<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 0-25107
EARTHWEB INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-3899472
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
3 PARK AVENUE, NEW YORK, NEW YORK 10016
(Address of principal executive offices, including zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 725-6550
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.01 per share
(Title of class)
------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant, based on the closing price of the common stock on March 1, 2000 of
$26.75, as reported on the NASDAQ National Market, was approximately
$270,068,775. Shares of common stock held by each officer and director and by
each person who owns 5% or more of the outstanding common stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for any other
purpose.
As of March 1, 2000, the registrant had outstanding 10,096,029 shares of
common stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE:
The following documents (or parts thereof) are incorporated by reference
into the following parts of this Form 10-K:
(1) 1999 Annual Report to Stockholders--Items 5, 6, 7, 8 and 14(a). With the
exception of those portions that are incorporated by reference, the
Registrant's 1999 Annual Report is not deemed filed as part of this Report.
(2) Proxy Statement for the 2000 Annual Meeting of Stockholders--Items 10, 11,
12 and 13.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
Except for the historical information contained herein, the matters
discussed in this Annual Report on Form 10-K, specifically in this Item or
otherwise incorporated by reference into this Annual Report on Form 10-K, are
"forward-looking statements" (as such term is defined in the Private Securities
Litigation Reform Act of 1995). These statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "may", "will",
"should," or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy that involve risks and
uncertainties. The safe harbor provisions of Section 21E of the Securities
Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933,
as amended, apply to forward-looking statements made by EarthWeb. These
forward-looking statements involve risks and uncertainties, including those
identified within "Risk Factors" and elsewhere in, or incorporated by reference
into, this Annual Report on Form 10-K. The actual results that EarthWeb achieves
may differ materially from forward-looking projections due to such risks and
uncertainties. These forward-looking statements are based on current
expectations, and EarthWeb assumes no obligation to update this information.
Readers are urged to carefully review and consider the various disclosures made
by EarthWeb in this Annual Report on Form 10-K and in EarthWeb's other reports
filed with the Securities and Exchange Commission that attempt to advise
interested parties of the risks and factors that may affect EarthWeb's business.
EarthWeb is the leading business portal for the global Information
Technology ("IT") industry. We provide a comprehensive set of
business-to-business and business-to-professional services. We offer a central
portal serving each of the major vertical markets in the IT industry, including
enterprise management, networking and telecommunications, software and internet
development, and hardware and systems. Our network serves various constituents
of the IT industry across vertical segments, including:
- - IT managers
- - Programmers and engineers
- - Network managers
- - Recruiters/HR managers
- - Corporate IT purchasers
- - Software publishers
- - Hardware manufacturers
- - Value-added resellers
- - IT services firms
As a global intermediary for the IT industry, we are positioned as the
trusted third-party platform, offering an integrated environment where various
industry constituents can share information, manage their careers, recruit
personnel, and buy and sell products and services. We believe that we offer the
most in-depth content and comprehensive range of business services for the IT
industry. We believe our network has captured a critical mass of IT
decision-makers and professionals with attractive demographics who collectively
command significant spending power.
EarthWeb was incorporated in New York in April 1996, commenced operations in
October 1996 and was reincorporated in Delaware in June 1997. EarthWeb LLC
transferred substantially all of its assets and liabilities to EarthWeb in
October 1996 in exchange for 2,925,000 shares of common stock, which at such
time represented all of the issued and outstanding common stock. From inception
in 1994 until mid-1997, we primarily developed and maintained Web sites and
online commerce infrastructures for our customers.
References to "EarthWeb" "we"', "our" and "us" in this Form 10-K that refer
to the period prior to October 25, 1996 are to EarthWeb's predecessors, and for
the later period refer to EarthWeb.
Our principal executive office is located at 3 Park Avenue, New York, New
York 10016, and our telephone number at such location is (212) 725-6550. Our
corporate Web site address is http://www.earthweb.com. Information contained on
our Web site is not part of this Form 10-K.
1
<PAGE>
INDUSTRY OVERVIEW
THE INTERNET
The Internet, now an established worldwide medium, is increasingly used by
businesses to conduct their operations more efficiently. The Internet provides
an effective resource through which businesses procure goods and services from
suppliers, hire and train personnel, target and advertise to prospective
customers, distribute their products, and provide customer service. The number
of Internet users worldwide is projected to grow from an estimated 142 million
at the end of 1998 to 399 million by the year 2002, according to IDC. Forrester
Research forecasts that the growth of the online business-to-business sector
will outpace the growth of the business-to-consumer sector, with
business-to-business commerce expected to reach $1.5 trillion by 2003 in the
United States alone, a figure 14 times the estimate for business-to-consumer
commerce in the United States for the same period.
IT INDUSTRY
Businesses and other organizations increasingly depend on Information
Technology for the successful implementation of their business strategies. While
IT traditionally has focused on internal systems, including accounting and human
resources, it is becoming a critical component in the way in which organizations
interact with their suppliers, market and deliver their products and services
and support their customers. This expanded role of technology has continued to
fuel the growth in the worldwide market for IT products and services.
IDC forecasts that the worldwide market for IT products and services will
grow from approximately $800 billion in 1998 to over $1.0 trillion in 2001. We
believe that our targeted market of business services within the IT industry,
including reference materials, recruiting, training and advertising, represented
an annual market opportunity of $40 billion in 1999, and is expected to grow to
$63 billion by 2003. We believe that a significant portion of this market is
currently migrating online, and that we are uniquely positioned to benefit from
this trend.
The IT industry is organized into vertical markets as a result of the
growing complexity of the IT industry and the increasing need for
specialization.
<TABLE>
<CAPTION>
VERTICAL MARKETS DESCRIPTION MAJOR SUB-SEGMENTS
- ---------------- ----------------------------- -----------------------------
<S> <C> <C>
Enterprise Management Deployment of sophisticated, Systems management software,
large-scale software financial management systems,
applications and systems to enterprise resource planning,
manage and support functions middleware, sales force
within businesses and other automation, data warehousing
organizations and supply chain management
Networking and Design, installation and Network and directory
Telecommunications management of infrastructure services, data and voice
for data and voice communications technologies,
communications wireless and mobile
communications and Internet
service provider network
infrastructure
Software and Internet Creation of software Programming languages,
Development applications and online sites Internet, intranet, extranet,
using various programming Internet commerce, Internet
languages, tools and security and Internet
environments protocols
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
VERTICAL MARKETS DESCRIPTION MAJOR SUB-SEGMENTS
- ---------------- ----------------------------- -----------------------------
<S> <C> <C>
Hardware and Systems Design, manufacture, purchase Personal, midrange and
and maintenance of computers, mainframe systems; computer
hardware components and chip, PC display, multimedia
peripherals and disk storage
technologies; and server
operating systems such as
Linux and NT
</TABLE>
The IT industry is also composed of a number of constituencies, operating
within the vertical markets, including:
<TABLE>
<CAPTION>
CONSTITUENCIES ROLE
- -------------- ------------------------------------------------------------
<S> <C>
IT managers Manage programmers, engineers and consultants and oversee
the execution of their organization's IT strategy
Programmers and engineers Design, create and maintain technical infrastructure within
an organization
Network managers Design, install and maintain corporate data and
telecommunication networks
Recruiters Identify and place qualified technical professionals in full
and part-time positions
Corporate IT purchasers Buy hardware, software and technical services for their
organizations
Software publishers Create and license software programs
Hardware manufacturers Manufacture computers, hardware components and peripherals
Value-added resellers Resell products of hardware manufacturers and software
publishers, and provide value-added technical services
IT services firms Design, implement and maintain IT enterprise applications
and systems on a contract basis
</TABLE>
Due to the rapid change in and the expansion of the IT industry, each of
these constituencies has the following needs for:
- CONTENT. Members of the IT industry need independent, in-depth and
up-to-date content, such as reference and training material, source code,
IT product information and other technical data. For example, IT
purchasers need access to neutral, third party reviews and surveys of
hardware and software to inform their purchasing decisions. Engineers and
programmers need access to source code, technical articles and skills
training. According to Simba Information, expenditures on computer
reference books totaled approximately $1 billion in 1998; and, based on
industry sources, we believe expenditures on IT industry reports and
analysis totaled an estimated $1 billion in 1998.
- CAREER MANAGEMENT AND RECRUITING. Companies and other organizations depend
on a qualified pool of IT professionals. Programmers, engineers and IT
consultants use various career services for training and skill
certification and to identify employment and contract opportunities.
Companies and other organizations and their IT managers use these services
to post job listings and hire IT personnel. IDC estimates that the total
amount spent on IT recruiting was $18 billion in 1998, a 20% increase over
1997. IDC forecasts that the IT education and training market alone will
grow from an estimated $16.5 billion in 1998 to $25.3 billion in 2002.
3
<PAGE>
- COMMERCE. The IT industry needs a marketplace to buy and sell IT products
and services. For example, hardware manufacturers and software publishers
need efficient ways to reach IT purchasers, and IT purchasers need
specialized stores that provide the products they require for their
organization's technical infrastructure. Corporate IT purchasers also
require a streamlined process to identify suppliers, obtain price quotes
and manage the delivery of goods and services to their organizations.
- COMMUNITY. Members of the IT industry need a neutral third-party
environment to share information. For example, IT programmers, engineers
and managers need a forum to discuss technical issues, and resolve
technical problems. In addition, the various constituents of the IT
industry need updated calendars of IT industry conferences and events.
The IT industry devotes considerable time, effort and financial resources
researching new technologies, seeking answers to technical questions, managing
career development, identifying and recruiting qualified personnel, buying and
selling products and services, and developing and implementing IT solutions. The
industry has had to rely on fragmented and disparate sources to meet these
needs, none of which has provided a comprehensive solution for content, career
management and recruiting, commerce and community.
THE EARTHWEB SOLUTION
EarthWeb's business portal addresses the needs of the IT industry for
content, career management and recruiting, commerce and community. As a global
intermediary for the IT industry, we are positioned as the trusted third party
that offers an integrated environment where the various constituents can share
information, manage their careers, recruit personnel, transact business and
interact with one another.
CONTENT
We draw from our content knowledge base of over two million pages to provide
comprehensive and valuable information resources across IT industry vertical
markets and constituencies. We provide technical resources including full-text
reference books, training materials and tutorials, technical articles and source
code libraries to IT professionals to enable them to solve challenging technical
problems. We also provide product surveys to enable IT professionals to make
informed purchase decisions. IT professionals navigate our large knowledge base
through a central search engine as well as through an extensive menu of
categories.
CAREER MANAGEMENT AND RECRUITING
We believe we are the leading online job board for the IT industry,
connecting IT professionals, such as programmers, engineers and consultants with
full-time employment and contract jobs through a variety of online job
resources. We provide over 160,000 online job listings of available positions
and enable companies and other organizations to efficiently recruit from a
central database of potential candidates. Our compensation surveys assist with
career management and recruitment of personnel. We also provide guides to skills
certification programs as well as links to related training material.
COMMERCE
We provide an online marketplace where vendors can promote and advertise
their goods and services, and purchasers can identify, evaluate and buy the
products and services that meet their needs. Our current online stores include a
training store, a software store and a technical bookstore. We also provide an
online auction facility to enable IT professionals to purchase and sell IT
products. Our vendors include major software developers, such as Microsoft,
Lotus and Symantec, as well as small and mid-sized specialized software vendors.
We intend to expand our commerce offerings to include a wider variety of online
marketplaces for the purchase and sale of IT products and services.
4
<PAGE>
COMMUNITY
We provide a forum in which users can contribute material and communicate
with each other. Users are encouraged to submit source code, object code,
development tools and other materials that are then archived in our directories.
Our online services also include a number of bulletin boards for technical
discussions that allow users to solve problems together. These bulletin boards
are managed by experienced IT professionals to maintain the quality of content.
These discussions are then archived, creating an online knowledge repository for
future reference. We also provide the IT industry with a centralized calendar of
upcoming conferences and events, which enables its members to identify events
relevant to them.
BUSINESS STRATEGY
EarthWeb seeks to maintain and strengthen its position as the leading
business portal for the global IT industry. We intend to achieve this objective
by implementing the following key strategies:
BROADEN AND ENHANCE BUSINESS SERVICES FOR THE IT INDUSTRY
We will continue to expand the range of content and breadth of services we
offer the IT industry. We continue to add, through internal development and
acquisitions, business-to-business and business-to-professional content and
services. We intend to expand our commerce offerings to include a wider variety
of online marketplaces for the purchase and sale of IT products and services.
STRENGTHEN WORLDWIDE BRAND RECOGNITION
We will continue to promote the EarthWeb brand as the leading business
portal for the global IT industry. In addition, we will continue to promote the
company and its products through online, print, radio, television and outdoor
advertising, strategic alliances and other promotional activities. We seek to
reinforce that EarthWeb represents a comprehensive, trusted solution meeting the
needs of the IT industry.
CULTIVATE MULTIPLE REVENUE STREAMS
As a comprehensive IT industry portal, we serve a variety of industry needs
and thus generate multiple revenue streams such as paid job listing advertising,
banner and sponsorship advertising, sales of and subscriptions to information
products and services, and a variety of commerce offerings. We intend to
continue to cultivate these multiple revenue streams by growing our sales force
and adding new products and services.
GROW THROUGH TARGETED ACQUISITIONS
We will continue to pursue acquisitions to fulfill a number of objectives.
The most important objective is to expand and add further depth to the
business-to-business and business-to-professional services that we offer on our
industry portal. For example, our acquisition of D&L Online, Inc., which
operates dice.com, now known as EarthWeb Career Solutions Inc. helped to
position us as a dominant provider of online career management and recruiting
services to IT professionals and employers. We continually seek to obtain
valuable brands, expertise and access to new customers and users.
EXPAND INTERNATIONALLY
Many IT professionals reside outside the United States and approximately
one-third of our traffic originates internationally. Due to our focus on the IT
industry, we are able to leverage our content and online services to a wide
range of international markets with minimal translation requirements. We have
successfully localized and translated portions of our content for French,
Spanish, German, Japanese, Italian, Russian, Swedish and Korean speakers, and
have additional localization efforts underway.
5
<PAGE>
THE EARTHWEB NETWORK
EarthWeb's network offers users access to our knowledge areas and products
through both our central portal as well as through a variety of vertical market
specific entry points. Each vertical entry point links users to a comprehensive
set of services including content, job listings, discussions and online
marketplaces.
<TABLE>
<CAPTION>
KEY ENTRY POINTS KNOWLEDGE AREAS AND PRODUCTS
- ---------------- ----------------------------
<S> <C> <C> <C>
IT Management - Enterprise Applications - ROI Strategies CONTENT
- Application Development - Security
- CIO Strategies - Storage
- E-Commerce - Networking
- Intranets - Database and Data
Warehouse
Networking & - Network Operating - Network Infrastructure CAREER
Telecommunications Systems - Network Security MANAGEMENT
- Network Planning & - Voice-Data Convergence AND SERVICES
Management
Software & Internet - Web Development - Middle-Tier Development COMMERCE
Development - Interface Design - Database Resources COMMUNITY
- Desktop Development - Programming Languages
- Mobile Applications - Scripting Tools
- Development Platforms - Open Source
& Architectures
Hardware & Systems - Components/Desktop PCs - NT, Unix, Linux
- IIS, Apache Web Servers - Productivity/Optimization
- Network Infrastructure - Hardware Vendors
</TABLE>
Within each knowledge area, we provide a broad range of online services to
meet the IT industry's needs for content, career management and recruiting,
commerce and community.
CONTENT
The content on our sites includes technical resources, technical news,
articles and information, premium reference materials, decision support tools,
training materials and tutorials.
TECHNICAL RESOURCES
Our online services provide IT professionals with access to hundreds of
thousands of resources and examples for use in their work, including reusable
source code and software interface components. Our online decision support
tools, including periodic technology surveys of IT professionals and online
assessment tools, enable IT managers to evaluate their technology
infrastructure. We further provide extensive technical resource directories that
are categorized using our proprietary categorization system and contain links to
thousands of technical resources.
Many of these technical resources are submitted by users and include links
to technical articles, training materials and source code. We have expended
considerable time and effort in developing our proprietary categorization
system, which enables users to quickly identify and locate relevant technical
resources, and have received industry recognition for this system.
6
<PAGE>
TECHNICAL NEWS, ARTICLES AND INFORMATION
We provide a range of original articles, aggregated news and case studies on
various technical subjects. Our email newsletters feature highlights from our
online services as well as industry news, research, analysis and feature
articles. As of December 31, 1999, our email newsletters had 702,000
subscribers. We also provide news of interest to the IT industry, which is
aggregated from a wide variety of sources, including CMP Media, Ziff-Davis,
On24.com and through ScreamingMedia, The New York Times and Business Wire.
PREMIUM REFERENCE MATERIALS
In addition to technical resources and IT news, we provide what we believe
is the largest online library of technical books and reference materials for the
IT industry. We provide this comprehensive set of reference materials primarily
through a variety of fee-based products and services. Our online library
includes over 1,000 technical references, how-to and training books provided in
full text, along with tens of thousands of technical diagrams.
Drawing on a base of more than 3,500 technical books, comprising over two
million pages of content, we will continue to add to our online reference
products. These books are provided by leading publishers, including Macmillan
Computer Publishing, The Coriolis Group, IDG Books Worldwide, CRC Press, 29th
Street Press, Wordware Publishing, IBM, ASP Publishing, Sybex Inc., Digital
Press, John Wiley & Sons, Inc. and Artech House, Inc. Additionally, this library
contains in-depth product analysis, benchmarks and other product reference
information that facilitates product evaluation. Reference materials can be
browsed by their table of contents or searched using a search engine.
CAREER MANAGEMENT AND RECRUITING
We believe that we are the leading online job board for the IT industry. In
addition, we provide a comprehensive set of career and professional development
online services, including skill assessment tools, certification guides and
training materials.
JOB POSTINGS
We provide an online job board for the IT industry enabling employers to
post and users to search what we believe is the largest online database of
full-time and contract IT positions. Our search technology and the vertical
industry focus of our online job board enables us to provide users with the
ability to perform highly targeted job searches based on IT-specific criteria.
Such focused searches are generally unavailable through other nationally
recognized job boards, which typically do not segment job opportunities based on
IT industry criteria.
ASSESSMENT AND CERTIFICATION
We provide self-paced assessment tests and certification program guides
which enable IT professionals to assess their skills and determine which
certification programs will help them enhance their knowledge and advance their
careers. Our content is included in certification programs offered by leading
training centers.
TRAINING MATERIALS AND TUTORIALS
We feature hundreds of original, proprietary, in-depth technical tutorials
for IT industry constituents. The tutorials include workshops on specific
technical issues, online textbooks, source code, tests and quizzes. We
exclusively own the vast majority of these tutorials, and the balance comes from
a variety of third-party publishers. We believe we offer one of the largest
collections of training materials and tutorials for IT professionals on the Web,
and add new training materials on a regular basis.
7
<PAGE>
COMMERCE
We provide an online marketplace where vendors can promote and advertise
their goods and services, and purchasers can identify, evaluate and buy the
products and services that meet their needs. We intend to expand our commerce
offerings to include a wider variety of online marketplaces for the purchase and
sale of IT products and services.
ONLINE SHOPPING
Our online storefronts provide the IT industry access to software, books and
other technical products from thousands of vendors, including Microsoft, Lotus,
Symantec and other leading IT vendors. We have enhanced our online shopping
offerings through alliances with various providers to offer a browsable online
catalog, secure transactions and delivery and fulfillment.
EARTHWEB AUCTIONS
EarthWeb Auctions is a business-to-business marketplace for IT professionals
where new and used equipment from leading manufacturers is bought and sold.
EarthWeb Auctions features hundreds of listings for enterprise-level products
including servers, workstations, switches, hubs, peripherals and storage
equipment.
