<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration Statement File No. 333-84789
PROSPECTUS SUPPLEMENT
TO PROSPECTUS DATED
AUGUST 23, 1999 OF
MARKETWATCH.COM, INC.
This Prospectus Supplement is a part of the Prospectus and must be timely
delivered to any purchaser of the securities offered by the selling
stockholders.
POTENTIAL CHANGE IN CONTROL OF DATA BROADCASTING CORPORATION
On November 14, 1999, Data Broadcasting Corporation, or DBC, a Delaware
corporation and a holder of more than 30% of our outstanding common stock,
entered into an agreement and plan of merger to merge with the specialist asset
valuation business, or the FTAM, of the Financial Times Group, which is a part
of Pearson PLC. Upon the closing of the merger, the Financial Times Group will
transfer the FTAM to DBC in exchange for approximately 60% of the outstanding
common stock of DBC. Consummation of the merger is subject to various
conditions, including, among other things, receipt of the necessary approvals of
DBC's stockholders and receipt of required regulatory approvals.
Before the consummation of the merger, if we make any of the following
changes or if any of the following occur, without the prior consent of the
Financial Times Group, the merger agreement may be terminated:
- any change in our authorized or outstanding capital stock, or any board
authorization of any such change, from June 30, 1999 other than pursuant
to common stock options, bonuses or awards to employees, consultants or
directors in the ordinary course of business consistent with past
practice in an amount not exceeding 3% of our outstanding common stock
as of that date;
- any material adverse effect with respect to our business since June 30,
1999;
- any entry by us into any new line of business, or board approval of such
entry; or
- the consummation of any acquisition of any company or business, whether
by merger, purchase of stock or assets or otherwise, by us or the entry
by us into any partnership or joint venture, regardless of the legal
form, with any other party, or the entry by us into any contract to
effect any such transaction, or Board approval of these, in each case
involving payments or contributions by us in excess of $5 million,
whether in cash, property or services.
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RESULTS OF OPERATIONS FOR THE
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
NET REVENUES
Net revenues are primarily derived from the sale of advertising on our web
site, license of BigCharts charting content, subscription sales from MarketWatch
RT and MarketWatch Live, and the sale of news to DBC, CBS and other clients. Net
revenues increased by 287% to $7.0 million for the three months ended September
30, 1999 from $1.8 million for the three months ended September 30, 1998, and
increased 232% to $14.9 million for the nine months ended September 30, 1999
from $4.5 million for the nine months ended September 30, 1998. The increases in
total net revenues are due primarily to the increases in the number of ads
placed on our web sites, the license revenue associated with a full quarter of
the licensing of BigCharts content and the introduction of the CBS MarketWatch
Weekend television show in September 1999. The increases in advertising revenues
were caused by several interrelated factors, including the following:
- increased number of advertisers;
- increased users on our Web site and resultant page views with
advertisements contained on those pages;
- increased inventory available for sale on the BigCharts site as a result
of the acquisition;
- increased size and productivity of our direct sales force; and
- increased flexibility and sophistication of advertising packages offered
to advertisers
Substantially all of our advertising customers purchase advertising under
short-term contracts. Customers can cease advertising on short notice without
penalty. Advertising revenues would be adversely affected if we were unable to
renew advertising contracts with existing customers or obtain new customers. We
expect to continue to derive a majority of net revenues from selling
advertisements. The market for Web advertising is intensely competitive, and
advertising rates could be subject to pricing pressure in the future. If we are
forced to reduce our advertising rates or we experience lower CPM's (cost per
thousand page views) across our Web site or lower click-through advertising
rates as a result of such competition or otherwise, future revenues could be
adversely affected.
COST OF REVENUES
Cost of revenues primarily consists of costs related to advertising and news
including compensation, royalties payable to CBS and content providers,
amortization of intangibles associated with the purchase of BigCharts, web site
infrastructure costs allocated from DBC and costs of serving ads by DoubleClick,
costs related to license revenue including communication lines, and costs
related to subscriptions including exchange fees and communication lines. Cost
of revenues increased by 213% to $2.7 million for the three months ended
September 30, 1999 from $873,000 for the three months ended September 30, 1998,
and increased 236% to $6.1 million for the nine months ended September 30, 1999
from $1.8 million for the nine months ended September 30, 1998. Cost of news and
advertising revenues increased due to the addition of news reporters and
editors, additional network communications lines to accommodate increased
traffic on our web sites, DoubleClick costs to serve advertisements on the site,
amortization of intangibles, and royalties paid to CBS. Royalties to CBS were
$418,000 for the three months ended September 30, 1999 and $0 for the three
months ended September 30, 1998, and $799,000 for the nine months ended
September 30, 1999 and $0 for the nine months ended September 30, 1998. Cost of
licensing revenues increased due to the addition of BigCharts and cost of
subscription revenues increased as more users subscribed to MarketWatch.com
services in comparison to the third quarter of the prior year. As a percentage
of net revenues, cost of revenues were 39% for the three months ended September
30, 1999 and 49% for the three months ended September 30, 1998, and 41% for the
nine months ended September 30, 1999 and 1998. For the quarter, the decrease as
a percentage of net revenues is due to the addition of licensing revenue from
BigCharts in excess of the corresponding increase in licensing expense and an
increase in advertising revenue in excess of the associated increases in
headcount and other costs. For the nine-month periods, costs of revenues have
increased at the same incremental rate as revenue due to an increase in
compensation for additional editorial staff and increases in overall headcount
necessary to support revenue growth. We expect cost of revenues in absolute
dollars to increase in the future as a result of royalties payable to CBS as we
have exceeded the royalty exempt revenue level of $500,000 in our license
agreement with CBS. In addition, we intend to increase the number of editorial
staff in the future, which will lead to an increase in cost of revenues.
