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Filed Pursuant to Rule 424(b)(5)
Registration No. 333-93167
PROSPECTUS
1,561,532 Shares
InfoSpace.com, Inc.
___________
Common Stock
($0.0001 par value)
____________________________________
This prospectus relates to the public offering, which is not being
underwritten, of up to 1,561,532 shares of our common stock, 1,559,650 shares of
which are held by some of our current stockholders and 1,882 shares of which
will be issued to the holders of warrants to purchase shares of our common
stock.
The prices at which such stockholders and warrantholders may sell the
shares will be determined by the prevailing market price for the shares or in
negotiated transactions. We will not receive any of the proceeds from the sale
of the shares.
Our common stock is traded on the Nasdaq National Market under the symbol
"INSP." On January 6, 2000, the last reported sale price for our common stock
on the Nasdaq National Market was $89.125 per share.
See "Risk Factors" beginning at page 4 to read about certain factors you
should consider before buying shares of our common stock.
____________________________________
Neither the Securities and Exchange Commission nor state securities
regulators have approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
____________________________________
The date of this Prospectus is January 10, 2000.
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TABLE OF CONTENTS
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Where You Can Find More Information.............................................. 2
Forward-Looking Statements....................................................... 3
InfoSpace.com.................................................................... 4
Risk Factors..................................................................... 4
Selling Stockholders............................................................. 20
Plan of Distribution............................................................. 21
Legal Matters.................................................................... 22
Experts.......................................................................... 22
Index to Financial Statements.................................................... F-1
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The selling stockholders are offering to sell, and
seeking offers to buy shares of our common stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of our common stock. In this
prospectus, "InfoSpace.com," "we," "us," and "our" refer to InfoSpace.com, Inc.,
its predecessors and its consolidated subsidiaries.
Except as otherwise noted, all information in this prospectus gives effect
to a two-for-one stock split of our common stock consummated in May 1999 and a
two-for-one stock split of our common stock consummated on January 4, 2000.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference facilities in Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC
located at 7 World Trade Center, Suite 1300, New York, New York 10048, and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public from the
SEC's web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this Prospectus, and later information filed with the
SEC will update and supersede this information. We incorporate by reference the
documents listed below and any future filings made with the SEC under Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until our
offering is completed.
(1) Our Annual Report on Form 10-K for the year ended December 31, 1998;
(2) Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999, June 30, 1999 and September 30, 1999;
(3) Our Current Reports on Form 8-K dated July 15, 1999, August 16, 1999,
September 27, 1999, October 14, 1999, December 16, 1999 and December
29, 1999;
(4) Our Current Report on Form 8-K/A dated December 20, 1999; and
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(5) The description of our common stock contained in our registration
statement on Form 8-A dated December 3, 1998, including any amendments
or reports filed for the purpose of updating such description.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Attn: Secretary
InfoSpace.com, Inc.
15375 N.E. 90/th/ Street
Redmond, WA 98052
(425) 602-0600
All documents subsequently filed by us pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Securities Exchange Act of 1934, as amended, prior to the
filing of a post-effective amendment which indicates that all securities
registered have been sold or which deregisters all securities then remaining
unsold, shall be deemed to be incorporated by reference in this Registration
Statement and to be part hereof from the date of filing of such documents.
You should rely on the information incorporated by reference or provided in
this prospectus or the prospectus supplement. We have authorized no one to
provide you with different information. We are not making an offer of these
securities in any state where the offer is not permitted. You should not assume
that the information in this prospectus or the prospectus supplement is accurate
as of any date other than the date on the front of the document.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements deal with our
current plans, intentions, beliefs and expectations and statements of future
economic performance. Statements containing terms such as "believes," "does not
believe," "plans," "expects," "intends," "estimates," "anticipates" and other
phrases of similar meaning are considered to contain uncertainty and are
forward-looking statements.
Forward-looking statements involve known and unknown risks and
uncertainties which may cause our actual results in future periods to differ
materially from what is currently anticipated. We make cautionary statements in
certain sections of this prospectus, including under "Risk Factors." You should
read these cautionary statements as being applicable to all related forward-
looking statements wherever they appear in this prospectus, in the materials
referred to in this prospectus, in the materials incorporated by reference into
this prospectus, or in our press releases.
No forward-looking statement is a guarantee of future performance, and you
should not place undue reliance on any forward-looking statement.
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INFOSPACE.COM
We began operations in March 1996 as a Washington corporation and were
incorporated in Delaware in April 1996, at which time the operations of our
Washington corporation predecessor were transferred to the Delaware corporation.
Our executive offices are located at 15375 N.E. 90/th/ Street, Redmond,
Washington 98052, and our telephone number is (425) 602-0600. We maintain a
World Wide Web site at www.infospace.com. Information contained on our Web site
does not constitute a part of this prospectus.
We are a leading Internet information infrastructure company, providing
enabling technologies and Internet services for consumers, merchants and
wireless devices. We provide private label solutions of Internet services to an
affiliate network of Internet portals, affinity Web sites and leading companies
enabling Internet access through wireless devices. Our affiliate network
includes more than 2,100 Web sites. Our affiliates include AOL, Microsoft,
Lycos, NBC's Snap, Go2Net, Disney/Infoseek's GO Network, Network Solutions,
DoubleClick, Dow Jones (The Wall Street Journal Interactive Edition), ABC
LocalNet, BellSouth, US West, AT&T Wireless, GTE Sprint, Nokia and Ericsson.
RISK FACTORS
In addition to reviewing other information in this prospectus and our
Annual Report on Form 10-K and the other documents incorporated herein by
reference, you should consider carefully the following factors in evaluating us
and our business before purchasing shares of our common stock.
Pending and Potential Acquisitions Involve Risks.
We have acquired complementary technologies or businesses in the past, and
intend to do so in the future. Acquisitions may involve potentially dilutive
issuances of stock, the incurrence of additional debt and contingent liabilities
or large one-time write-offs and amortization expenses related to goodwill and
other intangible assets. Any of these factors could adversely affect our results
of operations or stock price. Acquisitions, including our recent transactions
with INEX, Union-Street, eComLive and Zephyr, involve numerous risks, including:
. difficulties in assimilating the operations, products, technology,
information systems and personnel of the acquired company;
. diverting management's attention from other business concerns;
. impairing relationships with our employees, affiliates,
advertisers, content providers and distribution partners;
. being unable to maintain uniform standards, controls, procedures
and policies;
. entering markets in which we have no direct prior experience; and
. losing key employees of the acquired company.
In June 1998, we acquired Outpost Network, Inc. As a result of this
acquisition, we acquired certain electronic commerce technology and hired
approximately ten employees. We issued approximately 6,000,000 shares of stock
to the former shareholders of Outpost and agreed to offer employment to certain
employees of Outpost. In June 1999, we acquired certain MyAgent Technology
assets from Active Voice Corporation and hired six employees who helped develop
the MyAgent Technology. In October 1999, we acquired INEX and Union-Street.com,
Inc. These companies became subsidiaries of ours, and we relocated
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some of their employees to our headquarters in Redmond, Washington. We will
issue approximately 2,700,000 shares of our common stock as a result of our
acquisitions of INEX and Union-Street.com, Inc. In December 1999, we acquired
eComLive.com Inc. and Zephyr Software Inc. which became subsidiaries of ours
and for which we will issue approximately 1,046,000 shares of our common stock.
In December 1999, we entered into separate agreements to acquire Prio, Inc.
and Saraide.com inc.
We may not be able to successfully integrate the technology and personnel
we acquired from these or any other businesses, technologies or personnel that
we acquire in the future. We and the businesses acquired by us may require
substantial additional capital, and there can be no assurance as to the
availability of such capital when needed, nor as to the terms on which such
capital might be made available to us. We have retained, and may in the future
retain, existing management of acquired companies or technologies, under the
overall supervision of our senior management. The success of the operations of
these acquired companies and technologies will depend, to a great extent, on the
continued efforts of the management of the acquired companies.
We Have a Limited Operating History and a History of Losses.
We have a very limited operating history, which makes it difficult to
evaluate our business and prospects. We have incurred net losses from our
inception in March 1996 through June 30, 1999. At September 30, 1999, we had an
accumulated deficit of approximately $14.2 million. We expect to incur operating
losses on a quarterly basis in the future. Our prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by
companies in their early stage of development, particularly companies in new and
rapidly evolving markets such as Internet services. To address the risks we face
and to be able to achieve and sustain profitability, we must, among other
things:
. develop and maintain strategic relationships with potential
affiliates, distribution partners and content providers;
. identify and acquire the rights to additional content;
. successfully integrate new features with our consumer, merchant and
wireless services;
. expand our sales and marketing efforts, including relationships
with third parties to sell local advertising for our Internet
yellow pages directory services;
. maintain and increase our affiliate, distribution and advertiser
base;
. successfully expand into international markets;
. retain and motivate qualified personnel; and
. successfully respond to competitive developments.
If we do not effectively address the risks we face, our business will
suffer and we may not sustain profitability.
Our Business Model Is Evolving and Unproven.
Our business model is described below. We:
. aggregate content and commerce information from third-parties;
. integrate this content and commerce information with related information
and community services;
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. distribute these integrated services on a private label basis to leading
Internet portals, affinity sites and wireless devices;
. generate revenues from the sale of advertisements and promotions on the
Web pages that deliver our consumer services;
. generate licensing revenues from our merchant and wireless technology
and services; and
. generate e-commerce revenue from transactions completed utilizing our
merchant services.
Our business model is relatively new to the Internet, is unproven and is
likely to continue to evolve. Accordingly, our business model may not be
successful, and we may need to change it. Our ability to generate significant
revenues by distributing integrated private label solutions depends, in part, on
our ability to successfully market our private label solutions to Internet
portals and affinity sites that currently do not rely on third-party sources for
their content and service infrastructure needs and do not typically utilize
content infrastructure services that are readily available to their competitors.
We intend to continue to develop our business model as we explore opportunities
internationally and in new and unproven areas such as electronic commerce and in
providing private label solutions for wireless devices.
Our Financial Results Are Likely to Fluctuate.
Our financial results have varied on a quarterly basis and are likely to
fluctuate substantially in the future. These fluctuations may be caused by
several factors, many of which are beyond our control. These factors include:
. the addition or loss of affiliates;
. variable demand for our consumer, merchant and wireless services by our
affiliates;
. the cost of acquiring and the availability of content;
. the overall level of demand for consumer, merchant and wireless
services;
. our ability to attract and retain advertisers, content providers,
affiliates and distribution partners;
. seasonal trends in Internet usage and advertising placements;
. the amount and timing of fees we pay to our affiliates to include our
private label solutions on their Web sites and wireless devices;
. the productivity of our direct sales force and the sales forces of the
independent yellow pages publishers, media companies and direct
marketing companies that sell local Internet yellow pages advertising
for us;
. the amount and timing of increased expenditures for expansion of our
operations, including the hiring of new employees, capital expenditures
and related costs;
. our ability to continue to enhance, maintain and support our technology;
the result of litigation that is currently ongoing against
InfoSpace.com, or any litigation that is filed against us in the future;
. our ability to attract and retain personnel;
. the introduction of new or enhanced services by us, our affiliates or
distribution partners, or other companies that compete with us or our
affiliates;
. price competition or pricing changes in Internet advertising and
Internet services, such as ours;
. technical difficulties, system downtime, system failures or Internet
brown-outs;
. political or economic events and governmental actions affecting Internet
operations or content; and
. general economic conditions and economic conditions specific to the
Internet.
If one or more of these factors or other factors occur, our business could
suffer.
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In addition, because InfoSpace.com only began operations in March 1996, and
because the market for Internet services such as ours is new and evolving, it is
very difficult to predict future financial results. We plan to significantly
increase our sales and marketing, research and development and general and
administrative expenses in the year 2000. Our expenses are partially based on
our expectations regarding future revenues and estimated expenses from our
acquisitions, which are largely fixed in nature, particularly in the short term.
As a result, if our revenues in a period do not meet our expectations, our
financial results will likely suffer.
Our Business Is Seasonal.
During the summer months and year-end holiday season, Internet usage
typically declines, and our affiliates experience reduced user traffic. In
addition, advertising sales in traditional media, such as broadcast and cable
television, generally declines in the first and third quarters of the year. As
the Internet matures, we believe more companies will spend money on advertising
in the third quarter in anticipation of the year-end holiday season.
Historically, this spending has occurred mainly in the fourth quarter. Depending
on the extent to which the Internet and commercial online services are accepted
as an advertising medium, seasonality in the level of advertising expenditures
could become more pronounced for Internet-based advertising. Seasonality in
Internet service usage and advertising expenditures is likely to cause quarterly
fluctuations in our results of operations.
We Rely on Advertising and Transaction Revenues.
We derive a significant amount of our revenues from the sale of national
and local advertisements, transaction fees and promotions from our affiliates
who use our consumer services, and we expect this to continue in the future. Our
ability to increase and diversify our revenues will depend upon a number of
factors, including the following:
. the acceptance of the Internet as an advertising medium by national and
local advertisers;
. the acceptance and regular use of our private label solutions by a large
number of users who have demographic characteristics that are attractive
to advertisers;
. the expansion and productivity of our advertising sales force;
. the development of the Internet as an attractive platform for electronic
commerce;
. the adoption of our wireless services and solutions by wireless carriers
and device manufacturers; and
. availability of attractive advertising space within our private label
solutions.
We Rely on Our Relationships with Affiliates.
We will be able to continue generating revenues from advertising and
promotions only if we can secure and maintain distribution for our private label
solutions on acceptable commercial terms through a wide range of affiliates. We
expect that revenues generated from the sale of advertisements and promotions
delivered through our network of affiliates will continue to account for a
significant portion of our revenues for the foreseeable future. In particular,
we expect that a limited number of our affiliates, including, America Online,
Inc., or AOL, its CompuServe and Digital City divisions and its Netscape
Communications subsidiary and Microsoft Network, LLC will account for a
substantial portion of our affiliate traffic and, therefore, revenues over time.
Our distribution arrangements with our affiliates typically are for limited
durations of between six months and two years and automatically renew for
successive terms thereafter,
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subject to termination on short notice. We cannot assure you that such
arrangements will not be terminated or that such arrangements will be renewed
upon expiration of their terms. We generally share with each affiliate a portion
of the revenues generated by advertising on the Web pages that deliver our
content services. We pay carriage fees to certain affiliates, including AOL.
These relationships may not be profitable or result in benefits to us that
outweigh the costs of the relationships.
Our affiliate relationships are in an early stage of development. If
affiliates, especially major affiliates, demand a greater portion of advertising
revenues or require us to make payments for access to their site or device, our
business may suffer. In addition, if we lose a major affiliate, we may be unable
to timely or effectively replace the affiliate with other affiliates with
comparable traffic patterns and user demographics. The loss of any major
affiliate could harm our business.
We Rely on Third Parties for Sales of Internet Yellow Pages Advertising.
We rely on arrangements with RBOCs, independent yellow pages publishers,
media companies and direct marketing companies to generate local Internet yellow
pages advertising revenues, both domestically and internationally. These
companies sell enhanced yellow pages listings on our Internet yellow pages
directory services. Under some of our arrangements with independent yellow pages
publishers, we have granted exclusive rights to the publisher to sell local
advertising in a specific geographic area, and we do not restrict the
publisher's ability to sell advertising for any other source. These RBOCs,
independent yellow pages publishers, media companies and direct marketing
companies have only recently begun to offer local Internet yellow pages
advertising and, accordingly, have extremely limited experience in forecasting
and executing Internet advertising business models. We may have to expend
significant time and effort in training their sales forces.
Advertisers May Not Adopt the Internet as an Advertising Medium.
