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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the Transition period from ______ to ______
Commission File Number 0-25849
ONESOURCE INFORMATION SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3204522
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
300 Baker Avenue, Concord, MA 01742
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(Address of principal executive offices, including Zip Code)
(978) 318-4300
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(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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The number of shares of the issuer's Common Stock, $0.01 par value per share,
outstanding as of November 11, 1999 was 10,161,175
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ONESOURCE INFORMATION SERVICES, INC.
INDEX
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Page
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PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet as of
September 30, 1999 (unaudited) and December 31, 1998 3
Consolidated Statement of Operations (unaudited):
Three months and nine months ended September 30,
1999 and 1998 4
Consolidated Statement of Cash Flows (unaudited):
Nine months ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
PART II OTHER INFORMATION
Item 2. Recent Sales of Unregistered Securities and Use of Proceeds 21
Item 6. Exhibits and Reports on Form 8-K 22
Signature 23
Exhibit Index 24
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PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ONESOURCE INFORMATION SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
September 30, December 31,
1999 1998
----------- ------------
Assets (unaudited) (see Note 1)
Current assets:
Cash and cash equivalents............................ $14,665 $ 8,665
Deposit for subsequent acquisition................... 7,610 --
Accounts receivable, net of allowance for doubtful
accounts of $288 and $300 at September 30, 1999
(unaudited) and December 31, 1998, respectively.... 6,212 9,621
Deferred subscription costs.......................... 5,972 6,662
Prepaid expenses and other current assets............ 219 426
------- -------
Total current assets............................... 34,678 25,374
Property and equipment, net............................ 2,749 1,770
Other assets........................................... 1,033 502
------- -------
Total assets..................................... $38,460 $27,646
======= =======
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of capital lease obligations......... $ 285 $ 471
Accounts payable..................................... 1,134 995
Accrued expenses..................................... 3,263 3,378
Accrued royalties.................................... 4,192 4,626
Deferred revenues.................................... 15,448 18,022
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Total current liabilities.......................... 24,322 27,492
Capital lease obligations and long-term debt........... 59 6,465
------- -------
Total liabilities................................ 24,381 33,957
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Stockholders' equity (deficit):
Preferred stock, $0.01 par value:
1,000,000 shares authorized, no shares issued and
outstanding at September 30, 1999 (unaudited); no
shares authorized, issued, or outstanding at
December 31, 1998.................................. -- --
Class P common stock, $0.01 par value:
no shares authorized, issued, or outstanding at
September 30, 1999 (unaudited); 1,250,000 shares
authorized; 717,119 shares issued and outstanding
at December 31, 1998............................... -- 3,524
Common stock, $0.01 par value:
20,000,000 shares authorized; 10,085,912 and
6,775,313 shares issued and 10,085,912 and
6,665,423 shares outstanding at September 30,
1999 (unaudited) and December 31, 1998,
respectively....................................... 100 68
Additional paid-in capital........................... 28,246 724
Unearned compensation................................ (399) (39)
Accumulated deficit.................................. (13,736) (10,444)
Accumulated other comprehensive loss................. (132) (138)
Common stock held in treasury, at cost............... -- (6)
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Total stockholders' equity (deficit)............. 14,079 (6,311)
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Total liabilities and stockholders' equity
(deficit)...................................... $38,460 $27,646
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
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ONESOURCE INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except share and per share data)
(unaudited)
For the three months ended For the nine months ended
-------------------------- -------------------------
September 30, September 30,
-------------------------- -------------------------
1999 1998 1999 1998
------ ------ ------ ------
Revenues:
Web-based product......... $ 8,383 $ 4,479 $ 22,799 $ 10,526
CD Rom product............ 335 2,725 2,442 12,320
----------- ---------- ---------- -----------
8,718 7,204 25,241 22,846
----------- ---------- ---------- -----------
Cost of revenues:
Web-based product......... 3,466 2,071 9,767 5,230
CD Rom product............ 197 1,158 1,038 4,780
----------- ---------- ---------- -----------
3,663 3,229 10,805 10,010
----------- ---------- ---------- -----------
Gross profit.............. 5,055 3,975 14,436 12,836
----------- ---------- ---------- -----------
Operating expenses:
Selling and marketing..... 3,284 2,861 9,205 8,562