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PRODUCT DEVELOPMENT
Product development expenses primarily consist of license fees for content,
compensation for software developers and expenses for contract programmers and
developers. Product development expenses increased by 283% to $1.6 million for
the three months ended September 30, 1999 from $429,000 for the three months
ended September 30, 1998, and increased 201% to $3.1 million for the nine months
ended September 30, 1999 from $1.0 million for the nine months ended September
30, 1998. Product development expenses increased due to the hiring of additional
employees, the purchase of BigCharts and associated expenses and the
amortization of deferred compensation for development personnel in the first
three quarters of 1999. Product development expenses were 24% of net revenues
for the three months ended September 30, 1999 and 1998 and 21% for the nine
months ended September 30, 1999 and 23% for the nine months ended September 30,
1998. Product development costs remained constant for the quarter and decreased
for the nine months as a percentage of net revenues as a result of increased net
revenues.
GENERAL AND ADMINISTRATIVE
General and administrative expenses primarily consist of compensation for
finance, business development and administrative personnel, allocations from DBC
for administrative services, occupancy costs, professional fees, depreciation
charges and charges for bad debt. General and administrative expenses increased
by 190% to $2.5 million for the three months ended September 30, 1999 from
$845,000 for the three months ended September 30, 1998, and increased 196% to
$6.2 million for the nine months ended September 30, 1999 from $2.1 million for
the nine months ended September 30, 1998. General and administrative expenses in
absolute dollars increased due primarily to costs related to the acquisition of
BigCharts as well as travel expenses, directors and officers liability insurance
expense, and professional service fees associated with the acquisition. To a
lesser extent, costs increased due to increased headcount, occupancy, legal and
consulting expenses as well as costs associated with the amortization of
deferred compensation in the first three quarters of 1999. We hired additional
personnel and incurred additional costs related to being a public company. As a
percentage of net revenues, general and administrative costs were 35% for the
three months ended September 30, 1999 and 47% for the three months ended
September 30, 1998 and 42% for the nine months ended September 30, 1999 and 47%
for the nine months ended September 30, 1998. As a percentage of net revenues,
general and administrative expenses decreased for the quarter and nine-month
period as net revenues increased at a higher rate than the expenses. We believe
that the absolute dollar level of general and administrative expense will
increase in future periods as a result of an increase in personnel to support
our larger operations particularly related to the acquisition of BigCharts.
SALES AND MARKETING
Sales and marketing expenses primarily consist of promotion and advertising
provided by CBS, online and offline advertisements, advertising commissions,
promotional materials, compensation and sales commissions to our direct sales
force. Sales and marketing expenses increased by 135% to $7.5 million for the
three months ended September 30, 1999 from $3.2 million for the three months
ended September 30, 1998, and increased 188% to $22.0 million for the nine
months ended September 30, 1999 from $7.6 million for the nine months ended
September 30, 1998. Sales and marketing expenses increased in absolute dollars
during the quarter and nine-month period due to a number of factors including:
- increase in amortization of promotions and advertising contributed by
CBS in the first three quarters of 1999;
- growth of our direct sales force in the first three quarters of 1999 and
increased sales commissions from higher advertising sales;
- increased purchases of Web banner ads to promote our products and
services;
- payments for the CBS MarketWatch Weekend television show promotion;
- increased purchases of traditional print and broadcast advertising in
1999 to promote our products and services; and
- increased payments to distribution partners in 1999.