COMMUNITY
We provide interactive forums for IT professionals, including technical
bulletin boards and question and answer services.
TECHNICAL BULLETIN BOARDS
We manage more than 30 technical bulletin boards containing more than 45,000
postings, which are focused and managed by experienced IT professionals. These
online bulletin boards enable users to help each other solve technical problems.
These bulletin boards are then archived, creating an online knowledge repository
for future reference. We have also archived the electronic full text of Usenet
computer discussions. We provide a single search interface for both EarthWeb and
Usenet discussions, allowing users to easily locate the information they need.
EXPERT REFERRAL SERVICES
We enable users to submit technical questions or problems from which we
select representative questions for resolution by our network of experienced IT
professionals. Detailed answers are published online in a searchable format. We
intend to enhance our Expert Referral Services to enable users to submit an
increased number of questions to our IT professionals.
OTHER SERVICES
We also provide a comprehensive calendar of upcoming IT conferences and
other industry events, and will host online conference proceedings. We produced
a Linux and OpenSource conference called The Bazaar, which included over fifty
hands-on tutorials and ten general sessions.
SALES AND MARKETING
SALES
We have developed an organization of sales professionals focused on job
listing services, advertising, sponsorships and premium product sales
opportunities. Our sales force has grown to 57 professionals as of December 31,
1999 from 26 as of December 31, 1998. This sales force is divided into two
functional groups.
8
<PAGE>
Our advertising sales force is dedicated to maintaining close relationships
with top advertisers and leading advertising agencies. A portion of this sales
force also targets employers and recruiters seeking an online job board
solution. Our sales personnel consult periodically with advertisers, agencies,
recruiters and human resource managers on design and placement of their online
advertising and job listings, provide customers with advertising measurement
analysis, and focus on providing a high level of customer service.
We enable advertisers to efficiently and effectively reach targeted segments
of the IT industry. Based on independent research we commissioned, 73% of our
users participate in the purchase of IT products and services in their
enterprises. Since the beginning of 1997, we have been able to sell advertising
space at rates that are higher than the average rates charged by online services
aimed at more general audiences. Based upon publicly available banner
advertisement rate cards, our rates are approximately 2.5 to 4.0 times higher
than the rates of Lycos, Excite and Yahoo!, which we believe to be a
representative group of online services aimed at more general audiences.
Independent research has also shown that 85% of users have some college
education, 17% have achieved graduate level degrees and 85% are between 18 and
49 years old.
Additionally, our corporate sales force targets users of our premium
products and services including ITKnowledge.com and the Support Source product
line. This sales force aims to sell multiple-seat enterprise licenses to
corporate IT departments, educational and government institutions. We supplement
the efforts of these sales professionals by selling a number of these products
directly online.
MARKETING
We employ a combination of online and offline advertising campaigns to
promote use of our online services by users, advertisers and vendors. We utilize
a variety of media to market our online services, including Web sites, print,
direct mail, radio and television. We are promoted by over 90,000 links from
other Web sites and links on major distribution portals and search engines. We
further market our online services through our email newsletters. As of
December 31, 1999, there were 702,000 subscribers. We have an ongoing public
relations program and participate in tradeshows, conferences, speaking
engagements and promotional contests.
We pursue strategic relationships with key marketing partners to enhance
brand awareness. Our DEVELOPER.COM Gamelan directory has been exclusively
designated by Sun Microsystems as "The Official Directory for Java" since 1996.
DEVELOPER.COM was also designated by Apple as the exclusive online location for
the proceedings of the 1998 Apple Worldwide Developers Conference. We also
license our brands to strategic third parties such as Macmillan Computer
Publishing, which established the EarthWeb Press to publish books and software
for IT professionals. In 1998, a sampler of MicroHouse International Inc., now
known as EarthWeb Knowledge Products, Inc.'s library of content was included in
an estimated 500,000 volumes distributed by Macmillan Computer Publishing. We
promote our EarthWeb Career Solutions, Inc. career board through strategic
relationships with a range of online services, including Classifieds2000 and
Yahoo! Classified.
We have increased our paid job listing customer base to over 4,600 customers
as of December 31, 1999 from approximately 2,000 as of December 31, 1998. We
have also increased our banner and sponsorship customer base to over 350
customers as of December 31, 1999 from approximately 175 as of December 31,
1998. For the year ended December 31, 1999, no advertiser accounted for more
than 10% of revenues. Our advertiser base includes non-technology as well as
technology-based advertisers.
9
<PAGE>
REPRESENTATIVE CUSTOMER LIST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAID JOB LISTINGS
-----------------
<S> <C>
- - Bank of America - Manpower
- - Cisco - MCI
- - Disney - Novell
- - Hewlett Packard - Yahoo
BANNERS AND SPONSORSHIPS
- -----------------------------------------
- - Compaq - MBNA
- - Federal Express - MCI
- - Hewlett Packard - Microsoft
- - IBM - Sun
SUBSCRIBERS
- -----------------------------------------
- - Boeing - Prudential
- - CBS - United States
- - Cisco Patent and
- - IBM Trademark
- - Merrill Lynch Office
</TABLE>
COMPETITION
Since the advent of commercial services on the Internet, the number of
online services competing for users' attention and spending has proliferated,
and we expect that competition will continue to intensify. We believe that we
offer the most comprehensive content and online business-to-business services
for the IT industry. We compete with other companies who have particular
sections of their Web sites directed at segments or sub-segments of the IT
professional community, including Ziff-Davis (DEVHEAD), CNET (BUILDER.COM and
ACTIVEX.COM), United News (CMPNET), Internet.com (WEBDEVELOPER.COM), Lycos
(Wired Digital's WEBMONKEY) and IDG (JAVAWORLD). We also compete for circulation
and advertising impressions with general interest portal and destination sites
as well as traditional media. With respect to career services, we compete with
online job boards such as Hotjobs.com, Headhunter.net and TMP Worldwide
(MONSTER.COM). With respect to sales of products, we compete with traditional
retailers of these products, including book, software and online retail stores.
We believe that we are differentiated from and well positioned against our
competitors because we provide a wide range of business-to-business and
business-to-professional online services leveraging content, career management
and recruiting resources, commerce and community to comprise a comprehensive
industry portal for the IT sector.
INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY
We make our Web sites available using multiple Sun Microsystems, Digital
Equipment and Wintel-based servers that run on Sun Solaris, Digital UNIX and
Microsoft NT operating systems. For disk storage, we partially rely on high
performance and fully redundant central storage systems from EMC and Network
Appliance. We use a variety of data and telecommunications providers including
Bell Atlantic, Pacific Bell, Globix, AT&T and USWest. We use a variety of
software products from the following vendors: Apache, Netscape and Microsoft
(Web servers); Engage (advertising management system); Netscape (subscription
system); Verity (search and retrieval); Net.Genesis (Web traffic analysis);
SalesLogix (sales force automation); and Solomon (financials).
We maintain three primary data centers. We are expanding our network of
fully redundant connectivity to all our data centers. Our primary production and
development systems are copied to backup tapes each night and regularly stored
at an off site facility. We maintain a quality assurance program consisting of
both internal and external controls to constantly monitor our servers, processes
and network connectivity. We have implemented these various redundancies, backup
systems and monitoring systems in order to minimize the risk associated with
damage from fires, power loss, telecommunications failure, break-ins, computer
viruses and other events beyond EarthWeb's control.
INTELLECTUAL PROPERTY
We seek to protect our intellectual property through a combination of
license agreements, service mark, copyright, trade secret laws and other methods
of restricting disclosure and transferring title. We obtain the majority of our
content under license agreements with publishers, through work for hire
arrangements with third parties and from internal staff development. We have no
patents or patents pending for our current online services and do not anticipate
that patents will become a significant part of our intellectual property in the
foreseeable future. We generally enter into confidentiality agreements with
10
<PAGE>
our employees, consultants, vendors and customers, license agreements with third
parties and generally seek to control access to and distribution of our
technology, documentation and other proprietary information. We pursue the
registration of our service marks in the United States and internationally. We
have obtained United States service mark registrations for EARTHWEB and its
related logo and for DEVELOPER.COM (on the Supplemental Register), have been
assigned PLUGIN DATAMATION, DATAMATION and DICE and have applied for the
registration of additional service marks, including EARTHWEB'S ITKNOWLEDGE and
the DEVELOPER.COM logo.
U.S. AND FOREIGN GOVERNMENT REGULATION
Congress has recently passed legislation that regulates certain aspects of
the Internet, including online content, copyright infringement, user privacy,
taxation, access charges, liability for third-party activities and jurisdiction.
In addition, federal, state, local and foreign governmental organizations have
enacted and also are considering, and may consider in the future, other
legislative and regulatory proposals that would regulate the Internet. Areas of
potential regulation include, but are not limited to, libel, electronic
contracting, pricing, quality of products and services and intellectual property
ownership.
The European Union also has enacted several directives relating to the
Internet. In order to safeguard against the spread of certain illegal and
socially harmful materials on the Internet, the European Commission has drafted
the "Action Plan on Promoting the Safe Use of the Internet." Other European
Commission directives address the regulation of privacy, e-commerce, security,
commercial piracy, consumer protection and taxation of transactions completed
over the Internet.
It is not known how courts and administrative agencies will interpret and
apply both existing and new laws. Therefore, we are uncertain as to how new laws
or the application of existing and new laws will affect our business. In
addition, our business may be indirectly affected by our vendors and customers
who may be subject to such legislation. Increased regulation of the Internet may
decrease the growth in the use of the Internet, which could decrease the demand
for our services, increase our cost of doing business or otherwise have a
material adverse effect on our business, results of operations and financial
condition.
EMPLOYEES
As of December 31, 1999, we had over 240 full-time employees, including 83
in sales and marketing. Our employees are not represented by any union, and we
consider our relations with our employees to be good.
11
<PAGE>
RISK FACTORS
RISKS PARTICULAR TO EARTHWEB
YOU CANNOT PREDICT OUR FUTURE SUCCESS BASED ON OUR LIMITED OPERATING HISTORY
Although we commenced operations in October 1994, we did not begin our
business of providing online services to IT professionals until October 1995,
and only recently broadened our online services to address the needs of other
constituents of the IT industry. We did not begin generating advertising
revenues until June 1996. The limited amount of information about us makes it
difficult for you to predict whether we will be successful.
We compete in the relatively new markets for Internet services and products.
Thus, you should also evaluate our chances of financial and operational success
in light of the risks, uncertainties, expenses, delays and difficulties
associated with operating a business in a relatively new and unproven market,
many of which may be beyond our control. Some of the risks that we face are
described in the following paragraphs. Our failure to address these risks could
have a material adverse effect on our business, results of operations and
financial condition.
WE HAVE A HISTORY OF LOSSES AND MAY NEED ADDITIONAL FUNDS
We had an accumulated deficit of $52.0 million at December 31, 1999. We have
also experienced operating losses as well as net losses for all of the fiscal
years during which we have operated. We expect that we will continue to operate
at a loss for the foreseeable future. Although our revenues have increased in
recent quarters, we cannot assure you that such growth will be maintained or
increased in the future. You should not rely on our recent revenue growth as
indicative of our future results of operations. We cannot predict with accuracy
our future results of operations and believe that any period-to-period
comparisons of our results of operations are not meaningful.
We expect to increase our operating expenses significantly, expand our sales
and marketing operations and continue to develop and extend our online services.
In the future, we may not generate sufficient revenues to pay for all of these
operating or other expenses. If we fail to generate sufficient cash to pay these
expenses, we will need to identify other sources of financing. We may not be
able to borrow money or issue more shares of common stock or other securities to
meet our cash needs, and even if we can complete such transactions, the terms
may seem unfavorable to us.
WE COMPETE IN A HIGHLY COMPETITIVE DEVELOPING MARKET WITHOUT CERTAINTY OF FUTURE
GROWTH
The market for our online services has only recently begun to develop, is
rapidly evolving and is characterized by an increasing number of market
entrants. As is typical of a new and rapidly evolving industry, demand and
market acceptance for recently introduced services is uncertain and we cannot
accurately predict the future growth, if any, and size of this market. The
market for our online services may not continue to develop or become
sustainable. If use of our online services fails to grow, our ability to
establish other online services would be materially adversely affected. In
addition, we may not be successful in our business strategy of extending our
online services model to additional segments of the IT industry.
We compete with other companies that direct portions of their Web sites
towards certain segments or sub-segments of the IT industry. Some of our
competitors include:
<TABLE>
<S> <C>
- - Ziff-Davis (DEVHEAD) - IDG (JAVAWORLD)
- - CNET (BUILDER.COM and ACTIVEX.COM) - Hotjobs.com
- - United News (CMPNET) - Headhunter.net
- - Internet.com (WEBDEVELOPER.COM) - Monster.com
- - Lycos (Wired Digital's WEBMONKEY)
</TABLE>
12
<PAGE>
In addition, we compete for advertising revenues with general interest
portal and destination sites, as well as traditional media. Our competitors for
sales of products are book, software and online retailers that sell products
similar to ours. Many of our competitors have longer operating histories, larger
client bases, longer relationships with clients, greater brand or name
recognition and significantly greater financial, technical, marketing and public
relations resources than we do. As a result, they may be in a position to
respond more quickly to new or emerging technologies and changes in customer
requirements and to develop and promote their products and services more
effectively. We may not be able to compete successfully against present or
future competitors.
There are relatively low barriers to entry in the online services market. We
do not own any patented technology that precludes or inhibits competitors from
entering the IT online market. Existing or future competitors may develop or
offer services that are comparable or superior to ours at a lower price, which
could have a material adverse effect on our business, results of operations and
financial condition.
OUR FUTURE REVENUES ARE DEPENDENT ON THE ADOPTION AND EFFECTIVENESS OF THE
INTERNET AS AN ADVERTISING MEDIUM
Our future success is highly dependent on an increase in the use of the
Internet as an advertising medium. The Internet advertising market is new and
rapidly evolving, and it cannot yet be compared with traditional advertising
media to gauge its effectiveness. As a result, demand and market acceptance for
Internet advertising solutions is uncertain. Most of our current or potential
advertising customers have little or no experience using the Internet for
advertising purposes and they have allocated only a limited portion of their
advertising budgets to Internet advertising. The adoption of Internet
advertising, particularly by those entities that have historically relied upon
traditional media for advertising, requires the acceptance of a new way of
conducting business, exchanging information and advertising products and
services. Such customers may find Internet advertising to be less effective for
promoting their products and services relative to traditional advertising media.
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 adversely affected.
There are currently no standards for the measurement of the effectiveness of
Internet advertising and standard measurements may need to be developed to
support and promote Internet advertising as a significant advertising medium.
Our advertising customers may challenge or refuse to accept our or third-party
measurements of advertisement delivery, and our customers may not accept any
errors in such measurements. In addition, the accuracy of database information
used to target advertisements is essential to the effectiveness of Internet
advertising that may be developed in the future. The information in our
database, like any database, may contain inaccuracies that our customers may not
accept.
If advertisers determine that banner advertising is an ineffective or
unattractive advertising medium, we may not be able to maintain our revenues
with other forms of advertising that we offer. Also, "filter" software programs
limit or prevent advertising from being delivered to a user's computer. The
commercial viability of internet advertising, and our business, results of
operations and financial condition, would be materially adversely affected by
Web users' widespread adoption of such software.
WE RELY HEAVILY ON ADVERTISING REVENUES
To date, substantially all of our revenues are derived from paid job
listings, banner and sponsorship advertisements. We rely primarily on our
in-house advertising sales force for domestic advertising sales. Our success
depends, in part, on hiring, retaining, managing, training and motivating our
sales force. If a significant portion of our advertising sales force leaves, we
may not be able to compete for or retain advertisers and we may not be able to
sustain or increase our current advertising sales level. The reduction in the
amount of revenue from advertising sales could have a material adverse effect on
our business, results of operations and financial condition.
13
<PAGE>
In addition, the competition in the sale of advertising on the Internet,
including competition from Internet portals and other high-traffic sites is
intense. This competition has resulted in a wide range of rates quoted by
different vendors for a variety of advertising services. As a result, we cannot
accurately predict the future levels of Internet advertising revenues that we
will realize. The prices for Internet advertising may also be affected by
competition among current and future suppliers of Internet navigational services
or Web sites and advertising networks. This, together with competition with
other traditional media for advertising placements, could result in significant
price competition, reduced pricing for Internet advertising and reductions in
our advertising revenues.
WE ENGAGE IN BARTER TRANSACTIONS, WHICH DO NOT GENERATE CASH REVENUE
We engage in barter transactions, which reduce cash expenditures in
marketing and other areas, and leverage our advertising inventory. For the year
ended December 31, 1999, revenues from barter transactions represented
approximately 10% of revenues. During 1998, revenues from barter transactions
represented approximately 25% of revenues and less than 10% of revenues on a pro
forma basis after giving effect to the acquisition of D&L Online, Inc. Barter
revenues may continue to represent a portion of our total revenues in future
periods.
WE MUST CONTINUE TO MAINTAIN AND DEVELOP OUR REPUTATION AND BRAND RECOGNITION
We believe that establishing and maintaining the identity of our several
brands is critical in attracting and expanding our audience, and that the
importance of brand recognition will increase due to the growing number of
Internet online services. Promotion and enhancement of our brands will depend
largely on our success in continuing to provide high quality online services. If
users do not perceive our existing online services to be of high quality, or if
we introduce new online services or enter into new business ventures that are
not favorably received by users, the uniqueness of our brands could be
diminished and the attractiveness of our audiences to advertisers could be
reduced. We may also find it necessary to increase substantially our financial
commitment to creating and maintaining a distinct brand loyalty among users. If
we (1) cannot provide high quality online services, (2) fail to promote and
maintain our brands, or (3) incur excessive expenses in an attempt to improve
our online services or promote and maintain our brands, our business, results of
operations and financial condition could be materially adversely affected.
WE MUST RETAIN KEY EXECUTIVES AND PERSONNEL
Our performance is substantially dependent on the performance of our senior
management and key technical personnel. In particular, our success depends
substantially on the continued efforts of our senior management. We have
employment agreements, which include non-compete provisions, with members of
senior management. However, these key personnel and others may leave us or
compete with us, which could have a material adverse effect on our business,
results of operations and financial condition. In addition, we have not
purchased key person life insurance on all members of our senior management.
Our future success also depends upon our continuing ability to identify,
attract, hire and retain highly qualified personnel. There is currently a
shortage of qualified personnel in the online services market, and this shortage
is likely to continue. We compete intensely for qualified personnel with other
companies. If we cannot attract, motivate and retain qualified professionals,
our business and results of operations could be materially adversely affected.
OUR CONTINUED FUTURE GROWTH MAY STRAIN OUR RESOURCES
A key part of our strategy is to grow, which may strain our managerial,
operational and financial resources. To manage recent acquisitions and future
growth, our management must continue to improve our operational and financial
systems and expand, train, retain and manage our employee base. Our management
may not be successful in managing our growth effectively. If our systems,
procedures and
14
<PAGE>
controls are inadequate to support our operations, our expansion would be halted
and we could lose our opportunity to gain significant market share. Any
inability to manage growth effectively could have a material adverse effect on
our business, results of operations and financial condition.
WE MAY BE UNABLE TO CONSUMMATE POTENTIAL ACQUISITIONS OR INTEGRATE THE
OPERATIONS OF COMPANIES WE ACQUIRE
Our strategy includes the acquisition of assets of online service providers
that enhance our current services. As part of this strategy, during 1999 we
acquired many businesses and Web sites including D&L Online, Inc., Micro House
International, Inc., GoCertify and THE PERL JOURNAL. Our continued growth will
depend in part on our ability to continue to identify suitable acquisition
candidates and to acquire them on appropriate terms. In addition, the
anticipated results of any acquisitions may not be realized. Some of the risks
that we may encounter in acquiring other companies include the following:
- expenses, delays and difficulties of integrating the acquired company into
our existing organization;
- potential disruption of our ongoing business;
- diversion of management's attention;
- the amortization of the acquired company's intangible assets;
- impact on our financial condition due to the timing of the acquisition;
- failure to retain key personnel;
- difficulties of integrating the personnel and cultures of the acquired
company into our organization; and
- potential legal liabilities.