Platform and product
development.............. 2,074 1,638 5,739 4,727
General and
administrative........... 1,068 898 4,185 2,906
----------- ---------- ---------- -----------
Total operating
expenses............... 6,426 5,397 19,129 16,195
----------- ---------- ---------- -----------
Loss from operations.... (1,371) (1,422) (4,693) (3,359)
Interest income (expense),
net........................ 200 (104) (99) (534)
Gain on sale of product
line....................... -- -- -- 12,797
Other income................ 500 -- 1,500 --
----------- ---------- ---------- -----------
Income (loss) before
income taxes........... (671) (1,526) (3,292) 8,904
Provision for income taxes.. -- -- -- 250
----------- ---------- ---------- -----------
Net income (loss)....... (671) (1,526) (3,292) 8,654
----------- ---------- ---------- -----------
Less: income attributable
to Class P common stock.... -- 69 -- 1,128
----------- ---------- ---------- -----------
Net income (loss)
attributable to
common stock........... $ (671) $ (1,595) $ (3,292) $ 7,526
=========== ========== ========== ===========
Class P common stock:
Basic and diluted
earnings per share....... -- $0.10 -- $1.57
Weighted average Class P
common shares
outstanding.............. -- 717,119 -- 717,146
Common stock:
Basic earnings (loss)
per share................ $ (0.07) $ (0.24) $ (0.39) $ 1.13
Diluted earnings (loss)
per share................ $ (0.07) $ (0.24) $ (0.39) $ 0.82
Weighted average common
shares outstanding:
Basic................... 10,060,509 6,646,856 8,340,049 6,634,571
Diluted................. 10,060,509 6,646,856 8,340,049 9,231,844
Pro forma earnings per
share:
Basic..................... $ (0.07) $ (0.20) $ (0.37) $ 1.14
Diluted................... $ (0.07) $ (0.20) $ (0.37) $ 0.85
Weighted average common
shares outstanding:
Basic................... 10,060,509 7,604,723 8,845,204 7,592,439
Diluted................. 10,060,509 7,604,723 8,845,204 10,189,712
The accompanying notes are an integral part of these consolidated financial
statements.
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ONESOURCE INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(unaudited)
For the nine months ended
-------------------------
September 30,
-------------------------
1999 1998
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Increase (Decrease) in Cash and Cash Equivalents
Cash flows relating to operating activities
Net income (loss)....................................$(3,292) $ 8,654
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization...................... 1,212 1,198
Compensation expense relating to grants of stock
options .......................................... 78 --
Amortization of debt discount ..................... 52 90
Loss on sale leaseback transaction ................ -- 45
Gain on sale of product line....................... -- (12,797)
Changes in assets and liabilities:
Accounts receivable.............................. 3,380 4,169
Deferred subscription costs ..................... 689 (726)
Prepaid expenses and other assets ............... 86 (81)
Accounts payable................................. 144 (344)
Accrued expenses................................. (127) 15
Accrued royalties................................ (434) 893
Deferred revenues................................ (2,531) (91)
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Net cash provided (used) by operating activities... (743) 1,025
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Cash flows relating to investing activities
Investment in certificate of deposit................. (415) (100)
Purchases of property and equipment.................. (2,020) (842)
Capitalization of software development costs......... (169) (180)
Net proceeds from sale of product line............... -- 10,563
Deposit for subsequent acquisition................... (7,610) --
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Net cash provided (used) by investing activities...(10,214) 9,441
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Cash flows relating to financing activities
Proceeds from issuance of common stock, net.......... 26,985 16
Repurchase of common stock........................... (3,387) --
Repayments under line of credit...................... -- (1,531)
Repayment of long-term debt.......................... (6,284) --
Proceeds from sale and leaseback of fixed assets..... -- 228
Repayments of capital lease obligation............... (360) (556)
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Net cash provided (used) by financing activities... 16,954 (1,843)
------- -------
Effect of exchange rate changes on cash and cash
equivalents........................................... 3 55
------- -------
Increase in cash and cash equivalents.................. 6,000 8,678
Cash and cash equivalents, beginning of period......... 8,665 341
------- -------
Cash and cash equivalents, end of period...............$14,665 $ 9,019
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest...............................$ 775 $ 196
Cash paid for taxes.................................. 162 125
Supplemental disclosure of noncash investing and
financing activities:
Additions to capital lease obligations for purchases
of fixed assets.....................................$ -- $ 183
Additions to capital lease obligations for sale and
leaseback of fixed assets........................... -- 228
Additions to long-term debt for accrued interest..... -- 489
Exchange of property and equipment for the retirement
of capital lease obligations........................ -- 41
The accompanying notes are an integral part of these consolidated financial
statements.
