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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 2000
REGISTRATION NO. 333-34388
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MEDIA METRIX, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
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:
RICHARD H. GILDEN, ESQ.
STEVEN I. SUZZAN, ESQ.
FULBRIGHT & JAWORSKI L.L.P.
666 FIFTH AVENUE
NEW YORK, NEW YORK 10103
(212) 318-3000
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Approximate date of commencement of proposed sale of securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
-----------------------
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"), 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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DATED APRIL 26, 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 April 25, 2000, the last reported sale price for the common stock was
$35.50 per share.
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
April 26, 2000
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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
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Page
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PROSPECTUS SUMMARY .................................................................. 1
RISK FACTORS ........................................................................ 4
USE OF PROCEEDS ..................................................................... 17
PRICE RANGE OF COMMON STOCK ......................................................... 17
DIVIDEND POLICY ..................................................................... 17
CAPITALIZATION ...................................................................... 18
SELECTED FINANCIAL DATA ............................................................. 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ................................ 20
BUSINESS ............................................................................ 29
MANAGEMENT .......................................................................... 40
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ...................................... 47
PRINCIPAL STOCKHOLDERS AND MANAGEMENT ............................................... 51
SELLING STOCKHOLDERS ................................................................ 53
DESCRIPTION OF CAPITAL STOCK ........................................................ 55
SHARES ELIGIBLE FOR FUTURE SALE ..................................................... 58
PLAN OF DISTRIBUTION ................................................................ 60
LEGAL MATTERS ....................................................................... 61
EXPERTS ............................................................................. 61
WHERE YOU CAN FIND ADDITIONAL INFORMATION ........................................... 61
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PROSPECTUS SUMMARY
The information below is only a summary of more detailed information
included in other sections of this prospectus. The other information is
important, so please read this entire prospectus carefully.
MEDIA METRIX
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 the Media Metrix 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.
As a result of our acquisition of AdRelevance in October 1999, we offer
Internet advertising measurement products and services. 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. AdRelevance operates as a wholly
owned subsidiary of Media Metrix.
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 21% of our common stock.
Although our revenues have continued to grow, we have a history of
operating losses and negative cash flow. In
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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.
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
Relevant Knowledge, 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.
THE OFFERING
This prospectus relates to the sale of shares of our common stock by the
selling stockholders listed in "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 participating brokers and dealers may be
deemed to be "underwriters," as defined in the Securities Act. See "Plan of
Distribution." We will receive none of the proceeds from the sale of the common
stock by the selling stockholders. We have agreed to bear all expenses, other
than selling commissions and fees, in connection with the registration and sale
of the common stock being offered by the selling stockholders. See "Plan of
Distribution."
RECENT DEVELOPMENTS
On April 17, 2000, we reported revenues of $10.2 million for the three months
ended March 31, 2000, a 35% increase compared to revenues of $7.6 million for
the three months ended December 31, 1999 and a 221% increase compared to
revenues of $3.2 million for the three months ended March 31, 1999.
Net loss applicable to common stockholders was $8.1 million, or $0.41 per
share, for the three months ended March 31, 2000, compared to $14.3 million, or
$0.75 per share, for the three months ended December 31, 1999, and $2.5
million, or $0.19 per share, for the three months ended March 31, 1999.
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes the statement of operations data for our
business and our predecessor businesses. The pro forma data give effect to our
acquisition of AdRelevance as if it took place on January 1, 1999. For a more
detailed explanation of these financial data, see "Selected Financial Data" and
our financial statements located elsewhere in this prospectus.
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Period from
Inception Pro Forma
through Year Ended December 31, Year-Ended
December 31, -------------------------------------------------------- December 31,
1995 1996 1997 1998 1999 1999
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ - $ 1,033 $ 3,188 $ 6,331 $ 20,500 $ 20,503
Cost of revenues 140 1,744 3,463 4,121 10,291 10,291
-------- -------- -------- -------- -------- --------
Gross profit (loss) (140) (711) (275) 2,210 10,209 10,212
Operating Expenses:
Research and development 86 588 866 1,382 5,044 5,862
Sales and marketing 45 929 2,022 2,888 9,117 9,341
General and administrative 101 1,148 1,516 2,715 6,756 7,644
Amortization of deferred
compensation and other
stock-based compensation - - - 369 1,060 1,981
Amortization of intangibles - - - 479 7,312 20,894
Acquired in-process research and
development - - - 1,600 6,800 6,800
-------- -------- -------- -------- -------- --------
Total operating expenses 232 2,665 4,404 9,433 36,089 52,522
-------- -------- -------- -------- -------- --------
Loss from operations (372) (3,376) (4,679) (7,223) (25,880) (42,310)
Minority interests - - - - 1,689 1,689
Interest and other income, net - - 95 65 2,283 2,279
-------- -------- -------- -------- -------- --------
Net loss (372) (3,376) (4,584) (7,158) (21,908) (38,342)
Preferred stock dividends - - (290) (314) (109) (109)
Net loss applicable to common
stockholders $ (372) $ (3,376) $ (4,874) $ (7,472) $(22,017) $(38,451)
======== ======== ======== ======== ======== ========
Basic and diluted net loss per
common share applicable to
common stockholders $ (0.06) $ (0.52) $ (0.75) $ (0.98) $ (1.34) $ (2.27)
======== ======== ======== ======== ======== ========
Shares used in the calculation
of basic and diluted net loss per
share applicable to common
stockholders 6,523 6,523 6,523 7,619 16,445 16,973
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At December 31,
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BALANCE SHEET DATA: 1996 1997 1998 1999
<S> <C> <C> <C> <C>
Cash, cash equivalents and
marketable securities $ 583 $ 1,869 $ 8,012 $112,241
Working capital (deficit) (2,478) (47) 1,057 102,806
Total assets 1,213 2,787 16,060 178,844
Due to NPD 2,782 1,284 4,706 444
Preferred stocks - 8,366 4,680 -
Total stockholders' equity (deficit) (2,478) (8,274) 2,622 162,789
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RISK FACTORS
Before you invest in our common stock, you should be aware of various
risks, including those described below. You should carefully consider these risk
factors, together with all of the other information included in this prospectus,
before you decide whether to purchase shares of our common stock. Any or all of
these risks could have a material adverse effect on our business, results of
operations or financial condition. The risks set out below may not be
exhaustive. Keep these risk factors in mind when you read forward-looking
statements elsewhere in this prospectus. These are statements that relate to our
expectations for future events and time periods. Generally, the words
"anticipate," "expect," "intend" and similar expressions identify
forward-looking statements. Forward-looking statements involve risks and
uncertainties, and future events and circumstances could differ significantly
from those anticipated in the forward-looking statements.
WE DO NOT HAVE A LONG OPERATING HISTORY.
We began our operations as a division of NPD in October 1995. We have
only operated as an entity independent of NPD since March 31, 1996. Our
operating history is therefore limited.
You must consider the risks and difficulties frequently encountered by
early-stage companies in new and rapidly evolving markets. Some of these risks
and uncertainties relate to our ability to:
- anticipate and adapt to our evolving market;
- implement sales and marketing initiatives;
- enhance the Media Metrix brand;
- attract, retain and motivate qualified personnel;
- respond to actions taken by our competitors;
- effectively manage our growth by building a solid base of
operations and technology; and
- integrate acquired businesses, consumer panels, technologies and
services.
We cannot assure you that we will be successful in addressing these risks
and uncertainties. Our failure to do so could have a material adverse effect on
our business, results of operations and financial condition.
WE HAVE A HISTORY OF OPERATING LOSSES AND NEGATIVE CASH FLOW.
Our ability to generate significant revenues is uncertain. Although our
revenues have continued to grow, we are not yet profitable. We incurred losses
from operations of $4.7 million in 1997, $7.2 million in 1998 and $25.9 million
in 1999. We expect our operating and net losses to continue. If the merger with
RelevantKnowledge had taken place on January 1, 1998 and our acquisition of
AdRelevance had taken place on its date of inception, October 12, 1998, our pro
forma loss from operations for 1998 would have been $26.7 million. If our
acquisition of AdRelevance had taken place on January 1, 1999, our pro forma
loss from operations for the year ended December 31, 1999 would have been $42.3
million. Our ability to generate profits in the future will depend on a number
of factors, including:
- maintaining and enhancing our position as the leading Internet
audience measurement service;
- keeping our costs in line with our budget;
- retaining our existing customers;
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- increasing our sales to existing customers;
- obtaining new customers;
- increasing business and consumer acceptance of the Internet as a
source of information and as a place to buy and sell goods and
services;
- the growth of advertising and e-commerce on the Internet;
- regulation of the Internet by Federal or local governments;
- the health of the general economy; and
- economic conditions that uniquely affect the Internet.
We intend to invest heavily in our technologies, additional products and
services and international expansion. As a result, we will need to achieve
significant revenue increases to achieve and maintain profitability. Although
our revenues and the number of our clients have continued to increase, we may
not be able to continue to grow and to expand our business. The number of
clients or the number of products and services for which our clients subscribe
may grow more slowly than we anticipate or may decrease in the future. Even if
we become profitable, we may not sustain or increase our profits on a quarterly
or annual basis in the future.
THE INTERNET AUDIENCE MEASUREMENT INDUSTRY IS NEW AND RAPIDLY EVOLVING.
To date, no Internet audience measurement service has been adopted as the
universally accepted standard. Our existing and potential customers may
challenge or refuse to accept our audience measurement reports. Our customers
may be dissatisfied with our methodology for measuring Internet audiences or may
feel that our panel is not representative of Internet users. Furthermore,
another Internet audience measurement service may be adopted as the industry
standard. As a result, our customers may turn to alternative services provided
by current or potential competitors.
WE DEPEND ON CONTINUED GROWTH IN USE OF THE INTERNET.
Our business would be adversely affected if Internet usage for the
exchange of information and for commerce does not continue to grow rapidly.
Internet usage may be inhibited for a number of reasons, including:
- inadequate network infrastructure;
- security concerns;
- inconsistent quality of service; or
- lack of availability of cost-effective, high-speed service.
Even if Internet usage grows, the Internet infrastructure may not be able
to support the demands placed on it by this growth. As a result, its performance
and reliability may decline. In addition, Web sites and proprietary on-line
services have experienced interruptions in their service as a result of outages
and other delays occurring throughout their infrastructure. If these outages or
delays frequently occur in the future, Internet usage as a medium for the
exchange of information and for commerce could grow more slowly or decline.
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THE ACCEPTANCE AND EFFECTIVENESS OF INTERNET ADVERTISING IS UNPROVEN.
Our future success will depend on an increase in the use of the Internet
as an advertising medium. The Internet advertising market is new and rapidly
evolving. It cannot yet be compared with the traditional advertising market to
gauge its effectiveness. As a result, there is significant uncertainty about the
demand and market acceptance for Internet advertising. Many of our current or
potential customers have little or no experience using the Internet for
advertising purposes. The adoption of Internet advertising, particularly by
entities that have historically relied on traditional media for advertising,
requires the acceptance of a new way of conducting business. These companies may
find Internet advertising to be less effective for promoting their products and
services as compared to traditional advertising. In addition, most current and
potential Web publisher customers have little or no experience in generating
revenues from the sale of advertising space on their Web sites. We cannot assure
you that the market for Internet advertising will continue to emerge or will
become sustainable. If the market for Internet advertising fails to develop or
develops more slowly than we expect, then our business, results of operations
and financial condition could be materially and adversely affected.
OUR OPERATING RESULTS MAY FLUCTUATE FROM QUARTER TO QUARTER.
Our operating results have varied from quarter to quarter. Our operating
results may continue to vary as a result of a variety of factors. These factors
include:
- our ability to retain our current clients;
- our ability to sell additional products and services to current
clients;
- our ability to attract new clients;
- our ability to maintain customer satisfaction;
- the announcement or introduction of new products and services by
us or our competitors;
- price competition;
- our ability to upgrade and to develop our systems and
infrastructure to accommodate our growth;
- our ability to attract new personnel;
- the timing, cost and availability of advertising in traditional
media;
- the impact of possible acquisitions both on our operations and on
our reported operating results due to associated accounting
charges;
- technical difficulties or service interruptions;
- 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 our planned
international expansion.
Many of these factors are beyond our control. We cannot assure you that
our revenues will increase in proportion to the increase in advertising on the
Internet, or at all. In addition, we cannot assure you that advertising on the
Internet will continue to grow at forecasted levels, or at all. A substantial
portion of our current and future costs are fixed. If our revenues fall short of
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expectations, we may not be able to adjust our 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, results of
operations and financial condition.
Due to these factors, period-to-period comparisons of our revenues and
operating results are not necessarily meaningful. Therefore, you should not rely
on these comparisons as indicators of our future performance. We also cannot
assure you that we will be able to:
- sustain the rates of revenue growth we have experienced in the
past;
- improve our operating results; or
- sustain our profitability on a quarterly basis.
In addition, our operating results in future periods may be below the
expectations of securities analysts and investors. If that occurs, the market
price of our common stock could be materially and adversely affected.
WE OPERATE IN HIGHLY COMPETITIVE MARKETS.
The market for Internet audience measurement services is new and rapidly
evolving. We expect competition in this market to intensify in the future. 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 do we. In light of these events, Nielsen//NetRatings has become a
significant competitor. According to publicly available information, in December
1999 NetRatings completed its initial public offering.
We 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 such services in the United States. In January
2000, NetValue completed its initial public offering.
We also compete indirectly with operators of site-centric and other
consumer-centric measurement systems. Site-centric measurement systems measure
audience visits at a specific Web site by monitoring the Web site's server.
Consumer-centric systems measure the market either in a manner similar to us or
qualitatively through on-line and telephonic interviews.
In addition, we may face competition from individual Web sites that
develop an independent method of measuring their own audience or from other
companies that develop alternative audience measurement technologies to those
already provided by us.
Competitive pressures could have a material adverse effect on our
business, results of operations and financial condition. We believe that the
principal competitive factors in our market are:
- creating representative consumer and business panels; and
- providing audience measurement services for the entire Internet,
including the Web and proprietary online services.
Some of our competitors have:
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- 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 cannot assure you that we will be able to
compete successfully against current and future competitors.
WE FACE MANY CHALLENGES IN CONNECTION WITH OUR PLANNED INTERNATIONAL EXPANSION.
Our current strategy includes 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 cannot assure you that we will be able to develop new products
and services based on data obtained in those markets. We cannot assure you that
we will be successful in marketing our products and services to clients in
markets outside the United States. In addition, our international operations
will be subject to a number of inherent risks, including:
- the impact of recessions in economies outside the United States;
- changes in regulatory requirements;
- reduced protection for intellectual property rights in some
countries;
- potentially adverse tax consequences;
- economic and political instability; and
- fluctuations in currency exchange rates.
These risks may have a material adverse effect on our business, results
of operations or financial condition.
WE WILL DEPEND ON STRATEGIC RELATIONSHIPS IN INTERNATIONAL MARKETS.
The success of our international expansion will depend on our ability to:
- recruit and maintain at-home and at-work panels that are
representative of a geographic area;
- control costs and effectively manage foreign operations; and
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- 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 continued ability to develop and
to maintain strategic relationships with local audience measurement or marketing
research companies. This may become increasingly difficult as competition in the
international markets increases. If we do not succeed in attracting or retaining
strategic partners in markets outside the United States, our business, financial
condition and results of operations could be materially adversely affected.
OUR MARKET IS SUBJECT TO RAPID CHANGE.
Our market is characterized by:
- rapidly changing technology;
- evolving industry standards;
- introductions and enhancements of competitive products and
services; and
- changing customer demands.
Accordingly, our future success depends on our ability to:
- adapt to rapidly changing technologies;
- adapt our services to evolving industry standards; and
- improve the features, reliability and timeliness of our product
and service offerings in response to competitive product and
service offerings and evolving demands of the marketplace.
We cannot assure you that we will succeed in addressing these issues. In
addition, the widespread adoption of new Internet networking technologies or
other technological changes could require us to expend substantial amounts of
capital to change our services or infrastructure. These changes may also involve
new technologies that may not be measurable by our current methods.
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 our 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. This could have a material adverse effect on our business, results of
operations and financial condition.
WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR INTERNAL GROWTH.
We are currently experiencing a period of rapid expansion. We anticipate
that future expansion will be necessary in order to accommodate our needs and to
take advantage of new opportunities in the market for audience measurement
services on the Internet. In order to succeed, we will need to attract and hire
additional technical and management personnel. As a result, we expect to add key
personnel in the near future to manage our expected growth. We also will need to
expand our technical, finance, administrative and operations staff. We cannot
assure you that current and planned personnel, systems, procedures and controls
will be adequate to support our future operations. We may not be able to hire
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new and retain our current personnel. We also may not be able to exploit
existing and potential strategic relationships and market opportunities. If we
fail to effectively manage our internal growth, our business, results of
operations and financial condition could be materially adversely affected.
WE DEPEND ON RENEWALS OF OUR SUBSCRIPTION BASED SERVICES.
We have historically derived substantially all of our revenues from
subscriptions for our syndicated products. In our limited history, high renewal
rates have formed a foundation for our revenue growth. However, we cannot assure
you we will continue to experience high renewal rates. Our subscription renewal
rates may also decline as a result of a consolidation in our customer base or if
a significant number of our customers cease operations. If our renewal rate
percentage declines, it could have a material adverse effect on our business,
results of operations and financial condition.
WE MUST FURTHER DEVELOP OUR BRAND NAME.
We believe that maintaining and strengthening the Media Metrix brand is an
important aspect of our business. Our brand name is critical in our efforts to
attract clients. We believe that the importance of brand recognition will
increase due to the increasing number of competitors entering the market for
Internet audience measurement. Our ability to promote and position the Media
Metrix brand depends largely on:
- the success of our marketing efforts;
- our ability to provide our customers with high quality products; and
- our ability to secure rights to our brand name 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 our use of the domain name "mediametrix.com." If
we fail to promote and maintain our brand, or incur excessive expenses
attempting to promote and maintain our brand, our business, results of
operations and financial condition will be materially adversely affected.
WE MAY ENCOUNTER RISKS ASSOCIATED WITH NEW PRODUCT DEVELOPMENT.
Our future success depends in part on our ability to offer new products and
services on a timely and cost-effective basis. In order to gain market
acceptance, our new products and services must address:
- specific industries and businesses;
- changes in client requirements; and
- changes in technologies.
The process of developing and launching new products or services is
inherently risky and costly. Moreover, we cannot assure you that once launched,
our products and services will be accepted by our customers.
OUR SYSTEMS MAY FAIL.
Our success depends on the efficient and uninterrupted operation of our
computer and communications systems. Some servers and portions of our network
are provided to us by NPD under a management services agreement. NPD also
provides us with the use of mini-computers that we use to process data received
from panelists. We have begun to
10
<PAGE> 14
migrate our systems to our own independent network. We expect to complete this
process by the second quarter of 2000. Any failure of the current or the new
networks could impede the processing of data, customer orders and day-to-day
management of our business. This could have a material adverse effect on our
business, results of operations and financial condition.
Our systems and operations are vulnerable to damage or interruption from:
- telecommunication failures;
- power loss;
- fires;
- floods;
- physical and electronic break-ins;
- sabotage; and
- intentional acts of vandalism and similar events.
We do not presently have fully redundant systems. Despite any precautions
we take, a natural disaster or other unanticipated problems which lead to the
corruption or loss of data at the NPD facility or our own facilities could
result in interruptions in the services we provide. In addition, our 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 and could have a material adverse effect on our business,
results of operations and financial condition.
WE DEPEND ON OUR KEY PERSONNEL.
Our future success depends on the continued services and on the
performance of our senior management and other key employees, in particular the
services of Tod Johnson, our Chief Executive Officer. Mr. Johnson also serves as
the Chief Executive Officer of NPD. Mr. Johnson has spent a substantial portion
of his time on our 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. As a
result, 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. The loss of the services of any of our key employees could have a
material adverse effect on our business, results of operations and financial
condition. We do not have long-term employment agreements with any of our key
personnel. We do not maintain any "key person" life insurance policies. In
addition, we are likely to need to recruit additional senior management
personnel as our business grows, particularly in the international arena. Our
future success depends on our ability to hire and to retain highly skilled
personnel. Competition for these candidates is intense. We cannot assure you
that we will be able to successfully attract, integrate or retain sufficiently
qualified personnel. Our inability to retain and attract the necessary personnel
could have a material adverse effect on our business, results of operations and
financial condition.
ADRELEVANCE'S SERVICES MAY NOT BE SUCCESSFUL.
We recently acquired AdRelevance. AdRelevance only began operations in
late 1998. AdRelevance's services were first commercially launched in September
1999. Our future success in the advertising tracking business depends on the
acceptance of these services. We cannot be sure that these services will be
widely accepted in the marketplace. In addition, AdRelevance relies on public
Internet sites to gather advertising data. Those sites might cease to be
available or may charge licensing or other fees for access. We may not be able
to obtain an alternative or cost-effective source for these data.
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<PAGE> 15
WE MAY FAIL TO INTEGRATE ACQUISITIONS.
If appropriate opportunities present themselves, we intend to acquire
other complementary businesses, technologies, services or products. We currently
have no understandings or agreements relating to any acquisition. We cannot
assure you that we will be able to complete future acquisitions successfully or
to integrate an acquired entity with our current business. An acquisition may
result in unforeseen operating difficulties and expenditures. They may also
require significant management attention that would otherwise be available for
ongoing development of our business. Moreover, we cannot assure you that the
anticipated benefits of any acquisition will be realized. We may:
- issue additional equity securities which would dilute
stockholders;
- incur debt;
- incur contingent liabilities; and
- incur amortization expenses related to goodwill and other
intangible assets.
WE DEPEND ON THE NPD GROUP, INC.
We were originally formed as a division of NPD. Throughout our
development, we have relied on services and financing provided to us by NPD.
When we became an independent operating entity, we entered into a management
services agreement, license agreement and services agreement with NPD. These
agreements allow us to continue to use some of NPD's software and services on an
as-needed basis. Under the management services agreement, NPD provides us with
managerial services. Under the license agreement, we license some of NPD's
technologies necessary for the operation of our services. The services agreement
provides for payment of a license fee by NPD for access to information collected
from our panel.
NPD may be able to exert influence over our business and affairs due to
these arrangements. Also, the loss of the services provided by NPD under the
management services agreement or the loss of the license of computer software
under the license agreement could have a material adverse effect on our
business, financial condition and results of operations.
WE MAY NOT BE ABLE TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS.
We regard the protection of our patents, copyrights, service marks,
trademarks and trade secrets as important to our future success. We rely on a
combination of patent, copyright, trademark, service mark and trade secret laws
and contractual restrictions to establish and protect our proprietary rights. We
have entered into confidentiality and invention assignment agreements with our
employees and contractors, and nondisclosure agreements with parties we do
business with in order to limit access to and disclosure of our proprietary
information. We cannot assure you that these contractual arrangements or the
other steps we have taken will be sufficient to protect our intellectual
property from infringement or misappropriation. Moreover, others may
independently develop similar or superior technologies.
We seek to obtain the issuance of patents and the registration of our
trademarks and service marks in the United States and in selected other
countries. We cannot assure you that patents or trademark registrations will be
issued with respect to pending or future applications or that our patents and
trademarks will be upheld as valid. Effective patent, trademark, service mark,
copyright and trade secret protection may not be available in every country in
which our services are offered.
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<PAGE> 16
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; or
- require us to enter into royalty or licensing agreements.
Royalty or licensing agreements might not be available on terms we find
acceptable or at all. As a result, any such claim could have a material adverse
effect upon our business, results of operations and financial condition.
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.
Mediametrie has also challenged our 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 cannot assure you
that we will be successful in reaching a settlement on terms acceptable to us
nor can we predict the outcome of the 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. We also cannot assure you that these third-party technology licenses
will continue to be available to us on commercially reasonable terms, if at all.
As a result, we may need to obtain substitute technology of lower quality or
performance standards or at greater cost. This could materially adversely affect
our business, results of operations and financial condition.
WE MAY BE EXPOSED TO POSSIBLE LIABILITY FOR SUPPLYING INACCURATE INFORMATION TO
OUR CUSTOMERS.
We may face liability for information that we supply to customers if the
information is inaccurate. The information in our databases, like that in any
database, may contain inaccuracies that our customers may not accept. Any
dissatisfaction by our customers with our measurement methodologies or databases
would have a material adverse effect on our ability to attract new customers and
retain existing customers. Our customer contracts generally provide that each
customer must indemnify us for any damages arising from the use of data, reports
or analyses by the customer or the performance of any consulting, analytic or
other services by us. However, we cannot be certain our contract provisions
provide sufficient protection. Any liabilities which we may incur because of
irregularities or inaccuracies in the data we supply to our customers could
materially adversely affect our business, results of operations and financial
condition.
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. This could
have a material adverse effect on our business, results of operations and
financial condition.
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
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<PAGE> 17
personal information, like for unauthorized marketing purposes. These claims
could result in litigation and could have a material adverse effect on our
business, results of operations and financial condition.
WE FACE RISKS OF INDUSTRY INITIATIVES.
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, results of
operations and financial condition 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. These could have a material adverse effect on our business,
results of operations and financial condition.
The adoption of any such legislation could also dampen the growth in use
of the Internet generally and decrease its acceptance as a communications,
commercial and advertising medium. Any legislation which could have any adverse
effect on the growth of the Internet could decrease the demand for our services
and could have a material adverse effect on our business, results of operations
and financial condition.
THERE MAY BE LIMITS IMPOSED ON USES OF PERSONAL INFORMATION GATHERED USING THE
INTERNET.