Most advertising agencies and potential advertisers, particularly local
advertisers, have only limited experience advertising on the Internet and have
not devoted a significant portion of their advertising expenditures to Internet
advertising. As the Internet evolves, advertisers may find Internet advertising
to be a less effective means of promoting their products and services relative
to traditional methods of advertising and may not continue to allocate funds for
Internet advertising. In addition, advertising on the Internet is at a much
earlier stage of development in international markets compared to the United
States.
Fluid and intense competition in the sale of advertising on the Internet
has led different vendors to quote a wide range of rates and offer a variety of
pricing models for various advertising services. As a result, we have difficulty
projecting future advertising revenues and predicting which pricing models
advertisers will adopt. For example, if many advertisers base their advertising
rates on the number of click throughs from our content services to their Web
pages, instead of solely on the number of impressions received, our revenues
could decrease. There are no widely accepted standards for the measurement of
the effectiveness of Internet advertising, and standards may not develop
sufficiently to support Internet advertising as a significant advertising
medium. We typically base our advertising rates on the number of impressions
received, and our advertising customers may not accept our measurements or such
measurements may contain errors.
Industry analysts and others have made many predictions concerning the
growth of the Internet as a commercial medium. Many of these historical
predictions have overstated the growth of the Internet and should not be relied
upon. This growth may not occur or may occur more slowly than estimated. In
addition,
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if a large number of consumers use "filter" software programs that limit or
remove advertising from the Web, advertisers may choose not to advertise on the
Internet. If the commercial use of the Internet does not develop, or if the
Internet does not develop as an effective and measurable medium for advertising,
our business will suffer.
We Rely on a Small Number of Customers.
We derive a substantial portion of our revenues from a small number of
customers. We expect that this will continue in the foreseeable future.
Our top ten customers represented 48% of our revenues in 1998 and 55% of
our revenues for the nine months ended September 30, 1999. In particular, 800-
U.S. Search, Inc. accounted for approximately 21% of our revenues for the year
ended December 31, 1998, and 26% of our revenues for the nine months ended
September 30, 1999. If we lose any of these customers, including 800-U.S. Search
in particular, or if any of these customers are unable or unwilling to pay us
amounts that they owe us, our financial results will suffer.
Our Advertising Arrangements Involve Risks.
We typically sell national advertisements pursuant to short-term agreements
of less than six months. As a result, our national advertising customers could
cancel these agreements, change their advertising expenditures or buy
advertising from our competitors on relatively short notice and without penalty.
Because we derive, and expect to continue to derive, a large portion of our
consumer services revenues from sales of national advertising, these short-term
agreements expose us to competitive pressures and potentially severe
fluctuations in our financial results.
In addition, we typically guarantee our national advertising customers a
minimum number of impressions or click throughs by Web users. These arrangements
expose us to potentially significant risks. If we fail to deliver these minimum
levels, we typically have to provide free advertising to the customer until the
minimum level is met, which could harm our financial results.
We occasionally guarantee the availability of advertising space in
connection with promotion arrangements and content agreements. In addition, we
occasionally provide customized advertising campaigns for advertisers and agree
with certain advertisers that we will not accept advertising from any other
customer within a particular subject matter. All of these arrangements subject
us to certain risks. These risks include:
. our potential inability to meet the guarantees we make to our customers;
. our allocation of resources to create customized advertising that may
not result in successful advertisements;
. a requirement to forego advertising from potential customers whose
advertisements would conflict with those of other customers; and
. a potential limitation on availability of additional advertising space.
Any of these results could harm our financial results.
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We Depend on Third Parties for Content.
We typically do not create our own content. Rather, we acquire rights to
information from more than 85 third-party content providers, and our future
success is critically dependent upon our ability to maintain relationships with
these content providers and enter into new relationships with other content
providers.
We typically license content under short-term arrangements that do not
require us to pay royalties or other fees for the use of the content. However,
we do enter into revenue-sharing arrangements with certain content providers,
and we pay certain content providers a one-time fee or a fee for each query from
Web users. In the future, we expect that certain of our content providers will
likely demand a greater portion of advertising revenues or increase the fees
that they charge us for their content. If we fail to enter into and maintain
satisfactory arrangements with content providers, our business will suffer. See
"--We Need to Manage Our Growth and Maintain Procedures and Controls."
We Depend on Key Personnel.
Our performance depends on the continued services of our executive officers
and other key personnel. We maintain key person life insurance on Naveen Jain,
our Chief Executive Officer, in the amount of $5.0 million. We do not maintain
key person life insurance policies on any of our other employees. If we lose the
services of any of our executive officers or other key employees, our business
could suffer.
We Need to Hire Additional Personnel.
Our future success depends on our ability to identify, attract, hire,
train, retain and motivate highly skilled technical, managerial, sales and
marketing and business development personnel. We intend to hire a significant
number of technical, sales and marketing, business development and
administrative personnel during the next year. If we fail to successfully
attract, assimilate and retain a sufficient number of qualified technical,
managerial, sales and marketing, business development and administrative
personnel, our business could suffer.
We Need to Manage Our Growth and Maintain Procedures and Controls.
We have rapidly and significantly expanded our operations and anticipate
further significant expansion to accommodate expected growth in our customer
base and market opportunities. We have increased the number of employees from 15
at January 1, 1998 to 184 at November 30, 1999. This expansion has placed, and
is expected to continue to place, a significant strain on our management, and
operational resources. Since May 1998, we have added a number of key managerial,
technical and operations personnel and we expect to add additional key personnel
in the near future. We also plan to significantly increase our employee base.
We have implemented improvements in our operational, accounting and
information systems, procedures and controls. In the past, our controls have not
been adequate to ensure proper communication within our company regarding, and
to properly document, the terms of certain of our written and verbal contracts
and the termination of certain contracts. Also in the past, we did not
consistently follow our procedures with respect to the documentation of the
granting of options to new employees, and, at times, we failed to maintain an
appropriate level of internal communication regarding the potential hiring of
new
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employees, especially management employees. These inadequacies have led to
claims against us, some of which are still pending. See "--We Are Subject to
Pending Legal Proceedings."
Our relationships with affiliates and distribution partners, content
providers and advertisers are subject to frequent change. Prior to implementing
procedures and controls in this area, these changes were often informal. In
particular, we may have failed to perform our obligations under certain
commercial contracts that may have been modified or terminated by verbal
agreement. We believe that any failure to perform our obligations was not
significant. This practice of the modification or termination of past written
agreements by verbal agreement has resulted, and may result in the future, in
disputes regarding the existence, interpretation and circumstances regarding
modification or termination of commercial contracts. We are currently involved
in litigation with Internet Yellow Pages, Inc., a direct marketing company with
which we had a cooperative sales relationship, and have received other claims.
If our relationships with affiliates and distribution partners, content
providers and advertisers evolve in an adverse manner, if we get into
contractual disputes with affiliates and distribution partners, content
providers or advertisers or if any agreements with such persons are terminated,
our business could suffer.
We have taken a number of steps to improve our accounting and information
systems, procedures and controls. In addition, we have adopted certain policies
with respect to the approval, tracking and management of our commercial
agreements, including:
. standardizing the form of our commercial agreements, where possible;
. requiring our legal and accounting departments to review any proposed
commercial contract and approve contract modifications prior to their
implementation;
. prohibiting ourselves from entering into verbal agreements or verbal
modifications or terminations of agreements; and
. establishing a contracts database to serve as a central source of key
information regarding our commercial contracts, which will facilitate
the tracking and management of these contracts.
Although these policies have been implemented, these steps may be
inadequate to prevent disputes or issues relating to inadequate internal
communications from arising in the future.
To manage the expected growth of our operations and personnel, we must
continue maintaining and improving or replacing existing operational, accounting
and information systems, procedures and controls. We will also need to expand,
train and manage our growing employee base, particularly our finance,
administrative and operations staff. Further, we must manage effectively our
relationships with various Internet content providers, wireless carriers,
advertisers, affiliates and other third parties necessary to our business. If we
are unable to manage growth effectively, our business could suffer. See "--We
Are Subject to Pending Legal Proceedings."
Our International Expansion Plans Involve Risks.
A key component of our strategy is expanding our operations into
international markets. We have entered into a joint venture agreement with
Thomson Directories Limited to replicate our content, community and commerce
services in Europe. The joint venture, TDL InfoSpace (Europe) Limited, has
targeted the United Kingdom as its first market, and it launched content
services in the third quarter of 1998. Under the joint venture agreement, each
of us is obligated to negotiate with TDL InfoSpace and the other party to
jointly offer content, community and commerce services in other European
countries prior to offering such services independently or with other parties.
In March 1999, we began providing content,
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community and commerce services to Canadian affiliates through our wholly-owned
subsidiary, InfoSpaceCanada.com. In connection with our acquisition of Zephyr
Software, we expect to launch InfoSpace.com India early in 2000 to provide
comprehensive localized consumer, merchant and wireless services to the Indian
market. In addition, with our anticipated acquisition of Saraide, we expect to
expand our wireless services into Europe, Japan and Canada.
To date, we have limited experience in developing and syndicating localized
versions of our private label solutions internationally, and we may not be able
to successfully execute our business model in these markets. In addition,
international markets experience lower levels of Internet usage and Internet
advertising than the United States. We rely on our business partner in Europe
for U.K. directory information and local sales forces and may enter into similar
relationships if we expand into other international markets. Accordingly, our
success in these markets will be directly linked to the success of our business
partners in such activities. If our business partners fail to successfully
establish operations and sales and marketing efforts in these markets, our
business could suffer.
In addition, we face a number of risks inherent in doing business in
international markets, including, among others:
. unexpected changes in regulatory requirements;
. potentially adverse tax consequences;
. export controls relating to encryption technology;
. tariffs and other trade barriers;
. difficulties in staffing and managing foreign operations;
. changing economic conditions;
. exposures to different legal standards (particularly with respect to
intellectual property and distribution of information over the
Internet);
. burdens of complying with a variety of foreign laws;
. fluctuations in currency exchange rates; and
. seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world.
If any of these risks occur, our business could suffer.
Our Business Is Highly Competitive.
We operate in the Internet information infrastructure services market,
which is extremely competitive and is rapidly changing. Our current and
prospective competitors include many large companies that have substantially
greater resources than we have. We believe that the primary competitive factors
in the market for Internet private label solutions are:
. the ability to provide content and services of broad appeal, which is
likely to result in increased user traffic and increase the brand name
value of the Web sites and wireless devices to which the services are
provided;
. the ability to meet the specific content and service demands of a
particular Web site or wireless devices;
. the cost-effectiveness and reliability of the consumer, merchant and
wireless information services;
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<PAGE>
. the ability to provide consumer, merchant and wireless information
services that are attractive to advertisers and end users;
. the ability to achieve comprehensive coverage of a particular category
of content or service; and
. the ability to integrate related information to increase the utility of
the consumer, merchant and wireless information services offered.
We compete, directly or indirectly, in the following ways, among others:
. our directory services compete with AnyWho? (a division of AT&T), GTE
SuperPages, Switchboard, ZIP2 (which was recently acquired by Compaq),
various RBOCs' directory services, infoUSA's Lookup USA, Microsoft
Sidewalk and Yahoo! Yellow Pages and White Pages;
. other information services we provide, such as classifieds, horoscopes
and real-time stock quotes, compete with specialized content providers;
. our U.K. joint venture competes with British Telecom's YELL service and
Scoot (UK) Limited;
. our merchant services compete with e-tailers such as Amazon.com and
portals such as AOL, Yahoo! and MSN; and
. our wireless commerce services compete with portals such as AOL, Yahoo!,
MSN and Lycos, and with specialized content providers.
We expect that in the future we will experience competition from other
Internet services companies and providers of Internet software, including
Microsoft, Yahoo!, AOL, Excite, Disney/Infoseek, Lycos, Go2Net's MetaCrawler and
NBC's Snap. Some of these companies are currently customers of ours, the loss of
which could harm our business. We may also face increased competition from
traditional media companies expanding onto the Internet.
Many of our current customers have established relationships with certain
of our current and potential future competitors. If our competitors develop
private label solutions that are superior to ours or that achieve greater market
acceptance than ours, our business will suffer.
Our Business Relies on the Performance of Our Systems.
Our success depends, in part, on the performance, reliability and
availability of our consumer, merchant and wireless services. Our revenues
depend, in large part, on the number of users that access our consumer, merchant
and wireless services. Our computer and communications hardware is located at
our main headquarters in Redmond, Washington and has been in additional hosting
facilities provided by Exodus Communications, Inc. and Savvis Communications
Corporation in the Seattle, Washington area. We are currently consolidating our
co-location arrangements with Exodus and Savvis into a single geographically
remote location. Our systems and operations could be damaged or interrupted by
fire, flood, power loss, telecommunications failure, Internet breakdown, break-
in, earthquake and similar events. We do not have a formal disaster recovery
plan, and we do not carry business interruption insurance that is adequate to
compensate us for losses that may occur. In addition, systems that use
sophisticated software may contain bugs, which could also interrupt service. Any
system interruptions resulting in the unavailability of our consumer, merchant
and wireless services would reduce the volume of users able to access our
consumer, merchant and wireless services and the attractiveness of our service
offerings to our affiliates, advertisers and content providers, which could harm
our business.
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Our Industry Is Experiencing Consolidation.
The Internet industry has recently experienced substantial consolidation.
For example, AOL has acquired Netscape, @Home has acquired Excite, and Compaq
has acquired ZIP2. We expect this consolidation to continue. These acquisitions
could affect us in a number of ways, including:
. companies from whom we acquire content could be acquired by one of our
competitors and stop selling us content;
. our customers could be acquired by one of our competitors and stop
buying advertising from us; and
. our customers could merge with other customers, which could reduce the
size of our customer base.
This consolidation in the Internet industry could harm our business.
We Are Subject to Pending Legal Proceedings.
From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of our business, including
claims of alleged infringement of third-party trademarks and other intellectual
property rights by us. Such claims, even if not meritorious, could require the
expenditure of significant financial and managerial resources, which could harm
our business.
An alleged former employee filed a complaint on December 7, 1998 alleging
that he was terminated without cause and that he entered into an agreement with
us that entitles him to an option to purchase 8,000,000 shares of our common
stock or 10% of our stock. The complaint alleges breach of contract, breach of
the covenant of good faith, breach of fiduciary duty, misrepresentation,
promissory estoppel, intentional interference with contractual relations and
unfair and deceptive acts and practices, seeking specific performance of the
alleged agreement for 10% of our stock, damages equal to the value of 10% of our
stock, punitive damages and attorneys' fees and costs and treble damages.
A former employee filed a complaint in December 1999 alleging that he was
terminated without cause and that he entered into an agreement with us that
entitles him to an option to purchase 150,000 shares of our common stock at
$0.50 per share. The complaint alleges breach of contract, breach of the
covenant of good faith and fair dealing, fraud, negligent misrepresentation and
promissory estoppel, seeking specific performance of the alleged agreement for
150,000 shares of our stock at $0.50 per share, compensatory and punitive
damages, and attorneys' fees and costs.
To the extent that we are required to issue shares of our common stock or
options to purchase common stock as a result of the claims filed by either or
both of the persons described above, we would recognize an expense equal to the
number of shares issued multiplied by the fair value of our common stock on the
date of issuance, less the exercise price of any options required to be issued.
This could harm our results of operations, and any such issuance would be
dilutive to existing stockholders, the impact of which may be mitigated to the
extent it is offset by shares of common stock in an escrow account.
We have filed a complaint against Internet Yellow Pages, Inc., or IYP, and
Greg Crane, asserting claims for (a) account stated, (b) breach of contract, and
(c) fraud. IYP has asserted counterclaims against us for breach of contract,
fraud, extortion and violation of the Consumer Protection Act (RCW 19.86), and
seeks
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<PAGE>
relief consisting of $1,500,000 and other unquantified money damages, punitive
damages, treble damages and attorneys' fees.