We record an expense at the time the advertising and promotion is provided
by CBS under the Amended and Restated License Agreement based on the rate card
value of the advertising. We recorded non-cash advertising expense of $2.7
million for the three months ended September 30, 1999 and $1.6 million for the
three months ended September 30, 1998, in each case at the rate card value, and
$9.6 million for the nine months ended September 30, 1999 and $5.0 million for
the nine months ended September 30, 1998, in each case related to services
provided by CBS. We have recorded aggregate non-cash advertising
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expense of $16.6 million of the $30.0 million CBS has agreed to provide. As a
percentage of net revenues, sales and marketing expenses were 108% for the three
months ended September 30, 1999 and 177% for the three months ended September
30, 1998 and 147% for the nine months ended September 30, 1999 and 170% for the
nine months ended September 30, 1998. Sales and marketing expense as a
percentage of net revenues decreased for the quarter and nine-month period due
to a planned hold on spending in 1999 during the historically low-volume trading
months of July and August and as a result of increased revenue.
We anticipate that sales and marketing expenses in absolute dollars will
increase in future periods as we continue to pursue an aggressive brand-building
strategy through advertising and distribution and continue to build our direct
sales organization.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
Of the $157.5 million purchase price for BigCharts, $200,000 was allocated
to in-process research and development, which was expensed in full upon
completion of the acquisition in June 1999.
AMORTIZATION OF GOODWILL AND INTANGIBLES
Of the $157.5 million purchase price for BigCharts, $152.5 million was
allocated to goodwill, which is being amortized over 3 years, and $3.6 million
was allocated to intangible assets, which are being amortized over periods
ranging from 1.5 to 3.5 years. Amortization of goodwill and intangibles for the
three months ended September 30, 1999 was $13.0 million and for the nine months
ended September 30, 1999 was $17.5 million.
INTEREST INCOME (EXPENSE)
Interest income of $222,000 for the three months ended September 30, 1999
and $949,000 for the nine months ended September 30, 1999 resulted from interest
income on the proceeds from our initial public offering in January 1999.
Interest expense of $54,000 and $75,000 for the three and nine months ended
September 30, 1998 resulted from borrowings from DBC.
LIQUIDITY AND CAPITAL RESOURCES
Our cash, cash equivalents and short-term investments totaled $19.7 million
at September 30, 1999, representing 12% of total assets compared to $140,000 at
December 31, 1998 due to the inflow of cash from our initial public offering in
the first quarter of 1999. We have invested our cash in excess of current
operating requirements in investment grade securities. The investments have
variable and fixed interest rates and primarily short-term maturities. In
accordance with Statements of Financial Accounting Standards 115, "Accounting
for Certain Investments in Debt and Equity Securities" these investments are
classified as "available for sale".
Cash used in operating activities was $14.6 million for the nine months
ended September 30, 1999 and $2.9 million for the nine months ended September
30, 1998. Cash outflow in 1999 is primarily the result of a net loss of $38.9
million, offset by non cash charges of $9.6 million for advertising provided by
CBS, $17.5 million in amortization of goodwill and intangibles, and a write-off
of in-process research and development related to the acquisition of BigCharts
of $200,000. Significant uses of cash in operations for the nine months ended
September 30, 1999 include costs associated with increased sales and marketing
activities to establish and promote our products and services and payments to
distributors and advertisers.
Cash used in investing activities was $15.5 million for the nine months
ended September 30, 1999 and $889,000 for the nine months ended September 30,
1998. Cash was used in the current year primarily for the purchase of BigCharts
and short term investments, and for capital expenditures. The BigCharts purchase
included a cash payment of $6.0 million to stockholders and financial advisors
of BigCharts, and $1.5 million in acquisition related costs. Capital
expenditures have generally consisted of purchases of computer hardware and
leasehold improvements related to leased facilities and are expected to increase
in future periods. We have experienced a substantial increase in capital
expenditures and operating lease arrangements since inception, which is
consistent with increased staffing, and we anticipate that this will continue in
the future.
Cash provided by financing activities were $44.2 million for the nine months
ended September 30, 1999 and $3.8 million for the nine months ended September
30, 1998. Cash inflow was generated by our initial public offering, completed in
January 1999, of 3,162,500 shares of common stock at $17 per share with proceeds
of $43.9 million net of underwriting and offering expenses and the repayment of
amounts owed to DBC.
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We have entered in to certain agreements with Yahoo! and AOL to make
payments for advertising and slotting over the next three years. In addition, we
are obligated to pay Yahoo! a fee based on the amount of traffic directed to our
Web site. At September 30, 1999 a total of $9.1 million will be paid in
fulfillment of these commitments over the next three years.
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SHARES ELIGIBLE FOR FUTURE SALE
The second paragraph under the section "Shares Eligible for Future Sale" of
the Prospectus is replaced in its entirety by the following paragraph:
"As of June 30, 1999, we had outstanding an aggregate of 13,753,054 shares of
our common stock, assuming no exercise of outstanding options. Of these shares,
3,163,916 shares, plus 158,867 of the shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act, unless such shares are purchased by "affiliates" as that term is defined in
Rule 144 under the Securities Act. As a result of the contractual restrictions
described below, additional shares offered by this prospectus will be eligible
for sale as follows:
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF
DATE SHARES THAT MAY BE SOLD
---- -----------------------
<S> <C>
December 6, 1999 330,713
March 5, 2000 330,713
June 9, 2000 480,637
June 9, 2001 149,868
June 9, 2002 138,333
</TABLE>
The remaining 9,000,000 shares of common stock held by other stockholders are
"restricted securities" as that term is defined in Rule 144 under the Securities
Act. Restricted securities may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rule 144 or 701
promulgated under the Securities Act, which rules are summarized below."