Several states have proposed legislation that would limit the uses of
personal user information gathered using the Internet. These regulations have
required proprietary on-line service and Web site owners to establish privacy
policies. The Federal Trade Commission has also recently settled a proceeding
with one on-line service regarding the manner in which personal information is
collected from users and provided to third parties. Also, the European Union 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. However, we may become subject to claims arising
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<PAGE> 18
from the information collected or used by 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;
- decrease the efficacy of Internet advertising; or
- in some other manner have a material adverse effect on our
business, results of operations and financial condition.
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 the stock outstanding may be diluted. We may have
to issue securities that may have rights, preferences and privileges senior to
our common stock. We cannot assure you that we will be able to raise additional
funds on terms favorable to us or at all. If future financing is not available
or is not available on acceptable terms, we may not be able to fund our future
needs. This could have a material adverse effect on our business, results of
operations and financial condition.
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, results of operations and financial condition could be materially
and adversely affected if we are unable to conduct our business for an extended
period of time for any reason.
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 own approximately 32% of our common stock. In
particular, NPD, which is controlled by Tod Johnson, our Chairman and Chief
Executive Officer, owns approximately 21.0% of our outstanding common stock.
These stockholders acting together will have the ability to exert substantial
influence over all matters requiring approval by our stockholders. These matters
include the election and removal of directors and any merger, consolidation or
sale of all or substantially all of our assets. In addition, they may dictate
the management of our business and affairs. This concentration of ownership
could have the effect of delaying, deferring or preventing a change in control,
or impeding a merger or consolidation, takeover or other business combination.
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<PAGE> 19
THERE MAY BE AN ADVERSE EFFECT ON THE MARKET PRICE OF OUR STOCK AS A RESULT OF
SHARES BEING AVAILABLE FOR SALE IN THE FUTURE.
Sales of a substantial amount of our common stock in the public market,
or the perception that these sales may occur, could adversely affect the market
price of our common stock prevailing from time to time. This could also impair
our ability to raise additional capital through the sale of our equity
securities. Pursuant to this prospectus, the selling stockholders may sell up to
868,756 shares of common stock. A portion of these shares will be available for
sale into the public market upon the effectiveness of this registration
statement. See "Selling Stockholders" for a description of an escrow agreement
that will prevent the selling stockholders from selling an aggregate of 102,360
of the 868,756 shares offered by this prospectus until October 8, 2000.
THERE MAY BE VOLATILITY IN OUR STOCK PRICE.
Our common stock, which is quoted 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 our management's attention and resources. This could have a
material adverse effect on our business, results of operations and financial
condition.
EFFECTS OF ANTI-TAKEOVER PROVISIONS COULD INHIBIT THE ACQUISITION OF MEDIA
METRIX.
Some of the provisions of our certificate of incorporation, bylaws and
Delaware law could, together or separately:
- discourage potential acquisitions proposals;
- delay or prevent a change in control; and
- limit the price that investors might be willing to pay in the
future for shares of our common stock.
In particular, our board of directors may issue up to 5,000,000 shares of
preferred stock with rights and privileges that might be senior to our common
stock, without the consent of the holders of the common stock. Our certificate
of incorporation and bylaws provide, among other things, that our board of
directors is divided into three classes which serve staggered three year terms,
that stockholders may not take actions by written consent and that special
meetings of stockholders may only be called by our board of directors or our
Chairman. We are also subject to Section 203 of the Delaware General Corporation
Law which generally prohibits a Delaware corporation from engaging in any of a
broad range of business combinations with any interested stockholder for a
period of three years following the date on which the stockholder became an
interested stockholder.
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<PAGE> 20
USE OF PROCEEDS
We will not receive any of the proceeds of this offering.
PRICE RANGE OF COMMON STOCK
Our common stock has been listed on the Nasdaq National Market since May 7,
1999 under the symbol "MMXI." The following table sets forth the high and low
closing sale prices on the Nasdaq National Market for our common stock for the
calendar periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
PRICE RANGE
OF COMMON STOCK
---------------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Second Quarter (from May 7) ..................................... $56.625 $32.000
Third Quarter ................................................... $69.875 $34.250
Fourth Quarter .................................................. $65.875 $32.500
YEAR ENDED DECEMBER 31, 2000:
First Quarter ................................................... $46.125 $29.00
Second Quarter (through April 25) ............................... $43.00 $25.000
</TABLE>
On April 25, 2000, the last reported sale price of our common stock on
the Nasdaq National Market was $35.50 per share. As of December 31, 1999, there
were 211 holders of record of our common stock.
DIVIDEND POLICY
We have never declared nor paid any cash dividends on our common stock.
We currently anticipate that we will retain any future earnings for the
development and operations of our business. Accordingly, we do not anticipate
paying cash dividends on our capital stock in the foreseeable future.
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<PAGE> 21
CAPITALIZATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
You should read the following table, which sets forth our capitalization
as of December 31, 1999 with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes
included elsewhere in this prospectus.
<TABLE>
<S> <C>
Long-term debt, including current portion .................................... $ 370
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized
and none issued and outstanding .......................................... -
Common stock, $.01 par value, 60,000,000 shares authorized;
19,681,999 shares issued and outstanding ................................. 197
Additional paid-in capital ................................................. 202,032
Accumulated other comprehensive loss ....................................... (83)
Accumulated deficit ........................................................ (38,111)
Deferred compensation ...................................................... (1,246)
---------
Total stockholders' equity ................................................... 162,789
---------
Total capitalization ................................................... $ 163,159
=========
</TABLE>
The outstanding share information is based on our shares outstanding as
of December 31, 1999. This information excludes:
- 1,198,781 shares of common stock subject to options granted
under our 1998 Equity Incentive Plan and outstanding as of
December 31, 1999 at a weighted average exercise price of $28.74
per share;
- 425,780 shares of common stock subject to options granted under
our earlier Stock Option Plan and outstanding as of December 31,
1999 at a weighted average exercise price of $0.81 per share;
- 101,164 additional shares of common stock reserved for issuance
under our 1998 Equity Incentive Plan; and
- 77,520 shares of our common stock which may be issuable if
AdRelevance achieves certain post-closing goals; 223,726 shares of
our common stock subject to options and warrants assumed in
connection with the AdRelevance acquisition; and an additional
24,841 shares of our common stock which may be issuable under
these options and warrants if AdRelevance achieves certain
post-closing goals.
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<PAGE> 22
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with our Consolidated Financial Statements and notes thereto
included elsewhere in this prospectus. The financial statements for the period
from inception through December 31, 1995 are based on operations of PC Meter,
our predecessor, while it was still a division of NPD. The financial statements
for the year ended December 31, 1996 are those of PC Meter and include three
months of operations during which PC Meter was a division of NPD. The pro forma
data give effect to our acquisition of AdRelevance as if it took place on
January 1, 1999.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION PRO FORMA
THROUGH YEAR ENDED DECEMBER 31, YEAR ENDED
DECEMBER 31, ------------------------------------------------- DECEMBER 31,
1995 1996 1997 1998 1999 1999
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ..................................... $ - $ 1,033 $ 3,188 $ 6,331 $ 20,500 $ 20,503
Cost of revenues ............................. 140 1,744 3,463 4,121 10,291 10,291
-------- -------- -------- -------- -------- --------
Gross profit (loss) .......................... (140) (711) (275) 2,210 10,209 10,212
Operating Expenses:
Research and development ................... 86 588 866 1,382 5,044 5,862
Sales and marketing ........................ 45 929 2,022 2,888 9,117 9,341
General and administrative ................. 101 1,148 1,516 2,715 6,756 7,644
Amortization of deferred compensation
and other stock-based compensation ....... - - - 369 1,060 1,981
Amortization of intangibles ................ - - - 479 7,312 20,894
Acquired in-process research and development - - - 1,600 6,800 6,800
-------- -------- -------- -------- -------- --------
Total operating expenses ..................... 232 2,665 4,404 9,433 36,089 52,522
-------- -------- -------- -------- -------- --------
Loss from operations ......................... (372) (3,376) (4,679) (7,223) (25,880) (42,310)
Minority interests ........................... - - - - 1,689 1,689
Interest and other income, net ............... - - 95 65 2,283 2,279
-------- -------- -------- -------- -------- --------
Net loss ..................................... (372) (3,376) (4,584) (7,158) (21,908) (38,342)
Preferred stock dividends .................... - - (290) (314) (109) (109)
-------- -------- -------- -------- -------- --------
Net loss applicable to common stockholders ... $ (372) $ (3,376) $ (4,874) $ (7,472) $(22,017) $(38,451)
======== ======== ======== ======== ======== ========
Basic and diluted net loss per common share
applicable to common stockholders .......... $ (0.06) $ (0.52) $ (0.75) $ (0.98) $ (1.34) $ (2.27)
======== ======== ======== ======== ======== ========
Shares used in the calculation of basic and
diluted net loss per share applicable to
common stockholders 6,523 6,523 6,523 7,619 16,445 16,973
</TABLE>
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------
BALANCE SHEET DATA: 1996 1997 1998 1999
<S> <C> <C> <C> <C>
Cash, cash equivalents and
marketable securities $ 583 $ 1,869 $ 8,012 $112,241
Working capital (deficit) (2,478) (47) 1,057 102,806
Total assets 1,213 2,787 16,060 178,844
Due to NPD 2,782 1,284 4,706 444
Preferred stocks - 8,366 4,680 -
Total stockholders' equity (deficit) (2,478) (8,274) 2,622 162,789
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and
results of operations with the financial statements and the notes to the
financial statements included elsewhere in this prospectus. This discussion
contains forward-looking statements based on our current expectations,
assumptions, estimates and projections. These forward-looking statements involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
as more fully described in the "Risk Factors" section and elsewhere in this
prospectus. We undertake no obligation to update publicly any forward-looking
statements for any reason, even if new information becomes available or other
events occur in the future.
OVERVIEW
We provide Internet audience measurement products and services to leading
Internet advertisers, advertising agencies, media companies, technology
companies and financial institutions. We have been at the forefront of the
development and coordination of technology and standards needed to facilitate
advertising and transactions between companies doing business over the Internet.
The quality and depth of our customer base and our customer renewal rate of over
95% reflect our position as a widely accepted Internet audience measurement
service. As a result of our acquisition of AdRelevance in October 1999, we now
offer advertising measurement products and services to our customers.
Our business was originally conducted as a division within NPD, a leading
marketing research firm. Prior to March 1996, we were engaged primarily in
product research and development. In March 1996, PC Meter, L.P., was formed to
further commercialize our Internet audience measurement business in an entity
separate from NPD, although NPD continued to provide PC Meter with
administrative and support services and technology licenses. By July 1996, we
increased the size of our panel to over 10,000 individuals and significantly
increased our product offerings. In April 1997, PC Meter was merged into Media
Metrix, and we raised approximately $4.0 million in a private placement to fund
the expansion of our business. The assets and liabilities and related revenues
and expenses of PC Meter have been reflected in our financial statements at
their historical book values.
In November 1998, we merged with RelevantKnowledge, at the time our
leading competitor. In the merger, the former stockholders of RelevantKnowledge
were issued 3,890,825 shares of Media Metrix common stock. Following the merger,
we increased our panel size and began to integrate the best technological
features from RelevantKnowledge into our systems and processes. Due to the
combination, in the fourth quarter of 1998 we had considerable expenses due to
costs incurred by operating two distinct panels, production systems and
administrative infrastructures. In connection with the merger, we acquired $6.4
million of intangibles, which are being amortized over periods varying from one
to three years.
In October 1999, we acquired AdRelevance. The acquisition was structured
as a stock-for-stock transaction valued at approximately $59.4 million. In
addition, we may issue additional shares of our common stock and options and
warrants having a value of approximately $4.3 million, based on the closing
price of our common stock on March 31, 2000, if AdRelevance achieves certain
post-closing goals. In connection with our acquisition of AdRelevance, we
recognized $54.3 million of intangibles, which are being amortized over a
three-year period. Also, a non-recurring in-process research and development
cost of $6.8 million was expensed at the time of the acquisition.
In connection with the formation of our European joint venture, MMXI
Europe B.V., we granted to each of GfK and Ipsos an option, subject to certain
conditions, to exchange their shares of MMXI Europe for shares of our common
stock at any time commencing on May 7, 2000 through May 7, 2005. The aggregate
maximum number of shares of our common stock that we may be required to issue in
exchange for the shares of MMXI Europe will equal the then U.S. dollar
equivalent of 3,825,000 Euros divided by $21.25. On April 24, 2000, 3,825,000
Euros equaled approximately $3.6 million. If GfK or Ipsos exercises its option
to convert its shares in MMXI Europe into shares of our common stock, we will
need to record additional goodwill in an amount equal to the difference between
the then fair market value of the shares of our common stock multiplied by the
number of shares we issue and the net book value of MMXI Europe attributable to
GfK and Ipsos.
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Our revenues are derived from our measurement products and services. Our
product offerings include both syndicated products and customized products. We
sell our syndicated products on an annual subscription basis. We typically bill
our syndicated clients, in advance, for up to the next twelve months of
products. Since 1997, syndicated products have accounted for approximately 90%
of our revenues, while customized products and services have accounted for
approximately 10%. Our combined customer base increased from approximately 100
customers at the end of 1997 to more than 600 as of December 31, 1999. Of the
303 customers subscribing under annual contracts for our syndicated products and
services at the end of 1998, over 95% remained customers at the end of 1999.
With this high customer retention rate, we have a growing base of recurring
revenues from our syndicated products and services. In addition, of the
contracts renewed in 1999, we experienced an average increase in contract dollar
value of over 35%.
We recognize revenues for the syndicated products and services over the
term of the related contract as services are provided. Revenues for customized
products and services are recognized in the period in which the product or
service is delivered.
Our business model is based on creating multiple products and services
from our core panel-based market research, technologies and databases. The core
U.S. panel of 50,000 individuals under continuous measurement has been
established over the past three years. We recruit individuals to become members
of our panel through random digit dial (RDD) telephone solicitation. We also use
direct mail to reach individuals identified within the RDD sample. We incur
costs in connection with recruiting and retaining members of our panel. These
costs are expensed in the year incurred. Our rate of expense growth, other than
panel and production, is primarily driven by increases in headcount and sales
and marketing expenditures.
We have incurred significant losses from operations since our inception.
We incurred losses from operations of $25.9 million in 1999, $7.2 million in
1998 and $4.7 million in 1997. If the merger with RelevantKnowledge had taken
place on January 1, 1998 and the acquisition of AdRelevance had occurred on
October 12, 1998, its date of inception, our pro forma loss from operations for
1998 would have been $26.7 million. This pro forma loss from operations includes
$6.6 million of amortization of intangibles and $8.4 million of acquired
in-process research and development. If our acquisition of AdRelevance had taken
place on January 1, 1999, our pro forma loss from operations for 1999 would have
been $42.3 million. As of December 31, 1999, we had an accumulated deficit of
$38.1 million. As of December 31, 1998, we had an outstanding payable to NPD for
$4.7 million under a management services agreement, $4.1 million of which was
paid in January 1999. As of December 31, 1999, we had an outstanding payable to
NPD for $444,000. Charges from NPD have decreased in 1999 as we have taken on
the direct management of our own payroll and computer systems.
We expect that we will incur significant expenses in the future
associated with our ongoing international expansion, particularly costs
associated with recruiting and maintaining panels in a number of countries. We
plan on continuing to hire personnel to manage our current and anticipated
international operations and on entering into joint ventures with local
partners. In addition, we intend to invest heavily in further development and
enhancement of our technologies and development of additional products and
services.
21
<PAGE> 25
RESULTS OF OPERATIONS
The following table sets forth our results of operations expressed as a
percentage of revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Revenues 100.0 % 100.0 % 100.0 %
Cost of revenues 108.6 65.1 50.2
------ ------ ------
Gross profit (loss) (8.6) 34.9 49.8
Operating expenses:
Research and development 27.2 21.8 24.6
Sales and marketing 63.4 45.6 44.5
General and administrative 47.6 42.9 33.0
Amortization of deferred compensation
and other stock-based compensation - 5.8 5.1
Amortization of intangibles - 7.6 35.7
Acquired in-process research and development - 25.3 33.1
------ ------ ------
Total operating expenses 138.2 149.0 176.0
------ ------ ------
Loss from operations (146.8) (114.1) (126.2)
Minority interests - - 8.2
Interest and other income, net 3.0 1.0 11.1
------ ------ ------
Net loss (143.8) % (113.1) % (106.9) %
====== ====== ======
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues. Revenues increased 223.8% to $20.5 million for the year ended
December 31, 1999 from $6.3 million for the year ended December 31, 1998. Sales
of syndicated audience measurement products and services accounted for
approximately 90% of revenues for each of the years ended December 31, 1999 and
1998. Sales of customized products and services accounted for the remaining
revenues. The increase in revenues was due primarily to a substantial increase
in the number of our customers, including customers acquired in connection with
the RelevantKnowledge merger, and an increase in the amount of products and
services sold to our customers. No single customer accounted for more than 10%
of revenues during either of the years ended December 31, 1999 or 1998.
Costs of Revenues. Costs of revenues consist primarily of costs
associated with the recruitment and maintenance of the panel, data collection
and production costs. Panel and data collection costs include costs associated
with mailing and printing, incentives, help desk and associated personnel.
Production costs include computer usage charges, printing, report distribution
costs and personnel costs. Gross profit was $10.2 million for the year ended
December 31, 1999, or 49.8% of revenues. Gross profit was $2.2 million for the
year ended December 31, 1998, or 34.9% of revenues. The increase in gross profit
as a percentage of revenues for the year ended December 31, 1999 over the prior
period was due to an increase in revenues, without a commensurate increase in
costs.
In the year ended December 31, 1999, we invested approximately $2.5
million in recruiting panels and other start up costs in connection with our
international operations in the U.K., France, Germany, Canada and Australia.
However, we have not realized any significant revenues to offset against these
costs, which has resulted in a lower overall gross margin for the period
compared to the gross margin applicable to the U.S. operations alone for the
same period.
Research and Development. Research and development costs consist
primarily of personnel and other related costs attributable to the development
of new products and services. All research and development costs have been
22
<PAGE> 26
expensed as incurred. Research and development costs were $5.0 million for the
year ended December 31, 1999, or 24.6% of revenues. Research and development
costs were $1.4 million for the year ended December 31, 1998, or 21.8% of
revenues. The increase in research and development costs as a percentage of
revenues for the year ended December 31, 1999 was due primarily to increases in
research and development personnel and consulting costs, including certain costs
relating to our new real time meter, data warehouse and client interface systems
which will be introduced in the second quarter of 2000.
Sales and Marketing. Sales and marketing costs consist of personnel,
commissions, travel and entertainment expenses, public relations costs, trade
show expenses, seminars and marketing materials. Sales and marketing costs were
$9.1 million for the year ended December 31, 1999, or 44.5% of revenues. Sales
and marketing costs were $2.9 million for the year ended December 31, 1998, or
45.6% of revenues. The increase in absolute dollars was due primarily to the
increase in sales and marketing personnel, including the addition of personnel
in connection with the RelevantKnowledge merger, our acquisition of AdRelevance
and our international expansion, as well as additional marketing costs. The
decrease in sales and marketing costs as a percentage of revenues was due
primarily to revenues increasing at a greater rate.
General and Administrative. General and administrative costs consist
primarily of personnel, lease payments for our facilities, telephone and
utilities and professional services fees. General and administrative costs were
$6.8 million for the year ended December 31, 1999, or 33.0% of revenues. General
and administrative costs were $2.7 million for the year ended December 31, 1998,
or 42.9% of revenues. The increase in absolute dollars was due to the expenses
associated with becoming a public company, our international expansion and
increased personnel and expansion of our office facilities, including the
addition of personnel and office facilities in connection with the
RelevantKnowledge merger and our acquisition of AdRelevance. The decrease in
general and administrative costs as a percentage of revenues was due primarily
to revenues increasing at a greater rate.
Amortization of Deferred Compensation and Other Stock-based Compensation.
Amortization of deferred compensation and other stock-based compensation of $1.1
million for the year ended December 31, 1999 and $369,000 for the year ended
December 31, 1998 represents a non-cash compensation expense recorded in
connection with stock options granted in 1999 and 1998 and the acceleration of
the vesting provisions of certain stock options resulting in a new measurement
date in 1999.
Amortization of Intangibles. Amortization charges of $7.3 million for the
year ended December 31, 1999 represent the amortization of RelevantKnowledge's
panel and amortization of other intangibles acquired in our merger with
RelevantKnowledge, as well as amortization of intangibles acquired in our
acquisition of AdRelevance. Amortization charges of $479,000 for the year ended
December 31, 1998 represent the amortization of RelevantKnowledge's panel and
other intangibles acquired in the merger.
Acquired In-Process Research and Development. In connection with the
acquisition of AdRelevance, we expensed $6.8 million of acquired in-process
research and development for the year ended December 31, 1999. In connection
with the acquisition of RelevantKnowledge, we expensed $1.6 million for the year
ended December 31, 1998. Acquired in-process research and development represents
the value attributed to the technologies in development at the time of the
acquisition.
Loss from Operations. Our loss from operations was $25.9 million for the
year ended December 31, 1999, or 126.2% of revenues. Loss from operations was
$7.2 million for the year ended December 31, 1998, or 114.1% of revenues. Loss
from operations in terms of absolute dollars was higher in the year ended
December 31, 1999 due to the continued expansion of our business in the United
States and internationally, the merger with RelevantKnowledge, the acquisition
23
<PAGE> 27
of AdRelevance and amortization of intangibles. The increase in loss from
operations as a percentage of revenues was due to a full year of amortization
of intangibles from the RelevantKnowledge merger and the write-off of acquired
in-process research and development from the AdRelevance acquisition for the
year ended December 31, 1999 offset by an increase in revenues relative to the
increases in costs of revenues and operating costs.
Interest and Other Income, net. Interest and other income, net of
interest expense was $2.3 million, or 11.1% of revenues, for the year ended
December 31, 1999, as compared to $65,000 for the year ended December 31, 1998,
or 1.0% of revenues. The increase in interest and other income was due to the
investment of the proceeds of our initial and secondary public offerings.
Minority Interests. Minority interests consist of the loss related to our
partners' interests in our foreign subsidiaries.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues. Revenues increased 98.6% to $6.3 million for the year ended
December 31, 1998 from $3.2 million for the year ended December 31, 1997. Sales
of syndicated audience measurement products and services accounted for
approximately 90% of revenues for each of the years ended December 31, 1998 and
1997. Sales of customized products and services accounted for the remaining
revenues. The increase in revenues was due primarily to a substantial increase
in the number of our customers and an increase in the amount of products and
services sold to our customers, and, to a lesser extent, the revenues associated
with RelevantKnowledge's business for the period from November 5, 1998 to the
end of the year. No single customer accounted for more than 10% of revenues
during the year ended December 31, 1998. One customer accounted for
approximately 19% of revenues for the year ended December 31, 1997.
Costs of Revenues. Gross profit was $2.2 million for the year ended
December 31, 1998, or 34.9% of revenues. Gross loss was $275,000 for the year
ended December 31, 1997, or 8.6% of revenues. The increase in gross profit for
the year ended December 31, 1998 over the prior period was due to an increase in
sales, including sales attributable to RelevantKnowledge's business for the
period from November 5, 1998 to the end of the year, without a commensurate
increase in costs. The increase in gross profit was partially offset by the
costs associated with operating two panels following the RelevantKnowledge
merger.
Research and Development. Research and development costs were $1.4
million for the year ended December 31, 1998, or 21.8% of revenues. Research and
development costs were $866,000 for the year ended December 31, 1997, or 27.2%
of revenues. The increase in absolute dollars was due primarily to increases in
research and development personnel, including the addition of personnel in
connection with the RelevantKnowledge merger. The decrease in research and
development costs as a percentage of revenues was due to revenues increasing at
a greater rate.
Sales and Marketing. Sales and marketing costs were $2.9 million for the
year ended December 31, 1998, or 45.6% of revenues. Sales and marketing costs
were $2.0 million for the year ended December 31, 1997, or 63.4% of revenues.
The increase in absolute dollars was due primarily to the increase in sales and
marketing personnel, including the addition of personnel in connection with the
RelevantKnowledge merger. The decrease in sales and marketing costs as a
percentage of revenues was due primarily to revenues increasing at a greater
rate.
General and Administrative. General and administrative costs were $2.7
million for the year ended December 31, 1998, or 42.9% of revenues. General and
administrative costs were $1.5 million for the year ended December 31, 1997, or
47.6% of revenues. The increase in absolute dollars was due to the expenses
associated with increased personnel, expansion of our office facilities and
expenses incurred after the merger with RelevantKnowledge. The decrease in
general and administrative costs as a percentage of revenues was due primarily
to revenues increasing at a greater rate.
Amortization of Deferred Compensation and Other Stock-based Compensation.
Deferred compensation of $369,000 for the year ended December 31, 1998
represents a non-cash compensation expense recorded in connection with stock
options granted in December 1998.
24
<PAGE> 28
Amortization of Intangibles. Amortization charges of $479,000 represent
two months of the amortization of RelevantKnowledge's panel, which is being
amortized over 12 months and other intangibles acquired in our merger with
RelevantKnowledge which are being amortized over three years.
Acquired In-Process Research and Development. In connection with our
merger with RelevantKnowledge, we expensed $1.6 million of acquired in-process
research and development for the year ended December 31, 1998. Acquired
in-process research and development represents the value attributed to three
technologies in development at the time of the merger.
Loss from Operations. Our loss from operations was $7.2 million for the
year ended December 31, 1998, or 114.1% of revenues. Loss from operations was
$4.7 million for the year ended December 31, 1997, or 146.8% of revenues. Loss
from operations was higher in 1998 due to the continued expansion of our
business, the inclusion of two months of RelevantKnowledge losses and
amortization of acquired intangibles. Loss from operations in 1998 included a
$1.6 million write-off of acquired in-process research and development. The
decrease in loss from operations as a percentage of revenues was due primarily
to an increase in sales relative to the increases in costs of revenues and
operating costs.