On September 22, 1999, one of the shareholders of INEX Corporation filed a
complaint in the Superior Court of Justice in Ontario, Canada, alleging that the
original shareholders of INEX and INEX itself were bound by a shareholders
agreement that entitled it to pre-emptive rights and rights of first refusal.
The complaint alleges that INEX improperly made private placements, issued
employee options and permitted share transfers after February 1997. The
complaint also alleges other breaches of contract, breach of fiduciary duty,
corporate oppression, unlawful interference with economic relations and
conspiracy. The complaint was amended on December 20, 1999 to join us as a
defendant in the suit and to allege that we assumed the obligations of INEX
under the alleged shareholders agreement as a result of our acquisition of INEX
on October 14, 1999. The complaint seeks damages against us and named former
INEX shareholders for the difference between the issue or sale price of INEX
shares issued or transferred after February 1997 and before October 14, 1999 and
the highest trading value of shares of our common stock received or receivable
in exchange attained before the date of trial. In the alternative, the complaint
seeks special damages in the amount of C$50,000,000. The complaint also seeks
C$500,000 in punitive damages and constructive trusts, equitable liens and
tracing remedies in both INEX shares formerly held by certain shareholders and
shares of our common stock received by those shareholders in exchange for their
INEX shares. The former INEX shareholders have contributed, on a pro rata basis,
217,566 shares into an escrow to indemnify us against losses in connection with
this complaint, which escrow will remain outstanding until the resolution of
these claims. We are currently investigating the claims at issue.
We believe we have meritorious defenses to all of these claims against us.
Nevertheless, litigation is inherently uncertain, and we may not prevail in
these suits.
We had discussions with a number of individuals in the past regarding
employment by us and also hired and subsequently terminated a number of
individuals as employees or consultants. Furthermore, primarily during our early
stage of development, our procedures with respect to the manner of granting
options to new employees were not clearly documented. As a result of these
factors, and in light of the receipt of the above claims, we have in the past
received, and may in the future receive, similar claims from one or more
individuals asserting rights to acquire shares of our stock or to receive cash
compensation. We cannot predict whether such future claims will be made or the
ultimate resolution of any currently outstanding or future claim. Naveen Jain,
our Chief Executive Officer, has placed into escrow 4,000,000 shares of our
stock beneficially owned by him to indemnify us and our directors for a period
of five years for certain liabilities relating to events prior to September 30,
1998. The indemnification agreement, however, does not provide for
indemnification for certain matters known by the Board prior to September 30,
1998 or losses less than $100,000. Satisfaction of such liabilities through the
issuance of escrowed shares could result in the recognition of future expenses,
which could harm our results of operations.
We Rely on Internally Developed Software and Systems.
We have developed custom software for our network servers and our private
label solutions. This software may contain undetected errors, defects or bugs.
Although we have not suffered significant harm from any errors or defects to
date, we may discover significant errors or defects in the future that we may or
may not be able to fix. We must expand and upgrade our technology, transaction-
processing systems and network infrastructure if the volume of traffic on our
Web site or our affiliates' Web sites increases substantially. In addition, as
we continue to expand our merchant and wireless services, we may have to
significantly modify our systems. We could experience periodic temporary
capacity constraints, which may cause unanticipated system disruptions, slower
response times and lower levels of customer service. We may be unable to
accurately project the rate or timing of increases, if any, in the use of our
consumer, merchant and wireless services or expand and upgrade our systems and
infrastructure to accommodate these increases in a timely manner. Any inability
to do so could harm our business.
Rapid Technological Change Affects Our Business.
Rapidly changing technology, evolving industry standards, evolving customer
demands and frequent new product and service introductions characterize our
market. Our market's early stage of development exacerbates these
characteristics. Our future success depends in significant part on our ability
to improve the performance, content and reliability of our consumer, merchant
and wireless services in response to both the evolving demands of the market and
competitive product offerings. Our efforts in these areas may not be successful.
If a large number of affiliates adopt new Internet technologies or standards, we
may need to incur substantial expenditures modifying or adapting our private
label solutions.
We Rely on the Internet System Infrastructure.
Our success depends, in large part, on other companies maintaining the
Internet system infrastructure. In particular, we rely on other companies to
maintain a reliable network backbone that
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provides adequate speed, data capacity and security and to develop products that
enable reliable Internet access and services. If the Internet continues to
experience significant growth in the number of users, frequency of use and
amount of data transmitted, the Internet system infrastructure may be unable to
support the demands placed on it, and the Internet's performance or reliability
may suffer as a result of this continued growth. In addition, the Internet could
lose its commercial viability as a form of media due to delays in the
development or adoption of new standards and protocols to process increased
levels of Internet activity. Any such degradation of Internet performance or
reliability could cause advertisers to reduce their Internet expenditures. If
other companies do not develop the infrastructure or complementary products and
services necessary to establish and maintain the Internet as a viable commercial
medium, or if the Internet does not become a viable commercial medium or
platform for advertising, promotions and electronic commerce, our business could
suffer.
We Receive Information that May Subject Us to Liability.
We obtain content and commerce information from third parties. When we
integrate and distribute this information over the Internet, we may be liable
for the data that is contained in that content. This could subject us to legal
liability for such things as defamation, negligence, intellectual property
infringement and product or service liability. Many of the agreements by which
we obtain content do not contain indemnity provisions in favor of us. Even if a
given contract does contain indemnity provisions, these provisions may not cover
a particular claim. While we carry general business insurance with a limit of
$1.0 million for each occurrence and $2.0 million in the aggregate, this
coverage may be inadequate.
In addition, individuals whose names appear in our yellow pages and white
pages directories have occasionally contacted us. These individuals believed
that their phone numbers and addresses were unlisted, and our directories are
not always updated to delete phone numbers or addresses when they are changed
from listed to unlisted. While we have not received any claims from these
individuals, we may receive claims in the future. Any liability that we incur as
a result of content we receive from third parties could harm our financial
results.
Our Networks Face Security Risks.
Even though we have implemented security measures, our networks may be
vulnerable to unauthorized access by hackers or others, computer viruses and
other disruptive problems. Someone who is able to circumvent security measures
could misappropriate our proprietary information or cause interruptions in our
Internet operations. Internet and online service providers have in the past
experienced, and may in the future experience, interruptions in service as a
result of the accidental or intentional actions of Internet users, current and
former employees or others. We may need to expend significant capital or other
resources protecting against the threat of security breaches or alleviating
problems caused by breaches. Although we intend to continue to implement
industry-standard security measures, persons may be able to circumvent the
measures that we implement in the future. Eliminating computer viruses and
alleviating other security problems may require interruptions, delays or
cessation of service to users accessing Web pages that deliver our content
services, any of which could harm our business.
Users of online commerce services are highly concerned about the security
of transmissions over public networks. Concerns over security and the privacy of
users may inhibit the growth of the Internet and other online services
generally, and the Web in particular, especially as a means of conducting
commercial transactions. As we expand our merchant services, we intend to rely
on encryption and authentication technology licensed from third parties to
provide the security and authentication necessary to securely
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transmit confidential information, such as customer credit card numbers. Users
could possibly circumvent the measures we take to protect customer transaction
data. To the extent that our activities involve the storage and transmission of
proprietary information, such as credit card numbers, security breaches could
damage our reputation and expose us to a risk of loss or litigation and possible
liability. Any compromise of our security could harm our business.
We May Be Unable to Adequately Protect or Enforce Our Intellectual Property
Rights.
Our success depends significantly upon our proprietary technology. To
protect our proprietary rights, we rely on a combination of copyright and
trademark laws, patents, trade secrets, confidentiality agreements with
employees and third parties and protective contractual provisions. Despite our
efforts to protect our proprietary rights, unauthorized parties may copy aspects
of our products or services or obtain and use information that we regard as
proprietary. In addition, others could possibly independently develop
substantially equivalent intellectual property. If we do not effectively protect
our intellectual property, our business could suffer.
Companies in the computer industry have frequently resorted to litigation
regarding intellectual property rights. We may have to litigate to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of other parties' proprietary rights. From time to time, we
have received, and we may receive in the future, notice of claims of
infringement of other parties' proprietary rights. Any such claims could be
time-consuming, result in costly litigation, divert management's attention,
cause product or service release delays, require us to redesign our products or
services or require us to enter into royalty or licensing agreements. These
royalty or licensing agreements, if required, may not be available on acceptable
terms or at all. If a successful claim of infringement were made against us and
we could not develop non-infringing technology or license the infringed or
similar technology on a timely and cost-effective basis, our business could
suffer.
We May Become Subject to Governmental Regulation.
Because of the increasing use of the Internet, the government may adopt
laws and regulations with regard to the Internet covering issues such as user
privacy, pricing, content, taxation, copyrights, distribution and product and
services quality.
We May Require Additional Funding.
Although we believe that our cash reserves and cash flows from operations
will be adequate to fund our operations for at least the next 12 months, such
sources may be inadequate. Consequently, we may require additional funds during
or after such period. Additional financing may not be available on favorable
terms or at all. If we raise additional funds by selling stock, the percentage
ownership of our then current stockholders will be reduced. If we cannot raise
adequate funds to satisfy our capital requirements, we may have to limit our
operations significantly. Our future capital requirements depend upon many
factors, including, but not limited to:
. the rate at which we expand our sales and marketing operations;
. the amount and timing of fees paid to affiliates to include our
consumer, merchant and wireless services on their site or service;
. the extent to which we expand our consumer, merchant and wireless
services; the extent to which we develop and upgrade our technology and
data network infrastructure;
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. the occurrence, timing, size and success of acquisitions;
. the rate at which we expand internationally; and
. the response of competitors to our service offerings.
Management Owns a Large Percentage of Our Stock.
Our officers, directors and affiliated persons will beneficially own
approximately 42% of our common stock after all of the shares offered in this
prospectus or issuable directly to INEX, Union-Street and eComLive shareholders
upon the closings of our acquisitions of them are issued. Naveen Jain, our Chief
Executive Officer, will beneficially own approximately 33% of our common stock.
As a result, our officers, directors and affiliated persons may effectively be
able to:
. elect, or defeat the election of, our directors;
. amend or prevent amendment of our Certificate of Incorporation or
Bylaws;
. effect or prevent a merger, sale of assets or other corporate
transaction; and
. control the outcome of any other matter submitted to the stockholders
for vote.
Our public stockholders may have little control over the outcome of such
transactions. Management's stock ownership may discourage a potential acquirer
from making a tender offer or otherwise attempting to obtain control of
InfoSpace.com, which in turn could reduce our stock price or prevent our
stockholders from realizing a premium over our stock price.
Year 2000 Compliance Issues Could Adversely Impact Our Business.
Despite our testing and remediation efforts, our systems and those of third
parties, including content providers, advertisers, affiliates, and end users may
contain errors or faults with respect to the Year 2000. Known or unknown errors
or defects that affect the operation of our software and systems and those of
third parties, including content providers, advertisers, affiliates, and end
users could result in delay or loss of revenue, interruption of services,
cancellation of customer contracts, diversion of development resources, damage
to our reputation, increased service and warranty costs, and litigation costs,
any of which could harm our business.
Our Stock Price Has Been and May Continue to be Volatile.
The trading price of our common stock has been and is likely to continue to
be highly volatile. Since we began trading on December 15, 1998, our stock price
has ranged from $3.75 to $113.75. Our stock price could be subject to wide
fluctuations in response to factors such as the following:
. actual or anticipated variations in quarterly results of operations;
. the addition or loss of affiliates, distribution partners or content
providers;
. announcements of technological innovations, new products or services by
us or our competitors;
. changes in financial estimates or recommendations by securities
analysts;
. conditions or trends in the Internet and online commerce industries;
. changes in the market valuations of other Internet, online service or
software companies;
. our announcements of significant acquisitions, strategic partnerships,
joint ventures or capital commitments;
. additions or departures of key personnel;
. sales of our common stock;
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. general market conditions; and
. other events or factors, many of which are beyond our control.
In addition, the stock market in general, and the Nasdaq National Market
and the market for Internet and technology companies in particular, have
experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of these companies. These broad
market and industry factors may materially and adversely affect our stock price,
regardless of our operating performance. The trading prices of the stocks of
many technology companies are at or near historical highs and reflect price-
earnings ratios substantially above historical levels. These trading prices and
price-earnings ratios may not be sustained.
Future Sales of Our Common Stock May Depress Our Stock Price.
Sales of a substantial number of shares of our common stock in the public
market could adversely affect the market price of our common stock. After this
offering, 102,151,408 shares of our common stock will be outstanding. In the
past 12 months, we completed two offerings of our common stock. All of the
shares sold in these offerings are freely tradeable unless held by affiliates of
InfoSpace.com.
Certain Anti-Takeover Provisions May Affect the Price of Our Stock.
Certain provisions of our Certificate of Incorporation and Bylaws and
Washington and Delaware law could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders. Also, if
we receive a proposal from another company that could result in the acquisition
of InfoSpace.com, our agreement with AOL requires us to negotiate with AOL
before entertaining discussions with the other company. This provision could
discourage companies other than AOL from presenting acquisition proposals to us
and could delay, deter or prevent a change of control of us.
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SELLING STOCKHOLDERS
The shares of common stock to be sold by the selling stockholders pursuant
to this prospectus represent shares issued to the selling stockholders by us in
connection with our acquisitions of Union-Street.com and eComLive.com. The
following table sets forth the aggregate number of shares of common stock held
by each selling stockholder and the aggregate number of shares of common stock
offered by each selling stockholder. No selling stockholder holds more than 1%
of our outstanding common stock.
<TABLE>
<CAPTION>
Number of Shares Number of Number of Shares
Beneficially Owned Shares Being Beneficially Owned
Name of Selling Stockholder Prior to Offering Offered After Offering
- --------------------------------------------------------------- ------------------ ------------ ------------------
Union-Street.com former Shareholders:
- ------------------------------------
<S> <C> <C> <C>
Atwood, Colby & Priscilla...................................... 1,884 1,884 0
Bailey, Mark W. & Deborah...................................... 18,828 18,828 0
Blue Note Investors............................................ 1,882 1,882 0
Brownfield, Michael S.......................................... 9,414 9,414 0
Cahan, Peter Z. & Joann R...................................... 4,708 4,708 0
Cole, Heather.................................................. 108 108 0
Cole, Jack..................................................... 4,276 4,276 0
Cole, Regan.................................................... 108 108 0
Davenport, Tim................................................. 3,662 3,662 0
Go Dog Go Trust................................................ 4,708 4,708 0
Grobstock, Colleen............................................. 108 108 0
Grobstock, Colleen & Kristen................................... 1,884 1,884 0
Grunder, Michael............................................... 298,494 298,494 0
Hanson, Robert A. & Elaine T................................... 1,884 1,884 0
Hawley, Valorie................................................ 1,884 1,884 0
Johnson, Paul.................................................. 9,414 9,414 0
Levy, Martin................................................... 190 190 0
Oaks, Brian.................................................... 5,648 5,648 0
Overbye, Jay K................................................. 4,708 4,708 0
Petersen, Edward............................................... 284,752 284,752 0
Petersen, John L. & B. Lailla.................................. 9,414 9,414 0
Rasmussen, Donna............................................... 18,828 18,828 0
Rebar, Robert J. & Marcella.................................... 8,002 8,002 0
Red Note Investors............................................. 2,824 2,824 0
Scott, Ronald G................................................ 3,766 3,766 0
Seattle Heart Clinic........................................... 9,414 9,414 0
Snell, Joseph D................................................ 141,210 141,210 0
Springer, Diana K.............................................. 4,708 4,708 0
Telkamp, Brynn................................................. 108 108 0
Thomas T. Landreth Family Trust................................ 7,060 7,060 0
Tsui, Daren.................................................... 9,414 9,414 0
Walker, Emily.................................................. 1,884 1,884 0
eComLive.com former Shareholders:
- ---------------------------------------------------------------
Berko, Vadim................................................... 7,114 7,114 0
ConsulTeam Corporation......................................... 7,114 7,114 0
Dalai, Sanjay.................................................. 21,124 21,124 0
Karpinsky, Vlad................................................ 7,114 7,114 0
Lewman, John F................................................. 214 214 0
Mehta, Miten................................................... 21,338 21,338 0
Parekh, Jaykant................................................ 14,226 14,226 0
Parekh, Prashant............................................... 593,884 593,884 0
Raval, Pareg................................................... 7,114 7,114 0
Tymchenko, Vadym............................................... 7,114 7,114 0
--------- -------- ---
TOTAL........................................................ 1,561,532 1,561,532 0
</TABLE>
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PLAN OF DISTRIBUTION
The shares covered by this prospectus may be offered and sold from time to
time by the selling stockholders. The selling stockholders will act
independently of us in making decisions with respect to the timing, manner and
size of each sale. The selling stockholders may sell the shares being offered
hereby on the Nasdaq National Market, or otherwise, at prices and under terms
then prevailing or at prices related to the then current market price or at
negotiated prices. Shares may be sold by one or more of the following means of
distribution:
. Block trades in which the broker-dealer so engaged will attempt to sell
such shares as agent, but may position and resell a portion of the block
as principal to facilitate the transaction;
. Purchases by a broker-dealer as principal and resale by such broker-
dealer for its own account pursuant to this prospectus;
. Over-the-counter distributions in accordance with the rules of the
Nasdaq National Market;
. Ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
. Privately negotiated transactions.
