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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 15, 2000
REGISTRATION NO. 333-34388
PURSUANT TO RULE 401(E) UNDER THE SECURITIES ACT OF 1933, THE PROSPECTUS
CONTAINED IN THIS POST-EFFECTIVE AMENDMENT HAS BEEN PREPARED IN ACCORDANCE WITH
THE REQUIREMENTS OF FORM S-3.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1 ON FORM S-3
TO FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MEDIA METRIX, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 8732 11-3374729
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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250 PARK AVENUE SOUTH, 7TH FLOOR
NEW YORK, NEW YORK 10003
(212) 515-8700
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
TOD JOHNSON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MEDIA METRIX, INC.
250 PARK AVENUE SOUTH, 7TH FLOOR
NEW YORK, NEW YORK 10003
(212) 515-8700
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
with copies to:
STEVEN I. SUZZAN, ESQ.
FULBRIGHT & JAWORSKI L.L.P.
666 FIFTH AVENUE
NEW YORK, NEW YORK 10103
(212) 318-3000
Approximate date of commencement of proposed sale of securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended (the "Securities Act"), other than securities
offered only in connection with dividend or interest reinvestment plans, check
the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ___
If this Form is a post-effective amendment filed pursuant to 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______
If this Form is a post-effective amendment filed pursuant to 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act, or until the Registration Statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
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SUBJECT TO COMPLETION, DATED AUGUST 15, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Prospectus
August , 2000
868,756 SHARES OF COMMON STOCK OF
MEDIA METRIX, INC.
This prospectus relates to the public offering, which is not being
underwritten, of 868,756 shares of our common stock by some of our current
stockholders.
The prices at which the selling stockholders may sell the shares will
be determined by the prevailing market price for the shares or in negotiated
transactions. We will not receive any of the proceeds from the sale of the
shares.
Our common stock is traded on the Nasdaq National Market under the
symbol "MMXI." On August 9, 2000, the last reported sale price for the common
stock was $26.875 per share.
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 3.
August , 2000
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.
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TABLE OF CONTENTS
Page
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Prospectus Summary......................................... 1
Risk Factors............................................... 3
Use of Proceeds............................................ 22
Selling Stockholders....................................... 22
Plan of Distribution....................................... 25
Incorporation by Reference................................. 26
Legal Matters.............................................. 26
Experts.................................................... 26
Where You Can Find Additional Information.................. 27
Index to Financial Statements.............................. F-1
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PROSPECTUS SUMMARY
The information below is only a summary and should be read in
conjunction with the information included in other sections or incorporated by
reference in this prospectus. The other information is important, so please read
this entire prospectus and the documents incorporated by reference carefully.
OUR BUSINESS
We are a leading provider of Internet and Digital Media measurement
products and services. We measure usage of the entire digital landscape,
including its largest segments: the World Wide Web, proprietary online services
like America Online, software, instant messaging applications and other digital
applications. In January 1996, we released the first World Wide Web Audience
Measurement report. Today, we offer a range of Internet audience, e-commerce,
advertising, and technology measurement services to leading Internet
advertisers, advertising agencies, media companies, technology companies and
financial institutions. Our products and services enable the continued growth
and development of the Internet by providing third-party measurement data that
our customers rely on to make critical business decisions. Our data are used to
buy, sell and plan advertising, support marketing and commerce initiatives,
assess partnerships and distribution strategies and analyze competitors.
We collect Internet audience data by measuring Internet usage from
representative samples, or panels, of personal computer users with our
proprietary tracking technology. We maintain large panels of randomly selected
individuals, reporting Internet usage at home and at work. Panelists are
randomly recruited to participate in our sample. They are required to fill out a
detailed questionnaire to provide background demographic information at the
individual and household level. Panelists download and install our tracking
software onto their PCs. The tracking software tracks all PC usage at the
individual user level. The tracking software follows the panelists,
page-by-page, minute-by-minute, click-by-click, as they use their PCs. We
collect these usage data from the panelists' personal computers and transmit
them to our data collection center for processing. The data are used to
construct several databases, and they provide the foundation for our products
and services.
We also offer Internet advertising measurement products and services
through our subsidiary, AdRelevance. AdRelevance specializes in the automated
retrieval and analysis of online advertising. Using intelligent agent
technology, the AdRelevance system scours the Internet, retrieving
advertisements. Upon retrieval, ads are analyzed, classified and added to the
AdRelevance database, providing advertisers, agencies and publishers with
marketing intelligence, including when, how and how much their competitors are
marketing and advertising on the Internet.
We are based in New York City, with operations in the United States,
the United Kingdom, France, Germany, Sweden, Australia, Canada, Latin America,
and Japan.
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. In March 1997,
we reorganized into a Delaware corporation and began using the trade name Media
Metrix in our business. In November 1998, we merged with RelevantKnowledge,
Inc., our leading competitor. In May 1999, we completed an initial public
offering of our common stock. In October 1999, we acquired AdRelevance. NPD, our
largest stockholder, owns approximately 20% of our common stock.
Although our revenues have continued to grow, we have a history of
operating losses and negative cash flow. In addition, the market for Internet
audience measurement services is new and rapidly evolving, and we expect
competition in this market to intensify in the future.
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Our principal executive offices are located at 250 Park Avenue South,
7th Floor, New York, New York 10003, and our telephone number is (212) 515-8700.
Media Metrix(R), PC Meter, RelevantKnowledge, e-Trends, The Power of
RelevantKnowledge, MyMetrix, AdRelevance 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.
RECENT DEVELOPMENTS
On June 26, 2000, we entered into an agreement and plan of merger with
Jupiter Communications, Inc. pursuant to which one of our wholly owned
subsidiaries will, upon the fulfillment of several conditions, merge with and
into Jupiter. Under that agreement, stockholders of Jupiter will receive 0.946
of a share of our common stock for each share of Jupiter common stock which was
issued and outstanding immediately prior to the consummation of the merger. If
the merger with Jupiter is completed Jupiter will become our wholly owned
subsidiary and we will be renamed Jupiter Media Metrix. We expect the merger to
occur in the third quarter of 2000.
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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
and incorporated herein by reference, 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.
RISKS RELATING TO THE MERGER TRANSACTION WITH JUPITER COMMUNICATIONS
JUPITER STOCKHOLDERS WILL RECEIVE A FIXED NUMBER OF SHARES OF OUR COMMON STOCK,
DESPITE CHANGES IN THE MARKET VALUE OF JUPITER OR OUR COMMON STOCK BETWEEN NOW
AND THE MERGER.
Upon completion of the merger, each share of Jupiter common stock will
be exchanged for 0.946 of a share of our common stock. The ratio at which the
shares will be converted is fixed, and there will be no adjustment for changes
in the market price of either Jupiter or our common stock. Any change in the
price of either our common stock or Jupiter common stock will affect the value
Jupiter stockholders will receive in the merger for their shares. Our common
stock has historically experienced significant volatility, and the value of the
shares of our stock received in the merger may go up or down as the market price
of our stock or Jupiter common stock goes up or down between now and the time of
the merger. Neither company is permitted to terminate the merger agreement or
resolicit the vote of its stockholders solely because of changes in the market
price of either company's common stock.
OUR COSTS RELATED TO THE MERGER MAY BE SIGNIFICANT.
We expect to incur merger-related expenses of approximately $15 million
through the quarter in which the merger occurs. These expenses include legal,
financial advisory and accounting fees for both companies, regulatory filing
fees, costs of financial printing and listing fees. In addition, Jupiter Media
Metrix will recognize deferred compensation estimated to be approximately $22
million upon completion of the merger relating to the acquisition of unvested
stock options in the merger and such costs will be amortized over the remaining
vesting period of up to four years. This estimate does not include any costs
associated with restructuring, integrating or consolidating the operations of
the two companies. This amount is only an estimate and may change. In addition,
we may incur unanticipated expenses in integrating our businesses with Jupiter.
We expect that the savings from the elimination of duplicative expenses and the
realization of other efficiencies related to the integration of our business
with Jupiter may offset any additional expenses in the future. However, we may
not be able to achieve a net benefit in the near future, or at all. Moreover,
combining our businesses, even if achieved in an efficient and effective manner,
may not result in combined financial results that are better than those which we
and Jupiter would have accomplished independently.
DIRECTORS OF JUPITER HAVE POTENTIAL CONFLICTS OF INTEREST THAT MAY HAVE
INFLUENCED THEM IN RECOMMENDING THAT JUPITER STOCKHOLDERS VOTE IN FAVOR OF
ADOPTION OF THE MERGER AGREEMENT.
Certain of the directors of Jupiter who recommended that Jupiter
stockholders vote in favor of the adoption of the merger agreement have
employment or other benefit arrangements that provide them with interests in the
merger that differ from yours.
- Following completion of the merger, Robert Kavner and Jeffrey
Ballowe, who are presently directors of Jupiter, will serve on
the board of the combined company to be know as Jupiter Media
Metrix, Inc. Gene DeRose, Chairman and Chief Executive Officer
of Jupiter, will serve
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as Vice Chairman and President of Jupiter Media Metrix, and
Kurt Abrahamson, a director and President and Chief Operating
Officer of Jupiter, will serve as a director and Co-Chief
Operating Officer of Jupiter Media Metrix, as well as
President of the Jupiter Communications division of Jupiter
Media Metrix.
- Gene DeRose and Kurt Abrahamson are entering into employment
agreements with Jupiter which will take effect only if the
merger is completed.
- The Jupiter stock options that are held by Jupiter's
non-employee directors are currently exercisable, but any
shares acquired upon exercise of the option are subject to a
right of repurchase in favor of Jupiter if the director no
longer serves on the Jupiter board. Upon completion of the
merger, this right of repurchase will lapse, and any
unexercised options will become fully vested.
- Under the existing terms of the our 2000 Equity Incentive
Plan, the two non-employee Jupiter directors will each be
granted an option to purchase 15,000 shares of our common
stock upon joining our board at the completion of the merger.
The receipt of compensation or other benefits in the merger, and the
continuation of indemnification arrangements for current directors of Jupiter
following completion of the merger, may have influenced these directors in
making their recommendation that Jupiter stockholders vote in favor of the
adoption of the merger agreement.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT JUPITER'S OR OUR STOCK
PRICE AND FUTURE BUSINESS AND OPERATIONS.
If the merger is not completed for any reason, each company may be
subject to the following risks:
- it may be required to pay the other party a termination fee of
$16 million, depending on the reason why the merger was not
completed;
- in the case of Jupiter, the price of its common stock may
decline to the extent that the current market price of
Jupiter's common stock reflects a market assumption that the
merger will be completed; and
- various costs related to the merger, such as legal and
accounting fees and the expenses and fairness opinion fee of
its financial advisor, must be paid even if the merger is not
completed.
Further, if the merger is terminated and either company's board of
directors determines to seek another merger or business combination, Jupiter may
not be able to find a partner willing to pay an equivalent or more attractive
price than the price to be paid in the merger. If the merger is terminated and
our board of directors determines to seek another merger or business
combination, we may not be able to find a business opportunity as attractive as
is presented by the merger. In addition, while the merger agreement is in
effect, each company is prohibited from soliciting, initiating or knowingly
encouraging, including entering into or taking various other actions with
respect to, any extraordinary transaction, such as a merger, sale of assets or
other business combination, with any party other than the other party to the
merger agreement.
RISKS RELATING TO THE COMBINED ENTERPRISE
JUPITER MEDIA METRIX MAY FAIL TO REALIZE THE ANTICIPATED BENEFITS OF THE MERGER.
The success of the merger will depend, in part, on the ability of
Jupiter Media Metrix to realize the anticipated growth opportunities and
synergies from combining our businesses with the businesses of
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Jupiter. For Jupiter Media Metrix to realize the anticipated benefits of this
combination, members of its management team must develop strategies and
implement a business plan that will:
- Effectively leverage the anticipated synergies between our
audience and advertising measurement services, technology and
infrastructure and Jupiter's analysis, forecasts, surveys and
conferences businesses;
- Successfully use the anticipated opportunities for
cross-promotion and sales of our products and services and
those of Jupiter;
- Successfully increase revenues from new products and services;
- Effectively and efficiently integrate our policies, procedures
and operations with those of Jupiter;
- Successfully retain and attract key employees of the combined
enterprise, including operating management and sales forces,
during a period of transition and in light of the competitive
employment market; and
- While integrating the combined enterprise's operations,
maintain adequate focus on the core businesses of Jupiter
Media Metrix in order to take advantage of competitive
opportunities and to respond to competitive challenges.
If members of the management team of Jupiter Media Metrix are not able
to develop strategies and implement a business plan that achieves these
objectives, the anticipated benefits of the merger may not be realized. In
particular, anticipated growth in revenue, earnings before interest, taxes and
depreciation and amortization, or "EBITDA," and cash flow may not be realized,
which would have an adverse impact on Jupiter Media Metrix and the market price
of shares of Jupiter Media Metrix common stock.
THE RISKS ASSOCIATED WITH THE COMBINED ENTERPRISE WILL BE GREATER IN NUMBER THAN
THOSE ASSOCIATED WITH EACH COMPANY INDIVIDUALLY, AND SOME OF THESE RISKS MAY BE
EXACERBATED BY THE COMBINATION OF THE TWO COMPANIES.
Media Metrix and Jupiter each face a number of risks which are
discussed below under the captions "Risks Relating to Media Metrix" and "Risks
Relating to Jupiter," respectively. Some of these risks are common to both
companies, but some are specific to each particular company. The risks
associated with the combined enterprise will therefore be greater in number than
those associated with each company individually. Jupiter Media Metrix may not be
successful in addressing these risks, and some of these risks may be exacerbated
by reason of the merger.
RISKS RELATING TO MEDIA METRIX
THERE IS LIMITED INFORMATION UPON WHICH YOU CAN EVALUATE OUR BUSINESS.
We have been in operation only since 1996 as an entity independent from
The NPD Group, Inc. As a result, we have a limited operating history upon which
you can evaluate our business and our products and services. Due to our limited
operating history, any evaluation of our business and prospects must be made in
light of the risks and uncertainties frequently encountered by companies in new
and rapidly evolving markets such as those in which we operate. These risks and
uncertainties are discussed elsewhere in this section. We may not be successful
in addressing these risks and uncertainties.
WE HAVE A HISTORY OF OPERATING LOSSES WHICH MAY CONTINUE FOR THE FORESEEABLE
FUTURE.
We have incurred substantial costs to create, market and distribute our
products and services, including costs associated with the development of our
technology, to retain qualified personnel, including
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management, research analysts, sales representatives and technical personnel,
and to grow our business. As a result, we incurred net losses of approximately
$15.8 million for the six months ended June 30, 2000, $21.9 million in 1999 and
$7.2 million in 1998.
We intend to invest heavily in our technologies, new 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.
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 announcement or introduction of new products and services
or the announcement or introduction of new products or
services by 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;
- the amount and timing of costs relating to changes in the size
or composition of our panel; and
- the amount and timing of operating costs and capital
expenditures relating to expansion of our business, including
its planned international expansion.
Many of these factors are beyond our control. Our revenues may not
increase in proportion to the increase in advertising on the Internet, or at
all. In addition, advertising on the Internet may not continue to grow at
forecasted levels, or at all. A substantial portion of its current and future
costs are fixed. If its revenues fall short of expectations, we may not be able
to adjust its fixed 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 and financial results.
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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
- achieve consistent profitability.
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 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 sales, 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. Our current and planned personnel, systems, procedures and
controls may not be adequate to support our future operations. We may not be
able to hire new and retain our current personnel. We also may not be able to
exploit existing and potential strategic relationships and market opportunities.
THE MARKET FOR INTERNET AUDIENCE MEASUREMENT SERVICES IS HIGHLY COMPETITIVE.
The market for Internet audience measurement services is new and
rapidly evolving. We expect competition in this market to intensify in the
future. In March 1999, NetRatings and Nielsen Media Research introduced a new
Web site ratings service, Nielsen//NetRatings, that competes directly with many
aspects of our services. Nielsen Media Research is the leading provider of
television audience measurement services in the United States and Canada. In
September 1999, NetRatings also entered into a joint venture with ACNielsen
Corp. to develop and maintain audience measurement panels and to market
Nielsen//NetRatings' products and services in international markets. ACNielsen
is a leading provider of market research, information and analysis to consumer
products and services industries and is a provider of television audience
measurement services outside the United States and Canada. Both Nielsen Media
Research and ACNielsen have significantly more financial and other resources
than we do, and Nielsen//NetRatings has become a significant competitor. We also
face competition internationally from NetValue, a French company which has begun
providing audience measurement services in Europe and has announced that it will
soon begin providing these services in the United States.
We 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 online 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 it.
We believe that the principal competitive factors in our market are:
- creating representative consumer and business panels;
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- providing audience measurement services for the entire
Internet, including the Web and proprietary online services;
and
- offering products and services that meet the changing needs of
our customers.
Some 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
- 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 may not 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 further expansion of our services to
measure Internet audiences outside of the United States. Our expansion into
international markets requires management attention and resources. The
international markets for audience measurement services have historically been
extremely localized and difficult to penetrate. The costs of establishing and
maintaining panels in foreign countries has been and will continue to be
substantial. We may not be able to successfully develop or market new products
and services based on data obtained in those markets. In addition, our
international operations will be subject to a number of inherent risks,
including:
- recessions in economies outside the United States;
- changes in regulatory requirements;
- weaker protection for intellectual property rights in some
countries;
- potentially adverse tax consequences;
- economic and political instability; and
- fluctuations in currency exchange rates.
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;
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- 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 are currently developing. We believe that our success in penetrating markets
outside of the United States will depend on our ability to continue to address,
develop and maintain strategic relationships with local audience measurement or
marketing research companies. This may become increasingly difficult as
competition in the international markets increases.
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;
- unwillingness of companies and consumers to shift their
purchasing from traditional vendors to online vendors;
- security and authentication concerns with respect to the
transmission of confidential information, such as credit card
numbers, over the Internet;
- privacy 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
online 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.
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.
Accordingly, our future success depends on our ability to:
- adapt to rapidly changing technologies;
- adapt our services to evolving industry standards; and
<PAGE> 13
- 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 may not 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 its services or infrastructure. These changes may also involve new
technologies that may not be measurable by our current methods.
WE DEPEND ON RENEWALS OF ITS SUBSCRIPTION BASED SERVICES.
Our business and financial results are dependent on our ability to
attract and retain clients subscribing for our syndicated audience measurement
products. In addition, our business model assumes that we will be able to
increase the level of sales over time to our existing clients. To date, high
renewal rates have formed a foundation for our revenue growth. However, we may
not 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.
THE ACCEPTANCE AND EFFECTIVENESS OF INTERNET ADVERTISING IS UNPROVEN.
Our future success will depend in part on an increase in the use of the
Internet as an advertising medium, and there is a risk that the market for
Internet advertising fails to develop or develops more slowly than we expect.
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 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. The market for
Internet advertising may not continue to emerge and may not become sustainable.
WE MUST FURTHER DEVELOP OUR BRAND NAMES.
We believe that maintaining and strengthening the Media Metrix brand is
an important aspect of our business. The Media Metrix brand name is critical to
our effort 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 and research. Our ability to
promote and position our brands depends largely on:
- the success of our marketing efforts;
- our ability to provide our customers with high quality
products; and
- our ability to secure rights to our brand names in the major
markets in which we will be active.
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. Our use of the brand name "Media Metrix" in Europe has been challenged
by Mediametrie, S.A., a French company which measures audiences of various
media. Rather than engage in a protracted dispute, we have elected to have our
European joint venture conduct business under the name "MMXI Europe."
Mediametrie has also challenged its use of the domain name "mediametrix.com." If
we fail to promote and maintain our brands, or incur excessive expenses
attempting
<PAGE> 14
to promote and maintain our brand, our business and financial results could be
materially adversely affected.
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.
OUR COSTS MAY INCREASE IF THE SIZE OR COMPOSITION OF OUR PANEL CHANGES.
A significant portion of our costs consists of the expense of
recruiting and maintaining its panel and collecting and processing data
generated by the panel. We may, in the future, need to change the size or
composition of our panel. As a result, our expenses for recruiting and
maintaining our panel may increase. Our international expansion will also
increase our panel related costs.
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; and
- changes in technologies.
The process of developing and launching new products or services is
inherently risky and costly. Moreover, our products and services, once launched,
may not be accepted by our customers.
OUR SYSTEMS MAY FAIL.
Our success depends on the efficient and uninterrupted operation of our
computer and communications systems. We maintain a network to process data
received from panelists. As needed in the course of our international expansion,
we also utilize some servers and minicomputers provided to us by The NPD Group,
Inc., the company of which we were a part until 1996, under a management
services agreement. Any failure of our network could impede the processing of
data, customer orders and day-to-day management of our business.
Our systems and operations are vulnerable to damage or interruption
from:
- telecommunication failures;
- power loss;
- fires;
- floods;
- physical and electronic break-ins;
- sabotage; and
<PAGE> 15
- intentional acts of vandalism and similar events.
We do not presently have fully redundant systems. 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 facilities
could result in interruptions in our services. In addition, our databases 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.
WE MAY SUFFER AN INTERRUPTION IN OUR BUSINESS.
Our business interruption insurance may not be adequate to compensate
us fully for losses that may occur as a result of an interruption in our
business. Our business and financial results could be materially and adversely
affected if we are unable to conduct our business for an extended period of time
for any reason.
WE DEPEND ON OUR KEY PERSONNEL.
Our future success depends on the continued services of our senior
management and other key employees, in particular the services of Tod Johnson,
our Chairman and Chief Executive Officer, and Mary Ann Packo, our President and
Chief Operating Officer. Mr. Johnson also serves as the Chief Executive Officer
of NPD. Mr. Johnson has spent a substantial portion of his time on Media Metrix
matters and we anticipate that he will continue to do so. However, he will not
be able to devote all of his time to our affairs. Mr. Johnson's other
responsibilities could divert his attention from our affairs. Our performance
depends on our ability to retain and to motivate our key employees. We do not
have long-term employment agreements with any of our key personnel and we do not
maintain any "key person" life insurance policies.
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 agreements, other than the merger agreement with Jupiter, to make any
acquisitions, although we continually evaluate acquisition opportunities that
come to our attention. We may not 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,
and the anticipated benefits of the acquisition may not be realized.
Acquisitions may also require significant management attention that would
otherwise be available for ongoing development of our business.
In connection with any acquisition, we may:
- issue additional equity securities which would dilute
stockholder's interest in the company;
- incur debt;
- incur contingent liabilities; and
- incur amortization expenses related to goodwill and other
intangible assets.
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. However, these contractual arrangements or the other steps we have
taken may
<PAGE> 16
not be sufficient to protect our intellectual property from 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. However, patents or trademark registrations may not be issued to us
with respect to pending or future applications, and our patents and trademarks
may not 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.
Third parties may claim that our technologies infringe upon 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; and
- 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.
Our use of the brand name "Media Metrix" in Europe has been challenged
by Mediametrie, S.A., a French company which measures audiences of various
media. Rather than engage in a protracted dispute, we have elected to have our
European joint venture conduct business under the name "MMXI Europe."
Mediametrie has also challenged its use of the domain name "mediametrix.com." We
cannot be sure that we will not continue to have disputes with Mediametrie, S.A.
or others regarding the use of our name internationally. We may not be
successful in reaching a settlement on terms acceptable to us nor can we predict
the outcome of any dispute.
