a
written request to effect a registration with respect to all or a part of the
registrable securities, we must use our best efforts to effect such a
registration. We are only obligated to effect one of these registrations. The
holders of the registrable securities may choose to sell their securities
through an underwriter. However, any underwriter may limit the number of
registrable securities proposed to be included in that registration.
When we are eligible to use a registration statement on Form S-3 to register
an offering of our securities, holders of more than 10% of the registrable
securities may request that we file a registration statement on Form S-3
covering all or a portion of the registrable securities held by them, provided
that the proceeds from that offering are at least $2.0 million.
In addition, the holders of registrable securities have piggyback
registration rights. If we propose to register any of our common stock under the
Securities Act, other than pursuant to the registration rights noted above, the
holders of registrable securities may require us to include all or a portion of
their securities in each registration. However, the managing underwriter, if
any, of that offering has the right to limit the number of registrable
securities proposed to be included in that registration.
We will bear all registration expenses incurred in connection with these
registrations. Each of the holders of registrable securities participating in
any registration would pay their own underwriting discounts, selling commissions
and stock transfer taxes applicable to the sale of their securities.
STOCKHOLDERS' AGREEMENT
We and some of our stockholders entered into a stockholders' agreement. The
stockholders agreed to vote their shares of our voting capital stock so as to
cause the board to consist of eight persons. They also agreed to vote for the
election of five directors designated by our stockholders who held our
securities immediately prior to the closing of our merger with RelevantKnowledge
and the election of three directors designated by our stockholders who held
securities of RelevantKnowledge immediately prior to the closing of that merger.
In addition, the stockholders' agreement provides that we cannot
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issue shares of any class of our capital stock or rights to acquire any shares
of our capital stock which issuance would decrease any party's outstanding
interest in the common stock, on a fully diluted basis, by greater than 5%,
without the approval of 75% of the board. The stockholders' agreement will
terminate upon the closing of this offering.
CO-SALE AGREEMENT
Media Metrix, NPD, The 1995 Scott Johnson Trust, The 1995 Stacey Johnson
Trust and some of our other stockholders have entered into a co-sale agreement
restricting their transfer of our common stock. If NPD, The 1995 Scott Johnson
Trust or The 1995 Stacey Johnson Trust, collectively, the founders, want to sell
any of their shares of common stock, the other founders and the stockholders
party to the co-sale agreement have the right to include their shares of common
stock in that sale. The restrictions on transfer do not apply to transfers to
any other founder, to Tod Johnson or to a charity or charitable organization.
The co-sale agreement terminates upon the closing of this offering.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Under Section 203 of the Delaware General Corporation Law, certain "business
combinations" between a Delaware corporation, whose stock generally is publicly
traded or held of record by more than 2,000 stockholders, and an "interested
stockholder" are prohibited for a three-year period following the date that such
stockholder became an interested stockholder, unless:
- the corporation has elected in its certificate of incorporation or bylaws
not to be governed by the Delaware anti-takeover law (we have not made
such an election);
- the business combination was approved by the board of the corporation
before the other party to the business combination became an interested
stockholder;
- upon consummation of the transaction that made it an interested
stockholder, the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the commencement of the
transaction (excluding voting stock owned by directors who are also
officers or held in employee stock plans in which the employees do not
have a right to determine confidentially whether to tender or vote stock
held by the plan); or
- the business combination was approved by the board and ratified by 66 2/3%
of the voting stock which the interested stockholder did not own.
The three-year prohibition does not apply to certain business combinations
proposed by an interested stockholder following the announcement or notification
of certain extraordinary transactions involving the corporation and a person who
had not been an interested stockholder during the previous three years or who
became an interested stockholder with the approval of a majority of the
corporation's directors. The term "business combination" is defined generally to
include mergers or consolidations between a Delaware corporation and an
interested stockholder, transactions with an interested stockholder involving
the assets or stock of the corporation or its majority-owned subsidiaries and
transactions which increase an interested stockholder's percentage ownership of
stock. The term "interested stockholder" is defined generally as a stockholder
who becomes beneficial owner of 15% or more of a Delaware corporation's voting
stock. Section 203 could have the effect of delaying, deferring or preventing a
change in control of Media Metrix.
In addition, provisions of our certificate of incorporation and bylaws which
will take effect upon the closing of this offering may have an anti-takeover
effect. They may delay, defer or prevent a tender offer or takeover attempt that
a stockholder might consider in its best interest, including those attempts that
might result in a premium over the market price for the shares held by our
stockholders. The following summarizes these provisions.
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<PAGE>
CLASSIFIED BOARD OF DIRECTORS
Our board is divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of our board will be
elected each year. These provisions, when coupled with the provision of our
certificate of incorporation authorizing the board to fill vacant directorships
or increase the size of the board, may deter a stockholder from removing
incumbent directors and simultaneously gaining control of the board.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS
Our bylaws provide that our stockholders may not take action by written
consent, but only at an annual or special meeting of stockholders. Our bylaws
further provide that special meetings of our stockholders may be called only by
the chairman of the board or a majority of the board.
SUPERMAJORITY VOTING PROVISIONS
Our certificate of incorporation provides that the affirmative vote of at
least 66 2/3% of our stockholders is required to amend the provisions of our
certificate and bylaws relating to the classification of the board, stockholder
action by written consent and the calling of special meetings.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. We may use these
shares for a variety of corporate purposes, including future public offerings to
raise additional capital, corporate acquisitions and employee benefit plans.
This could make it more difficult or discourage an attempt to obtain control of
us by means of a proxy contest, tender offer, merger or otherwise.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
We will enter into indemnification agreements with our current directors and
executive officers. These agreements and provisions of our certificate of
incorporation and bylaws may have the practical effect in some cases of
eliminating our stockholders' ability to collect monetary damages from our
directors. We believe that these contractual agreements and the provisions in
our certificate of incorporation and bylaws are necessary to attract and retain
qualified persons as directors and officers.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is .
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SHARES ELIGIBLE FOR FUTURE SALE
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options, in the public market
following this offering, the market price of our common stock could fall. These
sales also might make it more difficult for us to sell equity or equity-related
securities in the future and at a time and price that we deem appropriate.
Upon completion of this offering, we will have outstanding an aggregate of
shares of our common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all of the shares sold in this offering will be freely tradeable without
restriction or further registration under the Securities Act, unless such shares
are purchased by "affiliates" as that term is defined in Rule 144 under the
Securities Act. This leaves shares eligible for sale in the public market
as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ----------------------------------- ------------------------------------------------
<S> <C>
After the date of this prospectus.
After 180 days from the date of this prospectus
(subject, in some cases, to volume limitations).
At various times after 180 days from the date of
this prospectus.
</TABLE>
LOCK-UP AGREEMENTS
All of our officers and directors and substantially all of our stockholders
have signed lock-up agreements under which they agreed not to transfer or
dispose of, directly or indirectly, any shares of our common stock or any
securities convertible into or exercisable or exchangeable for shares of our
common stock, for a period of 180 days after the date of this prospectus.
Transfers or dispositions can be made sooner:
- with the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation;
- in the case of gifts or estate planning transfers where the donee signs a
lock-up agreement; or
- in the case of distributions to stockholders or affiliates of the
stockholders where the recipient signs a lock-up agreement.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of our common stock then outstanding, which
will equal approximately shares immediately after this offering; or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to that sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
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RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, Rule 144(k) shares may be sold immediately upon the
completion of this offering.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect, any
of our employees, consultants or advisors who purchases shares of our common
stock from us in connection with a compensatory stock or option plan or other
written agreement is eligible to resell those shares 90 days after the effective
date of this offering in reliance on Rule 144, but without compliance with some
of the restrictions, including the holding period, contained in Rule 144.
REGISTRATION RIGHTS
After this offering, the holders of 13,038,186 shares of our common stock,
or their transferees, will be entitled to certain rights with respect to the
registration of those shares under the Securities Act. See "Description of
Capital Stock--Registration Rights." After this registration, these shares of
our common stock become freely tradeable without restriction under the
Securities Act. These sales could have a material adverse effect on the trading
price of our common stock.
STOCK OPTIONS
Immediately after this offering, we intend to file a registration statement
under the Securities Act covering 1,837,542 shares of common stock reserved for
issuance under our 1998 Equity Incentive Plan and our earlier Stock Option Plan
and the shares reserved for issuance upon exercise of outstanding non-plan
options. As of February 15, 1999, options to purchase 1,028,476 shares of common
stock were issued and outstanding. Upon the expiration of the lock-up agreements
describe above, at least shares of common stock will be subject to vested
options, based on the number of options outstanding as of February 15, 1999.
This registration statement is expected to be filed and become effective as soon
as practicable after the effective date of this offering. Accordingly, shares of
our common stock registered under this registration statement will, subject to
vesting provisions and Rule 144 volume limitations applicable to our affiliates,
be available for sale in the open market immediately after the 180-day lock-up
agreements expire.
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UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
dated , 1999 the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation and BancBoston Robertson
Stephens Inc., have severally agreed to purchase from us the number of shares
opposite their names below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation................................
BancBoston Robertson Stephens Inc..................................................
Total Underwriters.............................................................
-----
-----
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of certain legal matters and to certain other
conditions. The underwriters are obligated to purchase and accept delivery of
all the shares, other than those shares covered by the over-allotment option
described below, if they purchase any of the shares.