If any of these risks materialize, they could have a material adverse effect on
our business, results of operations and financial condition.
WE RELY ON A NUMBER OF CONTENT PROVIDERS
Our success depends upon our ability to provide a wide range of in-depth
content. The markets for our online services are characterized by rapidly
changing technology, emerging industry standards and the rapidly changing needs
of our audience. We rely on a number of publishers of technical materials, our
vendors and the users of our online services for the continuing provision of
up-to-date content. No single content provider is material to our operations.
However, publishers of technical materials with which we currently have a
relationship, our current vendors or the current users of our online services
may not continue to provide us with a similar flow of content or may not
continue to do so on the same terms and conditions. If the flow of content for
our online services decreases either in terms of quality or quantity, or ceases
completely, our business, results of operations and financial condition could be
materially adversely affected.
WE RELY ON A NUMBER OF STRATEGIC ALLIANCES
We rely on strategic alliances with Sun Microsystems, CMP Media, Ziff-Davis,
Macmillan, Fair Market, BEYOND.COM and FATBRAIN.COM, among others, to attract
users and paid advertising to our online services. These relationships may not
continue or we may not be able to develop any additional third party alliances
on acceptable commercial terms. No one of these strategic alliances is
individually material to our operations. However, our inability to maintain
current strategic relationships generally or develop new strategic relationships
could have a material adverse effect on our business, results of operations and
financial condition.
15
<PAGE>
OUR QUARTERLY RESULTS MAY FLUCTUATE SIGNIFICANTLY
Because of our limited operating history, we plan our expenses based in part
upon our expectations concerning future revenue. Our expenses, to a large
extent, are fixed. Our quarterly revenues and operating results depend
substantially upon the advertising revenues we receive within that quarter,
which are difficult to forecast accurately. The cancellation or deferral of a
small number of advertising contracts could have a material adverse effect on
our business, results of operations and financial condition. We may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall, and any significant shortfall could have a material adverse effect on
our business, results of operations and financial condition.
Our quarterly results have historically been affected by variations in the
following:
- the level of usage of the Internet;
- demand for Internet advertising;
- the addition or loss of advertisers;
- the level of user traffic on our online services;
- economic conditions specific to the Internet industry; and
- online media and economic conditions generally.
We also believe that our revenues are subject to seasonal fluctuations
because advertisers generally place fewer advertisements during the first and
third calendar quarters of each year. As a strategic response to this, we have
and may continue to make pricing, service or marketing decisions. We also may
consummate business combinations to reduce our exposure to seasonality. Any
failure of one or more of these strategies could have a material adverse effect
on our business, results of operations and financial condition.
WE MAY HAVE DIFFICULTY IN EXPANDING AND MANAGING OUR INTERNATIONAL OPERATIONS
A key part of our strategy is to develop our online services in
international markets. To date, we have had limited experience in developing
localized versions of our online services and in marketing and operating our
online services internationally. We intend to enter into relationships with
foreign business partners. If the international revenues are not adequate to
offset our investments in international activities, our business, results of
operations and financial condition could be materially and adversely affected.
We may experience difficulty in managing international operations because of
distance, as well as language and cultural differences. We and any of our future
foreign business associates may not be able to successfully market and operate
our online services in foreign markets. Furthermore, in light of substantial
anticipated competition, we believe that it will be necessary to implement our
business strategy quickly in international markets to obtain a significant share
of the market. We cannot give you any assurance that we will be able to do so.
Other risks that could affect our potential international operations include:
- fluctuations in currency exchange rates;
- difficulties arising from staffing and managing foreign operations;
- unexpected changes in the legal and regulatory requirements of different
countries;
- potential political and economic instability; and
- overlapping or differing tax laws.
If any of these risks materialize, our domestic and international
businesses, results of operations and financial condition could be materially
adversely affected.
16
<PAGE>
OUR STOCK PRICE, LIKE THAT OF OTHER INTERNET COMPANIES, IS VOLATILE
Our common stock began trading on the Nasdaq National Market on
November 11, 1998 and its market price has been highly volatile. The price range
for our common stock has ranged from a low of $22.13 to a high of $89 since it
began trading on the Nasdaq National Market. In addition, the overall market for
the equity securities issued by Internet-related companies has been volatile.
This volatility may continue. Factors that may materially adversely affect the
market price of our common stock include:
- variations in our financial results and earnings;
- failure to meet or exceed estimates by securities analysts;
- fluctuations in the stock prices of our competitors;
- any loss of key management;
- adverse regulatory actions or decisions;
- announcements of extraordinary events, including material litigation or
acquisitions or changes in pricing policies by us or our competitors;
- changes in the market for our online services; and
- general economic, political and market conditions.
FOUR OF OUR DIRECTORS OR THEIR AFFILIATES OWN A SIGNIFICANT PERCENTAGE OF OUR
SHARES
As of March 1, 2000, Warburg, Pincus Ventures, L.P., Jack D. Hidary and
Murray Hidary (or their affiliates) owned 34.28% in the aggregate of the
outstanding shares of common stock and individually owned the percentage set
forth opposite their respective names below. Two of our directors are affiliated
with Warburg, Pincus Ventures, L.P. and both Jack Hidary and Murray Hidary are
directors and officers of EarthWeb.
<TABLE>
<S> <C>
Warburg, Pincus Ventures, L.P............................... 18.00%
Jack D. Hidary.............................................. 8.19%
Murray Hidary............................................... 8.09%
</TABLE>
If the stockholders listed above choose to act or vote in concert, they will
have the power to influence the election of our directors, the appointment of
new management and the approval of any other action requiring the approval of
our stockholders, including any amendments to our certificate of incorporation
and mergers or sales of all of its assets. In addition, without the consent of
these stockholders, we could be prevented from entering into potentially
beneficial transactions. Conversely, third parties could be discouraged from
making a tender offer or bid to acquire us at a price per share that is above
the price at which the common stock trades on the Nasdaq National Market.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE
In connection with our acquisitions of businesses, including the D&L
Online, Inc., Micro House International, Inc. and CodeGuru acquisitions, we
issued a significant number of shares of common stock. Of these shares 635,215
are being offered and sold from time to time under an effective registration
statement by the holders of those shares. Those shareholders have agreed to
restrict their sales of such shares of common stock to a limited number of
shares per quarter. Certain of those shares are currently held under escrow
arrangements and are not immediately resellable. However, in the event that all
of those shares available for sale in any quarter are all sold on one day, such
sales may have an adverse effect in the market price of our common stock.
17
<PAGE>
OUR CHARTER DOCUMENTS COULD MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO ACQUIRE
US
Various provisions of our certificate of incorporation and by-laws are
designed to discourage or prevent a third party from acquiring control of us.
Our by-laws include restrictions on who may call a special meeting of
stockholders, and either a majority of the board of directors or the holders of
two-thirds of our outstanding capital stock, which are entitled to vote in the
elections of the board of directors, must approve all amendments to our by-laws.
Our certificate of incorporation authorizes the board of directors to issue
up to 2,000,000 shares of "blank check" preferred stock. The board of directors
will have the authority without action by our stockholders to fix the rights,
privileges and preferences of, and to issue shares of this preferred stock. In
addition, our certificate of incorporation provides that the board of directors
will be divided into three classes with the directors serving staggered
three-year terms. Only the holders of two-thirds of our outstanding capital
stock that are entitled to vote in the elections of the board of directors can
amend this provision.
RISKS TYPICAL OF THE INTERNET INDUSTRY
OUR SUCCESS IS TIED TO THE CONTINUED GROWTH IN THE USE OF THE INTERNET AND THE
ADEQUACY OF THE INTERNET INFRASTRUCTURE
Our future success is substantially dependent upon continued growth in the
use of the Internet. The number of users and advertisers on the Internet may not
increase and commerce over the Internet may not become more accepted and
widespread for a number of reasons, including:
- actual or perceived lack of security of information, including credit card
numbers;
- lack of access and ease of use;
- congestion of traffic on the Internet;
- inconsistent quality of service and lack of availability of
cost-effective, high speed service;
- possible disruptions due to computer viruses, possible Year 2000
difficulties or other damage to the Internet servers or to users'
computers;
- excessive governmental regulation;
- uncertainty regarding intellectual property ownership; and
- lack of high-speed modems and other communications equipment.
Published reports have also indicated that growth in the use of the Internet
has resulted in users experiencing delays, transmission errors and other
difficulties. As currently configured, the Internet may not support an increase
in the number or requirements of our users. In addition, there have been outages
and delays on the Internet as a result of damage to the current infrastructure.
The amount of traffic on our online services could be materially affected if
there are outages or delays in the future. The use of the Internet may also
decline if there are delays in the development or adoption of modifications by
third parties that are required to support increased levels of activity on the
Internet. If none of the foregoing changes occur, or if the Internet does not
become a viable commercial medium, our business, results of operations and
financial condition could be materially adversely affected. In addition, even if
those changes occur, we may be required to spend significant amounts to adapt
our online services to any new or emerging technologies relating to the
Internet.
18
<PAGE>
CAPACITY CONSTRAINTS OR SYSTEMS FAILURES COULD MATERIALLY AND ADVERSELY AFFECT
OUR BUSINESS
The performance of our online services is critical to:
- our reputation;
- our ability to attract advertisers to our services; and
- achieving market acceptance of our online services.
Any system failure, including network, software or hardware failure that
causes interruption or an increase in response time of our online services could
result in decreased usage of our services. If these failures are sustained or
repeated, they could reduce the attractiveness of our online services to our
users, vendors and advertisers. An increase in the volume of queries conducted
through our online services could strain the capacity of the software or
hardware we employ, which could lead to slower response time or system failures
that could adversely affect our advertising revenues. We also face technical
challenges associated with higher levels of personalization and localization of
content delivered to users of our online services. The process of managing
advertising within our large, high traffic Internet online service is an
increasingly important and complex task. We rely on both internal and licensed
third party advertising, inventory management and analysis systems. We could
incur so-called "make good" obligations to our advertising customers if an
extended failure of our advertising system results in incorrect advertising
insertions. By displacing advertising inventory, these obligations could defer
advertising revenues and thereby have a material adverse effect on our business,
results of operations and financial condition.
Our operations are dependent in part upon our ability to protect our
operating systems against:
- physical damage from acts of God;
- power loss;
- telecommunications failures;
- physical and electronic break-ins;
- hacker attacks;
- computer viruses; and
- similar events.
The occurrence of any of these events could result in interruptions, delays
or cessations in service to users of our online services, which could have a
material adverse effect on our business, results of operations and financial
condition. Overall Internet usage could decline if any well-publicized
compromise of security occurs. Hacking involves efforts to gain unauthorized
access to information of systems or to cause intentional malfunctions or loss or
corruption of data software, hardware or other computer equipment. Hackers, if
successful, could misappropriate proprietary information or cause disruptions in
our services. In February 2000, several popular Internet portals in the United
States were disrupted by hackers. We cannot assure you that we will be able to
avoid hackers or some other similar form of system disruption or denial of
service attack. Security breaches could have a material adverse effect on
EarthWeb and its business. In addition, transmission of computer viruses to our
internet sites, whether intentional or inadvertent, could expose us to a
material risk of loss or litigation and possible liability.
WE MAY FACE LIABILITY FOR THE SERVICES THAT WE PROVIDE
Because content made available by third parties may be downloaded by the
online services operated or facilitated by us and may be subsequently
distributed to others, there is a potential that claims will be asserted against
us for defamation, negligence or personal injury, or based on other theories due
to the nature of the content. These claims have been brought, and sometimes
successfully asserted, against other
19
<PAGE>
online service providers. In addition, we could be exposed to liability with
respect to the selection of listings that may be accessible through our online
services or through content and materials that may be posted by users in our
classifieds, bulletin board or chat room services. By providing hypertext links
to Internet sites operated by other providers, third parties may attempt to
assert claims or liability for wrongful actions by these other providers through
these Internet sites. It is also possible that users could claim that we were
responsible for losses incurred in reliance on information provided on our
online services. Although we carry general liability insurance, our insurance
may not cover potential claims of this type or may not be adequate to provide
full indemnification. Any imposition of liability or legal defense expenses that
are not covered by insurance or are in excess of insurance coverage could have a
material adverse effect on our business, results of operations and financial
condition. Consumers may sue us if any of the products that we sell online are
defective, fail to perform properly or injure the user. To date, we have had
very limited experience in the sale of products online and the development of
relationships with manufacturers or suppliers of such products. Liability claims
could require us to spend significant time and money in litigation or to pay
significant damages. As a result, any such claims, whether or not successful,
could seriously damage our reputation and our business.
MISAPPROPRIATION OF OUR INTELLECTUAL PROPERTY COULD HARM OUR REPUTATION, AFFECT
OUR COMPETITIVE POSITION AND COST US MONEY
We believe that our service marks and other proprietary rights are important
to our success and competitive position. We have registered some of our service
marks in the United States and abroad. We also limit access to and distribution
of our proprietary information, as well as proprietary information licensed from
third parties. Our management cannot ensure that these strategies will be
adequate to deter misappropriation of our proprietary information and material.
Despite our efforts to protect our intellectual property, we face the
following risks:
- non-recognition or inadequate protection of our proprietary rights in
various foreign countries;
- undetected misappropriation of our proprietary information or materials;
- development of similar technologies by competitors;
- unenforceability of the non-competition agreements entered into by our
employees; and
- infringement claims, even if not meritorious.
If any of these risks materialize, we could be required to pay significant
amounts to defend our rights and our managerial resources could be diverted.
Legal standards relating to the validity, enforceability and scope of
protection of various intellectual property rights in Internet-related
industries are uncertain and still evolving, and no assurance can be given as to
the future viability or value of any intellectual property rights of ours or
other companies within the IT industry. We generally enter into confidentiality
agreements with our employees, consultants, vendors and customers, license
agreements with third parties and generally seek to control access to and
distribution of our technology, documentation and other proprietary information.
We pursue the registration of our service marks in the United States and
internationally. We have obtained United States service mark registrations for
EARTHWEB and its related logo and for DEVELOPER.COM (on the Supplemental
Register), have been assigned PLUGIN DATAMATION, DATAMATION and DICE and have
applied for the registration of additional service marks, including EARTHWEB'S
ITKNOWLEDGE and the DEVELOPER.COM logo. Although we generally pursue the
registration of our service marks and other intellectual property, we have
copyrights, trademarks and/or service marks that have not been registered in the
United States and/or other jurisdictions. Moreover, effective trademark,
copyright and trade secret protection may not be available in every country in
which our online services are distributed or made available through the
Internet. The steps we have
20
<PAGE>
taken to protect our proprietary rights may not be adequate, and third parties
could infringe or misappropriate our copyrights, service marks, trade dress and
similar proprietary rights.
We have licensed in the past, and expect to license in the future, various
elements of our distinctive trademarks, service marks, trade dress, trade
secrets and similar proprietary rights to third parties. While we attempt to
ensure that the quality of our several brands is maintained by these licensees,
no assurance can be given that these licensees will not take actions that could
materially and adversely affect the value of proprietary rights or the
reputation of our online services, either of which could have a material adverse
effect on business, results of operations and financial condition. Also, we are
aware that third parties have from time to time copied significant portions of
DEVELOPER.COM directory listings for use in competitive Internet navigational
tools and services, and we cannot guarantee that the distinctive elements of
DEVELOPER.COM can be protected under copyright law.
WE MAY BE LIABLE IF THIRD PARTIES MISAPPROPRIATE OUR USERS' PERSONAL INFORMATION
If third parties were able to penetrate our network security or otherwise
misappropriate our users' personal information or credit card information, we
could be subject to liability. This liability could include claims for
unauthorized purchases with credit card information, impersonation or other
similar fraud claims. It could also include claims for other misuses of personal
information, including unauthorized marketing purposes. These claims could
result in litigation.
WE MAY BE LIABLE WITH RESPECT TO THE COLLECTION AND USE OF USERS' PERSONAL
INFORMATION AND OUR CURRENT PRACTICES MAY NOT BE IN COMPLIANCE WITH PROPOSED
NEW LAWS AND REGULATIONS
Recently, class action lawsuits have been filed and the Federal Trade
Commission and state agencies have commenced investigations with respect to the
collection, use and sale by various internet companies of users' personal
information. While we do not sell personally identifiable user information to
third parties and believe we are otherwise in compliance with current law, we
cannot ensure that we will not be subject to any such lawsuits or
investigations. Moreover, our current practices regarding the collection and use
of user information may not be in compliance with currently pending legislative
and regulatory proposals by the U.S. federal government and various state
governments intended to limit the collection and use of user information. As a
result, we may be forced to change our current practices relating to the
collection and use of user information. In addition, the European Union adopted
a directive in October 1998 that may limit our collection and use of information
regarding our users in Europe. We may incur additional expenses if we are sued,
our privacy practices are investigated or need to change our practices to comply
with
OUR BUSINESS IS SUBJECT TO U.S. AND FOREIGN GOVERNMENT REGULATION OF THE
INTERNET AND TAXATION
Congress and various state and local governments, as well as the European
Union, have recently passed legislation that regulates various aspects of the
Internet, including online content, copyright infringement, user privacy,
taxation, access charges, liability for third-party activities and jurisdiction.
In addition, federal, state, local and foreign governmental organizations are
also considering legislative and regulatory proposals that would regulate the
Internet. Areas of potential regulation include libel, pricing, quality of
products and services and intellectual property ownership. A number of proposals
have been made at the state and local level that would impose taxes on the sale
of goods and services through the Internet. Such proposals, if adopted, could
substantially impair the growth of e-commerce and could adversely affect our
future results of operations and financial condition.
A law imposing a three-year moratorium on new taxes on Internet-based
transactions was enacted by Congress in October 1998. This moratorium relates to
new taxes on Internet access fees and state taxes on commerce that discriminate
against out-of-state Web sites. Sales or use taxes imposed upon the sale of
products or services over the Internet will not be affected by this moratorium.
We have not yet been able to
21
<PAGE>
determine how we will be affected by this moratorium. To the extent that the
moratorium provides a material benefit, its expiration after three years could
have a material adverse effect on our financial condition and results of
operations.
Because these laws are relatively new and still in the process of being
implemented, it is not known how courts will interpret both existing and new
laws. Therefore, our management is uncertain as to how new laws or the
application of existing laws will affect our business. Increased regulation of
the Internet may reduce the use of the Internet, which could decrease the demand
for our services, increase our cost of doing business or otherwise have a
material adverse effect on our business, results of operations and financial
condition.
ACCOUNTING STANDARDS AFFECTING THE INTERNET INDUSTRY ARE IN FLUX
We are aware of various proposals being discussed by the accounting
profession and the Securities and Exchange Commission that would affect how
Internet companies record revenue, account for barter transactions, reflect
guarantees of hits in connection with advertising arrangements or accrue
expenses and, in certain cases, how their customers account for transactions
with Internet companies. While these discussions are still in a preliminary
phase and we believe that none of the proposals we are aware of would materially
adversely affect our financial position or results of operations in the event
they are adopted, we cannot predict with certainty the timing or effect of the
adoption of any of these proposed changes.
ITEM 2. PROPERTIES
Our headquarters are currently located in a leased facility in New York City
consisting of a total of approximately 33,500 square feet of office space, the
majority of which is under a ten-year lease. EarthWeb Career Solutions, Inc. has
an office located in Des Moines, Iowa, consisting of approximately 13,530 square
feet under leases expiring beginning on October 31, 2001. EarthWeb Knowledge
Products, Inc. located in Boulder, Colorado, has an office consisting of
approximately 10,000 square feet under a lease expiring February 28, 2001. The
Company also has offices in Atlanta, Boston and San Francisco.