To the extent required, this prospectus may be amended and supplemented
from time to time to describe a specific plan of distribution. In connection
with distributions of such shares or otherwise, the selling stockholders may
enter into hedging transactions with broker-dealers or other financial
institutions. In connection with such transactions, broker-dealers or other
financial institutions may engage in short sales of our common stock in the
course of hedging the positions they assume with the selling stockholders. The
selling stockholders may also sell our common stock short and redeliver the
shares to close out such short positions. The selling stockholders may also
enter into option or other transactions with broker-dealers or other financial
institutions which require the delivery to such broker-dealer or other financial
institution of the shares offered hereby, which shares such broker-dealer or
other financial institution may resell pursuant to this prospectus (as
supplemented or amended to reflect such transaction). The selling stockholders
may also pledge such shares to a broker-dealer or other financial institution,
and, upon a default, such broker-dealer or other financial institution, may
effect sales of such pledged shares pursuant to this prospectus (as supplemented
or amended to reflect such transaction). In addition, any such shares that
qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than
pursuant to this prospectus.
In effecting sales, brokers, dealers or agents engaged by the selling
stockholder may arrange for other brokers or dealers to participate. Brokers,
dealers or agents may receive commissions, discounts or concessions from the
selling stockholders in amounts to be negotiated prior to the sale. Such
brokers or dealers and any other participating brokers or dealers may be deemed
to be "underwriters" within the meaning of the Securities Act of 1933 in
connection with such sales, and any such commissions, discounts or concessions
may be deemed to be underwriting discounts or commissions under the Securities
Act of 1933. We will pay all reasonable expenses incident to the registration
of the shares being offered hereby other than any commissions and discounts of
underwriters, dealers or agents.
In order to comply with the securities laws of certain states, if
applicable, the shares being offered hereby must be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states such shares may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and there has been compliance thereof.
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We have advised the selling stockholders that the anti-manipulation rules
of Regulation M under the Securities Exchange Act of 1934 may apply to sales of
shares in the market and to the activities of the selling stockholders and their
affiliates. In addition, we will make copies of this prospectus available to
the selling stockholder and have informed them of the need for delivery of
copies of this prospectus to purchasers at or prior to the time of any sale of
the shares offered hereby. The selling stockholders may indemnify any broker-
dealer that participates in transactions involving the sale of the shares
against certain liabilities, including liabilities arising under the Securities
Act of 1933.
At the time a particular offer of shares is made, if required, a prospectus
supplement will be distributed that will set forth the number of shares being
offered and the terms of the offering, including the name of any underwriter,
dealer or agent, the purchase price paid by any underwriter, any discount,
commission and other item constituting compensation, any discount, commission or
concession allowed or reallowed or paid to any dealer, and the proposed selling
price to the public.
We have agreed to indemnify the selling stockholder and any person
controlling the selling stockholder against certain liabilities, including
liabilities under the Securities Act of 1933. The selling stockholders have
agreed to indemnify us and certain related persons against certain liabilities,
including liabilities under the Securities Act of 1933.
We have agreed with the selling stockholders to keep the registration
statement of which this prospectus constitutes a part effective until each
selling stockholder is able to sell all shares offered pursuant to this
registration statement in a single three-month period in accordance with Rule
144 under the Securities Act of 1933.
LEGAL MATTERS
Certain legal matters relating to the validity of the securities offered
hereby will be passed upon for us by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Kirkland, Washington.
EXPERTS
The financial statements included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
InfoSpace.com, Inc.:
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Operations..................................... F-4
Consolidated Statements of Changes in Stockholders' Equity................ F-5
Consolidated Statements of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of InfoSpace.com, Inc.
Redmond, Washington
We have audited the accompanying consolidated balance sheets of
InfoSpace.com, Inc. and subsidiary (the Company) as of December 31, 1997 and
1998, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the period from March 1, 1996
(inception) to December 31, 1996, and the years ended December 31, 1997 and
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of InfoSpace.com, Inc. and subsidiary
as of December 31, 1997 and 1998, and results of their operations and their
cash flows for the period from March 1, 1996 (inception) to December 31, 1996,
and the years ended December 31, 1997 and 1998, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Seattle, Washington
February 24, 1999 (December
15, 1999 as to Note 14)
F-2
<PAGE>
INFOSPACE.COM, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September
December 31, December 31, 30,
1997 1998 1999
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... $ 324,415 $ 14,590,634 $ 60,089,969
Short-term investments, held-to-
maturity........................... -- 72,159,522 98,863,091
Accounts receivable, net of
allowance for doubtful accounts of
$47,000, $597,000 and $507,000
(unaudited)........................ 467,187 3,409,672 5,927,773
Notes receivable.................... -- -- 7,500,000
Prepaid expenses and other current
assets............................. 121,573 3,630,476 7,556,157
---------- ------------ ------------
Total current assets.............. 913,175 93,790,304 179,936,990
Long-term investments, held-to-
maturity............................. -- 1,252,438 74,549,949
Property and equipment, net........... 216,439 1,161,936 2,999,414
Intangible assets, net................ 268,420 5,276,880 17,959,285
Other investments..................... -- 370,790 7,861,474
Other................................. -- 405,906 575,327
---------- ------------ ------------
Total assets...................... $1,398,034 $102,258,254 $283,882,439
========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................... $ 85,814 $ 1,586,118 689,755
Accrued expenses.................... 204,311 5,032,450 3,719,712
Note payable........................ 30,000 -- --
Deferred revenues................... 50,000 1,391,849 2,621,249
---------- ------------ ------------
Total current liabilities......... 370,125 8,010,417 7,030,716
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock, par value $.0001--
Authorized, 15,000,000 shares:
issued and outstanding, no shares.. -- -- --
Common stock, par value $.0001--
Authorized, 30,000,000, 50,000,000
and 200,000,000 (unaudited) shares;
issued and outstanding, 22,060,506,
42,283,604 and 47,557,639
(unaudited) shares................. 2,206 4,228 4,756
Additional paid-in capital.......... 1,997,152 107,546,932 293,741,026
Accumulated deficit................. (809,214) (9,865,672) (14,244,382)
Deferred expense--warrants.......... -- (3,126,862) (2,515,086)
Unearned compensation--stock
options............................ (162,235) (310,789) (134,591)
---------- ------------ ------------
Total stockholders' equity........ 1,027,909 94,247,837 276,851,723
---------- ------------ ------------
Total liabilities and stockholders'
equity............................... $1,398,034 $102,258,254 $283,882,439
========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
INFOSPACE.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
March 1 to Years Ended Nine Months Ended
December 31, December 31, September 30,
------------ ----------------------- -------------------------
1996 1997 1998 1998 1999
------------ ---------- ----------- ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 199,372 $1,685,096 $ 9,414,450 $ 5,373,860 $ 22,004,983
Cost of revenues........ 96,641 399,877 1,605,006 972,295 3,433,913
---------- ---------- ----------- ----------- ------------
Gross profit.......... 102,731 1,285,219 7,809,444 4,401,565 18,571,070
Operating expenses:
Product development... 109,671 212,677 599,673 304,596 885,053
Sales and marketing... 230,774 841,074 5,541,261 2,521,651 16,601,636
General and
administrative....... 163,896 480,398 3,001,434 1,786,291 5,371,623
Amortization of
intangibles.......... -- 64,056 709,923 413,422 1,618,483
Acquisition and
related charges...... -- -- 2,800,000 2,800,000 5,658,768
Other--non-recurring
charges.............. -- 137,000 4,500,000 240,000 209,500
---------- ---------- ----------- ----------- ------------
Total operating
expenses........... 504,341 1,735,205 17,152,291 8,065,960 30,345,063
---------- ---------- ----------- ----------- ------------
Loss from
operations......... (401,610) (449,986) (9,342,847) (3,664,395) (11,773,993)
Other income, net....... 21,086 21,296 411,365 152,767 7,496,224
Equity in loss from
joint venture.......... -- -- (124,976) (76,134) (100,941)
---------- ---------- ----------- ----------- ------------
Net loss................ $ (380,524) $ (428,690) $(9,056,458) $(3,587,762) $ (4,378,710)
========== ========== =========== =========== ============
Basic and diluted net
loss per share......... $ (0.02) $ (0.02) $ (0.33) $ (0.14) $ (0.10)
========== ========== =========== =========== ============
Shares used in computing
basic net loss per
share.................. 18,560,326 21,882,980 27,120,536 25,277,014 45,608,271
========== ========== =========== =========== ============
Shares used in computing
diluted net loss per
share.................. 18,560,326 21,996,314 27,120,536 25,277,014 45,608,271
========== ========== =========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
INFOSPACE.COM, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common stock
----------------- Paid-in Accumulated Deferred Unearned
Shares Amount capital deficit expense Compensation Total
---------- ------ ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 1, 1996
(inception)............ -- $ -- $ -- $ -- $ -- $ -- $ --
Common stock issued..... 21,890,506 2,190 1,369,010 -- -- -- 1,371,200
Unearned compensation--
stock options.......... -- -- 101,250 -- -- (101,250) --
Compensation expense--
stock options.......... -- -- -- -- -- 29,813 29,813
Net loss................ -- -- -- (380,524) -- -- (380,524)
---------- ------ ------------ ------------ ----------- --------- ------------
Balance, December 31,
1996................... 21,890,506 2,190 1,470,260 (380,524) -- (71,437) 1,020,489
Common stock issued for
acquisition............ 170,000 16 292,172 -- -- -- 292,188
Unearned compensation--
stock options.......... -- -- 234,720 -- -- (234,720) --
Compensation expense--
stock options.......... -- -- -- -- -- 143,922 143,922
Net loss................ -- -- -- (428,690) -- -- (428,690)
---------- ------ ------------ ------------ ----------- --------- ------------
Balance, December 31,
1997................... 22,060,506 2,206 1,997,152 (809,214) -- (162,235) 1,027,909
Common stock and
warrants issued for
acquisition............ 2,999,976 300 7,902,009 -- -- -- 7,902,309
Common stock issued to
employees.............. 446,502 44 1,674,350 -- -- -- 1,674,394
Common stock issued in
initial public
offering............... 11,500,000 1,150 77,829,753 -- -- -- 77,830,903
Other common stock
issued to investors.... 4,724,790 472 13,438,086 -- -- -- 13,438,558
Warrants issued......... -- -- 40,161 -- -- -- 40,161
Exercise of stock
options................ 551,830 56 1,016,154 -- -- -- 1,016,210
Deferred expense--
warrants............... -- -- 3,262,813 -- (3,262,813) -- --
Warrants expense........ -- -- -- -- 135,951 -- 135,951
Unearned compensation--
stock options.......... -- -- 386,454 -- -- (386,454) --
Compensation expense--
stock options.......... -- -- -- -- -- 237,900 237,900
Net loss................ -- -- -- (9,056,458) -- -- (9,056,458)
---------- ------ ------------ ------------ ----------- --------- ------------
Balance, December 31,
1998................... 42,283,604 4,228 107,546,932 (9,865,672) (3,126,862) (310,789) 94,247,837
Common stock issued in
follow-on public
offering (unaudited)... 4,340,000 434 185,097,491 -- -- -- 185,097,925
Initial public offering
costs (unaudited)...... -- -- (55,464) -- (55,464)
Exercise of stock
options (unaudited).... 463,436 47 909,665 -- -- -- 909,712
Exercise of stock
warrants (unaudited)... 432,454 43 (43) -- -- -- --
Warrants expense
(unaudited)............ -- -- -- -- 611,776 -- 611,776
Unearned compensation--
stock options
(unaudited)............ -- -- (43,639) -- -- 176,198 132,559
Employee stock purchase
plan (unaudited)....... 38,145 4 286,084 -- -- -- 286,088
Net loss (unaudited).... -- -- -- (4,378,710) -- -- (4,378,710)
---------- ------ ------------ ------------ ----------- --------- ------------
Balance, September 30,
1999 (unaudited)....... 47,557,639 $4,756 $293,741,026 $(14,244,382) $(2,515,086) $(134,591) $276,851,723
========== ====== ============ ============ =========== ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
INFOSPACE.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
March 1 to Years Ended December Nine Months Ended
December 31, 31, September 30,
------------ ---------------------- -------------------------
1996 1997 1998 1998 1999
------------ --------- ----------- ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net loss............... $(380,524) $(428,690) $(9,056,458) $(3,587,762) $ (4,378,710)
Adjustments to
reconcile net loss to
net cash provided
(used) by operating
activities:
Trademark
amortization.......... -- -- 1,500,000 750,000 1,500,000
Depreciation and other
amortization.......... 23,513 224,270 991,749 575,515 2,164,486
Compensation expense--
stock options......... 29,813 143,922 237,900 164,861 132,559
Warrants expense....... -- -- 135,951 -- 611,776
Write-off of in process
research and
development........... -- -- 2,800,000 2,800,000 3,900,000
Noncash issuance of
common stock.......... -- -- 70,000 70,000 --
Noncash services
exchanged............. -- (60,000) (7,290) (5,785) --
Bad debt expense....... -- 47,000 687,602 500,602 295,359
Warrant income......... -- -- -- -- (341,275)
Equity in loss from
joint venture......... -- -- 124,976 76,134 100,941
Loss on disposal of
fixed assets.......... -- 3,743 (3,771) (3,771) 15,017
Gain on sale of
intangible............ -- -- -- -- (7,830)
Cash provided (used) by
changes in operating
assets and
liabilities:
Accounts receivable... (126,574) (387,613) (3,630,087) (1,598,098) (2,813,460)
Prepaid expense and
other current
assets............... (59,334) (33,152) (2,072,308) (1,407,280) (5,425,681)
Other long-term
assets............... -- -- (337,500) -- (169,421)
Other intangibles..... -- -- (66,865) (6,865) --
Accounts payable...... 39,553 46,261 1,500,305 1,517,355 (896,363)
Accrued expenses...... 4,663 199,648 4,805,428 657,300 (1,312,738)
Deferred revenue...... 7,239 42,761 1,341,849 197,314 1,229,400
--------- --------- ----------- ----------- ------------
Net cash provided
(used) by operating
activities............ (461,651) (201,850) (978,519) 699,520 (5,395,940)
Investing Activities:
Business acquisitions,
net of cash acquired.. -- (14,000) (311,951) (311,951) (18,083,054)
Purchase of
trademark(s).......... -- -- (3,290,000) (3,290,000) --
Investment in joint
venture............... -- -- (495,767) (495,767) --
Issuance of note
receivable............ -- -- -- -- (7,500,000)
Other investments...... -- -- -- -- (7,250,350)
Purchase of domain
name.................. -- -- -- (60,000) (120,000)
Capitalized internally
developed software.... -- -- -- -- (247,338)
Sale of domain name.... -- -- -- -- 10,000
Purchase of fixed
assets................ (219,375) (120,822) (1,150,807) (767,112) (2,151,164)
Proceeds from sale of
fixed assets.......... -- -- 4,997 4,997 --
Short-term investments
(purchase) sale....... -- -- (72,159,522) -- (73,297,511)
Long-term investments
purchase.............. -- -- (1,252,438) -- (26,703,569)
Other.................. -- (29,087) -- -- --
--------- --------- ----------- ----------- ------------
Net cash used by
investing activities.. (219,375) (163,909) (78,655,488) (4,919,833) (135,342,986)
Financing Activities:
Proceeds from follow-on
offering, net of
expenses.............. -- -- -- -- 185,097,925
Proceeds from issuance
of common stock to
employees............. -- -- 1,674,394 1,674,394 286,088
Payments for
shareholders for
fractional shares..... -- -- (28) (28) --
Proceeds from sale of
warrants.............. -- -- 40,161 40,161 --
Proceeds from initial
public offering, net
of expenses........... -- -- 77,830,903 (868,621) (55,464)
Proceeds from issuance
of other common stock
to investors.......... 1,371,200 -- 13,338,586 13,338,586 909,712
Proceeds from exercise
of stock options...... -- -- 1,016,210 375 --
--------- --------- ----------- ----------- ------------
Net cash provided by
financing activities.. 1,371,200 -- 93,900,226 14,184,867 186,238,261
--------- --------- ----------- ----------- ------------
Net Increase (Decrease)
in Cash and Cash
Equivalents............ 690,174 (365,759) 14,266,219 9,969,554 45,499,335
Cash and Cash
Equivalents:
Beginning of period.... -- 690,174 324,415 324,415 14,590,634
--------- --------- ----------- ----------- ------------
End of period.......... $ 690,174 $ 324,415 $14,590,634 $10,228,969 $ 60,089,969
========= ========= =========== =========== ============
Supplemental Disclosure of Noncash
Financing and Investing Activities:
Acquisition of
membership interest of
Yellow Pages on the
Internet, LLC (YPI)
through the Issuance
of common stock and
assumption of $90,000
payable............... $ -- $ 382,188 $ -- $ -- $ --
Acquisition of common
stock of Outpost
Network, Inc. through
the issuance of common
Stock and warrants and
assumption of
liabilities of
$191,000.............. -- -- 7,932,000 7,932,000 --
Warrants received in
exchange for
services.............. -- -- -- -- 341,275
Stock issued for legal
and consulting
services.............. -- -- 50,000 50,000 --
Stock issued for
settlement of legal
claim................. -- -- 50,000 50,000 --
Settlement of note
payable for noncash
services.............. -- -- 30,000 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from March 1, 1996 (inception) to December 31, 1996, Years Ended
December 31, 1997 and 1998 and Nine Months Ended September 30, 1998 and 1999
(unaudited)
Note 1: Summary of Significant Accounting Policies
Description of business: InfoSpace.com, Inc. (the Company or InfoSpace),
previously known as InfoSpace, Inc., a Delaware corporation, was founded in
March 1996. The Company is a leading Internet infrastructure company that
provides enabling technologies and Internet services for consumers, merchants
and wireless devices. The Company completed an initial public offering in
December 1998.