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PLAN OF DISTRIBUTION
The third paragraph under the section "Plan of Distribution" of the
Prospectus is replaced in its entirety by the following paragraph:
"Of the 1,589,138 shares of common stock covered by this prospectus, 158,867
shares will be available for immediate sale in the public market as of the date
of this prospectus. With regard to the remaining 1,430,271 shares, the BigCharts
stockholders have agreed that they will not sell or otherwise transfer the
economic ownership of the shares before specified dates. As a result of these
contractual restrictions, an additional 330,713 shares will be eligible for sale
on December 6, 1999, 330,713 shares will be eligible for sale on March 5, 2000,
480,637 shares will be eligible for sale on June 9, 2000, 149,868 shares will be
eligible for sale on June 9, 2001 and 138,333 shares will be eligible for sale
on June 9, 2002."
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FINANCIAL INFORMATION FOR THE
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
MARKETWATCH.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 14,290,000 $ 140,000
Short-term Investments ............................... 5,436,000 --
Accounts receivable, net ............................. 5,120,000 1,586,000
Prepaid expenses ..................................... 4,442,000 2,000
------------- -------------
Total current assets ......................... 29,288,000 1,728,000
Property and equipment, net ............................ 3,676,000 932,000
Deferred offering costs ................................ -- 1,816,000
Intangible assets, net ................................. 3,076,000 --
Goodwill, net .......................................... 135,548,000 --
Other assets ........................................... 46,000 11,000
------------- -------------
Total assets ................................. $ 171,634,000 $ 4,487,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ..................................... $ 2,876,000 $ 1,969,000
Accrued expenses ..................................... 2,508,000 1,688,000
Deferred revenue ..................................... 240,000 14,000
Advances from DBC .................................... -- 3,946,000
------------- -------------
Total current liabilities .................... 5,624,000 7,617,000
------------- -------------
Stockholders' equity (deficit):
Preferred stock ...................................... -- --
Common stock ......................................... 142,000 90,000
Additional paid-in capital ........................... 231,103,000 53,366,000
Deferred compensation ................................ (658,000) (1,144,000)
Contribution receivable .............................. (13,378,000) (42,948,000)
Other accumulated comprehensive income ............... 173,000 --
Accumulated deficit .................................. (51,372,000) (12,494,000)
------------- -------------
Total stockholders' equity (deficit) ......... 166,010,000 (3,130,000)
------------- -------------
Total liabilities and
stockholders' equity (deficit) ............ $ 171,634,000 $ 4,487,000
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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MARKETWATCH.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues:
Advertising (including $125,000 and $108,000
from DBC for the three months ended 1999 and
1998 and $375,000 and $108,000 for the
nine months ended 1999 and 1998) ................ $ 5,043,000 $ 1,326,000 $ 11,151,000 $ 3,054,000
News (including $413,000 and $322,000 from
DBC and $115,000 and $0 from CBS for the
three months ended 1999 and 1998 and
$1,176,000 and $949,000 from DBC and
$115,000 and $0 from CBS for the nine months
ended 1999 and 1998) ............................ 760,000 322,000 1,997,000 949,000
License ............................................ 1,007,000 -- 1,313,000 --
Subscription ....................................... 155,000 151,000 470,000 491,000
------------ ------------ ------------ ------------
Total net revenues ......................... 6,965,000 1,799,000 14,931,000 4,494,000
Cost of revenues:
Advertising and news ............................... 2,521,000 758,000 5,607,000 1,521,000
License ............................................ 75,000 -- 99,000 --
Subscription ....................................... 138,000 115,000 427,000 304,000
------------ ------------ ------------ ------------
Total cost of revenues ..................... 2,734,000 873,000 6,133,000 1,825,000
------------ ------------ ------------ ------------
Gross profit ......................................... 4,231,000 926,000 8,798,000 2,669,000
------------ ------------ ------------ ------------
Operating expenses:
Product development ................................ 1,645,000 429,000 3,115,000 1,036,000
General and administrative ......................... 2,447,000 845,000 6,222,000 2,101,000
Sales and marketing ................................ 7,507,000 3,189,000 21,954,000 7,626,000
Purchased in-process research and development ...... -- -- 200,000 --
Amortization of goodwill and intangibles ........... 12,850,000 -- 17,134,000 --
------------ ------------ ------------ ------------
Total operating expenses ................... 24,449,000 4,463,000 48,625,000 10,763,000
------------ ------------ ------------ ------------
Loss from operations ................................. (20,218,000) (3,537,000) (39,827,000) (8,094,000)
Interest income (expense) ............................ 222,000 (54,000) 949,000 (75,000)
------------ ------------ ------------ ------------