The underwriters propose to initially offer some of the shares directly to
the public at the initial public offering price on the cover page of this
prospectus and some of the shares to certain dealers at the initial public
offering price less a concession not in excess of $ per share. The
underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share on sales to other dealers. After the initial
offering, the representatives may change the public offering price and these
concessions. The underwriters do not intend to confirm sales to any accounts
over which they exercise discretionary authority.
The following table shows the underwriting fees to be paid to the
underwriters by us and the selling stockholders in connection with this
offering. These amounts are shown assuming both no exercise and full exercise of
the underwriters' option to purchase additional shares of our common stock.
<TABLE>
<CAPTION>
PAID BY SELLING
PAID BY US STOCKHOLDERS
-------------------------- --------------------------
NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
<S> <C> <C> <C> <C>
Per share..................................................
Total......................................................
</TABLE>
We will pay the offering expenses, estimated to be $ .
We and the selling stockholders have granted to the underwriters an option,
exercisable for 30 days after the date of this prospectus, to purchase up to
additional shares at the initial public offering price minus the
underwriting fees. The underwriters may exercise this option solely to cover
over-allotments, if any, made in connection with this offering. To the extent
that the underwriters exercise this option, each underwriter will become
obligated, subject to certain conditions, to purchase a number of additional
shares approximately proportionate to that underwriter's initial purchase
committment.
We and the selling stockholders have agreed to indemnify the underwriters
against certain civil liabilities, including liabilities under the Securities
Act, or to contribute to payments that the underwriters may be required to make
in respect any of those liabilities.
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We, the executive officers and directors, and substantially all of our
stockholders have agreed that, for a period of 180 days from the date of this
prospectus, they will not, without the prior written consent of Donaldson,
Lufkin & Jenrette: (1) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of our common stock or any securities convertible into or
exercisable or exchangeable for our common stock; or (2) enter into any swap or
other arrangement that transfer all or a portion of the economic consequences
associated with the ownership of any common stock, regardless of whether any of
the transactions described in clause (1) or (2) is to be settled by the delivery
of common stock, or such other securities, in cash or otherwise. Our
stockholders may, however, gift or transfer shares so long as the donee or
transferee agrees to be bound by these restrictions. In addition, during this
period, we have agreed not to file any registration statement with respect to,
and each of our executive officers and directors and a significant majority of
our stockholders have agreed not to make any demand for, or exercise any right
with respect to, the registration of any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock
without the prior written consent of Donaldson, Lufkin & Jenrette.
Prior to this offering, there was no established trading market for our
common stock. The initial public offering price for the common stock in this
offering will be determined by negotiation among us and the representatives of
the underwriters. The factors to be considered in determining the initial public
offering price include the history of and the prospects for the industry in
which we compete, the ability of our management, our past and present
operations, our prospects for future earnings, the general condition of the
securities markets at the time of this offering and the recent market prices of
securities of generally comparable companies.
The Company has applied for quotation of our common stock on the Nasdaq
National Market under the symbol "MMXI."
Other than in the United States, no action has been taken by us, the selling
stockholders or the underwriters that would permit a public offering of the
shares of our common stock included in this offering in any jurisdiction where
action for that purpose is required. The shares included in this offering may no
be offered or sold, directly or indirectly, nor may this prospectus or any other
offering material or advertisement in connection with the offer and sale of any
these shares be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of that jurisdiction. Persons who receive this prospectus are
advised to inform themselves about and to observe any restrictions relating to
the offering of our common stock and the distribution of this prospectus. This
prospectus is not an offer to sell or a solicitation of an offer to buy any
shares of our common stock included in this offering in any jurisdiction where
that would not be permitted or legal.
In connection with this offering, certain underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of our
common stock. Specifically, the underwriters may overallot this offering,
creating a syndicate short position. In addition, the underwriters may bid for
and purchase shares of our common stock in the open market to cover syndicate
short positions or to stabilize the price of our common stock. These activities
may stabilize or maintain the market price of our common stock above independent
market levels. The underwriters are not required to engage in these activities
and may end any of these activities at any time.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Media Metrix by Fulbright & Jaworski L.L.P., New York, New York.
Certain legal matters in connection with the
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offering will be passed upon for the underwriters by Brobeck, Phleger & Harrison
LLP, New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1998 and 1997, and for each of the three years in the
period ended December 31, 1998, as set forth in their report. We have included
our financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
The balance sheets as of October 31, 1998 and December 31, 1997 and the
statements of operations, shareholders' equity and cash flows for the ten months
ended October 31, 1998 and for the year ended December 31, 1997, of
RelevantKnowledge Inc. included in this prospectus, have been included herein in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the commission a registration statement on Form S-1 with
respect to the common stock being sold in this offering. This prospectus
constitutes a part of that registration statement. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules to the registration statement, because some parts have
been omitted in accordance with rules and regulations of the commission. For
further information about us and our common stock being sold in this offering,
please refer to the registration statement and the exhibits and schedules filed
as a part of the registration statement. Statements contained in this prospectus
as to the contents of any contract, agreement or any other document referred to
are not necessarily complete; reference is made in each case to the copy of the
contract or document filed as an exhibit to the registration statement. Each
statement is qualified in all respects by reference to the exhibit. A copy of
the registration statement, including exhibits and schedules thereto, may be
inspected without charge and obtained at prescribed rates at the public
reference section of the commission at its principal offices, located at 450
Fifth Street, N.W., Washington, D.C. 20549, and may be inspected without charge
at the regional offices of the commission located at Seven World Trade Center,
13th Floor, New York, New York 10048, and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. The registration statement,
including the exhibits and schedules thereto, is also available at the
commission's site on the Web at http://www.sec.gov.
We intend to furnish our stockholders annual reports containing financial
statements audited by our independent auditors and quarterly reports containing
unaudited financial information.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
MEDIA METRIX, INC.
Report of Independent Auditors............................................................................. F-2
Balance Sheets at December 31, 1997 and 1998............................................................... F-3
Statements of Operations for the years ended December 31, 1996, 1997 and 1998.............................. F-4
Statements of Stockholders' (Deficit) Equity for the years ended December 31, 1996, 1997 and 1998.......... F-5
Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998.............................. F-6
Notes to Financial Statements.............................................................................. F-7
RELEVANTKNOWLEDGE, INC.
Report of Independent Accountants.......................................................................... F-17
Balance Sheets at December 31, 1997 and October 31, 1998................................................... F-18
Statements of Operations for the year ended December 31, 1997 and the ten months ended October 31, 1998.... F-19
Statements of Shareholders' Equity for the year ended December 31, 1997 and the ten months ended October
31, 1998................................................................................................. F-20
Statements of Cash Flows for the period from the year ended December 31, 1997 and the ten months ended
October 31, 1998......................................................................................... F-21
Notes to Financial Statements.............................................................................. F-22
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
Statement of Operations for the year ended December 31, 1998............................................... F-29
Notes to Unaudited Pro Forma Statement of Operations....................................................... F-30
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Media Metrix, Inc.
We have audited the accompanying balance sheets of Media Metrix, Inc. as of
December 31, 1998 and 1997, and the related statements of operations,
stockholders' (deficit) equity, and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Media Metrix, Inc. at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
February 22, 1999, except
for the first paragraph of
Note 1--Organization
as to which the
date is , 1999
------------------------
The foregoing report is in the form that will be signed upon the completion
of the restatement of capital accounts described in the first paragraph of Note
1--Organization to the financial statements.
/s/ Ernst & Young LLP
New York, New York
February 24, 1999
F-2
<PAGE>
MEDIA METRIX, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
<S> <C> <C>
1997 1998
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 1,869,013 $ 8,012,020
Receivables:
Trade, less allowance for doubtful accounts of $100,000 in 1997 and $220,000 in
1998......................................................................... 520,886 1,119,905
Expenditures billable to clients............................................... 219,877 250,432
------------- --------------
Total receivables................................................................ 740,763 1,370,337
Prepaid expenses and other current assets........................................ 38,063 207,333
------------- --------------
Total current assets............................................................... 2,647,839 9,589,690
Property and equipment, at cost, net of accumulated depreciation and amortization
of $17,991 in 1997 and $75,930 in 1998........................................... 116,834 649,790
Intangibles acquired, net of accumulated amortization of $479,000 in 1998.......... -- 5,736,766
Other assets....................................................................... 22,280 83,774
------------- --------------
Total assets....................................................................... $ 2,786,953 $ 16,060,020
------------- --------------
------------- --------------
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable and accrued liabilities......................................... $ 881,322 $ 2,308,323
Due to The NPD Group, Inc........................................................ 1,284,315 4,705,825
Advance billings to clients...................................................... 529,220 1,391,275
Current portion of long-term debt................................................ -- 127,179
------------- --------------
Total current liabilities.......................................................... 2,694,857 8,532,602
Long-term debt..................................................................... -- 225,353
Redeemable Preferred Stock--$1 par value; 41,446 shares authorized, issued and
outstanding; liquidation and redemption value--$4,679,760 in 1998................ 4,366,022 4,679,760
Series A Convertible Preferred Stock--$1 par value; 495,603 shares authorized,
issued and outstanding in 1997................................................... 3,999,991 --
Commitments and contingencies
Stockholders' (deficit) equity:
Preferred stock, $.01 par value--shares authorized: 4,462,951 in 1997 and
4,958,554 in 1998, none issued and outstanding................................. -- --
Common stock, $.01 par value--15,000,000 shares authorized; shares issued and
outstanding--6,523,330 in 1997 and 13,093,514 in 1998.......................... 65,233 130,935
Additional paid-in capital....................................................... 281,656 16,940,256
Common stock issuable............................................................ -- 1,999,831
Accumulated deficit.............................................................. (8,620,806) (16,073,092)
Deferred compensation............................................................ -- (375,625)
------------- --------------
Total stockholders' (deficit) equity............................................... (8,273,917) 2,622,305
------------- --------------
Total liabilities and stockholders' (deficit) equity............................... $ 2,786,953 $ 16,060,020
------------- --------------
------------- --------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
MEDIA METRIX, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1996 1997 1998
Revenues............................................................. $ 1,032,629 $ 3,187,653 $ 6,330,485
Costs of revenues.................................................... 1,743,831 3,463,058 4,120,569
------------- ------------- -------------
Gross profit (loss).................................................. (711,202) (275,405) 2,209,916
Operating expenses:
Research and development........................................... 587,731 865,498 1,382,375
Sales and marketing................................................ 928,993 2,021,409 2,888,195
General and administrative......................................... 1,147,768 1,516,396 3,064,105
Amortization of intangibles........................................ -- -- 479,000
Acquired in-process research and development....................... -- -- 1,600,000
------------- ------------- -------------
Total operating expenses............................................. 2,664,492 4,403,303 9,413,675
------------- ------------- -------------
Loss from operations................................................. (3,375,694) (4,678,708) (7,203,759)
Interest income, net of interest expense of $11,374 in 1998.......... -- 94,760 65,211
------------- ------------- -------------
Net loss............................................................. (3,375,694) (4,583,948) (7,138,548)
Preferred stock dividends............................................ -- (289,564) (313,738)
------------- ------------- -------------
Net loss applicable to common stockholders........................... $ (3,375,694) $ (4,873,512) $ (7,452,286)
------------- ------------- -------------
------------- ------------- -------------
Basic and diluted net loss per share applicable to common
stockholders....................................................... $ (.52) $ (.75) $ (.98)
------------- ------------- -------------
------------- ------------- -------------
Shares used in the calculation of basic and diluted net loss per
share applicable to common stockholders............................ 6,523,330 6,523,330 7,617,621
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
MEDIA METRIX, INC.
STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
OWNER'S/ COMMON STOCK ADDITIONAL COMMON
PARTNERS' --------------------- PAID-IN STOCK ACCUMULATED DEFERRED
CAPITAL SHARES AMOUNT CAPITAL ISSUABLE DEFICIT COMPENSATION
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996,
representing accumulated
development costs
contributed.................. $ 371,600 -- $ -- $ -- $ -- $ (371,600) $ --
Additional contributions by
partners, including $573,000
of accumulated development
costs contributed............ 898,000 -- -- -- -- -- --
Net loss....................... -- -- -- -- -- (3,375,694) --
----------- ---------- --------- ----------- ---------- ------------ -------------
Balance at December 31, 1996... 1,269,600 -- -- -- -- (3,747,294) --
Purchase of partnership
interest..................... 3,200,000 -- -- -- -- -- --
Exchange of partners' interest
for 6,522,893 shares of
common stock and 9,446 shares
of Redeemable Preferred
Stock........................ (4,469,600) 6,522,893 65,229 259,771 -- -- --
Contribution of amounts owed to
The NPD Group, Inc........... -- -- -- 380,977 -- -- --
Sale of common stock........... -- 437 4 96 -- -- --
Costs incurred in connection
with issuance of Series A
Convertible Preferred Stock.. -- -- -- (359,188) -- -- --
Payment of Redeemable Preferred
Stock dividends.............. -- -- -- -- -- (68,142) --
Accrual of Redeemable Preferred
Stock dividends.............. -- -- -- -- -- (221,422) --
Net loss....................... -- -- -- -- -- (4,583,948) --
----------- ---------- --------- ----------- ---------- ------------ -------------
Balance at December 31, 1997... 6,523,330 65,233 281,656 -- (8,620,806) --
Conversion of Series A
Convertible Preferred Stock.. -- 2,155,176 21,552 3,978,439 -- -- --
Conversion of Series B
Convertible Preferred Stock.. -- 520,590 5,206 1,494,794 -- -- --
Issuance of common stock in
connection with
acquisition.................. -- 3,885,531 38,855 10,461,145 -- -- --
Exercise of warrants........... -- 8,887 89 197 -- -- --
Sale of common stock--194,380
shares issuable.............. -- -- -- -- 1,999,831 -- --
Employee stock options......... -- -- -- 724,025 -- -- (724,025)
Amortization of deferred
compensation................. -- -- -- -- -- -- 348,400
Accrual of Redeemable Preferred
Stock dividends.............. -- -- -- -- -- (313,738) --
Net loss....................... -- -- -- -- -- (7,138,548) --
----------- ---------- --------- ----------- ---------- ------------ -------------
Balance at December 31, 1998... $ -- 13,093,514 $ 130,935 $16,940,256 $1,999,831 $(16,073,092) $ (375,625)
----------- ---------- --------- ----------- ---------- ------------ -------------
----------- ---------- --------- ----------- ---------- ------------ -------------
<CAPTION>
TOTAL
(DEFICIT)
EQUITY
<S> <C>
Balance at January 1, 1996,
representing accumulated
development costs
contributed.................. $ --
Additional contributions by
partners, including $573,000
of accumulated development
costs contributed............ 898,000
Net loss....................... (3,375,694)
--------------
Balance at December 31, 1996... (2,477,694)
Purchase of partnership
interest..................... 3,200,000
Exchange of partners' interest
for 6,522,893 shares of
common stock and 9,446 shares
of Redeemable Preferred
Stock........................ (4,144,600)
Contribution of amounts owed to
The NPD Group, Inc........... 380,977
Sale of common stock........... 100
Costs incurred in connection
with issuance of Series A
Convertible Preferred Stock.. (359,188)
Payment of Redeemable Preferred
Stock dividends.............. (68,142)
Accrual of Redeemable Preferred
Stock dividends.............. (221,422)
Net loss....................... (4,583,948)
--------------
Balance at December 31, 1997... (8,273,917)
Conversion of Series A
Convertible Preferred Stock.. 3,999,991
Conversion of Series B
Convertible Preferred Stock.. 1,500,000
Issuance of common stock in
connection with
acquisition.................. 10,500,000
Exercise of warrants........... 286
Sale of common stock--194,380
shares issuable.............. 1,999,831
Employee stock options......... --
Amortization of deferred
compensation................. 348,400
Accrual of Redeemable Preferred
Stock dividends.............. (313,738)
Net loss....................... (7,138,548)
--------------
Balance at December 31, 1998... $ 2,622,305
--------------
--------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
MEDIA METRIX, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1996 1997 1998
OPERATING ACTIVITIES
Net loss............................................................. $ (3,375,694) $ (4,583,948) $ (7,138,548)
Adjustments to reconcile net loss to net cash used in operating
activities:
Contributed development costs...................................... 573,000 -- --
Charge for acquired in-process research and development............ -- -- 1,600,000
Loss on disposal of equipment...................................... -- -- 13,174
Provision for bad debts............................................ -- 100,000 160,600
Depreciation and amortization of property and equipment............ -- 17,991 65,969
Amortization of intangibles........................................ -- -- 479,000
Amortization of deferred compensation.............................. -- -- 348,400
Changes in operating assets and liabilities:
Receivables...................................................... (629,704) (211,059) (427,652)
Prepaid expenses and other current assets........................ -- (38,063) (13,625)
Other assets..................................................... -- (22,280) 28,976
Accounts payable and accrued liabilities......................... 88,182 793,140 657,737
Advance billings to clients...................................... 220,020 309,200 393,581
Due to The NPD Group, Inc........................................ 2,782,351 (1,117,059) 3,421,510
------------- ------------- -------------
Net cash used in operating activities................................ (341,845) (4,752,078) (410,878)
INVESTING ACTIVITIES
Cash acquired........................................................ -- -- 3,185,112
Additions to property and equipment.................................. -- (134,825) (117,489)
Proceeds from the sale of fixed assets............................... -- -- 5,300
------------- ------------- -------------
Net cash (used in) provided by investing activities.................. -- (134,825) 3,072,923
------------- ------------- -------------
FINANCING ACTIVITIES
Proceeds from the exercise of warrants to purchase Series B
Convertible Preferred Stock........................................ -- -- 1,500,000
Repayments on long-term debt......................................... -- -- (19,155)
Proceeds from sale of Series A Convertible Preferred Stock........... -- 3,999,991 --
Payment of costs related to sale of Series A Convertible Preferred
Stock.............................................................. -- (359,188) --
Partner contributions................................................ 325,000 3,200,000 --
Proceeds from (repayment of) loan payable to affiliates.............. 600,000 (600,000) --
Proceeds from exercise of warrants................................... -- -- 286
Payment of dividend.................................................. -- (68,142) --
Sale of common stock................................................. -- 100 1,999,831
------------- ------------- -------------
Net cash provided by financing activities............................ 925,000 6,172,761 3,480,962
------------- ------------- -------------
Net increase in cash and cash equivalents............................ 583,155 1,285,858 6,143,007
Cash and cash equivalents at beginning of year....................... -- 583,155 1,869,013
------------- ------------- -------------
Cash and cash equivalents at end of year............................. $ 583,155 $ 1,869,013 $ 8,012,020
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL INFORMATION
Interest paid........................................................ $ -- $ -- $ 11,374
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
MEDIA METRIX, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
DESCRIPTION OF BUSINESS
Media Metrix, Inc., a Delaware Corporation ("Media Metrix"), provides
Internet audience measurement products and services to customers including media
companies, Internet advertisers and advertising agencies, technology companies
and financial institutions.