WE RELY ON TECHNOLOGY LICENSED FROM OTHERS.
We rely on technologies that we license from third parties. We cannot
assure you that these licenses will not infringe on the proprietary rights of
others. Moreover, these third-party technology licenses may not continue to be
available to it 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.
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.
Dissatisfaction by our customers with our measurement methodology or databases
would materially adversely affect our ability to attract new customers and
retain existing customers. Any liabilities which we may incur to our customers
because of irregularities or inaccuracies in the data we supply to them could
materially adversely affect our financial results.
OUR PROPRIETARY RIGHTS MAY BE ADVERSELY AFFECTED BY OUR STRATEGIC PARTNERS.
We expect to license some 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.
<PAGE> 17
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. 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, as for unauthorized marketing purposes.
WE FACE RISKS OF INDUSTRY INITIATIVES.
Several 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. Our products and services may ultimately not comply with
recommended industry guidelines if we determine that compliance would not be
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 and financial
results could be materially and adversely affected.
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. The adoption of any such legislation could dampen the
growth in use of the Internet generally and decrease our acceptance as a
communications, commercial and advertising medium. Any legislation which could
have an adverse effect on the growth of the Internet could decrease the demand
for our services.
THERE MAY BE LIMITS IMPOSED ON USES OF PERSONAL INFORMATION GATHERED VIA THE
INTERNET.
Several states have proposed legislation that would limit the uses of
personal user information gathered via the Internet. These regulations have
required proprietary online service and Web site owners to establish privacy
policies. The Federal Trade Commission has also recently settled a proceeding
with
<PAGE> 18
one online service regarding the manner in which personal information is
collected from users and provided to third parties. Also, the European Union has
enacted its own privacy regulations that may result in limits on the collection
and use of 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. In addition, we have adopted a privacy policy
applying to the data we collect from our panelists. The Federal Trade Commission
has recently begun to proceed against Internet-related companies which the
Federal Trade Commission believes have not strictly abided by their stated
personal information privacy policies. We may also become subject to claims
arising from the information collected or used by our subsidiary, AdRelevance,
in generating data for advertising tracking services.
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; or
- decrease the efficacy of Internet advertising.
WE FACE UNCERTAINTY ABOUT ADDITIONAL FINANCING FOR OUR FUTURE CAPITAL NEEDS.
If we are unable to increase our revenues as anticipated, we will need
to raise additional funds. We may need additional financing 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 for cash complementary products, businesses or
technologies.
If we raise additional funds through the sale of equity or convertible
debt securities, the value of our outstanding common stock may be diluted. We
may have to issue securities that have rights, preferences and privileges senior
to our common stock. We may not be able to raise additional funds on terms
favorable to us or at all.
OUR PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS HAVE SUBSTANTIAL
CONTROL OVER OUR AFFAIRS.
Our executive officers and directors and entities affiliated with them
in the aggregate beneficially owned approximately 30.1% of the outstanding Media
Metrix common stock as of August 10, 2000. In particular, The NPD Group, which
is controlled by Tod Johnson, our Chairman and Chief Executive Officer, owns
approximately 20% of our outstanding common stock.
These stockholders acting together have the ability to exert
substantial influence over all matters requiring the approval of 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 substantially influence 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.
<PAGE> 19
THERE MAY BE VOLATILITY IN OUR STOCK PRICE.
Our common stock, which is traded on the Nasdaq National Market, has
experienced significant price and volume fluctuations. These fluctuations are
likely to continue in the future. 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 its management's attention and resources.
RISKS RELATING TO JUPITER
JUPITER MAY BE UNABLE TO ATTRACT AND RETAIN EXPERIENCED PERSONNEL.
Jupiter's success depends in large part on the continued contributions
of its senior management team, research analysts and sales representatives, and
therefore, on Jupiter's ability to retain its existing management, research
analysts and sales representatives and to increase the number of new research
analysts and sales representatives that it hires. As of June 30, 2000, Jupiter
had 68 research analysts and 107 sales representatives. Jupiter expects to
increase its hiring of research analysts and sales representatives significantly
in the next few years. Jupiter faces intense competition in hiring and retaining
personnel from, among others, technology and Internet companies, market research
and consulting firms, print and electronic publishing companies and financial
services companies. Many of these firms have substantially greater financial
resources than Jupiter does to attract and retain qualified personnel from a
limited pool of attractive candidates. In addition, some people that Jupiter may
attempt to hire could be subject to non-competition agreements that could impede
its recruitment efforts.
RAPID GROWTH IN JUPITER'S BUSINESS COULD STRAIN ITS MANAGERIAL, OPERATIONAL AND
FINANCIAL RESOURCES.
The anticipated future growth of Jupiter's business will place a
significant strain on its managerial, operational and financial resources.
Jupiter had 142 employees at December 31, 1998, 270 employees at December 31,
1999 and 425 employees at June 30, 2000. Jupiter anticipates hiring a
substantial number of research analysts, sales representatives and other
employees in the foreseeable future to expand its product and service offerings
and to expand its sales of such products and services. Jupiter may also continue
to open additional offices in foreign countries. For example, Jupiter recently
opened offices in Munich, Germany, Tokyo, Japan and Sydney, Australia.
Furthermore, Jupiter recently signed a lease for a new facility in New York City
where it plans to consolidate its current locations in New York City as well as
provide for future growth. As Jupiter expands, it expects that it will need to
continually improve its financial and managerial controls, billing systems,
reporting systems and procedures. In addition, as Jupiter expands it will also
need to increase its employee training efforts. If Jupiter is unable to manage
its growth effectively, its business and financial results may suffer.
JUPITER HAS ONLY RECENTLY INTRODUCED MANY OF ITS PRODUCTS AND SERVICES.
Jupiter has recently launched many of the research services that it
offers. Additionally, a number of its conferences were first introduced in 2000.
As a result, Jupiter has a limited operating history upon which you can evaluate
its business and the products and services that Jupiter offers, including those
products and services offered by its subsidiaries, Internet Research Group and
Net Market Makers. Due to Jupiter's limited operating history, it is difficult
or impossible for Jupiter to predict future results of operations. Moreover, due
to Jupiter's limited operating history, any evaluation of its business and
prospects must be made in light of the risks and uncertainties frequently
encountered by companies in new and rapidly evolving markets such as Jupiter's.
Many of these risks and uncertainties are discussed elsewhere in this section.
Jupiter may not be successful in addressing these risks and uncertainties.
<PAGE> 20
JUPITER HAS A HISTORY OF NET LOSSES WHICH MAY CONTINUE FOR THE FORESEEABLE
FUTURE.
Jupiter has incurred substantial costs to create, market and distribute
its products and services, to retain qualified personnel, including management,
research analysts and sales representatives, and to grow its business. As a
result, Jupiter incurred net losses of approximately $2.1 million in 1998 and
$630,000 in 1999. As a percentage of total revenues, Jupiter's net losses
equaled 14.5% in 1998 and 1.7% in 1999.
Jupiter intends to invest heavily in new products and services,
leasehold and technology improvements, new research and sales personnel and
international expansion. Because of this, Jupiter will need to achieve
significant revenue increases to achieve and maintain profitability. The number
of clients for Jupiter's research products and services, as well as the number
of attendees to its conferences, may grow more slowly than Jupiter anticipates
or may even decrease in the future. In addition, although Jupiter recorded net
income of approximately $3.0 million in the first six months of 2000,
substantially all of which was attributable to a non-recurring gain from the
sale of an investment, Jupiter may not be able to sustain or increase its
profits on a quarterly or annual basis in the future.
JUPITER'S OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS.
Jupiter's revenues, expenses and operating results have varied in the
past and may fluctuate significantly in the future due to a variety of factors
that are outside of Jupiter's control. These factors include, among others:
- the level and timing of new business and renewals of
subscriptions to Jupiter's research products and services;
- changes in the market demand for research products or analysis
regarding Internet commerce;
- the levels of attendance at Jupiter's Internet conferences;
and
- the extent to which Jupiter experiences increased competition.
These factors could affect Jupiter's quarterly as well as long-term
financial results. In particular, changes in the demand for Jupiter's products,
competition or the levels of attendance at Jupiter's Internet conferences each
could have both short-term and long-term adverse effects on Jupiter's business.
Jupiter's revenues, expenses and operating results may also fluctuate
significantly in the future as a result of its business decisions. These
decisions include, among others:
- the timing of the introduction and marketing of Jupiter's new
research products and services;
- the timing of Jupiter's conferences;
- changes in operating expenses; and
- the timing of acquisitions and their impact on Jupiter's
operations and operating results.
The sales of Jupiter's research products and services and the success
of Jupiter's conferences are difficult to forecast accurately. If Jupiter's
revenues fall short of expectations, it may not be able to adjust its fixed
expenses to compensate for this shortfall on a timely basis. Further, as a
strategy for remaining competitive, Jupiter may have to make pricing, service or
marketing decisions that could cause its business and financial results to
suffer.
Due to all the foregoing factors and other risks discussed in this
section, you should not rely on quarter-to-quarter comparisons of Jupiter's
results of operations as an indication of future performance.
<PAGE> 21
JUPITER'S REVENUES ARE SUBSTANTIALLY DEPENDENT ON THE SALE OF ITS RESEARCH
SERVICES.
Jupiter's business and financial results are dependent on Jupiter's
ability to attract and retain clients for its Research Services. In addition,
Jupiter's business model assumes that it will be able to increase the level of
research sales over time to Jupiter's existing clients. Revenues from the sale
of Research Services, as a percentage of Jupiter's total revenues, were 41.9% in
1998, 60.7% in 1999 and 57.8% for the six months ended June 30, 2000. Jupiter's
ability to attract and retain Research Services clients and its ability to
increase sales to existing clients are subject to a number of risks, including
the following:
- Jupiter may be unsuccessful in delivering high-quality and
timely research analysis to its clients;
- Jupiter may be unsuccessful in anticipating and understanding
market trends and the changing needs of its clients;
- the use of the Internet as a medium for commerce, both in the
United States and abroad, may not continue to grow as Jupiter
currently anticipates;
- Jupiter's marketing programs designed to attract and retain
clients may not succeed; and
- Jupiter may not be able to hire and retain a sufficiently
large number of research and sales personnel in a very
competitive job market.
JUPITER'S BUSINESS MAY SUFFER IF IT IS UNABLE TO ATTRACT ATTENDEES, SPONSORS AND
EXHIBITORS TO ITS CONFERENCES.
Jupiter's business and financial results depend in part on its ability
to attract attendees, sponsors and exhibitors to its growing number of
conferences. Revenues from conferences, as a percentage of Jupiter's total
revenues, were 33.2% in 1998, 29.6% in 1999 and 36.0% in the six months ended
June 30, 2000. Jupiter may not be able to select topics for its conferences that
potential attendees, sponsors and exhibitors will find timely and interesting.
Jupiter also cannot assure you that its competitors will not produce conferences
on similar topics or that Jupiter will continue to be able to attract prominent
industry leaders to participate in its conferences. If Jupiter is unable to
produce compelling events, if it faces increased competition for its conferences
or if it is unable to attract prominent speakers, the growth of Jupiter's
conference business will be hindered. Jupiter's business and financial results
may also suffer if it is forced to cancel any conferences as a result of
inclement weather or another unexpected event.
JUPITER'S BUSINESS MAY SUFFER IF IT PROVES UNABLE TO ANTICIPATE MARKET TRENDS OR
IF IT FAILS TO PROVIDE INFORMATION THAT IS USEFUL TO ITS CLIENTS.
Jupiter's success depends in large part on its ability to anticipate,
research and analyze rapidly changing technologies and industries and on its
ability to provide this information in a timely and cost-effective manner. If
Jupiter is unable to continue to provide credible and reliable information that
is useful to companies engaged in online commerce, or to provide this
information in a timely manner, Jupiter's business and financial results may
suffer.
Jupiter's research products and services, as well as its conferences,
focus on Internet commerce. Internet commerce is relatively new and is
undergoing frequent and dramatic changes, including the introduction of new
products and the obsolescence of others, shifting business strategies and
revenue models, the formation of numerous new companies and high rates of
growth. Because of these rapid and continuous changes in the Internet commerce
markets, Jupiter faces significant challenges in providing timely analysis and
advice. Many of the industries and areas on which Jupiter focuses are relatively
new, and it is very difficult to provide predictions and projections as to the
future marketplace, revenue models and competitive factors. In addition, many
companies have not embraced the use of the Internet as a medium for commerce and
are unclear as to how to allocate corporate resources effectively. As a result,
<PAGE> 22
some companies may conclude that Jupiter's research products are not useful to
their businesses. Further, the need to continually update Jupiter's research
requires the commitment by Jupiter of substantial financial and personnel
resources.
If Jupiter's predictions or projections prove to be wrong, or if
Jupiter is unable to continually update its information, Jupiter's reputation
may suffer and demand for its research products and services may decline. In
addition, if companies do not agree with Jupiter's analysis of market trends and
the areas on which Jupiter chooses to focus its efforts, Jupiter's business and
financial results may suffer.
JUPITER FACES INTENSE COMPETITION IN PROVIDING ITS RESEARCH PRODUCTS AND
SERVICES, AS WELL AS IN PRODUCING CONFERENCES, AND SUCH COMPETITION IS LIKELY TO
INCREASE IN THE FUTURE.
Jupiter may not be able to compete successfully against current or
future competitors, and the competitive pressures that it faces may cause
Jupiter's business and financial results to suffer. Jupiter's principal current
competitor is Forrester Research, Inc. In 1999, Gartner Group, Inc., a large
holder of Jupiter common stock, began competing directly in providing research
products related to Internet commerce. Although Gartner Group has not been
actively involved in Jupiter's day-to-day operations since it first invested in
Jupiter in October 1997, Jupiter has provided it with select confidential and
proprietary data. As a result, Gartner Group could use this confidential and
proprietary data in developing and marketing competing products and services. A
number of other companies compete with Jupiter in providing research and
analysis related to a specific industry or geographic area. In addition,
Jupiter's competitors include information technology research firms, business
consulting and accounting firms, electronic and print publishing companies and
equity analysts employed by financial services companies.
Jupiter's ability to compete both in the United States and abroad
depends upon many factors, many of which are outside of its control. Jupiter
believes that the primary competitive factors determining success in its markets
include the quality and timeliness of its research and analysis, its ability to
offer products and services that meet the changing needs of its customers, the
prices it charges for its various research products and general economic
conditions.
Jupiter expects competition to increase because of the business
opportunities presented by the growth of Internet commerce around the world.
Competition may also intensify as a result of industry consolidation, because
the markets in which Jupiter operates face few substantial barriers to entry or
because some of Jupiter's competitors may provide additional or complementary
services, such as consulting services. Increased competition may result in
reduced operating margins, loss of market share and diminished value in
Jupiter's products and services, as well as different pricing, service or
marketing decisions.
Jupiter's current and potential competitors include companies that may
have greater financial, information gathering and marketing resources than
Jupiter has. This may allow them to devote greater resources than Jupiter can to
the promotion of their brand and to the development and sale of their products
and services. Jupiter may not be able to compete successfully against current
and future competitors.
JUPITER COULD FACE ADDITIONAL RISKS AND CHALLENGES IF IT CONTINUES TO EXPAND
INTERNATIONALLY.
Jupiter's business plan calls for accelerated international growth. For
example, Jupiter recently opened offices in Munich, Germany, Tokyo, Japan and
Sydney, Australia. Expansion into new geographic territories requires
considerable management and financial resources and may negatively impact
Jupiter's near-term results of operations.
Jupiter's current international operations, as well as any future
international operations, are subject to numerous challenges and risks,
including, but not limited to, the following:
- political and economic conditions in various jurisdictions;
<PAGE> 23
- fluctuations in currency exchange rates;
- tariffs and other trade barriers;
- adverse tax consequences; and
- difficulties in protecting intellectual property rights in
international jurisdictions.
Jupiter also relies on local distributors in various countries,
including Singapore, Brazil, China, Taiwan, South Korea and Israel, to
distribute its Research Services. If any of these distribution arrangements are
terminated, Jupiter may not be able to replace the terminated arrangement with
an equally beneficial arrangement. Jupiter also intends to enter into additional
distribution arrangements in other countries, but it may not be able to do so on
acceptable terms. Jupiter's receipt of revenues from these distribution
arrangements may also be dependent on factors which are beyond its control,
including the efforts of the distributors.
JUPITER'S BUSINESS MAY SUFFER IF THE USE OF THE INTERNET AS A COMMERCIAL
MARKETPLACE DOES NOT CONTINUE TO GROW.
Because Jupiter focuses solely on Internet commerce, Jupiter's future
success depends on the continued development and acceptance of the Internet as a
viable commercial medium. However, the continued development and acceptance of
the Internet as a widely-used medium for commerce and communication is
uncertain. A number of factors could prevent such continued development and
acceptance, including the following:
- unwillingness of companies and consumers to shift their
purchasing from traditional vendors to online vendors;
- security and authentication concerns with respect to the
transmission of confidential information, such as credit card
numbers, over the Internet;
- privacy concerns, including those related to the ability of
Web sites to gather user information without the user's
knowledge or consent; and
- significant uncertainty about the demand and market acceptance
for Internet advertising and the lack of standards to measure
the effectiveness of Internet advertising.
LAWS AND REGULATIONS COULD SLOW THE GROWTH OF THE INTERNET AND NEGATIVELY AFFECT
THE ACCEPTANCE OF THE INTERNET AS A COMMERCIAL MEDIUM.
Laws and regulations regarding Internet companies and commercial
transactions conducted over the Internet could slow the growth in use of the
Internet generally and decrease the acceptance of the Internet as a commercial
medium. For example, as the popularity and use of the Internet increases, it is
possible that a number of laws and regulations may be adopted in the United
States or in other countries covering issues such as taxation, intellectual
property matters, advertising and other areas. Jupiter cannot predict the
impact, if any, that future laws or regulations may have on its business.
JUPITER'S BUSINESS MAY SUFFER IF JUPITER IS UNABLE TO MAINTAIN OR ENHANCE
AWARENESS OF THE JUPITER BRAND OR IF JUPITER INCURS EXCESSIVE EXPENSES
ATTEMPTING TO PROMOTE THE JUPITER BRAND.
Jupiter expects to expand its marketing activities to promote and
strengthen the Jupiter brand. Promoting and strengthening the Jupiter brand is
critical to Jupiter's efforts to attract and retain clients for its research
products, as well as to increase attendance at its conferences. Jupiter believes
that the importance of brand recognition will likely increase due to the
increasing number of competitors entering Jupiter's markets. In order to promote
the Jupiter brand, in response to competitive pressures or otherwise,
<PAGE> 24
Jupiter may find it necessary to increase its marketing budget, hire additional
marketing and public relations personnel or otherwise increase its financial
commitment to creating and maintaining brand loyalty among its clients. If
Jupiter fails to effectively promote and maintain the Jupiter brand, or incurs
excessive expenses attempting to promote and maintain the Jupiter brand, its
business and financial results may suffer.
JUPITER FACES POTENTIAL LIABILITY FOR INFORMATION THAT IT PUBLISHES, PROVIDES AT
CONFERENCES OR DISSEMINATES THROUGH ITS RESEARCH ANALYSTS.
As a publisher and distributor of original research, market projections
and trend analyses, Jupiter faces potential liability based on a variety of
theories, including defamation, negligence, copyright or trademark infringement,
and other legal theories based on the nature, publication or distribution of
this information. Claims of this kind, whether brought in the United States or
abroad, would likely divert management time and attention and could result in
significant cost to investigate and defend, regardless of the merit of any of
these claims. The filing of any claims of this kind may also damage Jupiter's
reputation as a high-quality provider of unbiased, timely analysis and result in
client cancellations or overall decreased demand for its products and services.
In addition, if Jupiter becomes subject to these types of claims and is not
successful in its defense, it may be forced to pay substantial damages.
Jupiter's insurance may not adequately protect it against these claims.
DISRUPTION OF JUPITER'S WEB SITE DUE TO SECURITY BREACHES AND SYSTEM FAILURES
COULD HARM JUPITER'S BUSINESS AND RESULT IN CLIENT CANCELLATIONS.
Jupiter's infrastructure and the infrastructure of Jupiter's service
providers are vulnerable to security breaches, computer viruses or similar
disruptive problems. These systems are also subject to telecommunications
failures, power loss and various other system failures. Any of these
occurrences, whether intentional or accidental, could lead to interruptions or
disruptions in the general operation of Jupiter's business. In addition, any of
these occurrences could also lead to interruptions, delays or cessation of
operation of Jupiter's Web site, which provides access to and distribution of
many of Jupiter's research products and services. For example, many Jupiter
Research Services clients pay Jupiter so that their employees can read Jupiter's
research solely on Jupiter's Web site. As a result, providing unimpeded access
to Jupiter's Web site is critical to servicing Jupiter's clients and providing
superior customer service. Jupiter's inability to provide continuous access to
its Web site could cause some of its clients to discontinue purchasing Jupiter's
research products and services, prevent or deter some people from purchasing
Jupiter's research products and services and harm its business reputation.
JUPITER MAY NOT BE ABLE TO PROTECT AND ENFORCE ITS INTELLECTUAL PROPERTY RIGHTS.
Jupiter provides its proprietary research products to hundreds of
different companies throughout the world, including some companies that compete
with Jupiter in some manner. As a result, any protective steps Jupiter has taken
may be inadequate to protect its intellectual property and to deter
misappropriation of the original research and analysis that Jupiter develops.
Jupiter also may be unable to detect the unauthorized use of its intellectual
property or take appropriate steps to enforce its intellectual property rights.
Moreover, effective trademark, copyright and trade secret protection may not be
available in every country in which Jupiter offers its research products and
services to the extent these protections are available in the United States.
Jupiter's failure to adequately protect its intellectual property,
either in the United States or abroad, could harm the Jupiter brand or its
trademarks, devalue its proprietary research and analysis and affect its ability
to compete effectively. Defending its intellectual property rights could result
in the expenditure of significant financial and managerial resources, which
could harm its financial results.
Furthermore, other parties may assert claims against Jupiter that
Jupiter has misappropriated a trade secret or infringed a patent, copyright,
trademark or other proprietary right belonging to them. Any infringement or
related claims, even if not meritorious, could be costly and time consuming to
litigate, may
<PAGE> 25
distract management from other tasks of operating the business and may result in
the loss of significant rights and the loss of Jupiter's ability to operate its
business.
JUPITER MAY NOT BE ABLE TO SUCCESSFULLY MAKE OR INTEGRATE ACQUISITIONS OF OTHER
COMPANIES, SERVICES OR PRODUCTS.
Jupiter has limited experience in acquiring other companies, services or
products. Although it has no present agreement, other than the merger agreement
with us, relating to any acquisition, it may make other acquisitions in the
future. However, Jupiter may not be able to complete future acquisitions
successfully or to integrate an acquired entity with its current business. In
addition, the key personnel of the acquired company may decide not to work for
Jupiter. If Jupiter makes other types of acquisitions, it could have difficulty
assimilating the acquired services or products. These difficulties could disrupt
its current business, distract its management and employees, increase its
expenses and adversely affect its financial results. Furthermore, Jupiter may
incur debt or issue equity securities to pay for any future acquisitions. The
issuance of equity securities could be dilutive to its existing stockholders'
interests.