Net loss ............................................. $(19,996,000) $ (3,591,000) $(38,878,000) $ (8,169,000)
============ ============ ============ ============
Basic and diluted net loss per share ................. $ (1.45) $ (0.40) $ (3.07) $ (0.91)
============ ============ ============ ============
Shares used in the calculation of basic and
diluted net loss per share ......................... 13,800,000 9,000,000 12,670,000 9,000,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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MARKETWATCH.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
Cash flows used in operating activities:
Net loss ............................................. $(38,878,000) $ (8,169,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for bad debt expense ................... 31,000 139,000
Depreciation and amortization .................... 19,052,000 254,000
Non-cash charges from stockholders ............... 9,570,000 5,050,000
Write-off of in-process research and
development ................................... 200,000 --
Changes in operating assets and liabilities:
Accounts receivable ........................... (2,861,000) (953,000)
Prepaid expenses and other
current assets .............................. (4,384,000) (23,000)
Deferred offering costs ....................... -- (1,059,000)
Accounts payable and accrued expenses ......... 2,544,000 1,903,000
Deferred revenue .............................. 111,000 2,000
------------ ------------
Net cash used in operating
activities ................................ (14,615,000) (2,856,000)
------------ ------------
Cash flows used in investing activities:
Purchase of short-term investments ................... (13,762,000) --
Sales of short-term investments ...................... 8,500,000 --
Purchase of property and equipment ................... (2,715,000) (889,000)
Acquisition of business, net of cash acquired ........ (7,476,000) --
------------ ------------
Net cash used in investing activities ........ (15,453,000) (889,000)
------------ ------------
Cash flows provided by financing activities:
Proceeds from issuance of common stock, net .......... 48,164,000 --
Contributions from DBC ............................... -- 782,000
Advances from DBC (Note 8) ........................... (3,946,000) 3,028,000
------------ ------------
Net cash provided by financing
activities ................................ 44,218,000 3,810,000
------------ ------------
Net change in cash ..................................... 14,150,000 65,000
------------ ------------
Cash at beginning of period ............................ 140,000 --
------------ ------------
Cash at end of period .................................. $ 14,290,000 $ 65,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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MARKETWATCH.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--ORGANIZATION AND NATURE OF BUSINESS
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments that, in the opinion of management, are necessary for a
fair presentation of the results for the periods shown. The results of
operations for such periods are not necessarily indicative of the results
expected for a full year or for any future period. These financial statements
should be read in conjunction with the financial statements and related notes
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1998 as amended by Form 10-K/A. Additionally, certain items previously
reported in specific financial statement captions have been reclassified to
conform with the current presentation.
THE COMPANY
MarketWatch.com, Inc. (the "Company"), a leading Web-based provider of
comprehensive, real-time, business news, financial programming and analytic
tools, was formed on October 29, 1997 in the state of Delaware as a limited
liability company and was jointly owned by Data Broadcasting Corporation ("DBC")
and CBS Broadcasting Inc. ("CBS") (collectively, the "Members"), with each
Member owning a 50% interest in the Company.
In connection with the formation of the limited liability company, the
Company, CBS and DBC entered into a contribution agreement on October 29, 1997
(the "Contribution Agreement"), under which DBC contributed to the Company $1.0
million in cash upon consummation of the Contribution Agreement, $1.0 million in
cash on October 29, 1998 and DBC's existing "Online/News" business which
primarily consisted of customer contracts and intellectual property in return
for its ownership interest. CBS agreed to provide $50.0 million of rate card
amount advertising and promotions over a period of five years in return for its
ownership interest. Under the terms of the Stockholders' Agreement, the $50.0
million rate card amount was revised to $30.0 million upon completion of the
Company's initial public offering (see Note 3).
In addition, CBS and the Company entered into a license agreement dated
October 29, 1997 (the "License Agreement") under which CBS, in exchange for 30%
of net advertising revenue, as defined, granted to the Company the non-exclusive
right and license to use certain CBS news content and registered trademarks,
including the CBS "Eye" design, for five years ending October 29, 2002, subject
to termination on the occurrence of certain events. In addition to the
agreements above, the Company entered into a services agreement with DBC (the
"Services Agreement"). Under the terms of the Services Agreement, DBC charged
the Company for certain general services and the Company receives payment from
DBC for supplying news and receives a fee for licensing MarketWatch RT(TM)and
MarketWatch Live(TM).