ORGANIZATION
On October 15, 1998, Media Metrix stockholders approved a 2.96873-for-one
split of the outstanding shares of common stock which was effectuated as a stock
dividend, and on November 2, 1998, Media Metrix filed an amended and restated
certificate of incorporation increasing the number of authorized shares of
common stock from 10,000,000 to 15,000,000. In addition, on , 1999, the
stockholders approved a 1.4648-for-one split of the outstanding shares of common
stock. Retroactive effect has been given to these stock splits. All common
share, option and warrant data has been restated to reflect the stock splits.
Media Metrix's business was originally conducted as a division within The
NPD Group, Inc. ("NPD") until March 1996, when PC Meter, L.P., a Delaware
limited partnership, ("PC Meter") (Media Metrix's predecessor) was formed to
conduct Media Metrix's business.
On April 14, 1997, PC Meter was merged into Media Metrix. NPD originally
held 100,000 Class A Limited Partnership Units and 79,000 Class B Limited
Partnership Units of PC Meter. Two family trusts previously established for the
benefit of heirs to the sole shareholder of NPD (the "Family Trusts") each held
19,323.5 Class B Limited Partnership Units. In addition, PC Meter was indebted
to NPD in the amount of $3,951,029. On April 14, 1997, PC Meter was merged with
and into Media Metrix. Immediately prior to the merger, NPD purchased additional
Class A Limited Partnership Units for a purchase price of $3,200,000. Pursuant
to the terms of the Agreement and Plan of Merger between Media Metrix and PC
Meter, the Class A Limited Partnership Units were exchanged for a total of
41,446 shares of Media Metrix Redeemable Preferred Stock. The Class B Limited
Partnership Units were exchanged for a total of 6,522,893 shares of Media Metrix
common stock. Post-merger, Media Metrix repaid the amounts owed to NPD by PC
Meter. Of the amounts owed NPD, $3,570,052 was paid in cash and $380,977 was
forgiven.
The above transactions were accounted for in a manner similar to that of a
"pooling of interests" in that the assets and liabilities and related revenues
and expenses of PC Meter have been reflected in the accompanying financial
statements at their historical book values.
2. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with a maturity date
of three months or less when purchased. Substantially all cash and cash
equivalents are held in one financial institution at December 31, 1998 and 1997.
Media Metrix's cash is exposed to risk to the extent the balance of the cash
accounts exceeds federally insured limits.
F-7
<PAGE>
MEDIA METRIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the financial statements and accompanying notes. Actual
results could differ from those estimates.
REVENUE RECOGNITION
Revenues for recurring services are recognized over the term of the related
contract as services are provided. Revenues for nonrecurring services are
recognized in the period in which the product is delivered. Billings rendered in
advance of services being performed are recorded as "Advance billings to
clients" in the accompanying balance sheet.
PANEL COSTS
Costs of establishing and maintaining a panel (a group of consumers who
furnish marketing data) are expensed in the year incurred and are included in
costs of revenues.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs primarily consist of costs attributable to
the development of new products and are expensed as incurred.
STOCK-BASED COMPENSATION
Media Metrix accounts for its stock-based employee compensation agreements
in accordance with the provisions of Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and complies with the disclosure
provisions of Statement of Financial Accounting Standards No. 123, ACCOUNTING
FOR STOCK BASED COMPENSATION ("SFAS 123").
CONCENTRATIONS OF CREDIT RISK
Media Metrix's policy is to review a customer's financial condition prior to
extending credit and, generally, collateral is not required. Credit losses are
provided for in the financial statements and have been within management's
expectations. Under the terms of certain contracts with its customers, Media
Metrix receives partial payments as the services are provided. One customer
accounted for approximately 19% of revenues for the year ended December 31,
1997.
DEPRECIATION AND AMORTIZATION
Depreciation is provided over the estimated useful lives (3 to 7 years) of
the assets under the straight-line method. Leasehold improvements are amortized
on a straight-line basis over the shorter of the lease term or the estimated
useful life of the asset.
Intangibles acquired are being amortized by the straight-line method over
one to three years from the date of acquisition (see Note 4).
F-8
<PAGE>
MEDIA METRIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
Media Metrix periodically reviews the carrying value of its long-lived
assets in determining the ultimate recoverability of their unamortized values
using future undiscounted cash flow analyses. Such a review has been performed
by management and does not indicate an impairment of such assets.
3. BASIC AND DILUTED NET LOSS PER SHARE
Media Metrix computes net loss per share in accordance with the provisions
of Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE
("SFAS 128"), and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the
provisions of SFAS 128 and SAB 98, basic and diluted net loss per share
applicable to common stockholders is computed by dividing the net loss
applicable to common stockholders for the period by the weighted average number
of common shares outstanding for the period. The calculation of diluted net loss
per share excludes shares of common stock issuable upon exercise of employee
stock options and warrants (see Note 10), and the conversion of preferred stock
(see Note 8) as the effect of such exercises would be antidilutive.
The following sets forth the computation of basic and diluted net loss per
share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1996 1997 1998
Numerator:
Net loss....................................... $ (3,375,694) $ (4,583,948) $ (7,138,548)
Preferred stock dividends...................... -- (289,564) (313,738)
------------- ------------- -------------
Net loss applicable to common stockholders..... $ (3,375,694) $ (4,873,512) $ (7,452,886)
------------- ------------- -------------
------------- ------------- -------------
Denominator for basic and diluted loss per
share--weighted average shares................. 6,523,330 6,523,330 7,617,621
------------- ------------- -------------
------------- ------------- -------------
Basic and diluted loss per share applicable to
common stockholders............................ $ (.52) $ (.75) $ (.98)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
4. ACQUISITION
On November 5, 1998, Media Metrix and an unrelated entity,
RelevantKnowledge, Inc. ("RKI") entered into an agreement and plan of
reorganization whereby RKI was merged into Media Metrix. The stockholders of RKI
exchanged all outstanding preferred and common stock of RKI for 3,885,531 newly
issued shares of common stock in Media Metrix. The fair value of the Media
Metrix common stock issued to the previous stockholders and option and warrant
holders of RKI is approximately $10,500,000. The purchase price was allocated as
follows: (i) net operating assets acquired--$3,382,000, including cash of
$3,185,000, (ii) acquired in-process research and development--$1,600,000, (iii)
debt--$372,000, and (iv) intangibles--$6,216,000, including related costs and
expenses of approximately $326,000.
RKI had issued warrants to acquire shares of its common stock in connection
with prior sales of preferred and common stock and convertible secured
promissory notes. Such warrants were exchanged for warrants to purchase 360,930
shares of Media Metrix stock and are immediately exercisable as
F-9
<PAGE>
MEDIA METRIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. ACQUISITION (CONTINUED)
follows: 266,658 at $0.03 per share (8,887 of which have been exercised), 67,097
at $6.43 per share, 12,055 at $0.19 per share, 7,778 at $2.57 per share and
7,342 at $5.14 per share. The warrants expire between April 2002 and May 2008.
In addition, RKI had issued options to purchase shares of its common stock to
its employees pursuant to a stock option plan. Such options were exchanged for
options to purchase 46,775 shares of Media Metrix common stock at an exercise
price of $2.39 per share. All options are immediately exercisable and expire
from 2006 to 2008.
Acquired in-process research and development represents the value attributed
to three technologies in development using the discounted value (using a 40%
discount rate) of the expected cash flow streams attributed to those items.
Adjustments, were made to the expected cash flow streams to incorporate
obsolescence of the technologies, the risk of similar technologies emerging in
the marketplace, and other factors that may reduce the value realized from the
in-process technologies. The three technologies relate to a data warehousing
application (valued at $800,000), a panel management tool (valued at $770,000),
and an automated tracking system (valued at $30,000). As of the acquisition
date, the aforementioned technologies are 25% to 50% complete and are expected
to be completed in 1999.
The estimates used by Media Metrix in valuing in-process research and
development were based on assumptions management believes to be reasonable but
which are inherently uncertain and unpredictable. Media Metrix's assumptions may
be incomplete or inaccurate, and no assurance can be given that unanticipated
events and circumstances will not occur. Accordingly, actual results may vary
from projected results.
The above acquisition has been accounted for using the purchase method of
accounting and the operations of RKI have been included in the accompanying
financial statements from the date of acquisition.
The following table reflects unaudited pro forma results of operations of
Media Metrix and RKI on the basis that the acquisition had taken place at the
beginning of the year for each of the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
<S> <C> <C>
1997 1998
Revenues...................................................... $ 3,883,000 $ 8,145,000
-------------- --------------
-------------- --------------
Net loss...................................................... $ (14,397,000) $ (15,877,000)
-------------- --------------
-------------- --------------
Net loss applicable to common stockholders.................... $ (14,686,000) $ (16,191,000)
-------------- --------------
-------------- --------------
Basic and diluted net loss per share applicable to common
stockholders................................................ $ (1.41) $ (1.49)
-------------- --------------
-------------- --------------
Shares used in the calculation of basic and diluted net loss
per share applicable to common stockholders................. 10,408,861 10,855,564
-------------- --------------
-------------- --------------
</TABLE>
In management's opinion, the unaudited pro forma results of operations are
not indicative of the actual results that would have occurred had the
acquisition been consummated on January 1, 1997 or on January 1, 1998 or of
future operations of the combined companies under the management of Media
Metrix.