JUPITER IS DEPENDENT ON KEY MANAGEMENT PERSONNEL FOR ITS FUTURE SUCCESS.
Jupiter's future success will depend in part on the continued service of a
number of key management personnel. Jupiter does not carry key person life
insurance on any of its management personnel. The loss of key management
personnel, in particular Gene DeRose, its Chief Executive Officer, or Kurt
Abrahamson, its President and Chief Operating Officer, could harm its business
and financial results.
FUTURE SALES OF JUPITER COMMON STOCK MAY NEGATIVELY AFFECT JUPITER'S STOCK
PRICE.
Sales of a substantial number of shares of Jupiter common stock in the
public market could cause the market price of its common stock to decline and
could impair its ability to raise additional capital through the sale of equity
securities.
JUPITER STOCK HAS EXPERIENCED, AND MAY CONTINUE TO EXPERIENCE PRICE AND VOLUME
FLUCTUATIONS.
The market price of Jupiter common stock has fluctuated in the past and is
likely to continue to be highly volatile and could be subject to wide
fluctuations. In addition, the market prices of the securities of
Internet-related companies have been especially volatile. These fluctuations
often have been unrelated or disproportionate to the operating performance of
these companies. These broad market and industry factors may materially
adversely affect the market price of Jupiter common stock regardless of
Jupiter's actual operating performance. In the past, companies that have
experienced volatility in the market price of their stock have been the object
of securities class action litigation. Any securities class action litigation,
it could result in substantial costs and divert the attention and resources of
Jupiter's management.
JUPITER CANNOT PREDICT FUTURE CAPITAL NEEDS, AND IT MAY NOT BE ABLE TO SECURE
ADDITIONAL FINANCING.
Jupiter may need to raise additional funds in the future to fund its
operations, to expand or enhance the range of products and services it offers or
to respond to competitive pressures and/or perceived opportunities. Jupiter
cannot be sure that additional financing will be available on terms favorable to
it, or at all. If adequate funds are not available when required or on
acceptable terms Jupiter may be forced to cease its operations, and even if it
were able to continue its operations, its business and financial results may
suffer.
USE OF PROCEEDS
We will not receive any of the proceeds of this offering.
<PAGE> 26
SELLING STOCKHOLDERS
The shares offered by this prospectus may be offered for sale from time to
time by the selling stockholders named below. We cannot estimate the amount of
shares that will be held by the selling stockholders after completion of this
offering because the selling stockholders may offer all or some of the shares
and because we do not know of any agreements, arrangements or understandings
concerning the sale of any of the shares. Other than as described in this
paragraph, none of the selling stockholders has had a material relationship with
us within the past three years other than as a result of the ownership of the
shares or other securities.
The following is a list of material relationships we have had with selling
stockholders during the last three years:
- Will Hodgman is an officer.
- Linden Rhoads, Daniel Weld, James Bartot, Craig Horman, Scott
Milburn and Richard LeFurgy are current or former employees,
directors or consultants of Media Metrix or AdRelevance.
- Jeffrey C. Levy is a former Director and Vice Chairman. Farm Neck
Partners, L.P. is a family limited partnership with which Mr. Levy
is affiliated.
- Osprey Research BV, an affiliate of SIFO Group AB, was a party to
the agreement pursuant to which we acquired MMXI Nordic. Osprey
Research BV is also the entity through which SIFO Group AB holds its
interest in MMXI Europe.
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 June 30, 2000, are treated as outstanding shares. Unless
otherwise noted, each person or group identified possesses sole voting and
investment power with respect to its shares, subject to applicable community
property laws.
The selling stockholders named below provided us the information contained
in the following table with respect to themselves and the respective amount of
common stock beneficially owned by them and that may be sold by each of them
under this prospectus. We have not independently verified this information.
According to information Jeffrey C. Levy provided, Mr. Levy and Farm Neck
Partners, L.P. own 1.4% of our outstanding common stock in aggregate. Mr. Levy
disclaims beneficial ownership of the shares owned by Farm Neck Partners, L.P.
According to information William Hodgman provided, Mr. Hodgman owns 1.8% of our
outstanding common stock. Each of the other selling stockholders owns less than
1% of our outstanding common stock. Beneficial ownership percentage is based on
19,841,896 shares of common stock outstanding as of June 30, 2000.
102,360 of the shares offered are subject to an escrow agreement executed
in connection with the AdRelevance merger. Shares subject to the escrow are
anticipated to be released from escrow on October 8, 2000, subject to the terms
and procedures of the escrow agreement.
<PAGE> 27
The following table shows the number of shares beneficially owned and
offered by each of the selling stockholders.
<TABLE>
<CAPTION>
SHARES OWNED SHARES
NAME BEFORE THE OFFERING OFFERED
---- ------------------- --------
<S> <C> <C>
William Hodgman .................. 350,868(1) 350,868(1)
Farm Neck Partners, L.P. ......... 219,451(2) 143,201
Jeffrey C. Levy .................. 219,451(2) 70,000
Linden Rhoads .................... 34,126(3) 31,665(4)
Osprey Research BV ............... 52,000 52,000
Daniel Weld ...................... 38,923(5) 32,360(6)
1998 Weld Children's Trust ....... 20,990(7) 20,990(7)
J.P. Morgan Pine Street
Corporation ..................... 14,917 14,917
Madrona Investment Group ......... 2,082(8) 2,082(8)
James Bartot ..................... 32,387(9) 8,096(10)
Craig Horman ..................... 32,387(11) 8,096(12)
Guide Fund II, LP. ............... 6,247(13) 6,247(13)
Redleaf Venture II, L.P. ......... 6,247(14) 6,247(14)
Northwest Venture Partners II, L.P 4,165(15) 4,165(15)
Scott Milburn .................... 399(16) 399(16)
VLG Investments 1999 ............. 364(17) 364(17)
Keith Grinstein .................. 2,342(18) 2,342(18)
Inland Northwest Investors, L.P .. 2,082(19) 2,082(19)
First Portland Corporation ....... 102(20) 102(20)
Richard LeFurgy .................. 1,657(21) 520(22)
Craig Sherman .................... 389(23) 389(23)
VLG Investments 1998 ............. 201(24) 201(24)
William W. Ericson ............... 121(25) 121(25)
CNA FBO Craig Sherman ............ 78(26) 78(26)
-------
Total ............................ 757,532
=======
</TABLE>
(1) Includes 62,060 shares subject to the escrow agreement.
(2) Consists of 70,000 shares of common stock owned by Mr. Levy and 143,201
shares of common stock owned by the Farm Neck Partners, L.P., a family
limited partnership with which Mr. Levy is affiliated. Includes 6,250
shares of options which are exercisable within 60 days from June 30, 2000
which were granted to Mr. Levy on May 24, 2000. Mr. Levy may be deemed the
beneficial owner of the shares held by Farm Neck Partners, L.P. Mr. Levy
disclaims beneficial ownership of the shares held by Farm Neck Partners,
L.P.
(3) Includes 8,293 shares subject to the escrow agreement. Includes 2,461
shares of common stock issuable upon exercise of options which are
exercisable within 60 days from June 30, 2000.
(4) Includes 8,293 shares subject to the escrow agreement.
(5) Includes 4,706 shares subject to the escrow agreement. Includes 6,563
shares of common stock issuable upon exercise of options which are
exercisable within 60 days from June 30, 2000.
(6) Includes 4,706 shares subject to the escrow agreement.
(7) Includes 2,332 shares subject to the escrow agreement.
(8) Consists of 2,082 shares subject to the escrow agreement.
(9) Includes 899 shares subject to the escrow agreement. Includes 24,291
shares of common stock issuable upon exercise of options which are
exercisable within 60 days from June 30, 2000.
(10) Includes 899 shares subject to the escrow agreement.
(11) Includes 899 shares subject to the escrow agreement. Includes 24,291
shares of common stock issuable upon exercise of options which are
exercisable within 60 days from June 30, 2000.
(12) Includes 899 shares subject to the escrow agreement.
(13) Consists of 6,247 shares subject to the escrow agreement.
(14) Consists of 6,247 shares subject to the escrow agreement.
(15) Consists of 4,165 shares subject to the escrow agreement.
<PAGE> 28
(16) Consists of 399 shares subject to the escrow agreement.
(17) Consists of 364 shares subject to the escrow agreement.
(18) Includes 520 shares subject to the escrow agreement.
(19) Consists of 2,082 shares subject to the escrow agreement.
(20) Consists of 102 shares subject to the escrow agreement.
(21) Includes 520 shares subject to the escrow agreement. Includes 1,137
shares of common stock issuable upon exercise of options which are
exercisable within 60 days from June 30, 2000.
(22) Consists of 520 shares subject to the escrow agreement.
(23) Includes 43 shares subject to the escrow agreement.
(24) Consists of 201 shares subject to the escrow agreement.
(25) Consists of 121 shares subject to the escrow agreement.
(26) Consists of 78 shares subject to the escrow agreement.
PLAN OF DISTRIBUTION
We are registering the common stock on behalf of the selling stockholders.
We will pay all expenses of the registration, except that the selling
stockholders will pay underwriting discounts, selling commissions, and fees and
expenses, if any, of counsel or other advisers to the selling stockholders.
The selling stockholders may sell the common stock offered in this
prospectus in one or more transactions on the Nasdaq National Market or in
negotiated transactions. These transactions may include:
- negotiated transactions;
- the writing of options; or
- a combination of these methods of sale.
These transactions may occur:
- at fixed prices that may be changed;
- at market prices prevailing at the time of sale;
- at prices related to such prevailing market prices; or
- at negotiated prices.
The selling stockholders may sell common stock to or through
broker-dealers, including broker-dealers who may act as underwriters. These
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the selling stockholders. This compensation may exceed
customary commissions. The selling stockholders may also:
- sell common stock pursuant to Rule 144 promulgated under the
Securities Act of 1933; or
- pledge common stock as collateral for margin accounts, and this
common stock could be resold pursuant to the terms of these
accounts.
The selling stockholders and any broker-dealers that act in connection
with the sale of the common stock may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act. Any commission received by them
and any profit on the resale of the common stock as principal might be deemed to
be underwriting discounts and commissions under the Securities Act. The selling
stockholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares against liabilities,
including liabilities arising under the Securities Act.
<PAGE> 29
Because the selling stockholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, the selling stockholders
must comply with prospectus delivery requirements under the Securities Act.
Furthermore, in the event of a "distribution" of the shares, the selling
stockholders, any selling broker or dealer and any "affiliated purchasers" may
be subject to Regulation M under the Exchange Act. Regulation M prohibits, with
some exceptions, any of these persons from bidding for or purchasing any
security that is the subject of the distribution until his participation in that
distribution is completed. Also, Regulation M prohibits, with some exceptions,
any "stabilizing bid" or "stabilizing purchase" for the purpose of pegging,
fixing or stabilizing the price of the common stock in connection with this
offering.
In order to comply with applicable state securities laws, the common stock
will not be sold in a particular state unless the common stock has been
registered or qualified for sale in that state or an exemption from registration
or qualification is available and complied with.
INCORPORATION BY REFERENCE
This prospectus is part of a registration statement (Registration No.
333-34388) we filed with the Commission. The Commission permits us to
'incorporate by reference' the information that we file with them, which means
that we can disclose important information to you by referring you to those
documents. The information incorporated by reference is considered to be part of
this prospectus, and information that we file with the Commission after the date
of this prospectus will automatically update and supercede this information. We
incorporate by reference the documents listed below filed by us with the
Commission. We also incorporate by reference any future filings made with the
Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934, as amended, after the date of this prospectus until the termination
of this offering.
1. Our Quarterly Report on Form 10-Q for the quarter ended June 30,
2000.
2. Our Current Report on Form 8-K dated June 27, 2000.
3. Our Quarterly Report on Form 10-Q for the quarter ended March 30,
2000.
4. Our Current Report on Form 8-K, dated March 20, 2000.
5. Our Annual Report on Form 10-K for the fiscal year ended December
31, 1999.
6. The description of our common stock which is contained in its
Registration Statement on Form 8-A filed under the Exchange Act on
May 3, 1999, including any amendment or reports filed for the
purpose of updating such description.
If you request a copy of any or all of the documents incorporated by
reference, we will send to you the copies requested at no charge. However, we
will not send exhibits to such documents unless such exhibits are specifically
incorporated by reference in such documents. You should direct requests for such
copies to: Gail A. Balcerzak, Esq., Secretary, Media Metrix, Inc., 250 Park
Avenue South, 7th Floor, New York, New York 10003.
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.
Attorneys at Fulbright & Jaworski L.L.P. own 1,000 shares of our common stock in
the aggregate.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K for
the year ended December 31, 1999, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
<PAGE> 30
statement. Our financial statements and schedule are incorporated by reference
in reliance on Ernst & Young LLP's reports, given on their authority as experts
in accounting and auditing.
Ernst & Young LLP, independent auditors, also have audited the financial
statements of AdRelevance, Inc. at December 31, 1998 and for the period from
October 12, 1998 (the date of AdRelevance's inception) to December 31, 1998 as
set forth in their report (which contains an explanatory paragraph describing
conditions that raise substantial doubt about AdRelevance's ability to continue
as a going concern as described in Note 1 to the financial statements). We have
included AdRelevance's 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 consolidated financial statements of Jupiter Communications, Inc. and
its subsidiaries as of December 31, 1999 and 1998, and for each of the years in
the three year period ended December 31, 1999, included in this prospectus have
been so included in reliance on the report of KPMG, LLP, independent
accountants, appearing elsewhere herein, upon their authority as experts in
auditing and accounting.
The financial statements of Internet Research Group as of December 31,
1998 and 1999, and for the years then ended, included in this prospectus have
been so included in reliance on the report of KPMG, LLP, independent
accountants, appearing elsewhere herein, upon their authority as experts in
auditing and accounting.
The financial statements of Net Market Makers as of December 31, 1999 and
for the year then ended, included in this prospectus have been so included in
reliance on the report of KPMG, LLP, independent accountants, appearing
elsewhere herein, upon their authority as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Commission a registration statement on Form S-3
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 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. We also file
annual, quarterly and special reports, proxy statements and other information
with the Commission. A copy of the registration statement and other documents we
file, 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. You may obtain information on the operation of the
Public Reference Room by calling the Commission at 1-800-SEC-0330. 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 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 implication
that the information contained herein or the affairs of Media Metrix.
<PAGE> 31
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
JUPITER COMMUNICATIONS, INC.
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1998, 1999
and June 30, 2000 (unaudited)............................. F-3
Consolidated Statement of Operations for the years ended
December 31, 1997, 1998, 1999 and for the six months ended
June 30, 1999 and 2000 (unaudited)........................ F-4
Consolidated Statements of Stockholders Equity/Members
Deficiency for the years ended December 31, 1997, 1998,
1999 and for the six months ended June 30, 2000
(unaudited)............................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998, 1999 and for the six months ended
June 30, 1999 and 2000 (unaudited)........................ F-6
Notes to Consolidated Financial Statements.................. F-7
INTERNET RESEARCH GROUP
Independent Auditors' Report................................ F-21
Balance Sheets as of December 31, 1998 and 1999............. F-22
Statements of Operations for the years ended December 31,
1998 and 1999............................................. F-23
Statements of Shareholders' Equity for the years ended
December 31, 1998 and 1999................................ F-24
Statements of Cash Flows for the years ended December 31,
1998 and 1999............................................. F-25
Notes to Financial Statements............................... F-26
NET MARKET MAKERS
Independent Auditors' Report................................ F-31
Balance Sheets as of December 31, 1999...................... F-32
Statements of Operations for the year ended December 31,
1999...................................................... F-33
Statements of Shareholders' Equity for the year ended
December 31, 1999......................................... F-34
Statements of Cash Flows for the year ended December 31,
1999...................................................... F-35
Notes to Financial Statements............................... F-36
ADRELEVANCE, INC.
Report of Independent Auditors.............................. F-40
Balance Sheets as of December 31, 1998 and September 30,
1999 (unaudited).......................................... F-41
Statements of Operations for the period from October 12,
1998 (inception) to December 31, 1998 and the nine months
ended September 30, 1999 (unaudited)...................... F-42
Statements of Shareholders' Equity (Deficit) for the period
from October 12, 1998 (inception) to December 31, 1998 and
the nine months ended September 30, 1999 (unaudited)...... F-43
Statements of Cash Flows for the period from October 12,
1998 (inception) to December 31, 1998 and the nine months
ended September 30, 1999 (unaudited)...................... F-44
Notes to Financial Statements............................... F-45
PRO FORMA INFORMATION
Unaudited Pro Forma Condensed Combining Financial
Information.............................................. F-56
Media Metrix Inc./Jupiter Communications, Inc. Unaudited
Pro Forma Condensed Combining Balance Sheet as of
June 30, 2000............................................ F-57
Media Metrix Inc./Jupiter Communications, Inc. Unaudited
Condensed Combining Statement of Operations for the six
months ended June 30, 2000............................... F-58
Jupiter Communications, Inc. Unaudited Pro Forma Condensed
Combining Statement of Operations for the six months
ended June 30, 2000...................................... F-59
Media Metrix, Inc./Jupiter Communications, Inc. Unaudited
Pro Forma Condensed Combining Statement of Operations
for the year ended December 31, 1999..................... F-60
Media Metrix, Inc. Pro Forma Condensed Combining Statement
of Operations for the year ended December 31, 1999....... F-61
Jupiter Communications, Inc. Unaudited Pro Forma
Condensed Combining Statement of Operations for
the year ended December 31, 1999.................... F-62
Notes to Unaudited Pro Forma Condensed Combining
Financial Statements.................................... F-63
</TABLE>
F-1
<PAGE> 32
JUPITER COMMUNICATIONS, INC.
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Jupiter Communications, Inc.
We have audited the accompanying consolidated balance sheets of Jupiter
Communications Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity/members'
deficiency and cash flows for each of the years in the three-year period ended
December 31, 1999. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedule as listed in
the accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Jupiter
Communications Inc. and subsidiaries, as of December 31, 1999 and 1998, and the
results of their operations and cash flows for each of the years in the
three-year period ended December 31, 1999 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, present fairly, in all material respects, the information set forth
therein.
/s/ KPMG LLP
New York, New York
February 7, 2000
F-2
<PAGE> 33
JUPITER COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1998 1999 2000
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 216,144 $57,222,154 $ 24,852,938
Short-term investments........................... -- 8,852,937 18,803,680
Accounts receivable, less allowance for doubtful
accounts of $37,915, $113,392 and $571,903 in
1998, 1999 and 2000, respectively............. 4,579,856 17,849,722 21,890,882
Marketable securities............................ -- -- 1,302,347
Prepaid expenses and other current assets........ 797,168 3,156,851 5,117,373
----------- ----------- ------------
Total current assets.......................... 5,593,168 87,081,664 71,967,220
Property and equipment, net........................ 1,071,432 5,131,095 9,602,445
Goodwill and other intangible assets, net.......... 54,791 4,526,071 52,753,765
Other assets....................................... 147,630 440,744 7,928,199
----------- ----------- ------------
Total assets.................................. $ 6,867,021 $97,179,574 $142,251,629
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY/MEMBERS
DEFICIENCY
Current liabilities:
Accounts payable................................. $ 1,241,618 $ 2,764,013 $ 4,371,630
Accrued expenses................................. 208,843 1,178,619 6,258,617
Accrued compensation............................. 841,624 2,515,680 2,432,604
Convertible note payable......................... -- -- 1,123,466
Deferred revenue................................. 6,677,233 25,594,018 34,652,218
----------- ----------- ------------
Total current liabilities..................... 8,969,318 32,052,330 48,838,535
Deferred rent...................................... 26,477 129,716 847,229
Convertible notes payable.......................... -- 3,500,000 --
Common stock, $0.001 par value: 100,000,000 shares
authorized, 14,499,573 and 15,561,752 shares
issued and outstanding at December 31, 1999 and
June 30, 2000, respectively...................... -- 14,500 15,561
3,506,265 63,212,533 93,659,241
Additional paid-in capital.........................