In January 1999, the Company completed an initial public offering ("IPO") of
3,162,500 shares of common stock at $17 per share. Total proceeds to the Company
were approximately $48.2 million, net of offering costs. Immediately prior to
the completion of the IPO, the Company was reorganized from a limited liability
company to a corporation. All share and per share data have been retroactively
adjusted to reflect the reorganization.
Effective June 9, 1999, the Company completed its acquisition of BigCharts
Inc. ("BigCharts"), a Minnesota corporation, in a merger transaction for $6.0
million in cash, $110.9 million worth of MarketWatch.com common stock, and $38.6
million worth of options to purchase MarketWatch.com common stock which are
issuable upon exercise of options to purchase BigCharts common stock assumed in
the merger. BigCharts, based in Minneapolis, is a leading provider of licensed
online financial charting content to electronic brokers, financial publishers
and portals (see Note 6).
NOTE 2--REVENUE RECOGNITION
Advertising revenue is recognized in the month earned from advertising
contracts in which the Company guarantees a minimum number of impressions (a
view of an advertisement by a consumer) for a fixed fee. Additionally, certain
sponsorship
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agreements provide links to third-party web sites and generate either fixed
transaction fees for monthly access or variable fees which are dependent upon
the number of transactions consummated in the third-party web site by linked
customers.
Revenue related to the sale of news is recognized in the month the services
are provided.
License revenue is recognized based on contracts in which (1) the customer
pays a fixed amount in exchange for access to the content for a specified period
of time or (2) a customer pays a monthly fee based on the number of subscribers
to their site who have access to the content. Revenue from fixed fee agreements
is recognized ratably over the term of the agreement. Subscriber agreement fees
are recognized based on the number of monthly subscribers who use the customer's
website.
Subscription revenues are charged to customers' credit cards and are billed
in advance on a monthly basis. Revenue from subscriptions is recognized ratably
over the subscription period. Deferred revenues relate to subscription fees for
which amounts have been collected but for which revenue has not been recognized.
Revenues are recognized in the month earned provided that no significant
Company obligations remain and collection of the resulting receivable is
probable.
Revenues from barter transactions are recognized in accordance with the
provisions of Accounting Principles Board Opinion No. 29 ("APB 29"). The Company
has entered into transactions with certain customers to barter advertising space
and content during the nine months ended September 30, 1999. The Company has not
recorded revenue or related expense for these transactions since the value
cannot be objectively determined with any degree of reliability.
NOTE 3--AGREEMENTS WITH CBS AND DBC
In January 1999, the Company entered into a Stockholders' Agreement
("Stockholders' Agreement"). Under the terms of the Stockholders' Agreement, CBS
reduced the advertising commitment from the Contribution Agreement to an
aggregate rate card amount of $30.0 million in return for a change in the
royalty rate payable under the License Agreement, extension of the License
Agreement to 2005 and modification to certain non competition provisions.
Additionally, both CBS and DBC will have a right of first refusal in the event
either party desires to sell any securities of the Company to a third party or
if the Company issues new securities.
In January 1999, the Company and CBS entered into an Amended and Restated
License Agreement (the "Amended and Restated License") that superseded and
replaced the License Agreement. The Amended and Restated License became
effective immediately prior to the IPO. Under the Amended and Restated License,
in return for the right to use the CBS name and logo as well as the CBS
Television Network news content, the Company will be obligated to pay a royalty
to CBS of: (i) during 1999, (A) 8% of Gross Revenues in excess of $500,000 and
up to and including $50.5 million and (B) 6% of Gross Revenues in excess of
$50.5 million, and (ii) in subsequent years through the termination of the
License Agreement on October 29, 2005, (A) 8% of Gross Revenues up to and
including $50.0 million and (B) 6% of Gross Revenues in excess of $50.0 million.
CBS will have the right to terminate the agreement in certain circumstances,
including breach of a material term or condition of the agreement, insolvency,
bankruptcy or other similar proceeding, discontinuance of use of the MarketWatch
logo without providing an acceptable substitute, or acquisition or issuance of
certain percentages of the Company's common stock or voting power by or to a CBS
competitor. In addition, CBS will retain significant editorial control over the
use and presentation of the CBS news content and the CBS logo and has the
ability to prevent the Company from displaying certain types of content, which
are unacceptable to CBS. The Amended and Restated License will expire on October
29, 2005.
Gross Revenues means gross operating revenues that are derived from an
Internet service or Web site that:
- provides information or services of a financial nature; or
- uses the CBS trademarks licensed to MarketWatch.com.
Gross Revenues excludes revenues from DBC, an amount equal to certain
commissions paid to sales representatives and an amount equal to certain
revenues attributable to an acquired company's results of operations for the 12
months prior to the acquisition.
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The terms of the Amended and Restated License will not prohibit CBS from
licensing its name and logo to another Web site or Internet service that does
not have as its primary function and its principal theme and format the
delivering of comprehensive real-time or delayed stock market quotations and
financial news in the English language to consumers. CBS is also not prohibited
from licensing its news content to, or investing in, another Web site or
Internet service.