ITEM 3. LEGAL PROCEEDINGS
We are party to claims and litigation that arise in the normal course of
business. Management believes that the ultimate outcome of those claims and
litigation will not have a material impact on our financial position or results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during the
fourth quarter of our fiscal year ended December 31, 1999.
22
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to the
section entitled "Shareholder Information" on page 28 of the Company's 1999
Annual Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to the
section entitled "Selected Financial Data" on page 6 of the Company's 1999
Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated by reference to the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" on page 7 of the Company's 1999 Annual Report to
Stockholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
23
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to the
section entitled "Management" of the Company's Proxy Statement for its 2000
Annual Meeting of Stockholders, which will be filed with the Securities and
Exchange Commission within 120 days after December 31, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
section entitled "Compensation of Executive Officers" of the Company's Proxy
Statement for its 2000 Annual Meeting of Stockholders, which will be filed with
the Securities and Exchange Commission within 120 days after December 31, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
section entitled "Principal Security Holders" of the Company's Proxy Statement
for its 2000 Annual Meeting of Stockholders, which will be filed with the
Securities and Exchange Commission within 120 days after December 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
section entitled "Certain Relationships and Related Transactions" of the
Company's Proxy Statement for its 2000 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission within 120 days after
December 31, 1999.
24
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A) DOCUMENTS FILED AS PART OF THIS REPORT:
The following financial statements and the Report of the Independent
Accountants are incorporated herein by reference to the Registrant's 1998 Annual
Report to Stockholders pursuant to Item 8:
<TABLE>
<CAPTION>
PAGE IN ANNUAL REPORT
---------------------
<S> <C>
Balance Sheets at December 31, 1999 and 1998................ 12
Statement of Operations for the years ended December 31,
1999, 1998 and 1997....................................... 13
Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997.......................... 14
Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997....................................... 16
Notes to Financial Statements............................... 17
Report of Independent Accountants........................... 26
</TABLE>
All other financial statement schedules are omitted because they are not
required, are inapplicable or the information has been included elsewhere in the
financial statements or notes thereto.
B) REPORTS ON FORM 8-K.
None.
C) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ------------------------------------------------------------
<C> <S>
*2.1 Agreement and Plan of Merger among EarthWeb Inc., EW
Acquisition Corporation, D&L Online, Inc., Lloyd Linn, and
Diane Rickert; incorporated by reference to Exhibit 2.1 to
the Registrant's Current Report on Form 8-K dated February
2, 1999.
2.2 Securities Purchase Agreement among the Registrant, EarthWeb
Knowledge Products, Inc. International, Inc. and Steve
Anderson, Doug Anderson, Robert Anderson and Ascent
Partners; incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K dated March 12,
1999.
3.1 Form of Amended and Restated Certificate of Incorporation;
incorporated by reference to Exhibit 3.1 to Registrant's
Registration Statement on Form S-1 (SEC File No. 333-60837).
3.2 Form of Amended and Restated By-laws; incorporated by
reference to Exhibit 3.2 to Registrant's Registration
Statement on Form S-1 (SEC File No. 333-60837).
4.1 Amended and Restated Shareholders Agreement dated as of June
24, 1997 among the Registrant, EarthWeb LLC, Global Network
Partners (GNP), Warburg, Pincus Ventures, L.P., Jack D.
Hidary, Murray Hidary and Nova Spivack; incorporated by
reference to Exhibit 4.1 to Registrant's Registration
Statement on Form S-1 (SEC File No. 333-60837).
4.2 Specimen Common Stock Certificate of Registrant;
incorporated by reference to Exhibit 4.2 to Registrant's
Registration Statement on Form S-1 (SEC File No. 333-60837).
4.3 Registration Rights Agreement dated as of October 25, 1996
by and between the Registrant, Warburg, EarthWeb LLC and
GNP; incorporated by reference to Exhibit 4.3 to
Registrant's Registration Statement on Form S-1 (SEC File
No. 333-60837).
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ------------------------------------------------------------
<C> <S>
4.4 Registration Rights Agreement between EarthWeb Inc., Lloyd
Linn and Diane Rickert; incorporated by reference to Exhibit
4.1 to the Registrant's Current Report on Form 8-K dated
February 2, 1999.
4.5 Registration Rights Agreement dated as of March 19, 1999
between EarthWeb, Inc., Steve Anderson, Doug Anderson,
Robert Anderson and Ascent Partners; incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report
on Form 8-K dated March 12, 1999.
4.6 Zero Coupon Convertible Promissory Note dated as of March
19, 1999 of Registrant in favor of Steven Anderson;
incorporated by reference to Exhibit 4.2 to the Registrant's
Current Report on Form 8-K dated March 12, 1999.
4.7 Zero Coupon Convertible Promissory Note dated as of March
19, 1999 of Registrant in favor of Doug Anderson;
incorporated by reference to Exhibit 4.3 to the Registrant's
Current Report on Form 8-K dated March 12, 1999.
4.8 Zero Coupon Convertible Promissory Note dated as of March
19, 1999 of Registrant in favor of Robert Anderson;
incorporated by reference to Exhibit 4.4 to the Registrant's
Current Report on Form 8-K dated March 12, 1999.
4.9 Indenture, dated as of January 25, 2000, between the
Registrant and State Street Bank and Trust Company of
California, N.A. as Trustee with respect to 7% Convertible
Subordinated Notes due 2000 (the "7% Notes"); incorporated
by reference to Exhibit 4.1 of the Registrant's Registration
Statement on Form S-3 (SEC File No. 333-95921).
4.10 Registration Rights Agreement, dated as of January 19, 2000,
between the Registrant and the initial purchasers identified
therein, with respect to the 7% Notes; incorporated by
reference to Exhibit 4.2 to the Registrant's Registration
Statement on Form S-3 (SEC File No. 333-95921).
9 Form of Voting Trust Agreement, as amended; incorporated by
reference to Exhibit 9 to Registrant's Registration
Statement on Form S-1 (SEC File No. 333-60837).
10.1 1996 Amended and Restated Stock Plan, as amended;
incorporated by reference to Exhibit 10.1 to Registrant's
Registration Statement on Form S-1 (SEC File No. 333-60837).
10.2 Employment Agreement dated January 1, 1995 between GNP
(formerly EarthWeb Ltd.) and Jack D. Hidary; incorporated by
reference to Exhibit 10.2 to Registrant's Registration
Statement on Form S-1 (SEC File No. 333-60837).
10.3 Employment Agreement dated January 1, 1995 between GNP
(formerly EarthWeb Ltd.) and Murray Hidary; incorporated by
reference to Exhibit 10.3 to Registrant's Registration
Statement on Form S-1 (SEC File No. 333-60837).
10.4 Employment Agreement dated November 4, 1996 between the
Registrant and Irene Math; incorporated by reference to
Exhibit 10.4 to Registrant's Registration Statement on Form
S-1 (SEC File No. 333-60837).
10.5 Employment Agreement dated November 3, 1997 between the
Registrant and William Gollan; incorporated by reference to
Exhibit 10.5 to Registrant's Registration Statement on Form
S-1 (SEC File No. 333-60837).
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ------------------------------------------------------------
<C> <S>
10.6 Consulting Agreement dated as of August 1, 1998 between the
Registrant and Nova Spivack; incorporated by reference to
Exhibit 10.6 to the Registrant's Registration Statement on
Form S-1 (SEC File No. 333- 60837).
10.7 Intercompany Services Agreement dated October 25, 1996 among
the Registrant, EarthWeb LLC, GNP (formerly EarthWeb Ltd.),
Jack D. Hidary, Murray Hidary and Nova Spivack, as amended;
incorporated by reference to Exhibit 10.7 to the
Registrant's Registration Statement on Form S-1 (SEC File
No. 333-60837).
10.8 Lease Agreement dated April 28, 1995 between 3 Park Avenue
Co. and MJN Enterprises, Inc., as amended; incorporated by
reference to Exhibit 10.8 to the Registrant's Registration
Statement on Form S-1 (SEC File No. 333-60837).
10.10 Form of 1998 Employee Stock Purchase Plan; incorporated by
reference to Exhibit 10.10 to Registrant's Registration
Statement on Form S-1 (SEC File No. 333-60837).
10.11 Employment Agreement between EarthWeb Inc. and Lloyd Linn;
incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K dated February 2,
1999.
10.12 Employment Agreement between Registrant and John Kleine;
incorporated by reference to Exhibit 10.6 to the
Registrant's Current Report on Form 10-K for the year ended
December 31, 1998.
10.13 Registrant's 1998 Stock Incentive Plan, as amended,
incorporated by reference to Exhibit 4.1 to Registrant's
Registration Statement on Form S-8 (SEC File No. 333-79331).
13.1 1999 Annual Report to Stockholders, portions of which are
included herein.
21.1 Subsidiaries of Registrant
23.1 Consent of Independent Auditors
27 Financial Data Schedule
</TABLE>
* Confidential treatment has been received with respect to certain portions of
this Exhibit. Omitted portions have been filed separately with the
Commission.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on March 28, 2000.
<TABLE>
<S> <C> <C>
EARTHWEB INC.
BY: /S/ JACK D. HIDARY
-----------------------------------------
Jack D. Hidary
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities on March 28, 2000.
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE
------------------ -----
<C> <S> <C>
/s/ JACK D. HIDARY President, Chief Executive
------------------------------------------- Officer and Director
Jack D. Hidary
/s/ MURRAY HIDARY Executive Vice President,
------------------------------------------- Treasurer and Director
Murray Hidary
/s/ PETER DEROW Director
-------------------------------------------
Peter Derow
/s/ HENRY KRESSEL Director
-------------------------------------------
Henry Kressel
/s/ CARY DAVIS Director
-------------------------------------------
Cary Davis
/s/ IRENE MATH Senior Vice President, Finance
------------------------------------------- (Principal Financial and
Irene Math Accounting Officer)
</TABLE>
28
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ------------------------------------------------------------
<C> <S>
*2.1 Agreement and Plan of Merger among EarthWeb Inc., EW
Acquisition Corporation, D&L Online, Inc., Lloyd Linn, and
Diane Rickert; incorporated by reference to Exhibit 2.1 to
the Registrant's Current Report on Form 8-K dated February
2, 1999.
2.2 Securities Purchase Agreement among the Registrant, EarthWeb
Knowledge Products, Inc. International, Inc. and Steve
Anderson, Doug Anderson, Robert Anderson and Ascent
Partners; incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K dated March 12,
1999.
3.1 Form of Amended and Restated Certificate of Incorporation;
incorporated by reference to Exhibit 3.1 to Registrant's
Registration Statement on Form S-1 (SEC File No. 333-60837).
3.2 Form of Amended and Restated By-laws; incorporated by
reference to Exhibit 3.2 to Registrant's Registration
Statement on Form S-1 (SEC File No. 333-60837).
4.1 Amended and Restated Shareholders Agreement dated as of June
24, 1997 among the Registrant, EarthWeb LLC, Global Network
Partners (GNP), Warburg, Pincus Ventures, L.P., Jack D.
Hidary, Murray Hidary and Nova Spivack; incorporated by
reference to Exhibit 4.1 to Registrant's Registration
Statement on Form S-1 (SEC File No. 333-60837).
4.2 Specimen Common Stock Certificate of Registrant;
incorporated by reference to Exhibit 4.2 to Registrant's
Registration Statement on Form S-1 (SEC File No. 333-60837).
4.3 Registration Rights Agreement dated as of October 25, 1996
by and between the Registrant, Warburg, EarthWeb LLC and
GNP; incorporated by reference to Exhibit 4.3 to
Registrant's Registration Statement on Form S-1 (SEC File
No. 333-60837).
4.4 Registration Rights Agreement between EarthWeb Inc., Lloyd
Linn and Diane Rickert; incorporated by reference to Exhibit
4.1 to the Registrant's Current Report on Form 8-K dated
February 2, 1999.
4.5 Registration Rights Agreement dated as of March 19, 1999
between EarthWeb, Inc., Steve Anderson, Doug Anderson,
Robert Anderson and Ascent Partners; incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report
on Form 8-K dated March 12, 1999.
4.6 Zero Coupon Convertible Promissory Note dated as of March
19, 1999 of Registrant in favor of Steven Anderson;
incorporated by reference to Exhibit 4.2 to the Registrant's
Current Report on Form 8-K dated March 12, 1999.
4.7 Zero Coupon Convertible Promissory Note dated as of March
19, 1999 of Registrant in favor of Doug Anderson;
incorporated by reference to Exhibit 4.3 to the Registrant's
Current Report on Form 8-K dated March 12, 1999.
4.8 Zero Coupon Convertible Promissory Note dated as of March
19, 1999 of Registrant in favor of Robert Anderson;
incorporated by reference to Exhibit 4.4 to the Registrant's
Current Report on Form 8-K dated March 12, 1999.
4.9 Indenture, dated as of January 25, 2000, between the
Registrant and State Street Bank and Trust Company of
California, N.A. as Trustee with respect to 7% Convertible
Subordinated Notes due 2000 (the "7% Notes"); incorporated
by reference to Exhibit 4.1 of the Registrant's Registration
Statement on Form S-3 (SEC File No. 333-95921).
4.10 Registration Rights Agreement, dated as of January 19, 2000,
between the Registrant and the initial purchasers identified
therein, with respect to the 7% Notes; incorporated by
reference to Exhibit 4.2 to the Registrant's Registration
Statement on Form S-3 (SEC File No. 333-95921).
9 Form of Voting Trust Agreement, as amended; incorporated by
reference to Exhibit 9 to Registrant's Registration
Statement on Form S-1 (SEC File No. 333-60837).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ------------------------------------------------------------
<C> <S>
10.1 1996 Amended and Restated Stock Plan, as amended;
incorporated by reference to Exhibit 10.1 to Registrant's
Registration Statement on Form S-1 (SEC File No. 333-60837).
10.2 Employment Agreement dated January 1, 1995 between GNP
(formerly EarthWeb Ltd.) and Jack D. Hidary; incorporated by
reference to Exhibit 10.2 to Registrant's Registration
Statement on Form S-1 (SEC File No. 333-60837).
10.3 Employment Agreement dated January 1, 1995 between GNP
(formerly EarthWeb Ltd.) and Murray Hidary; incorporated by
reference to Exhibit 10.3 to Registrant's Registration
Statement on Form S-1 (SEC File No. 333-60837).
10.4 Employment Agreement dated November 4, 1996 between the
Registrant and Irene Math; incorporated by reference to
Exhibit 10.4 to Registrant's Registration Statement on Form
S-1 (SEC File No. 333-60837).
10.5 Employment Agreement dated November 3, 1997 between the
Registrant and William Gollan; incorporated by reference to
Exhibit 10.5 to Registrant's Registration Statement on Form
S-1 (SEC File No. 333-60837).
10.6 Consulting Agreement dated as of August 1, 1998 between the
Registrant and Nova Spivack; incorporated by reference to
Exhibit 10.6 to the Registrant's Registration Statement on
Form S-1 (SEC File No. 333- 60837).
10.7 Intercompany Services Agreement dated October 25, 1996 among
the Registrant, EarthWeb LLC, GNP (formerly EarthWeb Ltd.),
Jack D. Hidary, Murray Hidary and Nova Spivack, as amended;
incorporated by reference to Exhibit 10.7 to the
Registrant's Registration Statement on Form S-1 (SEC File
No. 333-60837).
10.8 Lease Agreement dated April 28, 1995 between 3 Park Avenue
Co. and MJN Enterprises, Inc., as amended; incorporated by
reference to Exhibit 10.8 to the Registrant's Registration
Statement on Form S-1 (SEC File No. 333-60837).
10.10 Form of 1998 Employee Stock Purchase Plan; incorporated by
reference to Exhibit 10.10 to Registrant's Registration
Statement on Form S-1 (SEC File No. 333-60837).
10.11 Employment Agreement between EarthWeb Inc. and Lloyd Linn;
incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K dated February 2,
1999.
10.12 Employment Agreement between Registrant and John Kleine;
incorporated by reference to Exhibit 10.6 to the
Registrant's Current Report on Form 10-K for the year ended
December 31, 1998.
10.13 Registrant's 1998 Stock Incentive Plan, as amended,
incorporated by reference to Exhibit 4.1 to Registrant's
Registration Statement on Form S-8 (SEC File No. 333-79331).
13.1 1999 Annual Report to Stockholders, portions of which are
included herein.
21.1 Subsidiaries of Registrant
23.1 Consent of Independent Auditors
27 Financial Data Schedule
</TABLE>
* Confidential treatment has been received with respect to certain portions of
this Exhibit. Omitted portions have been filed separately with the
Commission.
<PAGE>
Exhibit 13.1
1999 ANNUAL REPORT TO STOCKHOLDERS
BUSINESS-TO-BUSINESS COMMERCE IS EXPECTED TO REACH $1.5 TRILLION BY 2003 IN THE
UNITED STATES ALONE. INFORMATION TECHNOLOGY (IT) PRODUCTS AND SERVICES ARE
FORECASTED TO GROW FROM $836 BILLION IN 1999 TO OVER $1.0 TRILLION IN 2002.
[GRAPHIC] EarthWeb Inc. 1999 Annual Report IT
ON A WORLDWIDE BASIS, THE B2B IT MARKET IS OVER $40 BILLION AND GROWING QUICKLY.
EARTHWEB, THE LEADING B2B PORTAL TO THE GLOBAL IT MARKET, CONNECTS THE WORLD OF
B2B AND THE IT MARKET THROUGH A PLATFORM OF CONTENT, CAREER, COMMUNITY AND
COMMERCE SERVICES.
PORTAL
<PAGE>
REVENUES FOR THE YEAR INCREASED TO $31.0 MILLION, UP
827% OVER 1998.
GROSS MARGIN ROSE TO 64.7% COMPARED TO 36.4% IN 1998.
TOTAL ADVERTISING AND PAID JOB LISTING CUSTOMER BASE GREW TO
MORE THAN 4,900.
PAGE VIEWS FOR EARTHWEB'S ONLINE SERVICES QUADRUPLED
IN 1999 TO 681 MILLION.
SUBSCRIBERS TO EARTHWEB'S EMAIL NEWSLETTERS REACHED 702,000,
EARTHWEB'S DICE.COM WAS RANKED AS THE LEADING IT JOB BOARD
BY MEDIA METRIX AND ALEXA.
FOR MORE INFORMATION, VISIT WWW.EWBX.COM.
<PAGE>
LETTER TO SHAREHOLDERS
AS A TRUSTED THIRD-PARTY PLATFORM, EARTHWEB ENABLES
INFORMATION TECHNOLOGY
(IT) PROFESSIONALS TO ACCESS TECHNICAL INFORMATION,
BUY AND SELL PRODUCTS AND SERVICES, MANAGE CAREERS
AND RECRUIT PERSONNEL THROUGH ITS NETWORK
OF FLAGSHIP SERVICES THAT INCLUDES EARTHWEB.COM,
DICE.COM AND ITKNOWLEDGE.COM.
EarthWeb's success in 1999 reflects our firm commitment to being the leading
business portal to the global IT industry and to harnessing signi/cant growth
opportunities in this market. These opportunities are being created by the
dynamic growth of online B2B, and by the increasingly important role the IT
industry plays in the global economy.
Our strong performance in the global IT industry has been achieved by
redefining many IT services in major vertical seg- ments of the industry. As a
result, we have strengthened our position as the leading provider of B2B online
services for the IT industry, and we have developed a strategic direction to
provide a total solution to this $836 billion industry by becoming the leading
B2B portal.