F-10
<PAGE>
MEDIA METRIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. RELATED PARTY TRANSACTIONS
Effective April 1, 1996 and as amended on September 30, 1998, NPD and Media
Metrix entered into a Management Services Agreement whereby NPD, among other
services, provides Media Metrix with computer processing capacity and certain
administrative functions. As compensation for the services, Media Metrix pays
NPD, on a monthly basis, an amount equal to (a) all expenses reasonably incurred
by NPD in performance of its duties under this agreement and (b) 105% of NPD's
overhead allocable to Media Metrix, as defined. The agreement may be terminated
by either party upon 90 days notice, provided NPD may not terminate prior to
March 31, 2002. Such charges pursuant to this agreement during the years ended
December 31, 1996, 1997 and 1998 amounted to approximately $3,568,000,
$5,831,000 and $6,023,000, respectively. At December 31, 1997 and 1998, Media
Metrix owed approximately $1,284,000 and $4,706,000, respectively, to NPD for
such services. During the years ended December 31, 1996, 1997 and 1998, weighted
average amounts owed by Media Metrix to NPD were approximately $1,546,000,
$1,492,000 and $2,565,000, respectively. Such amounts are non-interest bearing.
Media Metrix has entered into a Services Agreement with NPD as of September
30, 1998. Media Metrix has granted NPD access to its databases for any business
purpose of NPD which is not in direct competition with that of Media Metrix.
Media Metrix has also granted NPD a non-exclusive license to use certain
computer software owned by Media Metrix. Under the terms of the Services
Agreement, Media Metrix will receive a monthly fee of $2,500 plus expenses. The
Services Agreement is terminable by either party with 120 days notice.
Media Metrix has entered into a License Agreement with NPD dated as of
November 5, 1998. NPD has granted to Media Metrix an exclusive, non-transferable
worldwide license to use certain NPD software. The fee is $11,000 per month
payable quarterly.
In December 1996, Media Metrix entered into a short-term loan agreement with
NPD to borrow $600,000 to fund operations. In January 1997, Media Metrix repaid
the entire loan.
6. LONG-TERM DEBT
In connection with the RKI acquisition (see Note 4), Media Metrix assumed
bank borrowings of approximately $372,000. The credit agreement provides for
borrowings up to $1,000,000. The balance outstanding at December 31, 1998 was
$352,532. The note bears interest at a rate of 20.27% per annum and is payable
in monthly principal and interest payments of $15,191.
F-11
<PAGE>
MEDIA METRIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
Annual maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 127,179
2000.............................................................. 152,955
2001.............................................................. 72,398
---------
$ 352,532
---------
---------
</TABLE>
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 1997 and 1998
consist of:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Trade accounts payable.............................................. $ 359,000 $ 1,079,000
Commissions and bonuses............................................. 113,000 660,000
Panel costs......................................................... 128,000 57,000
Other............................................................... 281,000 512,000
---------- ------------
$ 881,000 $ 2,308,000
---------- ------------
---------- ------------
</TABLE>
F-12
<PAGE>
MEDIA METRIX, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
8. PREFERRED STOCKS
On April 14, 1997, Media Metrix issued: (i) 495,603 shares of its Series A
Convertible Preferred Stock ("Series A") and (ii) warrants to purchase 159,640
shares of its Series B Convertible Preferred Stock ("Series B") at an exercise
price of $12.53 per share through October 14, 1999 for proceeds of $3,999,991
pursuant to a private placement to three investors. Media Metrix incurred
approximately $359,000 of costs related to this private placement and issued an
investment advisor warrants to purchase 377,642 shares of Media Metrix's common
stock at an exercise price of $2.88 per share through October 14, 1999. The
value of such warrants was nominal.
Immediately prior to the RKI acquisition (see Note 4), the holders of the
Series A converted all issued and outstanding shares into 2,155,176 shares of
Media Metrix common stock. In addition, the holders of warrants to purchase
119,714 shares of Series B, exercised such warrants and immediately converted
the underlying Series B into 520,590 shares of Media Metrix common stock. The
remaining 39,926 warrants to purchase Series B were canceled and exchanged for
warrants to purchase 173,629 shares of Media Metrix common stock at an exercise
price of $2.88 per share. Media Metrix amended and restated its certificate of
incorporation to cancel the Series A and Series B. Accordingly, at December 31,
1998, Media Metrix has 5,000,000 of authorized shares of undesignated preferred
stock of which 41,446 has been designated to the Redeemable Preferred Stock.
NPD owns 41,446 shares or 100% of the authorized, issued and outstanding
shares of Media Metrix's Redeemable Preferred Stock.
The principal terms of the Redeemable Preferred Stock are as follows:
- DIVIDENDS
The holder of the Redeemable Preferred Stock is entitled to receive
dividends at 7% per annum and shall accrue from the date of issuance
whether or not declared. During April 1997, Media Metrix paid the holder
of the Redeemable Preferred Stock dividends of approximately $68,000
representing amounts accrued through April 1997. Cumulative but unpaid
dividends on Redeemable Preferred Stock through December 31, 1998 are
approximately $535,000.
- LIQUIDATION PREFERENCE
In the event of liquidation of Media Metrix, the holder of the Redeemable
Preferred Stock is entitled to receive an amount equal to $100 per share
($4,144,600) plus any accrued but unpaid dividends.
- REDEMPTION
Upon the completion of a public offering of Media Metrix's common stock at
a price per share of at least $3.45 and gross proceeds of at least
$15,000,000 or certain other specified events as defined, Media Metrix is
required to purchase the outstanding shares of Redeemable Preferred Stock
at a price of $100 per share plus all accrued and unpaid dividends.
- VOTING RIGHTS
The holder of the Redeemable Preferred Stock is entitled to 100 votes for
each share held at any meeting of the stockholders of Media Metrix.
F-13
<PAGE>
MEDIA METRIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES
Since PC Meter was a limited partnership, no provision or benefit for
Federal or state income taxes was provided in the financial statements but the
income or loss was allocated directly to its partners. Beginning on April 14,
1997 when PC Meter was merged into Media Metrix, Media Metrix adopted the
provisions of Statement of Financial Accounting Standards No. 109, ACCOUNTING
FOR INCOME TAXES, in accounting for its income taxes. Accordingly, deferred tax
assets and liabilities are recognized for future tax consequences attributable
to differences between financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered
or settled. Significant components of Media Metrix's deferred tax assets are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1997 1998
Deferred tax assets:
Net operating loss carryforwards.............................. $ 900,000 $ 6,400,000
Amounts payable to related party.............................. 437,000 1,882,000
Accounts receivable reserves.................................. 34,000 88,000
------------- -------------
Total deferred tax assets....................................... 1,371,000 8,370,000
Valuation allowance for deferred tax assets..................... (1,371,000) (8,370,000)
------------- -------------
Net deferred taxes.............................................. $ -- $ --
------------- -------------
------------- -------------
</TABLE>
At April 14, 1997, Media Metrix did not have any deferred tax assets or
liabilities and, accordingly, a valuation allowance for deferred tax assets was
not required. At the time of the RKI acquisition, RKI had deferred tax assets of
approximately $4,329,000 with an equal valuation allowance.
As a result of losses from April 14, 1997 through December 31, 1998, Media
Metrix has available net operating loss carryforwards ("NOLs") of approximately
$16,000,000 for Federal income tax purposes that expire in 2012 and 2013.
Included in such amount are RKI pre-acquisition NOLs of approximately
$11,129,000 which expire through 2013. As a result of the RKI acquisition, under
Section 382 of the Internal Revenue Code, utilization of such NOLs will be
limited to approximately $600,000 per year over the next fifteen years. Future
benefits, if any, from the RKI NOLs would first reduce the intangibles acquired
and then income tax expense.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the period in
which the NOLs can be utilized and the temporary differences become deductible.
Since Media Metrix has incurred losses since inception, Media Metrix has
established a valuation allowance for deferred tax assets at December 31, 1998.
10. STOCK OPTIONS
In November 1998, Media Metrix adopted the 1998 Equity Incentive Plan (the
"1998 Plan"). Under the 1998 Plan, Media Metrix may award incentive and other
non-statutory stock options, stock appreciation rights, restricted stock and
performance stock units and other stock units which are valued by reference to
the value of the common stock. Media Metrix also maintains the Media Metrix
Stock
F-14
<PAGE>
MEDIA METRIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTIONS (CONTINUED)
Option Plan ("Media Metrix Plan") which provides for the award of up to 519,222
shares of common stock in the form of incentive stock options and non-statutory
stock options. In February 1999, the Board of Directors, subject to stockholder
approval, adopted an amendment to increase the number of shares under the 1998
Plan from 732,400 to 1,318,320.
In October 1998, Media Metrix changed the provisions of certain of its
outstanding stock options which resulted in a new measurement date. Accordingly,
Media Metrix established deferred compensation of approximately $724,000 as a
separate component of stockholders' equity and recorded compensation expense of
approximately $348,000 during the year ended December 31, 1998.