The Company derives revenues from its consumer, merchant and wireless
services. These include advertising, content carriage, licensing fees, e-
commerce transaction fees, and guaranteed transaction fees in lieu of revenue
share.
Principles of consolidation: The consolidated financial statements include
the accounts of the Company, InfoSpace Canada.com and its wholly owned
subsidiary Outpost Network, Inc. (Outpost). All significant intercompany
accounts and transactions have been eliminated.
Cash and cash equivalents: The Company considers all highly liquid debt
instruments with an original maturity of 90 days or less to be cash
equivalents. Cash and cash equivalents are carried at cost, which approximates
market.
Investments: The Company principally invests its available cash in high-
quality corporate issuers, and in debt instruments of the U.S. Government and
its agencies. At December 31, 1998, the short-term investments consist entirely
of short-term debt instruments. All debt instruments with original maturities
greater than three months from the balance sheet date are considered
investments. Investments maturing after twelve months from the balance sheet
date are considered long-term. The Company accounts for investments in
accordance with SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities. The Company's short-term and long-term investments are
classified as held-to-maturity as of the balance sheet date and are reported at
amortized cost.
Property and equipment: Property and equipment are stated at cost.
Depreciation is computed under the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Computer equipment and software................................. 3 years
Office furniture and equipment.................................. 7 years
Leasehold improvements.......................................... Lease term
</TABLE>
Intangible assets: Goodwill, purchased technology and other intangibles are
amortized on a straight-line basis over their estimated useful lives. All
goodwill, purchased technology and internally developed software currently
recorded are amortized over five years. The trademark is amortized over its
remaining life of nine years and four months. Other intangibles, primarily
consisting of purchased domain name licenses, are amortized over an estimated
useful life of three years.
Other investments: The Company invests in equity instruments of privately-
held, information technology companies for business and strategic purposes.
These investments are included in other long-term assets and are accounted for
under the cost method.
Other Long-lived assets: Management periodically reevaluates long-lived
assets, consisting primarily of purchased technology, goodwill, property and
equipment, to determine whether there has been any
F-7
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
impairment of the value of these assets and the appropriateness of their
estimated remaining life. No impairment loss has been recognized through
December 31, 1998.
Revenue recognition: The Company's revenues are derived from its consumer,
merchant and wireless services. These include advertising, content carriage,
licensing fees, e-commerce fees and guaranteed transaction fees in lieu of
revenue share.
Advertising: Revenues from contracts based on the number of impressions
displayed or click throughs provided are recognized as services are rendered.
Content carriage: Revenues from fixed fee content carriage agreements are
recognized ratably over the related contract term. For content carriage fee
contracts that are performance based with an established maximum, the Company
recognizes revenues as the services are rendered, not to exceed the maximum
amount over the fixed term.
Licensing fees: Revenue from licensed services is recognized ratably over the
term of the license agreement.
e-Commerce fees: Transaction fees are recognized in the period the
transaction occurred and was reported to the Company by the content providers
or online merchants.
Guaranteed transaction fees: Guaranteed minimum payments are recognized
ratably over the term of the agreements. Revenues earned above the guaranteed
minimum payments are recognized ratably over the remaining term of the
agreements.
Also included in revenues are barter revenues generated from exchanging
banners for banners, banners for content, or banners for print or other
advertising. Barter revenues are recorded as advertising revenues at the lower
of the estimated fair market value of goods and services received or
impressions given, and are recognized when the Company's advertisements are
run. For barter agreements, the Company records a receivable or liability at
the end of a reporting period for the difference in the fair value of the
services provided or received.
Deferred revenues are primarily comprised of billings in excess of recognized
revenues relating to advertising agreements and payments received pursuant to
licensing agreements in advance of revenue recognition. The Company records a
liability at month-end for any shortfalls of minimum impressions or click
throughs that were not attained during the period of the agreement.
Cost of revenues: Cost of revenues consists of expenses associated with the
enhancement, maintenance and support of our content services, including direct
personnel expenses, communication costs such as high-speed Internet access with
dedicated DS-3 communication lines, server equipment depreciation, and license
fees related to third-party content. Fees paid for content licenses are
capitalized and amortized under the straight-line method over the license
period.
Product development: Product development expenses consist principally of
personnel costs for research, design and development of the proprietary
technology used to aggregate, integrate and distribute the Company's consumer,
merchant and wireless services.
Advertising costs: Design and production costs for print advertising are
recorded as expense the first time an advertisement appears. Print advertising
costs are expensed when the print advertising appears. Advertising costs
related to electronic impressions are recorded as expense as impressions are
provided.
F-8
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Advertising expense totaled $8,908, $217,798, and $1,261,338, for the years
ended December 31, 1996, 1997, and 1998, respectively. Advertising expense
totaled $597,959 and $3,652,348 for the nine months ended September 30, 1998
and 1999 (unaudited), respectively.
Unearned compensation: Unearned compensation represents the unamortized
difference between the option exercise price and the deemed fair market value
of the Company's common stock for shares subject to grant at the grant date,
for options issued under the Company's stock incentive plan (Note 4). The
amortization of deferred compensation is charged to operations and is amortized
over the vesting period of the options.
Deferred expense-warrants: Deferred expense-warrants represents the fair
value of the warrants that were issued and will be expensed ratably over the
four year vesting period. The amortization of deferred warrant expense is
charged to sales and marketing expense and is amortized over the term of the
contractual agreement with America Online, Inc. (see Notes 4 and 6).
Concentration of Credit Risk: Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash
equivalents, short-term investments, trade receivables and notes receivable, as
discussed in Note 3. The Company's cash equivalents and short-term investments
are held with major financial institutions. The Company operates in one
business segment and has revenue streams from consumer, merchant and wireless
services. Accounts receivable are typically unsecured and are derived from
revenues earned from customers primarily located in the United States operating
in a wide variety of industries and geographic areas. The Company performs
ongoing credit evaluations of its customers and maintains reserves for
potential credit losses. For the nine months ended September 30, 1999, one
customer accounted for approximately 26% of revenues. At September 30, 1999,
one customer accounted for approximately 19% of gross accounts receivable,
which was all current. At December 31, 1998, one customer accounted for
approximately 27% of gross accounts receivable, which was all current.
Income taxes: The Company has adopted SFAS No. 109, Accounting for Income
Taxes. Under SFAS No. 109, deferred tax assets, including net operating loss
carryforwards, and liabilities are determined based on temporary differences
between the book and tax basis of assets and liabilities. The Company believes
sufficient uncertainty exists regarding the realizability of the deferred tax
assets such that a full valuation allowance is required.
Reclassifications: Distribution revenue share costs, previously classified as
Cost of Revenues, are classified as Sales and Marketing. Under these
agreements, affiliates are paid a portion of certain advertising revenues
generated from traffic on co-branded distribution pages. This reclassification
has been made to the 1998 and prior financial statements to conform with the
1999 presentation.
To reflect ongoing expenses from core operations, amortization of intangibles
is now classified in one line item. This reclassification has been made to the
1998 and prior financial statements to conform with the 1999 presentation.
Reverse stock split: A one-for-two reverse stock split of the Company's
common stock was effected on August 25, 1998. All references in the financial
statements to shares, share prices, per share amounts and stock plans have been
adjusted retroactively for the one-for-two reverse stock split.
Stock split: A two-for-one stock split of the Company's common stock was
effected in May 1999. All references in the financial statements to shares,
share prices, per share amounts and stock plans have been adjusted
retroactively for the two-for-one stock split.
F-9
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts may differ from estimates.
Recent accounting pronouncements: In June 1997 the Financial Accounting
Standards Board (FASB) issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes the 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. Examples of items to be included in comprehensive income, which are
excluded from net income, include foreign currency translation adjustments and
unrealized gains/losses on available-for-sale securities. The disclosure
prescribed by SFAS No. 130 must be made for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required upon adoption. The Company had no
comprehensive income items to report for the period from March 1, 1996
(inception) to December 31, 1996, the years ended December 31, 1997 and 1998.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivatives and
Hedging Activities, which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. Because the Company has never used nor currently intends to use
derivatives, management does not anticipate that the adoption of this new
standard will have a significant effect on earnings or the financial position
of the Company.
Note 2: Balance Sheet Components
The following balance sheet components are presented as of the dates noted
below.
Cash and Cash Equivalents:
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1997 1998 1999
------------ ------------ -------------
(unaudited)
<S> <C> <C> <C>
Cash................................. $324,415 $ 173,566 $ 1,076,017
Commercial paper..................... -- -- 49,731,167
Money market......................... -- 14,417,068 6,282,785
Other................................ -- -- 3,000,000
-------- ----------- -----------
$324,415 $14,590,634 $60,089,969
======== =========== ===========
</TABLE>
Short and Long-Term Investments at December 31, 1998:
<TABLE>
<CAPTION>
Amortized Fair- Unrealized Unrealized
Cost Value Gain Loss
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial paper.............. $66,668,475 $66,681,481 $13,259 $(253)
Municipal securities.......... 1,499,665 1,500,150 485 --
U.S. Government securities.... 5,243,820 5,243,433 -- (387)
----------- ----------- ------- -----
$73,411,960 $73,425,064 $13,744 $(640)
=========== =========== ======= =====
</TABLE>
F-10
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Maturity information is as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
----------- -----------
<S> <C> <C>
Within one year..................................... $72,159,522 $72,173,013
1 year through 5 years.............................. 1,252,438 1,252,051
----------- -----------
$73,411,960 $73,425,064
=========== ===========
</TABLE>
Short and Long-Term Investments at September 30, 1999 (unaudited):
<TABLE>
<CAPTION>
Amortized Market Unrealized Unrealized
Cost Value Gain Loss
------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
Corporate notes and
bonds................... $ 88,876,780 $ 87,788,501 $ 3,770 $(1,092,049)
U.S. Government
securities.............. 44,553,718 44,363,300 14,015 (204,233)
Commercial paper......... 23,373,517 23,291,601 -- (81,916)
Certificate of deposit... 16,609,025 16,466,319 -- (142,706)
------------ ------------ ------- -----------
$173,413,040 $171,909,921 $17,785 $(1,520,904)
============ ============ ======= ===========
</TABLE>
Maturity information is as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
Within one year................................... $ 98,863,091 $ 98,270,764
1 year through 5 years............................ 74,549,949 73,639,157
------------ ------------
$173,413,040 $171,909,921
============ ============
</TABLE>
Prepaid expenses and other assets:
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1997 1998 1999
------------ ------------ -------------
(unaudited)
<S> <C> <C> <C>
Prepaid carriage fees................ $ -- $1,171,874 $4,044,676
Prepaid trademark license............ -- 1,500,000 --
Interest receivable.................. -- 9,874 1,344,634
Other................................ 121,573 948,728 2,166,847
-------- ---------- ----------
$121,573 $3,630,476 $7,556,157
======== ========== ==========
</TABLE>
Property and equipment:
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1997 1998 1999
------------ ------------ -------------
(unaudited)
<S> <C> <C> <C>
Computer equipment.................. $207,817 $1,390,988 $2,911,744
Internally developed software....... -- -- 489,311
Office equipment.................... 3,044 54,366 140,424
Office furniture.................... 8,514 77,789 155,139
Software............................ -- -- 154,632
Leasehold improvements.............. -- 17,632 58,294
-------- ---------- ----------
219,375 1,540,775 3,909,544
Accumulated depreciation............ (23,513) (378,839) (910,130)
-------- ---------- ----------
$195,862 $1,161,936 $2,999,414
======== ========== ==========
</TABLE>
F-11
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Intangibles assets:
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1997 1998 1999
------------ ------------ -------------
(unaudited)
<S> <C> <C> <C>
Goodwill............................. $ 310,583 $4,860,671 $18,563,725
Core technology...................... -- 800,000 1,200,000
Trademark............................ -- 290,000 290,000
Other................................ -- 40,000 120,000
Domain name.......................... -- 60,000 176,875
Advertising contracts................ 85,417 85,417 85,417
--------- ---------- -----------
396,000 6,136,088 20,436,017
Accumulated amortization............. (127,580) (859,208) (2,476,732)
--------- ---------- -----------
$ 268,420 $5,276,880 $17,959,285
========= ========== ===========
</TABLE>
Accrued expenses:
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1997 1998 1999
------------ ------------ -------------
(unaudited)
<S> <C> <C> <C>
Compensation and related............ $ 33,777 $ 193,592 $ 518,270
Carriage fees and revenue share..... -- 93,067 1,817,284
Legal fees.......................... 12,717 -- 1,006,913
Settlement costs.................... 137,000 4,500,000 --
Other............................... 20,817 245,791 377,245
--------- ---------- ----------
$ 204,311 $5,032,450 $3,719,712
========= ========== ==========
</TABLE>
Note 3: Notes Receivable (unaudited)
On June 30, 1999, the Company loaned an unrelated third party $6.0 million.