QUARTERLY RESULTS OF OPERATIONS
The following is a summary of our unaudited quarterly results of
operations for the years ended December 31, 1999 and 1998. You should read these
quarterly data in conjunction with our audited financial statement You should
not view the results of operations for any period as an indication of the
results of operations for any future period.
25
<PAGE> 29
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues ..................................................... $ 1,160 $ 1,345 $ 1,493 $ 2,333
Gross profit ................................................. 360 544 608 698
Loss from operations ......................................... (897) (839) (963) (4,524)
Net loss applicable to common stockholders ................... (928) (913) (1,035) (4,596)
Basic and diluted net loss per share applicable to common
stockholders ................................................. $ (0.14) $ (0.14) $ (0.16) $ (0.43)
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues ..................................................... $ 3,178 $ 4,257 $ 5,496 $ 7,569
Gross profit ................................................. 1,458 2,139 2,535 4,077
Loss from operations ......................................... (2,464) (2,898) (4,044) (16,474)
Net loss applicable to common stockholders ................... (2,466) (2,594) (2,629) (14,327)
Basic and diluted net loss per share applicable to common
stockholders ................................................. $ (0.19) $ (0.16) $ (0.15) $ (0.75)
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998
<S> <C> <C> <C> <C>
Revenues ......................................... 100.0 % 100.0 % 100.0 % 100.0 %
Gross profit ..................................... 31.0 40.4 40.7 29.9
Loss from operations ............................. (77.4) (62.4) (64.5) (193.9)
Net loss applicable to common stockholders ....... (80.1) % (67.9) % (69.3) % (197.0) %
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999
<S> <C> <C> <C> <C>
Revenues ......................................... 100.0 % 100.0 % 100.0 % 100.0 %
Gross profit ..................................... 45.9 50.2 46.1 53.9
Loss from operations ............................. (77.5) (68.1) (73.6) (217.7)
Net loss applicable to common stockholders ....... (77.6) % (60.9) % (47.8) % (189.3) %
</TABLE>
26
<PAGE> 30
Our revenues have increased in all periods presented as a result of the
continuous expansion of our customer base, the sale of additional products and
services to our existing customers and the release of new products and services.
The quarterly results reflect the merger with RelevantKnowledge and acquisition
of AdRelevance and, therefore, are not comparable to prior periods. The results
for those periods include amortization of intangibles and the write-off of
acquired in-process research and development in association with the merger and
acquisition, a non-cash compensation expense recorded in connection with stock
options and expenses due to costs incurred by operating two distinct panels,
production systems and infrastructures.
Our results of operations may fluctuate significantly in the future as a
result of a variety of factors, many of which are beyond our control.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through an
initial investment and loan by NPD, the private placement of equity securities,
RelevantKnowledge's cash on hand at the time of the merger, cash from operations
and the proceeds of public offerings. On May 12, 1999, we completed the initial
public offering of 3,250,000 shares of our common stock for gross proceeds of
$55.3 million, and net proceeds of $49.4 million. On October 29, 1999, we
completed a secondary offering of 3,000,000 shares of our common stock. Of the
shares offered, Media Metrix sold 1,500,000 shares and 1,500,000 shares were
sold by existing stockholders. Gross proceeds to Media Metrix were $75.8
million, and net proceeds to Media Metrix were $71.1 million.
Net cash used in operating activities was $6.0 million for the year ended
December 31, 1999, $411,000 for the year ended December 31, 1998, and $4.8
million for the year ended December 31, 1997. For the years ended December 31,
1999, 1998 and 1997, net cash used in operating activities was substantially
impacted by the amount owed to NPD. The variance for 1999 compared to 1998 was
primarily due to the net repayment of $4.3 million to NPD for services preformed
under a management agreement, in addition to a higher net loss for the year,
offset by increased non-cash charges.
Net cash provided by (used in) investing activities was $(18.5) million
for the year ended December 31, 1999, $3.1 million for the year ended December
31, 1998, and $(135,000) for the year ended December 31, 1997. For the year
ended December 31, 1999, cash used in investing activities was primarily
attributable to the purchase of investment securities with the proceeds from our
public offerings of common stock pending the use of these proceeds for working
capital purposes along with an increase in our fixed asset purchases. Cash
provided by investing activities for the year ended December 31, 1998 resulted
primarily from the acquisition of $3.2 million of cash in the RelevantKnowledge
transaction.
Net cash provided by financing activities was $114.8 million for the year
ended December 31, 1999, $3.5 million for the year ended December 31, 1998 and
$6.2 million for the year ended December 31, 1997. Cash provided by financing
activities for the year ended December 31, 1999 resulted from the receipt of
$120.5 million from proceeds of our public offerings, plus $1.3 million in
proceeds received from the exercise of warrants and stock options, offset by the
redemption of our redeemable preferred stock for $4.8 million and repayment of
long-term debt of $2.3 million. Cash provided by financing activities for the
year ended December 31, 1998 resulted from the $1.5 million proceeds from the
exercise of the warrants and the receipt of $2.0 million on December 31, 1998
relating to the sale of common stock in January 1999.
As of December 31, 1999, we had $97.4 million of cash and cash
equivalents and $14.9 million of marketable securities. As of December 31, 1999,
our principal commitments consisted of accrued obligations under our agreements
with NPD in the amount of $444,000. We expect to invest at least an additional
$20 million over the next year in our international operations and in
improvements in our technology and data delivery systems.
Although we have no material commitments for capital expenditures,
management anticipates that we will experience an increase in our capital
expenditures and lease commitments consistent with our anticipated growth in
operations, infrastructure and personnel, including in connection with the
ongoing separation of our systems from those of NPD. We currently anticipate
that we will continue to experience growth in our operating expenses for the
foreseeable future and that operating expenses will be a material use of our
cash resources.
IMPACT OF YEAR 2000
In prior years, we discussed the nature and progress of our plans to
become ready for the Year 2000. In late 1999, we completed the remediation and
testing of our systems. As a result of those planning and implementation
efforts, we did not experience any significant disruptions in our essential
information technology and non-information technology systems. We believe that
our systems successfully responded to the Year 2000 date change. We are not
aware of any material problems resulting from Year 2000 issues, either with our
products, our internal systems or the products and services of third parties. We
will continue to monitor our essential computer systems and applications and
those of our suppliers and licensors throughout the Year 2000 to ensure that any
latent Year 2000 matters that may arise are addressed promptly.
27
<PAGE> 31
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The carrying values of financial instruments including cash and cash
equivalents, accounts receivable, accounts payable and notes payable,
approximate fair value because of the short maturity of these instruments.
We have historically had very low exposure to changes in foreign currency
exchange rates, therefore we have not used derivative financial instruments to
manage foreign currency fluctuation risk. We conduct business on a worldwide
basis through our international subsidiaries. As we continue to expand globally,
the risk of foreign currency exchange rate fluctuation may increase. Therefore,
in the future, we may consider utilizing derivative instruments to mitigate such
risks. Currently, we manage our level of exposure by denominating international
sales and payment of related expense in the foreign subsidiaries' local
currency.
RECENT DEVELOPMENTS
On April 17, 2000, we reported revenues of $10.2 million for the three
months ended March 31, 2000, a 35% increase compared to revenues of $7.6
million for the three months ended December 31, 1999 and a 221% increase
compared to revenues of $3.2 million for the three months ended March 31, 1999.
Net loss applicable to common stockholders was $8.1 million, or $0.41
per share, for the three months ended March 31, 2000, compared to $14.3
million, or $0.75 per share, for the three months ended December 31, 1999, and
$2.5 million, or $0.19 per share, for the three months ended March 31, 1999.
Condensed Consolidated Statement of Operations
(Unaudited, in thousands except for per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
Revenues $ 10,204 $ 3,178
Costs of revenues 4,411 1,720
-------- --------
Gross profit 5,793 1,458
Operating expenses:
Research and development 2,916 681
Sales and marketing 4,129 1,335
General and administration 3,089 1,049
Amortization of deferred compensation
and other stock-based compensation 282 108
Amortization of intangibles 5,565 749
-------- --------
Total operating expenses 15,981 3,922
-------- --------
Loss from operations (10,188) (2,464)
Minority Interests 478 --
Interest income, net 1,601 80
-------- --------
Net loss (8,109) (2,384)
Preferred stock dividends -- (82)
-------- --------
Net loss applicable to common stockholders $ (8,109) $ (2,466)
======== ========
Weighted average share outstanding 19,718 13,296
======== ========
Net loss per share applicable to common
stockholders $ (0.41) $ (0.19)
</TABLE>
Media Metrix, Inc.
Condensed Consolidated Balance Sheet
(Unaudited, in thousands)
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Current assets:
Cash and short term investments $101,758 $112,241
Accounts receivable, net 8,968 5,993
Prepaid expenses and other 589 454
-------- --------
Total current assets 111,315 118,688
Property and equipment, net 8,461 5,308
Intangibles, net 54,610 52,948
Minority interests 964 1,617
Other assets 452 283
-------- --------
Total assets $175,802 $178,844
======== ========
Current liabilities:
Accounts payable and accrued
liabilities $ 11,585 $ 10,560
Advance billings 7,038 5,126
Other current liabilities 202 196
-------- --------
Total current liabilities 18,825 15,882
Long-term debt 120 173
Total stockholders' equity 156,857 162,789
-------- --------
Total liabilities and stockholders'
equity $175,802 $178,844
======== ========
</TABLE>
28
<PAGE> 32
BUSINESS
INTRODUCTION
Media Metrix is 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 the Media Metrix 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.
As a result of our acquisition of AdRelevance in October 1999, we offer
Internet advertising measurement products and services. 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. AdRelevance operates as a wholly
owned subsidiary of Media Metrix.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET
The Internet has emerged as a global medium that allows millions of
people worldwide to obtain information, communicate and conduct business
electronically. International Data Corporation, or IDC, estimates that the
largest segment of the Internet - the World Wide Web - will grow from
approximately 142 million users in 1998 to approximately 500 million users by
the end of 2003. The continued growth in Internet usage will be driven by:
- the large and growing number of personal computers installed in homes and
offices;
- easier, faster, more reliable and less expensive access to the Internet;
- the quality and quantity of content on the Internet;
- the increase in commerce activity - for a wide array of products and
services - via the Internet; and
- improvements in network infrastructures.
Growth of Internet Advertising and Electronic Commerce
The unique interactive nature of the Internet has led to its rapid
emergence as a compelling vehicle for advertisers and marketers. The Internet
offers advertisers the ability to target:
- people with specific sets of interests;
29
<PAGE> 33
- users with desirable demographic characteristics; and
- populations within specific regions, localities or countries.
The Internet also gives marketers the potential to:
- establish dialogues and individual relationships with customers;
- receive direct feedback on their advertising;
- quickly and cost-effectively adapt their advertising to respond to
customer feedback; and
- reach broad, global audiences.
The growing adoption of the Internet also represents an enormous
opportunity for marketers to conduct business over the Internet. Electronic
commerce, or e-commerce, via the Internet can provide a marketer with a fast,
inexpensive and convenient channel to reach customers. As business and consumer
acceptance of e-commerce grows, advertisers and marketers are increasingly using
the Internet to attract and retain customers, as well as complete transactions
with those customers.
The growth in Internet advertising spending will ultimately depend on the
ability of advertisers to plan their advertising expenditures by using reliable
data that demonstrate audience size and the value of Internet advertisement
placement. Timely audience and advertising measurement data have emerged as
"must have" information. This information enables the buying and selling of
advertising and sponsorship support. Additionally, reliable Internet audience
measurement data are key drivers of the e-commerce industry because they enable
Internet marketers to analyze consumer behavior and focus their Internet
investments.
The Need for a Measurement Standard
Traditional media - including television, radio and print - are largely
supported by advertising spending. A principal element that drives the growth of
advertising in all media is the availability of audience measurement data, or
ratings. In each medium, a single standard of audience measurement has emerged.
For over 40 years, Nielsen's estimates of television audience size and
composition have served as the standard for audience measurement of national and
local television advertising in the United States. Arbitron serves as the radio
audience measurement standard, and MRI serves as the magazine readership
measurement standard. These third-party standards provide the uniform basis of
measurement which advertisers, media companies, advertising agencies and the
financial community rely on to make critical business decisions.
As advertising and e-commerce continue to grow on the Internet, a
standard for Internet audience measurement will emerge which will:
- measure a large and representative panel of Internet users - on a global
basis;
- provide comprehensive measurement, including the World Wide Web,
proprietary online services like America Online, T-Online (Germany), and
NiftyServe (Japan);
- measure Internet audiences both at home and at work; and
- be unbiased and independent from advertisers, content providers and
marketers.
As in traditional media, an independent standard of audience measurement
must be adopted by advertisers and marketers on the Internet. In traditional
media, this standard may vary from country to country because goods and services
are generally marketed on a national basis. However, on the Internet, customers
will demand a worldwide standard because the Internet is a truly global
marketplace. A significant business opportunity exists for the company that
provides this standard.
STRATEGY
Our goal is to become the accepted global standard for Internet audience,
e-commerce and advertising measurement. We intend to achieve this goal through
the following strategies:
CONTINUE OUR INDUSTRY LEADERSHIP. We expect to continue our history of
innovation as the pioneer of Internet audience measurement. We plan to continue
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to develop our market-leading technology and leverage our panel and audience
and advertising databases to develop broader and more in-depth products and
services. We plan to remain at the forefront of change in the industry by
continuing to work closely with our customers and with key trade associations
and non-profit organizations to establish standards for Internet audience and
advertising measurement.
RAPID INTERNATIONAL EXPANSION. We believe there is an opportunity to
establish Media Metrix products and services as the global standard for Digital
Media measurement. Unlike most media, which are delivered to a national or local
market, the Internet is the first medium that is regularly delivered to a
worldwide audience. Over the next five years Internet advertising spending
growth rates worldwide are projected to exceed spending growth rates in the
United States alone. These factors will drive the need for a truly global
Internet audience measurement standard. Media Metrix is responding to the
demands of its customers to provide reliable Internet audience measurement data
in key non-U.S. markets - providing global measurement for a global medium. We
have expanded our audience measurement operations into the U.K., France,
Germany, Sweden, Australia, Canada and Japan. We intend to leverage our
proprietary panel methodology, technology and brand recognition to become a
supplier of Internet audience measurement services on a worldwide basis. We
intend to continue expanding our presence in the international marketplace,
either directly or through strategic partnerships with leading local panel-based
marketing and media research companies.
EXPAND AND INCREASE PENETRATION OF OUR CLIENT BASE. We will continue to
add new customers, build on our successful client retention strategy, and
further expand our existing customer relationships. We have historically
retained substantially all of our client base from year to year. Of our
customers under contract at the end of 1999, over 95% remained customers at the
end of the first quarter of 2000. On average, contracts renewed during the first
quarter of 2000 were renewed at a dollar value 40% greater than that of the
prior contract. We anticipate expanding our client base as Internet advertising
spending and e-commerce transactions increase - driving increased demand for
audience measurement data among the growing number of Internet related
businesses and advertisers.
DEVELOP PRODUCTS TO ACCELERATE E-COMMERCE GROWTH. We believe that the
success and growth of e-commerce, like Internet advertising, will be driven
largely by the availability of comprehensive and reliable quantitative and
qualitative data. These data must provide key statistics for evaluation of
e-commerce businesses and business strategies. We have developed, and are
working with clients to continue developing, products that enable clients to
target Internet users most likely to engage in e-commerce by providing
behavioral and demographic data on people who purchase products, actively shop,
or merely click on to a particular e-commerce site. We currently offer a
syndicated Online Shopping Report, as well as custom Shopping Referral and
Buying Reports. Our Q-Metrix Report provides qualitative data about online
shopping behavior, and is linked with actual Internet usage. In addition, the
AdRelevance service increases the depth of Media Metrix' e-commerce product by
offering data on advertising placement and expenditures - as well as creative
components - by e-commerce marketers.
DEVELOP NEW PRODUCTS AND SERVICES. In addition to e-commerce related
products, we intend to continue to develop new products and services to meet the
growing needs of our customer base by continued leverage of our core audience
measurement database to provide additional products and services. These products
include qualitative reports, local market data, hardware and software reports
and custom products and services. We also intend to continue with the
development of the AdRelevance service, by adding additional data and
functionality to the service. As of December 31, 1999, we employed 35 people in
research and development. We intend to expend significant additional resources
to expand new product development efforts.
AUDIENCE MEASUREMENT METHODOLOGY
We collect our data with high quality technologies and methodologies that
have been developed from a strong background in technology and panel recruitment
and management.
Audience Measurement Methodology. The Media Metrix panel is a high
quality, representative sample of personal computer users, including at-home and
at-work users. We recruit panelists by random digit dial (RDD) telephone
solicitation. We also use direct mail to reach individuals within the RDD sample
frame. The panel currently consists of over 50,000 individuals under continuous
measurement in the United States and 20,000 individuals under measurement beyond
U.S. borders. In connection with our panel recruitment process, each panelist is
required to fill out a detailed questionnaire, providing background demographic
information including age, gender, household income, geographic location, level
of education, size of household and job classification.
Our proprietary metering system, or meter, is a software application
installed on a panelist's personal computer. It monitors activity of the
personal computer's operating system and browser. The meter passively records
what users do on their personal computers on a second-by-second basis,
including:
- the start and stop time of each activity;
- the application in use;
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- detailed usage activity for proprietary online services; and
- page-by-page viewing on the Internet.
We collect the data we need for our products and services without any
agreement or arrangement with operators of Web sites or operators of proprietary
online services like America Online. Because we measure our panelists' computer
usage and not activity at a particular Web site or proprietary service, no
agreements with the operators of Web sites or online services are necessary.
Once the meter has collected the data from the panelist's personal
computer, data are transmitted to our offices for processing either via disk or
via automatic transfer over the Web. We began introducing a new version of our
metering software in August 1999. The new meter captures additional details of
Internet usage to accurately report audience behavior of emerging media such as
streaming audio and video. This version also provides real time transmission of
data on usage. We have launched our operations in Canada and Australia using the
new meter and began fully converting the U.S. panel to the new meter in the
first quarter of 2000. The latest version of our meter also allows us to
automatically update the software via the Internet, with no action required on
the part of our panelists. We also collect data via questionnaires distributed
through direct mail and over the Web. We utilize our own software to collect
information on hardware configurations and software installations of our
panelists.
The statistical quality of the information that we collect is a function
of minimizing both sampling error and measurement error. Sampling error is a
function of the size and quality of the sample. Measurement error is a function
of the scope of the universe under measurement and the quality of our meter for
comprehensive data collection. We minimize sampling error by maintaining a large
panel. We minimize measurement error by measuring all Internet usage, including
the Web, proprietary online services like America Online, and all other activity
on our panelists' personal computers.
Data analysis and report generation and delivery. Data retrieved from the
meter are transmitted or downloaded to file servers and then combined with those
of all the other panelists. The data are then used to construct several
databases, which we use to provide our reports. We deliver our reports in one or
more of the following formats: via proprietary Web-based delivery systems;
e-mail; computer disk or hard copy.
ADVERTISEMENT MEASUREMENT METHODOLOGY
Media Metrix' AdRelevance technology systematically and continuously
searches commercial Web sites and captures detailed data about advertising
banners, promotions, sponsorships, text links and rich media. AdRelevance's
intelligent agent technology searches over 3,000 Web sites and sub-sites daily
and evaluates 40 million page views per month to provide in-depth advertising
tracking information. Once captured, the data are warehoused, classified and
statistically analyzed.
By using the AdRelevance technology, our customers can query the
AdRelevance database and generate Web-based reports on demand. This enables
customers to monitor competitors' marketing activities, plan more effective
online campaigns and evaluate campaigns in real time. Customers can gain access
to up-to-date intelligence about their competitors' online marketing
communications programs, enabling them to quickly and easily compare and report
information by a wide range of criteria including advertiser, product, message,
type, industry, location, technology and creative content.
PRODUCTS AND SERVICES
We offer a broad 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
data are used to buy, sell and plan advertising; support marketing and commerce
initiatives; assess partnerships and distribution strategies and analyze
competitors.
INTERNET AUDIENCE MEASUREMENT PRODUCTS AND SERVICES. Our principal
audience measurement products and services are derived from data collected from
our panel and stored in our core databases, which we use to produce the
following:
- syndicated Internet audience measurement reports and services;
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- custom Internet audience measurement reports and services; and
- e-commerce measurement reports and services.
Syndicated products. We provide syndicated Internet audience measurement
products and services as our core business. Our key syndicated products consist
of:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
<S> <C>
The Web Report Our flagship syndicated audience measurement product contains the
following two components:
- The Key Measures Report: provides measures for all reportable Web
sites, categorized within major sectors.
Key measures include:
- unique visitors;
- the percentage of the total Web audience in a month that could
be reached via each reported Web site, commonly referred to as
reach;
- average usage days per user;
- average unique Web pages visited per day and per month;
- age and gender composition; and
- demographic composition.
- The Trend Report: provides information on trends within the sectors
in the Key Measures Report for a six-month period. One section of
the Trend Report includes trends over a three-month period for key
measures. Another section provides an alphabetical listing of over
10,000 measured Web sites and properties and the reach trends for
each during the relevant six-month period.
The Digital Media Report Provides measurement of audience usage of proprietary online services
like America Online, instant messaging applications like ICQ and
other proprietary services like Juno, as well as all information
collected in the Web Report. Allows for the comparison of all
Digital Media. Measures reported include:
- unique visitors;
- reach;
- usage days per person;
- minutes per usage day and per month; and
- age and gender composition.
The Local Market Report Tracks national and local market reach, demonstrating how national
and local Web sites perform within each of 38 top local markets.
Q-Metrix Provides information linking our "metered" Internet usage behavior
to consumer media habits, product and service usage, lifestyle
characteristics and demographics. Key subject areas covered
include:
- television, radio and newspaper habits;
- Internet shopping behavior;
- banking and credit card activity;
- electronic products purchased and owned;
- lifestyle experiences;
- automotive and travel patterns; and
- hobbies and sports.
The Ad Network Report Details reach, frequency and demographic information across ad sales
networks and other ad- supported networks like DoubleClick, 24/7
Media, Flycast, LinkExchange and AdSmart. The measures reported
include the full network reach and reach of those Web pages where
ads have been served.
Weekly Flash Provides weekly audience data, indicating average daily unique
visitors over the course of the week.
</TABLE>
Customized services, reports and analyses. We leverage our vast database of
information on Internet usage and technology usage to provide clients with a
broad range of special services, reports and analyses, including the following:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
<S> <C>
Vertical MarketReports Report in-depth information on Web site performance within a specific
industry sector or vertical market.
</TABLE>
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<TABLE>
<S> <C>
Retention Analyses Report the percentage of audience that visits a Web site during a
particular month and returns during following months.
Usage Reports Segment Web and Web site traffic into heavy, medium and light usage
groups and compare behavior, usage pattern and demographics.
Site Content Reports Analyze specific user-defined content areas, or channels, within a
Web site and report on all items in the Key Measures Report.
Personal ClickStream Reports Report actual click-by-click, page level behavior of a sample of users
within a particular Web site as well as their behavior across the
entire Web.
Traffic Referral Reports Report a summary of Web sites that users visit just prior to visiting a
particular Web site and indicate where they go after exiting the site.
Site Interaction Reports Quantify the degree to which a Web site shares audience with other
Web sites and properties, detailing exclusive and duplicated
audience share.
</TABLE>
E-commerce measurement services. We derive e-commerce measurement products and
services using the same database we use for our audience measurement products
and services. Our key products consist of:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
<S> <C>
The Online Shopping Report Tracks online shopping activities across more than 500 Internet sites
within 18 categories, as well as the AOL Shopping Channel. Key
measures include:
- engaged shoppers, defined in general as users who spend more than
three minutes on a Web site;
- engaged shoppers relative to each Web site's unique visitor count;
- share of engaged shoppers by Web site;
- repeat shop count; and
- site-specific demographic profiles by key shopping measures.
Shopper Referral Reports Custom reports on the sites that are delivering engaged shopper site
traffic to other sites.
</TABLE>
ADVERTISING MEASUREMENT PRODUCTS. We offer advertising measurement
products and services through our AdRelevance subsidiary. AdRelevance tracks
competitive online advertising and advertiser data for eight broadly defined
categories including automotive, computer hardware, computer software,
telecommunications, financial services, travel, eRetailing and ePublishing. We
currently report on over 100,000 unique advertisements and 5,000 advertisers.
The data are reported via a Web-based computer interface system featuring the
following data points:
- Report data by:
- advertiser: company, product, class or customizable group;
- Web location: genre, Web site, sub-site or customizable group;
- creative: message type (brand, promotion, price, etc.), technology or
size; and
- time period: most recent week, month or customizable time period.
- Measures:
- impressions;
- spending (based on rate card); and
- unique advertisements.
TECHNOLOGY USAGE MEASUREMENT REPORTS. Our meter captures data on all
software applications used each time a panelist logs onto his or her computer.
The meter also captures data on all hardware configurations and software
availability on the user's computer. We use these data to compile reports on
technology usage for companies that develop and market hardware and software
applications and for Web sites that seek to understand the technical
specifications of their visitors' computer systems.
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<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
<S> <C>
HardScan Report HardScan, SoftScan and SoftUsage Reports provide details on hardware ownership,
SoftScan Report peripheral ownership, branding information, installed applications and system software,
SoftUsage Report including Internet browsers, and use of software applications. The analyses in the
Linkage Reports Linkage Reports and the US Consumer PC Report provide a unique look at the
US Consumer PC Report relationships between hardware, software, media, ownership and usage.