Deferred compensation.............................. -- (504,819) (432,700)
Retained earnings (accumulated deficit)............ (5,635,039) (1,290,623) 1,675,384
Accumulated other comprehensive income(loss)....... -- 65,937 (2,351,621)
----------- -----------
Total stockholders' equity/members'
deficiency.................................. (2,128,774) 61,497,528 92,565,865
Commitments and contingencies...................... -- -- --
----------- ----------- ------------
Total liabilities and stockholders'
equity/members' deficiency.................. $ 6,867,021 $97,179,574 $142,251,629
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 34
JUPITER COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Research Services............. $ 1,850,154 $ 6,183,188 $23,133,867 $ 8,166,289 $24,798,563
Conferences................... 3,426,079 4,889,703 11,269,950 4,552,796 15,422,791
Other......................... 3,228,919 3,674,934 3,680,468 1,672,178 2,662,772
----------- ----------- ----------- ----------- -----------
Total revenues............. 8,505,152 14,747,825 38,084,285 14,391,263 42,884,126
Cost of services and
fulfillment................... 6,259,433 9,675,838 16,897,660 6,853,869 15,851,305
----------- ----------- ----------- ----------- -----------
Gross profit............. 2,245,719 5,071,987 21,186,625 7,537,394 27,032,821
Other operating expenses:
Sales and marketing........... 1,557,676 3,173,368 11,383,673 4,008,079 11,236,301
General and administrative
expenses................... 2,855,589 3,897,096 10,100,267 3,351,368 13,491,322
Depreciation and
amortization............... 99,751 193,410 1,278,241 316,987 3,271,199
----------- ----------- ----------- ----------- -----------
Total other operating
expenses................. 4,513,016 7,263,874 22,762,181 7,676,434 27,998,822
Interest income................. 17,000 54,506 743,484 8,545 1,613,501
Gain on sale of investments..... -- -- -- -- 5,932,101
----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes......................... (2,250,297) (2,137,381) (832,072) (130,495) 6,579,601
Income tax benefit (expense).... -- -- 202,000 -- (3,613,594)
----------- ----------- ----------- ----------- -----------
Net income (loss).......... $(2,250,297) $(2,137,381) $ (630,072) $ (130,495) $ 2,966,007
=========== =========== =========== =========== ===========
Pro forma basic net income
(loss) per common share....... $ (0.21) $ (0.05) $ (0.01) $ 0.20
=========== =========== =========== ===========
Pro forma diluted net income
(loss) per common share....... $ (0.21) $ (0.05) $ (0.01) $ 0.18
=========== =========== =========== ===========
Pro forma basic weighted average
common shares outstanding..... 10,318,359 11,564,816 10,454,736 15,005,993
=========== =========== =========== ===========
Pro forma diluted weighted
average common shares
outstanding................... 10,318,359 11,564,816 10,454,736 16,320,524
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 35
JUPITER COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY/MEMBERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND UNAUDITED SIX MONTHS
ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED TOTAL
------------------- ADDITIONAL OTHER STOCKHOLDERS'
NUMBER PAR PAID-IN DEFERRED ACCUMULATED COMPREHENSIVE EQUITY/MEMBERS
OF SHARES VALUE CAPITAL COMPENSATION DEFICIT INCOME DEFICIENCY
---------- ------ ---------- ------------ ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996..... -- -- 533,051 -- (1,247,361) -- (714,310)
Contributions made by members.... 2,996,175 2,996,175
Distributions paid to members.... (22,961) (22,961)
Net loss......................... (2,250,297) (2,250,297)
---------- ------ ---------- -------- ---------- ---------- ----------
Balance at December 31, 1997..... -- -- 3,506,265 -- (3,497,658) -- 8,607
Net loss......................... (2,137,381) (2,137,381)
---------- ------ ---------- -------- ---------- ---------- ----------
Balance at December 31, 1998..... -- -- 3,506,265 -- (5,635,039) -- (2,128,774)
Exercise of member unit
options........................ 500,000 500,000
Issuance of units on acquisition
of Intelligence AB............. 808,300 808,300
Exercise of employee unit
options........................ 39,500 39,500
Issuance of units on acquisition
of New Media Holdings PTY
Ltd............................ 320,000 320,000
Issuance of unit options to
employees...................... 576,937 (576,937) --
Issuance of common stock on
conversion from LLC to a "C"
corporation.................... 11,222,327 11,222 (4,985,710) 4,974,488 --
Initial public offering proceeds,
net............................ 3,258,750 3,259 62,433,167 62,436,426
Amortization of deferred
compensation................... 72,118 72,118
Exercise of stock option plans... 18,496 19 14,074 14,093
Comprehensive loss:
Net loss....................... (630,072) (630,072)
Cumulative translation
adjustment................... 65,937 65,937
----------
Total comprehensive loss..... (564,134)
---------- ------ ---------- -------- ---------- ---------- ----------
Balance at December 31, 1999..... 14,499,573 14,500 63,212,533 (504,819) (1,290,623) 65,937 61,497,528
---------- ------ ---------- -------- ---------- ---------- ----------
Exercise of stock option plans
(unaudited).................... 140,989 141 158,597 158,738
Amortization of deferred
compensation (unaudited)....... 72,119 72,119
Issuance of shares on
acquisitions (unaudited)....... 855,724 855 29,119,609 29,120,464
Issuance of common stock
(unaudited).................... 65,466 65 1,168,502 1,168,567
Comprehensive income
Net income (unaudited)......... 2,966,007 2,966,007
Unrealized losses on marketable
securities (unaudited)....... (2,398,817) (2,398,817)
Cumulative translation
adjustment (unaudited)....... (18,741) (18,741)
----------
Total comprehensive income... 548,449
---------- ------ ---------- -------- ---------- ---------- ----------
Balance at June 30, 2000
(unaudited)..................... 15,561,752 15,561 93,659,241 (432,700) 1,675,384 (2,351,621) 92,565,865
========== ====== ========== ======== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 36
JUPITER COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------- --------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................... $(2,250,297) $(2,137,381) $ (630,072) $ (130,495) $ 2,966,007
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Equity loss from investment in Methodfive LLC........ 35,000 22,230 26,510 26,510 --
Non-cash gain related to investment in Methodfive
LLC................................................ -- -- -- -- (5,744,601)
Depreciation and amortization........................ 99,751 193,410 1,278,241 316,987 3,288,373
Accretion of discount on convertible note payable.... -- -- 57,377 -- --
Provision for allowance for doubtful accounts........ 25,483 (13,568) 98,672 (8,981) 219,252
Amortization of deferred compensation................ -- -- -- -- 72,119
Deferred tax asset................................... -- -- (202,000) -- --
Changes in operating assets and liabilities, net of
effect of acquisitions:
Accounts receivable................................ (328,142) (3,430,058) (13,379,720) (3,896,180) (2,514,312)
Prepaid expenses and other current assets.......... 13,073 (656,106) (2,329,067) (955,305) (1,698,067)
Other assets....................................... 3,815 (79,589) (117,624) (66,841) 70,037
Accounts payable................................... 397,337 38,040 1,375,400 (429,002) 1,187,900
Accrued expenses and accrued compensation.......... 298,300 606,858 2,594,592 708,072 4,810,608
Deferred revenue................................... 657,280 4,902,230 18,736,891 7,514,609 5,892,868
Deferred rent...................................... (13,138) (3,016) 103,239 146,128 717,513
----------- ----------- ------------ ---------- ------------
Net cash provided by (used in) operating
activities.................................... (1,061,538) (556,950) 7,612,439 3,225,502 9,267,697
----------- ----------- ------------ ---------- ------------
Cash flows from investing activities:
Capital expenditures................................... (206,842) (838,037) (4,893,654) (2,263,121) (5,262,684)
Investment in Internet Content Report.................. (25,000) -- -- -- --
Repayment of loan, related party....................... -- -- -- --
Investments in marketable securities................... -- -- (8,852,937) -- --
Purchase of investments................................ -- -- -- -- (15,409,704)
Cash paid in connection with acquisition, net of cash
acquired............................................. -- -- 103,425 -- (19,811,479)
----------- ----------- ------------ ---------- ------------
Net cash used in investing activities........... (231,842) (838,037) (13,643,166) (2,263,121) (40,483,867)
----------- ----------- ------------ ---------- ------------
Cash flows from financing activities:
Issuance of common stock............................... -- -- 62,436,426 -- 1,168,503
Member contributions, net.............................. 2,996,175 -- -- -- --
Exercise of options.................................... -- -- 553,592 375,000 158,339
Distributions paid to members.......................... (22,961) -- -- -- --
Repayment of notes payable............................. (70,000) -- -- -- (2,460,524)
Principal payments under capital lease obligation...... (3,447) (2,919) -- -- --
----------- ----------- ------------ ---------- ------------
Net cash provided by (used in) financing
activities.................................... 2,899,767 (2,919) 62,990,018 375,000 (1,133,682)
----------- ----------- ------------ ---------- ------------
Increase (decrease) in cash and cash
equivalents................................... 1,606,387 (1,397,906) 56,959,291 1,337,381 (32,349,852)
----------- ----------- ------------ ---------- ------------
Effect of exchange rate changes on cash and cash
equivalents............................................ -- -- 46,719 -- (19,364)
Cash and cash equivalents at beginning of period......... 7,663 1,614,050 216,144 216,144 57,222,154
----------- ----------- ------------ ---------- ------------
Cash and cash equivalents at end of period............... $ 1,614,050 $ 216,144 $ 57,222,154 $1,553,525 $ 24,852,938
=========== =========== ============ ========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for interest................. 8,694 11,855 -- -- --
=========== =========== ============ ========== ============
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of intangible asset by issuance of
convertible notes payable.............................. -- -- 3,442,623 -- --
Acquisition of goodwill acquired by issuance of stock.... -- -- 1,128,300 -- --
Acquisition of Internet Research Group for stock
issued................................................. -- -- -- -- 20,399,375
Gain on sale of investment in Methodlive LLC by getting
shares of Xceed, Inc. ................................. -- -- -- -- 5,744,601
Mark-down of investment in Xceed, Inc., based on market
value, net of deferred tax $2,043,437.................. -- -- -- -- 4,442,254
Acquisition of Net Market Makers for stock issued........ -- -- -- -- 8,721,090
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 37
JUPITER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
(1) ORGANIZATION
Jupiter Communications, LLC (the "LLC") was organized on December 1, 1994
as a New York limited liability company. On October 8, 1999, in connection with
the completion of our initial public offering, the LLC was merged with and into
Jupiter Communications, Inc., a Delaware corporation ("Jupiter" or the
"Company"). Jupiter is a new media research firm that provides comprehensive
views of industry trends, forecasts and business decisions about the internet
economy. The Company's research services encompass Jupiter Research Services,
conferences, newsletters, book-length studies, and custom research reports and
provide clients and customers with focused research and strategic planning
support as they develop interactive products and services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The Company's consolidated financial statements as of and for the year
ended December 31, 1999 include the accounts of the Company, the accounts of
Intelligence SE AB("Intelligence"), a Swedish research company, from July 31,
1999 (date of acquisition) and the accounts of New Media Holdings PTY, Ltd.("New
Media Holdings"), an Australian research company, from October 7, 1999 (date of
acquisition). The consolidated financial statements for the prior year periods
include only the accounts of Jupiter. All significant inter-company balances and
transactions have been eliminated in consolidation.
(b) Unaudited Interim Financial Information
The interim financial statements of the Company for the six months ended
June 30, 1999 and 2000, included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). Certain information and note disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations relating to interim
financial statements.
In the opinion of management, the accompanying unaudited interim financial
statements reflect all adjustments consisting only of normal recurring
adjustments necessary to present fairly the financial position of the Company as
of June 30, 2000, and the results of its operations and cash flows for the six
months ended June 30, 1999 and 2000.
(c) Use of Estimates
The accompanying financial statements are prepared in accordance with U.S.
generally accepted accounting principles (GAAP). In preparing financial
statements in conformity with GAAP, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenue and expenses during the reporting period. Actual results
could differ from those estimates.
(d) Currency Translation and Transactions
The reporting currency for the Company is the United States Dollar (USD).
The functional currency for the Company's operations is generally the applicable
local currency. Accordingly, the assets and liabilities of the subsidiaries
whose functional currency is other than the USD are included in the consolidated
financial statements by translating the assets and liabilities into the
reporting currency at the exchange rates applicable at the end of the reporting
year. The statements of operations and cash flows of such non-USD functional
F-7
<PAGE> 38
JUPITER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
currency operations are translated at the average exchange rate for the
reporting year. Translation gains or losses are accumulated as a separate
component of stockholders' equity/ members' deficiency. Currency transaction
gains or losses arising from transactions of the Company in currencies other
than the functional currency are included in operations for each reporting
period.
(e) Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less at the time of acquisition to be cash
equivalents. Cash equivalents at December 31, 1999 consist primarily of
investments in highly rated debt securities. There were no cash equivalents at
December 31, 1998.
(f) Short-term Investments
Management determines the appropriate classification of marketable debt
securities at the time of purchase and re-evaluates such designation as of each
balance sheet date. At December 31, 1999, the Company's investment portfolio
consisted of marketable debt securities classified as held-to-maturity, as
management has both the intent and ability to hold these securities to maturity,
and is carried at amortized cost, which approximates fair value. Income relating
to these securities is reported as interest income.
(g) Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair market value, less costs to sell.
(h) Property and Equipment
Property and equipment are stated at cost. Depreciation is provided by the
straight-line method over the estimated useful lives of the respective assets,
which range from three to five years. Leasehold improvements are amortized on a
straight-line basis over the shorter of the lease term or their estimated useful
life. Additions and major improvements are capitalized, whereas the cost of
maintenance and repairs is charged to operations as incurred.
(i) Goodwill and Other Intangible Assets
Goodwill, resulting from business acquisitions and other intangible assets
are being amortized on a straight-line basis over their expected period of
benefit ranging from three to five years. Goodwill and other intangible assets
are stated net of total accumulated amortization of $95,209 and $451,742 at
December 31, 1998 and December 31, 1999, respectively.
(j) Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and deferred revenues approximated fair value
because of the relatively short maturity of these instruments. At December 31,
1999, it was not practicable to estimate the fair value of the convertible notes
payable for the acquisition of rights to profits from the Plug-in conference,
because there were no quoted market prices.
F-8
<PAGE> 39
JUPITER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(k) Stock-Based Compensation
The company accounts for stock based compensation under the intrinsic-value
based method of accounting prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issues to Employees," and discloses the
effect of the difference in applying the fair value based method of accounting
on a pro-forma basis, as required by SFAS No. 123 "Accounting for Stock-Based
Compensation."
(l) Pro Forma Basic and Diluted Net Loss per Common Share
Pro forma basic and dilutive net loss per common share is computed by
dividing net loss by the pro forma weighted average number of common shares
outstanding for the period. Pro forma weighted average number of common shares
gives effect to the Company's reorganization from a limited liability company to
a corporation as though the organization had occurred as of January 1, 1998. Pro
forma weighted average number of common shares does not include any common stock
equivalents because inclusion of common stock equivalents would have been
anti-dilutive.
(m) Revenue and Deferred Revenue Commission Expense Recognition
Jupiter Research Services revenues are deferred and then reflected
proportionally in operations over the term of the service period, which is
generally up to one year. Conference revenues are reflected in operations when
the conference occurs. Newsletter subscriptions are deferred and then reflected
proportionally in operations over the term of the subscription, which is
generally up to one year. Book-length studies and custom research are reflected
in operations when the product is shipped.
Deferred revenue is composed of prepaid Jupiter Research Services fees to
be earned in the future over the term of the service period, prepaid conference
sponsorship/exhibition fees to be earned from conferences held after the balance
sheet date, and prepaid newsletter subscriptions to be earned in the future over
the term of the subscriptions.
(n) Cost of Revenues and Commission Expense Recognition
Cost of revenues is primarily comprised of cost of research analysts,
direct costs incurred for conferences, payroll and travel related to Jupiter
Research Services product. The Company records prepaid commissions related to
Jupiter Research Services upon the signing of the contract and amortizes this
corresponding prepaid commission expense over the contract period in which the
related revenues are earned and amortized to income.
(o) Income Taxes
Prior to October 8, 1999, Jupiter Communications LLC (the "LLC") was
treated as a partnership for income tax purposes, and accordingly, income or
loss attributed to the LLC's operations was allocated to its members to be
reported on their separate income tax returns. Tax net operating losses incurred
during this period are not available to offset the Company's future taxable
income, if any.
On October 8, 1999, the LLC was merged with and into the Company, a
Delaware corporation, and the surviving entity. Effective on this date, income
taxes are accounted for under Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes. The Company recognizes both the current and
deferred tax consequences of all transactions that have been recognized in the
financial statements. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
results of operations in the period that the tax change occurs. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
F-9
<PAGE> 40
JUPITER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(p) Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. Cash is deposited with high credit quality financial institutions
and cash equivalents consist of highly rated debt securities. The Company's
customers are concentrated in the United States. The Company performs ongoing
credit evaluations of its customers' financial condition and generally does not
require collateral and establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of customers, historical trends and other
information. To date, such losses have been within management's expectations.
For each of the years in the three-year period ended December 31, 1999, no
customer accounted for more than 10% of revenues generated by the Company, or of
accounts receivable at December 31, 1999 and 1998.
(q) Net Loss per Share
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings Per Share". Basic net income per share is computed by dividing the net
income available to common stockholders for the period by the weighted average
number of common shares outstanding during the period. Diluted net income per
share is computed by dividing the net income for the period by the weighted
average number of common and common equivalent shares outstanding during the
period. Common equivalent shares, composed of incremental common shares issuable
upon the exercise of stock options and warrants, are included in net income per
share to the extent such shares are dilutive. Common stock equivalents were not
included in loss per share for any periods presented since they are
anti-dilutive.
(r) Recent Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1") which provides
guidance for determining whether computer software is internal-use software and
on accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. SOP 98-1 will be effective for the
Company's fiscal year ending December 31, 1999. The adoption of SOP 98-1 did not
have a material impact on the Company's consolidated financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" which establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income generally represents all changes in
stockholders' equity during the period except those resulting from investments
by or distributions to, stockholders. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997 and requires restatement of earlier periods
presented. The adoption of this standard has modified the Company's
stockholders' equity and had no impact on the Company's results of operations,
financial position or cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information" which establishes standards for the way
that a public enterprise reports information about operating segments in annual
financial statements, and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997, and requires
restatement of earlier periods presented. In the initial year of application,
comparative information for earlier years must be restated. The Company has no
reportable operating segments and adoption of this standard had no impact on the
Company's financial statements.
F-10
<PAGE> 41
JUPITER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, and for hedging activities. SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. This
statement is not expected to affect the Company as it currently does not engage
or plan to engage in derivative instruments or hedging activities.
(s) Reclassification
Certain reclassifications have been made in prior years' financial
statements to conform to classifications used in the current year.
(3) ACQUISITIONS
Intelligence SE AB
On July 31, 1999, Jupiter acquired all of the stock of Intelligence, in
exchange for 137,000 Class B (non-voting) units at an aggregate value of
$808,300. The total purchase price for this transaction was $868,795, which
includes expenses incurred by the Company of $60,495 related to the merger.
Net liabilities acquired in the transaction were $133,151. The historical
carrying amounts of such net liabilities approximated their fair value. The
difference between the purchase price and the fair value of the acquired net
liabilities of Intelligence was recorded as goodwill in the amount of $1,001,946
and is being amortized on a straight line basis over its estimated useful life
of 4 years, the expected period of benefit.
New Media Holdings PTY, Ltd.
On October 7, 1999, Jupiter acquired all of the stock of New Media
Holdings, in exchange for 20,000 Class B (non-voting) units at an aggregate
value of $320,000. The total purchase price for this transaction was $383,244,
which includes expenses incurred by the Company of $13,244 related to the merger
and a $50,000 note receivable that was outstanding at time of acquisition.
As there were no assets or liabilities at the time of the acquisition, the
purchase price of $383,244 was recorded as goodwill, which is being amortized on
a straight-line basis over its estimated useful life of 4 years, the expected
period of benefit.
The following unaudited pro forma consolidated financial information gives
effect to the acquisition of Intelligence and New Media Holdings, as if they had
occurred as of January 1, 1998, after giving effect to adjustment for
amortization of goodwill. The pro forma financial information does not
necessarily reflect the consolidated results of operations that would have
occurred had the Company, Intelligence and New Media Holdings constituted a
single entity during such periods:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Revenues.................................................... $14,910,825 $38,672,915
Net loss.................................................... (2,700,679) (1,371,192)
Net loss per share.......................................... (0.26) (0.12)
</TABLE>
F-11
<PAGE> 42
JUPITER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
-------- ----------
<S> <C> <C>
Deferred Jupiter Research Services commissions.............. $632,406 $2,341,242
Prepaid conference expenses................................. 101,974 315,683
Other....................................................... 62,788 499,926
-------- ----------
$797,168 $3,156,851
======== ==========
</TABLE>
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- -----------
<S> <C> <C>
Computer equipment.......................................... $ 758,428 $ 3,341,164
Furniture and fixtures...................................... 178,892 728,936
Office equipment............................................ 96,623 295,897
Leasehold improvements...................................... 385,603 1,962,803
---------- -----------
1,419,546 6,328,800
Less accumulated depreciation and amortization.............. (348,114) (1,197,705)
---------- -----------
$1,071,432 $ 5,131,095
========== ===========
</TABLE>
Depreciation and amortization expense for 1997, 1998 and 1999 was $73,084,
$163,410 and $849,591, respectively.
(6) GOODWILL AND OTHER INTANGIBLE ASSETS
In June 1995, the Company acquired substantially all of the assets of the
Internet Business Report ("IBR") in exchange for a $140,000 promissory note,
payment of which was completed during 1997. The purchase price of $140,000 was
allocated as follows: $62,500 to the IBR subscriber list $62,500 to the IBR
trademark; and $15,000 for the editorial costs which were subsequently written
off. In 1999 the Company ceased publication of the Internet Business Report, and
any remaining amounts allocated to the subscriber list and trademark were
expensed.
In September 1997, the Company purchased the rights and interests in the
trademark "Internet Content Report" for $25,000. This included a subscriber list
with information regarding current and former subscribers. The purchase price
was allocated equally between the subscriber list and the trademark.
In November 1999, the Company purchased substantially all of the rights to
a portion of the net profits from "Plug-In," one of the annual conferences
sponsored by the Company, as well as the trademark. The aggregate purchase price
was $3.85 million, which was paid through the issuance of two $1.925 million
zero-coupon convertible promissory notes with a maturity date of January 7,
2001. The trademark has been recorded at the present value of the convertible
notes payable at $3,442,623.
F-12
<PAGE> 43
JUPITER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill and other intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- ESTIMATED
1998 1999 LIFE OF ASSET
-------- ---------- -------------
<S> <C> <C> <C>
Goodwill:
Sweden......................................... $ 0 $1,001,946 4
Australia...................................... 0 383,244 4
-------- ----------
0 1,385,190
Internet Content Report:
Subscriber list................................ $ 12,500 $ 12,500 5
Trademark...................................... 12,500 12,500 5
-------- ----------
25,000 25,000
Internet Business Report:
Subscriber list................................ 62,500 62,500 5
Trademark...................................... 62,500 62,500 5
-------- ----------
125,000 125,000
Plug-In Trademark................................ -- 3,442,623 3
-------- ----------
Gross goodwill and intangible assets............. 150,000 4,977,813
Less accumulated amortization.................... (95,209) (451,742)
-------- ----------
$ 54,791 $4,526,071
======== ==========
</TABLE>
Amortization expense for 1997, 1998 and 1999 was $26,667, $30,000 and
$356,533, respectively.
(7) OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
Investment in Methodfive, LLC............................... $ 26,510 $ 0
Security Deposits........................................... 121,120 238,744
Deferred Taxes Assets, non-current.......................... 0 202,000
-------- --------
$147,630 $440,744
======== ========
</TABLE>
Jupiter has an investment in Methodfive LLC ("Methodfive"), formerly the
Myriad Agency, LLC, a Web site design and consulting company. For the years
ended December 31, 1998 and 1999, Methodfive experienced a net loss from
operations and the Company recorded its share of the loss in the accompanying
consolidated statements of operations. Jupiter's cumulative interest in
Methodfive as of December 31, 1998 and 1999 was approximately 17.4% and 8.0%,
respectively, and has been accounted for under the equity method.
As of December 31, 1999 the Company has fully written down its investment
as a result of the current financial position and recurring losses of
Methodfive. The Company has no future funding responsibilities with respect to
Methodfive and has an 8.0% passive interest.
F-13
<PAGE> 44
JUPITER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) CONVERTIBLE NOTES PAYABLE
Notes payable reflects the two promissory notes issued on November 2, 1999,
as consideration for purchase of additional rights to the net profits of the
Plug-in conference. The aggregate purchase price of $3.85 million was paid to
the Sellers through the issuance of two $1.925 million zero-coupon convertible
promissory notes. Each convertible promissory note provides for a maturity date
of January 7, 2001 and allows the holder of each convertible promissory note to
convert, at any time prior to the maturity date, all of the outstanding
indebtedness into 55,000 shares of the Company's common stock or to redeem the
notes for cash at a discount of 10% per annum, during the period commencing
April 14, 2000 and ending on April 24, 2000. In addition, each convertible
promissory note allows the Company after twelve months from the date of the
notes, and under certain circumstances, to convert all of the outstanding
indebtedness into shares of the Company's common stock and for the holder, under
certain circumstances, to redeem in cash all or a portion of the outstanding
indebtedness. These notes have been reflected as convertible notes payable on
the consolidated balance sheet. In February 2000, the Company repaid one of the
notes at its accreted value of $1,760,524 on that date.