The short-term note is due the earlier of March 31, 2000 or upon a change of
control, and accrues interest at 12% per annum. The note is secured by all of
the assets of the borrower. On September 8, 1999 the borrower entered into a
definitive agreement to be purchased, with the transaction expected to close
before year-end.
During August 1999, the Company loaned $1,500,000 to two companies to be
acquired by the Company. On October 14, 1999, one of these acquisitions was
closed. The second acquisition is expected to close within the fourth quarter.
(See Note 14, Subsequent Event, for additional information.)
Note 4: Stockholders' Equity
Authorized shares: At incorporation, the Company was authorized to issue
25,000,000 shares, consisting of 20,000,000 shares of common stock with a par
value of $.0001 per share and 5,000,000 shares of preferred stock with a par
value of $.0001 per share. The preferred stock may be issued in one or more
series.
On June 17, 1996, the Certificate of Incorporation was amended to increase
the authorized number of shares of all classes of Company stock to 45,000,000
shares, consisting of 30,000,000 shares of common stock with a par value of
$.0001 per share and 15,000,000 shares of preferred stock with par value of
$.0001 per share.
On May 1, 1998, the Certificate of Incorporation was amended to increase the
authorized number of shares of all classes of Company stock to 55,000,000
shares, consisting of 40,000,000 shares of common stock
F-12
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
with a par value of $.0001 per share and 15,000,000 shares of preferred stock
with a par value of $.0001 per share.
On August 25, 1998, the Board of Directors approved and the Company effected
a one-for-two reverse stock split of the Company's common stock. All references
in the financial statements to shares, share prices, per share amounts and
stock plans have been adjusted retroactively for the one-for-two reverse stock
split.
Also, on August 25, 1998, the Company filed a Restated Certificate of
Incorporation. The effect was to change the authorized number of all classes of
Company stock to 65,000,000 shares, consisting of 50,000,000 shares of common
stock with a par value of $.0001 per share and 15,000,000 shares of preferred
stock with a par value of $.0001 per share after giving effect to the one-for-
two reverse stock split.
On April 6, 1999 Board of Directors approved a two-for-one stock split of the
Company's common stock. The stock split was effective on May 5, 1999. All
references in the financial statements to shares, share prices, per share
amounts and stock plans have been adjusted retroactively for the two-for-one
stock split.
On May 24, 1999, the stockholders of the Company approved an amendment to the
Company's Certificate of Incorporation to increase the authorized number of
shares of the Company's common stock to 200,000,000 shares. (unaudited).
Restated 1996 Flexible Stock Incentive Plan: On June 3, 1998, the Board of
Directors approved the Restated 1996 Flexible Stock Incentive Plan (the Plan).
The Plan provides employees (including officers and directors who are
employees) of the Company an opportunity to purchase shares of stock pursuant
to options which may qualify as incentive stock options under Section 422 of
the Internal Revenue Code of 1986, as amended (the Code), and employees,
officers, directors, independent contractors and consultants of the Company an
opportunity to purchase shares of stock pursuant to options which are not
described in Section 422 of the Code (nonqualified stock options). The Plan
also provides for the sale or bonus of stock to eligible individuals in
connection with the performance of service for the Company. Finally, the Plan
authorizes the grant of stock appreciation rights, either separately or in
tandem with stock options, which entitle holders to cash compensation measured
by appreciation in the value of the stock. Not more than 6,000,000 shares of
stock shall be available for the grant of options or the issuance of stock
under the Plan. If an option is surrendered or for any other reason ceases to
be exercisable in whole or in part, the shares which were subject to option but
on which the option has not been exercised shall continue to be available under
the Plan. The Plan is administered by the Board of Directors. Options granted
under the Plan typically vest over four years, 25% one year from the date of
grant and ratably thereafter on a monthly basis. Additional options have been
granted to retain certain existing employees, which options vest monthly over
four years.
On June 3, 1998, the Board of Directors approved the Option Exchange Program
and the Option Replacement Program, allowing employees of the Company to
exchange their nonqualified stock options for incentive stock options.
Nonqualified stock options to purchase a total of 725,106 shares were exchanged
for incentive stock options to purchase the equivalent number of shares with an
exercise price equal to the fair market value at the date of exchange.
On May 24, 1999, the stockholders' of the Company approved an amendment to
the Company's 1996 Flexible Stock Incentive Plan to increase the number of
share reserved for issuance by 4,000,000. The stockholders' also approved an
amendment to the Stock Incentive Plan to annually increase the number of shares
reserved for issuance on the first day of the Company's fiscal year beginning
in 2000 by the amount equal to the lesser of (A) 1,000,000 (B) three percent
(3%) of the Company's outstanding shares at the end of the Company's preceding
fiscal year, and (C) a lesser amount determined by the Board of Directors. The
stockholders' also approved an amendment to the Stock Incentive Plan to limit
the number of shares of Common Stock that may be granted to one individual
pursuant to stock options in any fiscal year of the
F-13
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company to 2,000,000 (plus an additional 2,000,000 shares in connection with
his or her initial employment with the Company, which grant shall not count
against the limit). (unaudited).
Included in the table below as outstanding at September 30, 1999, are options
to purchase 40,676 shares (unaudited) that were issued outside of the Plan,
27,551 of which were exercisable as of September 30, 1999.
Activity and price information regarding the options are summarized as
follows:
<TABLE>
<CAPTION>
Weighted
average
Options exercise price
--------- --------------
<S> <C> <C>
Outstanding, March 1, 1996
(inception).............. -- $ --
Granted................. 2,063,462 0.07
---------
Outstanding, December 31,
1996..................... 2,063,462 0.07
Granted................. 702,500 1.54
---------
Outstanding, December 31,
1997..................... 2,765,962 0.44
Granted................. 3,967,204 5.15
Cancelled............... (725,106) 77
Exercised............... (551,830) 1.84
Forfeited............... (156,750) 2.15
---------
Outstanding, December 31,
1998..................... 5,299,480 3.73
Granted (unaudited)..... 1,140,400 37.73
Cancelled (unaudited)... (94,022) 18.54
Exercised (unaudited)... (931,154) 1.72
---------
Outstanding, September 30,
1999 (unaudited)......... 5,414,704 --
=========
Options exercisable,
December 31, 1998........ 1,509,466 0.66
=========
Options exercisable,
September 30, 1999
(unaudited).............. 1,939,652 1.22
=========
</TABLE>
Information regarding stock option grants during the period from March 1,
1996 to December 31, 1996, the years ended December 31, 1997 and 1998 and nine
months ended September 30, 1999 (unaudited) is summarized as follows:
<TABLE>
<CAPTION>
Years Ended
---------------------------------------------------------
March 1, 1996 to December 31,
1996 December 31, 1997 December 31, 1998
----------------------------- --------------------------- -----------------------------
Weighted Weighted Weighted
Average Weighted Average Weighted Average Weighted
exercise Average exercise Average exercise Average
Shares price fair value Shares price fair value Shares price fair value
--------- -------- ---------- ------- -------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Exercise price
exceeds market
price.......... 110,000 $1.00 $0.02 500,000 $2.00 $ -- -- $ -- $ --
Exercise price
equals market
price.......... 1,800,000 0.01 -- -- -- -- 3,449,284 5.82 1.33
Exercise price
is less than
market price... 153,462 0.03 .80 202,500 0.39 1.33 518,000 .69 1.38
<CAPTION>
Nine months ended
September 30, 1999
(unaudited)
-----------------------------
Weighted
Average Weighted
exercise Average
Shares price fair value
--------- -------- ----------
<S> <C> <C> <C>
Exercise price
exceeds market
price.......... -- $ -- $ --
Exercise price
equals market
price.......... 1,140,400 37.73 42.81
Exercise price
is less than
market price... -- -- --
</TABLE>
The Company has elected to follow the measurement provisions of Accounting
Principles Board Opinion No. 25, under which no recognition of expense is
required in accounting for stock options granted to employees for which the
exercise price equals or exceeds the fair market value of the stock at the
grant
F-14
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
date. In those cases where options have been granted when the option price is
below fair market value, the Company recognizes compensation expense over the
vesting period using the aggregated percentage of compensation accrued method
as prescribed by Financial Accounting Standards Board Interpretation No. 28.
Compensation expense of $29,813, $143,922, $237,900 was recognized during the
period from March 1, 1996 (inception) to December 31, 1996, and for the years
ended December 31, 1997 and 1998, respectively, for options granted with
exercise prices less than grant date fair market value.
To estimate compensation expense which would be recognized under SFAS No.
123, Accounting for Stock-based Compensation, the Company uses the modified
Black-Scholes option-pricing model with the following weighted-average
assumptions for options granted through December 31, 1998: risk-free interest
rate ranging from 4.24% to 6%; expected dividend yield of 0%; no volatility
(prior to becoming a public company); and an expected life of six years.
Had compensation expense for the Plan been determined based on fair value at
the grant dates for awards under the Plan consistent with SFAS No. 123,
Accounting for Stock-Based Compensation, the Company's net losses for the
period from March 1, 1996 (inception) to December 31, 1996, and the years ended
December 31, 1997 and 1998, would have been adjusted to the following pro forma
amounts:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
Net loss as reported........................ $(380,524) $(428,690) $(9,056,458)
Net loss, pro forma......................... (380,859) (430,180) (9,472,322)
Basic net loss per share, pro forma......... (0.02) (0.02) (0.35)
</TABLE>
Additional information regarding options outstanding as of December 31, 1998,
is as follows:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
-------------------------------------- --------------------------
Weighted
average
remaining Weighted Weighted
Range of Number contractual average Number average
exercise prices Outstanding life (yrs.) Exercise price Exercisable exercise price
--------------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.01 1,965,876 7.31 $0.01 1,273,480 $0.01
0.10 28,462 7.67 0.10 28,462 0.10
1.00-1.50 44,646 8.28 1.23 24,750 1.00
2.00-3.00 693,396 8.93 2.02 74,916 2.00
3.75-4.00 233,000 9.56 3.88 -- --
6.00-7.50 2,330,100 9.93 7.41 107,858 7.50
23.53 4,000 10.00 23.53 -- --
--------- ---------
5,299,480 8.78 $3.73 1,509,466 $0.66
========= =========
</TABLE>
At December 31, 1998, 769,900 shares were available for future grants under
the Plan.
In connection with the May and August 1998 private placement offering, the
Company issued warrants to purchase 4,127,672 shares of common stock to five
third-party participants for consulting services performed in identifying,
structuring and negotiating future financings. These warrants expire between
May 21, 2008 and August 6, 2008. The exercise prices are as follows:
<TABLE>
<CAPTION>
Shares Price
------ -----
<S> <C>
2,201,424............................... $2.00
963,124............................... 3.00
963,124............................... 5.00
</TABLE>
F-15
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In July 1998, the Company issued warrants to purchase 955,934 shares of
common stock at an exercise price of $0.01 to a former consultant in
conjunction with the acquisition of Outpost (Note 4). These warrants expire on
October 30, 2002.
On August 24, 1998, the Company issued to AOL warrants to purchase up to
1,979,832 shares of common stock, which warrants vest in 16 equal quarterly
installments over four years, conditioned on the delivery by AOL of a minimum
number of searches each quarter on the Company's white pages directory service.
The warrants have an exercise price of $6.00 per share.
Stock purchase rights plan: On June 26, 1998, the Board of Directors approved
the InfoSpace, Inc. Stock Purchase Rights Plan. The plan is offered to
employees of the Company and its subsidiaries. The purpose of the plan is to
provide an opportunity for employees to invest in the Company and increase
their incentive to remain with the Company. A maximum of 1,000,000 shares of
common stock are available for issuance under the plan. During July 1998, the
Company offered shares to employees under the plan, resulting in the sale of
446,502 shares at $3.75 per share. The plan was terminated on August 24, 1998.
1998 Employee Stock Purchase Plan: The Company adopted the 1998 Employee
Stock Purchase Plan (the ESPP) in August 1998. The ESPP was implemented upon
the effectiveness of the initial public offering. The ESPP is intended to
qualify under Section 423 of the Code, and permits eligible employees of the
Company and its subsidiaries to purchase common stock through payroll
deductions of up to 15% of their compensation. Under the ESPP, no employee may
purchase common stock worth more than $25,000 in any calendar year, valued as
of the first day of each offering period. In addition, owners of 5% or more of
the Company's, or subsidiary's common stock may not participate in the ESPP. An
aggregate of 900,000 shares of common stock are authorized for issuance under
the ESPP.
The ESPP was implemented with six-month offering periods, with the first such
period commencing upon the effectiveness of the initial public offering through
July 31, 1999. Offering periods will begin on each February 1 and August 1. The
price of common stock purchased under the ESPP will be the lesser of 85% of the
fair market value on the first day of an offering period and 85% of the fair
market value on the last day of an offering period, except that the purchase
price for the first offering period was equal to the lesser of 100% of the
initial public offering price of the common stock offered hereby and 85% of the
fair market value on July 31, 1999. The ESPP does not have a fixed expiration
date, but may be terminated by the Company's Board of Directors at any time.
There were 38,145 shares (unaudited) issued for the first ESPP offering period
which ended July 31, 1999.
Note 5: Business Combinations
YPI: On May 16, 1997, the Company acquired all outstanding Membership
Interest Units of YPI, a limited liability company. YPI operations began to be
included in the Company's financial statements on the effective date of the
acquisition, May 1, 1997. The YPI advertising agreements provided yellow pages
directory publishers with an Internet distribution channel and had terms of one
month to one year. YPI is a yellow pages sales consortium business. In
conjunction with the acquisition, the Company acquired certain advertising
agreements and assumed a note payable for $90,000.
In connection with the acquisition of YPI during May 1997, 2,000,000 shares
of common stock were placed into an escrow account. The aggregate number of
shares of the escrow stock to be delivered was derived from revenues generated
by the business during the measurement period. Before December 31, 1997, the
number of shares to be released from escrow was finalized and a total of
170,000 escrow shares were issued to the sellers on January 2, 1998. These
shares were included in the calculation of basic earnings
F-16
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
per share as of January 1, 1998, and in the calculation of diluted earnings per
share as of the effective date of acquisition, May 1, 1997. The remaining
1,830,000 common shares were returned to the Company for cancellation. The
Company acquired YPI primarily to obtain rights to its advertising agreements
and the services of its founder to further develop the Company's business.
YPI's shareholders have represented that YPI had no significant operations and
that detailed YPI financial information is not available.
The allocation of purchase price, as determined after the release of shares
from escrow was finalized, is summarized as follows:
<TABLE>
<CAPTION>
Book and
fair value
----------
<S> <C>
Book value of net liabilities assumed at cost................. $(90,000)
Fair value adjustments:
Fair value of purchased advertising contracts............... 85,417
--------
Fair value of net assets acquired............................. (4,583)
Purchase price:
Acquisition costs........................................... 14,000
Fair value of 170,000 shares issued......................... 292,000
--------
Excess of purchase price over net assets acquired, allocated
to goodwill (amortized over five years)...................... $310,583
========
</TABLE>
Outpost Network, Inc.: On June 2, 1998, the Company acquired all of the
common stock of Outpost, a privately held company, for a purchase consideration
of 2,999,976 shares of the Company's common stock, cash of $35,000, assumed
liabilities of $264,000, and acquisition expenses of $1,957,000. In conjunction
with the acquisition, the Company was required to issue warrants valued at
$1,902,000 to a former consultant, which are included in acquisition costs. The
exercise price of the warrants was specified in the consulting agreement
between the Company and the former consultant dated October 30, 1997. Pursuant
to this agreement, the former consultant rendered advice to the Company
regarding the structure and terms of the Outpost merger and the warrants were
earned based on the completion of the merger. Therefore, the warrant value was
determined on June 2, 1998, the effective date of the merger. The transaction
was accounted for as a purchase for accounting purposes.