</TABLE>
INTERNATIONAL OPERATIONS
We believe that the ability to offer Internet audience measurement data
for non-U.S. markets will be a critical element in the Internet audience
measurement market. Having established our business model in the United States,
we have begun our international expansion efforts. In September 1999, we entered
into a joint venture with two of the leading European media research and
marketing information services companies, GfK AG (based in Germany) and Ipsos
S.A. (based in France), to form MMXI Europe B.V. In connection with our
acquisition of MMXI Nordic in March 2000, SIFO Group AB (based in Sweden) became
an indirect shareholder in MMXI Europe, owning 8.0%. We now own 50.1%, GfK owns
19.9% and Ipsos owns 22.0% of MMXI Europe. Under the umbrella of MMXI Europe, we
formed subsidiaries in each of the United Kingdom, France and Germany. In
conjunction with our joint venture partners, we have begun to recruit panelists
in each of these countries. As of December 31, 1999, we had approximately 8,500
people under measurement in these three countries. We began collecting audience
data on Internet usage in each of these markets in June 1999 and have released
syndicated data since October 1999. We have entered into a technology agreement
under which we have contributed our technology to MMXI Europe for use in Europe,
excluding Sweden, Denmark, Norway and Finland. Along with GfK and Ipsos, we will
also provide certain management services to MMXI Europe and each subsidiary of
MMXI Europe.
In December 1999, we formed Media Metrix Japan to implement a service in
Japan using the Kanji version of our meter. We have hired a chief executive
officer to lead the business in Japan and began recruiting a panel in the first
quarter of 2000.
In January 2000, we entered into a joint venture with ComQUEST Research,
Inc., to launch Media Metrix Canada. ComQUEST is a wholly owned subsidiary of
BBM Bureau of Measurement, an industry co-operative owned by Canadian
broadcasters, advertisers and advertising agencies. We own 90% of Media Metrix
Canada and ComQUEST owns 10%. Panel recruitment has begun, and as of December
31, 1999, we had approximately 2,000 people under measurement in English
speaking Canadian provinces.
In March 2000, we completed the acquisition of the Internet audience
measurement business operated by SIFO Group AB in Sweden. The business has been
operated pursuant to a license between us and SIFO entered into in 1998 covering
Sweden, Norway and Finland. The new company, MMXI Nordic, measures Internet
audiences in Sweden and Denmark as a wholly owned subsidiary of Media Metrix.
MMXI Nordic has approximately 5,100 people under measurement. As a part of this
acquisition, we also acquired the site-centric measurement business operated by
SIFO, known as NetCheck. We have granted MMXI Europe an option to purchase MMXI
Nordic from us at a future time.
In March 2000, we entered into a joint venture with AMR Interactive Pty.
Ltd., a leading new media market research firm based in Australia, to create
Media Metrix in Australia and New Zealand. The joint venture will provide the
first third-party, meter-based Internet and Digital Media audience measurement
products and services for Australia and New Zealand. We own 51% of Media Metrix
in Australia, and AMR Interactive owns 49%. As of December 31, 1999, Media
Metrix in Australia had approximately 1,800 people under measurement. We have
released monthly data covering Australia since December 1999.
CUSTOMERS
We ended the first quarter of 2000 with 752 customers who use our data
for planning, buying and selling advertising; developing e-commerce strategies;
understanding consumer behavior; gaining competitive market intelligence; and
analyzing investment decisions. Our customers are typically leaders in their
respective fields, and include the following:
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<TABLE>
<CAPTION>
CLIENT SECTOR TYPICAL CLIENTS
<S> <C>
Media Organizations All of the top 20 Internet properties, including America Online, Buena Vista/Disney,
Excite@Home, Infoseek, Lycos, Time Warner, ZDNet, CNET, AltaVista, XOOM.com,
About.com and Yahoo!/GeoCities
Advertising Agencies Interpublic Group, J. Walter Thompson, Modem Media . Poppe Tyson, Omnicom and
Young & Rubicam
Advertisers and Marketers Amazon.com, CDnow, eBay, British Airways, Nabisco, Bristol Myers, Squibb and
General Motors
Technology Companies AT&T, Compaq, GTE, Hewlett-Packard, IBM and Microsoft
Financial Community Fidelity, Goldman Sachs and Morgan Stanley Dean Witter
</TABLE>
We typically enter into 12-month or longer subscription contracts with
our customers, some of whom are covered by multi-client master contracts with
parent corporations, like Time Warner and Buena Vista/Disney, to provide
standard, syndicated products and services or customized reports and analyses.
It is typical for our customers to initially purchase one of our standard
products and to upgrade over time. Of our customers under contract at the end of
1999, over 95% remained customers at the end of the first quarter of 2000. On
average, contracts renewed during the first quarter of 2000 were renewed at a
dollar value over 40% greater than that of the prior contract. No customer
accounted for greater than 10% of our revenues in 1999 and 1998. One customer
accounted for 19% of our revenues in 1997.
SALES AND MARKETING
We sell and market our products through our direct sales force, which was
comprised of 38 sales representatives in the United States as of December 31,
1999. A portion of the sales force is focused on new sales, developing
relationships with new customers. The balance of the sales force is dedicated to
servicing and maintaining existing accounts, and introducing new Media Metrix
products and services to our current customers. The U.S. sales force operates
out of our New York, San Francisco, Seattle and Atlanta offices. We also
maintain international sales offices in London, Paris, Nurnberg, Sydney,
Toronto, Tokyo and Stockholm. Sales representatives receive a base salary and
are eligible for commissions based on sales and revenue goals.
We support our sales efforts through marketing and brand building
activities. We use public relations, user group seminars, trade shows and
speaking engagements to create publicity. In addition, through targeted
relationships with key media outlets, Media Metrix data are cited regularly in
the national and international press, supporting press reports of Internet
activity, and creating valuable exposure for our products and services.
OPERATIONS AND TECHNOLOGY
We have built our primary data collection, retrieval and processing
system based on systems and software developed by The NPD Group, Inc. Our system
has been designed around industry standard data architectures. Backup procedures
are built into the processing environment in order to reduce downtime in the
event of outages or catastrophic occurrences. Our hardware systems are hosted at
our Uniondale, New York facility, our Seattle, Washington facility, and at three
offsite professionally-managed computer centers in New York, New York and Santa
Clara, California.
As of December 31, 1999, we had 35 employees dedicated to research and
development. We incurred research and development expenses of $865,000 in 1997,
$1.4 million in 1998 and $5.0 million in 1999. The increase in expenses in 1999
was due primarily to increases in research and development personnel and to
expenditures relating to our new real-time meter, data warehouse and client
interface systems. We anticipate that we will continue to devote significant
resources to product development and the development of delivery technology in
the future as we add new reports and databases.
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INTELLECTUAL PROPERTY
We regard the protection of our patents, copyrights, service marks,
trademarks and trade secrets as important to our future success and rely on a
combination of patent, copyright, trademark, service mark and trade secret laws
and contractual restrictions to establish and protect our proprietary rights. We
require all employees and contractors to enter into confidentiality and
invention assignment agreements, and we enter into nondisclosure agreements with
third parties with whom we do business in order to limit access to and
disclosure of our proprietary information. We cannot assure you that these
contractual arrangements or the other steps we have taken or will take in the
future will be sufficient to protect our technology from infringement or
misappropriation or to deter independent development of similar or superior
technologies by others.
We seek to obtain the issuance of patents and the registration of our
trademarks and service marks in the United States and in selected other
countries. Effective patent, trademark, service mark, copyright and trade secret
protection may not be available in every country in which our products and
services are or will be made available. We also expect to license proprietary
rights such as patents, trademarks or copyrighted material to strategic partners
in the course of our planned international expansion. While we will attempt to
ensure that the quality of our service is maintained by such licensees, we
cannot assure you that such licensees will not take actions that might
materially adversely affect the value of our proprietary rights or reputation,
which could have a material adverse effect on our business, results of
operations and financial condition.
We also rely on certain technologies that we license from third parties.
We cannot assure you that these third-party technology licenses will not
infringe the proprietary rights of others or will continue to be available to us
on commercially reasonable terms, if at all. The loss of such technology could
require us to obtain substitute technology of lower quality or performance
standards or at greater cost, which could materially adversely affect our
business, results of operations and financial condition.
We have been issued a patent in the United States with regard to our
meter methodology (U.S. Patent No. 5,675,510). We also have patent applications
pending in the European Patent office and in Australia, Brazil, Canada, Japan,
Mexico, Norway and the United States.
We have also applied for a patent in the United States and other foreign
jurisdictions on the methodology for monitoring of remote data access on a
public computer network which comprises the former RelevantKnowledge meter. This
application is currently pending.
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 our use of the domain name "mediametrix.com."
To date, we have not been notified that our technologies infringe the
proprietary rights of third parties. We cannot assure you that others will not
claim that we have infringed proprietary rights with respect to past, current or
future technologies. We expect that the number of infringement claims in our
market will increase as the number of services and competitors in our industry
grows. Any of those claims, whether meritorious or not, could be time-consuming,
result in costly litigation or require us to enter into royalty or licensing
agreements. Royalty or licensing agreements might not be available on terms we
find acceptable or at all. As a result, any such claim could have a material
adverse effect upon our business, results of operations and financial condition.
COMPETITION
The market for measurement services for Internet technologies is new,
rapidly evolving and competitive. We expect that competition will intensify in
the future. We compete with other providers of Internet audience measurement
services, which are considered either consumer-centric measurement services or
site-centric measurement services. Consumer-centric services track usage among a
sample of users to provide an account of overall Internet usage behavior.
Site-centric services measure activity at a single Web site and provide
measurement of activity at a particular Web site. We are a consumer-centric
service and compete directly with other consumer-centric measurement services
and indirectly with operators of site-centric measurement systems.
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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. According to publicly
available information, in November 1999, NetRatings completed its initial public
offering, and in December 1999, Nielsen Media Research exercised warrants to
become a 54% shareholder in NetRatings. Both Nielsen Media Research and
ACNielsen have significantly more financial and other resources than do we. In
light of these events, Nielsen//NetRatings has become a significant competitor.
Other potential competitors include PC Data, a marketing research firm that
provides research on personal computer software and hardware sales, and @Plan, a
consumer-centric, qualitative measurement service.
We face competition internationally from NetValue, a French company which
has begun providing audience measurement services in Europe and has announced
its intention to provide such services in the United States. In January 2000,
NetValue completed its initial public offering in France.
In addition, we may face competition from individual Web sites that may
develop new and independent methods of measuring their own audience. We also
face competition from other companies that develop alternative audience
measurement technologies to those already provided by us or our current
competitors. Competitive pressures created by any one of these companies, or by
our competitors collectively, could have a material adverse effect on our
business, results of operations and financial condition.
We believe that the principal competitive factors in our market are the
ability to:
- create high-quality, timely and reliable consumer and business panels of
a sufficient size and representative nature to provide the necessary
data;
- provide measurement services of proprietary online services and
Internet-related activity as well as measuring Web activity;
- provide measurement services globally that are based on a consistent
standard methodology;
- provide accurate measurement of advertising on the Internet and other
Digital Media; and
- establish credibility and provide a trusted independent source of data.
Some of our competitors and potential competitors have longer operating
histories, larger customer bases and greater brand recognition in other
businesses and significantly greater financial, marketing, technical and other
resources than we do. We also face competition in the area of development of
representative consumer and business panels to provide data. In addition, other
measurement services may be acquired by, receive investments from or enter into
other commercial relationships with larger, well-established and well-financed
companies as use of the Internet increases. Therefore, certain competitors with
other revenue sources may be able to devote greater resources to marketing and
promotional campaigns, adopt more aggressive pricing policies and devote
substantially more resources to technology and systems development than we can.
Increased competition may result in reduced operating margins, loss of market
share and diminished value in our services. We cannot assure you that we will be
able to compete successfully against current and future competitors. Further, as
a strategic response to changes in the competitive environment, we may, from
time to time, make certain pricing, service or marketing decisions or
acquisitions that could have a material adverse effect on our business, results
of operations and financial condition. New technologies and the expansion of
existing technologies may also increase the competitive pressures on us by
enabling our competitors to offer a lower-cost service.
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<PAGE> 42
EMPLOYEES
As of December 31, 1999, we had 176 full-time employees worldwide, with:
- 35 in research and development;
- 38 in operations;
- 86 in sales, marketing and client service; and
- 17 in management, administration and finance.
Our employees are not covered by a collective bargaining agreement. We
have never experienced an employment-related work stoppage and consider our
employee relations to be good.
PROPERTIES
Currently, we lease office space in Atlanta, Georgia, San Francisco,
California, Seattle, Washington and New York, New York. We also sublease
additional office space at another location in New York, New York. In addition,
our operations and research and development facility is located in Uniondale,
New York, which is leased to us by NPD under the terms of a management services
agreement.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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<PAGE> 43
MANAGEMENT
OUR EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of Media Metrix, and their ages
and positions, are:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Tod Johnson.............................. 55 Chairman of the Board, Chief Executive Officer and Director
Mary Ann Packo........................... 45 President and Chief Operating Officer
Steve Coffey............................. 44 Executive Vice President
Thomas A. Lynch.......................... 39 Chief Financial Officer and Treasurer
Douglas McFarland........................ 50 Senior Vice President, Sales
Andrew A. Fessel......................... 46 Senior Vice President, Audience Measurement Services
Will Hodgman............................. 40 President and Chief Executive Officer of AdRelevance
Jeffrey C. Levy(1)....................... 37 Director and Vice Chairman
Michael C. Brooks(2)..................... 55 Director
Stig Kry(2).............................. 71 Director
William W. Helman(1)..................... 41 Director
James Mortensen(1)(2).................... 75 Director
</TABLE>
(1) Compensation committee member.
(2) Audit committee member.
Tod Johnson has been our Chairman of the Board and Chief Executive
Officer since March 1997 and has been involved in managing our business since
our inception as a division of NPD and then as PC Meter. He is the principal
shareholder of NPD and has served as the Chairman and Chief Executive Officer of
NPD since 1971. He has also served as Chairman of the Advertising Research
Foundation and was the Founding Co-Chairman of the Council for Marketing and
Opinion Research. Mr. Johnson earned a B.S. and an M.S. from Carnegie Mellon
University.
Mary Ann Packo has been our President and Chief Operating Officer since
March 1997. She has been involved in managing our business since July 1996. She
served as Executive Director of IPSOS-NFO Europe, Paris, from July 1995 to July
1996 and as Vice President of New Ventures with NFO Worldwide from July 1994 to
July 1995. Prior to July 1994, Ms. Packo was the President of the Custom
Services Division of NPD Canada. Ms. Packo co-founded and was President of
National Yellow Pages Monitor and has served on the Board of Directors of the
Internet Advertising Bureau. Ms. Packo received her B.S. from Miami University,
Oxford, Ohio.
Steve Coffey has been our Executive Vice President since 1997 and has
been involved in managing our business since our inception as a division of NPD
and then as PC Meter. Mr. Coffey also headed the Advanced Research and
Development team at NPD from October 1994 to January 1996, where he founded and
launched PC Meter. Mr. Coffey received an M.S. from Columbia Business School.
Thomas A. Lynch has been our Chief Financial Officer since March 1997
and has been involved in managing our business since our inception as a division
of NPD and then as PC Meter. He also served as Senior Vice President and Chief
40
<PAGE> 44
Financial Officer of NPD from May 1995 to November 1998. Prior to joining NPD,
Mr. Lynch was a partner at KPMG Corporate Finance in Tokyo, Japan, from 1992 to
May 1995. Mr. Lynch earned a Bachelors of Commerce degree from University
College Dublin, Ireland and an M.B.A. from the London Business School, England.
Douglas McFarland has been our Senior Vice President, Sales, since
February 1997. From July 1994 until joining us, Mr. McFarland was an executive
vice president with FreeMark Communications. From February 1992 until July 1994,
Mr. McFarland was senior vice president of Next Century Media. Prior to that
time, he held various positions at Arbitron, including vice president-sales and
marketing. Mr. McFarland received his B.A. from Emory and Henry College and an
M.A. from Virginia Tech.
Andrew A. Fessel has been our Senior Vice President, Audience
Management Services, since September 1999. Prior to joining us, Mr. Fessel had
been Director of Database and Marketing for Microsoft Corp.'s MSN worldwide Web
usage and analysis team since September 1997. Prior to Joining Microsoft, Mr.
Fessel had been the executive in charge of research and marketing development
for Dreamworks SKG's studio operation launch team in Universal City, California
since 1995. Prior to joining Dreamworks, Mr. Fessel had been Senior Vice
President of research and marketing for Fox Broadcasting Company since 1985. Mr.
Fessel holds a Bachelor of Fine Arts degree from the New York University
Institute of Film & Television and an M.B.A. from New York University.
Will Hodgman has been President of AdRelevance since its inception in
1998. Prior to that time, Mr. Hodgman had been General Manager of USWEB/CKS's
northwest operation from 1997 to 1998. Prior to that, Mr. Hodgman had been a
Senior Vice President of McCann-Erickson from 1994 to 1998. Mr. Hodgman holds a
B.A. from Williams College.
Jeffrey C. Levy has been a director and Vice Chairman since November
1998. Mr. Levy co-founded RelevantKnowledge with Timothy F.S. Cobb and served as
its Chief Executive Officer from November 1996 to November 1998. He served as
legal counsel at Turner Broadcasting System, Inc. from January 1995 to November
1996. From July 1992 to January 1995, he was an associate at the law firm of
Dow, Lohnes & Albertson. Mr. Levy hold an A.B. from Harvard College and a J.D.
from Harvard Law School.
Michael C. Brooks has been a director since November 1998. Mr. Brooks
was a director of RelevantKnowledge prior to their merger with us. He has been a
general partner of J.H. Whitney & Co., a venture capital fund and one of our
stockholders, since 1984. He is also a director of SunGard Data Systems, Inc.,
Niku Corporation, USinternetworking, Inc., VitaminShoppe.com and several other
private companies. Mr. Brooks holds a B.A. from Yale College and an M.B.A. from
Harvard Business School.
Stig Kry has been a director since March 1997. Mr. Kry has been
employed by Kurt Salmon Associates, Inc., a management consulting firm, since
1958, holding various positions, including Chief Executive from 1975 to 1987 and
his current position as Chairman Emeritus since 1993. He is a director of
Guilford Mills, Inc. and Osh Kosh B'Gosh, Inc. as well as several private
companies. Mr. Kry is a member of NPD's Board of Advisors. Mr. Kry holds a
degree in textile engineering from NKI, Skolan, Stockholm, Sweden.
William W. Helman has been a director since March 1997. Mr. Helman has
been a general partner of Greylock IX Limited Partnership, a venture capital
fund and one of our stockholders, since 1997 and associated with Greylock since
1984. He is also a director of various privately held companies. Mr. Helman
holds an A.B. from Dartmouth College and an M.B.A. from Harvard Business School.
James Mortensen has been a director since March 1997. Mr. Mortensen has
been a private consultant since 1982. He was employed by Young & Rubicam Inc.
from 1957 to 1982 where he held various positions, including Chief Financial
Officer, Vice Chairman and Chair of the Executive Committee. Mr. Mortensen is a
member of NPD's Board of Advisors. Mr. Mortensen attended Denver University.
Our board is divided into three classes, denominated Class I, Class II
and Class III. Members of each class hold office for three-year terms which are
staggered. At each annual meeting of our stockholders starting with the meeting
in 2000, the successors to the directors whose terms expire at that meeting will
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<PAGE> 45
be elected to serve for a three-year period following their election or until a
successor has been duly elected and qualified. Messrs. Levy and Mortensen are
Class I directors whose terms expire at the 2000 annual meeting of stockholders.
Messrs. Brooks and Kry are Class II directors whose terms expire at the 2001
annual meeting of stockholders. Messrs. Johnson and Helman are Class III
directors whose terms expire at the 2002 annual meeting. The expiration of a
director's term is subject in all cases to the election and qualification of his
successor or his earlier death, removal or resignation. Our officers are
appointed to serve at the discretion of the board.
Our board has a compensation committee charged with recommending to the
board the compensation for our executives and administering our stock option and
benefit plans. The compensation committee is currently composed of Messrs.
Helman, Levy and Mortensen. Our board also has an audit committee charged with
recommending to the board the appointment of our independent auditors, as well
as discussing and reviewing, with the independent auditors, the scope of the
annual audit and results thereof. The audit committee is currently composed of
Messrs. Brooks, Kry and Mortensen.
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<PAGE> 46
EXECUTIVE COMPENSATION
The following table sets forth information concerning all cash and
non-cash compensation paid or to be paid by us as well as certain other
compensation awarded, earned by and paid, during the fiscal years indicated, to
our Chief Executive Officer and each of our four other most highly compensated
executive officers for such periods in all capacities in which they served.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- ------------
Other Securities All
Annual Underlying Other
Name and Principal Position Year Salary Bonus Compensation Options/SARs Compensation
<S> <C> <C> <C> <C> <C> <C>
Tod Johnson...................... 1999 ____ ____ $ 180,000(1) ____ ____
Chief Executive Officer and 1998 ____ ____ 62,000(1) ____ ____
Chairman of the Board (1) 1997 ____ ____ 62,000(1) ____ ____
Mary Ann Packo................... 1999 $175,000 $67,000 ____ 50,972 ____
President and Chief 1998 157,500 59,000 ____ 43,716 ____
Operating Officer 1997 153,000 35,000 ____ 26,091 ____
Steve Coffey..................... 1999 $170,000 $55,000 ____ 50,972 ____
Executive Vice President 1998 145,000 54,500 ____ 43,716 ____
1997 130,000 35,000 ____ 26,091 ____
Thomas A. Lynch.................. 1999 $165,000 $64,000 ____ 65,620 ____
Chief Financial Officer 1998 ____ ____ 36,000(1) 39,366 ____
1997 ____ ____ 36,000(1) 2,175 ____
Doug McFarland 1999 $160,000 $80,000 ____ 56,972 ____
Senior Vice President, Sales 1998 154,500 42,000 ____ 30,554 ____
1997 150,000 30,000 ____ 36,962 ____
</TABLE>
- -------------------
(1) Compensation for Mr. Johnson's services as Chief Executive Officer
and Mr. Lynch's services as Chief Financial Officer in 1998 was paid under our
management services agreement with NPD. NPD was reimbursed $62,000 for Mr.
Johnson's services in each of the years 1997 and 1998. NPD was reimbursed
$36,000 for Mr. Lynch's services in each of the years 1997 and 1998. We pay for
Mr. Johnson's services pursuant to an amended and restated management services
agreement at the rate of $15,000 per month. Mr. Lynch's salary was paid by NPD
through December 1998. In 1999, Mr. Lynch became our employee for which he is
being paid at the rate of $165,000 per annum.
STOCK OPTIONS
The following table sets forth certain summary information concerning
individual grants of stock options made during the year ended December 31, 1999
to each of our executive officers named in the Summary Compensation Table.
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<PAGE> 47
Options Grants In Year Ended December 31, 1999
<TABLE>
<CAPTION>
Individual Grants
----------------- Potential Realizable
Number of % of Total Value at Assumed
Shares Options Exercise Annual Rates of Stock
Underlying Granted to or Base Price Appreciation
Options Employees in Price Per Expiration for Option Term (1)
Granted 1999 Share Date -------------------
5% 10%
<S> <C> <C> <C> <C> <C> <C>
Tod Johnson ____ ____ ____ ____ ____ ____
Mary Ann Packo 21,972 $11.26 February 10, 2009 $155,592 $394,299
29,000 4.9% 45.31 September 17, 2009 826,407 2,094,277
Steve Coffey 21,972 11.26 February 10, 2009 155,592 394,299
29,000 4.9 45.31 September 17, 2009 826,407 2,094,277
Thomas A. Lynch 36,620 11.26 February 10, 2009 259,319 657,166
29,000 6.3 45.31 September 17, 2009 826,407 2,094,277
Doug McFarland 21,972 11.26 February 10, 2009 155,592 394,299
35,000 5.4 45.31 September 17, 2009 997,388 2,527,576
</TABLE>
- -------------------
(1) These amounts represent assumed rates of appreciation in the price of
our common stock during the terms of the options in accordance with
rates specified in applicable federal securities regulations. The 5%
and 10% assumed annual rates of compounded stock price appreciation do
not represent our estimate or projection of our future common stock
prices. Each option listed in the table has a 10-year term. Actual
gains, if any, on stock option exercises will depend on the future
price of the common stock. There is no representation that the rates of
appreciation reflected in this table will be achieved.
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<PAGE> 48
The following table sets forth at December 31, 1999 the number of
options and the value of unexercised options held by each of the executive
officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
Aggregated Year-End Option Values
------------------------------------------------------------------------------------------------------
Shares Number of Shares Value of
Acquired Value Subject to Unexercised Unexercised In-the-Money
On Exercise Realized ($) Options at Year End Options at Year End (1)
----------- ------------ ------------------- -----------------------
NAME Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Tod Johnson.......... ____ ____ ____ ____ ____ ____
Mary Ann Packo....... ____ ____ 86,812 100,500 $3,070,679 $2,225,727
Steve Coffey......... ____ ____ 86,812 100,500 3,070,679 2,225,727
Thomas A. Lynch(2)... 435 17,191 56,537 97,319 1,994,783 1,958,374
Doug McFarland....... ____ ____ 21,447 103,041 747,762 2,124,265
</TABLE>
- -------------------
(1) The dollar values have been calculated by determining the
difference between the fair market value of the securities underlying the
options at December 31, 1999 and the exercise prices of the options.