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ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements as of September 30, 1999
and for the three and nine month periods ended September 30, 1998 and 1999 are
unaudited. In the opinion of OneSource's management, the September 30, 1998 and
1999 unaudited interim consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for that
period. The results of operations for the nine month period ended September 30,
1999 are not necessarily indicative of the results of operations for the year
ended December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in OneSource's Registration Statement on Form S-1, as
amended, as filed with the Securities and Exchange Commission on March 3, 1999.
2. Stockholders' Equity
In May 1999, OneSource completed an initial public offering of 3,636,000
shares of its common stock, of which 2,500,000 shares were issued and sold by
OneSource, for net proceeds of $27.0 million. As a result, all outstanding
shares of Class P common stock were automatically converted into 717,119 shares
of OneSource's common stock.
In conjunction with the initial public offering, OneSource converted the
accumulated "preference amount" on Class P common stock of $3,387,000 into
282,250 shares of common stock at the public offering price of $12.00 per share.
Subsequently, OneSource repurchased and retired the equivalent number of common
stock shares issued for the preference amount at $12.00 per share.
Also in conjunction with the initial public offering, OneSource paid a
termination fee of $0.5 million to each of William Blair Venture Partners III
Limited Partnership and an affiliate of Information Partners Capital Fund, L.P.
3. Long-term Debt
In May 1999, OneSource repaid its long-term debt of $6.8 million of principal
and interest. In conjunction with the repayment, OneSource recognized $0.3
million of interest expense during the period, which represents the unamortized
discount on the note.
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4. Earnings Per Share
The following tables set forth the computation of earnings per share of
common stock and Class P common stock from net income:
Three months Nine months
ended September 30, ended September 30,
---------------------- ---------------------
1999 1998 1999 1998
---------- ---------- --------- ----------
Numerator for common stock
(in thousands):
Net income (loss) ............ -- $ (1,526) -- $ 8,654
Less: income attributable
to Class P common stock .... -- 69 -- 1,128
---------- ---------- --------- ----------
-- $ (1,595) -- $ 7,526
========== ========== ========= ==========
Denominator for common stock:
Weighted average shares
outstanding used for basic
earnings per share ......... 10,060,509 6,646,856 8,340,049 6,634,571
Effect of dilutive securities:
Stock options ................ -- -- -- 2,112,242
Common stock warrants ........ -- -- -- 485,031
---------- ---------- --------- ----------
Weighted average shares
outstanding used for diluted
earnings per share ......... 10,060,509 6,646,856 8,340,049 9,231,844
========== ========== ========= ==========
Total potential common equivalent shares consist of 3,931,069 stock options
outstanding with a weighted average exercise price of $2.27 per share and
407,413 common stock warrants exercisable at $0.06 per share as of September 30,
1999.
Three months Nine months
ended September 30, ended September 30,
---------------------- ---------------------
1999 1998 1999 1998
---------- ---------- --------- ----------
Numerator for Class P common stock
(in thousands):
Yield earned by Class P common
stock ....................... -- $187 -- $ 544
Income (loss) attributable to
Class P common stock ........ -- (118) -- 584
---- ---- ---- ------
-- $ 69 -- $1,128
==== ==== ==== ======
Basic and diluted earnings per share of Class P common stock are the same for
all periods presented since there are no potentially dilutive securities.
5. Pro Forma Earnings Per Share
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Pro forma earnings per share is calculated based upon net income
attributable to all classes of common stock and assumes the reclassification of
each share of OneSource's Class P common stock into one share of common stock
plus an additional number of shares of common stock related to a preference
amount associated with the Class P common stock as if all such shares of common
stock were outstanding at the beginning of the period.