The following table summarizes activity in stock options:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1997 1998
-------------------------- -------------------------- --------------------------
<CAPTION>
SHARES WEIGHTED- SHARES WEIGHTED- SHARES WEIGHTED-
UNDER AVERAGE UNDER AVERAGE UNDER AVERAGE
OPTION EXERCISE PRICE OPTION EXERCISE PRICE OPTION EXERCISE PRICE
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year.................. -- $ -- 133,067 $ 0.23 283,093 $ 0.23
Grants...................................... 133,067 0.23 150,026 0.23 373,219 1.97
Forfeitures................................. -- -- -- -- (6,957) 2.30
Options issued in connection with
acquisition............................... -- -- -- -- 46,775 2.39
--------- --------- ---------
Balance, end of year........................ 133,067 0.23 283,093 0.23 696,130 1.28
--------- --------- ---------
--------- --------- ---------
Weighted-average fair value of options
issued during the period.................. $ 0.07 $ 0.06 $ 0.48
</TABLE>
The following tables summarize information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
EXERCISE OPTIONS OPTIONS REMAINING
PRICE OUTSTANDING EXERCISABLE CONTRACTUAL LIFE
<S> <C> <C> <C>
$0.23............................................ 283,093 83,231 2.6 years
0.35............................................ 70,665 -- 4.2
2.30............................................ 142,525 -- 4.5
2.39............................................ 199,847 46,775 9.7
----------- -----------
696,130 130,006 5.2
----------- -----------
----------- -----------
</TABLE>
Media Metrix has reserved 2,201,711 shares of common stock for issuance of
all outstanding options and warrants at December 31, 1998.
FAIR VALUE DISCLOSURES
Pro forma information regarding net loss and net loss per share is required
by SFAS 123, which also requires that the information be determined as if Media
Metrix has accounted for its stock options under the fair value method of that
statement. The fair value for these options was estimated using the minimum
value method with the following assumptions: no dividend yield, weighted-average
expected life of the option of 5 years, and risk-free interest rates of 6.6%,
6.0% and 5.7% for the years ended December 31, 1996, 1997 and 1998,
respectively.
F-15
<PAGE>
MEDIA METRIX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTIONS (CONTINUED)
Because the determination of fair value of all options granted after such
time as Media Metrix becomes a public entity will include an expected volatility
factor in addition to the factors described above, the results presented below
may not be indicative of future periods.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Media Metrix's
pro forma financial information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1996 1997 1998
Net loss applicable to common stockholders:
As reported.................................... $ (3,375,694) $ (4,873,512) $ (7,452,286)
------------- ------------- -------------
------------- ------------- -------------
Pro forma...................................... $ (3,376,754) $ (4,875,943) $ (7,467,824)
------------- ------------- -------------
------------- ------------- -------------
Net loss applicable to common stockholders per
share:
As reported.................................... $ (.52) $ (.75) $ (.98)
------------- ------------- -------------
------------- ------------- -------------
Pro forma...................................... $ (.52) $ (.75) $ (.98)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
11. LEASE COMMITMENTS
Media Metrix leases office space in New York, California and Georgia. At
December 31, 1998, the future minimum lease payments under noncancellable
operating leases with initial or remaining lease terms in excess of one year are
as follows:
<TABLE>
<S> <C>
Year ending December 31:
1999.............................................................. $ 391,000
2000.............................................................. 223,000
2001.............................................................. 81,000
2002.............................................................. 58,000
2003.............................................................. 5,000
---------
$ 758,000
---------
---------
</TABLE>
Rent expense approximated $39,000, $207,000 and $356,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
12. SUBSEQUENT EVENT
On January 4, 1999, Media Metrix issued to a foreign investor 194,380 shares
of common stock at a purchase price per share of $10.29, for an aggregate
purchase price of approximately $2,000,000, pursuant to a stock purchase
agreement. Media Metrix had received the proceeds from this transaction on
December 31, 1998 and has recorded "common stock issuable" in the accompanying
balance sheet.
F-16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
January 11, 1999
To the Board of Directors and Shareholders of
RelevantKnowledge, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of RelevantKnowledge, Inc. at October
31, 1998 and December 31, 1997, and the results of its operations and its cash
flows for the ten month period ended October 31, 1998 and for the year ended
December 31, 1997, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company'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
generally accepted auditing standards 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.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
F-17
<PAGE>
RELEVANTKNOWLEDGE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1997 1998
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................................................ $ 998,827 $ 2,963,218
Accounts receivable.............................................................. 213,575 292,038
Unbilled work in progress........................................................ -- 70,484
Other current assets............................................................. 114,009 76,745
------------- --------------
Total current assets....................................................... 1,326,411 3,402,485
Fixed assets, net.................................................................. 749,761 780,884
Other assets....................................................................... 4,983 98,803
------------- --------------
Total assets............................................................... $ 2,081,155 $ 4,282,172
------------- --------------
------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses............................................ $ 619,552 $ 402,950
Commissions payable.............................................................. -- 292,515
Deferred revenue................................................................. 160,887 468,474
Current portion of long-term debt................................................ -- 123,326
------------- --------------
Total current liabilities.................................................. 780,439 1,287,265
Long-term debt..................................................................... -- 248,361
------------- --------------
Total liabilities.......................................................... 780,439 1,535,626
------------- --------------
Commitments and contingencies
Shareholders' equity
Common stock, no par value; 15,500,000 and 15,000,000 shares authorized at
October 31, 1998 and December 31, 1997, respectively; 3,849,458 and 3,603,570
shares issued and outstanding at October 31, 1998 and December 31, 1997,
respectively................................................................... 210,183 1,317,471
Series A-1 convertible preferred stock; 1,500,000 shares authorized; 1,456,949
issued and outstanding at October 31, 1998 and December 31, 1997,
respectively................................................................... 881,885 881,885
Series B-1 convertible preferred stock; 3,000,000 shares authorized; 2,754,587
shares issued and outstanding at October 31, 1998 and December 31, 1997,
respectively................................................................... 4,223,575 4,221,619
Series B-2 convertible preferred stock; 1,000,000 shares authorized; 858,420
shares issued and outstanding at October 31, 1998 and December 31, 1997,
respectively................................................................... 1,469,497 1,469,497
Series C-1 convertible preferred stock; 3,500,000 shares authorized; 2,713,321
and 0 shares issued and outstanding at October 31, 1998 and December 31 1997,
respectively................................................................... -- 6,686,403
Series C-2 convertible preferred stock; 1,000,000 shares authorized; no shares
issued or outstanding at October 31, 1998 and December 31, 1997,
respectively................................................................... -- --
Accumulated deficit.............................................................. (5,484,424) (11,830,329)
------------- --------------
Total shareholders' equity................................................. 1,300,716 2,746,546
------------- --------------
Total liabilities and shareholders' equity................................. $ 2,081,155 $ 4,282,172
------------- --------------
------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
RELEVANTKNOWLEDGE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, OCTOBER 31,
1997 1998
<S> <C> <C>
Revenues
Information services.............................................................. $ 157,032 $ 1,730,744
Technology licensing and support.................................................. 537,879 83,486
Other income...................................................................... -- 95,909
------------- -------------
Total revenues................................................................ 694,911 1,910,139
Costs of sales...................................................................... 2,510,621 2,879,037
Sales and marketing................................................................. 1,433,173 1,623,500
General and administrative.......................................................... 1,440,551 2,973,230
Research and development............................................................ 651,421 780,277
------------- -------------
Total costs and expenses...................................................... 6,035,766 8,256,044
------------- -------------
Net loss............................................................................ $ (5,340,855) $ (6,345,905)
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
RELEVANTKNOWLEDGE, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK TOTAL
------------------------ ------------------------- ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT DEFICIT EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996.......... 3,500,000 $ 3,500 1,319,130 $ 750,000 $ (143,569) $ 609,931
Issuance of preferred stock, net
of offering costs............... 3,750,826 5,824,957 5,824,957
Exercise of common stock
warrants........................ 103,570 169,998 169,998
Issuance of employee stock
options......................... 36,685 36,685
Net loss.......................... (5,340,855) (5,340,855)
---------- ------------ ---------- ------------- -------------- -------------
Balance, December 31, 1997.......... 3,603,570 210,183 5,069,956 6,574,957 (5,484,424) 1,300,716
Issuance of preferred stock, net
of offering costs............... 2,713,321 6,684,447 6,684,447
Issuance of common stock
warrants........................ 970,740 970,740
Exercise of employee stock
options......................... 245,888 136,548 136,548
Net loss.......................... (6,345,905) (6,345,905)
---------- ------------ ---------- ------------- -------------- -------------
Balance, October 31, 1998........... 3,849,458 $ 1,317,471 7,783,277 $ 13,259,404 $ (11,830,329) $ 2,746,546
---------- ------------ ---------- ------------- -------------- -------------
---------- ------------ ---------- ------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
RELEVANTKNOWLEDGE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, OCTOBER 31,
1997 1998
<S> <C> <C>
Cash flows from operating activities
Net loss.......................................................................... $ (5,340,855) $ (6,345,905)
Adjustments to reconcile net loss to cash used in operating activities
Depreciation and amortization................................................. 103,173 143,589
Expense recorded for issuance of warrants..................................... -- 970,740
Expense recorded for issuance of employee stock options....................... 36,685 --
Noncash interest expense...................................................... -- 33,350
Loss on disposal of fixed assets.............................................. -- 35,048
Change in operating assets and liabilities:
Accounts receivable......................................................... (213,575) (78,463)
Unbilled work in progress................................................... -- (70,484)
Other current assets........................................................ (112,977) 4,418
Other assets................................................................ -- (60,974)
Accounts payable and accrued expenses....................................... 522,752 (216,602)
Commissions payable......................................................... -- 292,515
Deferred revenue............................................................ 160,887 307,587
------------- -------------
Net cash used in operating activities..................................... (4,843,910) (4,985,181)
------------- -------------
Cash flows from investing activities
Proceeds from the sale of fixed assets.......................................... -- 6,500
Purchases of fixed assets....................................................... (826,507) (216,260)
------------- -------------
Net cash used in investing activities..................................... (826,507) (209,760)
------------- -------------
Cash flows from financing activities
Proceeds from issuance of common and preferred stock, net of offering costs..... 5,994,955 3,787,645
Proceeds from issuance of convertible secured promissory notes and attached
warrants...................................................................... -- 3,000,000
Proceeds from long-term debt.................................................... -- 480,722
Payments on long-term debt...................................................... -- (109,035)
------------- -------------
Net cash provided by financing activities................................. 5,994,955 7,159,332
------------- -------------
Net increase in cash and cash equivalents......................................... 324,538 1,964,391
Cash and cash equivalents at beginning of period.................................. 674,289 998,827
------------- -------------
Cash and cash equivalents at end of period........................................ $ 998,827 $ 2,963,218
------------- -------------
------------- -------------
Supplemental cash flow disclosures
Cash paid for interest............................................................ $ -- $ 58,064
------------- -------------
------------- -------------
Conversion of convertible secured promissory notes to Series C-1 preferred
stock........................................................................... $ -- $ 3,000,000
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
RELEVANTKNOWLEDGE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
RelevantKnowledge, Inc. (the "Company") provides internet demographics, site
visit statistics, and additional usage-related information. The Company operates
in a single business segment.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
FIXED ASSETS
Fixed assets are recorded at cost less accumulated depreciation, which is
computed using the straight-line method over the estimated useful lives of the
related assets; generally five to seven years. Upon sale, retirement or other
disposition of these assets, the cost and the related accumulated depreciation
are removed from the respective accounts and any gain or loss on the disposition
is included in operations.