(2) Includes 47,130 shares of our common stock issuable upon the
exercise of options granted pursuant to an NPD benefit plan that gives Mr. Lynch
an option to purchase shares of Media Metrix common stock held by NPD.
EMPLOYMENT AGREEMENTS
We do not currently have employment agreements with any of our
executive officers.
STOCK OPTION AWARDS
We adopted our 1998 Equity Incentive Plan in November 1998. Under the
1998 Plan, we may award incentive and non-statutory stock options, stock
appreciation rights, restricted stock, performance stock units and other stock
units which are valued by reference to the value of our common stock. We also
maintain the Media Metrix Stock Option Plan which provides for the award of up
to 519,222 shares of our common stock in the form of incentive stock options and
non-statutory stock options. The 1998 Plan and the Media Metrix Plan are
hereinafter referred to collectively as the Equity Plans.
In February 1999, our board adopted an amendment to the 1998 Plan to
increase the number of shares of our common stock available for awards under the
1998 Plan from 732,400 to 1,318,320.
As of December 31, 1999, options to purchase an aggregate of 1,838,816
shares of our common stock were outstanding under the equity plans, and an
aggregate of 101,164 shares of common stock are authorized but have not yet been
granted as awards under the equity plans. We do not intend to issue any more
options under the Media Metrix Plan.
Our officers, employees, non-employee directors and consultants are
eligible to participate in the Equity Plans. The compensation committee
administers the Equity Plans and determines, subject to the provisions of the
Equity Plans, who shall receive awards, the types of awards to be made, and the
terms and conditions of each award. Options intended to qualify as incentive
stock options under the Equity Plans terminate ten years from the date the
option was granted and are not to be granted at an exercise price less than the
fair market value of our common stock on the date of the grant. In the case of
incentive stock options granted to holders of more than 10% of our common stock,
the options may not be granted at an exercise price less than 110% of the fair
market value of our common stock at the time the options are granted.
The 1998 Plan provides that all outstanding awards shall become
immediately exercisable on the day prior to the consummation of any merger or
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<PAGE> 49
consolidation in which we are not the surviving corporation or which results in
the acquisition of substantially all of our outstanding shares by a single
person or entity or by a group of persons and/or entities acting in concert, or
in the event of the sale or transfer of substantially all of our assets. The
number of shares subject to each award shall be adjusted upon the occurrence of
a stock split or recapitalization of our common stock.
The board may amend, modify or terminate any outstanding award under
the equity plans with the participant's consent, except consent is not to be
required if the board determines that the action will not materially and
adversely affect the participant. The board may amend, suspend or terminate
either of the equity plans, or any part of such plans, at any time.
On June 22, 1999, we filed a registration statement on Form S-8 with
the Securities and Exchange Commission pursuant to which we registered 1,970,610
shares of common stock issued or issuable upon the exercise of options granted
under the Media Metrix Stock Option Plan, the 1998 Plan and other non-plan
option grants.
On November 8, 1999, we filed a registration statement on Form S-8 with
the Securities and Exchange Commission pursuant to which we registered up to
246,845 shares of our common stock issued or issuable upon the exercise of
options granted under the AdRelevance stock option plan assumed in the
AdRelevance merger.
COMPENSATION OF DIRECTORS
During fiscal 1999, we did not have a plan to compensate our
non-employee directors. All directors were, however, reimbursed for their
expenses in connection with attending meetings of the board of directors. The
compensation committee of our board is in the process of formulating a policy
for compensation for non-employee directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee consists of William W. Helman, Jeffrey C.
Levy and James Mortensen. Until February 1999, matters concerning executive
officer compensation were addressed by the entire board because we did not have
a compensation committee.
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<PAGE> 50
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FORMATION BY NPD
Prior to April 14, 1997, the business currently conducted by Media
Metrix was operated as PC Meter. NPD originally held 100,000 Class A Limited
Partnership Units and 79,000 Class B Limited Partnership Units of PC Meter. The
1995 Scott Johnson Trust and The 1995 Stacey Johnson Trust each held 19,323.5
Class B Limited Partnership Units of PC Meter. In addition, PC Meter was
indebted to NPD in the amount of approximately $4.0 million which PC Meter used
for working capital purposes. On April 14, 1997, PC Meter was merged with and
into Media Metrix. Immediately prior to the merger, NPD purchased an additional
338,767.7324 Class A Limited Partnership Units for a purchase price of $3.2
million. Under the terms of the merger between Media Metrix and PC Meter, each
Class A Limited Partnership Unit was exchanged for 0.09446 shares of our
redeemable preferred stock for a total of 41,446 shares. The redeemable
preferred stock was redeemed in connection with our initial public offering.
Each Class B Limited Partnership Unit was exchanged for 12.75 shares of our
common stock. NPD currently holds 4,380,559 shares of common stock. Tod Johnson,
our Chairman and Chief Executive Officer, is the controlling stockholder of NPD.
After the merger, we repaid the indebtedness owed to NPD by PC Meter.
PRIVATE PLACEMENTS OF SECURITIES
On April 14, 1997 we issued:
- warrants to purchase 377,642 shares of common stock at an
exercise price of $2.88 per share to Veronis Suhler &
Associates;
- 495,603 shares of Series A Preferred Stock convertible into
2,155,176 shares of common stock, at an effective purchase
price per share of common stock of $1.86; and
- warrants to purchase 159,640 shares of Series B Preferred
Stock at an exercise price of $12.53 per share.
Of the securities issued, and after giving effect to the conversion of
our convertible preferred stock on November 4, 1998, Greylock IX Limited
Partnership purchased 1,030,743 shares of our common stock for an aggregate of
$1,331,997. Warrants to purchase 119,713 shares of Series B Preferred Stock were
exercised on November 4, 1998 and such shares of Series B Preferred Stock were
converted into 520,590 shares of common stock on the same date. Warrants to
purchase 39,926 shares of Series B Preferred Stock were converted into warrants
to purchase 173,629 shares of common stock at an exercise price of $2.88 per
share. Greylock received warrants to purchase 104,175 shares of our common
stock. All of these warrants were exercised on March 31, 1999.
On November 5, 1998, RelevantKnowledge merged into Media Metrix. We
issued an aggregate of 3,890,825 shares of common stock, or 0.3111 shares of
common stock for each outstanding share of common stock and preferred stock of
RelevantKnowledge. We also replaced 1,160,290 warrants to purchase shares of
RelevantKnowledge common stock with a weighted average exercise price of $2.31
with warrants to purchase 360,907 shares of our common stock with a weighted
average exercise price of $1.38. We also issued 46,775 options to purchase our
common stock to the employees of RelevantKnowledge who became our employees
after the merger. Jeffrey C. Levy, one of our directors and our Vice Chairman,
and Whitney Equity Partners, L.P. both received shares of our common stock in
the merger.
47
<PAGE> 51
On October 8, 1999, we acquired AdRelevance. We issued an aggregate of
697,664 shares of our common stock in connection with this acquisition. If
AdRelevance achieves certain post-closing goals, we will be obligated to issue
an additional 77,520 shares of our common stock. Also, in connection with this
acquisition, we agreed to assume options and warrants that enable the holders to
purchase an aggregate of 223,726 shares of our common stock. If AdRelevance
achieves certain post-closing goals, we will be obligated to issue an aggregate
of 24,841 additional shares under these options and warrants.
In March 2000, in connection with our acquisition of MMXI Nordic, we
issued 52,000 shares of our common stock to a subsidiary of SIFO Group AB.
TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
MANAGEMENT SERVICES AGREEMENT
With the formation of PC Meter on March 31, 1996, PC Meter entered into
a management services agreement with NPD and Tod Johnson. NPD and Mr. Johnson
agreed to provide services related to PC Meter's business to the extent PC Meter
wished to use such services. We succeeded to that agreement when we merged with
PC Meter. The agreement was amended and restated on April 14, 1997 in connection
with the private placement of our Series A Preferred Stock and warrants to
purchase Series B Preferred Stock. We entered into a new management services
agreement with NPD and Mr. Johnson on September 30, 1998, in anticipation of our
merger with RelevantKnowledge, on substantially the same terms as the prior
management services agreement. Services which NPD agreed to provide, if needed,
include:
- the support of the operation and administration of our panel,
including recruitment, operation and compensation of the
panel;
- access to panelists in NPD's panels;
- data capture and editing of data;
- data base structuring and storage of data;
- processing of reports and client support;
- provision of systems support and development as necessary;
- provision of computer time, storage and printing as reasonably
necessary in connection with the provision of the services
specified in the preceding items;
- support in connection with client service and sales;
- office space and facilities within NPD leased facilities; and
- the provision of NPD's hardware ownership survey.
In addition to the specific services outlined above, NPD also agreed to
provide administrative and office logistical support, including payroll
management. At this time, NPD no longer provides payroll and panel support
services.
The management services agreement may be terminated by either party
with 90 days' prior written notice, except that NPD may not terminate the
management services agreement prior to March 31, 2002. When the management
services agreement is terminated, NPD will provide us with a perpetual, royalty
free, non-forfeitable license of all data and documentation in its possession
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<PAGE> 52
and developed during the performance of the services relating to our business.
We have also agreed to provide NPD with a reciprocal license relating to data
and documentation which we generate during the performance of the services
relating to our business.
NPD and Mr. Johnson have also agreed that during the term of the
management services agreement and for a period of two years after its
termination, neither NPD nor Mr. Johnson will enter into the field of audience
measurement for digital on-line media and measurement of usage of computer
software and personal computers, except for investments in publicly traded
companies not to exceed 10% of any company's outstanding capital stock.
As compensation for the services provided by NPD, we pay NPD on a
monthly basis an amount equal to all expenses reasonably incurred by NPD in the
performance of its duties under the management services agreement, plus 105% of
the sum of (1) the amount of NPD's overhead allocable to us and (2) service
charges like computer rent, mail handling and printing and postage. NPD charged
us $6.0 million under the management services agreement in 1998.
NPD was reimbursed $62,000 for Mr. Johnson's services in each of 1997
and 1998. NPD was reimbursed $36,000 for Mr. Lynch's services in each of 1997
and 1998. These amounts represent all compensation to NPD for the services
provided to us by Mr. Johnson and Mr. Lynch in 1997 and 1998. Messrs. Johnson
and Lynch provided services to NPD in addition to those related to Media Metrix
and were compensated for those services. Compensation paid by NPD to Messrs.
Johnson and Lynch exceeded the amounts paid by us to NPD. The amounts charged by
NPD for Mr. Johnson and Mr. Lynch's services to Media Metrix were below the
amounts provided for under the management services agreement. NPD has waived any
additional amounts to which it is entitled under the agreement. See
"Management-Executive Compensation."
On May 12, 1999, we amended and restated the management services
agreement to provide that NPD will be reimbursed $15,000 per month, or $180,000
per year, for Mr. Johnson's services. As of January 1, 1999, Mr. Lynch became
one of our employees.
SERVICES AGREEMENT
We entered into a new services agreement with NPD as of September 30,
1998 which replaced a prior services agreement having substantially similar
terms. We have granted NPD and its affiliates access to our databases for any
business purpose of NPD and its affiliates which is not in direct competition
with our business. We have also granted NPD a non-exclusive licence to use
certain computer software owned by us which is used for Internet audience
measurement. In addition, we have also agreed that we will not license our
software to any one else who will use the software to compete with NPD. Under
the terms of the services agreement, we receive a monthly fee of $2,500 plus
expenses. In 1998, we received an aggregate of $30,000 in fees and no reimbursed
expenses. The services agreement is terminable by mutual consent of the parties
or on 120 days' prior written notice by either party.
LICENSE AGREEMENT
We entered into a new license agreement dated as of November 5, 1998
with NPD which replaced a prior license agreement having substantially similar
terms. NPD has granted to us an exclusive, non-transferable, perpetual,
worldwide license to use some of its computer software solely in connection with
the operation of our metering system. This software enables us to construct
our databases from the data we collect from our panelists. We pay NPD licensing
fees of $11,000 per month payable quarterly, or $132,000 per year. In 1998, we
paid NPD an aggregate of $132,000 in licensing fees. The license is terminable
by NPD on our breach of the terms of the agreement like failure to pay the
license fees, or bankruptcy.
EMPLOYMENT AGREEMENT
We entered into an employment agreement with Jeffrey C. Levy, a
director and a Vice Chairman, in connection with our merger with
RelevantKnowledge. Under this agreement, which terminated in November 1999, Mr.
Levy received an annual base salary of $165,000. Mr. Levy is currently a
non-executive Vice Chairman.
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<PAGE> 53
LOAN TO STOCKHOLDER
In connection with the merger with RelevantKnowledge, NPD loaned
$100,000 to Jeffrey C. Levy pursuant to a secured promissory note. Mr. Levy
repaid the note following the closing of our initial public offering.
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<PAGE> 54
PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of our common stock as of December 31, 1999, after giving effect to
the offering, by: (1) each person known to beneficially own more than 5% of our
common stock; (2) each of our directors; (3) each executive officer named in the
summary compensation table; and (4) all executive officers and directors as a
group. All persons listed have sole voting and investment power with respect to
their shares unless otherwise indicated. Unless indicated otherwise, the address
of the beneficial owners is: c/o Media Metrix, Inc., 250 Park Avenue South, 7th
Floor, New York, New York 10003.
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 March 31, 2000, are treated as outstanding for computing the
percentage of the person holding those securities but are not treated as
outstanding for computing the percentage of any other person. Unless otherwise
noted, each person or group identified possesses sole voting and investment
power with respect to its shares, subject to applicable community property laws.
Beneficial ownership percentage is based on 19,812,466 shares of common stock
outstanding as of March 31, 2000.
<TABLE>
<CAPTION>
NUMBER PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OWNED BENEFICIALLY OWNED
<S> <C> <C>
Tod Johnson (1)................................................ 4,122,759 20.8%
Mary Ann Packo (2)............................................. 84,834 *
Steve Coffey (3)............................................... 84,305 *
Thomas A. Lynch (4)............................................ 68,127 *
Doug McFarland (5)............................................. 16,154 *
Jeffrey C. Levy (6)............................................ 273,201 1.4
Michael Brooks (7)............................................. 141,194 *
William W. Helman (8).......................................... 1,242,529 6.3
Stig Kry ( 9).................................................. 13,938 *
James Mortensen (10)........................................... 13,938 *
The NPD Group, Inc.(11)........................................ 4,122,759 20.8
Greylock IX Limited Partnership (12)........................... 1,242,529 6.3
Gilder Gagnon Howe & Co. LLC (13).............................. 2,013,290 10.2
All directors and executive officers as a group (12 people) (14) 6,352,301 31.7%
</TABLE>
* Less than 1.0%
(1) Consists of 4,122,759 shares of common stock owned by The NPD Group of
which Mr. Johnson is the principal shareholder and chief executive
officer. Of the 4,122,759 shares of our common stock owned by Mr.
Johnson, 384,038 shares of our common stock are required to be sold to
certain present or former employees or advisors of NPD upon the
exercise of options granted on such shares pursuant to an NPD benefit
plan.
(2) Includes 82,305 shares of common stock issuable upon the exercise of
options which are exercisable within 60 days from March 31, 2000. Does
not include 95,007 shares of common stock which are not exercisable
within 60
51
<PAGE> 55
days from March 31, 2000.
(3) Includes 82,305 shares of common stock issuable upon the exercise of
options which are exercisable within 60 days from March 31, 2000. Does
not include 95,007 shares of common stock which are not exercisable
within 60 days from March 31, 2000.
(4) Includes 65,692 shares of common stock issuable upon the exercise of
options which are exercisable within 60 days from March 31, 2000,
47,130 of which were granted pursuant to an NPD benefit plan and which
give Mr. Lynch the right to purchase shares of our common stock held
by NPD. Does not include 88,164 shares of common stock which are not
exercisable within 60 days from March 31, 2000.
(5) Includes 12,154 shares of common stock issuable upon the exercise of
options which are exercisable within 60 days from March 31, 2000. Does
not include 97,548 shares of common stock which are not exercisable
within 60 days from March 31, 2000.
(6) Consists of 70,000 shares of common stock owned by Mr. Levy and 203,201
shares of common stock owned by the Farm Neck Partners, L.P., a family
limited partnership with which Mr. Levy is affiliated. 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.
(7) Consists of 133,417 shares owned by Whitney Equity Partners, L.P. Mr.
Brooks is a member of J.H. Whitney Equity Partners, LLC, the general
partner of Whitney Equity Partners, L.P. Mr. Brooks may be deemed to
share voting and dispositive power with respect to such shares. Also
consists of 7,777 shares owned by J.H. Whitney & Co. of which Mr.
Brooks is a general partner. Mr. Brooks is a managing member of Whitney
General Partner, L.L.C. which is also a general partner of J.H. Whitney
& Co. Mr. Brooks may be deemed to share voting and dispositive power
with respect to such shares.
(8) Consists of 1,242,529 shares owned by Greylock IX Limited Partnership.
Mr. Helman is a co-managing general partner of Greylock XI. Mr. Helman
may be deemed to share voting and dispositive power with respect to
such shares.
(9) Includes 9,938 shares of common stock issuable upon the exercise of
options which are exercisable within 60 days from March 31, 2000,
5,703 of which were granted pursuant to an NPD benefit plan and which
give Mr. Kry the right to purchase shares of our common stock held by
NPD. Does not include 11,831 shares of common stock which are not
exercisable within 60 days from March 31, 2000.
(10) Includes 10,938 shares of common stock issuable upon the exercise of
options which are exercisable within 60 days from March 31, 2000,
6,703 of which were granted pursuant to an NPD benefit plan and which
give Mr. Mortensen the right to purchase shares of our common stock
held by NPD. Does not include 11,831 shares of common stock which are
not exercisable within 60 days from March 31, 2000.
(11) Consists of 4,122,759 shares of common stock owned by The NPD Group of
which Mr. Johnson is the principal stockholder and chief executive
officer. Of the 4,122,759 shares of our common stock owned by Mr.
Johnson, 384,038 shares of our common stock are required to be sold to
certain present or former employees or advisors of NPD upon the
exercise of options granted on such shares pursuant to an NPD benefit
plan.
(12) Greylock IX Limited Partnership may be deemed to beneficially own
1,242,529 shares of our common stock. Greylock IX has sole voting and
sole dispositive power with respect to 1,242,529 shares. Mr. Helman, a
director of the Company, is the co-managing general partner of Greylock
IX. Information with respect to Greylock has been derived from their
Schedule 13G as filed with the Securities and Exchange Commission on
February 14, 2000. The address of Greylock IX Limited Partnership is
One Federal Street, Boston, Massachusetts 02110.
(13) Gilder Gagnon Howe & Co. LLC may be deemed to beneficially own
2,013,290 shares of our common stock which are held of record by
clients of Gilder Gagnon Howe & Co. LLC. Gilder Gagnon Howe & Co. LLC
has sole voting power with respect to 16,750 shares and shared
dispositive power with respect to 2,013,290 shares. Gilder Gagnon Howe
& Co. LLC does not have shared voting power or sole dispositive power
with respect to any of the shares. Information with respect to Gilder
Gagnon Howe & Co. LLC, has been derived from their Schedule 13G/A dated
February 14, 2000 as filed with the Securities and Exchange Commission.
Gilder Gagnon Howe & Co. L.L.C.'s address is 1775 Broadway, 26th Floor,
New York, New York 10019
(14) Includes 263,332 shares of common stock issuable upon the exercise
of options which are exercisable within 60 days from March 31, 2000.
Does not include 453,388 shares of common stock which are not
exercisable within 60 days from March 31, 2000, 59,536 of which were
granted pursuant to the NPD benefit plan.
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<PAGE> 56
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 Director and Vice Chairman.
See "Certain Relationships and Related Transaction-
Transactions with Directors and Executive Officers."
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. See "Business-International
Operations" for a description of our acquisition of
MMXI Nordic.
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 March 31, 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 19,812,466 shares of common stock outstanding
as of March 31, 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.
The following table shows the number of shares beneficially owned and
offered by each of the selling stockholders.
53
<PAGE> 57
<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.................................................. 273,201(2) 203,201
Jeffrey C. Levy.......................................................... 273,201(2) 70,000
Linden Rhoads............................................................ 61,126(3) 58,665(4)
Osprey Research BV....................................................... 52,000 52,000
Daniel Weld.............................................................. 48,923(5) 42,360(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................................................. 9,371(8) 9,371(8)
James Bartot............................................................. 31,037(9) 8,096(10)
Craig Horman............................................................. 31,037(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............................................................ 3,598(16) 3,598(16)
VLG Investments 1999..................................................... 3,279(17) 3,279(17)
Keith Grinstein.......................................................... 2,342(18) 2,342(18)
Inland Northwest Investors, L.P.......................................... 2,082(19) 2,082(19)
First Portland Corporation............................................... 923(20) 923(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.................................................................... 868,756
=======
</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 203,201
shares of common stock owned by the Farm Neck Partners, L.P., a family
limited partnership with which Mr. Levy is affiliated. 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 March 31, 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 March 31, 2000.
(6) Includes 4,706 shares subject to the escrow agreement.
(7) Includes 2,332 shares subject to the escrow agreement.
(8) Includes 2,082 shares subject to the escrow agreement.
(9) Includes 899 shares subject to the escrow agreement. Includes 22,941
shares of common stock issuable upon exercise of options which are
exercisable within 60 days from March 31, 2000.
(10) Includes 899 shares subject to the escrow agreement.
(11) Includes 899 shares subject to the escrow agreement. Includes 22,941
shares of common stock issuable upon exercise of options which are
exercisable within 60 days from March 31, 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.
(16) Includes 399 shares subject to the escrow agreement.
(17) Includes 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) Includes 102 shares subject to the escrow agreement.
(21) Includes of 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 March 31, 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.
54
<PAGE> 58
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 60,000,000 shares of common
stock, $.01 par value, and 5,000,000 shares of preferred stock, $.01 par value.
As of December 31, 1999, we had 19,681,999 shares of common stock
outstanding held by approximately 211 stockholders of record. We will not issue
and sell any shares in the offering.
COMMON STOCK
Subject to preferences that may be applicable to any preferred stock
outstanding at the time, holders of our common stock are entitled to receive
dividends at times and in amounts as the board may determine. The holders of our
common stock have one vote for each share they hold on all matters submitted to
a vote of the stockholders. The holders of a majority of the shares of common
stock voted can elect all of the directors nominated for election. The holders
of our common stock are not entitled to preemptive rights and our common stock
is not subject to conversion or redemption. Upon a liquidation, dissolution or
winding-up, we will distribute pro rata to the holders of our common stock our
remaining assets, after payment of liquidation preferences, if any, on any
outstanding shares of preferred stock and payment of claims of creditors. Each
outstanding share of our common stock is, and all shares of our common stock
being purchased in this offering will be, duly and validly issued, fully paid
and nonassessable.
Our common stock is quoted on the Nasdaq National Market under the
symbol "MMXI."
PREFERRED STOCK
We do not have any shares of our preferred stock outstanding. The
5,000,000 authorized shares of preferred stock may be issued in one or more
series without further stockholder action. The board is authorized to determine
the terms, limitations and relative rights and preferences of the preferred
stock, to establish series of preferred stock and to determine the variations
among series. If we issue preferred stock, it could have priority over our
common stock with respect to dividends and to other distributions, including the
distribution of assets upon liquidation. In addition, we may be obligated to
repurchase or redeem the preferred stock. The board can issue preferred stock
without the approval of the holders of our common stock. The holders of
preferred stock may have voting and conversion rights, including multiple voting
rights, which could adversely affect the rights of the holders of our common
stock. We do not have any present plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
We are filing this registration statement in satisfaction of
obligations under an agreement between us and the former stockholders of
AdRelevance and an agreement with Osprey Research BV, a subsidiary of SIFO Group
AB. In connection with this filing, some of our stockholders have exercised
piggyback registration rights and caused us to include their shares in this
offering.
Assuming all of the shares registered in this offering are sold, some
of the holders of shares of our common stock, referred to as registrable
securities, have piggyback registration rights. If we propose to register any
of our common stock under the Securities Act, the holders of registrable
securities may require us to include all or a portion of their securities in
each registration. However, the managing underwriter, if any, of that offering
has the right to limit the number of registrable securities proposed to be
included in that registration. These piggyback registration rights do not apply
to registrations described in the next two paragraphs.
Holders of registrable securities are entitled to additional
registration rights. If we receive from the holders of more than 25% of the
registrable securities a written request to effect a registration with respect
to all or a part of the registrable securities, we must use our best efforts to
effect such a registration. We are only obligated to effect one of these
registrations. The holders of the registrable securities may choose to sell
their securities through an underwriter. However, any underwriter may limit the
number of registrable securities proposed to be included in that registration.
When we are eligible to use a registration statement on Form S-3 to
register an offering of our securities, holders of more than 10% of the
55
<PAGE> 59
registrable securities may request that we file a registration statement on
Form S-3 covering all or a portion of the registrable securities held by them,
provided that the proceeds from that offering are at least $2.0 million.
We will bear all registration expenses incurred in connection with
these registrations. Each of the holders of registrable securities participating
in any registration would pay their own underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of their securities.