CUSTOMER BASE. We are especially pleased with the progress we have made
in expanding our customer base to include many additional Fortune 500
companies. EarthWeb has signed agreements with the following companies, among
others, for one or more of its product offerings: Apple, Bank of America,
Boeing, Cisco, Dell, General Motors, HP, IBM, Intel, Motorola, Nasdaq,
Oracle, Red Hat, Sprint, U.S. Patent and Trademark Office and Yahoo! We
believe the continuing expansion of our customer base is a result of
EarthWeb's strong value proposition and our customers' increased spending for
online services.
JOB BOARD. Dice.com (www.dice.com), part of the EarthWeb network of B2B
online services for the IT industry, provides online career management and
recruiting services. The site offers value-added services and listed more
than 160,000 high tech jobs at year end. Dice.com was ranked number one in
San Francisco, New York, Boston and Austin for IT job postings by Dynamic
Logic, an online research company, in an August 1999 study commissioned by
EarthWeb. Dice.com also continued to expand its Custom Search Network, which
is a targeted group of sites such as Red Hat.com that use the dice.com job
search engine to power their job areas.
KNOWLEDGE PRODUCTS GROUP. Premium products from EarthWeb's Knowledge
Products Group include ITKnowledge, SupportSource, and Linux Courseware. These
products range from a comprehensive online library of searchable IT reference
books and troubleshooting tools, to a complete course covering all aspects of
Linux including installation, administration and trouble-shooting. We also
entered into new and expanded license agreements that provide additional
technical reference content for EarthWeb's Knowledge Products. These agreements
include a license of the IBM Redbook series, exclusive licenses of Auerbach
Publications and the Coriolis Group, and a broader license of CRC Press.
SUBSCRIPTION & TRAFFIC GROWTH. Just one year after launching our first
subscription-based online service, EarthWeb's premium subscription products
became a major reference source to IT departments worldwide, and the number of
subscribers to EarthWeb's e-mail newsletters increased to 702,000. Aggregate
page views for EarthWeb's online services rose to 681 million in 1999. The
total number of unique visits to EarthWeb sites in 1999 reached 145 million.
We have excellent market opportunities, a clear strategic direction, leading
products and services, and a competitive advantage in our people. To our
Board of Directors and Officers, and to our hard-working and dedicated staff
members, I extend a sincere thank you for a job well done.
I also thank EarthWeb's valued customers and shareholders, whose
support has contributed so importantly to our success in 1999. We look
forward to another year of achievements in the global IT marketplace as we
leverage our strategic direction and assets for our continued success.
/s/ Jack D. Hidary
Jack D. Hidary
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1
<PAGE>
The EarthWeb
[GRAPHIC]
EarthWeb, the leading business portal to the global IT industry, provides a
comprehensive set of solutions to a broad range of IT professionals: CTOs, IT
managers, corporate IT purchasers, programmers, network managers, system
administrators and recruiters/HR managers.
Content
Extensive database of reference materials to solve challenging technical
problems.
OUR CONTENT INCLUDES TECHNICAL RESOURCES, ARTICLES, PREMIUM REFERENCE MATERIALS,
DECISION SUPPORT TOOLS, TRAINING MATERIALS AND TUTORIALS THAT ARE CATEGORIZED
USING OUR PROPRIETARY SYSTEM WITH LINKS TO THOUSANDS OF ADDITIONAL RESOURCES.
DRAWING ON A BASE OF MORE THAN 3,500 TECHNICAL BOOKS, COMPRISING OVER TWO
MILLION PAGES OF CONTENT, EARTHWEB HAS THE LARGEST ONLINE LIBRARY OF TECHNICAL
BOOKS AND REFERENCE MATERIALS FOR THE IT INDUSTRY.
Community
Forums where users can contribute materials and communicate with each other.
EARTHWEB PROVIDES INTERACTIVE FORUMS FOR IT PROFESSIONALS, INCLUDING MORE THAN
THIRTY TECHNICAL BULLETIN BOARDS CONTAINING MORE THAN 45,000 POSTINGS. THESE
BULLETIN BOARDS, WHICH ARE ARCHIVED TO CREATE AN ONLINE KNOWLEDGE REPOSITORY,
ENABLE USERS TO HELP EACH OTHER SOLVE TECHNICAL PROBLEMS.
2
<PAGE>
Solution
[GRAPHIC]
Career Management and Recruiting
Comprehensive set of career and professional development services online.
DICE.COM IS THE LEADING ONLINE JOB BOARD FOR THE IT INDUSTRY ENABLING EMPLOYERS
TO POST JOB LISTINGS AND USERS TO SEARCH WHAT HAS BECOME THE LARGEST ONLINE
DATABASE OF FULL-TIME AND CONTRACT IT POSITIONS. WE ALSO PROVIDE SELF-PACED
ASSESSMENT TESTS, CERTIFICATION PROGRAM GUIDES AND PROPRIETARY, IN-DEPTH
TECHNICAL TUTORIALS FOR IT PROFESSIONALS.
Commerce
Online marketplaces for the purchase and sale of IT products and services.
WE PROVIDE AN ONLINE MARKETPLACE WHERE VENDORS CAN PROMOTE THEIR PRODUCTS AND
SERVICES, AND PURCHASERS CAN IDENTIFY, EVALUATE AND BUY THE PRODUCTS THAT BEST
MEET THEIR NEEDS. IN ADDITION, OUR ONLINE AUCTIONS FEATURE HUNDREDS OF LISTINGS
FOR ENTERPRISE-LEVEL PRODUCTS.
3
<PAGE>
EARTHWEB A LEADER IN THE IT INDUSTRY
WE'RE EXCITED TO BE WORKING WITH EARTHWEB, A LEADING PROVIDER OF ONLINE
TECHNICAL INFORMATION TO THE IT INDUSTRY, TO DELIVER A ROBUST ONLINE SHOWCASE
THAT RESPONDS TO CUSTOMER REQUESTS FOR AN INFORMATION CENTER THAT HIGHLIGHTS
WINDOWS 2000 TECHNICAL RESOURCES AND SUCCESS STORIES. ANDERS DAVIDSON, PRODUCT
MANAGER AT MICROSOFT.
CORPORATE AMERICA HAS NOW RECOGNIZED THE STRONG VALUE PROPOSITION OF ONLINE
RECRUITING, AND THE DICE.COM EXPANSION HAS POSITIONED THE SITE TO SERVE THIS
SIGNIFICANT MARKET. PETER WEDDLE, EDITOR AND PUBLISHER OF WEDDLE'S, A LEADING
NEWSLETTER IN THE ONLINE RECRUITING INDUSTRY.
CCBSURE HAS REALIZED A SIGNIFICANT AND STEADY INCREASE IN TRAFFIC RESULTING FROM
OUR RELATIONSHIP WITH EARTHWEB. STEVEN R. ROBINSON, DIRECTOR OF MARKETING AT
CCBSURE, A LEADING ONLINE PROVIDER OF BUSINESS INSURANCE SOLUTIONS FOR IT
PROFESSIONALS.
IN AN APPLES-TO-APPLES COMPARISON OF THE MAJOR IT JOB WEB SITES, WE FOUND THAT
DICE.COM HAD MORE IT JOB LISTINGS IN EACH HIGH TECH CITY STUDIED. NICK NYHAN,
PRESIDENT OF DYNAMIC LOGIC.
BY OUTSOURCING THE COLLECTION OF TECHNICAL RESOURCES, COMPANIES PROVIDE THEIR
ENTIRE INTERNAL IT STAFFS INSTANT ACCESS TO A GROWING AND CONSTANTLY UPDATED
COLLECTION OF COMPREHENSIVE TECHNICAL BOOKS AND SOURCE CODE WITH EARTHWEB'S
ITKNOWLEDGE, THEREBY HELPING THE IT PROFESSIONALS BE MORE PRODUCTIVE. JERRY
MICHALSKI, PRESIDENT OF SOCIATE AND FORMER MANAGING EDITOR OF THE NEWSLETTER
RELEASE 1.0.
EARTHWEB'S DICE.COM HAS ESTABLISHED ITSELF AS A LEADER IN ONLINE CAREER
MANAGEMENT AND WE'RE PLEASED TO BE WORKING WITH THEM. DAN BALLISTER, GO2NET'S
NATIONAL SALES DIRECTOR.
EARTHWEB BRINGS THE IT COMMUNITY HIGHLY SPECIALIZED CONTENT ON THE WEB. GABRIEL
ACOSTA-LOPEZ, DIRECTOR, PLATFORM DEVELOPMENT SERVICES AT PALM COMPUTING.
4
<PAGE>
FINANCIAL REVIEW EARTHWEB INC.
SELECTED FINANCIAL DATA 6
MANAGEMENT'S DISCUSSION AND ANALYSIS 7
CONSOLIDATED BALANCE SHEETS 12
CONSOLIDATED STATEMENTS OF OPERATIONS 13
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 14
CONSOLIDATED STATEMENTS OF CASH FLOWS 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17
REPORT OF INDEPENDENT AUDITORS 26
QUARTERLY RESULTS OF OPERATIONS 27
CORPORATE INFORMATION 28
5
<PAGE>
SELECTED FINANCIAL DATA EARTHWEB INC.
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
The following selected financial data should be read in conjunction with the
financial statements and notes thereto and "Management's Discussion & Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Annual Report. The statement of operations data for the years ended December 31,
1999, 1998 and 1997 and the balance sheet data as of December 31, 1999 and 1998
are derived from the audited financial statements of EarthWeb, and are included
elsewhere in this Annual Report. The balance sheet data as of December 31, 1997,
1996 and 1995 and the statement of operations data for the years ended December
31, 1996 and 1995 are derived from the audited financial statements of EarthWeb
not included herein. The historical results presented here are not necessarily
indicative of future results.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999(1) 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 31,050 $ 3,349 $ 1,135 $ 472 $ --
Cost of Revenues 10,968 2,131 1,358 314 --
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Profit (loss) 20,082 1,218 (223) 158 --
- ------------------------------------------------------------------------------------------------------------------------------------
Operating expenses
Product development 4,114 1,476 1,003 68 36
Sales and marketing 27,715 4,547 1,018 252 --
General and administrative(2) 9,875 3,356 2,567 1,802 626
Depreciation 1,677 699 387 101 42
Amortization 12,218 417 506 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 55,599 10,495 5,481 2,223 704
- ------------------------------------------------------------------------------------------------------------------------------------
Loss from operations (35,517) (9,277) (5,704) (2,065) (704)
Interest and other income, net 804 307 267 61 (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations (34,713) (8,970) (5,437) (2,004) (705)
(Loss) income from discontinued operations -- -- (2,384) (42) 65
- ------------------------------------------------------------------------------------------------------------------------------------
Net Loss (34,713) (8,970) (7,821) (2,046) (640)
====================================================================================================================================
Basic and diluted net loss per share
from continuing operations $ (3.78) $ (2.37) $ (1.86) $ (0.69) $(0.24)
Basic and diluted net (loss) income per
share from discontinued operations -- -- (0.81) (0.01) 0.02
- ------------------------------------------------------------------------------------------------------------------------------------
Basic and diluted net loss per share $ (3.78) $ (2.37) $ (2.67) $ (0.70) $(0.22)
====================================================================================================================================
Weighted average shares of common
stock outstanding used in computing
basic and diluted net loss per share 9,179,658 3,782,575 2,925,000 2,925,000 2,925,000
====================================================================================================================================
DOLLARS IN THOUSANDS 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Cash and cash equivalents $13,054 $25,292 $4,775 $3,779 $886
Marketable securities 6,242 -- -- -- --
Working capital 5,524 23,418 4,317 3,315 865
Total assets 89,189 30,477 8,514 5,652 1,393
Long-term obligations 9,249 66 85 94 25
Stockholders' equity 58,910 26,852 6,445 4,259 1,251
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) INCLUDES THE RESULTS OF OPERATIONS OF BUSINESSES ACQUIRED IN 1999 FROM THE
RESPECTIVE DATES OF ACQUISITION. SEE FOOTNOTE 3 TO THE CONSOLIDATED
FINANCIAL STATEMENTS.
(2) GENERAL AND ADMINISTRATIVE EXPENSES IN 1999 INCLUDE A ONE-TIME EXPENSE OF
APPROXIMATELY $672,000 PRIMARILY RELATED TO STOCK OPTION GRANTS TO
EMPLOYEES OF EARTHWEB KNOWLEDGE PRODUCTS AS PART OF THE ACQUISITION OF
MICROHOUSE INTERNATIONAL, INC. SEE FOOTNOTE 3 TO THE CONSOLIDATED
FINANCIAL STATEMENTS.
6
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- ---------------
Overview
- ---------------
EarthWeb is a leading business portal for the global IT industry. EarthWeb
provides a comprehensive set of business-to-business and
business-to-professional services and offers a central portal serving each of
the major vertical markets in the IT industry, including enterprise management,
networking and telecommunications, software and internet development, and
hardware and systems. EarthWeb's network serves various constituents of the IT
industry across vertical segments, including:
o IT managers o Recruiters/HR managers o Hardware manufacturers
o Programmers and engineers o Corporate IT purchasers o Value-added resellers
o Network managers o Software publishers o ITservice firms
As a global intermediary for the IT industry, we are positioned as a
trusted third-party platform, offering an integrated environment where various
industry constituents can share information, manage their careers, recruit
personnel, and buy and sell products and services.
From its inception in 1994 until mid-1997, EarthWeb primarily developed
and maintained Web sites and online commerce infrastructures for its customers.
During this period, substantially all of EarthWeb's revenues were derived from
development contracts, maintenance fees and software license fees. During 1996,
EarthWeb began developing online services for IT professionals. EarthWeb's
operations not related to providing online services to IT professionals were
discontinued in 1997 and have been recorded as discontinued operations for all
periods.
Through December 31, 1998 EarthWeb purchased five Web sites to expand and
extend its online service offerings. In August 1997, EarthWeb acquired jars.com
("JARS"), the Web site of the Java Applet Rating Service, for $1.1 million. JARS
is a premier online service providing ratings and reviews of Java and other
source code. In February 1998, EarthWeb acquired the companion Web sites
htmlgoodies.com and javagoodies.com, which provide tutorials and other technical
resources for Web developers. In April 1998, EarthWeb acquired
intranetjournal.com, a leading online service for Intranet managers. In May
1998, EarthWeb acquired javascripts.com, an online service that complements
EarthWeb's other offerings by providing a large repository of JavaScript source
code. In July 1998, EarthWeb acquired datamation.com, which provides online
articles, resources and product analysis for IT enterprise managers. The
aggregate cost of these Web site acquisitions in 1998 totaled approximately
$949,000.
In 1999, EarthWeb completed several acquisitions. In February 1999,
EarthWeb completed the acquisition of D&L Online, Inc. now known as EarthWeb
Career Solutions, Inc. ("EarthWeb Career Solutions"), which operates dice.com, a
leading online job posting service for information technology professionals, for
approximately $35 million. The purchase price consisted of $7.0 million in cash,
$5.5 million of which was paid in 1999 and the balance of which is payable in
February 2000 and 577,778 shares of EarthWeb common stock. The total
consideration also included additional future payments, based on the performance
of dice.com, in the form of EarthWeb common stock or cash with an aggregate
value of up to $12.0 million, payable over a period of 3 years. Of this
additional consideration, $4.0 million is payable in April 2000. Gocertify.com,
which provides users with information on technical certification programs, was
also acquired in February 1999. In March 1999, EarthWeb acquired substantially
all of the assets of The Perl Journal, a leading technical publication for
developers using the Perl programming language, and the related Web site
TPJ.com. The aggregate purchase price of both acquisitions was $980,000, of
which $750,000 is payable in March 2000. The consideration also consisted of
additional future payments to be made based upon future performance.
In March 1999, EarthWeb acquired MicroHouse International, Inc., now known
as EarthWeb Knowledge Products, Inc. ("EarthWeb Knowledge Products"), for
approximately $9 million in shares of common stock, convertible notes payable
and cash. In addition, EarthWeb assumed $1.7 million of debt as part of the
acquisition. In July 1999, EarthWeb acquired the Web site SysOpt.com, an online
service which provides information on computer hardware products. In August
1999, EarthWeb acquired the Web site codeguru.com, an online service for Windows
programmers. The purchase price for both was approximately $12.0 million,
payable in the form of common stock, cash and a convertible note payable.
Additional consideration in the form of cash or common stock, with an aggregate
value of up to approximately $6.0 million, may be required to be paid if certain
contingencies are met. Such amounts would be payable through 2002.
At December 31, 1999, EarthWeb had intangible assets of approximately
$53.8 million, primarily related to the acquisitions of D&L Online, Inc.,
MicroHouse International, Inc. and codeguru.com. Intangible assets are amortized
on a straight-line basis over a period of three to five years. These
acquisitions were accounted for using the purchase method of accounting, and
accordingly, the purchase price of each was allocated to assets acquired and
liabilities assumed based on their respective fair values. See Footnote 3 to the
consolidated financial statements.
7
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
EarthWeb currently derives a significant portion of its revenue from
advertising, including paid job listings, banners and sponsorships. EarthWeb
also derives revenues from sales of and subscriptions to our information
products and services, as well as a variety of commerce offerings.
Advertising revenues are recognized over the period in which the
advertisements are displayed on EarthWeb's Web Sites, provided that no
significant obligations remain and collection of the receivables are reasonably
assured. Obligations for banner and sponsorship advertising typically include
guarantees of a minimum number of "impressions" (times that an advertisement is
viewed by users of EarthWeb's online services over a specified period of time).
Typically, if the minimum number of impressions is not achieved, EarthWeb will
extend the advertising campaign until the related guarantee is met, which would
result in delayed revenue recognition. EarthWeb records revenues and expenses
for barter transactions (receipt of advertisements or other goods or services in
exchange for advertisements on its online services) at the lesser of the
estimated fair value of the advertisements, goods or services received or the
fair value of the advertisements given. In future periods, management intends to
maximize cash advertising revenues, although EarthWeb will continue to enter
into barter advertising transactions as appropriate.
In order to expand its online services, EarthWeb anticipates incurring
additional expenses to increase its product development and sales and marketing
efforts, pursue additional strategic acquisitions and support the growth of the
organization. The sales and marketing expenses will primarily include expenses
related to hiring additional employees and increasing advertising and brand
promotion activities. As a result of these expenditures and other factors,
EarthWeb expects to continue to incur losses in the foreseeable future.
EarthWeb expects to experience significant fluctuations in its future
quarterly results due to a variety of factors, many of which are outside of
EarthWeb's control. These factors include the level of usage on the Internet,
demand for Internet advertising, the addition or loss of customers, the level of
user traffic on EarthWeb's online services, economic conditions specific to the
Internet industry and online media and economic conditions generally. Management
believes that its revenues are also subject to seasonal fluctuations because
advertisers generally place fewer advertisements during the first and third
calendar quarters of each year. EarthWeb believes that certain expenses as a
percentage of revenues may fluctuate between periods based on the growth of
revenues; however, EarthWeb expects expenses to continue to grow in absolute
dollars for the foreseeable future.
- -----------------------
Results of Operations
- -----------------------
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 REVENUES.
Revenues for the year ended December 31, 1999 increased 827% to $31.0 million
from $3.3 million for the year ended December 31, 1998. Advertising revenues
including paid listings, banners and sponsorships represented 85% and 95% of
revenues for the years ended December 31, 1999 and 1998, respectively. The
increase in revenues was primarily due to growth in advertising revenues,
attributable to the acquisition of D&L Online, Inc. and increases in the number
of advertising customers and the average expenditure per customer. The net
impact on advertising revenues from the acquisition of D&L Online, Inc. was an
increase of approximately $15.9 million. For the year ended December 31, 1999 no
single advertiser accounted for more than 10% of revenues; two customers
accounted for 21% of revenues for the year ended December 31, 1998.