In January 1999, the Company and DBC entered into an Amended and Restated
Services Agreement (the "Amended Services Agreement"), which supersedes and
replaces the Services Agreement. Under the Amended Services Agreement, DBC will
provide the Company with hosting services, software programming assistance, data
feeds, communications lines, office space and related facilities, network
operations and Web site management services as well as certain administrative
and engineering services if requested by the Company. The Amended Services
Agreement provides for DBC to grant the Company certain nonexclusive licenses to
its data and information feeds and provides for certain network Web site hosting
performance standards. DBC will also pay the Company a monthly per subscriber
fee ranging from $2.50 to $5.00, subject to a monthly minimum of $100,000
through October 2002, for delivery of the Company's news to all DBC subscribers,
as defined. The Company is also required to pay DBC 25% and 75% of subscription
revenues for MarketWatch RT(TM) and MarketWatch Live(TM), respectively. The term
of the Amended Services Agreement will expire on October 29, 2005.
In January 1999, the Company and DBC entered into a Revolving Credit
Agreement (the "Credit Agreement") whereby DBC will be obligated to loan the
Company up to $5.0 million through October 2000. Borrowings under the Credit
Agreement will be unsecured and bear interest at a variable rate per annum equal
to The Chase Manhattan Bank's prime rate plus 2%. All previous advances from DBC
under the Limited Liability Company Agreement of the LLC between CBS and DBC
(the "LLC Agreement") were included against the borrowings under the Credit
Agreement. As of September 30, 1999 the Company had no outstanding borrowings
under the Agreement.
In January 1999, the Company, CBS and DBC entered into a Registration Rights
Agreement ("Registration Agreement"). CBS and DBC, and their affiliates and
permitted transferees will have certain registration rights for the securities
of the Company held by them under the Registration Agreement.
NOTE 4--COMPREHENSIVE NET INCOME (LOSS)
Comprehensive net income (loss) is comprised of net loss and other
comprehensive earnings such as unrealized gains or losses on available-for-sale
marketable securities. The Company's total comprehensive net losses were as
follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss $(19,996,000) $ (3,591,000) $(38,878,000) $ (8,169,000)
Other comprehensive income
Unrealized gains on available for sale marketable
securities 114,000 -- 173,000 --
------------ ------------ ------------ ------------
Comprehensive net loss $(19,882,000) $ (3,591,000) $(38,705,000) $ (8,169,000)
------------ ------------ ------------ ------------
</TABLE>
NOTE 5--NET LOSS PER SHARE
Basic net loss per share is computed using the weighted average number of
shares of common stock. Diluted net loss per share is computed using the
weighted average number of shares of common stock and common equivalent shares
outstanding during the period. Common equivalent shares consist of stock options
(using the treasury stock method). Common equivalent shares are excluded from
the computation if their effect is anti-dilutive.
Options to purchase 1,691,557 and 866,000 shares of common stock were
outstanding at September 30, 1999 and 1998, respectively, but were not included
in the computation of diluted net loss per share because either the options'
exercise price was greater than the average market price of the common shares
during the period or inclusion of such options would have been anti-dilutive.
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NOTE 6--BUSINESS ACQUISITIONS
On June 9, 1999, MarketWatch.com completed its acquisition of BigCharts for
$6.0 million in cash, shares of MarketWatch.com common stock and assumed options
to purchase MarketWatch.com common stock valued at $110.9 million and $38.6
million. The transaction was accounted for using the purchase method;
accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on their fair market values at the date of
acquisition. The results of operations and assets of Big Charts were reflected
on the Company's financial statements commencing June 1, 1999. BigCharts, based
in Minneapolis, is a leading provider of licensed online financial charting
content to electronic brokers, financial publishers and portals. It is one of
the most heavily trafficked financial sites and an industry-leading provider of
objective, data-driven online financial content for self-directed investors. The
Company recorded acquisition expenses of $2.0 million in connection with the
acquisition in the second quarter of 1999. The $2.0 million primarily consisted
of accounting and legal fees and other related transactions costs. The following
are unaudited pro forma condensed consolidated results of operations for the
Company and BigCharts presented on the basis that the acquisition had taken
place and the related charges, noted above, were recorded at the beginning of
each of the periods presented. These results are not indicative of the actual
results that would have occurred had the transaction taken place at the
beginning of the period:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Pro forma net revenue $ 16,762,000 $ 5,863,000
Pro forma net loss $(60,038,000) $(47,402,000)
Pro forma net loss per share $ (4.42) $ (4.48)
Pro forma shares outstanding 13,595,069 10,588,000
</TABLE>
The total purchase price of $157.5 million was allocated to the fair
value of the assets acquired and liabilities assumed, identified intangible
assets and goodwill as follows:
<TABLE>
<CAPTION>
Expected
Allocation Life
------------- ---------
<S> <C> <C>
Tangible assets $ 1,914,000
Liabilities assumed (656,000)
Intangible assets:
Existing technology 2,000,000 2 years
In-process technology 200,000 --
Trademark 500,000 3.5 years
Customer contacts 300,000 1.5 years
Workforce 800,000 3.5 years
Goodwill 152,491,000 3 years
-------------
Total purchase price $ 157,549,000
=============
</TABLE>
We assess the recoverability of its long term assets by comparing the projected
undiscounted net cash flows associated with those assets against their
respective carrying amounts. Impairment, if any, is based on the excess of the
carrying amount over the fair value of those assets. If it became probable that
the projected future undiscounted cash flows of acquired assets were less than
the carrying value of the goodwill, we would recognize an impairment loss in
accordance with the provisions of SFAS No. 121. No impairment has been
identified to date.