In connection with our international joint ventures, we have
granted our joint venture partners an option, subject to certain conditions, to
exchange the partner's share in its joint venture for shares of our common
stock. See footnote 15 of the Notes to the Consolidated Financial Statements
included elsewhere in this prospectus. Each partner also has registration
rights related to the shares of our common stock they may receive on conversion
of their interest our international joint ventures.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Under Section 203 of the Delaware General Corporation Law, certain
"business combinations" between a Delaware corporation, whose stock generally is
publicly traded or held of record by more than 2,000 stockholders, and an
"interested stockholder" are prohibited for a three-year period following the
date that such stockholder became an interested stockholder, unless:
- the corporation has elected in its certificate of
incorporation or bylaws not to be governed by the Delaware
anti-takeover law (we have not made such an election);
- the business combination was approved by the board of the
corporation before the other party to the business combination
became an interested stockholder;
- upon consummation of the transaction that made it an
interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding
at the commencement of the transaction (excluding voting stock
owned by directors who are also officers or held in employee
stock plans in which the employees do not have a right to
determine confidentially whether to tender or vote stock held
by the plan); or
- the business combination was approved by the board and
ratified by 66 2/3% of the voting stock which the interested
stockholder did not own.
The three-year prohibition does not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of certain extraordinary transactions involving the corporation and
a person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the corporation's directors. The term "business combination" is defined
generally to include mergers or consolidations between a Delaware corporation
and an interested stockholder, transactions with an interested stockholder
involving the assets or stock of the corporation or its majority-owned
subsidiaries and transactions which increase an interested stockholder's
percentage ownership of stock. The term "interested stockholder" is defined
generally as a stockholder who becomes beneficial owner of 15% or more of a
Delaware corporation's voting stock. Section 203 could have the effect of
delaying, deferring or preventing a change in control of Media Metrix.
In addition, provisions of our certificate of incorporation and bylaws
may have an anti-takeover effect. They may delay, defer or prevent a tender
offer or takeover attempt that a stockholder might consider in its best
interest, including those attempts that might result in a premium over the
market price for the shares held by our stockholders. The following summarizes
these provisions.
CLASSIFIED BOARD OF DIRECTORS
Our board is divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of our board will be
elected each year. These provisions, when coupled with the provision of our
certificate of incorporation authorizing the board to fill vacant directorships
or increase the size of the board, may deter a stockholder from removing
incumbent directors and simultaneously gaining control of the board.
56
<PAGE> 60
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS
Our certificate of incorporation provides that our stockholders may not
take action by written consent, but only at an annual or special meeting of
stockholders. Our bylaws provide that special meetings of our stockholders may
be called only by the chairman of the board or a majority of the board.
SUPERMAJORITY VOTING PROVISIONS
Our certificate of incorporation provides that the affirmative vote of
at least 66 2/3% of our stockholders is required to amend the provisions of our
certificate and bylaws relating to the classification of the board, stockholder
action by written consent and the calling of special meetings.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued shares of common stock and preferred stock
are available for future issuance without stockholder approval, except in
certain instances. We may use these shares for a variety of corporate purposes,
including future public offerings to raise additional capital, corporate
acquisitions and employee benefit plans. This could make it more difficult or
discourage an attempt to obtain control of us by means of a proxy contest,
tender offer, merger or otherwise.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
We have entered into indemnification agreements with our current
directors and executive officers. These agreements and provisions of our
certificate of incorporation and bylaws may have the practical effect in some
cases of eliminating our stockholders' ability to collect monetary damages from
our directors. We believe that these contractual agreements and the provisions
in our certificate of incorporation and bylaws are necessary to attract and
retain qualified persons as directors and officers.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Continental
Stock Transfer and Trust Company.
57
<PAGE> 61
SHARES ELIGIBLE FOR FUTURE SALE
If our stockholders sell substantial amounts of our common stock,
including shares issued upon the exercise of outstanding options, in the public
market following this offering, the market price of our common stock could fall.
These sales also might make it more difficult for us to sell equity or
equity-related securities in the future and at a time and price that we deem
appropriate.
We had outstanding an aggregate of 19,812,466 shares of our common
stock as of March 31, 2000. If this offering had been completed on March 31,
2000, approximately 19,600,000 of our outstanding shares, including the 868,756
shares sold in this offering, would have been freely tradeable without
restriction or further registration under the Securities Act, subject in some
instances to the volume and timing restrictions of Rule 144, including shares
held by "affiliates," as that term is defined in Rule 144 under the Securities
Act. However, 102,360 of the shares offered under this prospectus are subject
to the escrow agreement described in "Selling Stockholders."
RULE 144
In general, under Rule 144 as currently in effect, a person who
purchased our common stock in a private placement and has beneficially owned
shares of our common stock for at least one year would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
- 1% of the number of shares of our common stock then
outstanding, which currently equals approximately 198,000
shares; or
- the average weekly trading volume of our common stock on the
Nasdaq National Market during the four
58
<PAGE> 62
calendar weeks preceding the filing of a notice on Form 144
with respect to that sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
RULE 701
In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors who purchased shares of
our common stock from us in connection with a compensatory stock or option plan
or other written agreement prior to our initial public offering is eligible to
resell those shares in reliance on Rule 144, but without compliance with some of
the restrictions, including the holding period, contained in Rule 144.
REGISTRATION RIGHTS
After this offering, some of our stockholders, or their transferees,
will be entitled to certain rights with respect to the registration of those
shares under the Securities Act. See "Description of Capital Stock -
Registration Rights." After this registration, these shares of our common
stock, other than those acquired by our affiliates, become freely tradeable
without restriction under the Securities Act. Any sale of these shares could
have a material adverse effect on the trading price of our common stock.
STOCK OPTIONS
As of December 31, 1999, options to purchase 1,838,816 shares of common
stock were issued and outstanding. Approximately 354,663 shares of common
stock were subject to vested options. On June 22, 1999, we filed a registration
statement on Form S-8 with the Commission pursuant to which we registered
1,970,610 shares of common stock issued or issuable upon the exercise of options
granted under the Media Metrix Stock Option Plan, the 1998 Plan and other
non-plan option grants. On November 8, 1999, we filed a registration statement
on Form S-8 with the Securities and Exchange Commission to register the offer
and sale of shares on options to purchase up to 246,845 shares of our common
stock received by former AdRelevance shareholders who owned options to purchase
AdRelevance stock. These registration statements became immediately effective
upon filing. The shares of our common stock sold under the registration
statements described in this paragraph will be, subject to vesting provisions
and Rule 144 volume limitations applicable to our affiliates, available for sale
in the open market.
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<PAGE> 63
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.
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.
60
<PAGE> 64
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 4,000 shares of our common stock in
the aggregate.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at December 31, 1999 and 1998, and for each of
the three years in the period ended December 31, 1999, as set forth in their
reports. We have included our financial statements and schedule in the
prospectus and elsewhere in the registration statement 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.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Commission a registration statement on Form S-1
with respect to the common stock being sold in this offering. This prospectus
constitutes a part of that registration statement. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules to the registration statement, because some parts have
been omitted in accordance with rules and regulations of the Commission. For
further information about us and our common stock being sold in this offering,
please refer to the registration statement and the exhibits and schedules filed
as 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.
61
<PAGE> 65
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MEDIA METRIX, INC.
<S> <C>
Report of Independent Auditors......................................................................F-2
Consolidated Balance Sheets at December 31, 1999 and 1998...........................................F-3
Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997..........F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998
and 1997.........................................................................................F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997..........F-6
Notes to Consolidated Financial Statements..........................................................F-7
ADRELEVANCE, INC.
Report of Independent Auditors.....................................................................F-21
Balance Sheets at December 31, 1998 and September 30, 1999 (unaudited).............................F-22
Statements of Operations for the period October 12, 1998 (inception) to
December 31, 1998 and the nine months ended September 30, 1999
(unaudited).....................................................................................F-23
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-24
Statement 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-25
Notes to Financial Statements......................................................................F-26
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
Statement of Operations for the year ended December 31, 1999.......................................F-33
Notes to Unaudited Pro Forma Statement of Operations...............................................F-34
</TABLE>
F-1
<PAGE> 66
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Media Metrix, Inc.
We have audited the accompanying consolidated balance sheets of Media Metrix,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements and schedule 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 auditing standards generally accepted
in the United States. 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 consolidated financial position of Media
Metrix, Inc. and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
January 28, 2000, except for the
last three paragraphs of Note 15,
as to which the date is March 8, 2000
F-2
<PAGE> 67
MEDIA METRIX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $97,363,634 $8,012,020
Marketable securities 14,877,222 -
Receivables:
Trade, less allowance for doubtful accounts of $500,000 in 1999
and $220,000 in 1998 5,473,299 1,119,905
Expenditures billable to clients 520,084 250,432
-----------------------------
Total receivables 5,993,383 1,370,337
Prepaid expenses and other current assets 454,072 207,333
-----------------------------
Total current assets 118,688,311 9,589,690
Property and equipment, at cost, net of accumulated depreciation
and amortization of $560,817 in 1999 and $75,930 in 1998 5,307,667 649,790
Intangibles acquired, net of accumulated amortization
of $7,791,505 in 1999 and $479,000 in 1998 52,948,261 5,736,766
Due from minority interests in consolidated subsidiaries 1,617,384 -
Other assets 282,801 83,774
-----------------------------
Total assets $178,844,424 $16,060,020
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $10,115,492 $2,308,323
Due to The NPD Group, Inc. 444,495 4,705,825
Advance billings to clients 5,125,613 1,391,275
Current portion of long-term debt 196,268 127,179
-----------------------------
Total current liabilities 15,881,868 8,532,602
Long-term debt 173,387 225,353
Redeemable Preferred Stock--$1 par value; 41,446 shares issued
and outstanding in 1998 - 4,679,760
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value shares authorized: 5,000,000 in
1999 and 4,958,544 in 1998; none issued and outstanding - -
Common stock, $.01 par value--60,000,000 shares authorized;
shares issued and outstanding--19,681,999 in 1999 and
13,098,808 in 1998 196,820 130,988
Additional paid-in capital 202,031,538 18,149,203
Common stock issuable - 1,999,831
Accumulated other comprehensive loss (82,424) -
Accumulated deficit (38,110,438) (16,093,242)
Deferred compensation (1,246,327) (1,564,475)
-----------------------------
Total stockholders' equity 162,789,169 2,622,305
-----------------------------
Total liabilities and stockholders' equity $178,844,424 $16,060,020
=============================
</TABLE>
See accompanying notes.
F-3
<PAGE> 68
MEDIA METRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Revenues $20,500,127 $6,330,485 $3,187,653
Costs of revenues 10,291,392 4,120,569 3,463,058
------------------------------------------------------
Gross profit (loss) 10,208,735 2,209,916 (275,405)
Operating expenses:
Research and development 5,044,068 1,382,375 865,498
Sales and marketing 9,116,727 2,888,195 2,021,409
General and administrative 6,755,220 2,715,705 1,516,396
Amortization of deferred compensation and other
stock-based compensation 1,060,108 368,550 -
Amortization of intangibles 7,312,505 479,000 -
Acquired in-process research and development 6,800,000 1,600,000 -
------------------------------------------------------
Total operating expenses 36,088,628 9,433,825 4,403,303
------------------------------------------------------
Loss from operations (25,879,893) (7,223,909) (4,678,708)
Minority interests 1,688,542 - -
Interest and other income, net of interest expense of
$74,660 in 1999 and $11,374 in 1998 2,283,350 65,211 94,760
------------------------------------------------------
Net loss (21,908,001) (7,158,698) (4,583,948)
Preferred stock dividends (109,195) (313,738) (289,564)
------------------------------------------------------
Net loss applicable to common stockholders $(22,017,196) $(7,472,436) $(4,873,512)
======================================================
Basic and diluted net loss per share applicable to common
stockholders $ (1.34) $ (0.98) $ (0.75)
======================================================
Shares used in the calculation of basic and diluted net loss per
share applicable to common stockholders 16,445,295 7,618,511 6,523,330
======================================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 69
MEDIA METRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Owner's/ Additional Common
Partners' Common Stock Paid-in Stock
Capital Shares Amount Capital Issuable
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $1,269,600 - $ - $ - $ -
Purchase of partnership interest 3,200,000 - - - -
Exchange of partners' interest
for 6,522,893 shares of common stock and 41,446 shares
of Redeemable Preferred Stock (4,469,600) 6,522,893 65,229 259,771 -
Contribution of amounts owed to The NPD Group, Inc. - - - 380,977 -
Sale of common stock - 437 4 96 -
Costs incurred in connection with issuance of Series A
Convertible Preferred Stock - - - (359,188) -
Payment of Redeemable Preferred Stock dividends - - - - -
Accrual of Redeemable Preferred Stock dividends - - - - -
Net loss - - - - -
--------------------------------------------------------------------
Balance at December 31, 1997 - 6,523,330 65,233 281,656 -
Conversion of Series A Convertible Preferred Stock - 2,155,176 21,552 3,978,439 -
Conversion of Series B Convertible Preferred Stock - 520,590 5,206 1,494,794 -
Issuance of common stock in connection with acquisition - 3,890,825 38,908 10,461,092 -
Exercise of warrants - 8,887 89 197 -
Sale of common stock-194,380 shares issuable - - - - 1,999,831
Employee stock options - - - 1,933,025 -
Amortization of deferred compensation - - - - -
Accrual of Redeemable Preferred Stock dividends - - - - -
Net loss - - - - -
--------------------------------------------------------------------
Balance at December 31, 1998 - 13,098,808 130,988 18,149,203 1,999,831
Comprehensive loss:
Net loss - - - - -
Unrealized losses on marketable securities - - - - -
Foreign currency translation - - - - -
Total comprehensive loss
Issuance of common stock issuable - 194,380 1,944 1,997,887 (1,999,831)
Initial and secondary public offering net of
$6,727,500 of related costs and expenses - 4,750,000 47,500 120,430,000 -
Issuance of common stock in connection with acquisition - 697,664 6,977 59,393,023 -
Exercise of warrants and stock options - 941,147 9,411 1,319,465 -
Employee stock options - - - 325,000 -
Amortization of deferred compensation - - - - -
Reversal of deferred compensation of options forfeited - - - (98,231) -
Acceleration of vesting on options - - - 515,191 -
Accrual of Redeemable Preferred Stock dividends - - - - -
--------------------------------------------------------------------
Balance at December 31, 1999 $- 19,681,999 $196,820 $202,032,538 $ -
====================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated Total
Other Stockholders'
Comprehensive Accumulated Deferred (Deficit)
Loss Deficit Compensation Equity
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $ - $(3,747,294) $ - $(2,477,694)
Purchase of partnership interest - - - 3,200,000
Exchange of partners' interest
for 6,522,893 shares of common stock and 41,446 shares
of Redeemable Preferred Stock - - - (4,144,600)
Contribution of amounts owed to The NPD Group, Inc. - - - 380,977
Sale of common stock - - - 100
Costs incurred in connection with issuance of Series A
Convertible Preferred Stock - - - (359,188)
Payment of Redeemable Preferred Stock dividends - (68,142) - (68,142)
Accrual of Redeemable Preferred Stock dividends - (221,422) - (221,422)
Net loss - (4,583,948) - (4,583,948)
-------------------------------------------------------------
Balance at December 31, 1997 - (8,620,806) - (8,273,917)
Conversion of Series A Convertible Preferred Stock - - - 3,999,991
Conversion of Series B Convertible Preferred Stock - - - 1,500,000
Issuance of common stock in connection with acquisition - - - 10,500,000
Exercise of warrants - - - 286
Sale of common stock-194,380 shares issuable - - - 1,999,831
Employee stock options - - (1,933,025) -
Amortization of deferred compensation - - 368,550 368,550
Accrual of Redeemable Preferred Stock dividends - (313,738) - (313,738)
Net loss - (7,158,698) - (7,158,698)
-------------------------------------------------------------
Balance at December 31, 1998 - (16,093,242) (1,564,475) 2,622,305
Comprehensive loss:
Net loss - (21,908,001) - (21,908,001)
Unrealized losses on marketable securities (64,134) - - (64,134)
Foreign currency translation (18,290) - - (18,290)
-------------
Total comprehensive loss (21,990,425)
Issuance of common stock issuable - - - -
Initial and secondary public offering net of
$6,727,500 of related costs and expenses - - - 120,477,500
Issuance of common stock in connection with acquisition - - - 59,400,000
Exercise of warrants and stock options - - - 1,328,876
Employee stock options - - (325,000) -
Amortization of deferred compensation - - 544,917 544,917
Reversal of deferred compensation of options forfeited - - 98,231 -
Acceleration of vesting on options - - - 515,191
Accrual of Redeemable Preferred Stock dividends - (109,195) - (109,195)
-------------------------------------------------------------
Balance at December 31, 1999 $(82,424) $(38,110,438) $(1,246,327) $162,789,169
=============================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 70
MEDIA METRIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(21,908,001) $(7,158,698) $(4,583,948)
Adjustments to reconcile net loss to net cash
used in operating activities:
Charge for acquired in-process research and
development 6,800,000 1,600,000 -
Loss on disposal of equipment 43,123 13,174 -
Provision for bad debts 387,000 160,600 100,000
Depreciation and amortization of property
and equipment 515,912 65,969 17,991
Amortization of deferred compensation and
other stock-based compensation 544,917 368,550 -
Acceleration of vesting on options 515,191 - -
Amortization of intangibles 7,312,505 479,000 -
Minority interests (1,688,542) - -
Changes in operating assets and liabilities:
Receivables (5,000,046) (427,652) (211,059)
Prepaid expenses and other current assets (44,631) (13,625) (38,063)
Other assets 16,653 28,976 (22,280)
Accounts payable and accrued liabilities 7,008,832 657,737 793,140
Advance billings to clients 3,727,671 393,581 309,200
Due to The NPD Group, Inc. (4,261,330) 3,421,510 (1,117,059)
------------------------------------------------------
Net cash used in operating activities (6,030,746) (410,878) (4,752,078)
------------------------------------------------------
INVESTING ACTIVITIES
Purchase of marketable securities (14,941,356) - -
Cash acquired, net of acquisition costs 500,511 3,185,112 -
Additions to property and equipment (4,733,977) (117,489) (134,825)
Proceeds from the sale of fixed assets - 5,300 -
Security deposits (191,336) - -
------------------------------------------------------
Net cash (used in) provided by investing activities (19,366,158) 3,072,923 (134,825)
------------------------------------------------------
FINANCING ACTIVITIES
Repayments on long-term debt (2,321,771) (19,155) -
Proceeds from exercise of warrants and stock options 1,328,876 1,500,286 -
Net proceeds from initial and secondary public
offering 120,477,500 - -
Redemption of redeemable preferred stock (4,788,955) - -
Contributions from minority interest 71,158 - -
Proceeds from sale of Series A Convertible Preferred
Stock, net of related costs - - 3,640,803
Partner contributions - - 3,200,000
Repayment of loan payable to affiliate - - (600,000)
Payment of dividend - - (68,142)
Sale of common stock - 1,999,831 100
------------------------------------------------------
Net cash provided by financing activities 114,766,808 3,480,962 6,172,761
------------------------------------------------------
Effect of exchange rate changes on cash (18,290) - -
------------------------------------------------------
Net increase in cash and cash equivalents 89,351,614 6,143,007 1,285,858
Cash and cash equivalents at beginning of year 8,012,020 1,869,013 583,155
------------------------------------------------------
Cash and cash equivalents at end of year $97,363,634 $8,012,020 $1,869,013
======================================================
SUPPLEMENTAL INFORMATION
Interest paid $74,660 $11,374 $-
======================================================
</TABLE>
See accompanying notes.
F-6
<PAGE> 71
MEDIA METRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
DESCRIPTION OF BUSINESS
Media Metrix, Inc., a Delaware Corporation, provides Internet audience
measurement products and services to customers including media companies,
Internet advertisers and advertising agencies, technology companies and
financial institutions.
ORGANIZATION
The accompanying consolidated financial statements include the accounts of Media
Metrix, Inc., its wholly owned subsidiaries AdRelevance, Inc. and Media Metrix
Japan KK, its 90% owned subsidiary Media Metrix Canada Co., its 51% owned
subsidiary Media Metrix Pty. Ltd. and its 54.46% owned subsidiary MMXI Europe,
B.V., a Dutch company. MMXI Europe, in turn, is consolidated with its wholly
owned subsidiaries, MMXI Europe UK Limited, MMXI Europe E.U.R.L. and MMXI
(Deutschland) GmbH.
Media Metrix' business was originally conducted as a division within The NPD
Group, Inc. until March 1996, when PC Meter, L.P., a Delaware limited
partnership, (Media Metrix' predecessor), was formed to conduct Media Metrix'
business.
On April 14, 1997, PC Meter was merged into Media Metrix. NPD originally held
100,000 Class A Limited Partnership Units and 79,000 Class B Limited Partnership
Units of PC Meter. Two family trusts previously established for the benefit of
heirs to the sole shareholder of NPD (the "Family Trusts") each held 19,323.5
Class B Limited Partnership Units. In addition, PC Meter was indebted to NPD in
the amount of $3,951,029. On April 14, 1997, PC Meter was merged with and into
Media Metrix. Immediately prior to the merger, NPD purchased additional Class A
Limited Partnership Units for a purchase price of $3,200,000. Pursuant to the
terms of the Agreement and Plan of Merger between Media Metrix and PC Meter, the
Class A Limited Partnership Units were exchanged for a total of 41,446 shares of
Media Metrix Redeemable Preferred Stock. The Class B Limited Partnership Units
were exchanged for a total of 6,522,893 shares of Media Metrix common stock.
Post-merger, Media Metrix repaid the amounts owed to NPD by PC Meter. Of the
amounts owed NPD, $3,570,052 was paid in cash and $380,977 was forgiven.
The above transactions were accounted for in a manner similar to that of a
"pooling of interests" in that the assets and liabilities and related revenues
and expenses of PC Meter have been reflected in the accompanying financial
statements at their historical book values.
F-7
<PAGE> 72
MEDIA METRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Media Metrix' consolidated financial statements include the assets, liabilities
and results of operations of its majority-owned subsidiaries. The ownership of
the other interest holders is reflected as minority interests. All significant
intercompany accounts and transactions have been eliminated.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
REVENUE RECOGNITION
Syndicated (recurring) products and services are sold on a subscription basis.
Revenues for such products and services are recognized over the term of the
related contract as products or services are provided. Buyers of syndicated
products and services typically are billed in advance for up to the next twelve
months. Billings rendered in advance of products or services being provided are
recorded as "Advance billings to clients" in the accompanying consolidated
balance sheet.
Revenues for customized (nonrecurring) products and services are recognized in
the period in which the products or services are provided.
PANEL COSTS
Costs of establishing and maintaining a panel (a group of consumers who furnish
marketing data) are expensed in the year incurred and are included in costs of
revenues.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs primarily consist of costs attributable to the
development of new products and are expensed as incurred.
F-8
<PAGE> 73
MEDIA METRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with a maturity date of
three months or less when purchased. Substantially all cash and cash equivalents
are held with three financial institutions at December 31, 1999 and in one
financial institution at December 31, 1998. Media Metrix' cash is exposed to
risk to the extent the balance of the cash accounts exceeds federally insured
limits.
MARKETABLE SECURITIES
Media Metrix accounts for its investments in accordance with Statement of
Financial Accounting Standard No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." All investments have been classified as
available-for-sale securities as of December 31, 1999. Available-for-sale
securities are stated at fair value, with the unrealized gains and losses
reported in accumulated other comprehensive income (loss). Realized gains and
losses and declines other-than-temporary on available-for-sale securities are
included in interest and other income. The cost of securities sold is based on
the specific identification method. Interest and dividends on securities
classified as available-for-sale are included in interest and other income.
CONCENTRATIONS OF CREDIT RISK
Media Metrix' policy is to review a customer's financial condition prior to
extending credit and, generally, collateral is not required. Credit losses are
provided for in the financial statements and have been within management's
expectations. Under the terms of certain contracts with its customers, Media
Metrix receives partial payments as the services are provided. No customer
accounted for greater than 10% of our revenues in 1999 and 19998. One customer
accounted for approximately 19% of revenues for the year ended December 31,
1997.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated or amortized using
the straight-line method over their estimated useful lives. Direct external and
internal computer software development costs subsequent to the preliminary
stages of development are capitalized. Leasehold improvements are amortized over
the shorter of their estimated useful lives or the remaining term of the related
lease.
INTANGIBLE ASSETS
Intangibles acquired are being amortized by the straight-line method over one to
three years from the date of acquisition (see Note 4).
F-9
<PAGE> 74
MEDIA METRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
Media Metrix periodically reviews the carrying value of its long-lived assets in
determining the ultimate recoverability of their unamortized values using future
undiscounted cash flow analyses. Such a review has been performed by management
and does not indicate an impairment of such assets.
STOCK-BASED COMPENSATION
Media Metrix accounts for its stock-based employee compensation agreements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees and complies with the disclosure
provisions of Statement of Financial Accounting Standards No. 123, Accounting
for Stock Based Compensation ("SFAS 123").
FOREIGN CURRENCY TRANSLATION
Local currencies are generally considered to be the functional currency for
operations outside the United States. The translation from the applicable
foreign currencies to U.S. dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date and for revenue and
expenses accounts using a weighted average exchange rate during the year. The
resulting translation adjustments are recorded as a component of stockholders'
equity. Gains or losses resulting from foreign currency transactions are
included in other income.
COMPREHENSIVE INCOME (LOSS)
Media Metrix adopted Statement of Financial Accounting Standards No. 130 ("FAS
130"), "Reporting Comprehensive Income," in the first quarter of fiscal 1999. As
required by FAS 130, the Company displays the accumulated balance of other
comprehensive income or loss separately in the equity section of the
consolidated balance sheets. Total comprehensive loss, which is comprised of net
loss and accumulated other comprehensive income (loss), amounted to
approximately $21,990,000 for the year ended December 31, 1999. As of December
31, 1999, accumulated other comprehensive losses consisted of $64,134 and
$18,290 for the change in unrealized loss on securities and foreign currency
translations, respectively. No other comprehensive income (loss) existed during
1997 or 1998.