(9) DEFERRED REVENUE
Deferred revenue consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
---------- -----------
<S> <C> <C>
Jupiter Research Services.................................. $5,638,847 $21,908,305
Conferences................................................ 783,912 3,111,032
Newsletter and other miscellaneous......................... 254,474 574,681
---------- -----------
$6,677,233 $25,594,018
========== ===========
</TABLE>
(10) OTHER REVENUES
Other revenues consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Book length studies............................ $1,518,545 $1,681,114 $1,807,971
Newsletter subscriptions....................... 1,492,000 1,470,380 502,385
Custom research................................ -- -- 990,000
Other.......................................... 218,374 523,440 380,112
---------- ---------- ----------
$3,228,919 $3,674,934 $3,680,468
========== ========== ==========
</TABLE>
(11) STOCKHOLDERS' EQUITY/MEMBERS DEFICIENCY
During October 1997, Gartner Group, Inc. ("acquirer") purchased 3,515,624
Class C units of the Company for $8 million from both the Company and existing
members. The Company amended its operating agreement to allow current members to
sell all or part of their units to the acquirer. During 1997, existing members
sold 2,197,265 units for $5.0 million, and 1,318,359 units were purchased from
the Company for $3.0 million and recorded as capital contributions by the
Company, less $254,098 in offering costs. Class A and Class B units sold by
existing members to the acquiror automatically converted to Class C units upon
transfer on a one-for-one basis to the acquiror. Three members sold 100% of
their units to the acquiror. In addition, during 1997 capital contributions of
$250,273 were made by existing Class A and Class B equity members. During 1998,
an existing member sold 333,333 units for $1.25 million to the acquiror. After
completion of the
F-14
<PAGE> 45
JUPITER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
transactions, the acquirer owned 37.3% of all outstanding units as of December
31, 1998, and has two seats on the Board of Directors.
On July 31, 1999, the LLC acquired all of the stock of Intelligence, in
exchange for 137,000 Class B units.
On October 6, 1999, the LLC acquired all of the stock of New Media Holdings
in exchange for 20,000 Class B units.
On October 8, 1999, 100% of the members' units in the LLC were exchanged at
the ratio of 1:1 for the common shares in Jupiter Communications, Inc. Total
number of units exchanged for equal number of common shares was 11,222,327.
On October 14, 1999, Jupiter completed its IPO, which resulted in the sale
by the Company of 3,258,750 shares of common stock at $21.00 per share on the
Nasdaq National Market. The Company's net proceeds from the IPO, after deducting
underwriting discounts and offering expenses, were $62,433,167.
(12) OPTIONS
(a) 1997 Option Plan
During 1997, the Company established the 1997 Employee Unit Option Plan
(the "Plan"). Under the Plan, 1,590,000 Class B units shall be available for
grant. In 1999, the equity members authorized an increase in the number of units
reserved for issuance under the Plan from 1,590,000 to 2,750,000. Unit options
may be granted to key employees of the Company upon selection by the managing
members. The exercise price of a unit option shall be equal to the established
fair market value of the unit at the time of grant, in accordance with the
provisions of the Plan. These options vest ratably over a four-year period.
All unit options have a fixed term determinable by the managing members,
but no option shall be exercisable more than seven years after the date of
grant. Option exercisability is subject to the terms and conditions as
determined by the managing members. All unit options were granted with an
exercise price equal to the fair market value on the date of grant.
In July 1999, the Company issued 113,125 unit options to certain employees
at $5.90 per unit. The fair value of the Company's unit during July 1999 was
$11.00 per unit. Accordingly, the Company recorded deferred compensation of
approximately $576,937, representing the difference between the deemed fair
value of the Company's unit at the date of each grant and the exercise price of
the related options. The amount is presented as a reduction of stockholders'
equity/members' deficiency and amortized over the 4 year vesting period of the
applicable units. The Company has amortized $72,118 of total deferred
compensation in 1999.
On conversion of the Company from the LLC to an incorporated company, all
units were assumed by the incorporated company on a 1:1 ratio. No further
options will be granted under this plan.
(b) 1999 Option Plan
During 1999, the Company established the 1999 Stock Incentive Plan (the
"1999 Plan"). Under the 1999 Plan, 5,000,000 shares will be available for grant
or issuance. The exercise price per share shall be equal to the established fair
market value per share at the time of the grant, in accordance with the
provisions of the 1999 Plan. Options granted under the 1999 Plan vest ratably
over a four-year period. No option shall be exercisable more than ten years
after the date of grant.
F-15
<PAGE> 46
JUPITER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The activity under the combined Plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED
UNIT AVERAGE
OPTIONS EXERCISE
GRANTED PRICE
--------- --------
<S> <C> <C>
Outstanding at December 31, 1996............................ --
Granted..................................................... 725,957 $ .50
---------
Outstanding at December 31, 1997............................ 725,957 $ .50
---------
Granted..................................................... 563,000 $2.08
---------
Outstanding at December 31, 1998............................ 1,288,957 $1.19
---------
Granted..................................................... 1,803,359 $7.64
Exercised................................................... (97,496) $ .55
Canceled.................................................... (134,238) $3.21
---------
Outstanding at December 31, 1999............................ 2,860,582 $5.19
=========
</TABLE>
The Company applies APB No. 25 and related interpretations in accounting
for its stock options issued to employees. Under APB No. 25, because the
exercise price of the Company's employee stock options equal the fair value of
the underlying common stock on the date of grant, no compensation cost has been
recognized for its stock option grants to employees and directors except for the
113,125 unit options granted in July 1999. Had compensation cost for the
Company's stock option grants been determined based on the fair value at the
grant date for awards consistent with the method of SFAS No. 123, the Company's
net loss would have increased the pro forma amounts for each year indicated
below:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net Loss:
As Reported............................... $(2,250,297) $(2,137,381) $ (630,072)
=========== =========== ===========
Pro Forma................................. (2,269,162) (2,216,536) (1,552,231)
=========== =========== ===========
</TABLE>
The resulting effect on the pro forma net loss disclosed for the year ended
December 31, 1997, 1998, and 1999 is not likely to be representative of the
effects on the net loss on a pro forma basis in the future years, because the
pro forma results include the impact of only one and two years respectively, of
grants and relating vesting, while subsequent years will include additional
grants and vesting.
The fair value of each option is estimated on the date of grant using the
Black Scholes method option-pricing model with the following weighted average
assumptions used for grants in 1997, 1998, 1999: dividend yield of zero (0%)
percent, risk-free interest rate ranging from 6% to 8% and expected life of 4
years. As permitted under the provisions of SFAS No. 123 and based on the
historical lack of a public market for the Company's stock, no factor for
volatility has been reflected in the option pricing calculation for 1997 and
1998. For 1999, the volatility factor is assumed to be 94.6%.
F-16
<PAGE> 47
JUPITER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about options outstanding under
the Plan at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.50 618,973 4.4 years $ 0.50 554,525 $0.50
$ 1.75 396,125 5.4 $ 1.75 144,938 $1.75
$ 3.00 931,025 6.1 $ 3.00 34,001 $3.00
$ 5.90 455,625 6.5 $ 5.90 -- --
$11.00 109,000 6.7 $11.00 -- --
$16.00 240,000 6.9 $16.00 -- --
$30.25 - $38.50 109,834 9.9 $31.30 -- --
--------- ------ -------
2,860,582 $ 5.23 733,464
========= ====== =======
</TABLE>
At December 31, 1999, the range of exercise prices and weighted-average
remaining contractual life of outstanding unit options under the Plan was
$0.50-$38.50 and 5.9 years, respectively.
In addition to the units granted under the Plans, during November 1996, the
Company granted unit investment options to three equity members in conjunction
with contributions made by those equity members. A total of 667,968 unit
investment options were granted at a weighted average exercise price of $0.75.
All unit options were granted with an exercise price equal to the fair market
value on the date of grant and were immediately vested. During 1999 all three
equity members exercised all 667,968 unit investment options prior to the
initial public offering.
(13) EMPLOYEE BENEFIT PLANS
(a) Employee Stock Purchase Plan
The 1999 Employee Stock Purchase Plan ("ESPP") was adopted by the board of
directors and approved by the stockholders. The plan became effective
concurrently with the IPO. The plan is designed to allow eligible employees of
Jupiter and its participating subsidiaries to purchase shares of the Company's
common stock, at semi-annual intervals, through periodic payroll deductions. A
total of 500,000 shares may be issued under the plan.
The plan will have a series of successive offering periods, each with a
maximum duration of 24 months. However, the initial offering period will end on
the last business day in October 2001. The next offering period will begin on
the first business day in November 2001, and subsequent offering periods will be
set by our compensation committee.
A participant may contribute up to 15% of his or her cash earnings through
payroll deductions and the accumulated payroll deductions will be applied to the
purchase price of shares on the participant's behalf on each semi-annual
purchase date (the last business day in April and October of each year). The
purchase price will be 85% of the lower of the fair market value of our common
stock on the participant's entry date into the offering period or the fair
market value on the semi-annual purchase date. The first purchase date will
occur on the last business day in April 2000. In no event, however, may any
participant purchase more than 850 shares, nor may all participants in the
aggregate purchase more than 125,000 shares on any one semi-annual purchase
date. Should the fair market value of the common stock on any semi-annual
purchase date be less than the fair market value on the first day of the
offering period, then the current offering period will automatically end and a
new offering period will begin, based on the lower market value.
F-17
<PAGE> 48
JUPITER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1999 contributions totaling $481,911 had been made to
the ESPP and are reflected as accounts payable on the consolidated balance
sheet.
(b) 401(k) Profit Sharing Plan
The Company has a 401(k) profit sharing plan for its employees. Employees
who have completed one year of service and attained age 21 are eligible to
participate. The Company makes a matching contribution equal to 50% for every
one dollar of each participant's contribution and applies such matching
percentage to the participant's salary reduction, up to 6% of the participant's
compensation. During 1997, 1998 and 1999, the Company's matching contribution
was $12,435, $38,882 and $145,351, respectively.
(14) COMMITMENTS AND CONTINGENCIES
(a) Office Leases
The Company leases office space at various locations. The future minimum
lease payments under non-cancelable operating leases (with initial or remaining
lease terms in excess of one year) as of December 31, 1999 are:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
2000........................................................ $1,235,816
2001........................................................ 1,201,361
2002........................................................ 1,244,208
2003........................................................ 1,271,483
2004........................................................ 620,597
2005 and thereafter......................................... 2,725,293
----------
$8,298,758
==========
</TABLE>
Rent expense for the years ended December 31, 1997, 1998 and 1999 was
$335,063, $303,061 and $751,413, respectively.
During November 1999, the Company terminated its existing London operating
lease agreement that was due to expire in April 2005 and signed a new
thirteen-year operating lease agreement for a substantially larger parcel of
office space. The lease agreement calls for monthly payments with no scheduled
increase in succeeding periods, although the rent amount can be reviewed in
November 2002 and November 2007. The future payments related to this new lease
agreement are reflected in the above schedule.
During January 1999, the Company terminated its existing New York operating
lease agreements that were due to expire in May 2000 and December 2001 and
signed a new five-year operating lease agreement with the same landlord. The new
lease agreement covers the same office space as the terminated lease agreement
as well as additional office space. In connection with this lease agreement, the
Company received two months of free rent. The agreement also calls for scheduled
increases in succeeding periods. As such, the Company records rent expense on a
straight-line basis. The future payments related to this new lease agreement are
reflected in the above schedule, and the deferred rent balance as of December
31, 1999 reflects the impact of the new lease.
F-18
<PAGE> 49
JUPITER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Equipment Lease
Future minimum lease payments under non-cancelable operating leases as of
December 31, 1999 are:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
2000........................................................ $ 80,416
2001........................................................ 80,416
2002........................................................ 63,906
2003........................................................ 33,960
2004........................................................ 9,750
Thereafter.................................................. --
--------
Total..................................................... $268,448
========
</TABLE>
(15) INCOME TAXES
Income before provision for income taxes for the year ended December 31,
1999 consisted of:
<TABLE>
<S> <C>
Domestic Income -- LLC...................................... $ 875,682
Domestic Loss -- Corporate.................................. (1,215,394)
Foreign Loss................................................ (492,360)
-----------
$ (832,072)
===========
</TABLE>
The income tax benefit for the year ended December 31, 1999 of $202,000 is
entirely due to deferred tax benefits. The Company had no income tax provision
for the years ended December 31, 1997 and 1998, as it was a LLC during those
years, and all taxes were the responsibility of the members.
At December 31, 1999, for U.S. income tax purposes, the Company had
approximately $736,000 of net operating loss carryforwards from October 8, 1999
through December 31, 1999. Such net operating losses begin expiring in 2019.
The Company has determined that approximately $382,000 of net deferred tax
assets at December 31, 1999 did not satisfy the realization criteria set forth
in SFAS No. 109, Accounting for Income Taxes. Management believes that based on
all available evidence, it is more likely than not that a portion of the
deferred tax assets will not be realized. Accordingly, a valuation allowance was
recorded to reduce the deferred tax assets to the amount expected to be
realized.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities are presented below:
<TABLE>
<S> <C>
Deferred tax assets:
Accounts receivable due to allowance for doubtful
accounts.................................................. $ 15,000
Accrued expenses............................................ 55,000
Fixed assets due to differences in book vs. tax
depreciation.............................................. 62,000
U.S. net operating loss carryforwards....................... 314,000
Foreign net operating loss carryforwards.................... 138,000
---------
Gross deferred tax assets................................. 584,000
Valuation allowance......................................... (382,000)
---------
Net deferred tax assets..................................... $ 202,000
=========
</TABLE>
F-19
<PAGE> 50
JUPITER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT PROVISION FOR
BEGINNING OF DOUBTFUL BALANCE AT
YEAR ACCOUNTS DEDUCTIONS END OF YEAR
------------ ------------- ---------- -----------
<S> <C> <C> <C> <C>
For the year ended December 31, 1997
Allowance for doubtful accounts........... $26,000 $25,483 $ -- $ 51,483
======= ======= ======== ========
For the year ended December 31, 1998
Allowance for doubtful accounts........... $51,483 $ -- $(13,568) $ 37,915
======= ======= ======== ========
For the year ended December 31, 1999
Allowance for doubtful accounts........... $37,915 $98,672 $(23,195) $113,392
======= ======= ======== ========
</TABLE>
(17) SUBSEQUENT EVENTS -- UNAUDITED
The Company has reached definitive agreements to acquire all of the stock
of two privately held companies, Internet Research Group, and Net Market Makers,
for an aggregate consideration of approximately $50.6 million in cash and common
stock. The Company completed its acquisition of Internet Research Group in March
2000. The Company expects to close on the acquisition of Net Market Makers prior
to April 15, 2000. The Company will record the acquisitions under the purchase
method of accounting.
F-20
<PAGE> 51
INTERNET RESEARCH GROUP
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Internet Research Group:
We have audited the accompanying balance sheets of Internet Research Group
(the Company) as of December 31, 1998 and 1999, and the related statements of
operations, shareholders' equity, and cash flows for the years then ended. 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 Internet Research Group as
of December 31, 1998 and 1999, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
San Francisco, California
March 16, 2000
F-21
<PAGE> 52
INTERNET RESEARCH GROUP
BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
-------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 46,116 $ --
Trade accounts receivable, less allowance for doubtful
accounts of $0 and $119,721 in 1998 and 1999,
respectively........................................... 580,483 1,000,966
Employee receivable....................................... 1,100 1,100
-------- ----------
Total current assets................................... 627,699 1,002,066
Property and equipment, net............................... 29,268 85,700
Costs and estimated earnings in excess of billings on
contracts in progress.................................. 47,055 --
Security deposits......................................... 10,713 15,196
-------- ----------
Total assets........................................... $714,735 $1,102,962
======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft............................................ $ -- $ 8,253
Trade accounts payable.................................... 72,215 257,340
Accrued liabilities....................................... 76,012 317,274
Deferred revenue.......................................... 294,149 281,948
Borrowings under line of credit........................... -- 100,000
Loan payable to shareholders.............................. 110,000 --
-------- ----------
Total current liabilities.............................. $552,376 $ 964,815
======== ==========
Commitments
Shareholders' equity:
Common stock, no par value; 10,000,000 shares authorized;
5,000,000 and 6,250,000 shares issued and outstanding
in 1998 and 1999, respectively......................... $ 1,000 $2,459,990
Deferred compensation expense............................. -- (1,494,672)
Retained earnings (accumulated deficit)................... 161,359 (827,171)
-------- ----------
Total shareholders' equity............................. 162,359 138,147
-------- ----------
Total liabilities and shareholders' equity............. $714,735 $1,102,962
======== ==========
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE> 53
INTERNET RESEARCH GROUP
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Revenue:
Consulting and other services revenue..................... $2,271,460 $3,791,660
Other income.............................................. 81,179 35,438
---------- ----------
Total revenue.......................................... 2,352,639 3,827,098
Expenses:
Selling, general, and administrative (excluding stock
compensation expense of $0 and $963,068 in 1998 and
1999, respectively).................................... 2,346,941 3,850,175
Stock compensation expense................................ -- 963,068
---------- ----------
Operating income (loss)................................ 5,698 (986,145)
Interest income............................................. 3,652 2,925
Interest expense............................................ (2,666) (4,510)
---------- ----------
Income (loss) before income taxes...................... 6,684 (987,730)
Income tax expense.......................................... 800 800
---------- ----------
Net income (loss)...................................... $ 5,884 $ (988,530)
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE> 54
INTERNET RESEARCH GROUP
STATEMENTS OF SHAREHOLDERS' EQUITY
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK DEFERRED EARNINGS TOTAL
----------------------- COMPENSATION (ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT EXPENSE DEFICIT) EQUITY
--------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balances as of December 31,
1997...................... 5,000,000 $ 1,000 -- $ 303,475 $ 304,475
Distributions to
shareholders.............. -- -- -- (148,000) (148,000)
Net income.................. -- -- -- 5,884 5,884
--------- ---------- ----------- --------- ---------
Balances as of December 31,
1998...................... 5,000,000 1,000 -- 161,359 162,359
Purchase of common stock by
shareholders.............. 1,250,000 32,500 -- -- 32,500
Contribution by
shareholders.............. -- 825,000 -- -- 825,000
Compensation expense for
options................... -- 1,601,490 $(1,601,490) -- --
Amortization of deferred
compensation expense...... -- -- 106,818 -- 106,818
Net loss.................... -- -- -- (988,530) (988,530)
--------- ---------- ----------- --------- ---------
Balances as of December 31,
1999...................... 6,250,000 $2,459,990 $(1,494,672) $(827,171) $ 138,147
========= ========== =========== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE> 55
INTERNET RESEARCH GROUP
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 5,884 $(988,530)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation........................................... 17,370 17,956
Amortization of deferred compensation expense.......... -- 106,818
Issuance of common stock for services.................. -- 856,250
Changes in operating assets and liabilities:
Accounts receivable, net............................. (235,325) (420,483)
Costs and estimated earnings in excess of billings on
contracts in progress............................... (47,055) 47,055
Other assets......................................... 14,263 (4,483)
Trade accounts payable............................... 53,123 185,125
Accrued liabilities.................................. 11,930 241,262
Deferred revenue..................................... 294,149 (12,201)
--------- ---------
Net cash provided by operating activities......... 114,339 28,769
--------- ---------
Cash flows used in investing activities -- purchase of
property and equipment................................. (39,211) (74,388)
--------- ---------
Cash flows from financing activities:
Distributions to shareholders.......................... (148,000) --
Purchase of common stock by new shareholders........... -- 1,250
Proceeds from line of credit........................... -- 100,000
Proceeds from loans from shareholders.................. 110,000 --
Repayment of loans from shareholders................... -- (110,000)
--------- ---------
Net cash used in financing activities............. (38,000) (8,750)
--------- ---------
Net increase (decrease) in cash and cash equivalents...... 37,128 (54,369)
Cash and cash equivalents at beginning of year............ (8,253) 46,116
--------- ---------
Cash and cash equivalents at end of year.................. $ 28,875 $ (8,253)
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest............................................. $ 2,666 $ 4,510
========= =========
Income taxes......................................... $ 800 $ 800
========= =========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE> 56
INTERNET RESEARCH GROUP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) Description of Business
Internet Research Group (the Company) is a research and consulting firm
that specializes in developing business, sales, and market development
strategies for Internet-related companies. The Company helps high technology
companies through a combination of extensive interviews, market segmentation,
and modeling. The research and publishing division, founded in 1997, produces
in-depth technology and market analysis services and other information,
communication, and consulting services that define and characterize Internet
markets.
(b) Consulting and Other Services Revenue
Consulting and other services revenue consists of consulting services,
reports, and Website sponsorship revenues, as well as reimbursement of certain
expenses by customers.
Revenue for consulting services performed is recognized using the
percentage-of-completion method as the costs of performing the work are
incurred. Periodic reviews are made as work progresses and a provision is made
for any estimated unrecoverable amounts. Anticipated losses on contracts in
progress are provided in full when known.
Report revenue is recognized upon shipment of final report to customer.
Website sponsorship revenue is recognized over the term of the contract.
The asset "costs and estimated earnings in excess of billings on contracts
in progress" represents revenue recognized in advance of billings. The liability
"deferred revenue" represents billings in excess of revenue recognized.
(c) Cash and Cash Equivalents
Cash and cash equivalents of $46,116 as of December 31, 1998 consist of
checking and money market accounts with a bank. The Company considers all highly
liquid debt instruments with remaining maturities of three months or less when
acquired to be cash equivalents.
(d) Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets of three to
five years.
(e) Income Taxes
The Company has received S corporation status from the Internal Revenue
Service. Under the applicable statutory rules for Federal tax purposes, income
and loss of an S corporation flow through to the shareholder of the corporation
and are not taxed at the corporate level. The state of California, however,
assesses a franchise tax equal to the greater of $800 or 1 1/2% of taxable
income for corporations electing S corporation status.
(f) 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-26
<PAGE> 57
INTERNET RESEARCH GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(g) Comprehensive Income
Effective January 1, 1998, the Company adopted the provisions of the
Financial Accounting Standards Board's (FASB) Statement of Financial Accounting
Standards (SFAS) No. 130, Reporting Comprehensive Income. SFAS No. 130
established standards for the display of comprehensive income and its components
in a full set of financial statements. Comprehensive income includes all changes
in equity during a period except those resulting from the issuance of shares of
stock and distributions to shareholders. There were no differences between net
income and comprehensive income during the years ended December 31, 1998 and
1999.
(h) Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, sets forth
accounting and reporting standards for stock-based employee compensation. As
permitted by SFAS No. 123, the Company accounts for stock option grants using
the intrinsic-value method in accordance with Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Deferred compensation expense associated with stock-based
compensation is being amortized on a straight-line basis over the vesting period
of the individual award.
(i) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of. This statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
(2) RELATED PARTY TRANSACTIONS
Loans Payable to Shareholders
The Company had loans payable to shareholders totaling $110,000 as of
December 31, 1998. The loans were repaid in full on January 29, 1999. There were
no loans outstanding as of December 31, 1999. Interest expense incurred on the
loans was approximately $0 and $1,100 in 1998 and 1999, respectively.
F-27
<PAGE> 58
INTERNET RESEARCH GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) CONTRACTS IN PROGRESS
Information with respect to the billing status of consulting contracts in
progress as of December 31, 1998 and 1999, is as follows:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Costs incurred on contracts in progress..................... $ 47,055 $ 271,034
Estimated earnings.......................................... -- 180,690
--------- ---------
47,055 451,724
Less billings to date....................................... 294,149 733,672
--------- ---------
$(247,094) $(281,948)
========= =========
Included in the accompanying balance sheets under the
following captions:
Costs and estimated earnings in excess of billings on
contracts in progress..................................... 47,055 --
Deferred revenue............................................ $(294,149) $(281,948)
========= =========
$(247,094) $(281,948)
========= =========
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1998 and 1999, consisted of the
following:
<TABLE>
<CAPTION>
1998 1999
------- --------
<S> <C> <C>
Office Equipment............................................ $28,079 $ 95,248
Furniture and fixtures...................................... 10,932 17,947
------- --------
Less accumulated depreciation............................... 39,011 113,195
9,743 27,495
------- --------
Net property and equipment................................ $29,268 $ 85,700
======= ========
</TABLE>
(5) CREDIT FACILITIES
In 1999, the Company secured a line of credit in the amount of $250,000
bearing interest at prime plus 1.5% (10.0% as of December 31, 1999). As of
December 31, 1999, $100,000 was outstanding under the line of credit. The line
of credit is secured by assets of the Company. All amounts outstanding under the
line of credit are fully payable upon demand by lender.