The allocation of purchase price is summarized as follows:
<TABLE>
<CAPTION>
Book and
fair value
----------
<S> <C>
Book value of net liabilities assumed at cost................ $ (191,000)
Fair value adjustments:
Fair value of purchased technology, including in-process
research and development.................................. 3,600,000
Fair value of assembled workforce.......................... 40,000
----------
Fair value of net assets acquired............................ 3,449,000
Purchase price:
Cash paid.................................................. 35,000
Fair value of shares issued................................ 6,000,000
Acquisition costs (including the warrants issued with a
fair value of $1,902,000)................................. 1,957,000
----------
Excess of purchase price over net assets acquired, allocated
to goodwill (amortized over five years)..................... $4,543,000
==========
</TABLE>
F-17
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The $3,600,000 value of purchased technology includes purchased in-process
research and development for future InfoSpace products. Generally accepted
accounting principles require purchased in-process research and development
with no alternative future use to be recorded and charged to expense in the
period acquired. Accordingly, the results of operations for the year ended
December 31, 1998, include the write-off of $2,800,000 of purchased in-process
research and development. The remaining $800,000 represents the purchase of
core technology and existing products which are being amortized over an
estimated useful life of five years.
The following unaudited pro forma information shows the results of the
Company for the years ended December 31, 1998 and 1997, as if the acquisition
of Outpost occurred on January 1, 1997. The pro forma information includes
adjustments relating to the financing of the acquisition, the effect of
amortizing goodwill and other intangible assets acquired, and assumes that
Company shares issued in conjunction with the acquisition were outstanding as
of January 1, 1997. The pro forma results of operations are unaudited, have
been prepared for comparative purposes only, and do not purport to indicate the
results of operations which would actually have occurred had the combination
been in effect on the date indicated or which may occur in the future:
<TABLE>
<CAPTION>
(unaudited)
1997 1998
----------- ------------
<S> <C> <C>
Revenue......................................... $ 1,915,990 $ 9,333,459
Net loss........................................ (3,130,332) (10,551,855)
Basic and diluted net loss per share............ (0.13) (0.37)
</TABLE>
My Agent Technology (unaudited): On June 30, 1999 the Company acquired the
MyAgent technology and related assets from Active Voice Corporation for $18
million dollars. The acquisition was accounted for as a purchase in accordance
with the provisions of Accounting Principles Board Opinion ("APB") No. 16.
Under the purchase method of accounting, the purchase price is allocated to the
assets acquired and the liabilities assumed based on their fair values at the
date of the acquisition. Other than the MyAgent technology modules, no other
assets or liabilities were assumed as part of this acquisition.
The Company recorded a non-recurring charge of $3.9 million for in-process
research and development that had not yet reached technological feasibility and
had no alternative future use. The Company also recorded a one-time charge of
$1.0 million for expenses incurred with the transaction. These expenses
consisted of bonus payments made to certain Active Voice MyAgent team employees
who accepted employment with InfoSpace.com but who are under no agreement to
continue their employment with InfoSpace. The Company also recorded $13.7
million of goodwill and $480,000 of other intangible assets. These intangibles
will be amortized over their useful life, which the Company has estimated to be
five years.
The allocation of the purchase price is summarized as follows:
<TABLE>
<S> <C>
Fair value of purchased technology, including in-process
Research and development.................................... $ 4,300,000
Fair value of assembled workforce............................ 80,000
-----------
Fair value of net assets acquired............................ 4,380,000
Purchase price:
Cash paid.................................................. 18,000,000
Acquisition costs.......................................... 100,000
-----------
Excess of purchase price over net assets acquired, Allocated
to goodwill (amortized over five years)..................... $13,720,000
===========
</TABLE>
F-18
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The $4.3 million value of purchased technology includes purchased in-process
research and development for future InfoSpace products. Generally accepted
accounting principles require purchased in-process research and development
with no alternative future use to be recorded and charged to expense in the
period acquired. Accordingly, the results of operations for the quarter ended
June 30, 1999, include the write-off of $3.9 million of purchased in-process
research and development. The remaining $400,000 represents the purchase of
core technology which is being amortized over an estimated useful life of five
years.
The MyAgent product team was not accounted for as a separate entity, a
subsidiary, or a line of business, or division of the business, but rather was
part of the research and development group. Accordingly, historical financial
information is not available. The Company expects these modules to be fully
integrated into the Company's full suite of Internet service offerings.
Further, the modules will not be distinguishable operating segments for
financial reporting purposes or for management purposes.
Note 6: Commitments and Contingencies
The Company has noncancellable operating leases for corporate facilities. The
leases expire through June, 2004. Rent expense under operating leases totaled
$36,000, $83,000 and $179,000 for the period from March 1, 1996 (inception) to
December 31, 1996, the years ended December 31, 1997 and 1998, respectively.
Rent expense under operating leases totaled $113,068 and $302,847 (unaudited)
for the nine months ended September 30, 1998 and 1999, respectively. The
Company also has noncancellable carriage fee agreements with certain
affiliates.
Future minimum rental payments required under noncancellable operating leases
are as follows for the periods ending December 31:
<TABLE>
<S> <C>
1999............................................................ $ 106,180
2000............................................................ 393,018
2001............................................................ 353,089
2002............................................................ 311,972
2003............................................................ 225,280
----------
$1,389,539
==========
</TABLE>
Future payments required under noncancellable affiliate carriage fee
agreements are as follows for the periods ending December 31:
<TABLE>
<S> <C>
1999........................................................... $ 2,226,060
2000........................................................... 7,543,976
2001........................................................... 1,500,000
-----------
$11,270,036
===========
</TABLE>
Trademark license agreements: Effective as of July 1, 1998, the Company
entered into two trademark license agreements with Netscape Communications
Corporation (Netscape) to license two of Netscape's trademarks for one-time
nonrefundable license fees totaling $3,000,000. The trademark license fees were
capitalized and amortized over one year, the expected useful life of the
trademarks. The trademarks were fully amortized at June 30, 1999 (unaudited).
F-19
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Directory services agreements: The Company entered into two directory
services agreements with Netscape effective as of July 1, 1998. Under these
agreements, which provide for a one-year term, with automatic renewal, the
Company serves as the exclusive provider of co-branded yellow pages and white
pages directory services on the Netscape home page (Netcenter). Netscape has
guaranteed the Company a minimum level of use of the Company's yellow pages and
white pages directories, and the Company has agreed to pay Netscape a carriage
fee each quarter equal to the product of (x) the cost per click through as
specified in the applicable directory services agreement and (y) the number of
click throughs delivered by Netscape, up to a specified maximum. The Company
accrues monthly a liability for the estimated click throughs delivered.
Netscape reports the number of click throughs by month on a quarterly basis and
invoices the Company on a quarterly basis. Payments to Netscape will be
recorded as sales and marketing expenses during the quarter in which the click
throughs occur. This minimum payment is included in the noncancellable
affiliate carriage fee payments disclosed above. The Company expects Netscape
to meet the minimum guaranteed click throughs during the period of the
directory services agreements. In the event that Netscape fails to deliver the
guaranteed minimum number of click throughs, Netscape has agreed to either
continue the link to the Company's content services beyond the term of the
agreement until the guaranteed minimum click throughs have been achieved or
deliver to the Company a program of equivalent value as a remedy for the
shortfall in click throughs. Netscape and the Company will share advertising
revenue generated from a search of the Company's directory services initiated
on Netscape's home page.
Interactive Marketing Agreement (unaudited): On June 30, 1999 the Company
entered into an agreement with AOL to provide white page directory services to
AOL's Compuserve and Digital City divisions and its Netscape Communications
subsidiary for a two year term. Pursuant to the agreement, the Company agreed
to provide white pages listings and directory services. The Company is required
to pay to AOL a bi-annual carriage fee. In return, AOL has agreed to deliver a
minimum number of searches each year. If AOL delivers more searches in either
or both of the years, we are required to pay AOL additional fees on a cost per
search basis. In the event that there is a shortfall in searches as of the end
of the initial two year term of the agreement, AOL will extend the term for six
months or until the shortfall is made up, whichever occurs first. The Company
will account for revenue and revenue sharing under the agreements with AOL
under our existing revenue recognition policies described in our Note 1. The
total carriage fee payments to be made under the white pages directory services
agreement will be recognized based on actual searches delivered over the term
of the agreement as sales and marketing expense.
White pages and classifieds agreements: On August 24, 1998, the Company
entered into agreements with America Online, Inc. (AOL) to provide white pages
directory and classifieds information services to AOL. Pursuant to the white
pages directory services agreement, the Company has agreed to provide to AOL
white pages listings and directory service. The Company is required to pay to
AOL a quarterly carriage fee, the retention of which is conditioned on the
quarterly achievement of a minimum number of searches on the AOL white pages
site. The quarterly carriage fee is paid in advance at the beginning of the
quarter in which the searches are expected to occur and is recorded as a
prepaid expense in the quarter it is paid. The fee is refundable if the minimum
number of searches on the AOL white pages site for such quarter is not
achieved. In addition, AOL has guaranteed to the Company a minimum number of
searches over the term of the agreement. In the event that AOL does not deliver
the guaranteed minimum number of searches over the term of the agreement, AOL
has agreed to pay to the Company a cash penalty payment. The Company will share
with AOL revenues generated by advertising on the Company's white pages
directory services delivered to AOL. The Company is entitled to a greater
percentage of advertising revenues than is AOL if the amount of such revenues
received by the Company is less than the carriage fees paid to AOL.
The Company has agreed to provide white pages directory services to AOL for a
three-year term beginning on November 19, 1998, which term may be extended for
four additional one-year terms at AOL's
F-20
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
discretion. The agreement may be terminated by AOL for any reason after 18
months or at any time upon the acquisition by AOL of a competing white pages
directory services business. In the event of any such termination, AOL is
required to pay a termination fee to the Company. In addition, without the
payment of a termination fee, AOL has the right to terminate the agreement in
the event of a change of control of the Company.
The Company has agreed to provide classifieds information services to AOL for
a two-year term, with up to three one-year extensions at AOL's discretion. AOL
has agreed to pay to the Company a quarterly fee and will share with the
Company revenues generated from payments by individuals and commercial listing
services for listings on the AOL classifieds service.
Pursuant to the terms of these agreements, the Company has granted AOL the
right to negotiate with the Company exclusively and in good faith for a period
of 30 days with respect to proposals or discussions that would result in a sale
of a controlling interest of the Company or other merger, asset sale or other
disposition that effectively results in a change of control of the Company.
In connection with the agreements, on August 24, 1998, the Company issued to
AOL warrants to purchase up to 1,979,832 shares of common stock, which warrants
vest in 16 equal quarterly installments over four years, conditioned on the
delivery by AOL of a minimum number of searches each quarter on the Company's
white pages directory service. The warrants have an exercise price of $6.00 per
share.
The revenue and revenue sharing under the agreements with AOL will be
accounted for under the Company's existing revenue recognition policies
described in Note 1. The Company expects AOL to meet the minimum number of
searches each quarter. Accordingly, the total carriage fee payments to be made
under the white pages directory services agreement will be recognized ratably
over the term of the agreement as sales and marketing expense. However, if AOL
does not deliver the minimum searches on the AOL white pages during that
quarter, then AOL is obligated to refund the quarterly carriage fee paid for
that specific quarter, in which case the Company would credit prepaid expense
and reduce the total cost of the white pages directory services agreement by
the amount of the refund. The adjusted total cost of the agreement would be
recognized ratably over the remaining term of the agreement as sales and
marketing expense, which term would include the quarter in which AOL did not
deliver the minimum number of searches. For at least the first two years of the
white pages agreement, the Company expects that actual carriage fee payments
will exceed the sales and marketing expense recorded for the quarter in which
the payment is made. As such, the Company expects to experience increases in
its prepaid expense account during this time. These fees are included in the
noncancellable affiliate carriage fee payments disclosed above. Any termination
fee paid to the Company by AOL will be recognized as revenue when paid. The
warrants were valued using the fair value method, as required under SFAS No.
123. The fair value of the warrants was approximately $3,300,000 at the date of
grant, and is being amortized ratably over the four-year vesting period. The
underlying assumptions used to determine the value of the warrants are an
expected life of six years and a 5.5% risk-free interest rate.
Litigation: On December 7, 1998, a complaint was filed against the Company on
behalf of an alleged former employee in Superior Court for Suffolk County in
the Commonwealth of Massachusetts alleging that he was terminated without cause
and that he entered into an agreement with us that entitles him to an option to
purchase 4,000,000 shares of common stock or 10% of the Company's equity. The
complaint alleges breach of contract, breach of the covenant of good faith,
breach of fiduciary duty, misrepresentation, promissory estoppel, intentional
interference with contractual relations and unfair and deceptive acts and
practices, seeking specific performance of the alleged agreement for 10% of the
Company's equity, damages
F-21
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
equal to the value of 10% of the Company's equity, punitive damages and
attorneys' fees and costs and treble damages under the Massachusetts Consumer
Protection Act (Mass. G.L. Chapter 93A). On January 7, 1999, the suit was
removed to the United States District Court for the District of Massachusetts.
Discovery has commenced and a trial is tentatively scheduled for March 2000.
The Company is currently investigating the claims at issue and believes that it
has meritorious defenses to such claims. Nevertheless, litigation is inherently
uncertain and the Company may not prevail in this suit. To the extent that the
Company is required to issue shares of common stock or options to purchase
common stock as a result of the suit, the Company would recognize an expense
equal to the number of shares issued multiplied by the fair value of the common
stock on the date of issuance, less the exercise price of any options required
to be issued. This could have a material adverse effect on the Company's
results of operations, and any such issuances would be dilutive to existing
stockholders, the dilutive impact of which may be mitigated to the extent it is
offset by shares of common stock in an escrow account established by the
Company's Chief Executive Officer.
On December 23, 1998, the Company initiated litigation against Internet
Yellow Pages, Inc., or IYP, by filing suit in United States District Court for
the Western District of Washington. On February 3, 1999, the Company served a
first amended complaint on IYP and Greg Crane, an agent of IYP, in which the
Company asserted claims for (a) account stated, (b) breach of contract, and (c)
fraud. Neither IYP nor Crane have answered our complaint. On February 11, 1999,
however, the Company was served with a complaint filed by IYP in Arizona
Superior Court for Maricopa County, which complaint was filed on February 3,
1999. In its complaint, IYP asserts causes of action for breach of contract,
fraud, extortion, and racketeering under Arizona Revised Statutes, Section 13-
2301(D)(l) and (t), and seeks relief consisting of $1,500,000 and other
unquantified money damages, punitive damages, treble damages under Arizona
Revised Statutes, Sec. 13-2314.04, and attorney's fees. On March 5, 1999, IYP
answered the Company's complaint in the Washington action, and asserted claims
for breach of contract, fraud, extortion and Consumer Protection Act, or CPA,
violations. IYP seeks relief consisting of $1,500,000 and other unquantified
money damages, treble damages under the CPA, and attorneys' fees. Trial in the
Washington action is set for April 2000, and discovery is ongoing; the Arizona
action is presently stayed. The Company is currently investigating the claims
and believes it has meritorious defenses to such claims. Nevertheless,
litigation is uncertain and the Company may not prevail in this suit.
On February 24, 1999, the Company received a letter from counsel for a former
content provider claiming that it is entitled to an option to acquire up to 5%
of InfoSpace.com. The Company reviewed the claim and believes that it is
entirely without merit. The Company responded to the counsel accordingly in a
letter dated March 4, 1999 and intends to vigorously defend any suit if filed.