3. BASIC AND DILUTED NET LOSS PER SHARE
Media Metrix computes net loss per share in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS
128") and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions
of SFAS 128 and SAB 98, basic and diluted net loss per share is computed by
dividing the net loss available to common stockholders for the period by the
weighted average number of common shares outstanding for the period. The
calculation of diluted net loss per share excludes shares of common stock
issuable upon exercise of employee stock options and warrants (see Note 12), and
the conversion of preferred stock (see Note 10) as the effect of such exercises
would be antidilutive.
F-10
<PAGE> 75
MEDIA METRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following sets forth the computation of basic and diluted net loss per
share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
----------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net loss $(21,908,001) $(7,158,698) $(4,583,948)
Preferred stock dividends (109,195) (313,738) (289,564)
----------------------------------------------------
Net loss applicable to common stockholders $(22,017,196) $(7,472,436) $(4,873,512)
====================================================
Denominator for basic and diluted loss per
share--weighted average shares 16,445,295 7,618,511 6,523,330
====================================================
Basic and diluted loss per share applicable
to common stockholders $ (1.34) $ (0.98) $ (0.75)
====================================================
</TABLE>
4. ACQUISITIONS
On October 8, 1999, Media Metrix acquired all the outstanding shares of
preferred and common stock of AdRelevance and outstanding options and warrants
to purchase shares of AdRelevance common stock in exchange for 697,664 shares of
Media Metrix common stock and 222,164 options and warrants to purchase shares of
Media Metrix common stock valued at approximately $59.4 million. Additional
consideration is payable upon AdRelevance achieving certain post-closing goals.
The purchase price was allocated as follows: (i) net operating assets acquired
of $1,434,000, including cash of $1,320,000, (ii) acquired in-process research
and development of $6,800,000, (iii) debt of $2,339,000, and (iv) intangibles of
$54,324,000, including related costs and expenses of approximately $819,000.
Acquired in-process research and development represents the value attributed to
eight technologies in development using the discounted value (using a 32%
discount rate) of the expected cash flow streams attributed to those items.
Adjustments were made to the expected cash flow streams to incorporate
obsolescence of the technologies, the risk of similar technologies emerging in
the marketplace, and other factors that may reduce the value realized from the
in-process technologies. The technologies relate to tracking non-banner
advertising (valued at $4,911,000), reporting advertising in certain sections of
advertising (valued at $555,000), reporting and comparing advertising activity
among different industries (valued at $551,000), reporting details of
advertising activities of Web media networks (valued at $443,000) and four other
technologies to help enhance tracking, recognition, analysis and/or reporting of
advertising (valued at $340,000). As of the acquisition date, the aforementioned
technologies were 20% to 64% complete and are expected to be completed soon
after the acquisition date through June 2000.
F-11
<PAGE> 76
MEDIA METRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On November 5, 1998, Media Metrix and an unrelated entity, RelevantKnowledge,
Inc. ("RKI") entered into an agreement and plan of reorganization whereby RKI
was merged into Media Metrix. The stockholders of RKI exchanged all outstanding
preferred and common stock of RKI for 3,890,825 newly issued shares of common
stock in Media Metrix. The fair value of the Media Metrix common stock issued to
the previous stockholders and option and warrant holders of RKI is approximately
$10,500,000. The purchase price was allocated as follows: (i) net operating
assets acquired--$3,182,000, including cash of $3,185,000, (ii) acquired
in-process research and development--$1,600,000, (iii) debt--$372,000, and (iv)
intangibles--$6,416,000, including related costs and expenses of approximately
$326,000.
RKI had issued warrants to acquire shares of its common stock in connection with
prior sales of preferred and common stock and convertible secured promissory
notes. Such warrants were exchanged for warrants to purchase 360,907 shares of
Media Metrix stock and are immediately exercisable as follows: 266,635 at $0.03
per share (8,887 of which were exercised in 1998 and 14,748 in 1999), 67,097 at
$6.43 per share, 12,055 at $0.19 per share, 7,778 at $2.57 per share and 7,342
at $5.14 per share. The warrants expire between April 2002 and May 2008. In
addition, RKI had issued options to purchase shares of its common stock to its
employees pursuant to a stock option plan. Such options were exchanged for
options to purchase 46,775 shares of Media Metrix common stock at an exercise
price of $2.39 per share. All options are immediately exercisable and expire
from 2006 to 2008.
Acquired in-process research and development represents the value attributed to
three technologies in development using the discounted value (using a 40%
discount rate) of the expected cash flow streams attributed to those items.
Adjustments, were made to the expected cash flow streams to incorporate
obsolescence of the technologies, the risk of similar technologies emerging in
the marketplace, and other factors that may reduce the value realized from the
in-process technologies. The three technologies relate to a data warehousing
application (valued at $800,000), a panel management tool (valued at $770,000),
and an automated tracking system (valued at $30,000). As of the acquisition
date, the aforementioned technologies were 25% to 50% complete and were
completed in 1999.
The estimates used by Media Metrix in valuing in-process research and
development were based on assumptions management believes to be reasonable but
which are inherently uncertain and unpredictable. Media Metrix' assumptions may
be incomplete or inaccurate, and no assurance can be given that unanticipated
events and circumstances will not occur. Accordingly, actual results may vary
from projected results.
The above acquisitions have been accounted for using the purchase method of
accounting and the operations of AdRelevance and RKI have been included in the
accompanying consolidated financial statements from the respective dates of
acquisition.
F-12
<PAGE> 77
MEDIA METRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table reflects unaudited pro forma results of operations of Media
Metrix and RKI on the basis that the acquisitions had taken place as of
January 1, 1997 and as of January 1, 1998, and AdRelevance on the basis that
the acquisition had taken place as of October 12, 1998 (its date of inception)
and as of January 1, 1999:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
----------------------------------------------------------
<S> <C> <C> <C>
Revenues from sales of services $20,503,000 $ 8,145,000 $ 3,883,000
==========================================================
Net loss $(38,342,000) $ (26,535,000) $(14,397,000)
==========================================================
Net loss applicable to common stockholders $(38,451,000) $ (26,849,000) $(14,686,000)
==========================================================
Basic and diluted net loss per share applicable
to common stockholders $ (2.27) $ (2.44) $ (1.41)
==========================================================
Shares used in the calculation of basic and diluted net loss
per share applicable to common stockholders 16,973,232 11,006,256 10,414,204
==========================================================
</TABLE>
In management's opinion, the unaudited pro forma results of operations are not
indicative of the actual results that would have occurred had the RKI
acquisition been consummated on January 1, 1997 or on January 1, 1998 and the
AdRelevance acquisition on October 12, 1998 or on January 1, 1999, or of future
operations of the combined companies under the management of Media Metrix.
5. MARKETABLE SECURITIES
At December 31, 1999, marketable securities consisted of the following:
<TABLE>
<CAPTION>
UNREALIZED FAIR
Available for sale securities: COST GAINS/(LOSSES) VALUE
-----------------------------------------------------
<S> <C> <C> <C>
Corporate bonds $ 4,244,057 $ (9,015) $ 4,235,042
Government securities 2,894,240 11,604 2,905,844
Asset-backed securities 6,805,975 (100,170) 6,705,805
Certificates of deposits 997,084 33,447 1,030,531
-----------------------------------------------------
$14,941,356 $(64,134) $14,877,222
=====================================================
</TABLE>
There were no material realized gains or losses from sales of securities during
the year ended December 31, 1999.
F-13
<PAGE> 78
MEDIA METRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
<S> <C> <C>
Furniture and fixtures $ 475,902 $134,843
Computer equipment 3,307,868 585,152
Computer software 1,475,527 5,725
Leasehold improvements 609,187 -
---------------------------
5,868,484 725,720
Less accumulated depreciation and amortization 560,817 75,930
---------------------------
$5,307,667 $649,790
===========================
</TABLE>
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------------------------------
<S> <C> <C>
Trade accounts payable $3,318,000 $1,079,000
Payroll and other related costs 2,183,000 660,000
Panel costs 1,296,000 57,000
Amounts due to minority interests for reimbursements
of expenses 1,282,000 -
Other 2,036,000 512,000
------------------------------
$10,115,000 $2,308,000
==============================
</TABLE>
8. RELATED PARTY TRANSACTIONS
Effective April 1, 1996 and as amended on September 30, 1998, NPD and Media
Metrix entered into a management services agreement whereby NPD, among other
services, provides Media Metrix with computer processing capacity and certain
administrative functions. As compensation for the services, Media Metrix pays
NPD, on a monthly basis, an amount equal to (a) all expenses reasonably incurred
by NPD in performance of its duties under this agreement and (b) 105% of NPD's
overhead allocable to Media Metrix, as defined. The agreement may be terminated
by either party upon 90 days notice, provided NPD may not terminate prior to
March 31, 2002. Such charges pursuant to this agreement during the years ended
December 31, 1999, 1998 and 1997 amounted to approximately $2,703,000,
$6,023,000 and $5,831,000, respectively. At December 31, 1999 and 1998, Media
Metrix owed approximately $444,000 and $4,706,000, respectively, to NPD for such
services. Such amounts are non-interest bearing.
Media Metrix has entered into a Services Agreement with NPD as of September 30,
1998. Media Metrix has granted NPD access to its databases for any business
purpose of NPD which is not in direct competition with that of Media Metrix.
Media Metrix has also granted NPD a non-exclusive license to use certain
computer software owned by Media Metrix. Under the terms of the Services
Agreement, Media Metrix will receive a monthly fee of $2,500 plus expenses. The
Services Agreement is terminable by either party with 120 days notice.
F-14
<PAGE> 79
MEDIA METRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Media Metrix has entered into a License Agreement with NPD dated as of November
5, 1998. NPD has granted to Media Metrix an exclusive, non-transferable
worldwide license to use certain NPD software. The fee is $11,000 per month
payable quarterly.
9. LONG-TERM DEBT
During July 1999, Media Metrix financed the premium due on their directors and
officers liability insurance at a rate of 6% per annum. Such debt is payable in
monthly principal and interest payments of $17,850, and matures in November
2001. The annual maturities amount to approximately $196,000 and $173,000 for
2000 and 2001, respectively.
In connection with the AdRelevance acquisition (see Note 4), Media Metrix
assumed $2.3 million of debt related to bank borrowings and a third party
promissory note. This debt was repaid prior to December 31, 1999.
In connection with the RKI acquisition (see Note 4), Media Metrix assumed bank
borrowings of approximately $372,000. The credit agreement provided for
borrowings up to $1,000,000. The agreement was terminated upon the payment of
all outstanding amounts due. There is no outstanding balance as of December 31,
1999. The balance outstanding at December 31, 1998 was $352,532.
10. PREFERRED STOCKS
On April 14, 1997, Media Metrix issued: (i) 495,603 shares of its Series A
Convertible Preferred Stock ("Series A") and (ii) warrants to purchase 159,640
shares of its Series B Convertible Preferred Stock ("Series B") at an exercise
price of $12.53 per share through October 14, 1999, for proceeds of $3,999,991
pursuant to a private placement to three investors. Media Metrix incurred
approximately $359,000 of costs related to this private placement and issued an
investment advisor warrants to purchase 377,642 shares of Media Metrix' common
stock at an exercise price of $2.88 per share through October 14, 1999. The
value of such warrants was nominal. The investment advisor exercised warrants to
purchase 245,501 shares of common stock on March 31, 1999.
Immediately prior to the RKI acquisition (see Note 4), the holders of the Series
A converted all issued and outstanding shares into 2,155,176 shares of Media
Metrix common stock. In addition, the holders of warrants to purchase 119,714
shares of Series B, exercised such warrants and immediately converted the
underlying Series B into 520,590 shares of Media Metrix common stock. The
remaining 39,926 warrants to purchase Series B were canceled and exchanged for
warrants to purchase 173,629 shares of Media Metrix common stock at an exercise
price of $2.88 per share. Such warrants were exercised on March 31, 1999. Media
Metrix amended and restated its certificate of incorporation to cancel the
Series A and Series B. Accordingly, at December 31, 1998, Media Metrix has
5,000,000 of authorized shares of undesignated preferred stock of which 41,446
had been designated to the Redeemable Preferred Stock.
F-15
<PAGE> 80
MEDIA METRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1998, NPD owned 41,446 shares or 100% of the authorized, issued
and outstanding shares of Media Metrix' Redeemable Preferred Stock. Media Metrix
repurchased all shares of Redeemable Preferred Stock from NPD and paid all
accrued dividends with a portion of the proceeds from its initial public
offering (see Note 14).
11. INCOME TAXES
Media Metrix uses the liability method of accounting for income taxes.
Accordingly, deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Significant components of Media Metrix'
deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
---------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $12,845,000 $6,400,000
Amounts payable to related party 178,000 1,882,000
Accounts receivable reserves 200,000 88,000
---------------------------------
Total deferred tax assets 13,223,000 8,370,000
Valuation allowance for deferred tax assets (13,223,000) (8,370,000)
---------------------------------
Net deferred taxes $ - $ -
=================================
</TABLE>
At April 14, 1997, the date when PC Meter was merged into Media Metrix, Media
Metrix had no deferred tax assets or liabilities. RKI and AdRelevance had
deferred tax assets of approximately $4,329,000 and $800,000, respectively, with
equal valuation allowances as of their respective dates of acquisition. As a
result of losses from April 14, 1997 through December 31, 1999, Media Metrix has
available net operating loss carryforwards ("NOLs") of approximately $32,112,000
for Federal income tax purposes that expire in 2012, 2018 and 2019. Included in
such amounts are RKI pre-acquisition NOLs of approximately $11,129,000 and
AdRelevance pre-acquisition NOLs of $1,950,000 which expire through 2019. As a
result of the RKI acquisition, under Section 382 of the Internal Revenue Code,
utilization of such NOLs will be limited to approximately $600,000 per year
through 2013. Future benefits, if any, from the RKI and AdRelevance NOLs would
first reduce the intangibles acquired and then income tax expense.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the period in
which the NOL can be utilized and the temporary differences become deductible.
Since Media Metrix has incurred losses since inception, Media Metrix has
established full valuation allowances for deferred tax assets. At December 31,
1997, the valuation allowance was $1,371,000.
12. STOCK OPTIONS
In November 1998, Media Metrix adopted the 1998 Equity Incentive Plan (the "1998
Plan"). Under the 1998 Plan, Media Metrix may award incentive and other
non-statutory stock options, stock appreciation rights, restricted stock and
performance stock units and other stock units which are valued by reference to
the value of the common stock. Media Metrix also maintains the Media Metrix
Stock Option Plan ("Media Metrix Plan") which provides for the award of up to
519,222 shares of common stock in the form of incentive stock options and
non-statutory stock options. In February 1999, the Board of Directors adopted,
and the shareholders subsequently approved in April 1999, an amendment to
increase the number of shares under the 1998 Plan from 732,400 to 1,318,320.
F-16
<PAGE> 81
MEDIA METRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In October 1998, Media Metrix changed the provisions of all its outstanding
stock options granted prior to such time by removing the requirement of the
occurrence of an initial public offering before such options became exercisable.
This change resulted in a new measurement date. Accordingly, Media Metrix
established, as a separate component of stockholders' equity, deferred
compensation (approximately $724,000) equal to the number of options granted
times the difference in their exercise price and $2.30, the estimated fair value
of the common stock at the time of the new measurement date, and recorded
compensation expense in 1998 of approximately $348,000 representing the portion
of the deferred compensation which vested through December 31, 1998. During
1999, $123,000 of the deferred compensation was amortized.
On December 3, 1998, Media Metrix issued stock options to employees to purchase
153,072 shares of common stock at $2.39 per share, which was considered to be
the fair value of the common stock at that time. Soon thereafter, Media Metrix
issued shares at $10.29 per share (see Note 14); accordingly, for accounting
purposes, Media Metrix used such per share value to record an additional
deferred compensation charge of $1,209,000 of which approximately $361,000 and
$20,000 was amortized in the years ended December 31, 1999 and 1998,
respectively. In addition, during 1999 Media Metrix recorded an additional
$325,000 of deferred compensation related to stock options of which $61,000 of
the deferred compensation was amortized. Media Metrix also recorded a non-cash
compensation charge of approximately $515,000 relating to the acceleration of
the vesting provisions of certain stock options.
The following table summarizes activity in stock options:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------
1999 1998 1997
----------------------------------------------------------------------------------------
Shares Shares Shares
Under Weighted-Average Under Weighted-Average Under Weighted-Average
Option Exercise Price Option Exercise Price Option Exercise Price
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year 696,130 $ 1.26 283,093 $ 0.17 133,067 $ 0.11
Grants 1,047,320 32.62 373,219 1.97 150,026 0.23
Exercises (70,519) 1.19 - - - -
Forfeitures (56,279) 2.97 (6,957) 2.30 - -
Options issued in connection
with acquisitions 222,164 3.77 46,775 2.39 - -
--------- -------- --------
Balance, end of year 1,838,816 19.38 696,130 1.26 283,093 0.17
========= ======== ========
Exercisable, at end of year 354,663 $ 1.17 133,242 $ 0.39 44,355 $ 0.11
========= ======== ========
Weighted-average fair value of
options issued during the
period $ 23.07 $ 3.42 $ 0.06
</TABLE>
F-17
<PAGE> 82
MEDIA METRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following tables summarize information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
AVERAGE WEIGHTED- WEIGHTED-
LIFE AVERAGE AVERAGE
EXERCISE (IN EXERCISE EXERCISE
PRICE RANGES OPTIONS YEARS) PRICE EXERCISABLE PRICE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.11 - 0.23 264,393 7.0 $0.17 174,381 $0.14
0.35 - 0.56 188,847 9.0 0.43 91,403 0.41
2.30 - 3.71 323,636 8.8 2.52 83,895 2.68
11.26 - 17.00 338,046 9.2 11.95 - -
25.94 - 36.75 95,784 9.7 33.25 4,984 25.94
39.25 - 44.56 239,650 9.9 41.09 - -
45.00 - 51.80 388,460 9.7 45.36 - -
--------- -------
1,838,816 9.0 19.38 354,663 1.17
========= =======
</TABLE>
Fair Value Disclosures
Pro forma information regarding net loss and net loss per share is required by
SFAS 123, which also requires that the information be determined as if Media
Metrix has accounted for its stock options under the fair value method of that
statement. The fair value for those options granted prior to Media Metrix's
public offering was estimated using the minimum value method with the following
assumptions: no dividend yield, weighted-average expected life of the option of
5 years, and risk-free interest rates of 6.0%, 5.7% and 6.2% for the years ended
December 31, 1997, 1998 and 1999, respectively.
For those options granted after Media Metrix became a public entity an expected
volatility factor of 97% was used for the Black-Scholes option pricing model.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, the option valuation model requires the input of
highly subjective assumptions including the expected stock price volatility.
Because Media Metrix's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
F-18
<PAGE> 83
MEDIA METRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Media Metrix' pro
forma financial information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
Net loss applicable to common stockholders:
As reported $(22,017,196) $(7,472,436) $(4,873,512)
=====================================================
Pro forma $(22,973,184) $(7,487,969) $(4,875,943)
=====================================================
Net loss applicable to common
stockholders per share:
As reported $(1.34) $(.98) $(0.75)
=====================================================
Pro forma $(1.40) $(.98) $(0.75)
=====================================================
</TABLE>
13. LEASE COMMITMENTS
Media Metrix leases certain office space in the United State and other
countries. At December 31, 1999, the future minimum lease payments under
non-cancelable operating leases with initial or remaining lease terms in excess
of one year are as follows:
<TABLE>
<S> <C>
Year ending December 31:
2000 $1,054,000
2001 744,000
2002 712,000
2003 578,000
2004 326,000
-------------
$3,414,000
-------------
</TABLE>
Future minimum lease payments have not been reduced by future minimum sublease
rentals of $410,000 under operating leases. Rent expense approximated $861,000,
$356,000 and $207,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
14. STOCKHOLDERS' EQUITY
On January 4, 1999, Media Metrix issued to a foreign investor 194,380 shares of
common stock at a purchase price per share of $10.29, for an aggregate purchase
price of approximately $2,000,000, pursuant to a stock purchase agreement. Media
Metrix had received the proceeds from this transaction on December 31, 1998 and
has recorded "common stock issuable" in the accompanying consolidated balance
sheet.
In May 1999, Media Metrix consummated an initial public offering (the "IPO") of
3,000,000 shares of common stock at a price of $17 per share. The underwriters
in connection with the IPO exercised their over-allotment option to purchase an
additional 250,000 shares from Media Metrix and 200,000 shares from existing
shareholders at a price of $17 per share. The total net proceeds to Media Metrix
amounted to approximately $49,383,000 after deducting the underwriters' discount
and related expenses of $5,867,000.
In October 1999, Media Metrix consummated a secondary offering of 3,000,000
shares of common stock at a price of $50.50 per share. Of the 3,000,000 shares
sold, 1,500,000 shares were sold by Media Metrix and 1,500,000 shares were sold
by existing stockholders. The net proceeds to Media Metrix were $71,095,000
F-19
<PAGE> 84
MEDIA METRIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
after deducting the underwriters' discount and related expenses.
On October 15, 1998, Media Metrix stockholders approved a 2.96873-for-one split
of the outstanding shares of common stock which was effectuated as a stock
dividend, and on November 2, 1998, Media Metrix filed an amended and restated
certificate of incorporation increasing the number of authorized shares of
common stock from 10,000,000 to 15,000,000. On April 22, 1999, the Board of
Directors approved a 1.4648-for-one split of the outstanding shares of common
stock payable to stockholders of record on May 5, 1999. Also on April 22, 1999,
the Board of Directors and the stockholders approved an increase in the number
of authorized shares of common stock to 60,000,000, which became effective May
5, 1999. Retroactive effect has been given to these stock splits. All common
share, option and warrant data has been restated to reflect the stock splits.
Media Metrix has reserved 1,941,542 shares of common stock for issuance upon the
exercise of all outstanding options and warrants at December 31, 1999. In
addition, Media Metrix has reserved 102,361 shares of common stock for issuance
to the former stockholders of AdRelevance if certain post-closing goals are met.
15. INTERNATIONAL OPERATIONS
In September 1999, Media Metrix entered into an agreement with GfK AG and Ipsos
SA to form MMXI Europe B.V. Pursuant to the terms of the agreement, Media
Metrix owned 54.46%, GfK owned 19.9% and Ipsos owned 25.64% of MMXI Europe. In
December 1999, Media Metrix formed Media Metrix Japan KK, as a wholly owned
subsidiary. The assets and results of MMXI Europe and Media Metrix Japan were
not significant.
In January 2000, Media Metrix entered into an agreement with ComQUEST Research
Inc. ("ComQUEST") to form Media Metrix Canada Co. Pursuant to the terms of the
agreement, Media Metrix owns 90% and ComQUEST owns 10% of the joint venture.
In March 2000, Media Metrix acquired the Internet audience measurement business
operated by SIFO Group AB in Sweden. The new company, MMXI Nordic, is a wholly
owned subsidiary of Media Metrix. Media Metrix acquired all of the outstanding
shares of MMXI Nordic in exchange for $5,691,000 and 52,000 shares of Media
Metrix common stock. In connection with this acquisition, SIFO purchased 8.0%
of MMXI Europe, reducing Media Metrix' ownership to 50.1% and Ipsos to 22.0%.
In September 1999, Media Metrix and AMR Interactive Pty. Ltd. ("AMR") agreed to
form Media Metrix Australia. The documents relating to the joint venture were
finalized in March 2000. Media Metrix owns 51% and AMR owns 49% of the
company.
In connection with the formation of each of the international joint ventures,
Media Metrix granted each of its joint venture partners an option, subject to
certain conditions, to exchange such partners' shares in the respective joint
ventures for shares of Media Metrix common stock. If any partner elects to
exercise its option to convert its shares into shares of Media Metrix common
stock, Media Metrix will need to record additional goodwill in an amount equal
to the difference between the then fair market value of the shares of Media
Metrix' common stock multiplied by the number of shares issued and the net book
value of the joint venture of which such partner is a shareholder attributable
to such partner.
F-20
<PAGE> 85
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
AdRelevance, Inc.
We have audited the accompanying balance sheet of AdRelevance, Inc. (the
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
Seattle, Washington
October 5, 1999,
except for paragraphs 3 and 4 of
Note 8, as to which the date is
October 8, 1999
F-21
<PAGE> 86
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-22
<PAGE> 87
ADRELEVANCE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
OCTOBER 12, 1998 NINE MONTHS ENDED
(INCEPTION) TO SEPTEMBER 30, 1999
DECEMBER 31, 1998 ------------------
-----------------
(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-23
<PAGE> 88
ADRELEVANCE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A PREFERRED STOCK COMMON STOCK DEFERRED ACCUMULATED TOTAL
------------------------ ------------ STOCK-BASED DEFICIT -----
COMPENSATION -------
------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock in
exchange for cash ($320)
and assets ($2,000) $- 1,780,000 $ 2,320 $- $- $ 2,320-
Net loss - - - - - (65,142) (65,142)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31,
1998 - - 1,780,000 2,320 - (65,142) (62,822)
Issuance of preferred
stock, net of issuance
cost of $46,758
(unaudited) 798,607 1,103,236 - - - - 1,103,236
Nonemployee stock-
based compensation
(unaudited) - - - 296,361 - - 296,361
Fair value of warrants
issued in connection
with borrowing
arrangements
(unaudited) - - - 13,514 - - 13,514
Deferred stock-based
compensation
(unaudited) - - - 3,675,493 (3,675,493) - -
Amortization of stock-
based compensation
(unaudited) - - - - 624,924 - 624,924
Exercise of stock
options (unaudited) - - 13,333 2,000 - 2,000
Net loss (unaudited) - - - - - (2,819,867) (2,819,867)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30,
1999 (unaudited) 798,607 $ 1,103,236 1,793,333 $ 3,989,688 $(3,050,569) $(2,885,009) ($842,654)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-24
<PAGE> 89
ADRELEVANCE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
OCTOBER 12, 1998
(INCEPTION) TO NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 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
=========== ===========
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-25
<PAGE> 90
ADRELEVANCE, INC.