Barter transactions accounted for approximately 10% and 25% of revenues
for the years ended December 31, 1999 and 1998, respectively. The decrease as a
percentage of revenue was primarily due to the increased revenues from acquired
companies that do not engage in significant barter transactions. For both
periods barter advertising revenues primarily related to the exchange of
advertisements, tradeshow booths, and other promotional activities with other
companies.
COST OF REVENUES. EarthWeb's cost of revenues consists primarily of
employee salaries and related expenses,
consulting fees, royalties, Internet access and hosting fees and computer
systems related expenses required to support and deliver EarthWeb's online
services. Cost of revenues for the year ended December 31, 1999 increased 415%
to $11.0 million or 35.3% of net revenues from $2.1 million or 63.6% of net
revenues for the year ended December 31, 1998. The increase in cost of revenues
was primarily attributable to increased employee salaries and related expenses,
consulting fees, royalties, and computer systems related expenses due to the
expansion of EarthWeb's online service offerings, of which approximately $4.2
million related to the expenses of acquired businesses. Management expects costs
of revenues to increase in absolute dollars in future periods due to the growth
of EarthWeb's business.
8
<PAGE>
PRODUCT DEVELOPMENT EXPENSES. EarthWeb's product development expenses
consist primarily of employee salaries and related expenses, content conversion
costs, consulting fees and computer systems related expenses required to support
the development of new or enhanced service offerings. Product development
expenses for the year ended December 31, 1999 increased 179% to $4.1 million
from $1.5 million for the year ended December 31, 1998. The increase in product
development expenses was primarily attributable to the expansion of EarthWeb's
online services and product offerings. Management expects product development
expenses to increase due to the growth of EarthWeb's business.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of advertising (including expenses recorded for barter transactions),
employee salaries, commissions and related expenses of EarthWeb's sales force
and marketing personnel, tradeshow exhibition expenses and promotional
materials. Sales and marketing expenses for the year ended December 31, 1999
increased 510% to $27.7 million from $4.5 million for the year ended December
31, 1998. The increase was primarily attributable to an increase in advertising
expenses of $11.9 million of which approximately $4.1 million related to the
expenses of acquired businesses. Additionally, salaries, commissions and related
costs increased approximately $7.0 million due to the expansion of the sales
force, of which approximately $3.2 million related to the expenses of acquired
businesses. Barter transactions accounted for approximately 12% and 19% of sales
and marketing expenses for 1999 and 1998, respectively. Management expects sales
and marketing expenses to increase due to the planned increase in advertising
and promotional activities and continued growth of the salesforce.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of employee salaries and related expenses for executive,
administrative, and accounting personnel, facility costs, recruiting fees and
professional fees. General and administrative expenses for the year ended
December 31, 1999 increased 194% to $9.9 million from $3.4 million for the year
ended December 31, 1998. The absolute dollar increase in general and
administrative expenses was primarily attributable to increased employee
salaries and related expenses, facilities costs, professional fees and
recruiting fees, of which approximately $3.1 million related to the expenses of
acquired businesses. Included in general and administrative expenses, EarthWeb
recorded a one-time expense of approximately $672,000 primarily related to the
April 1999 grant of stock options to employees of EarthWeb Knowledge Products in
connection with the acquisition of MicroHouse International, Inc. See Footnote 3
to the consolidated financial statements. Management expects general and
administrative expenses to increase in future periods due to the growth of the
business.
DEPRECIATION. Depreciation consists primarily of depreciation of property
and equipment. Depreciation for the year ended December 31, 1999 increased 140%
to $1.7 million from $699,000 for the year ended December 31, 1998, of which
approximately $403,000 related to the expenses of acquired businesses. The
increase was primarily a result of additional property and equipment. Management
expects depreciation to increase due to the growth of EarthWeb's business.
AMORTIZATION. Amortization consists primarily of amortization of
intangible assets related to acquisitions. Amortization for the year ended
December 31, 1999 increased to $12.2 million from $417,000 for the year ended
December 31, 1998. The increase in amortization expense was primarily a result
of additional amortization on intangible assets of which approximately $10.1
million related to the expenses of acquired businesses. Management expects
amortization to increase in 2000 due to the amortization of intangible assets
from several acquisitions.
INTEREST AND OTHER INCOME, NET. Interest and other income, net consists
primarily of interest earned on cash and cash equivalents. Interest and other
income, net for the year ended December 31, 1999 increased 161% to $804,000 from
$307,000 for the year ended December 31, 1998. The increase was the result of
higher average cash balances during 1999, primarily from the proceeds of
EarthWeb's initial and secondary public offerings. Management expects interest
expense to increase in 2000 due to the issuance of convertible subordinated
notes in January 2000. See footnote 12 in the consolidated financial statements.
INCOME TAXES. No provision for federal and state income taxes has been
recorded as EarthWeb has incurred net operating losses through December 31,
1999. As of December 31, 1999, EarthWeb had approximately $40.2 million of net
operating loss carryforwards for federal income tax purposes, available to
offset future taxable income. These net operating loss carryforwards will begin
to expire in 2011. Given EarthWeb's limited operating history, losses incurred
to date and the difficulty in accurately forecasting EarthWeb's future results,
management does not believe that the realization of the related deferred income
tax assets meets the criteria required by generally accepted accounting
principles and, accordingly, a full valuation allowance has been recorded.
9
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 REVENUES.
Revenues for the year ended December 31, 1998 increased 195% to $3.3 million
from $1.1 million for the year ended December 31, 1997. The increase in revenues
was due to an increase in advertising revenues of $2.2 million. Approximately
62% of the growth in advertising revenues was attributable to an increase in the
volume of advertising sold. A secondary reason for the increase in advertising
revenue was the ability of our in-house sales force to sell advertising at a
higher price (CPM). Management does not expect significant price increases in
the future and expects to derive growth in revenues primarily through increased
volume of advertising sold.
Barter transactions accounted for approximately 25% and 16% of revenues
for the years ended December 31, 1998 and 1997, respectively. For both periods
barter advertising revenues primarily related to the exchange of advertisements
with other companies.
COST OF REVENUES. Cost of revenues for the year ended December 31, 1998
increased 57% to $2.1 million or 63.6% of net revenues from $1.4 million or 120%
of net revenues for the year ended December 31, 1997. The increase in cost of
revenues was primarily attributable to increased consulting fees, employee
salaries and related expenses and freelance writing costs due to the expansion
of our online service offerings.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses for the year
ended December 31, 1998 increased 47% to $1.5 million from $1.0 million for the
year ended December 31, 1997. The increase in product development expenses was
primarily attributable to the expansion of our online service offerings, related
to the production of the ITKnowledge subscription service, which was launched in
October 1998.
SALES AND MARKETING EXPENSES. Sales and marketing expenses for the year
ended December 31, 1998 increased 347% to $4.5 million from $1.0 million for the
year ended December 31, 1997. The increase was primarily attributable to an
increase in advertising expenses of $2.0 million and salaries and related
expenses (including payroll taxes and benefits) and related costs of $1.6
million for the in-house sales force, which did not exist during 1997. Barter
transactions accounted for approximately 19% and 18% of sales and marketing
expenses for 1998 and 1997, respectively. Management expects sales and marketing
expenses to increase due to the growth of its sales force and its planned
increase in advertising and promotional activities.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the year ended December 31, 1998 increased 31% to $3.4 million from $2.6
million for the year ended December 31, 1997. The increase in general and
administrative expenses was primarily attributable to increased consulting fees,
professional fees and employee salaries and related expenses (including payroll
taxes & benefits). Management expects general and administrative expenses to
increase in future periods due to the growth of the business.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the year
ended December 31, 1998 increased 25% to $1.1 million from $893,000 for the year
ended December 31, 1997. The increase was primarily a result of additional
depreciation on property and equipment and amortization of intangible assets
from acquisitions.
INTEREST AND OTHER INCOME, NET. Interest and other income, net for the
year ended December 31, 1998 increased 15% to $307,000 from $267,000 for the
year ended December 31, 1997. The increase was primarily the result of higher
average cash balances during 1998, primarily from the proceeds of our initial
public offering.
INCOME TAXES. No provision for federal and state income taxes has been
recorded as we had incurred net operating losses through December 31, 1998. As
of December 31, 1998, we had approximately $16.3 million of net operating loss
carryforwards for federal income tax purposes, expiring through 2012, available
to offset future taxable income. Given our limited operating history, losses
incurred to date and the difficulty in accurately forecasting our future
results, management does not believe that the realization of the related
deferred income tax assets meets the criteria required by generally accepted
accounting principles and, accordingly, a full valuation allowance has been
recorded.
- ------------------
Liquidity and
Capital Resources
- ------------------
EarthWeb historically has satisfied its cash requirements primarily through
offerings of common stock and convertible preferred stock and lease financings.
Net cash used in operating activities was $17.4 million for the year ended
December 31, 1999 and $6.5 million for the year ended December 31, 1998. Cash
used in operating activities for 1999 resulted from a net loss of $34.7 million,
an increase in accounts receivable of $2.6 million and an increase in prepaid
expenses and other assets of $1.6 million, offset by increases in accounts
payable and accrued expenses of $4.6 million, and other liabilities of $1.5
million, depreciation and amortization of $13.9 million and other non-cash
charges of $1.6 million. Cash used in operating activities for 1998 resulted
primarily from a net loss of $9.0 million and an increase in accounts receivable
of $0.8 million offset by an increase in accounts payable and accrued expenses
of $2.3 million and depreciation and amortization of $1.1 million.
10
<PAGE>
Net cash used in investing activities for the year ended December 31, 1999
of $19.5 million was primarily attributable to purchases of fixed assets of $3.9
million, acquisitions of $8.3 million and purchases of marketable securities and
other investments of $7.3 million. Net cash used in investing activities for the
year ended December 31, 1998 of $2.2 million was primarily attributable to
purchases of fixed assets of $1.1 million and acquisitions of $1.3 million.
Net cash from financing activities was $24.7 million for the year ended
December 31, 1999 and $29.3 million for the year ended December 31, 1998. On May
7, 1999, EarthWeb completed a secondary public offering of 1,300,000 shares of
Common Stock at an offering price of $37.00 per share, of which 750,000 shares
were sold by EarthWeb and 550,000 shares were sold by selling stockholders.
Proceeds to EarthWeb, net of issuance costs, were approximately $25.4 million.
EarthWeb also received $1.0 million from the exercise of stock options and
purchases of EarthWeb's common stock under its Employee Stock Purchase Plan.
Offsetting these cash inflows was $1.7 million for payments on notes payable and
capital leases. In November 1998, EarthWeb completed its initial public offering
of common stock in which 2,100,000 shares were issued at a price of $14.00 per
share. Proceeds from the offering, net of offering costs, were approximately
$25.8 million. In June 1998, EarthWeb issued 433,965 shares of common stock to
EarthWeb LLC through a private placement, in consideration of net proceeds of
$3.7 million.
In January 2000, EarthWeb completed a private offering pursuant to Rule
144A of $80.0 million of convertible subordinated notes. Proceeds to EarthWeb,
net of issuance costs, were approximately $77.0 million. See Footnote 12 to the
consolidated financial statements.
EarthWeb will continue to evaluate possible acquisitions of, or
investments in, business products and technologies that are complementary to
those of the Company, which may require the use of cash. Management believes
that existing cash balances will be sufficient to meet anticipated cash
requirements for at least the next twelve months; however, EarthWeb may sell
additional equity or debt securities or obtain credit facilities. The sale of
additional securities could result in dilution to EarthWeb's stockholders.
- -------------
Year 2000
- -------------
The Company did not experience any significant malfunctions or errors in
its information or business systems when the date changed from 1999 to 2000.
Based on its operations since January 1, 2000, the Company does not expect any
significant problems related to the Year 2000 issue, although there can be no
assurance of this. For example, it is possible that Year 2000 or similar issues,
such as leap year related problems, may occur with financial closings. The
Company believes that any such problems will be minor and easily corrected. In
addition, the Company could still be negatively impacted if the Year 2000 or
similar issues adversely affect its customers or suppliers. Currently, the
Company is not aware of any significant Year 2000 or similar problems that have
arisen with its customers or suppliers.
- ----------------------------------
Recent Accounting Pronouncements
- ----------------------------------
The Financial Accounting Standards Board recently issued statement number 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of
Effective Date of FASB Statement No. 133." The statement defers for one year the
effective date of statement number 133, "Accounting for Derivative Instruments
and Hedging Activities." Statement number 133 will now be effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. Statement
number 133 will require EarthWeb to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. EarthWeb does not believe the
adoption of this standard will have a material effect on EarthWeb's results of
operations.
In November 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 100, "Restructuring and Impairment
Charges." In December 1999, the SEC issued SAB No. 101, "Revenue Recognition in
Financial Statements." SAB No. 100 expresses the views of the SEC staff
regarding the accounting for and disclosure of certain expenses not commonly
reported in connection with exit activities and business combinations. This
includes the accrual of exit and employee termination costs and the recognition
of impairment charges. SAB No. 101 expresses the views of the SEC staff in
applying generally accepted accounting principles to certain revenue
recognition issues. EarthWeb does not believe that these SABs have a material
impact on its financial position or its results of operations.
11
<PAGE>
CONSOLIDATED BALANCE SHEETS EARTHWEB INC.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 13,054,027 $ 25,292,229
Marketable securities 6,241,837 --
Accounts receivable, net 4,775,638 1,143,681
Prepaid expenses and other current assets 2,482,408 541,686
- -----------------------------------------------------------------------------------------------------------------------------------
Total current assets 26,553,910 26,977,596
Fixed assets, net 7,272,272 2,068,752
Intangible assets, net 53,789,500 1,069,220
Other assets 1,573,057 361,816
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 89,188,739 $ 30,477,384
===================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 4,347,072 $ 1,805,076
Accrued expenses 7,665,432 1,519,807
Other current liabilities 8,530,917 157,714
Notes payable--short-term 486,222 --
Discontinued operations (accrued expenses) -- 76,696
- -----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 21,029,643 3,559,293
Convertible notes payable 5,742,977 --
Notes payable-long-term 781,568 --
Other liabilities 2,724,864 65,686
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 30,279,052 3,624,979
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, par value $.01; 2,000,000 authorized, none issued -- --
Common stock, par value $.01; 21,750,000 authorized,
9,817,722 and 7,903,761 issued 98,177 79,038
Additional paid in capital 111,283,402 44,582,477
Unearned compensation (386,291) (326,562)
Accumulated comprehensive other income 110,067 --
Treasury stock at cost, 4,713 shares (199,970) (199,970)
Accumulated deficit (51,995,698) (17,282,578)
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 58,909,687 26,852,405
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 89,188,739 $30,477,384
====================================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
12
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS EARTHWEB INC.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 31,049,716 $ 3,349,165 $ 1,135,141
Cost of revenues 10,967,513 2,131,593 1,358,293
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit (loss) 20,082,203 1,217,572 (223,152)
- ------------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Product development 4,113,535 1,475,665 1,003,422
Sales and marketing 27,715,121 4,546,839 1,018,313
General and administrative 9,875,256 3,356,567 2,566,670
Depreciation 1,676,699 698,621 386,740
Amortization 12,218,466 417,077 505,860
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 55,599,077 10,494,769 5,481,005
- ------------------------------------------------------------------------------------------------------------------------------------
Loss from operations (35,516,874) (9,277,197) (5,704,157)
Interest and other income, net 803,754 307,409 267,139
- ------------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations (34,713,120) (8,969,788) (5,437,018)
Discontinued operations:
Loss from discontinued operations -- -- (2,142,934)
Loss on disposal of discontinued operations -- -- (240,585)
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss $(34,713,120) $(8,969,788) $(7,820,537)
====================================================================================================================================
Basic and diluted net loss per share from continuing operations $ (3.78) $ (2.37) $ (1.86)
Basic and diluted net loss per share from discontinued operations $ -- $ -- $ (0.81)
- ------------------------------------------------------------------------------------------------------------------------------------
Basic and diluted net loss per share $ (3.78) $ (2.37) $ (2.67)
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares of common stock outstanding
used in computing basic and diluted net loss per share 9,179,658 3,782,575 2,925,000
====================================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
13
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY EARTHWEB INC.
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED ADDITIONAL
STOCK SERIES A AND B COMMON STOCK PAID IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 653,111 $ 6,531 2,925,000 $ 29,250 $ 4,715,649
Issuance of Series B convertible
preferred stock 568,182 5,682 9,494,316
Conversion of promissory note for
Series B convertible preferred stock 29,904 299 499,701
Issuance of non-qualified stock options 5,948
Net loss
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 1,251,197 12,512 2,925,000 29,250 14,715,614
Issuance of common stock 2,536,446 25,364 29,465,517
Exercise of stock options 2,482 26 3,792
Issuance of non-qualified stock options 41,430
Issuance of stock options below deemed
fair value for accounting purposes 368,010
Amortization of deferred compensation
Conversion of preferred stock (1,251,197) (12,512) 2,439,833 24,398 (11,886)
Purchase of treasury stock
Net loss
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 -- -- 7,903,761 79,038 44,582,477
Issuance of common stock 750,000 7,500 24,967,017
Exercise of stock options 208,067 2,081 965,907
Stock issued in employee stock
purchase plan 34,217 342 463,974
Stock and stock options issued in
acquisitions 921,677 9,216 40,056,176
Forfeitures of below market
stock options (234,019)
Amortization of unearned
compensation
Beneficial conversion feature on
notes payable 481,870
Comprehensive loss:
Unrealized gains on "available-for-sale"
marketable securities
Net loss
- ---------------------------------------------------------------------------------------------------------------------
Comprehensive loss
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 -- $ -- 9,817,722 $ 98,177 $ 111,283,402
=====================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
14
<PAGE>
<TABLE>
<CAPTION>
UNREALIZED GAIN ON
"AVAILABLE - FOR -
SALE MARKETABLE UNEARNED ACCUMULATED TREASURY STOCK
SECURITIES COMPENSATION DEFICIT SHARES AMOUNT TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 $ -- $ -- $ (492,253) -- $ -- $ 4,259,177
Issuance of Series B convertible
preferred stock 9,499,998
Conversion of promissory note for
Series B convertible preferred stock 500,000
Issuance of non-qualified stock options 5,948
Net loss (7,820,537) (7,820,537)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 (8,312,790) -- -- 6,444,586
Issuance of common stock 29,490,881
Exercise of stock options 3,818
Issuance of non-qualified stock options 41,430
Issuance of stock options below deemed
fair value for accounting purposes (368,010) --
Amortization of deferred compensation 41,448 41,448
Conversion of preferred stock -- --
Purchase of treasury stock (4,713) (199,970) (199,970)
Net loss (8,969,788) (8,969,788)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 -- (326,562) (17,282,578) (4,713) (199,970) 26,852,405
Issuance of common stock 24,974,517
Exercise of stock options 967,988
Stock issued in employee stock
purchase plan 464,316
Stock and stock options issued in
acquisitions (1,060,000) 39,005,392
Forfeitures of below market
stock options 234,019 --
Amortization of unearned
compensation 766,252 766,252
Beneficial conversion feature on
notes payable 481,870
Comprehensive loss:
Unrealized gains on "available-for-sale"
marketable securities 110,067 110,067
Net loss (34,713,120) (34,713,120)
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss (34,603,053)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 $110,067 $ (386,291) $(51,995,698) (4,713) $ (199,970) $ 58,909,687
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS EARTHWEB INC.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(34,713,120) $ (8,969,788) $(7,820,537)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,676,699 698,621 386,740
Amortization 12,218,466 417,077 505,860
Charge related to issuance of stock options 766,252 82,878 5,948
Interest accrued on convertible notes 376,128 -- --
Provision for doubtful accounts 426,210 42,650 10,505
Reserve for discontinued operations -- -- 443,527
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable (2,640,195) (810,370) (285,287)
Prepaid expenses and other current assets (1,613,040) (306,444) (159,321)
Other assets -- (19,142) (32,080)
Accounts payable and accrued expenses 4,566,257 2,294,223 364,877
Other liabilities 1,521,620 (10,767) 89,389
Discontinued operations -- 36,221 (235,526)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (17,414,723) (6,544,841) (6,725,905)
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (3,862,613) (1,147,512) (954,432)
Acquisitions (8,330,410) (1,310,300) (811,876)
Investments in marketable securities (6,840,720) -- --
Restricted cash (500,000) 225,000 (512,000)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (19,533,743) (2,232,812) (2,278,308)
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bridge financing -- -- 500,000
Proceeds from issuance of preferred stock, net -- -- 9,499,998
Proceeds from issuance of common stock, net 26,405,849 29,494,699 --
Purchase of treasury stock -- (199,970) --
Payments of long-term debt (1,695,585) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by /nancing activities 24,710,264 29,294,729 9,999,998
Net increase/(decrease) in cash for the period (12,238,202) 20,517,076 995,785
Cash and cash equivalents, beginning of period 25,292,229 4,775,153 3,779,368
- -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $13,054,027 $ 25,292,229 $ 4,775,153
===============================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS EARTHWEB INC.