NOTE 7--AMERICA ONLINE AND YAHOO!
In September 1999, we entered into a three-year distribution agreement with
America Online, Inc. ("AOL") to be AOL's premiere provider of business and
financial news for AOL's network including AOL's proprietary service, AOL.com,
CompuServe and Netscape (collectively, "AOL Members"). Under the agreement, we
will create a co-branded site that will
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enable AOL Members to access MarketWatch.com content and investment management
tools through the AOL portal. The Company and AOL have also agreed to
collaborate in sales and marketing efforts.
In August 1999, the terms of the YAHOO! agreement were amended. Under the
terms of the amended agreement, we have extended the terms to include additional
advertising and slotting fees of $1.6 million over a twelve month period
beginning on January 1, 2000.
NOTE 8--RELATED PARTY TRANSACTIONS
Analyses of the advances from DBC to the Company are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance as of the beginning
of the period $ -- $ 1,539,000 $ 3,946,000 $ --
Expenses paid by DBC on
behalf of the Company 72,000 3,106,000 2,069,000 6,168,000
Expenses allocated by DBC
to the Company 455,000 177,000 1,107,000 517,000
Royalty fees to DBC 58,000 40,000 171,000 117,000
News revenue from DBC (413,000) (322,000) (1,176,000) (949,000)
Web advertising revenue
from DBC (125,000) (108,000) (405,000) (108,000)
Receivables collected by DBC
on behalf of the Company (47,000) (128,000) (195,000) (988,000)
Interest payable on advances
from DBC -- 54,000 24,000 75,000
Cash advances (payments)
from DBC, net -- (1,330,000) (4,603,000) (1,022,000)
Cash contributions -- -- (938,000) (782,000)
----------- ----------- ----------- -----------
Balance as of the
end of the period $ -- $ 3,028,000 $ -- $ 3,028,000
=========== =========== =========== ===========
</TABLE>
A majority of the expenditures and liabilities charged by DBC to the Company
were incurred by DBC and directly charged or allocated to the Company. The
expenses which were paid on behalf of the Company by DBC totaled $72,000 and
$3.1 million for the three-month periods ended September 30, 1999 and 1998 and
$2.1 million and $6.2 million for the nine-month periods ended September 30,
1999 and 1998, respectively. Direct charges primarily consist of payroll and
related costs, consulting, commissions and access fees for information from
various exchange markets. Allocated charges totaled $455,000 and $177,000 for
the three-month periods ended September 30, 1999 and 1998 and $1.1 million and
$517,000 for the nine-month periods ended September 30, 1999 and 1998,
respectively, and related to general services that include cash management,
accounting, network operations and hosting of the Company's web pages and data
feeds provided pursuant to the Amended and Restated Services Agreement. Charges
for these services and equipment usage are allocated based upon DBC's estimate
of costs attributable to the operations of MarketWatch.com.
Direct charges for subscription revenues for MarketWatch Live and
MarketWatch RT were $58,000 and $40,000 for the three-month periods ended
September 30, 1999 and 1998 and $171,000 and $117,000 for the nine-month periods
ended September 30, 1999 and 1998, respectively. News revenues are based on the
number of DBC subscribers and were $413,000 and $322,000 for the three-month
periods ended September 30, 1999 and 1998 and $1.2 million and $949,000 for the
nine-month periods ended September 30, 1999 and 1998, respectively. Included in
accounts receivable at September 30, 1999 is $284,000 owed to MarketWatch by
DBC.
The Company has recorded advertising expenses of $9.6 million and $5.0
million at rate card value for the nine months ended September 30, 1999 and
1998, respectively, for advertising and promotion provided by CBS.
The Company has recorded $115,000 in news revenue for the nine months ended
September 30, 1999 for the CBS MarketWatch Weekend television show sold to CBS.
Costs associated with the show are included in advertising and news costs of
sales.
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The date of this Prospectus Supplement is December 6, 1999.
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