NOTES TO FINANCIAL STATEMENTS
(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 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.
F-26
<PAGE> 91
ADRELEVANCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
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.
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
F-27
<PAGE> 92
ADRELEVANCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
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 expensed 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.
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 (Series A) 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.
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.
F-28
<PAGE> 93
ADRELEVANCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
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 $-
========
</TABLE>
6. SHAREHOLDERS' EQUITY
PREFERRED STOCK
During January and February 1999, the Company sold 798,607 shares of
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
F-29
<PAGE> 94
ADRELEVANCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
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 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
-------------------
WEIGHTED-
SHARES NUMBER AVERAGE
AVAILABLE OF EXERCISE
FOR GRANT SHARES PRICE
--------- ------ --------
<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 $1.23
Options exercised - (13,333) $0.15
--------- ------- -----
Outstanding at September 30, 1999 156,875 823,125 $1.02
========= ======= =====
</TABLE>
F-30
<PAGE> 95
ADRELEVANCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 IS UNAUDITED)
<TABLE>
The following table summarizes information regarding stock options outstanding
and exercisable as of December 31, 1998:
OUTSTANDING OPTIONS
-------------------
WEIGHTED-AVERAGE EXERCISABLE
EXERCISE REMAINING CONTRACTUAL NUMBER OF
PRICE NUMBER OF SHARES LIFE SHARES
-------- ---------------- --------------------- -----------
<S> <C> <C> <C>
$0.10 180,000 2.94 years -
</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 at 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.
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>
F-31
<PAGE> 96
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)
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.
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-32
<PAGE> 97
MEDIA METRIX, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------
MEDIA AD PRO FORMA
METRIX RELEVANCE ADJUSTMENT PRO FORMA
-------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 20,500,127 $ 3,333 $ - $ 20,503,460
Costs of services 10,291,392 - - 10,291,392
-------------------------------------------------------------------
Gross Profit 10,208,735 3,333 - 10,212,068
Operating Expenses:
Research and development 5,044,068 817,784 - 5,861,852
Sales and marketing 9,116,727 224,184 - 9,340,911
General and administrative 6,755,220 855,855 33,000 7,644,075
Amortization of deferred compensation
and other stock-based compensation 1,060,108 921,285 - 1,981,393
Amortization of intangibles 7,312,505 - 13,581,000 20,893,505
Acquired in-process research and
development 6,800,000 - - 6,800,000
-------------------------------------------------------------------
Total operating expenses 36,088,628 2,819,108 13,614,000 52,521,736
-------------------------------------------------------------------
Loss from operations (25,879,893) (2,815,775) (13,614,000) (42,309,668)
Interest income, net of interest expense 2,283,350 (4,092) - 2,279,258
Minority interests 1,688,542 - - 1,688,542
-------------------------------------------------------------------
Net loss (21,908,001) (2,819,867) (13,614,000) (38,341,868)
Preferred stock dividends (109,195) - - (109,195)
-------------------------------------------------------------------
Net loss applicable to common stockholders $ (22,017,196) $ (2,819,867) $ (13,614,000) $ (38,451,063)
===================================================================
Basic and diluted net loss per share
applicable to common stockholders
(Note 3) $ (1.34) $ (2.27)
============== =============
Shares used in the calculations of basic and
diluted net loss per share applicable to
common stockholders (Note 3) 16,445,295 16,973,232
============== =============
</TABLE>
See Notes to Unaudited Pro Forma Statement of Operations
F-33
<PAGE> 98
MEDIA METRIX, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
1. BASIS OF PRESENTATION
The unaudited pro forma statement of operations gives effect to Media
Metrix's October 8, 1999 acquisition of AdRelevance as if it occurred on
January 1, 1999. The unaudited pro forma statement of operations for the year
ended December 31, 1999 sets forth the historical results of operations of
Media Metrix for the year ended December 31, 1999 and of AdRelevance for the
nine months ended September 30, 1999. The operations of AdRelevance for the
three months ended December 31, 1999 are included in the operations of Media
Metrix.
The unaudited pro forma statement of operations has been prepared by
management and should be read in conjunction with the historical financial
statements of Media Metrix and AdRelevance. The statement of operations does
not purport to be indicative of the financial condition and results of
operations that might have occurred if the AdRelevance acquisition was
consummated on January 1, 1999. Additionally, the unaudited pro forma statement
of operations does not purport to be indicative of future results.
Management believes additional synergies and operational improvements,
not reflected in the accompanying unaudited pro forma statement of operations,
will be realized by the combined companies. Such amounts cannot be reasonably
quantified and, therefore, are not reflected in the unaudited pro forma
statements of operations.
2. PRO FORMA ADJUSTMENTS
The pro forma adjustments reflect the additional amortization and
depreciation required for a full year's amortization of the intangibles
acquired and depreciation of the increase in the fair value of the fixed
assets acquired.
In connection with the acquisition of AdRelevance, the stockholders of
AdRelevance exchanged all outstanding preferred and common shares of
AdRelevance for 697,664 newly issued shares of Media Metrix and an additional
77,520 shares may be issued upon AdRelevance achieving certain post-closing
goals. Additionally, holders of options and warrants to purchase shares of
AdRelevance common stock exchanged such options and warrants for options and
warrants to purchase 223,726 shares of Media Metrix common stock and an
additional 24,841 options and warrants may be issued upon AdRelevance achieving
certain post-closing goals. The fair value of the shares of Media Metrix common
stock, options and warrants issued to the previous stockholders and option and
warrant holders of AdRelevance is approximately $59,400,000. The purchase price
was allocated as follows: (i) net operating assets acquired - $1,434,000, (ii)
acquired in-process research and development - $6,800,000, (iii) debt -
$2,339,000, and (iv) intangibles - $54,324,000, including related costs and
expenses of approximately $819,000. Total intangibles acquired have an
estimated life of 3 years. Accordingly, the estimated annual amortization
charge will be approximately $18,018,000.
If Media Metrix issues the additional shares of common stock, options and
warrants upon AdRelevance achieving certain post-closing goals, additional
goodwill of approximately $4,300,000 (based on the March 31,2000 value of
Media Metrix's common stock) would be recorded which would result in additional
amortization of intangibles.
3. NET LOSS PER SHARE APPLICABLE TO COMMON STOCKHOLDERS
Pro forma net loss per share applicable to common stockholders adjusts
the weighted average shares outstanding for Media Metrix's historical financial
statements for the shares issued to AdRelevance stockholders as if such shares
were outstanding for the entire year ended December 31, 1999.
F-34
<PAGE> 99
April 26, 2000
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in the prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Media Metrix
have not changed since the date hereof.
<PAGE> 100
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. 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 14. 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
II-1
<PAGE> 101
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 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.
Under the Underwriting Agreement, the underwriters are obligated, under
certain circumstances, to indemnify officers, directors and controlling persons
of Media Metrix against certain liabilities, including liabilities under the
Securities Act of 1933. Reference is made to the form of Underwriting Agreement
filed as Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its incorporation in March 1997, the Registrant has issued and
sold unregistered securities in the amounts, at the times, and for the
aggregate amounts of consideration listed as follows:
1. On April 14, 1997, Media Metrix merged with PC Meter, L.P. The
Registrant issued (i) 41,446 shares of Media Metrix redeemable preferred stock
in exchange for 438,767.7324 Class A Limited Partnership Units of PC Meter; and
(ii) 2,142,770 shares of Media Metrix common stock in exchange for 117,647
Class B Limited Partnership Units of PC Meter. All of the outstanding Class A
Limited Partnership Units were held by The NPD Group, Inc. NPD also held 79,000
Class B Limited Partnership Units. The 1995 Scott Johnson Trust and The 1995
Stacey Johnson Trust each held 19,323.5 Class B
II-2
<PAGE> 102
Limited Partnership Units. After the merger, NPD, The 1995 Scott Johnson Trust
and The 1995 Stacey Johnson Trust held 4,380,559, 1,071,385 and 1,071,385
shares of Media Metrix common stock, respectively.
2. On April 14, 1997, the Registrant issued:
- warrants to purchase 377,642 shares of common stock at an
exercise price of $2.88 per share to Veronis Suhler & Associates
as compensation for services rendered by Veronis Suhler &
Associates to Media Metrix;
- 495,603 shares of Series A Preferred Stock convertible into
2,155,176 shares of common stock, at an effective purchase price
per share of common stock of $1.86; and
- warrants to purchase 159,640 shares of Series B Preferred Stock
at an exercise price of $12.53 per share.
The Series A Preferred Stock and warrants to purchase Series B Preferred
Stock were sold to five accredited investors for an aggregate purchase price of
$4.0 million.
All of the outstanding shares of the Series A Preferred Stock were
converted into shares of common stock on November 4, 1998. Warrants to purchase
119,713 shares of Series B Preferred Stock were exercised on November 4, 1998
and such shares of Series B Preferred Stock were converted into 520,590 shares
of common stock on the same date. The Registrant received aggregate proceeds of
$1.5 million from the exercise of such warrants. The remaining warrants to
purchase 39,926 shares of Series B Preferred Stock were converted into warrants
to purchase 173,629 shares of common stock at an exercise price of $2.88 per
share. Such warrants were exercised on March 31, 1999.
3. On November 5, 1998, RelevantKnowledge merged with Media Metrix. The
Registrant issued an aggregate of 3,890,825 shares of common stock, or 0.3111
shares of common stock for each outstanding share of common stock and preferred
stock of RelevantKnowledge. The Registrant also replaced 1,160,290 warrants to
purchase shares of RelevantKnowledge common stock with a weighted average
exercise price of $2.31 with warrants to purchase 360,907 shares of common
stock with a weighted average exercise price of $1.38; and issued 46,775
options to purchase common stock to the employees of RelevantKnowledge who
became employees of the Registrant after the merger. These options replaced
options to purchase RelevantKnowledge common stock which expired at the time of
the merger. These options were issued at an exercise price of $3.50 per share,
and in general vest incrementally over a period of four years, with credit
given for prior service with RelevantKnowledge.
4. On January 4, 1999, the Registrant issued to Investment A.B. Bure
("Bure") 194,380 shares of common stock at a purchase price per share of
$10.29, for an aggregate purchase price of approximately $2 million, pursuant
to a stock purchase agreement between the Registrant and Bure.
5. The Registrant granted stock options to purchase 968,362 shares of
common stock at exercise prices ranging from $0.23 to $11.26 per share to
employees, consultants and directors pursuant to its Stock Option Plan and 1998
Equity Plan.
6. From inception through October 8, 1999, the Registrant issued and
sold 875,285 shares of its common stock to investors for aggregate
consideration of $1,242,399 pursuant to exercises of warrants to purchase
common stock as follows:
Greylock IX Limited Partnership for 162,767 shares; Oak
Investment Partners VI, Limited Partnership for 102,299 shares; Oak VI
Affiliates Fund, Limited Partnership for 2,150; Venrock Associates for
38,957; Venrock Associates II, L.P. for 54,364 shares; Jann Adams for
8,887 shares; Robert Friedman for 3,550 shares; Jeffrey C. Levy for
2,217 shares; Unterberg Harris Private Equity Partners, C.V. for 1,562
shares; Unterberg Harris Private Equity Partners, L.P. for 7,411 shares;
J.H. Whitney Value Fund I, L.P. for 58,592 shares;
II-3
<PAGE> 103
J.H. Whitney & Co. for 7,776 shares; Anderson and Lembke for 22,353
shares; Henry Barry for 655 shares; W. Robert and Leslie Dahl for 4,429
shares; Esher Limited for 15,551 shares; Robert J. Garry for 4,429
shares; William Hess for 2,217 shares; Boland Jones for 8,886 shares;
The MISU Trust dtd 2/29 /99 for 35,552 shares; Robert Ross for 4,429
shares; Bayview Investors, Ltd. for 6,647 shares; Sirrom Capital
Corporation for 25,095 shares; Gibson Thomas for 2,212 shares; Robert
Tolleson for 767 shares; Veronis, Suhler & Associates for 122,813 shares
David Wheldon for 3,073 shares; Whitney Equity Partners, L.P. for
133,416 shares; Lloyd Winawer for 776 shares; WS Investment Company 97 A
& WS Investment Company 97B for 11,795 shares; Sami Akbay for 790
shares; Jatin Desai for 447 shares; Girish Phadke for 369 shares;
Avijeet Sinha for 131 shares; Richard Mangi for 357 shares; Hemant
Jaswal for 714 shares; Gary Morse for 357 shares; Sadat Chowdhury for
312 shares; Ashish Bhutada for 125 shares; Shelly Gupta for 223 shares;
Selina Jarrett for 179 shares; Jim Brown for 86 shares; Peter Dolch for
4,832 shares; Moses Merchant for 4,832 shares; Yogendra Sanghani for
4,832 shares and Misa Burnett for 1,072 shares.
7. On October 8, 1999, the Registrant acquired AdRelevance, Inc. and
issued an aggregate of 697,674 shares of common stock in connection with this
acquisition. If AdRelevance achieves certain post-closing goals, the Registrant
will be obligated to issue up to an additional 77,520 shares. Also, in
connection with the acquisition, the Registrant agreed to assume options and
warrants that enable the holders to purchase an aggregate of 223,726 shares of
the Registrant's common stock. If AdRelevance achieves certain post-closing
goals, the Registrant will be obligated to issue up to an aggregate of 24,841
additional shares under these options and warrants. The transaction was valued
at approximately $59.4 million, or $66 million if AdRelevance achieves certain
post-closing goals. These prices are based on the closing price of the common
stock on October 4, 1999.
8. On March 6, 2000, the Registrant acquired MMXI Nordic and issued an
aggregate of 52,000 shares of common stock to the Seller, Osprey BV.
9. All share information set forth above reflects a 2.96873078 for one
stock split in November 1998 and the 1.4648 for one stock split which was
effected May 5, 1999.
No underwriters were engaged in connection with the foregoing sales of
securities. Such sales of common stock, Preferred Stock and warrants were made
in reliance upon the exemption from registration set forth in Section 4(2) of
the Securities Act of 1933 and Rule 506 of Regulation D promulgated thereunder
for transactions not involving a public offering, and all purchasers were
accredited investors as such term is defined in Rule 501(a) of Regulation D.
Issuances of options to Media Metrix's employees, directors and consultants
were made pursuant to Rule 701 promulgated under the Securities Act of 1933.
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<PAGE> 104
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibit Index
NO. DESCRIPTION
- --- -----------
2.1 Plan of Merger and Reorganization between Media Metrix, Inc. and
RelevantKnowledge dated as of September 30, 1998**
2.2 Plan of Merger between Media Metrix and PC Meter L.P. dated as
of March 31, 1996**
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.****
3.1 Amended and Restated Certificate of Incorporation **
3.2 Certificate of Amendment to Amended and Restated Certificate of
Incorporation**
3.3 Amended and Restated Bylaws**
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 Stockholder's Agreement dated as of November 5, 1998, by and
among Media Metrix and the Stockholders listed on Schedule I
thereto**
4.3 Co-Sale Agreement dated as of November 5, 1998, by and among
Media Metrix and the Stockholders listed on Schedule I thereto**
4.4 Form of Warrant issued to former RelevantKnowledge warrant
holders**
4.5 Form of Warrant issued to former Media Metrix warrant holders**
4.6 Form of Warrant issued to former RelevantKnowledge warrant
holders**
4.7 Specimen Stock Certificate**
4.8 Registration Rights Agreement by and among Media Metrix, GfK AG
and Ipsos S.A. made as of September 1, 1999***
4.9 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*
4.10 Stock Option Agreement by and between Media Metrix and GfK made
as of September 1, 1999***
4.11 Stock Option Agreement by and between Media Metrix and Ipsos
made as of September 1, 1999***
4.12 Warrant to purchase common stock held by Silicon Valley Bank***
4.13 Registration Rights Agreement dated March 6, 2000 between Osprey
Research BV and Media Metrix, Inc.****
4.14 Participation Agreement dated March 6, 2000 among Osprey
Research BV, SIFO Group AB and MMXI Europe, BV****
4.15 Stock Option Agreement dated March 6, 2000 between Osprey
Research BV and Media Metrix, Inc.****
4.16 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. re: legality*****
10.1 Management Services Agreement dated as of September 30, 1998 by
and between Media Metrix, The NPD Group, Inc. and Tod Johnson**
10.2 Services Agreement dated as of September 30, 1998 by and between
Media Metrix and The NPD Group, Inc.**
10.3 License Agreement dated as of November 5, 1998 by and between
Media Metrix and The NPD Group, Inc.**
10.4 Stock Purchase Agreement dated as of December 23, 1998 by and
between Media Metrix and Investment A. B. Bure**
10.5.1 Building Lease between Eagle Insurance Company and The NPD
Group, Inc. dated as of August 18, 1997**
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<PAGE> 105
10.5.2 Lese Agreement between Carriage House Associates Limited
Partnership and RelevantKnowledge, Inc. dated as of May 16,
1997**
10.6 Form of Indemnification Agreement**
10.7 Form of Non-Disclosure Agreement and Confidential Information
and Invention Assignment Agreement**
10.8 Form of Non-Disclosure Agreement and Confidential Information
and Invention Assignment Agreement**
10.9 Employment Agreement by and between Media Metrix and Jeffrey C.
Levy, dated as of November 5, 1998**
10.10 Amended and Restated Management Services Agreement by and
between Media Metrix, The NPD Group, Inc. and Tod Johnson**
10.11 Media Metrix Stock Option Plan**
10.12 1998 Equity Incentive Plan**
10.13 1998 AdRelevance Stock Option Plan***
10.14 1999 AdRelevance Stock Option Plan***
21.1 Subsidiaries of Media Metrix ***
23.1 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit
5.1)*****
23.2 Consent of Ernst & Young LLP
23.3 Consent of Ernst & Young LLP
24.1 Power of attorney (on signature page)
* Incorporated by reference to the Company's Current Report on Form 8-K
filed with the Commission on October 20, 1999.
** Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 333-81079), as amended.
*** Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 333-88751), as amended.
**** Incorporated by reference to the Company's Current Report on Form 8-K
filed with the Commission on March 20, 2000.
***** Previously filed.
(b) Financial Statement Schedules.
The following financial statement schedules are filed herewith:
Schedule II - Valuation and Qualifying Accounts............................ S-2
All other schedules are omitted because they are not required or are not
applicable or the information is included in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
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> 106
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.
(4) To file a post-effective amendment to the Registration Statement to
include any financial statements required by Rule 3-19.
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<PAGE> 107
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Amendment No. 1 to 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 April 25, 2000.
MEDIA METRIX, INC.
By: /s/ Tod Johnson
-----------------------------------
Tod Johnson
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below and on the following page constitutes and appoints each of Tod
Johnson and Thomas A. Lynch as his true and lawful attorney-in-fact and agent,
each acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and
all amendments to this Registration Statement, including post-effective
amendments, and to file the same, with all exhibits thereto, and all documents
in connection therewith, with the Securities and Exchange Commission, granting
unto each said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could
do in person, and hereby ratifies and confirms all that any said
attorney-in-fact and agent, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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>
* Chief Executive Officer and April 25, 2000
------------------------ Chairman of the Board (Principal
Tod Johnson Executive Officer)
* Chief Financial Officer, Secretary and April 25, 2000
------------------------ Treasurer (Principal Financial and
Thomas A. Lynch Accounting Officer)
* Director April 25, 2000
------------------------
Jeffrey C. Levy
* Director April 25, 2000
------------------------
Michael Brooks
* Director April 25, 2000
------------------------
William W. Helman
* Director April 25, 2000
------------------------
Stig Kry
* Director April 25, 2000
------------------------
James Mortensen
/s/ Tod Johnson
------------------------
Tod Johnson
As Attorney-in-Fact
</TABLE>
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<PAGE> 108
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Media Metrix, Inc. as
of December 31, 1999, and 1998, and for each of the three years in the period
ended December 31, 1999, and have issued our report thereon dated January 28,
2000, except for the last three paragraphs of Note 15, as to which the date is
March 8, 2000 (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedule listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
New York, New York
January 28, 2000,
except for the last three
paragraphs of Note 15,
as to which the date
is March 8, 2000
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<PAGE> 109
MEDIA METRIX, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
DESCRIPTION BALANCE AT ADDITION DEDUCTIONS (a) BALANCE
- ----------- BEGINNING CHARGED TO -------------- AT END
OF PERIOD COSTS AND OF PERIOD
--------- EXPENSES ---------
----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Reserves and allowances deducted from asset accounts:
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended December 31, 1999 $220 $387 $107 $500
Year ended December 31, 1998 $100 $161 $ 41 $220
Year ended December 31, 1997 -- $100 -- $100
</TABLE>
(a) Write-offs of amounts against allowance provided.
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<PAGE> 110
INDEX TO EXHIBITS
NO. DESCRIPTION
- --- -----------
2.1 Plan of Merger and Reorganization between Media Metrix, Inc. and
RelevantKnowledge dated as of September 30, 1998**
2.2 Plan of Merger between Media Metrix and PC Meter L.P. dated as
of March 31, 1996**
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.****
3.1 Amended and Restated Certificate of Incorporation **
3.2 Certificate of Amendment to Amended and Restated Certificate of
Incorporation**
3.3 Amended and Restated Bylaws**
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 Stockholder's Agreement dated as of November 5, 1998, by and
among Media Metrix and the Stockholders listed on Schedule I
thereto**
4.3 Co-Sale Agreement dated as of November 5, 1998, by and among
Media Metrix and the Stockholders listed on Schedule I thereto**
4.4 Form of Warrant issued to former RelevantKnowledge warrant
holders**
4.5 Form of Warrant issued to former Media Metrix warrant holders**
4.6 Form of Warrant issued to former RelevantKnowledge warrant
holders**
4.7 Specimen Stock Certificate**
4.8 Registration Rights Agreement by and among Media Metrix, GfK AG
and Ipsos S.A. made as of September 1, 1999***
4.9 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*
4.10 Stock Option Agreement by and between Media Metrix and GfK made
as of September 1, 1999***
4.11 Stock Option Agreement by and between Media Metrix and Ipsos
made as of September 1, 1999***
4.12 Warrant to purchase common stock held by Silicon Valley Bank***
4.13 Registration Rights Agreement dated March 6, 2000 between Osprey
Research BV and Media Metrix, Inc.****
4.14 Participation Agreement dated March 6, 2000 among Osprey
Research BV, SIFO Group AB and MMXI Europe, BV****
4.15 Stock Option Agreement dated March 6, 2000 between Osprey
Research BV and Media Metrix, Inc.****
4.16 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. re: legality*****
10.1 Management Services Agreement dated as of September 30, 1998 by
and between Media Metrix, The NPD Group, Inc. and Tod Johnson**
10.2 Services Agreement dated as of September 30, 1998 by and between
Media Metrix and The NPD Group, Inc.**
10.3 License Agreement dated as of November 5, 1998 by and between
Media Metrix and The NPD Group, Inc.**
10.4 Stock Purchase Agreement dated as of December 23, 1998 by and
between Media Metrix and Investment A. B. Bure**
10.5.1 Building Lease between Eagle Insurance Company and The NPD
Group, Inc. dated as of August 18, 1997**
<PAGE> 111
10.5.2 Lese Agreement between Carriage House Associates Limited
Partnership and RelevantKnowledge, Inc. dated as of May 16,
1997**
10.6 Form of Indemnification Agreement**
10.7 Form of Non-Disclosure Agreement and Confidential Information
and Invention Assignment Agreement**
10.8 Form of Non-Disclosure Agreement and Confidential Information
and Invention Assignment Agreement**
10.9 Employment Agreement by and between Media Metrix and Jeffrey C.
Levy, dated as of November 5, 1998**
10.10 Amended and Restated Management Services Agreement by and
between Media Metrix, The NPD Group, Inc. and Tod Johnson**
10.11 Media Metrix Stock Option Plan**
10.12 1998 Equity Incentive Plan**
10.13 1998 AdRelevance Stock Option Plan***
10.14 1999 AdRelevance Stock Option Plan***
21.1 Subsidiaries of Media Metrix ***
23.1 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit
5.1)*****
23.2 Consent of Ernst & Young LLP
23.3 Consent of Ernst & Young LLP
24.1 Power of attorney (on signature page)
* Incorporated by reference to the Company's Current Report on Form 8-K
filed with the Commission on October 20, 1999.
** Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 333-81079), as amended.
*** Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 333-88751), as amended.
**** Incorporated by reference to the Company's Current Report on Form 8-K
filed with the Commission on March 20, 2000.
***** Previously filed.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated January 28, 2000 (except for the last three paragraphs
of Note 15 as to which the date is March 8, 2000) in Amendment No. 1 to the
Registration Statement (Form S-1 No. 333-34388) and related Prospectus of Media
Metrix, Inc. for the registration of 868,756 shares of its common stock.
/s/ ERNST & YOUNG LLP
New York, New York
April 25, 2000
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" and
to the use of our report dated October 5, 1999 (except for the paragraphs 3 and
4 of Note 8, as to which the date is October 8, 1999), with respect to the
financial statements of AdRelevance, Inc. included in Amendment No. 1 to the
Registration Statement (Form S-1 No. 333-34388) and related Prospectus of Media
Metrix, Inc. for the registration of 868,756 shares of its common stock.
/s/ ERNST & YOUNG LLP
Seattle, Washington
April 25, 2000