Leasehold improvements are amortized over the lesser of the useful life of
the improvement or the remaining lease term.
INCOME TAXES
The Company accounts for income taxes using the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under SFAS 109, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax basis of assets and
liabilities. Differences between the financial reporting and tax basis of assets
and liabilities at October 31, 1998 and December 31, 1997 are not significant.
The Company has net operating loss carryforwards for Federal income tax
purposes of approximately $11,129,000 and $5,450,000 at October 31, 1998 and
December 31, 1997, respectively, that expire between 2011 and 2013. Such net
operating losses give rise to deferred tax assets of approximately $4,329,000
and $2,100,000 at October 31, 1998 and December 31, 1997, respectively. The
Company has recorded a valuation allowance equal to the amount of the deferred
tax assets at both October 31, 1998 and December 31, 1997, because it is deemed
more likely than not that such assets will not be realized.
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 reporting
period. Actual results could differ from those estimates.
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes costs related to the development of certain software
products in accordance with SFAS 86 "Accounting For the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed" which requires
capitalization to begin when technological feasibility has been established
F-22
<PAGE>
RELEVANTKNOWLEDGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and ends when the product is available for general release to customers.
Software development costs incurred prior to technological feasibility are
considered research and development costs and are expensed as incurred.
During 1998 and 1997, the period between established technological
feasibility and general release has been less than three months, and software
development costs qualifying for capitalization have been insignificant.
Accordingly, the Company has not capitalized any software development costs
during 1998 and 1997.
REVENUE RECOGNITION
Information services revenues are recognized upon delivery of data and
reports ordered by the customer. Revenue arising from agreements which require
monthly reports are recognized over the period for which data are provided.
Technology licensing revenues consist of technology licensing fees and
royalties. Technology licensing fees are recognized upon delivery of the
software and equipment, receipt of a signed agreement, determination that
collectibility is probable and expiration of rights of refund or return. Royalty
revenues are recognized when earned.
The Company enters into certain nonmonetary transactions, in which the
Company provides services to another entity and in return receives services, or
a combination of cash and services, from the other entity. The Company
recognizes revenue and an equal amount of expense based upon the fair value of
the service provided or the service (or combination of service and cash)
received, whichever was more clearly evident.
ADVERTISING EXPENSES
All advertising costs are expensed when incurred. Advertising expenses were
approximately $171,000 and $491,000 for the ten months ended October 31, 1998
and the year ended December 31, 1997, respectively.
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related interpretations in
accounting for its employee stock options. In accordance with the provisions of
APB 25, compensation expense is recorded upon issuance of employee stock options
in an amount equal to the excess of the fair value of the Company's stock over
the option price. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION.
F-23
<PAGE>
RELEVANTKNOWLEDGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. FIXED ASSETS
Fixed assets are comprised of the following as of October 31, 1998 and
December 31, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1997 1998
<S> <C> <C>
Furniture and fixtures........................................... $ 51,297 $ 57,815
Computer equipment and software.................................. 708,673 874,320
Leasehold improvements........................................... 87,579 84,604
------------ ------------
847,549 1,016,739
Less: accumulated depreciation and amortization.................. 97,788 235,855
------------ ------------
$ 749,761 $ 780,884
------------ ------------
------------ ------------
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under noncancelable operating
lease agreements expiring through 2003. Future minimum lease payments under
operating leases as of October 31, 1998, are as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 309,139
2000.............................................................. 245,205
2001.............................................................. 97,613
2002.............................................................. 66,000
2003.............................................................. 16,500
---------
$ 734,457
---------
---------
</TABLE>
Rental expense was approximately $299,000 and $136,000 for the ten months
ended October 31, 1998 and the year ended December 31, 1997, respectively.
Various legal proceedings may arise in the normal course of business.
Management does not believe that there are currently any asserted or unasserted
claims that will have a material adverse effect on the financial position,
results of operations or cash flows of the Company.
4. CONCENTRATION OF CREDIT RISKS
The Company's sales to its largest customer represented approximately 77% of
total revenues for the year ended December 31, 1997.
5. CAPITAL STRUCTURE
COMMON AND PREFERRED STOCK
The Company's Restated Articles of Incorporation authorize the issuance of
up to 25,500,000 shares of $0.001 par value capital stock as of October 31,
1998. Fifteen million five hundred thousand (15,500,000) and fifteen million
(15,000,000) shares have been designated as Common Stock as of October 31, 1998
and December 31, 1997, respectively and ten million (10,000,000) and five
million five
F-24
<PAGE>
RELEVANTKNOWLEDGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL STRUCTURE (CONTINUED)
hundred thousand (5,500,000) shares have been designated as Convertible
Preferred Stock as of October 31, 1998 and December 31, 1997, respectively. The
Convertible Preferred Stock is further designated in five series as follows (as
of October 31, 1998): 1,500,000 shares are Series A-1 Preferred Stock, 3,000,000
shares are Series B-1 Preferred Stock, 1,000,000 shares are Series B-2 Preferred
Stock, 3,500,000 shares are Series C-1 Preferred Stock and 1,000,000 shares are
Series C-2 Preferred Stock. Upon the occurrence of certain events, the holders
of Convertible Preferred Stock are entitled to convert shares of A-1, B-1, B-2,
C-1 and C-2 Preferred Stock to Common Stock on a one-for-one basis.
VOTING RIGHTS
The holders of Preferred Stock are entitled to vote with the holders of
Common Stock as a single class and shall be entitled to one vote for each share
of Common Stock into which the Preferred Stock would be convertible on the
record date set for such vote of stockholders.
DIVIDENDS
Upon the occurrance of certain events, holders of Series B-1, B-2, C-1 and
C-2 Preferred Stock are entitled to receive cumulative dividends. Such dividends
would be recorded based on the original issue price at a rate of 8% per annum
computed on a quarterly basis. Series B-1, B-2, C-1 and C-2 Preferred Stock have
preference over Series A-1 Preferred Stock and Common Stock in the payment of
dividends or the event of liquidation.
After payment of the Series B-1, B-2, C-1 and C-2 Preferred dividends, the
holders of Series A-1 Preferred are entitled to receive noncumulative dividends
at the rate of 10% per annum of the original issuance price when and if declared
by the Board of Directors.
CONVERSION
The Preferred Stock is convertible to Common Stock under a stated formula,
generally one share of common for one share of preferred, at the option of the
stockholder or upon the occurrence of certain events.
CONVERTIBLE SECURED PROMISSORY NOTES
On March 15, 1998, the Company sold Convertible Secured Promissory Notes
("the Notes") in the aggregate principal amount of $3,000,000 to certain holders
of the Company's Common and Convertible Preferred Stock. The notes bore interest
at a rate of 10% per annum. Upon issuance of the Series C-1 Convertible
Preferred Stock in July 1998, the holders of the notes converted all outstanding
principal and accrued interest to Series C-1 Convertible Preferred Stock at the
same price and with the same rights and privileges as the other shares of Series
C-1 Convertible Preferred Stock. The Company issued 1,213,335 Series C-1 shares
upon conversion of the Notes.
In conjunction with the sale of the Notes, the Company issued 857,122
warrants to purchase common stock to the holders of the Notes. Each warrant
entities the warrant holder to purchase one share of the Company's common stock
for $0.01. The warrants may not be exercised until the earlier of January 1,
1999 or the occurrence of certain events, including a consolidation or merger of
the Company. The warrants expire between March 2003 and May 2003.
F-25
<PAGE>
RELEVANTKNOWLEDGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL STRUCTURE (CONTINUED)
In connection with the issuance of these warrants, the Company recognized
interest expense of $677,126, which represents the implicit value of the
warrants (fair value less exercise price).
WARRANTS
The Company has issued warrants to acquire shares of the Company's common
stock in conjunction with sales of Common Stock, Convertible Preferred Stock,
and Convertible Secured Promissory Notes and in exchange for services provided.