6. Comprehensive Income (Loss)
Total comprehensive income (loss) was ($725,000) and ($3,286,000) for the
three and nine months ended September 30, 1999, respectively, and ($1,543,000)
and $8,626,000 for the three and nine months ended September 30, 1998,
respectively.
7. Geographic Information
Revenue was distributed geographically as follows:
Three months Nine months
ended September 30, ended September 30,
---------------------- ---------------------
1999 1998 1999 1998
------ ------ ------- -------
United States.................... $6,680 $5,420 $19,283 $17,691
United Kingdom................... 2,038 1,784 5,958 5,155
------ ------ ------- -------
$8,718 $7,204 $25,241 $22,846
====== ====== ======= =======
Substantially all of OneSource's identifiable assets are located in the
United States.
8. Subsequent Event - Acquisition
On October 1, 1999, OneSource acquired Corporate Technology Information
Services, Inc. (Corporate Technology), a Delaware corporation located in Woburn,
Massachusetts. Corporate Technology is a provider of high technology company
profiles with a focus on emerging private companies. Pursuant to the terms of an
Agreement and Plan of Merger, the consideration paid by OneSource was $7.6
million in cash. A portion of the cash consideration is being held in escrow to
be released in accordance with the Agreement and Plan of Merger and an Escrow
Agreement. For financial statement purposes, this acquisition was accounted for
as a purchase and; accordingly, the results of operations of Corporate
Technology subsequent to October 1, 1999, will be included in OneSource's
consolidated statements of operations.
The purchase price will be allocated based upon the fair values of the
tangible and intangible assets acquired and liabilities assumed. The fair values
will be determined by an independent appraisal that will incorporate proven
valuation procedures and techniques.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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The discussion and analysis below contains trend analysis and other
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors set
forth below under "Certain Factors That May Affect Future Results" and in the
Company's Registration Statement on Form S-1, as amended, as filed with the
Securities and Exchange Commission on March 3, 1999.
OVERVIEW
OneSource provides Web-based business and financial information to
professionals who need quick access to reliable corporate, industry and market
intelligence. OneSource was formed as a division of Lotus Development
Corporation in 1987 and became an independent company when it was purchased in a
management buy-out in 1993. Until December 1996, our business was to provide
business information to the financial community using CD Rom technology as the
primary method of distribution. The introduction of Business Browser in December
1996 marked a fundamental shift in our business as we began a transition away
from our legacy CD Rom business and toward Web-based products.
Revenues from Web-based products accounted for $22.8 million, or 90% of
total revenues, for the nine months ended September 30, 1999, an increase from
$10.5 million, or 46% of total revenues, for the nine months ended September 30,
1998. In the same period, CD Rom product revenues decreased to $2.4 million, or
10% of total revenues, from $12.3 million, or 54% of total revenues. As of
September 30, 1999, 531 organizations subscribed to our Business Browser product
line, and the annualized contract value for these organizations was $34.2
million.
On October 1, 1999, OneSource acquired Corporate Technology Information
Services, Inc., a Delaware corporation located in Woburn, Massachusetts.
Corporate Technology is a provider of high technology company profiles with a
focus on emerging private companies. Pursuant to the terms of an Agreement and
Plan of Merger, the consideration paid by OneSource was $7.6 million in cash. A
portion of the cash consideration is being held in escrow to be released in
accordance with the Agreement and Plan of Merger and an Escrow Agreement. For
financial statement purposes, this acquisition was accounted for as a purchase
and; accordingly, the results of operations of Corporate Technology subsequent
to October 1, 1999, will be included in OneSource's consolidated statements of
operations.
In May 1998, we sold our CD-Insurance division to allow us to focus more
completely on our new Web-based product line. We recognized a gain of $12.8
million on this sale during 1998. In addition, in connection with the
disposition, we licensed certain of our CD Rom software to the acquiror in
exchange for $4.0 million of license fees. These license fees will be paid in
eight equal quarterly installments beginning January 1, 1999 and running through
December 31, 2000 and will be recognized ratably as other income. During the
nine months ended September 30, 1999, OneSource recorded $1.5 million of other
income related to the software license agreement.