- ----------------
1. The Company
- ----------------
EarthWeb Inc. ("EarthWeb") is a leading business portal for the global IT
industry. EarthWeb provides a comprehensive set of business-to-business and
business-to-professional services and offers a central portal serving each of
the major vertical markets in the IT industry, including enterprise management,
networking and telecommunications, software and internet development, and
hardware and systems. EarthWeb is positioned as a trusted third party platform
offering an integrated environment where various industry constituents can share
information, manage their careers, recruit personnel and buy and sell products
and services.
EarthWeb was incorporated in the State of New York on April 25, 1996 and
subsequently re-incorporated in the State of Delaware on June 17, 1997.
EarthWeb has sustained net losses and negative cash flows from operations
since its inception. EarthWeb's ability to meet its obligations in the ordinary
course of business is dependent upon its ability to establish proratable
operations or raise additional financing through public or private equity or
debt financings, collaborative or other arrangements with corporate sources, or
other sources of financing to fund operations. During 1998, EarthWeb received
financing of approximately $29.5 million primarily through an initial public
offering of common stock in November 1998. In May 1999, EarthWeb completed a
secondary public offering of common stock raising approximately $25.4 million.
In January 2000, EarthWeb completed a private offering pursuant to Rule 144A of
convertible subordinated notes. Proceeds to EarthWeb, net of issuance costs,
were approximately $77.0 million. See Footnote 12.
- ------------------------------------
2. Significant Accounting Policies
and Procedures
- ------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of EarthWeb and its
subsidiaries, EarthWeb Career Solutions, Inc. and EarthWeb Knowledge Products,
Inc. All significant intercompany balances and transactions have been eliminated
in consolidation.
REVENUE RECOGNITION
EarthWeb generates several types of revenue including the following:
ADVERTISING Advertising revenues include paid job listings, banners and
sponsorships and are recognized over the period in which the advertisements are
displayed on EarthWeb's Web sites, provided that no significant company
obligations remain and collection of the receivables are reasonably assured.
Obligations for banner and sponsorship advertising typically include guarantees
of a minimum number of "impressions" (times that an advertisement is viewed by
users of EarthWeb's online services over a specified period of time). To the
extent that minimum guaranteed impressions are not met, EarthWeb defers
recognition of the corresponding revenues until the guaranteed impressions are
achieved. For the years ended December 31, 1999, 1998 and 1997, advertising
revenues represented approximately 85%, 95% and 86% of revenues from continuing
operations, respectively.
Revenues from barter transactions are recorded at the lower of the
estimated fair value of the advertisements, goods or services received or the
estimated fair value of the advertisements given. Revenue from barter
transactions (representing advertisements given) is recognized as income when
advertisements are delivered on EarthWeb's Web sites. Barter expense
(representing advertisements received) is recognized when EarthWeb's
advertisements are run on other companies' Web sites, which is typically in the
same period when the related barter revenue is recognized. For the years ended
December 31, 1999, 1998 and 1997, barter transactions represented 10%, 25% and
16% of revenues from continuing operations, respectively.
SUBSCRIPTION REVENUE EarthWeb offers monthly, quarterly and annual
subscriptions to ITknowledge.com, TPJ.com and SupportSource.com. Subscription
revenue is either recognized ratably over the life of the subscription or, when
a subscription includes the receipt of updates, over the term of the total
deliveries based on the relative value of each delivered update. Accordingly,
amounts received for services which have not yet been provided are reflected as
deferred revenue in the accompanying balance sheets.
PRODUCT SALES EarthWeb sells information products for IT training classes.
Educational courseware revenue is recognized when technical support information
is shipped. In addition, EarthWeb has agreements with product manufacturers
where publications and software are sold on EarthWeb's Web sites. EarthWeb
records the revenue earned and the related royalty due to the vendor as cost of
revenues when the products are sent to customers and collectibility is
reasonably assured.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH AND CASH EQUIVALENTS
All highly liquid investments with maturities of three months or less when
purchased are considered cash equivalents.
CONCENTRATION OF CREDIT RISK
Substantially all of EarthWeb's excess cash has been invested in highly liquid
investments. EarthWeb performs ongoing credit evaluations of its customers'
financial condition and generally does not require collateral on accounts
receivable. EarthWeb maintains allowances for credit losses and such losses have
been within management's expectations. EarthWeb's services are provided to
customers in several industries worldwide.
Accounts receivable are stated net of allowances for doubtful accounts of
approximately $665,000 and $53,000 as of December 31, 1999 and 1998,
respectively. One customer accounted for 12% of the accounts receivable balance
at December 31, 1999 and two customers accounted for 31% of the accounts
receivable balance at December 31, 1998. For the year ended December 1999, no
single customer accounted for more than 10% of revenue, and two customers
accounted for 21% of revenues for the year ended December 31, 1998.
MARKETABLE SECURITIES
Marketable securities are comprised of U.S. government securities and corporate
equity securities with readily determinable market values. Marketable securities
are classified and accounted for as "available-for-sale" and are reported at
fair market value with the resulting net unrealized gains or losses reported as
a separate component of stockholders' equity.
FIXED ASSETS
Depreciation of equipment, furniture and fixtures and computer software is
provided for by the straight-line method over estimated useful lives ranging
from three to five years. Amortization of leasehold improvements is provided for
over the lesser of the term of the related lease or the estimated useful life of
the improvement. The cost of additions and betterments is capitalized, and
repairs and maintenance costs are charged to operations in the periods incurred.
INTANGIBLE ASSETS
Intangible assets, resulting from acquisitions of Web sites and other assets,
are being amortized using the straight-line method over three to five years.
LONG-LIVED ASSETS
The carrying amount of assets is reviewed on a regular basis for the existence
of facts or circumstances, both internally and externally, that suggest
impairment. EarthWeb determines if the carrying amount of a long-lived asset is
impaired based on anticipated undiscounted cash flows before interest. In the
event of impairment, a loss is recognized based on the amount by which the
carrying amount exceeds fair value of the asset. Fair value is determined
primarily using the anticipated cash flows before interest, discounted at a rate
commensurate with the risk involved.
INCOME TAXES
EarthWeb recognizes deferred taxes by the asset and liability method of
accounting for income taxes. Under this method, deferred income taxes are
recognized for differences between the financial-statement and tax bases of
assets and liabilities at enacted statutory tax rates in effect for the years in
which the differences are expected to reverse. The effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date. In addition, valuation allowances are established when necessary
to reduce deferred tax assets to the amounts expected to be realized. The
primary sources of temporary differences are depreciation of fixed assets and
amortization of intangible assets and operating loss carryforwards.
RISKS AND UNCERTAINTIES
EarthWeb has a limited operating history and its prospects are subject to the
risks, expenses and uncertainties frequently encountered by companies in the new
and rapidly evolving markets for Internet products and services. These risks
include the failure to develop and extend EarthWeb's online service brands, the
rejection of EarthWeb's services by Web customers, vendors and/or subscribers,
the inability of EarthWeb to maintain and increase the levels of traffic on its
online services, as well as other risks and uncertainties. In the event that
EarthWeb does not successfully implement its business plan, certain assets may
not be recoverable.
18
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates. EarthWeb's significant estimates include the
useful lives of fixed assets and intangibles, the accounts receivable allowance
for doubtful accounts and the income tax valuation allowance.
NET LOSS PER SHARE
Basic earnings per share excludes any dilutive effect of options, warrants and
convertible securities. Basic earnings per share is computed using the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share is computed using the weighted-average number of common and
common stock equivalent shares outstanding during the period. Common equivalent
shares have been excluded from the computation as their effect is antidilutive
for all years. Net loss per share amounts for all periods have been restated to
conform to SFAS No. 128 requirements. There were 1,839,798, 498,962 and 200,090
options outstanding as of December 31, 1999, 1998 and 1997, respectively, that
could potentially dilute earnings per share in the future. Such options were not
included in the computation of diluted loss per share because to do so would
have been antidilutive for all periods presented.
STOCK SPLIT
EarthWeb authorized and implemented a 0.65-for-one reverse stock split in
connection with the initial public offering of EarthWeb's common stock on
November 10, 1998. All references to the number of shares of common stock have
been retroactively restated in the financial statements to reflect the effect of
this transaction.
COMPREHENSIVE INCOME
EarthWeb adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income" in 1998. SFAS No. 130 establishes standards for reporting comprehensive
income and its components in financial statements. Comprehensive income, as
defined, includes all changes in equity (net assets) during a period from
non-owner sources.
SEGMENTS
EarthWeb adopted the provisions of SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" in 1998. This statement establishes
standards for the way companies report information about operating segments in
annual financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
EarthWeb has determined that it does not have any separately reportable business
segments as of December 31, 1999.
RECLASSIFICATIONS
Certain amounts from the prior year have been reclassified to conform with the
current year presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued statement number 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of
Effective Date of FASB Statement No. 133." The statement defers for one year the
effective date of statement number 133, "Accounting for Derivative Instruments
and Hedging Activities." Statement number 133 will now be effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. Statement
number 133 will require EarthWeb to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. EarthWeb does not believe the
adoption of this standard will have a material effect on EarthWeb's results of
operations.
In November 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 100, "Restructuring and Impairment
Charges." In December 1999, the SEC issued SAB No. 101, "Revenue Recognition in
Financial Statements." SAB No. 100 expresses the views of the SEC staff
regarding the accounting for and disclosure of certain expenses not commonly
reported in connection with exit activities and business combinations. This
includes the accrual of exit and employee termination costs and the recognition
of impairment charges. SAB No. 101 expresses the views of the SEC staff in
applying generally accepted accounting principles to certain revenue recognition
issues. EarthWeb does not believe that these SABs have a material impact on its
financial position or its results of operations.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------
3. Acquisitions
- ------------------
In February 1998, EarthWeb acquired the companion Web sites htmlgoodies.com and
javagoodies.com. In April 1998, EarthWeb acquired intranetjournal.com. In May
1998, EarthWeb acquired javascripts.com. In July 1998, EarthWeb acquired
substantially all of the assets of the Web site datamation.com. In conjunction
with the acquisition of datamation.com, EarthWeb also licensed, on a
non-exclusive, fully paid basis from the seller, the right to use certain
customer lists for the purposes of marketing EarthWeb's products and services.
The aggregate cost of these Web site acquisitions totaled approximately
$949,000.
In February 1999, EarthWeb completed the acquisition of D&L Online, Inc.,
now known as EarthWeb Career Solutions, Inc., which operates dice.com, a leading
online job posting service for information technology professionals, for
approximately $35 million. The purchase price consisted of $7.0 million in cash,
$5.5 million of which was paid in 1999 and the balance of which is payable in
February 2000 and 577,778 shares of EarthWeb common stock. The total
consideration also included additional future payments, based on the performance
of dice.com, in the form of EarthWeb common stock or cash with an aggregate
value of up to $12.0 million, payable over a period of 3 years. Of this
additional consideration, $4.0 million is payable in April 2000. All outstanding
options to purchase D&L Online, Inc. common stock were converted into
non-qualified options to purchase an aggregate of 36,667 shares of EarthWeb Inc.
common stock. Under the terms of the agreement and a related escrow agreement,
an aggregate of 57,778 shares of EarthWeb common stock is being held in escrow
for 18 months for the purpose of indemnifying EarthWeb against certain
liabilities of D&L Online, Inc. and its stockholders.
In February 1999, EarthWeb acquired gocertify.com, which provides users
with information on technical certification programs. In March 1999, EarthWeb
acquired substantially all the assets of The Perl Journal, a leading technical
publication for developers using the Perl programming language, and the related
Web site TPJ.com. The aggregate purchase price of both acquisitions was
$980,000, of which $750,000 is payable in March 2000. The consideration also
consists of additional future payments, based on performance, in the form of
cash or stock, with an aggregate value of $500,000.
In March 1999, EarthWeb acquired all of the capital stock of MicroHouse
International, Inc., now known as EarthWeb Knowledge Products, Inc., for
approximately $9 million. The consideration paid by EarthWeb consisted of (a)
$1.6 million in cash, $95,000 of which is payable in 2000, (b) 50,856 shares of
EarthWeb common stock, and (c) promissory notes in an aggregate amount of
approximately $5.0 million convertible into 126,475 shares of common stock in
March 2000. The beneficial conversion feature related to the notes payable of
approximately $482,000 is being amortized over the one year life of the notes
payable. In addition, EarthWeb assumed $1.7 million of debt as part of the
acquisition.
In July 1999, EarthWeb acquired the Web site SysOpt.com, an online service
which provides information on computer hardware products. In August 1999,
EarthWeb acquired the website codeguru.com, an online service for Windows
programmers. The purchase price for both was approximately $12.0 million,
payable in the form of common stock, cash and a convertible note payable.
Additional consideration in the form of cash or common stock, with an aggregate
value of up to approximately $6.0 million may be required to be paid if certain
contingencies are met. Such amounts would be pay able through 2002.
Amortization expense of intangible assets resulting from these
acquisitions totaled $12,218,000 and $404,000 in the years ended December 31,
1999 and 1998, respectively. These acquisitions were accounted for using the
purchase method of accounting. The results of operations for each were included
with those of EarthWeb for periods subsequent to the date of each acquisition.
The following unaudited pro forma summary presents consolidated results of
operations for EarthWeb as if the acquisitions of D&L Online, Inc., MicroHouse
International, Inc., codeguru.com and SysOpt.com had been consummated on the
beginning of each year presented. The unaudited pro forma information is
intended for informational purposes only and is not necessarily indicative of
the future financial results of operations of EarthWeb after the acquisitions or
of the financial results of operations of EarthWeb that would have actually
occurred had the acquisitions been affected in the beginning of each year
presented.
YEAR ENDED DECEMBER 31, 1999 1998
- --------------------------------------------------------------------------------
Revenues $ 33,130,749 $ 15,279,498
Net loss $(47,837,659) $(23,989,092)
Basic and diluted loss per share $ (5.08) $ (5.11)
Weighted average of common stock outstanding 9,417,186 4,695,723
- --------------------------------------------------------------------------------
20
<PAGE>
Pro forma adjustments include: (i) amortization of goodwill and other
intangible assets recorded as a result of the acquisitions, (ii) adjustment
related to D&L Online, Inc. S corporation distribution which was recorded as
compensation expense that will not be incurred in the future, as well as to
record the associated tax charge which does not assume the utilization of
EarthWeb's net operating loss carryforwards, (iii) adjustment to record
compensation expense related to options issued to EarthWeb Knowledge Products
employees to purchase common stock at an exercise price below the fair market
value of the EarthWeb common stock at the date of grant, (iv) adjustment to
reflect the accretion of the discount on the convertible notes issued in the
connection with the acquisition of MicroHouse International, Inc. and (v)
adjustment of the weighted average shares of common stock outstanding used in
the calculation of earnings per share to reflect shares issued in connection
with all of the acquisitions.
- -----------------------------
4. Discontinued Operations
- -----------------------------
In November 1997, EarthWeb formalized its plan to discontinue its professional
services and software products divisions. Accordingly, operating results have
been reclassified and reported in discontinued operations.
Operating results of the discontinued operations are as follows:
<TABLE>
<CAPTION>
PROFESSIONAL SOFTWARE
TOTAL TOTAL SERVICES PRODUCTS TOTAL
1999 1998 1997 1997 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ -- $2,303,813 $ 476,170 $ 2,779,983
Expenses -- -- 1,361,046 3,802,456 5,163,502
- ------------------------------------------------------------------------------------------------------------------------------------
Net (loss) income $ -- $ -- $ 942,767 $(3,326,286) $(2,383,519)
====================================================================================================================================
</TABLE>
Assets and liabilities of the discontinued operations are as follows at December
31:
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accounts receivable $ -- $ -- $ 253,052 $ 150,000 $ 403,052
Accrued expenses -- 76,696 103,585 339,942 443,527
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets (liabilities) $ -- $(76,696) $ 149,467 $ (189,942) $ (40,475)
====================================================================================================================================
</TABLE>
- ---------------------------
5. Marketable Securities
- ---------------------------
EarthWeb's marketable securities are stated at fair value. The following table
shows the cost, unrealized gains, accrued interest and fair value of EarthWeb's
marketable securities as of December 31, 1999:
<TABLE>
<CAPTION>
UNREALIZED ACCRUED
MATURITY COST GAINS INTEREST FAIR VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Corporate equity securities N/A $ 119,751 $ 110,067 $ -- $ 229,818
U.S. Government WITHIN
and agencies 1 YEAR 6,009,226 -- 2,793 6,012,019
- ------------------------------------------------------------------------------------------------------------------------------------
Total $6,128,977 $ 110,067 $2,793 $6,241,837
====================================================================================================================================
</TABLE>
- ------------------------------
6. BALANCE SHEET COMPONENTS
- ------------------------------
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Computer equipment and software $ 8,682,809 $2,348,249
Furniture and fixtures 1,126,161 499,425
Leasehold improvements 864,858 635,627
- ------------------------------------------------------------------------------------------------------------------------------------
10,673,828 3,483,301
Less, accumulated depreciation and amortization (3,401,556) (1,414,549)
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 7,272,272 $2,068,752
====================================================================================================================================
</TABLE>
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depreciation and amortization of property and equipment for the years
ended December 31, 1999, 1998 and 1997 totaled approximately $1,677,000,
$699,000 and $529,000, respectively.
<TABLE>
<CAPTION>
December 31, 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTANGIBLE ASSETS:
Goodwill $ 34,272,434 $ --
Other Intangible Assets 32,627,511 1,961,268
Less: Accumulated Amortization (13,110,445) (892,048)
- ------------------------------------------------------------------------------------------------------------------------------------
Intangible Assets, Net $ 53,789,500 $1,069,220
====================================================================================================================================
OTHER CURRENT LIABILITIES:
Deferred revenues $ 2,006,171 $ 78,622
Payments due for acquisition 5,500,000 --
Other 1,024,746 79,092
- ------------------------------------------------------------------------------------------------------------------------------------
Other current liabilities $ 8,530,917 $ 157,714
====================================================================================================================================
</TABLE>
- -----------------------------------------
7. Long-Term Debt and Convertible Notes
- -----------------------------------------
As part of the consideration paid in the acquisition of MicroHouse
International, Inc., EarthWeb issued convertible notes in the original principal
amount of approximately $5.0 million, which are convertible into 126,475 shares
of common stock in March 2000. These notes have been discounted at a rate of
10.7% and are recorded at a discounted value of $4.9 million at December 31,
1999. The beneficial conversion feature of approximately $482,000 related to
these convertible notes is being amortized over their one year life. As part of
the consideration for the acquisition of SysOpt.com, EarthWeb issued a
convertible promissory note in the original principal amount of $875,000, which
is convertible into approximately 19,200 shares of common stock in July 2000.