(6) LEASE COMMITMENTS
The Company is obligated under noncancelable operating leases for office
space, that expire through 2001. Future minimum lease payments under
noncancelable operating leases as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
2000........................................................ $141,000
2001........................................................ 139,000
--------
$280,000
========
</TABLE>
F-28
<PAGE> 59
INTERNET RESEARCH GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Rental expense for the operating leases was $123,000 and $125,000 for 1998
and 1999, respectively.
(7) 401(k) PLAN AND PROFIT SHARING PLAN
All eligible employees are covered by a defined contribution plan pursuant
to Section 401(k) of the Internal Revenue Code. The Company contributes a
matching contribution of 25% of the first 5% of employee contributions. Matching
contributions totaled $6,414 and $18,666 in 1998 and 1999, respectively.
The Company has a profit sharing plan covering all eligible employees.
Company contributions are made at the discretion of the Company. The Company
contributed $53,383 and $45,334 to the plan during the years ended December 31,
1998 and 1999, respectively.
(8) COMMON STOCK AND STOCK OPTION PLAN
(a) Stock Option Plan
In 1999, the Company adopted a stock plan (the Plan) pursuant to which the
Company's Board of Directors may grant stock options and stock purchase rights
to officers and employees. The 1999 Plan authorizes grants of options and rights
to purchase up to 1,850,000 shares of authorized but unissued common stock.
All options vest ratably and become fully exercisable after four years from
the date of grant and expire after ten years.
As of December 31, 1999, options for 633,000 shares had been granted under
the Plan with an exercise price of $0.001. No options have been exercised or
forfeited.
As of December 31, 1999, there were 1,217,000 shares available for grant
under the Plan.
(b) Stock Grants and Purchases
In January 1999, 1,250,000 shares of common stock were purchased by new
shareholders for a total consideration of $1,250. The fair value of these shares
totaled $32,500. The difference between the fair value and the consideration
received was recorded as compensation expense in 1999.
In June 1999, 750,000 shares of common stock, valued at $825,000, were
given up by certain founding shareholders and reallocated to certain newer
shareholders. This reallocation was accounted for as a contribution to capital
by the founding shareholders and compensation expense to the receiving
shareholders.
(c) Stock Compensation
The Company uses the intrinsic-value method prescribed by APB Opinion No.
25 in accounting for its stock-based compensation arrangements for employees.
Compensation cost has been recognized for certain fixed stock options issuances
and stock grants in 1999 in the accompanying financial statements because the
fair value of the underlying common stock equals or exceeds the exercise price
of the stock options or the amount paid for the stock at the date of grant. No
compensation cost has been recognized for stock options granted at an exercise
price equal to the fair market value of the stock on the date of grant.
The Company has recorded deferred stock compensation expense of $1,601,490
for the difference at the grant date between the exercise price and the fair
value of the common stock underlying the stock options granted for the year
ended December 31, 1999. This deferred compensation expense is being amortized
on a straight-line basis over the vesting period of four years. Amortization of
deferred compensation of $106,818 was recognized for the year ended December 31,
1999.
F-29
<PAGE> 60
INTERNET RESEARCH GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The per share fair value of stock options granted during 1999 was $2.53, on
the date of grant using the Black-Scholes option-pricing model (excluding a
volatility assumption) with the following weighted-average assumptions: expected
dividend yield of 0%, risk-free interest rate of 6.33%, and an expected life of
four years.
Compensation expense associated with unrestricted stock grants of $857,500
was expensed at the time the stock was granted. The per share value of the stock
granted during 1999 ranged from $0.03 to $1.10.
Had compensation cost for the Company's stock-based compensation plan been
determined consistent with the fair value approach set forth in SFAS No. 123,
the compensation cost would be substantially the same as the compensation cost
determined under the intrinsic-value method.
(d) Stock Splits
Share information for all periods have been retroactively adjusted to
reflect a 10-for-1 split of common stock effective in November 1999.
(9) BUSINESS AND CREDIT CONCENTRATION
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of trade accounts receivable.
The Company has not experienced significant credit losses in the past.
No individual customer accounted for more than 10% in 1998 or 1999 of the
Company's total revenues. Three and two customers comprised 35% and 32% of
accounts receivable as of December 31, 1998 and 1999, respectively.
(10) SUBSEQUENT EVENT
On March 16, 2000, the Company was acquired by Jupiter Communications
(Jupiter). The shareholders in the Company received 581,044 shares of Jupiter
common stock and options to purchase 61,456 shares of Jupiter common stock, in
exchange for all common stock and stock options outstanding. All options issued
by the Company were fully vested upon the acquisition.
F-30
<PAGE> 61
NET MARKET MAKERS
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Net Market Makers:
We have audited the accompanying balance sheet of Net Market Makers (the
Company) as of December 31, 1999, and the related statements of operations,
shareholders' equity, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides 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 Net Market Makers as of
December 31, 1999, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ KPMG LLP
March 27, 2000
F-31
<PAGE> 62
NET MARKET MAKERS
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 463,418 $ 1,504,940
Accounts receivable....................................... 92,070 1,368,000
Prepaid expenses.......................................... 119,841 39,825
Deferred tax asset........................................ 0 40,000
----------- -----------
Total current assets................................... 675,329 2,952,765
Property and equipment, net................................. 40,266 46,924
Other assets................................................ 25,199 24,779
----------- -----------
Total assets........................................... $ 740,794 $ 3,024,468
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued payable and other liabilities..................... $ 38,217 $ 192,006
Accrued payroll........................................... 65,991 71,825
Accrued shareholder distributions......................... 282,791 282,791
Accrued income taxes...................................... 0 165,970
Deferred revenue.......................................... 133,568 1,901,148
----------- -----------
Total current liabilities.............................. 520,567 2,613,740
Commitments and contingencies
Shareholders' equity:
Common stock; $0.01 par value; 10,000,000 shares
authorized; 8,800,000 and 7,667,526 shares issued and
outstanding as of December 31, 1999 and March 31, 2000,
respectively........................................... 88,000 76,675
Additional paid-in capital.................................. 4,462,378 2,363,734
Deferred compensation....................................... (3,654,084) 0
Shareholder loans........................................... (120,656) (45,832)
Accumulated deficit......................................... (555,411) (1,983,849)
----------- -----------
Total shareholders' equity............................. 220,227 410,728
----------- -----------
$ 740,794 $ 3,024,468
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE> 63
NET MARKET MAKERS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ----------------------
1999 1999 2000
------------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revenue:
Conference events..................................... $2,821,934 $ 0 $ 1,427,642
Other................................................. 145,622 50,739 171,221
---------- ------- -----------
Total revenue...................................... 2,967,556 50,739 1,598,863
---------- ------- -----------
General and administrative expenses:
Personnel............................................. 1,155,167 37,525 416,200
Conferences........................................... 658,459 900 374,208
Stock-based compensation.............................. 745,916 0 1,618,939
Consultants........................................... 269,281 204 173,728
Other................................................. 248,796 12,804 327,660
---------- ------- -----------
Total general and administrative expenses.......... 3,077,619 51,433 2,910,735
---------- ------- -----------
Operating loss..................................... (110,063) (694) (1,311,872)
Interest income......................................... 9,511 13 7,304
---------- ------- -----------
Net loss before taxes.............................. (100,552) (681) (1,304,568)
Income tax expense...................................... 10,000 0 123,870
---------- ------- -----------
Net loss........................................... $ (110,552) $ (681) $(1,428,438)
========== ======= ===========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE> 64
NET MARKET MAKERS
STATEMENTS OF SHAREHOLDERS' EQUITY
(FOR THE YEAR ENDED DECEMBER 31, 1999 AND UNAUDITED THREE MONTHS ENDED MARCH 31,
2000)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL SHAREHOLDER
PARTNERS' --------------------- PAID-IN DEFERRED NOTE ACCUMULATED
CAPITAL SHARES AMOUNT CAPITAL COMPENSATION RECEIVABLES DEFICIT
--------- ---------- -------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial partners' contribution....... $ 30,659 0 $ 0 $ 0 $ 0 $ 0 $ 0
Issuance of common stock in exchange
for partnership capital
contribution....................... (30,659) 7,100,000 71,000 (40,341) 0 0 0
Common stock purchased in exchange
for note receivable................ 0 1,700,000 17,000 4,502,719 (4,400,000) (119,719) 0
Amortization of stock-based
compensation....................... 0 0 0 0 745,916 0 0
Interest on shareholder loan......... 0 0 0 0 0 (937) 0
Net loss............................. 0 0 0 0 0 0 (110,552)
Distributions to shareholders........ 0 0 0 0 0 0 (444,859)
-------- ---------- -------- ----------- ----------- --------- -----------
Balance at December 31, 1999......... 0 8,800,000 88,000 4,462,378 (3,654,084) (120,656) (555,411)
Common stock returned in exchange for
reduction in note receivable
(unaudited)........................ 0 (1,062,500) (10,625) (2,099,344) 2,035,145 74,824 0
Common stock returned for no
consideration (unaudited).......... 0 (69,974) (700) 700 0 0 0
Amortization of stock-based
compensation (unaudited)........... 0 0 0 0 1,618,939 0 0
Net loss (unaudited)................. 0 0 0 0 0 0 (1,428,438)
-------- ---------- -------- ----------- ----------- --------- -----------
Balance as of March 31, 2000
(unaudited)........................ $ 0 7,667,526 $ 76,675 $ 2,363,734 $ 0 $ (45,832) $(1,983,849)
======== ========== ======== =========== =========== ========= ===========
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
-------------
<S> <C>
Initial partners' contribution....... $ 30,659
Issuance of common stock in exchange
for partnership capital
contribution....................... 0
Common stock purchased in exchange
for note receivable................ 0
Amortization of stock-based
compensation....................... 745,916
Interest on shareholder loan......... (937)
Net loss............................. (110,552)
Distributions to shareholders........ (444,859)
-----------
Balance at December 31, 1999......... 220,227
Common stock returned in exchange for
reduction in note receivable
(unaudited)........................ 0
Common stock returned for no
consideration (unaudited).......... 0
Amortization of stock-based
compensation (unaudited)........... 1,618,939
Net loss (unaudited)................. (1,428,438)
-----------
Balance as of March 31, 2000
(unaudited)........................ $ 410,728
===========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE> 65
NET MARKET MAKERS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ----------------------
1999 1999 2000
------------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(110,552) $ (681) $(1,428,438)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation........................................... 1,038 0 4,066
Interest on shareholder note receivable................ (937) 0 0
Stock compensation expense............................. 745,916 0 1,618,939
Deferred income taxes.................................. 0 0 125,970
Changes in operating assets and liabilities:
Prepaid expenses..................................... (119,841) 0 80,016
Accounts receivable.................................. (92,070) 0 (1,275,930)
Accrued liabilities.................................. 38,217 0 153,789
Accrued payroll...................................... 65,991 0 5,834
Deferred revenue..................................... 133,568 24,230 1,767,580
--------- ------- -----------
Net cash provided by operating activities......... 661,330 23,549 1,051,826
--------- ------- -----------
Cash flows from investing activities:
Purchase of property and equipment........................ (41,304) 0 (10,304)
Purchase of intangible assets............................. (25,199) 0 0
--------- ------- -----------
Net cash used in investing activities............. (66,503) 0 (10,304)
--------- ------- -----------
Cash flows from financing activities:
Capital contribution...................................... 30,659 789 0
Profit distributions to shareholders...................... (162,068) 0 0
--------- ------- -----------
Net cash (used in) provided by financing
activities..................................... (131,409) 789 0
--------- ------- -----------
Net increase in cash........................................ 463,418 24,338 1,041,522
Cash at beginning of year/period............................ 0 0 463,418
--------- ------- -----------
Cash at end of year/period.................................. $ 463,418 $24,338 $ 1,504,940
========= ======= ===========
Supplemental disclosures of cash flow information:
Cash paid during year/period:
Income taxes........................................... $ 0 $ 0 $ 0
========= ======= ===========
Interest............................................... $ 0 $ 0 $ 0
========= ======= ===========
Noncash financing and investing activities:
Accrued shareholder tax distribution................... $ 282,791 $ 0 $ 0
========= ======= ===========
Issuance (reduction) of shareholder note in exchange
for stock............................................. $ 119,719 $ 0 $ (73,812)
========= ======= ===========
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE> 66
NET MARKET MAKERS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Net Market Makers (the Company) provides information, analysis, resources
and connections to the people who build and grow net markets, as well as to the
broader community of others who facilitate this growth. The Company holds
informational conferences, provides consulting services, and a monthly
newsletter and writes research reports to keep its clients oriented toward the
growth areas of business-to-business e-commerce.
The Company began as a sole proprietorship with two founders in 1998. In
January 1999, the Company became a partnership, at which point substantive
operations of the Company began, and the Company was incorporated in the state
of California on October 1, 1999 as a Subchapter S corporation. The Company
issued common stock in exchange for the net book value of the partnership on
November 1, 1999.
(b) Unaudited Interim Financial Information
The interim financial statements of the Company for the three months ended
March 31, 1999 and 2000, included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). Certain information and note disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations relating to interim
financial statements.
In the opinion of management, the accompanying unaudited interim financial
statements reflect all adjustments consisting only of normal recurring
adjustments necessary to present fairly the financial position of the Company as
of March 31, 2000, and the results of its operations and cash flows for the
three months ended March 31, 1999 and 2000.
(c) 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(d) Comprehensive Income (Loss)
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income, which establishes standards for reporting
and display of comprehensive income and its components. During the period
presented, the Company did not have any other comprehensive income or loss items
and, accordingly, comprehensive loss is equivalent to net loss for the period
presented.
(e) Segments of an Enterprise and Concentrations of Market, Credit and
Suppliers' Risk
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 131, Disclosures About Segments of an Enterprise and Related Information,
which is effective for fiscal years beginning after December 15, 1997. SFAS No.
131 establishes revised standards for the reporting of financial and descriptive
information about operating segments in financial statements. The Company
adopted this statement effective January 1, 1999. The chief decision maker of
the Company makes decisions and reviews operating results on a
F-36
<PAGE> 67
NET MARKET MAKERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
combined basis for all product lines and no other discrete financial information
is available. Accordingly, the Company has determined that it operates only in
one segment.
The Company relies heavily on revenues from user conferences. During 1999,
the Company held two such conferences. Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist of accounts
receivable, which are comprised primarily of amounts due for newsletter
subscriptions. The Company controls this risk by monitoring the age and
collection of its receivables.
(f) Fair Value of Financial Instruments
Prepaid expenses, other assets, accrued liabilities and accrued payroll are
considered to have carrying amounts that approximate fair value because of the
short maturity of these financial instruments.
(g) Property and Equipment
Property and equipment are stated at cost and are depreciated on a
straight-line basis over their estimated useful lives of three years for
computer equipment and software, and seven years for office furniture and
fixtures. Leasehold improvements are amortized on a straight-line basis over the
shorter of the lease term or their estimated useful lives.
(h) Impairment of Long-Lived Assets
In accordance with SFAS No. 121, Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of, the Company reviews, as circumstances
dictate, the carrying amount of its long-lived assets. The purpose of these
reviews is to determine whether the carrying amounts are recoverable.
Recoverability is determined by comparing the projected undiscounted net cash
flows of the long-lived assets against their respective carrying amounts. The
amount of impairment, if any, is measured based on the excess of the carrying
value over the fair value of the asset. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell. The Company
estimates fair value based on the best information available, making judgments
and projections as considered necessary.
(i) Revenue Recognition
Revenue from conference events is recognized when the events have taken
place. Revenues from subscriptions are recognized over the subscription period.
Revenue from other consulting services is recognized as services are performed.
(j) Income Taxes
Prior to January 1, 2000, the Company's shareholders had elected S
corporation status for federal income tax purpose. As a result, there was no
provision for federal income tax expense. State franchise tax was assessed at
the rate of 1.5% at the corporate level.
As of January 1, 2000, the Company terminated its S corporation status and
will file federal tax returns as a C Corporation from that date.
F-37
<PAGE> 68
NET MARKET MAKERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, 1999:
<TABLE>
<S> <C>
Office furniture and fixtures............................... $ 8,626
Computer equipment.......................................... 30,641
Software.................................................... 2,037
-------
41,304
Less accumulated depreciation and amortization.............. (1,038)
-------
$40,266
=======
</TABLE>
Depreciation expense on property and equipment was approximately $1,000 for
the year ended December 31, 1999.
(3) SHAREHOLDERS' EQUITY
Common Stock
The Company issued 7,100,000 shares of common stock on November 1, 1999, in
exchange for the capital contributions represented by the accounts of the Net
Market Makers Partnership of $30,659.
On November 8, 1999, the Company executed a common stock purchase
agreement, whereby an executive of the Company purchased 1,700,000 shares of
common stock for $0.07 per share. The common stock was issued in exchange for a
promissory note in the amount of $119,719 with an interest rate of 5.42%. The
stock vests at a rate of 212,500 shares per quarter commencing with the quarter
ending March 31, 2000. In the event of a change in ownership of more than 50% of
the Company, the lesser of an additional 850,000 shares or the remaining
unvested portion, vests immediately (see Note 5). The stock purchased was valued
at $2.56 per share, which was the estimated market value of the Company's stock
on that date, resulting in compensation of $4,400,000 to be amortized over the
vesting period consistent with the method described in FASB Interpretation No.
28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans. For the year ended December 31, 1999, compensation expense of
$745,916 was recorded in the Company's statement of operations. The principal
and accrued interest on the note shall be payable as follows: $59,860, plus
interest, due on November 8, 2000, and $59,860, plus interest, due on November
8, 2001.
Effective February 24, 2000, this common stock purchase agreement was
amended and 1,062,500 shares were contributed back to the capital of the Company
in exchange for immediate vesting of the remaining 637,500 shares. In addition,
the related promissory note for $119,719 was canceled and replaced with a
promissory note for $44,895.
Effective February 24, 2000, 69,974 shares of the Company's common stock,
originally issued on November 1, 1999, were contributed back to the capital of
the Company.
F-38
<PAGE> 69
NET MARKET MAKERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) COMMITMENTS
The Company leases office space and equipment under noncancelable operating
leases expiring at various dates through 2002. The leases contain various
renewal options. Minimum lease payments under these noncancelable operating
leases are as follows as of December 31, 1999:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
2000........................................................ $33,239
2001........................................................ 2,793
2002 and thereafter......................................... 2,796
-------
$38,828
=======
</TABLE>
Rent expense under noncancelable operating leases was $26,631 for the year
ended December 31, 1999.
(5) SUBSEQUENT EVENTS
Acquisition by Jupiter Communications, Inc. (Unaudited)
In April 2000, all outstanding shares of the Company's common stock were
acquired by Jupiter Communication, Inc. (Jupiter) for $20,500,000 and 274,680
shares of Jupiter's common stock valued at $8,721,090. Additional consideration
of up to $10,500,000 in cash is payable by Jupiter if certain revenue targets
are met by the Company during 2000 and 2001.
F-39
<PAGE> 70
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
AdRelevance, Inc.
We have audited the accompanying balance sheet of AdRelevance, Inc. (a
development stage company) as of December 31, 1998, and the related statements
of operations, shareholders' equity (deficit), and cash flows for the period
from October 12, 1998 (inception) to 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 audit.
We conducted our audit 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 audit provides 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 AdRelevance, Inc. at December
31, 1998, and the results of its operations and its cash flows for the period
from October 12, 1998 (inception) to December 31, 1998, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company's recurring net
losses and negative cash flows from operations raise substantial doubt about its
ability to continue as a going concern. Management's plans as to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
October 5, 1999,
except for Note 8, as to which
the date is October 8, 1999.
F-40
<PAGE> 71
AdRelevance, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 67,507 $ 1,360,752
Accounts receivable -- 10,000
Prepaid expenses and other 2,650 140,049
----------- -----------
Total current assets 70,157 1,510,801
Property and equipment 11,369 289,488
Deferred charges and other assets 21,030 42,009
----------- -----------
Total assets $ 102,556 $ 1,842,298
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 65,378 $ 336,835
Advance billings to clients -- 6,667
Line of credit -- 250,000
Current portion of capital lease obligations -- 31,996
Convertible note payable 100,000 --
Note payable -- 2,000,000
----------- -----------
Total current liabilities 165,378 2,625,498
Capital lease obligations, less current portion -- 59,454
Shareholders' equity (deficit):
Series A preferred stock, $.0001 par value:
Authorized shares -- 860,000
Issued and outstanding shares -- 798,607
Liquidation preference -- $1,724,991 -- 1,103,236
Common stock, $.0001 par value:
Authorized shares -- 6,000,000
Issued and outstanding shares -- 1,780,000
in 1998 and 1,793,333 in 1999 2,320 3,989,688
Deferred stock-based compensation -- (3,050,569)
Accumulated deficit during development stage (65,142) (2,885,009)
----------- -----------
Total shareholders' equity (deficit) (62,822) (842,654)
----------- -----------
Total liabilities and shareholders' equity (deficit) $ 102,556 $ 1,842,298
=========== ===========
</TABLE>
See accompanying notes.
F-41
<PAGE> 72
AdRelevance, Inc.
Statements of Operations
<TABLE>
<CAPTION>
OCTOBER 12, 1998 NINE MONTHS
(INCEPTION) TO ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Revenues $ -- $ 3,333
Operating expenses:
Sales and marketing 3,823 224,184
General and administrative 46,379 855,855
Research and development 14,709 817,784
Stock-based compensation -- 921,285
----------- -----------
Total operating costs 64,911 2,819,108
----------- -----------
Loss from operations (64,911) (2,815,775)
Interest expense, net 231 4,092
----------- -----------
Net loss $ (65,142) $(2,819,867)
=========== ===========
</TABLE>
See accompanying notes.
F-42
<PAGE> 73
AdRelevance, Inc.