Our revenues for both CD Rom and Web-based products consist of monthly
subscription fees from customer contracts. Customer contracts span varying
periods of time but are generally for one year, are renewable for like periods,
and are payable in advance. Subscription fees generally are quoted to clients on
an annual basis but are earned as revenues on a monthly basis over the
subscription period. Invoices are recorded as accounts receivable until paid and
as deferred revenues until earned. Deferred revenues attributable to Web-based
products decreased 4.4% to
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$15.2 million as of September 30, 1999 from $15.9 million as of December 31,
1998 and increased 61.7% from $9.4 million as of September 30, 1998.
Cost of revenues consists primarily of royalties to information providers
and, to a lesser extent, employee salaries and benefits, facilities allocation
and related expenses, depreciation associated with computers for data processing
and on-line requirements and Web hosting expenses. We enter into contracts with
our information providers which are generally for a term of at least one-year
and are automatically renewable if not canceled with advance notice. These
contracts may be terminated under certain circumstances. Under these
arrangements, royalties are generally paid on a quarterly basis to information
providers. Royalties generally are calculated either as a flat percentage of our
revenues or as a per-user fee that declines as the number of authorized users of
the product increases. In limited cases, we pay a fixed fee per period.
Selling and marketing expense consists primarily of employee salaries and
benefits and sales commissions paid to our sales force, customer support
organization and marketing personnel, as well as facilities allocation and
related expenses, direct marketing promotional materials, trade show exhibitions
and advertising. Sales commissions are paid when customers are invoiced and are
recorded as deferred subscription costs, which are amortized ratably over the
term of the contract, typically 12 months, as the associated revenues are
recognized. All other selling and marketing costs are expensed as incurred.
Platform and product development expense consists primarily of employee
salaries and benefits, facilities allocation and related expenses, as well as
outside contractor expenses, relating to the development of our "platform" of
core software supporting our products and the development of new products based
upon that platform. Platform and product development expense includes expenses
relating to the editorial staff that implements our KeyID technology to
integrate disparate information sources into our Web-based products.
General and administrative expense consists primarily of employee salaries
and benefits, facilities allocation and related expenses associated with
OneSource's management, finance, human resources, management information systems
and administrative groups.
COMPARISON OF RESULTS FOR THE QUARTERS ENDED SEPTEMBER 30, 1999 AND
SEPTEMBER 30, 1998
Revenues. Total revenues increased 21% to $8.7 million for the quarter ended
September 30, 1999 from $7.2 million for the quarter ended September 30, 1998.
Web-based product revenues increased 87% to $8.4 million for the quarter
ended September 30, 1999 from $4.5 million for the quarter ended September 30,
1998. The increase was attributable to the addition of new customers, an
increase in the number of user seats purchased by existing customers and the
sale of new products to existing customers. At the same time, CD Rom product
revenues decreased by 88% to $0.3 million in the third quarter of 1999 from $2.7
million in the third quarter of 1998 as OneSource continued to transition away
from its legacy CD Rom business.
Cost of Revenues. Total cost of revenues increased 13% to $3.7 million for
the quarter ended September 30, 1999 from $3.2 million for the quarter ended
September 30, 1998. As a percentage of total revenues, total cost of revenues
decreased to 42% for the quarter ended September 30, 1999 from 45% for the
quarter ended September 30, 1998. The increase in total cost of revenues was
principally due to increased royalty expense for our Web-based products. It was
offset partially by a decrease in our costs of revenues relating to the CD Rom
product line.
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Cost of Web-based product revenues increased 67% to $3.5 million for the
quarter ended September 30, 1999 from $2.1 million for the quarter ended
September 30, 1998. As a percentage of Web-based product revenues, cost of
Web-based product revenues decreased to 41% for the quarter ended September 30,
1999 from 46% for the quarter ended September 30, 1998, due to an increase in
our customer base and expansion of existing customers, which enabled OneSource
to better leverage royalty payments and infrastructure expenses.
Cost of CD Rom product revenues decreased 83% to $0.2 million for the
quarter ended September 30, 1999 from $1.2 million for the quarter ended
September 30, 1998. This decrease was due to decreased revenues reflecting our
shift away from the CD Rom product line. As a percentage of CD Rom product
revenues, cost of CD Rom product revenues increased to 59% for the quarter
ended September 30, 1999 from 43% for the quarter ended September 30, 1998.