Notes payable consist primarily of a fixed rate note payable which accrues
interest at an annual rate of 10% and requires quarterly payments of principal
and interest through January 2002.
- ----------------------------------
8. Commitments and Contingencies
- ----------------------------------
LEASES
EarthWeb leases equipment and office space under non-cancelable operating leases
expiring at various dates through March 2009. Future minimum lease payments
under non-cancelable operating leases as of December 31, 1999 are as follows:
Operating Leases
- --------------------------------------------------------------------------------
2000 $ 1,849,346
2001 1,638,628
2002 1,304,813
2003 1,165,217
2004 and thereafter 5,092,070
- --------------------------------------------------------------------------------
Total $11,050,074
================================================================================
Rent expense was approximately $1,262,000, $323,000 and $278,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
LETTERS OF CREDIT
As of December 31, 1999, EarthWeb has $787,000 in standby letters of credit to
collateralize certain facility lease agreements. Restricted cash collateralizes
such standby letters of credit.
LITIGATION
EarthWeb is subject to legal proceedings and claims which arise in the ordinary
course of its business. EarthWeb does not believe that an adverse outcome of any
proceeding would have a material effect on EarthWeb's financial position or
results of operations.
22
<PAGE>
- -------------------------
9. Stockholders' Equity
- -------------------------
COMMON STOCK
In June 1998, EarthWeb issued 433,965 shares of common Stock to EarthWeb LLC
through a private placement, in consideration of net proceeds of $3.7 million.
In November 1998, EarthWeb completed its initial public offering of 2,100,000
shares of common stock at a price of $14.00 a share. The total net proceeds to
EarthWeb from the initial public offering were approximately $25.8 million. On
May 7, 1999, EarthWeb completed a secondary public offering of 1,300,000 shares
of common Stock at an offering price of $37.00 per share, of which 750,000
shares were sold by EarthWeb and 550,000 shares were sold by selling
stockholders. Proceeds to EarthWeb, net of issuance costs, were approximately
$25.4 million.
STOCK OPTION PLAN
During October 1996, EarthWeb adopted the 1996 Amended and Restated Stock Option
Plan (the "1996 Plan") under which incentive stock options or non-qualified
stock options to purchase common stock may be granted to eligible employees.
In November 1998, EarthWeb adopted the EarthWeb Inc. 1998 Stock Incentive
Plan (the "1998 Plan"). EarthWeb initially reserved 375,000 shares of common
Stock for issuance under the 1998 Plan and then reserved an additional 1,700,000
shares for issuance. Under the 1998 Plan, an annual increase is added on the
first day of the Company's fiscal year beginning in 2000 equal to two percent
(2%) of the number of shares outstanding as of such date or a lesser number of
shares determined by the Compensation Committee. A summary of the status of
EarthWeb's Stock Option Plans, as amended, as of December 31, 1997, 1998 and
1999, and changes during the three years ended December 31, 1999 are presented
below:
<TABLE>
<CAPTION>
Weighted Average
Option Shares Exercise Price
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPTIONS OUTSTANDING -- JANUARY 1, 1997
Opening balance -- $ --
Granted 217,568 2.40
Cancelled (17,478) 1.54
- --------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING -- DECEMBER 31, 1997 200,090 $ 2.49
Granted 363,925 5.14
Exercised (2,732) 1.54
Cancelled (58,120) 2.51
Expired (4,201) 1.64
- --------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING -- DECEMBER 31, 1998 498,962 $ 4.43
Granted 1,837,776 28.73
Exercised (208,067) 4.72
Cancelled (287,738) 24.39
Expired (1,135) 7.30
- --------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING -- DECEMBER 31, 1999 1,839,798 $25.54
- --------------------------------------------------------------------------------------------------------------
Options exercisable at December 31, 1999 104,627
Options exercisable at December 31, 1998 108,813
Options exercisable at December 31, 1997 --
Weighted average fair value of options granted during 1999 $ 19.80
Weighted average fair value of options granted during 1998 $ 0.97
Weighted average fair value of options granted during 1997 $ 0.75
</TABLE>
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF SHARES REMAINING EXERCISE SHARES EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.54 7,449 4.1 $ 1.54 1,659 $ 1.54
$ 2.77 - $ 3.23 186,542 5.1 $ 3.08 58,260 $ 3.06
$ 8.57 - $11.54 21,329 5.5 $10.94 6,920 $10.81
$13.00 - $13.70 23,311 7.3 $13.31 8,955 $13.45
$26.19 - $36.13 1,565,167 9.5 $28.04 28,833 $29.00
$54.81 36,000 9.3 $54.81 -- $ --
- -------------------------------------------------------------------------------------------------------------------------------
$ 1.54 - $54.81 1,839,798 8.9 $25.54 104,627 $11.59
</TABLE>
Options generally vest over a period of four years; however, 15% of all
unvested options automatically vested at the date of the initial public
offering. At December 31, 1999, EarthWeb had reserved 2,289,317 shares of common
stock for the exercise of options.
The 1998 Plan also provides for the issuance of stock appreciation rights
and restricted stock awards under which shares of common stock may be issued to
eligible employees. No such awards have been made.
1998 EMPLOYEE STOCK PURCHASE PLAN
EarthWeb's 1998 Employee Stock Purchase Plan (the "Stock Purchase Plan") was
approved by the Board of Directors in November 1998. The Stock Purchase Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Code in order to provide employees of EarthWeb with an opportunity to
purchase common Stock through payroll deductions. At December 31, 1999, an
aggregate of 159,000 shares of EarthWeb's common Stock had been reserved for
issuance under the Stock Purchase Plan. Under the Stock Purchase Plan an annual
increase is added on the first day of the Company's fiscal year beginning in
2000 equal to the lesser of (i) 400,000 shares, (ii) two percent (2%) of the
number of shares as of such date or (iii) a lesser number of shares determined
by the Compensation Committee. For the year ended December 31, 1999, employees
purchased 34,217 shares of common stock at a weighted average price of $12.83
per share under the Stock Purchase Plan.
STOCK-BASED COMPENSATION
EarthWeb applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock-Issued to Employees" and related interpretations in accounting for its
stock option issuances. EarthWeb has adopted the disclosure-only provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation ("SFAS No. 123")." If
compensation cost for EarthWeb's stock option issuances in 1999, 1998, and 1997
had been recognized based on the fair value method under the provisions of SFAS
No. 123, EarthWeb's net loss would have been adjusted to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss - as reported $(34,713,120) $(8,969,788) $(7,820,537)
Net loss - pro forma $(40,078,626) $(9,022,961) $(7,860,720)
Basic net loss per share - as reported $ (3.78) $ (2.37) $ (2.67)
Basic net loss per share - pro forma $ (4.37) $ (2.39) $ (2.69)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the "Black-Scholes option-pricing model" with the following weighted
average assumptions used for grants for the years ended December 31, 1999, 1998,
and 1997; zero dividend yield for all years; 88% expected volatility for options
granted in 1999 and 0% volatility for options granted in 1998 and 1997 (all
options granted in 1998 and 1997 were issued prior to the effectiveness of the
IPO); a weighted average risk-free interest rate of 5.53%, 5.34% and 6.90%,
respectively; and expected lives of 4 years for options granted in 1999 and 1998
and 5 years for options granted in 1997.
In connection with the acquisition of MicroHouse International, Inc. in
March 1999, EarthWeb issued stock options with strike prices below the then fair
market value and, as a result, recorded deferred compensation of approximately
$1,060,000. Deferred compensation is amortized over the two-year vesting period
of the options. For the year ended December 31, 1999, EarthWeb recognized
compensation cost, net of reversals due to forfeitures, of approximately
$766,000.
24
<PAGE>
- ------------------
10. Income Taxes
- ------------------
The components of the net deferred tax asset as of December 31, 1999 and 1998
consists of the following:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating loss carryforward $ 16,298,663 $ 7,328,880
Depreciation of fixed assets and amortization of intangibles (341,705) 13,856
- --------------------------------------------------------------------------------------------------------
Net deferred tax asset 15,956,958 7,342,736
Less, Valuation allowance (15,956,958) (7,342,736)
- --------------------------------------------------------------------------------------------------------
Deferred tax asset $ -- $ --
- --------------------------------------------------------------------------------------------------------
</TABLE>
The difference between EarthWeb's U.S. federal statutory rate of 35%, as
well as its state and local rate, net of a federal benefit of 7%, when compared
to its effective rate of 0% is principally comprised of its valuation allowance.
As of December 31, 1999, EarthWeb has a net operating loss carryforward
for Federal income tax purposes of approximately $40.2 million. The net
operating loss carryforwards will begin to expire in 2011 if they have not been
used. The net deferred tax asset has been fully reserved due to the uncertainty
of EarthWeb's ability to realize this asset in the future.
- ----------------
11. Employee
Savings Plans
- ----------------
EarthWeb has three savings plans (the "Savings Plans") that qualify as deferred
salary arrangements under Section 401(k) of the Internal Revenue Code. During
1999, EarthWeb acquired two Employee Savings Plans through the acquisitions of
D&L Online, Inc. and MicroHouse International, Inc. Under the Savings Plans,
participating employees may defer a portion of their pretax earnings, up to the
Internal Revenue Service annual contribution limit. For the year ended December
31, 1999 EarthWeb contributed approximately $47,000 to the Savings Plans. For
the years ended December 31, 1998 and 1997, EarthWeb did not contribute to its
Savings Plan.
- ------------------------------------
12. Subsequent Events (unaudited)
- ------------------------------------
In January 2000, EarthWeb completed a private offering pursuant to Rule 144A of
$80.0 million of convertible subordinated notes due January 25, 2005 (the
"Notes"). Proceeds to EarthWeb, net of issuance costs, were approximately $77.0
million. The Notes are convertible, at the option of the holder, at any time on
or prior to maturity into shares of EarthWeb common stock. The Notes are
convertible at a conversion price of $39.10 per share, which is equal to a
conversion rate of 25.5754 shares per $1,000 principal amount of notes, subject
to adjustment. Interest on the Notes is payable semiannually on January 25 and
July 25 of each year, beginning July 25, 2000. EarthWeb may redeem some or all
of the Notes at any time before January 25, 2003 at the redemption prices set
forth in the Notes, if the closing price to EarthWeb common stock has exceeded
150% of the conversion price then in effect for at least 20 trading days within
a period of 30 consecutive trading days ending on the trading day before the
date of mailing of the provisional redemption notice. EarthWeb will make an
additional payment in cash with respect to the notes called for provisional
redemption in an amount set forth in the Notes. EarthWeb may redeem some or all
of the Notes at any time after January 25, 2003 at redemption prices set forth
in the Notes.
In February 2000, EarthWeb acquired all of the capital stock of Measure
Up, Inc. ("Measure Up"), a leader in online certification and preparation and
assessment solutions for the IT industry. The consideration paid by EarthWeb to
acquire Measure Up consisted of (a) $10 million in cash, which was paid at
closing, (b) $5.0 million in cash and common stock payable in two installments
in May and August of 2000, and (c) additional future "earnout" payments based on
performance of the business in the form of cash, common stock or both with an
aggregate value of up to $10 million, payable over a period of three years.
Under the terms of the Agreements and a related escrow agreement, 134,127 shares
of common stock (subject to future adjustments) have been placed in escrow to
secure future payments and an additional 58,207 shares of common stock (also
subject to future adjustments) have been placed in escrow to secure potential
earnout obligations.
In February 2000, EarthWeb acquired Cambridge Information Network ("CIN"),
a leading web site for IT executives. The consideration totalled approximately
$8 million, payable in a combination of cash and common stock in four
installments through September 2000.
In February 2000 and March 2000, EarthWeb also acquired the Web sites
CCPrep and NetCerts, respectively, both of which offer online certification
preparation products and services designed for IT professionals seeking Cisco
certification. The aggregate purchase price of both acquisitions was $3,370,000.
These acquisitions will be accounted for using the purchase method of
accounting. The results of operations for each will be included with those of
EarthWeb for periods subsequent to the date of each acquisition.
25
<PAGE>
REPORT OF INDEPENDENT AUDITORS EARTHWEB INC.
- ---------------------------------------------------------------
To the Board of Directors and Shareholders of EarthWeb Inc.:
- ---------------------------------------------------------------
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of EarthWeb
Inc. and it's consolidated subsidiaries (the "Company") at December 31, 1998 and
1999, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of those statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
New York, New York
February 1, 2000
26
<PAGE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) EARTHWEB INC.
The following table sets forth unaudited quarterly statement of operations data
for each of the four quarters during the years ended December 31, 1999 and 1998.
In the opinion of management, this information has been prepared substantially
on the same basis as the audited financial statements appearing elsewhere in
this Annual Report, and all necessary adjustments, consisting only of normal
recurring adjustments, have been included in the amounts stated below to present
fairly the unaudited quarterly results. The quarterly data should be read in
conjunction with the audited financial statements of EarthWeb and the notes
thereto appearing elsewhere in this Annual Report. The operating results for any
quarter are not necessarily indicative of the operating results for any future
period.
<TABLE>
<CAPTION>
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
QUARTER ENDED 1998 1998 1998 1998 1999 1999 1999 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DOLLARS IN THOUSANDS
Total revenues $ 308 $ 666 $ 944 $ 1,431 $ 3,732 $ 7,199 $8,653 $11,466
Cost of revenues 395 398 601 737 1,479 2,587 3,078 3,824
- -----------------------------------------------------------------------------------------------------------------------------------
Gross profit (loss) (87) 268 343 694 2,253 4,612 5,575 7,642
- -----------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Product development 246 310 434 485 736 879 1,386 1,113
Sales and marketing 333 477 1,082 2,655 5,188 6,724 7,019 8,784
General and
administrative 605 726 914 1,111 1,597 3,031 2,403 2,844
Depreciation 163 174 170 192 247 365 453 612
Amortization 70 70 141 136 1,531 2,948 3,523 4,216
- -----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,417 1,757 2,741 4,579 9,299 13,947 14,784 17,569
- -----------------------------------------------------------------------------------------------------------------------------------
Loss from operations (1,504) (1,489) (2,398) (3,885) (7,046) (9,335) (9,209) (9,927)
Interest and other
income, net 47 30 42 187 234 159 258 153
- -----------------------------------------------------------------------------------------------------------------------------------
Net loss $(1,457) $(1,459) $(2,356) $(3,698) $(6,812) $(9,176) $(8,951) $(9,774)
====================================================================================================================================
Basic and diluted
net loss per share $ (0.50) $ (0.50) $ (0.70) $ (0.62) $ (0.82) $ (1.02) $ (0.93) $ (1.00)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
CORPORATE INFORMATION EARTHWEB INC.
- ---------------------
Board of Directors
- ---------------------
JACK D. HIDARY(1)
President and Chief Executive Officer
MURRAY HIDARY
Executive Vice President,
Business Development, and Treasurer
CARY DAVIS(1)(2)
Vice President,
E. M. Warburg, Pincus & Co., LLC
HENRY KRESSEL(1)(2)
Managing Director,
E. M. Warburg, Pincus & Co., LLC
PETER DEROW
Former President, Institutional Investor, Inc.,
Newsweek, Inc. and CBS Publishing
- ---------------------
Executive Officers
- ---------------------
JACK D. HIDARY
President, Chief Executive Officer
and Director
MURRAY HIDARY
Executive Vice President,
Business Development, Treasurer and Director
WILLIAM GOLLAN
Senior Vice President
IRENE MATH
Senior Vice President, Finance
BRIAN CAMPBELL
Vice President, General Counsel and Secretary
NORMAN E. LORENTZ
Chief Technology Officer
SCOTT ANDERSON
Vice President, Worldwide Marketing
- ------------------
Corporate Office
- ------------------
EARTHWEB INC.
3 Park Avenue
New York, New York 10016
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
New York, New York
LEGAL COUNSEL
Morrison & Foerster LLP
New York, New York
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
FORM 10-K
Copies of the EarthWeb Inc. Form 10-K as filed with the Securities and Exchange
Commission are available without charge at www.sec.gov. A copy of this annual
report can be found online at: www.ewbx.com or via a written, verbal or
electronic request to EarthWeb's corporate office.
SHAREHOLDER INFORMATION
EarthWeb Inc. Common Stock is quoted on the NASDAQ National Market under the
symbol EWBX. During the fourth quarter of 1999, the high and low closing prices
per share of common stock, as reported by NASDAQ, were $51.88 and $30.25,
respectively.
EarthWeb has not paid cash dividends on its common stock and does not anticipate
paying any cash dividends in the foreseeable future. EarthWeb presently intends
to retain its future earnings to finance the expansion and development of the
business.
As of March 1, 2000, 10,096,029 shares of EarthWeb Inc. common stock were issued
and outstanding and were held of record by 126 persons, including several
holders who are nominees for an undetermined number of beneficial owners.
All references to Web sites are not intended to incorporate information
contained therein.
(1) Member of Compensation Committee
(2) Member of Audit Committee
28
<PAGE>
- --------------------------------------------------------------------------------
EWBX
FOR MORE INFORMATION, VISIT WWW.EWBX.COM.
(C)2000 EarthWeb Inc. All rights reserved. EarthWeb and the
EarthWeb logo are registered trademarks of EarthWeb Inc.
All other trademarks are the property of their respective owners.
Sources: IDC market studios and other industry data.
Design: SVP Partners, Wilton, CT, Portrait Photography: Ted Kawalerski, NYC
<PAGE>
[GRAPHIC]
EARTHWEB
EARTHWEB INC.
3 PARK AVENUE, NEW YORK, NY 10016
T: 212.725.6550 F: 212.725.6559
WWW.EARTHWEB.COM
WITH HEADQUARTERS IN NEW YORK CITY, EARTHWEB HAS OFFICES IN SAN
FRANCISCO, DES MOINES, BOULDER, BOSTON AND ATLANTA
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
- ------------------ -----------------------------
<S> <C>
EarthWeb Career Solutions, Inc. Delaware
EarthWeb Knowledge Products, Inc. Florida
Measure Up Inc. Georgia
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration
Statements on (i) Form S-3 (SEC File No. 333-84307), (ii) Form S-4 (SEC File
No. 333-91463), (iii) Form S-8 (SEC File No. 333-70145), (iv) Form S-8 (SEC File
No. 333-79331), and (v) Form S-8 (SEC File No. 333-95505) of EarthWeb Inc. of
our report dated February 1, 2000 relating to the consolidated financial
statements, which appears in the Annual Report to Shareholders, included in this
Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
New York, New York
March 24, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
EARTHWEB INC.
BALANCE SHEET
INCOME STATEMENT
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 13,054 25,292
<SECURITIES> 6,242 0
<RECEIVABLES> 4,776 1,144
<ALLOWANCES> (665) (53)
<INVENTORY> 0 0
<CURRENT-ASSETS> 26,554 26,978
<PP&E> 7,272 2,069
<DEPRECIATION> (3,402) (1,415)
<TOTAL-ASSETS> 89,189 30,477
<CURRENT-LIABILITIES> 21,030 3,559
<BONDS> 0 0
0 0
0 0
<COMMON> 98 79
<OTHER-SE> 89,091 30,398
<TOTAL-LIABILITY-AND-EQUITY> 89,189 30,477
<SALES> 0 0
<TOTAL-REVENUES> 31,050 3,349
<CGS> 0 0
<TOTAL-COSTS> 10,968 2,132
<OTHER-EXPENSES> 55,599 10,495
<LOSS-PROVISION> 426 43
<INTEREST-EXPENSE> (804) (307)
<INCOME-PRETAX> (34,713) (8,970)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (34,713) (8,970)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (34,713) (8,970)
<EPS-BASIC> (3.78) (2.37)
<EPS-DILUTED> (3.78) (2.37)
</TABLE>