Statements of Shareholders' Equity (Deficit)
<TABLE>
<CAPTION>
SERIES A PREFERRED STOCK COMMON STOCK
-------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Issuance of common stock in exchange for
cash ($320) and assets ($2,000) -- $ -- 1,780,000 $ 2,320
Net loss -- -- -- --
------- ---------- --------- ----------
Balance at December 31, 1998 -- -- 1,780,000 2,320
Issuance of preferred stock, net of issuance
cost of $46,758 (unaudited) 798,607 1,103,236 -- --
Nonemployee stock-based compensation
(unaudited) -- -- -- 296,361
Fair value of warrants issued in connection
with borrowing arrangements (unaudited) -- -- -- 13,514
Deferred stock-based compensation (unaudited) -- -- -- 3,675,493
Amortization of stock-based compensation
(unaudited) -- -- -- --
Exercise of stock options (unaudited) -- -- 13,333 2,000
Net loss (unaudited) -- -- -- --
------- ---------- --------- ----------
Balance at September 30, 1999 (unaudited) 798,607 $1,103,236 1,793,333 $3,989,688
======= ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
DEFERRED
STOCK-BASED ACCUMULATED
COMPENSATION DEFICIT TOTAL
-------------------------------------------------------
<S> <C> <C> <C>
Issuance of common stock in exchange for
cash ($320) and assets ($2,000) $ -- $ -- $ 2,320
Net loss -- (65,142) (65,142)
----------- ----------- -----------
Balance at December 31, 1998 -- (65,142) (62,822)
Issuance of preferred stock, net of issuance
cost of $46,758 (unaudited) -- -- 1,103,236
Nonemployee stock-based compensation
(unaudited) -- -- 296,361
Fair value of warrants issued in connection
with borrowing arrangements (unaudited) -- -- 13,514
Deferred stock-based compensation (unaudited) (3,675,493) -- --
Amortization of stock-based compensation
(unaudited) 624,924 -- 624,924
Exercise of stock options (unaudited) -- -- 2,000
Net loss (unaudited) -- (2,819,867) (2,819,867)
----------- ----------- -----------
Balance at September 30, 1999 (unaudited) $(3,050,569) $(2,885,009) $ (842,654)
=========== =========== ===========
</TABLE>
See accompanying notes.
F-43
<PAGE> 74
AdRelevance, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
OCTOBER 12, 1998 NINE MONTHS
(INCEPTION) TO ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
--------- -----------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (65,142) $(2,819,867)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 61 41,109
Noncash stock-based compensation 600 922,550
Changes in operating assets and liabilities:
Accounts receivable -- (10,000)
Prepaid expenses (2,650) (137,399)
Accounts payable and accrued expenses 65,378 271,457
Advance billings to clients -- 6,667
Deferred charges and other assets (21,030) (8,730)
--------- -----------
Net cash used in operating activities (22,783) (1,734,213)
INVESTING ACTIVITIES
Purchases of property and equipment (10,030) (213,413)
FINANCING ACTIVITIES
Borrowings on line of credit -- 250,000
Proceeds from issuance of convertible note payable 100,000 --
Proceeds from note payable -- 2,000,000
Proceeds from issuance of common stock 320 --
Proceeds from exercise of stock options 2,000
Net proceeds from issuance of Series A preferred stock -- 1,003,236
Principal payments on capital lease obligations -- (14,365)
--------- -----------
Net cash provided by financing activities 100,320 3,240,871
--------- -----------
Increase in cash and cash equivalents 67,507 1,293,245
Cash and cash equivalents at beginning of period -- 67,507
--------- -----------
Cash and cash equivalents at end of period $ 67,507 $ 1,360,752
========= ===========
</TABLE>
F-44
<PAGE> 75
AdRelevance, Inc.
Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
OCTOBER 12, 1998 NINE MONTHS
(INCEPTION) TO ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
--------- -----------
(Unaudited)
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Issuance of common stock and warrants in
exchange for computer equipment
and services $2,000 $ 13,514
Conversion of note payable into shares of
Series A preferred stock -- 100,000
Furniture and equipment acquired through
capital lease obligations -- 105,815
</TABLE>
See accompanying notes.
F-45
<PAGE> 76
ADRELEVANCE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND GOING CONCERN
AdRelevance, Inc. (the Company), incorporated in the State of Washington on
October 12, 1998, is engaged in the development of a proprietary, real-time,
competitive advertising service for the Word Wide Web. The Company has developed
an intelligent agent technology that gathers and classifies online advertising
and allows clients to create customized analytical reports regarding advertising
found on the World Wide Web. The Company completed the commercial launch of its
product on September 7, 1999.
The Company has incurred operating losses since its inception and has limited
working capital. The Company has financed its operations to date through the
issuance of equity securities and bank borrowings. Further development and
establishment of the Company's business will require additional equity
financing. The Company believes that equity financing can be obtained from
existing or new investors. However, there can be no assurance that the Company
will be able to obtain such equity financing on acceptable terms, if at all.
These factors, among others, raise substantial doubt about the Company's ability
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
INTERIM FINANCIAL STATEMENTS
The accompanying balance sheet as of September 30, 1999 and the statements of
operations and cash flows for the nine months ended September 30, 1999, are
unaudited. In the opinion of management, the unaudited financial statements have
been prepared on the same basis as the audited financial statements and include
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the results of operations and cash flows for the interim
periods. Operating results for the nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
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
F-46
<PAGE> 77
ADRELEVANCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements. Actual results could differ
from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.
CONCENTRATION OF CREDIT RISK
The Company is subject to concentration of credit risk from its cash
investments. The Company's credit risk is managed through monitoring the
stability of the financial institutions utilized and diversification of its
financial resources.
Financial instruments consist of cash and cash equivalents and capital lease
obligations. The fair value of all financial instruments approximate the
carrying amount based on the current rate offered for similar instruments.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the related assets, which range from two to five years.
Leasehold improvements are amortized over the shorter of the lease term or
estimated useful life.
INCOME TAXES
The Company accounts for income taxes under the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to be recovered. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amounts
expected to be realized.
F-47
<PAGE> 78
ADRELEVANCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Products and services are sold on a subscription basis and the related revenues
are recognized over the term of the products and services. Customers are
typically billed in advance for the next three months. Billings rendered in
advance of products and services are recorded as "Advance Billings to Clients"
in the accompanying balance sheet.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB No. 25), and related
interpretations, in accounting for employee stock options rather than the
alternative fair value accounting allowed by Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS
No. 123). APB No. 25 provides that the compensation expense relative to the
Company's employee stock options is measured based on the intrinsic value of
the stock option. SFAS No. 123 requires companies that continue to follow
APB No. 25 to provide a pro forma disclosure of the impact of applying the
fair value method of SFAS No. 123 (see Note 6). The Company accounts for
stock issued to nonemployees in accordance with the provisions of SFAS No.
123 and the Emerging Issues Task Force consensus in Issue No. 96-18,
Accounting for Equity Instruments that Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued Statement of
Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. SOP 98-1 requires all costs related to the
development of internal use software, other than those incurred during the
application development stage, to be expenses as incurred. Costs incurred during
the application development stage are required to be capitalized and amortized
over the estimated useful life of the software. The Company does not expect that
the adoption of SOP 98-1 will have a material impact on its financial statements
because it has not currently developed software for internal use.
F-48
<PAGE> 79
ADRELEVANCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Computers and equipment $ 10,789
Furniture and fixtures 641
--------
11,430
Accumulated depreciation (61)
--------
$ 11,369
========
</TABLE>
3. LEASES
The Company leases office space under an operating lease which calls for fixed
rental payments through December 31, 1999. Total rent expense under this
operating lease for the periods ended December 31, 1998 and September 30, 1999
was $1,574 and $35,911, respectively. Future minimum lease payments under this
agreement are $37,600 for 1999.
In July 1999, the Company entered into an agreement to sublease new office space
for the period September 1, 1999 through February 28, 2001. The agreement
requires total payments of approximately $300,000.
4. DEBT
In December 1998, the Company borrowed $100,000 under an unsecured 4.33%
convertible note payable. The note was converted into 69,444 shares of Series A
preferred stock in January 1999 in accordance with the note agreement.
In February 1999, the Company obtained a $100,000 equipment capital lease line
of credit and issued 3,695 Series A warrants at an exercise price of $1.44 per
share. The warrants expire after the earlier of seven years after issuance or
three years after the completion of an initial public offering. The value of the
warrants of $5,150 is being amortized over the life of the lease. Under this
36-month agreement, the Company has signed capital leases for various furniture
and equipment.
F-49
<PAGE> 80
ADRELEVANCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
4. DEBT (CONTINUED)
In March 1999, the Company entered into a financing arrangement with a bank
which provided for a $250,000 line of credit for operating needs. Borrowings
under the line of credit bear interest at the bank's prime rate plus 0.25% and
are collateralized by substantially all nonleased assets of the Company,
including intellectual property. In connection with the establishment of the
line of credit, the Company issued 5,208 Series A warrants at an exercise price
of $1.44 per share. The warrants expire at the earlier of seven years or three
years after the completion of an initial public offering. The value of the
warrants of $8,364 is being amortized over the life of the agreement.
In August 1999, the Company signed a $2 million promissory note with a company
with a maturity date of January 26, 2001. The note carries an interest rate of
7% and is collateralized by substantially all nonleased assets of the Company,
including intellectual property. Principal and interest on the promissory note
is due and payable commencing on the earlier of the twelve-month anniversary of
the issuance date, payable in six equal monthly installments, or upon change of
ownership of the Company.
5. INCOME TAXES
At December 31, 1998, the Company had net operating loss carryforwards and
research and development credit carryforwards of $52,104 and $673, respectively.
These carryforwards expire in 2018. Deferred tax assets reflect the tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Since the Company's utilization of these deferred tax assets is dependent on
future profits which are not assured, a valuation allowance equal to the
deferred tax assets has been provided. Significant components of deferred tax
assets as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforward $ 17,715
Research and development credit carryforward 673
Other temporary differences 4,307
--------
Total gross deferred tax assets 22,695
Less valuation allowance (22,695)
--------
Net deferred tax asset $ 0
========
</TABLE>
F-50
<PAGE> 81
ADRELEVANCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
6. SHAREHOLDERS' EQUITY
PREFERRED STOCK
During January and February 1999, the Company sold 798,607 shares of Series A
preferred stock (Series A) in exchange for gross proceeds of $1,149,994. Each
share of Series A is convertible into one share of common stock. Automatic
conversion shall occur upon consummation of an initial public offering at a
price of not less than $5.76 per share and for a total offering of not less than
$15 million net proceeds, or the date specified by written consent or agreement
of the holders of a majority of the outstanding shares of Series A stock.
The holders of Series A will be entitled to receive noncumulative dividends at
the rate of $0.115 per share per annum, if and when declared by the Board of
Directors. The holders of Series A stock shall be entitled to participate pro
rata in any dividends paid on the common stock on an as-if-converted basis. In
the event of any liquidation, dissolution, or winding up of the Company, the
holders of Series A shall be entitled to receive, in preference to holders of
common stock, an amount equal to $2.16 per share plus declared but unpaid
dividends if any. Thereafter, all remaining assets shall be distributed among
the holders of Series A and common stock on a pro rata basis (assuming
conversion of all Series A into common stock) until the holders of the Series A
have received an aggregate of $5.76 per share. The holder of each share of
Series A stock shall have the right to the number of votes equal to that number
of shares of common stock issuable upon conversion.
The Company is prohibited from taking certain corporate actions without the
approval of the holders of the majority of outstanding Series A shares. In
conjunction with the sale of Series A, the Company, its founders, and the Series
A investors also entered into an Investors Rights Agreement, Right of First
Refusal and Co-sale Agreement, and a Voting Agreement.
COMMON STOCK
In conjunction with the sale of Series A preferred stock, the Company's founders
and other shareholders granted the Company a right to repurchase 1,720,000
shares of common stock held by them at the original purchase price of $0.001 per
share if their employment or consulting arrangement terminates under certain
circumstances. The
F-51
<PAGE> 82
ADRELEVANCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
6. SHAREHOLDERS' EQUITY (CONTINUED)
Company's right of repurchase lapses at a variety of rates beginning in October
1998. At December 31, 1998, 1,079,309 (788,102 at September 30, 1999) shares
held by these shareholders were subject to repurchase under these agreements.
The restricted stock agreements provide for adjusted repurchase lapsing
schedules in the event of a change of control.
STOCK OPTION PLANS
Under the terms of the 1998 and 1999 Stock Option Plans, the Board of Directors
may grant incentive and nonqualified stock options to employees, officers,
directors, and consultants of the Company. An aggregate of 993,333 shares of
common stock were reserved for future issuance. The Company generally grants
stock options with exercise prices equal to the fair market value of common
stock on the date of grant as determined by the Board of Directors. Options
generally vest over a three- or four-year period or by specific terms of the
option agreement.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
---------------------------------------------
SHARES NUMBER WEIGHTED-AVERAGE
AVAILABLE OF EXERCISE PRICE
FOR GRANT SHARES
-------------------------------------------------------------------
<S> <C> <C> <C>
1998 Stock Option Plan introduction 400,000 -- $ --
Options granted (180,000) 180,000 $0.10
-------------------------------------
Outstanding at December 31, 1998 220,000 180,000 $0.10
Reduction of shares available under
the 1998 Stock Option Plan (100,000) -- $ --
1999 Stock Option Plan introduction 693,333 -- $ --
Options granted (656,458) 656,458 $1.27
Options exercised -- (13,333) $0.15
-------------------------------------
Outstanding at September 30, 1999 156,875 823,125 $1.02
=====================================
</TABLE>
F-52
<PAGE> 83
ADRELEVANCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
6. SHAREHOLDERS' EQUITY (CONTINUED)
The following table summarizes information regarding stock options outstanding
and exercisable as of December 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------------------- EXERCISABLE
NUMBER WEIGHTED-AVERAGE NUMBER
EXERCISE PRICE OF REMAINING CONTRACTUAL OF
SHARES LIFE SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$0.10 180,000 2.94 years 0
</TABLE>
Under APB No. 25, no compensation expense is recognized when the exercise price
of the Company's employee stock options equals the fair value of the underlying
stock on the date of grant. Deferred stock-based compensation is recorded for
those situations where the exercise price of a stock option was lower than the
deemed fair value for financial reporting purposes of the underlying common
stock. The Company recorded aggregate deferred stock-based compensation of
$3,675,493 in the nine months ended September 30, 1999. The deferred stock-based
compensation is being amortized over the vesting period of the underlying
options. Total amortization of stock-based compensation recognized was $624,924
in the nine months ended September 30, 1999.
Had the stock-based compensation for the Company's Stock Option Plans been
determined based on the minimum value model using the multiple-option approach,
the Company's net loss would have been increased by $37 for the period ended
December 31, 1998. The fair value of each option grant is estimated on the date
of grant using the minimum option pricing model, assuming no expected dividends,
average risk-free interest rate of 5.0%, and average expected life of three
years. Compensation expense recognized in providing pro forma disclosures may
not be representative of the effects on pro forma earnings for future years
because the amounts above include only the amortization of the fair value of
1998 grants.
F-53
<PAGE> 84
ADRELEVANCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
6. SHAREHOLDERS' EQUITY (CONTINUED)
In 1999, the Company issued options to consultants to acquire 79,500 shares of
common stock at an exercise price of $0.15 per share. The value of the options
will be recognized over the related service period with final valuation at the
completion of the service period. Through September 30, 1999, the Company had
recognized stock-based compensation expense of $296,361 related to these stock
options.
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
The following shares of common stock were reserved at December 31, 1998:
<TABLE>
<S> <C>
1998 Stock Option Plan 400,000
Series A preferred stock 860,000
---------
1,260,000
=========
</TABLE>
7. YEAR 2000 DISCLOSURE (UNAUDITED)
The Company recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 software failures. The Year 2000 (Y2K) problem
is the result of computer programs being written using two digits (rather than
four) to define the applicable year. Programs that have time-sensitive software
may recognize a date using "00" as 1900 rather than 2000, which could result in
miscalculations or system failures. The Company is currently working to address
the potential impact of the Y2K problem. The Company's processes for evaluating
and managing the risks and costs associated with this potential problem are
being managed by internal staff members.
The Company has, to date, determined that significant modification is not
required for its financial reporting and other information technology to be
ready for the year 2000. The Company has not yet determined the impact that a
Y2K failure suffered by vendors, customers, suppliers, or other third-party
service providers would have on the Company, but believes that such a failure
could have a material adverse impact. The Company will continue to evaluate the
status of its Y2K compliance to determine whether a contingency plan for dealing
with such failures is necessary, but no such plan has yet been adopted by the
Company. The Company has not yet determined what the nature and timing of any
such contingency plan would be. As of December 31, 1998, the Company has not
incurred any incremental expenses in relation to the Y2K issue because the
technology platforms designed since inception were implemented to support Y2K
compliance.
F-54
<PAGE> 85
ADRELEVANCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
7. YEAR 2000 DISCLOSURE (UNAUDITED) (CONTINUED)
Based on the information the Company has developed to date, the Company
estimates that costs of addressing potential problems will not have a material
adverse impact on its operations.
8. SUBSEQUENT EVENTS
STOCK TRANSFER
On October 8, 1999, the Company issued to a consultant 100,000 shares of common
stock as additional compensation for past consulting services. A founder of the
Company contributed 100,000 shares of stock to the Company to facilitate this
stock issuance. The estimated fair value of these shares is $19.34 per share and
in accordance with SEC Staff Accounting Bulletin No. 79, stock-based
compensation expense will be recognized in October 1999 for the value of these
services.
ACQUISITION OF THE COMPANY
On October 8, 1999, the Company entered into an agreement whereby all of the
outstanding stock of the Company would be acquired by Media Metrix, Inc. for a
purchase price of approximately $59.4 million and an additional amount which is
contingent upon the Company achieving certain milestones.
F-55
<PAGE> 86
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
On June 26, 2000, Media Metrix and Jupiter entered into an agreement and
plan of merger. Under the agreement, Media Metrix is to issue 0.946 of a share
of Media Metrix common stock for every share of Jupiter common stock. The merger
is subject to, among other things, regulatory approval and the approval by
stockholders of both Media Metrix and Jupiter. The transaction is intended to be
accounted for as a purchase transaction. The share price used to determine the
acquisition cost was derived from taking the average of the closing price of
Media Metrix' common stock for the two days prior to and subsequent to the
announcement of the proposed merger, which was June 27, 2000.
The following unaudited pro forma condensed combining financial information
gives effect to the merger using the purchase method of accounting, after giving
effect to the pro forma adjustments described in the accompanying notes. The
unaudited pro forma condensed combining financial information should be read in
conjunction with the audited historical consolidated financial statements and
related notes thereto of Media Metrix and AdRelevance, which was acquired by
Media Metrix on October 8, 1999, and the audited historical consolidated
financial statements and related notes thereto of Jupiter, Internet Research
Group, which was acquired by Jupiter on March 16, 2000, and Net Market Makers,
which was acquired by Jupiter on April 14, 2000. The aforementioned acquisitions
were all accounted for under the purchase method of accounting. The audited
consolidated financial statements and related notes thereto of Media Metrix are
incorporated by reference into this prospectus. The audited historical
consolidated financial statements and related notes thereto of Jupiter, and the
audited historical financial statements and related notes thereto of Internet
Research Group, Net Market Makers and AdRelevance, may be found starting at page
F-1 of this prospectus.
The unaudited pro forma condensed combining balance sheet data as of June
30, 2000 gives effect to the merger of Media Metrix and Jupiter as if it had
occurred on June 30, 2000.
The unaudited pro forma condensed combining statement of operations for the
six months ended June 30, 2000 is presented to give effect to the acquisitions
of Internet Research Group and Net Market Makers by Jupiter and to the merger of
Media Metrix and Jupiter as if they occurred on January 1, 2000. The unaudited
pro forma condensed combining statement of operations for the year ended
December 31, 1999 is presented to give effect to the Jupiter acquisitions, the
Media Metrix acquisition of AdRelevance, and the merger of Media Metrix and
Jupiter as if they occurred on January 1, 1999.
The unaudited pro forma condensed combining financial statements are not
necessarily indicative of the results of operations or the financial position
which would have occurred had the Jupiter merger and the acquisitions of
AdRelevance, Internet Research Group and Net Market Makers been completed at
those times, nor are they necessarily indicative of future results of operations
or financial position. Management believes additional synergies and operational
improvements, not reflected in the accompanying unaudited pro forma condensed
combining statements of operations, will be realized by the combined enterprise.
These amounts cannot be reasonably quantified and, therefore, are not reflected
in the unaudited pro forma condensed combining statements of operations.
The allocation of the purchase price of Jupiter and Net Market Makers is
preliminary and does not reflect the fair value adjustments to their assets and
liabilities, since those amounts have not been finalized and have been estimated
at this time. The fair value of Jupiter's and Net Market Makers' assets and
liabilities will be determined as of the dates of the respective acquisitions
through independent appraisals, which will include appraisals of patents,
trademarks and trade names, and other analyses.
F-56
<PAGE> 87
MEDIA METRIX, INC./JUPITER COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
JUNE 30, 2000
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
MEDIA METRIX JUPITER ADJUSTMENTS COMBINED
------------ ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash........................................... $ 68,818 $ 24,853 $(15,000)(1) $ 78,671
Marketable securities.......................... 27,877 20,106 47,983
Receivables, less allowance for doubtful
accounts..................................... 11,523 21,891 33,414
Prepaid expenses and other..................... 857 5,117 -- 5,974
-------- -------- -------- --------
Total current assets............................. 109,075 71,967 (15,000) 166,042
Property and equipment, net...................... 13,445 9,602 23,047
Intangibles, net................................. 49,045 52,754 367,539(1) 469,338
Other assets..................................... 1,050 7,929 1,000(1) 9,979
-------- -------- -------- --------
Total assets..................................... $172,615 $142,252 $353,539 $668,406
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities....... $ 12,575 $ 13,064 $ 25,639
Advance billings to clients/deferred revenue... 10,308 34,652 44,960
Convertible note payable....................... -- 1,123 1,123
Current portion of long-term debt.............. 123 -- 123
-------- -------- --------
Total current liabilities........................ 23,006 48,839 71,845
Long-term debt................................... 150 -- 150
Deferred rent.................................... -- 847 847
Minority interests............................... 23 -- 23
Stockholders' equity:
Preferred stock................................ -- -- --
Common stock................................... 198 16 $ 131(1) 345
Additional paid-in-capital..................... 204,223 93,659 373,299(1) 671,181
Accumulated other comprehensive loss........... (81) (2,351) 2,351(1) (81)
(Accumulated deficit) retained earnings........ (53,898) 1,675 (675)(1) (52,898)
Deferred compensation.......................... (1,006) (433) (21,567)(1) (23,006)
-------- -------- -------- --------
Total stockholders' equity....................... 149,436 92,566 353,539 595,541
-------- -------- -------- --------
Total liabilities and stockholders' equity....... $172,615 $142,252 $353,539 $668,406
======== ======== ======== ========
</TABLE>
See accompanying notes
F-57
<PAGE> 88
MEDIA METRIX, INC./JUPITER COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- --------------
MEDIA JUPITER PRO FORMA PRO FORMA
METRIX COMMUNICATIONS ADJUSTMENTS COMBINED
---------- -------------- ----------- ---------
(FROM F-59)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues................................. $ 22,822 $45,678 $ 68,500
Costs of services...................... 9,127 17,549 26,676
-------- ------- --------
Gross profit........................... 13,695 28,129 41,824
Operating expenses:
Research and development............ 6,474 -- 6,474
Sales and marketing................. 9,529 11,254 20,783
General and administrative.......... 6,779 15,342 22,121
Amortization of deferred
compensation and other stock-based
compensation...................... 323 1,691 $ 3,800(2) 5,814
Amortization of intangibles......... 11,130 3,935 36,754(3) 51,819
-------- ------- -------- --------
Total operating expenses................. 34,235 32,222 40,554 107,011
-------- ------- -------- --------
Loss from operations..................... (20,540) (4,093) (40,554) (65,187)
Interest income, net of interest
expense................................ 3,120 1,144 4,264
Gain on sale of investments.............. -- 5,932 -- 5,932
-------- ------- -------- --------
Income (loss) before income taxes and
minority interests..................... (17,420) 2,983 (40,554) (54,991)
Income tax expense (benefit)............. -- 3,738 (4,738)(4) (1,000)
-------- ------- -------- --------
Loss before minority interests........... (17,420) (755) (35,816) (53,991)
Minority interests....................... 1,632 -- -- 1,632
-------- ------- -------- --------
Net loss................................. $(15,788) $ (755) $(35,816) $(52,359)
======== ======= ======== ========
Net loss per share:
Basic.................................. $ (0.80) $ (0.05) $ (1.52)
======== ======= ========
Diluted................................ $ (0.80) $ (0.05) $ (1.52)
======== ======= ========
Shares used in the calculations of net
loss per share:
Basic.................................. 19,777 15,407 (697)(5) 34,487
======== ======= ======== ========
Diluted................................ 19,777 15,407 (697)(5) 34,487
======== ======= ======== ========
</TABLE>
See accompanying notes.