To the extent that the Company is required to issue shares of its common stock
or options to purchase common stock as a result of the claim, the Company would
recognize an expense equal to the number of shares issued multiplied by the
fair value of the Company's common stock on the date of issuance, less the
exercise price of any options required to be issued. This could harm the
Company's results of operations, and any such issuances would be dilutive to
existing stockholders, the impact of which may be mitigated to the extent it is
offset by shares of common stock in an escrow account established by the
Company's Chief Executive Officer.
Other-Non-recurring: On February 22, 1999, the Company reached a settlement
with a former employee. Under the terms of the settlement the former employee
will receive a cash payment of $4.5 million. The Company had previously accrued
a liability of $240,000 for estimated settlement costs. Accordingly, the
Company has recorded an additional expense of $4,260,000 for the difference
between the accrued liability and the actual settlement amount. As this
subsequent event was settled after December 31, 1998 but prior to the issuance
of the financial statements, the additional expense has been recorded in the
fourth quarter of 1998.
F-22
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On July 23, 1999, the Company settled the patent infringement claim that was
filed by Civix-DDI, LLC in January 1999. Under the settlement agreement, the
patents have been licensed to the Company in exchange for a lump sum royalty
payment of $209,500 (unaudited). This settlement payment was paid in the
quarter ended September 30, 1999 and is reflected in Other-non-recurring
charges.
Contingencies: In the Company's early stage of development, the Company did
not clearly document arrangements with employees and consultants, including
matters relating to the issuance of stock options. As a result of this
incomplete documentation, the Company may receive claims in the future
asserting rights to acquire common stock.
Note 7: Income Taxes
No provision for federal income tax has been recorded as the Company has
incurred net operating losses through December 31, 1998 and through the nine
months ended September 30, 1999 (unaudited). The tax effects of temporary
differences and net operating loss carryforwards that give rise to the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1997 1998 1999
--------- ----------- -------------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforward......... $ 106,000 $ 36,000 $ 4,222,000
Intangible amortization................. 37,000 60,000 65,000
Compensation expense--stock options..... 59,000 59,000 144,000
Allowance for bad debt.................. 16,000 203,000 172,000
Litigation accrual...................... 47,000 1,530,000 --
Warrants................................ -- 46,000 254,000
Deferred revenue........................ -- 473,000 473,000
Accrued carriage fees................... -- -- 332,000
Other, net.............................. 10,000 34,000 91,000
--------- ----------- -----------
Gross deferred tax assets............. 275,000 2,441,000 5,753,000
Deferred tax liabilities:
Purchased technology.................... -- 252,000 242,000
Prepaid advertising..................... -- 113,000 --
Depreciation............................ 2,000 13,000 29,000
Capitalized software.................... -- -- 166,000
Warrants................................ -- -- 116,000
Other, net.............................. 2,000 -- 106,000
--------- ----------- -----------
Gross deferred tax liabilities........ 4,000 378,000 659,000
--------- ----------- -----------
Net deferred tax assets................... 271,000 2,063,000 5,094,000
Valuation allowance....................... (271,000) (2,063,000) (5,094,000)
--------- ----------- -----------
Deferred tax balance...................... $ -- $ -- $ --
========= =========== ===========
</TABLE>
At December 31, 1997 and 1998 and September 30, 1999 (unaudited), the Company
fully reserved its deferred tax assets. The Company believes sufficient
uncertainty exists regarding the realizability of the deferred tax assets such
that a full valuation allowance is required. The net change in the valuation
allowance during the years ended December 31, 1997 and 1998, was $144,000 and
$1,792,000, respectively.
F-23
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 8: Net Loss Per Share
The Company has adopted SFAS No. 128, Earnings per Share. 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 equivalent shares outstanding
during the period. Common equivalent shares consist of the incremental common
shares issuable upon conversion of the exercise of stock options and warrants
(using the treasury stock method). Common equivalent shares are excluded from
the computation if their effect is antidilutive. The Company had a net loss for
all periods presented herein; therefore, none of the options and warrants
outstanding during each of the periods presented, as discussed in Note 4, were
included in the computation of diluted loss per share as they were
antidilutive. Options and warrants to purchase a total of 2,025,000, 2,726,000,
12,362,918 and 12,619,756 shares of common stock were excluded from the
calculations of diluted loss per share for the period from March 1 to December
31, 1996, and the years ended December 31, 1997 and 1998, and the nine months
ended September 30, 1999, respectively. 170,000 contingently issuable shares of
common stock have been excluded from the calculation of basic earnings per
share for the year ended December 31, 1997 (Note 4).
Note 9: Information on Products and Services
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for the
way that 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 as well as
the reporting of selected information about operating segments in interim
financial statements for the year ended December 31, 1998. The adoption of SFAS
No. 131 did not have a material effect on the Company's primary consolidated
financial statements but did affect the Company's disclosures.
The Company generates substantially all of its revenues through common,
aggregated and integrated content delivered through a common physical
infrastructure, and therefore the Company has only one reportable segment.
Substantially all revenues are generated from domestic sources. All Company
long-lived assets are physically located within the United States.
Total operating expenses are controlled centrally based on established
budgets by operating department. Operating departments include product
development, sales and marketing, account management and customer service, and
finance and administration. Assets, technology, and personnel resources of the
Company are shared and utilized for all of the Company's service offerings.
These resources are allocated based on contractual requirements, the
identification of enhancements to the current service offerings, and other non-
financial criteria. The Company does not prepare operating statements by
revenue source. The Company does not account for, and does not report to
management, its assets or capital expenditures by revenue source.
F-24
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue Information
Revenues are derived from the Company's consumer, merchant and wireless
services. These services generate revenues from advertising, content carriage,
licensing fees, e-commerce transaction fees, and guaranteed transaction fees in
lieu of revenue share. Contracts with customers often utilize services from
more than one of our areas of service and include revenue from more than one
revenue source.
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- ---------- ---------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Consumer revenues... $189,372 $1,424,748 $8,370,965 $4,824,350 $17,852,671
Merchant revenues... 10,000 260,348 1,043,485 549,511 3,834,162
Wireless revenues... -- -- -- -- 318,150
-------- ---------- ---------- ---------- -----------
Total revenues...... $199,372 $1,685,096 $9,414,450 $5,373,861 $22,004,983
======== ========== ========== ========== ===========
</TABLE>
Customer Information
For the nine months ended September 30, 1999, one customer accounted for
approximately 26% (unaudited) of revenues. For the year ended December 31,
1998, the same customer accounted for approximately 21% of revenues. For the
year ended December 31, 1997 and for the period from March 1, 1996 (inception)
to December 31, 1996, no one customer accounted for more than 10% of revenues.
Note 10: Related-party transactions
During the period from March 1, 1996 (inception) to December 31, 1996, years
ended December 31, 1997 and 1998, the Company sold advertising to an entity in
which the Company's chief executive officer has an equity interest resulting in
revenues of $10,000, $200,000 and $19,269. For the nine months ended September
30, 1998 and 1999, the Company sold advertising to the same entity resulting in
revenues of $174 and $447,905 (unaudited), respectively.
Note 11: Investment in Joint Venture
On July 16, 1998, the Company established InfoSpace Investments, Ltd., a
wholly owned subsidiary incorporated in England and Wales. On July 16, 1998,
the Company and InfoSpace Investments, Ltd. entered into a joint venture
agreement (the Joint Venture Agreement) with another party forming a new
company, TDL InfoSpace (Europe) Limited (TDL InfoSpace), with the purpose of
carrying on the business of the aggregation and syndication of content on the
Internet, initially in the United Kingdom. Pursuant to the terms of the Joint
Venture Agreement, both the Company and its joint venture partner entered into
license agreements with TDL InfoSpace for offsetting payments to each of the
Company and its joint venture partner of (Pounds)50,000. These amounts were not
intended to represent the fair market value of the license agreements to an
unrelated third party. Under the license agreement between the joint venture
partner and TDL InfoSpace, the joint venture partner licenses its U. K.
directory information database to TDL InfoSpace. Under the Joint Venture
Agreement, the joint venture partner also sells Internet yellow pages
advertising of the joint venture through its local sales force. Under the
license agreement between the Company and TDL InfoSpace, the Company licenses
its technology and provides hosting services to TDL InfoSpace. In addition,
under the Company's license agreement, TDL InfoSpace is obligated to reimburse
F-25
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the Company for any incremental costs incurred by the Company for its efforts
with respect to the hosting services. In the event that TDL InfoSpace expands
into other countries, it is required to pay to the Company an additional
technology license fee of $50,000 per additional country. The Company's license
agreement also provides that, in the event that the Company no longer holds any
ownership interest in the joint venture, InfoSpace and the Company will
negotiate an arm's-length license fee for the Company's technology, not to
exceed $1,000,000. On July 17, 1998, the Company transferred $496,000 to
InfoSpace Investments, Ltd. InfoSpace Investments, Ltd. utilized these funds to
acquire 475,000 shares of TDL InfoSpace, which represents a noncontrolling 50%
interest. Under the terms of the Joint Venture Agreement, the Company has
certain obligations as guarantor, principally to guarantee the performance by
InfoSpace Investments, Ltd. of its obligations under the Joint Venture
Agreement. The Company accounts for its investment in the joint venture under
the equity method. For the year ended December 31, 1998, the Company recorded a
loss from the joint venture of $125,000. For the nine months ended September
30, 1999, the Company recorded a loss from the joint venture of $101,000
(unaudited).
Note 12: Other Investments (unaudited)
The Company invests in equity instruments of privately held technology
companies for business and strategic purposes. These investments are included
in other long-term assets and are held for investment. For these investments,
the Company's policy is to regularly review the assumptions underlying the
operating performance and cash flow forecasts in assessing the carrying values.
To date, no adjustments have been made to the carrying values of these
investments. On January 1, 1999 the Company purchased 250,000 shares of Series
D Convertible Preferred Stock of a privately held online merchant company at
$2.00 per share in a private placement transaction. On June 30, 1999, the
Company received 80,000 shares of Series F Convertible Preferred Stock of the
same online merchant company in lieu of cash payment for services to be
performed by the Company in the future. These shares were valued at $5.00 per
share in a private placement transaction. The revenue on this transaction has
been deferred and will be recognized when the services are performed. On July
19, 1999, the Company purchased 1,350,000 shares of Series E Convertible
Preferred Stock of the same online merchant company at $5.00 per share in a
private placement transaction.
On June 15, 1999, the Company purchased 611,996 shares of Series E
Convertible Preferred Shares of a privately held provider of content solutions
on the Internet for $8.17 per share in a private placement transaction.
The Company holds warrants in privately and publicly held technology
companies for business and strategic reasons. These warrant agreements contain
provisions that require the Company to meet certain performance criteria in
order for the warrants to vest. When the Company meets its performance
obligations it records revenue equal to the difference in the exercise price of
the warrant and the fair market value of the underlying security. During the
quarter ended September 30, 1999 the Company recorded revenue in the amount of
$341,275 for vesting in performance warrants. These are reflected as Other
Investments.
Note 13: Follow-on Offering (unaudited)
In April 1999, the Company closed a follow-on offering. The Company sold
4,340,000 shares and raised approximately $185 million, net of expenses.
Certain shareholders sold 3,020,000 shares.
Note 14: Subsequent Event
On October 14, 1999, the Company acquired Toronto-based INEX Corporation, a
provider of Internet commerce applications that deliver solutions for merchants
to build, manage and promote online storefronts.
F-26
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
This acquisition will be accounted for as a pooling of interests pursuant to
which the Company exchanged approximately 900,000 shares of the Company's
common stock for all of the outstanding shares, warrants and options of INEX.
On October 14, 1999, the Company acquired Seattle-based Union-Street.com for
436,632 shares of the Company's common stock. This acquisition will be
accounted for as a purchase. Union-Street provides portals, destination sites,
and enterprise businesses with a suite of business services including private
label e-mail, address book, calendar, personal home page, chat and message
boards. Approximately $3.3 million will be recorded as a non-recurring charge
for in-process research and development.
On October 22, 1999, the Company signed a definitive agreement to acquire
Redmond-based Zephyr Software Inc. and its wholly owned subsidiary in India,
Zephyr Software (India) Private Limited. Zephyr Software Inc. provides
infrastructure services for the Indian market. Zephyr India will become
InfoSpace.com India, a wholly owned subsidiary of InfoSpace.com. Under the
terms of the acquisition, which will be accounted for as a purchase,
InfoSpace.com will exchange 166,956 shares of the Company's common stock for
all of Zephyr Software Inc.'s outstanding shares, warrants and options. The
acquisition is expected to be completed in the fourth quarter of 1999 upon
receipt of regulatory approval from the government of India, and is also
subject to customary conditions, including Zephyr Software Inc. shareholder
approval.
On November 19, 1999, the Company signed a definitive agreement to acquire
Fremont, California-based eComLive.com Inc. eComLive.com is a leader in
providing Web-based real-time collaboration and interactive solutions such as
live data collaboration, audio and video conferencing in addition to allowing
users to share documents, browsers, presentations and applications through a
standard browser. Under the terms of the acquisition, which will be accounted
for as a purchase, the Company will exchange 355,618 shares of its common stock
for all of eComLive.com's outstanding shares and options. The acquisition is
expected to be completed in December, and is subject to customary conditions,
including eComLive shareholder approval.
On December 6, 1999, the Company signed a definitive agreement to acquire San
Mateo, California-based Saraide.com inc. Saraide is a leading wireless Internet
services provider in Europe, Japan and Canada. Under the terms of the
acquisition, which will be accounted for as a purchase, the Company will
exchange 2,397,716 shares of its common stock and contribute its wireless
assets for 80% control of Saraide. The acquisition is expected to be completed
in the first quarter of 2000, and is subject to customary conditions, including
regulatory approval and Saraide shareholder approval.
On December 6, 1999, the Company signed a definitive agreement to acquire
Mountain View, California-based Prio, Inc. Prio is a provider of "e-nabled'
commerce solutions specializing in the development of strategic partnerships,
technologies and programs that drive commerce in both traditional and online
shopping environments. Under the terms of the acquisition, which will be
accounted for as a pooling of interests, the Company will exchange 2,685,000
shares of its common stock for all of Prio's outstanding shares, warrants and
options. The acquisition is expected to be completed in the first quarter of
2000, and is subject to customary conditions, including the receipt of
regulatory approval and Prio shareholder approval.
On November 29, 1999, the Company's Board of Directors approved a 2-for-1
stock split of the Company's Common Stock. Stockholders of record will be
entitled to one additional share for each share held on that date.
Employment Claim: On December 15, 1999, a former employee filed a complaint
against the Company alleging that he was terminated without cause and that he
had entered into an agreement with the Company that entitles him to an option to
purchase 75,000 shares of the Company's Common Stock at $1.00 per share. The
complaint alleges breach of contract, breach of the covenant of good faith and
fair dealings, fraud, negligent misrepresentation and promissory estoppel, and
seeks specific performance of the alleged agreement for 75,000 shares of Common
Stock at $1.00 per share, compensatory and punitive damages, and attorneys' fees
and costs. The Company is currently investigating the claims and believes it has
meritorious defenses to such claims. Nevertheless, litigation is inherently
uncertain and, should litigation ensure, there can be no assurance that the
Company would prevail in such a suit. To the extent the Company is required to
issue shares of Common Stock or options to purchase Common Stock as a result of
the claims, the Company would recognize an expense equal to the number of shares
issued multiplied by the fair value of the Company Stock on the date of
issuance, less the exercise price of any options required to be issued. This
could have a material adverse effect on the Company's results of operations, and
such issuances could be dilutive to existing shareholders.
F-27
<PAGE>
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1,561,532 Shares
InfoSpace.com, Inc.
__________
Common Stock
PROSPECTUS
January 10, 2000
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