At October 31, 1998, 1,160,290 warrants were outstanding. These warrants are
exercisable at the following prices: 857,122 at $0.01 per share, 215,668 at
$2.00 per share, 38,750 at $0.06 per share, 25,000 at $0.80 per share, and
23,750 at $1.60 per share. 303,168 of the warrants were exercisable at October
31, 1998. The remaining 857,122 are not exercisable until the earlier of January
1, 1999 or the occurrence of certain events, including a consolidation or merger
of the Company. The warrants expire between April 2002 and May 2008.
6. STOCK OPTION PLAN
The Company has issued options to its employees under the terms of The 1996
Stock Option Plan ("the Plan"). The Plan permits management to grant either
incentive stock options or nonstatutory stock options to purchase shares of the
Company's Common Stock to officers, directors, key employees, and consultants
responsible for the direction and management of the Company. The Plan authorizes
the issuance of options to purchase up to an aggregate of 1,250,000 shares of
Common Stock. Options issued under the Plan vest at rates determined by the
Board of Directors. Vesting rates can not be less than 20% per year under the
terms of the Plan. The maximum term for options issued under the Plan is ten
years. The following table summarizes the transactions of the Plan for the year
ended December 31, 1997 and the ten months ended October 31, 1998:
<TABLE>
<CAPTION>
1997WEIGHTED 1998WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C>
Outstanding at beginning of year................ 0 -- 727,950 $ .442
Granted....................................... 775,950 .446 520,038 .885
Exercised..................................... 0 -- (245,888) .555
Forfeited..................................... (48,000) .060 (353,655) .484
---------- ----------
Outstanding at end of year...................... 727,950 .442 648,445 .653
---------- ----------
---------- ----------
Options exercisable at year-end................. 0 0
---------- ----------
---------- ----------
Weighted average fair value of options granted
during the year at the share's fair value..... $ 438,444 $ 109,208
Weighted average fair value of options granted
during the year at above the share's fair
value......................................... 0 0
</TABLE>
F-26
<PAGE>
RELEVANTKNOWLEDGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCK OPTION PLAN (CONTINUED)
The following table summarizes information regarding stock options
outstanding at October 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS WEIGHTED AVERAGE
EXERCISE OUTSTANDING AT REMAINING
PRICE OCTOBER 31, 1998 CONTRACTUAL LIFE
<S> <C> <C>
$0.06................................................... 145,031 8.31 years
0.16.................................................... 50,583 8.63 years
0.80.................................................... 354,831 9.33 years
1.25.................................................... 98,000 9.84 years
</TABLE>
The Company accounts for employee stock options in accordance with the
provisions of APB Opinion 25 and related interpretations.
Had compensation cost for the Company's stock-based compensation plans been
determined on a fair value basis in accordance with the provisions of FASB
Statement 123, the Company's net loss for the year ended December 31, 1997, and
ten months ended October 31, 1998, would have been as follows:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Net loss--as reported........................................... $ (5,340,855) $ (6,345,905)
Net loss--proforma.............................................. $ (5,435,880) $ (6,418,405)
</TABLE>
The amount of the pro forma charge has been determined using the minimum
value method as permitted for private companies by FASB Statement 123. For
purposes of the calculation, management used a risk free rate of return of
5.36%, a projected forfeiture rate of 0%, and an expected life of 5.1 years.
7. LONG-TERM DEBT
In December 1997, the Company entered into a credit agreement with Phoenix
Capital under which it may borrow up to $1,000,000. During 1998, the Company
borrowed approximately $480,722 under this agreement. The note bears interest at
a rate of 20.27% and is payable in monthly principal and interest payments of
$15,191. The line of credit is collateralized by substantially all of the
Company's computer equipment.
At October 31, 1998, required principal payments are as follows:
<TABLE>
<CAPTION>
YEAR
<S> <C>
1999.............................................................................. $ 123,326
2002.............................................................................. 148,322
2001.............................................................................. 100,039
----------
$ 371,687
----------
----------
</TABLE>
8. SUBSEQUENT EVENT
On November 5, 1998, the Company was acquired by Media Metrix, Inc. in
exchange for common stock of Media Metrix, Inc. The sale of the Company entitled
holders of the Series B-1, B-2, and C-1
F-27
<PAGE>
RELEVANTKNOWLEDGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. SUBSEQUENT EVENT (CONTINUED)
Preferred Stock to receive cumulative dividends in the form of cash or common
stock. The majority of holders elected to receive their dividends in the form of
common stock. As a result, in November 1998, the Company paid cash of $10,509
and issued 374,424 shares of common stock to holders of Series B-1, B-2, and C-1
Preferred Stock as payment of dividends.
Upon the sale of the Company, holders of options to purchase common stock
were immediately 100% vested in any options outstanding. In November, the
Company issued 480,945 shares in connection with the exercise of stock options.
Also as a result of the sale of the Company, 857,122 warrants issued in
connection with the sale of the convertible secured promissory notes became
exercisable on November 5, 1998.
F-28
<PAGE>
MEDIA METRIX, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
<S> <C> <C> <C> <C>
MEDIA RELEVANT PRO FORMA
METRIX KNOWLEDGE ADJUSTMENT PRO FORMA
<CAPTION>
(NOTE 2)
<S> <C> <C> <C> <C>
Revenues............................................ $ 6,330,485 $ 1,814,230 $ -- $ 8,144,715
Cost of revenues.................................... 4,120,569 2,879,037 -- 6,999,606
------------- ------------- ------------- --------------
Gross profit........................................ 2,209,916 (1,064,807) -- 1,145,109
Operating expenses:
Research and development.......................... 1,382,375 780,277 -- 2,162,652
Sales and marketing............................... 2,888,195 1,623,500 -- 4,511,695
General and administrative........................ 3,064,105 2,973,230 -- 6,037,335
Amortization of intangibles....................... 479,000 -- 2,392,922 2,871,922
Acquired in-process research and development...... 1,600,000 -- -- 1,600,000
------------- ------------- ------------- --------------
Total operating expenses............................ 9,413,675 5,377,007 2,392,922 17,183,604
------------- ------------- ------------- --------------
Loss from operations................................ (7,203,759) (6,441,814) (2,392,922) (16,038,495)
Interest income, net of interest expense............ 65,211 95,909 -- 161,120
------------- ------------- ------------- --------------
Net loss............................................ (7,138,548) (6,345,905) (2,392,922) (15,877,375)
Preferred stock dividends........................... (313,738) -- -- (313,738)
------------- ------------- ------------- --------------
Net loss applicable to common stockholders.......... $ (7,452,286) $ (6,345,905) $ (2,392,922) $ (16,191,113)
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
Basic and diluted net loss per share applicable
to common stockholders (Note 3)................... $ (0.98) $ (1.49)
------------- --------------
------------- --------------
Shares used in calculations of basic and diluted
net loss per share applicable to common
stockholders (Note 3)............................. 7,617,621 10,855,564
------------- --------------
------------- --------------
</TABLE>
See accompanying notes to unaudited pro forma statement of operations.
F-29
<PAGE>
MEDIA METRIX, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
1. BASIS OF PRESENTATION
The unaudited pro forma statement of operations gives effect to Media
Metrix, Inc.'s ("Media Metrix") acquisition of RelevantKnowledge, Inc. ("RKI")
as if it occurred on January 1, 1998. Such unaudited pro forma financial
statement sets forth the historical results of operations of Media Metrix for
the year ended December 31, 1998 and of RKI for the ten months ended October 31,
1998. The operations of RKI for the two months ended December 31, 1998 are
included in the operations of Media Metrix.
The unaudited pro forma statement of operations has been prepared by
management and should be read in conjunction with the historical financial
statements of Media Metrix and RKI. This statement does not purport to be
indicative of the results of operations that might have occurred if the RKI
acquisition was consummated on January 1, 1998, and do not purport to be
indicative of future results.
Management believes additional synergies and operational improvements, not
reflected in the accompanying unaudited pro forma statement of operations, will
be realized by the combined companies. Such amounts cannot be reasonable
quantified and, therefore, are not reflected in the unaudited pro forma
statement of operations.
2. PRO FORMA ADJUSTMENT
The pro forma adjustment reflects the additional amortization required for a
full year's amortization of the intangibles acquired. Total intangibles were
approximately $6,216,000 of which $1,200,000 was allocated to panel costs with a
life of 12 months and the balance was allocated to goodwill and various other
intangibles with lives of 3 years. The annual amortization consists of the
following:
<TABLE>
<S> <C>
Panel costs..................................................... $1,200,000
Goodwill and other intangibles.................................. 1,672,000
---------
Total amortization.............................................. $2,872,000
---------
---------
</TABLE>
3. NET LOSS PER SHARE APPLICABLE TO COMMON STOCKHOLDERS
Pro forma net loss per share applicable to common stockholders adjusts the
weighted average shares outstanding for Media Metrix's historical financial
statements for the shares issued to RKI stockholders as if such shares were
outstanding for the entire year.
F-30
<PAGE>
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, 1999
[LOGO]
SHARES OF COMMON STOCK
---------------------
P R O S P E C T U S
---------------------
DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
- ------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in the prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Media Metrix
have not changed since the date hereof.
Until , 1999 (25 days after the date of this prospectus), all dealers
that effect transactions in these shares of common stock may be required to
deliver a prospectus. This is in addition to the dealer's obligation to deliver
a prospectus when acting as an underwriter and with respect to their unsold
allotments or subscriptions.
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