F-58
<PAGE> 89
JUPITER COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------
INTERNET NET
JUPITER RESEARCH MARKET PRO FORMA
COMMUNICATIONS GROUP MAKERS ADJUSTMENTS PRO FORMA
-------------- -------- ------- ----------- -----------
(TO F-58)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues from sales of services.... $42,884 $ 1,195 $ 1,599 $45,678
Costs of services.................. 15,851 995 703 17,549
------- ------- ------- -------
Gross profit....................... 27,033 200 896 28,129
Operating expenses:
Sales and marketing.............. 11,236 18 -- 11,254
General and administrative....... 13,491 333 585 $ 933(6) 15,342
Depreciation and amortization of
fixed assets.................. 923 6 4 (933)(6) --
Amortization of deferred
compensation and other stock-
based compensation............ 72 -- 1,619 1,691
Amortization of intangibles...... 2,276 -- -- 1,659(7) 3,935
------- ------- ------- ------- -------
Total operating expenses........... 27,998 357 2,208 1,659 32,222
------- ------- ------- ------- -------
Loss from operations............... (965) (157) (1,312) (1,659) (4,093)
Interest income, net of interest
expense.......................... 1,613 -- 8 (477)(8) 1,144
Gain on sale of investments........ 5,932 -- -- 5,932
------- ------- ------- ------- -------
Income (loss) before income
taxes............................ 6,580 (157) (1,304) (2,136) 2,983
Income tax expense................. 3,614 -- 124 3,738
------- ------- ------- ------- -------
Net income (loss).................. $ 2,966 $ (157) $(1,428) $(2,136) $ (755)
======= ======= ======= ======= =======
Net income (loss) per share:
Basic............................ $ 0.20 $ (0.05)
======= =======
Diluted.......................... $ 0.18 $ (0.05)
======= =======
Shares used in the calculations of
net income (loss) per share:
Basic............................ 15,006 401(9) 15,407
======= ======= =======
Diluted.......................... 16,321 (914)(9) 15,407
======= ======= =======
</TABLE>
See accompanying notes.
F-59
<PAGE> 90
MEDIA METRIX, INC./JUPITER COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
------------------------------
MEDIA JUPITER PRO FORMA PRO FORMA
METRIX COMMUNICATIONS ADJUSTMENTS COMBINED
------------- -------------- ----------- ---------
(FROM F-61) (FROM F-62)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues............................... $ 20,503 $44,879 $ 65,382
Cost of Services....................... 10,291 21,586 31,877
-------- ------- ---------
Gross profit........................... 10,212 23,293 33,505
Operating expenses:
Research and development............. 5,862 -- 5,862
Sales and marketing.................. 9,341 11,384 20,725
General and administrative........... 7,645 12,413 20,058
Amortization of deferred compensation
and other stock-based
compensation...................... 1,981 1,709 $ 7,600(10) 11,290
Amortization of intangibles.......... 20,893 6,772 73,508(11) 101,173
Acquired in-process research and
development....................... 6,800 -- 6,800
-------- ------- -------- ---------
Total operating expenses............... 52,522 32,278 81,108 165,908
-------- ------- -------- ---------
Loss from operations................... (42,310) (8,985) (81,108) (132,403)
Interest income (expense), net......... 2,279 (899) 1,380
-------- ------- -------- ---------
Loss before income taxes and minority
interest............................. (40,031) (9,884) (81,108) (131,023)
Income tax benefit (expense)........... -- 191 (191)(12) --
-------- ------- -------- ---------
Loss before minority interest.......... (40,031) (9,693) (81,299) (131,023)
Minority interest...................... 1,689 -- 1,689
-------- ------- -------- ---------
Net loss............................... (38,342) (9,693) (81,299) (129,334)
Preferred stock dividends.............. (109) -- (109)
-------- ------- -------- ---------
Net loss applicable to common
stockholders......................... $(38,451) $(9,693) $(81,299) $(129,443)
======== ======= ======== =========
Basic and diluted net loss per share
applicable to common stockholders.... $ (2.27) $ (0.78) $ (4.09)
======== ======= =========
Shares used in the calculations of
basic and diluted net loss per share
applicable to common stockholders.... 16,973 12,421 2,289(13) 31,683
======== ======= ======== =========
</TABLE>
See accompanying notes.
F-60
<PAGE> 91
MEDIA METRIX, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
HISTORICAL
------------------------
MEDIA PRO FORMA
METRIX AD RELEVANCE ADJUSTMENT PRO FORMA
-------- ------------ ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (TO F-60)
<S> <C> <C> <C> <C>
Revenues..................................... $ 20,500 $ 3 $ 20,503
Cost of Services............................. 10,291 -- 10,291
-------- ------- --------
Gross profit................................. 10,209 3 10,212
Operating expenses:
Research and development................... 5,044 818 5,862
Sales and marketing........................ 9,117 224 9,341
General and administrative................. 6,756 856 $ 33(14) 7,645
Amortization of deferred compensation and
other stock-based compensation.......... 1,060 921 1,981
Amortization of intangibles................ 7,312 -- 13,581(15) 20,893
Acquired in-process research and
development............................. 6,800 -- 6,800
-------- ------- -------- --------
Total operating expenses..................... 36,089 2,819 13,614 52,522
-------- ------- -------- --------
Loss from operations......................... (25,880) (2,816) (13,614) (42,310)
Interest income (expense), net............... 2,283 (4) 2,279
Minority interest............................ 1,689 -- 1,689
-------- ------- -------- --------
Net loss..................................... (21,908) (2,820) (13,614) (38,342)
Preferred stock dividends.................... (109) -- (109)
-------- ------- -------- --------
Net loss applicable to common stockholders... $(22,017) $(2,820) $(13,614) $(38,451)
======== ======= ======== ========
Basic and diluted net loss per share
applicable to common stockholders.......... $ (1.34) $ (2.27)
======== ========
Shares used in the calculations of basic and
diluted net loss per share applicable to
common stockholders........................ 16,445 528(16) 16,973
======== ======== ========
</TABLE>
See accompanying notes.
F-61
<PAGE> 92
JUPITER COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------
JUPITER INTERNET NET MARKET PRO FORMA
COMMUNICATIONS RESEARCH GROUP MAKERS ADJUSTMENT PRO FORMA
-------------- -------------- ---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (TO F-60)
<S> <C> <C> <C> <C> <C>
Revenues from sales of
services................. $38,084 $3,827 $2,968 $44,879
Costs of services.......... 16,898 3,086 1,602 21,586
------- ------ ------ -------
Gross profit............... 21,186 741 1,366 23,293
Operating expenses:
Sales and marketing...... 11,384 -- -- 11,384
General and
administrative........ 10,099 735 729 $ 850(17) 12,413
Depreciation and
amortization of fixed
assets................ 850 -- -- (850)(17) --
Amortization of deferred
compensation and other
stock-based
compensation.......... -- 963 746 1,709
Amortization of
intangibles........... 428 29 1 6,314(18) 6,772
------- ------ ------ ------- -------
Total operating expenses... 22,761 1,727 1,476 6,314 32,278
------- ------ ------ ------- -------
Loss from operations....... (1,575) (986) (110) (6,314) (8,985)
Interest income, net of
interest expense......... 743 (2) 10 (1,650)(19) (899)
------- ------ ------ ------- -------
Loss before income taxes... (832) (988) (100) (7,964) (9,884)
Income tax benefit
(expense)................ 202 (1) (10) 191
------- ------ ------ ------- -------
Net loss................... $ (630) $ (989) $ (110) $(7,964) $(9,693)
======= ====== ====== ======= =======
Basic and diluted net loss
per share................ $ (0.05) $ (0.78)
======= =======
Shares used in the
calculation of basic and
diluted net loss per
share.................... 11,565 856(20) 12,421
======= ======= =======
</TABLE>
See accompanying notes.
F-62
<PAGE> 93
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
(1) To record the issuance of 0.946 of a share of Media Metrix common stock
for each share of Jupiter common stock outstanding in connection with the merger
of Media Metrix and Jupiter as if the merger occurred on June 30, 2000. The
actual number of shares of Media Metrix common stock to be issued will be
determined at the effective date of the merger based on the actual number of
shares of Jupiter common stock outstanding at such date. The calculation of
estimated purchase price and preliminary allocation to the net assets of Jupiter
were determined as follows and are used for illustrative pro forma purposes
only:
<TABLE>
<S> <C>
CALCULATION OF ESTIMATED PURCHASE PRICE:
Estimated number of shares to be issued..................... 14,710,000
Average share price of Media Metrix common stock two days
before and two days after the merger announcement......... $ 25.50
------------
Fair value of estimated common stock to be issued........... $375,105,000
Fair value of Jupiter options to be assumed by Media
Metrix.................................................... 92,000,000
Intrinsic value of unvested options (recorded as deferred
compensation)............................................. (22,000,000)
Estimated merger costs...................................... 15,000,000
------------
Estimated purchase price.................................... $460,105,000
============
Preliminary allocation of purchase price:
Net book value of Jupiter's pro forma net assets............ $ 92,566,000
Goodwill and other intangibles.............................. 367,539,000
------------
$460,105,000
============
</TABLE>
As a result of the merger, $1,000,000 of valuation allowance related to
Media Metrix' deferred tax assets has been reversed.
(2) To record amortization of deferred compensation of $22,000,000 or
$3,800,000 for the six months ended June 30, 2000.
(3) To record amortization of goodwill and other intangibles related to the
merger of $367,539,000 over five years ($36,754,000 for six months).
(4) To eliminate Jupiter's income taxes as a result of the loss of Media
Metrix and to reverse $1,000,000 of Media Metrix' valuation allowance.
(5) To reflect the issuance of 14,710,000 shares of Media Metrix common
stock to Jupiter stockholders as if the merger occurred on January 1, 2000 and
to eliminate the weighted average Jupiter shares outstanding.
(6) To reclassify Jupiter depreciation and amortization of fixed assets for
consistency with Media Metrix presentation.
(7) To record amortization of the goodwill and other intangibles of $20.4
million and $29.9 million over ten and seven years for the Jupiter acquisitions
of Internet Research Group and Net Market Makers, respectively, as if they
occurred January 1, 2000.
(8) To record the reduction of interest income and/or increase in interest
expense on the $20.7 million of cash paid on the acquisition of Net Market
Makers.
(9) To reflect the issuance of 581,044 and 274,680 shares of Jupiter common
stock to the Internet Research Group and Net Market Makers stockholders,
respectively, as if the acquisitions occurred January 1, 2000 weighted through
the date of acquisition by Jupiter and, for the dilutive calculation, to
eliminate Jupiter's common stock equivalents due to the pro forma net loss.
(10) To record amortization of deferred compensation of $22,000,000 or
$7,600,000 for the year ended December 31, 1999.
F-63
<PAGE> 94
(11) To record amortization of goodwill and other intangibles related to
the merger of $367,539,000 over five years ($73,508,000 per year)
(12) To eliminate (or reduce) Jupiter's income taxes as a result of the
loss of Media Metrix.
(13) To reflect the issuance of 14,710,000 shares of Media Metrix common
stock to Jupiter stockholders as if the merger occurred on January 1, 1999 and
to eliminate the weighted average Jupiter shares outstanding.
(14) To record depreciation on the write-up of the fair value of fixed
assets acquired ($131,000) over three years.
(15) To record amortization of intangibles ($54.3 million) over three years
($13,581,000 for the period from January 1, 1999 through October 8, 1999, the
date of acquisition).
(16) To reflect the issuance of 697,678 shares of Media Metrix common stock
to the AdRelevance stockholders as of January 1, 1999 weighted through the date
of acquisition by Media Metrix.
(17) To reclassify Jupiter depreciation and amortization of fixed assets
for consistency with Media Metrix presentation.
(18) To record amortization of the goodwill and other intangibles of $20.4
million and $29.9 million over ten and seven years for the Jupiter acquisitions
of Internet Research Group and Net Market Makers, respectively, as if they
occurred January 1, 1999.
(19) To record the reduction of interest income and/or increase in interest
expense on the $20.7 million of cash paid on the acquisition of Net Market
Makers.
(20) To reflect the issuance of 581,044 and 274,680 shares of Jupiter
common stock to the Internet Research Group and Net Market Makers stockholders,
respectively, as if the acquisitions occurred January 1, 1999.
F-64
<PAGE> 95
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Media Metrix in connection
with the sale of the common stock being registered hereby. All the amounts shown
are estimated, except the SEC registration fee.
<TABLE>
<S> <C>
SEC Registration Fee $ 7,224.57
Printing Expenses 10,000.00
Legal Fees and Expenses 50,000.00
Accounting Fees and Expenses 30,000.00
Miscellaneous 7,775.43
-----------
Total $105,000.00
===========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware
("DGCL") provides that a Delaware corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
acted in any of the capacities set forth above, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted under similar
standards, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the court in which such
action or suit was brought shall determine that despite the adjudication of
liability, such person is fairly and reasonably entitled to be indemnified for
such expenses which the court shall deem proper.
Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise, against any liability asserted
against him or incurred by him in any such capacity or arising out of his status
as such whether or not the corporation would have the power to indemnify him
against such liabilities under such Section 145.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director provided that such provision shall not eliminate
or limit the liability of a director: (i) for any breach of the director's duty
of loyalty to the corporation or its
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<PAGE> 96
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) under Section 174 of
the DGCL; or (iv) for any transaction from which the director derived an
improper personal benefit.
Article Tenth of Media Metrix's Amended Certificate of Incorporation,
states that to the fullest extent permitted by the DGCL, no director of Media
Metrix shall be personally liable to Media Metrix, any of its stockholders or
any other person or entity for monetary damages for breach of fiduciary duty
owed to Media Metrix, its stockholders or such other person or entity owing to
such director's position as a director of Media Metrix.
Article Ninth of Media Metrix's Amended Certificate of Incorporation,
contains substantially the same provisions for indemnification as those
contained in Section 145 of the DGCL. Additionally, Article Ninth provides that
in any judicial proceeding in which a person seeks indemnification pursuant to
Article Ninth, the burden of proving that such person is not entitled to
indemnification shall be on Media Metrix. Article Ninth further provides that
any person who successfully establishes a right to indemnification, in whole or
in part, under Article Ninth in any such proceeding shall be indemnified by
Media Metrix against expenses incurred (including attorneys' fees) in
establishing such right to indemnification. Finally, Article Ninth provides that
in the event the DGCL is amended to expand further the indemnification permitted
to the persons covered by Article Ninth, Media Metrix shall indemnify such
persons to the fullest extent permitted by the DGCL, as so amended. Reference is
made to the Amended Certificate of Incorporation and By-Laws filed as Exhibits
3.1 and 3.2, respectively.
Media Metrix has entered into indemnification agreements with its current
directors and executive officers. Media Metrix has insured its directors and
officers against losses arising from any claim against them as such for wrongful
acts or omissions, subject to certain limitations.
ITEM 16. EXHIBITS
(a) Exhibit Index
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<S> <C>
2.1 Plan of Merger between Media Metrix and PC Meter L.P. dated as of
March 31, 1996*
2.2 Plan of Merger and Reorganization between Media Metrix, Inc. and
RelevantKnowledge dated as of September 30, 1998*
2.3 Agreement and Plan of Merger dated as of October 6, 1999, by and
among Media Metrix, AdRelevance, Merger Sub and the stockholders of
AdRelevance named therein***
2.4 Share Purchase Agreement dated February 8, 2000 among SIFO Group AB,
Osprey Research BV and Media Metrix, Inc.****
2.5 Agreement and Plan of Merger, dated as of June 26, 2000, among Media
Metrix, Inc., MMX Acquisition Corp. and Jupiter Communications,
Inc.*****
4.1 Registration Rights Agreement dated as of November 5, 1998, by and
among Media Metrix and the Stockholders listed on Schedule I
thereto*
4.2 Specimen Stock Certificate*
4.3 Registration Rights Agreement by and among Media Metrix, GfK AG and
Ipsos S.A. made as of September 1, 1999**
</TABLE>
II-2
<PAGE> 97
<TABLE>
<S> <C>
4.4 Stock Option Agreement by and between Media Metrix and GfK made as
of September 1, 1999**
4.5 Stock Option Agreement by and between Media Metrix and Ipsos made as
of September 1, 1999**
4.6 Registration Rights Agreement dated October 8, 1999 by and among
Media Metrix and the security holders of Media Metrix set forth on
Schedule I thereto***
4.7 Warrant to purchase common stock held by Silicon Valley Bank**
4.8 Registration Rights Agreement dated March 6, 2000 between Osprey
Research BV and Media Metrix, Inc.****
4.9 Media Metrix, Inc. Stock Option Agreement dated March 6, 2000
between Osprey Research BV and Media Metrix, Inc.****
4.10 Amendment to Registration Rights Agreement dated March 6, 2000 among
GfK AG, Ipsos SA, Osprey Research BV and Media Metrix, Inc.****
5.1 Opinion of Fulbright & Jaworski L.L.P.+
23.1 Consent of Ernst & Young LLP (independent auditors for Media Metrix,
Inc.)
23.2 Consent of Ernst & Young LLP (independent auditors for AdRelevance,
Inc.)
23.3 Consent of KPMG LLP (independent auditors for Jupiter Communications)
23.4 Consent of KPMG LLP (independent auditors for Internet Research
Group)
23.5 Consent of KPMG LLP (independent auditors for Net Market Makers)
23.6 Consent of Fulbright & Jaworski L.L.P. (included in exhibit 5.1)
</TABLE>
----------------------
+ Previously filed.
* Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 333-72883), filed with the SEC on February 24, 1999,
as amended.
** Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 333-88751), filed with the SEC on October 8, 1999,
as amended.
*** Incorporated by reference to the Company's Current Report on Form 8-K
filed with the SEC on October 20, 1999.
**** Incorporated by reference to the Company's Current Report on Form 8-K
filed with the SEC on March 20, 2000.
***** Incorporated by reference to the Company's Registration Statement on
Form S-4 (File No. 333-42316) filed with the SEC on July 27, 2000.
II-3
<PAGE> 98
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that:
(1) it will file, during any period in which offers or sales are being
made, a post-effective amendment of this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement; notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement of any material change to such information in the
registration statement.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act") may be permitted to directors,
officers, and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
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<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Post-Effective Amendment No. 1 to
Registration Statement on Form S-3 to Form S-1 Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of New York, State of New York, on August 15, 2000.
MEDIA METRIX, INC.
/s/ Tod Johnson
-----------------------------------------
By: Tod Johnson
Chairman and Chief Executive Officer
II-5
<PAGE> 100
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Tod Johnson Chief Executive Officer and August 15, 2000
--------------------------- Chairman of the Board
Tod Johnson (Principal Executive Officer)
* Chief Financial Officer and August 15, 2000
--------------------------- Treasurer (Principal Financial
Thomas A. Lynch and Accounting Officer
Director August 15, 2000
---------------------------
Randy Pausch
* Director August 15, 2000
---------------------------
Michael Brooks
* Director August 15, 2000
---------------------------
William W. Helman
* Director August 15, 2000
---------------------------
Stig Kry
* Director August 15, 2000
----------------------------
James Mortensen
/s/ Tod Johnson
----------------------------
Tod Johnson
</TABLE>
* As Attorney-in-Fact
II-6
<PAGE> 101
EXHIBIT INDEX
Exhibit
No. Description
--- -----------
2.1 Plan of Merger between Media Metrix and PC Meter L.P. dated as of
March 31, 1996*
2.2 Plan of Merger and Reorganization between Media Metrix, Inc. and
RelevantKnowledge dated as of September 30, 1998*
2.3 Agreement and Plan of Merger dated as of October 6, 1999, by and
among Media Metrix, AdRelevance, Merger Sub and the stockholders of
AdRelevance named therein***
2.4 Share Purchase Agreement dated February 8, 2000 among SIFO Group AB,
Osprey Research BV and Media Metrix, Inc.****
2.5 Agreement and Plan of Merger, dated as of June 26, 2000, among Media
Metrix, Inc., MMX Acquisition Corp. and Jupiter Communications,
Inc.*****
4.1 Registration Rights Agreement dated as of November 5, 1998, by and
among Media Metrix and the Stockholders listed on Schedule I
thereto*
4.2 Specimen Stock Certificate*
4.3 Registration Rights Agreement by and among Media Metrix, GfK AG and
Ipsos S.A. made as of September 1, 1999**
4.4 Stock Option Agreement by and between Media Metrix and GfK made as
of September 1, 1999**
4.5 Stock Option Agreement by and between Media Metrix and Ipsos made as
of September 1, 1999**
4.6 Registration Rights Agreement dated October 8, 1999 by and among
Media Metrix and the security holders of Media Metrix set forth on
Schedule I thereto***
4.7 Warrant to purchase common stock held by Silicon Valley Bank**
4.8 Registration Rights Agreement dated March 6, 2000 between Osprey
Research BV and Media Metrix, Inc.****
4.9 Media Metrix, Inc. Stock Option Agreement dated March 6, 2000
between Osprey Research BV and Media Metrix, Inc.****
4.10 Amendment to Registration Rights Agreement dated March 6, 2000 among
GfK AG, Ipsos SA, Osprey Research BV and Media Metrix, Inc.****
5.1 Opinion of Fulbright & Jaworski L.L.P.+
23.1 Consent of Ernst & Young LLP (independent auditors for Media Metrix,
Inc.)
23.2 Consent of Ernst & Young LLP (independent auditors for AdRelevance,
Inc.)
23.3 Consent of KPMG LLP (independent auditors for Jupiter Communications)
23.4 Consent of KPMG LLP (independent auditors for Internet Research
Group)
23.5 Consent of KPMG LLP (independent auditors for Net Market Makers)
23.6 Consent of Fulbright & Jaworski L.L.P. (included in exhibit 5.1)
------------------------
+ Previously filed.
* Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 333-72883), filed with the SEC on February 24, 1999,
as amended.
** Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 333-88751), filed with the SEC on October 8, 1999,
as amended.
*** Incorporated by reference to the Company's Current Report on Form 8-K
filed with the SEC on October 20, 1999.
**** Incorporated by reference to the Company's Current Report on Form 8-K
filed with the SEC on March 20, 2000.
***** Incorporated by reference to the Company's Registration Statement on
Form S-4 (File No. 333-42316) filed with the SEC on July 27, 2000.