Selling and Marketing Expense. Selling and marketing expense increased 15%
to $3.3 million for the quarter ended September 30, 1999 from $2.9 million for
the quarter ended September 30, 1998, principally due to increased headcount and
expenses incurred to hire and train new sales personnel in connection with our
Business Browser product line. Selling and marketing expense decreased as a
percentage of total revenues to 38% for the quarter ended September 30, 1999
from 40% for the quarter ended September 30, 1998. We expect sales and marketing
expenses to increase as we continue to hire additional sales personnel.
Platform and Product Development Expense. Platform and product development
expense increased 27% to $2.1 million for the quarter ended September 30, 1999
from $1.6 million for the quarter ended September 30, 1998. This increase was
due principally to additional headcount to meet new product demands. Platform
and product development expense increased as a percentage of total revenues to
24% for the quarter ended September 30, 1999 from 23% for the quarter ended
September 30, 1998.
General and Administrative Expense. General and administrative expense
increased 19% to $1.1 million for the quarter ended September 30, 1999 from $0.9
million for the quarter ended September 30, 1998. This increase was due
principally to professional fees and other services related to costs
attributable to operation as a public company in the 1999 quarter. General and
administrative expense as a percentage of total revenues was consistent at 12%
for the quarters ended September 30, 1999 and 1998.
Interest Income, Net. Interest income, net of interest expense, increased
292% to $0.2 million for the quarter ended September 30, 1999 from $0.1 million
of interest expense for the quarter ended September 30, 1998. This was primarily
due to an increase in interest income related to invested cash balances from the
public offering proceeds.
Other Income. Other income increased $0.5 million for the quarter ended
September 30, 1999 and was attributable to a software license agreement in
connection with the sale of our CD-Insurance division for the license and
support services provided during the period.
COMPARISON OF RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER
30, 1998
Revenues. Total revenues increased 10% to $25.2 million for the nine months
ended September 30, 1999 from $22.8 million for the nine months ended September
30, 1998. During the first nine months of 1998, CD Rom product revenues included
revenues attributable to our CD-Insurance division, which was sold in May 1998.
Revenues from this product line were $2.5 million for the nine months ended
September 30, 1998. Excluding
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these revenues from total revenues for the nine months ended September 30, 1998,
total revenues for the nine months ended September 30, 1999 increased by 24%.
Web-based product revenues increased 117% to $22.8 million for the nine
months ended September 30, 1999 from $10.5 million for the nine months ended
September 30, 1998. The increase was attributable to the addition of new
customers, an increase in the number of user seats purchased by existing
customers and the sale of new products to existing customers. At the same time,
CD Rom product revenues decreased by 80% to $2.4 million for the first nine
months of 1999 from $12.3 million for the first nine months of 1998 as OneSource
continues to transition away from its legacy CD Rom business.
Cost of Revenues. Total cost of revenues increased 8% to $10.8 million for
the nine months ended September 30, 1999 from $10.0 million for the nine months
ended September 30, 1998. As a percentage of total revenues, total cost of
revenues was 43% for the nine months ended September 30, 1999 as compared to 44%
for the nine months ended September 30, 1998. The increase in total cost of
revenues was principally due to increased royalty expense for our Web-based
products. It was offset partially by a decrease in our costs of revenues
relating to the CD Rom product line.
Cost of Web-based product revenues increased 87% to $9.8 million for the
nine months ended September 30, 1999 from $5.2 million for the nine months ended
September 30, 1998. As a percentage of Web-based product revenues, cost of
Web-based product revenues decreased to 43% for the nine months ended September
30, 1999 from 50% for the nine months ended September 30, 1998, due to an
increase in our customer base and expansion of existing customers, which enabled
OneSource to better leverage royalty payments and infrastructure expenses.
Cost of CD Rom product revenues decreased 78% to $1.0 million for the nine
months ended September 30, 1999 from $4.8 million for the nine months ended
September 30, 1998. This decrease was due to decreased revenues reflecting our
shift away from the CD Rom product line. As a percentage of CD Rom product
revenues, costs of CD Rom product revenues increased to 43% for the nine months
ended September 30, 1999 from 39% for the nine months ended September 30, 1998.
Selling and Marketing Expense. Selling and marketing expense increased 8% to
$9.2 million for the nine months ended September 30, 1999 from $8.6 million for
the nine months ended September 30, 1998, principally due to increased headcount
and expenses incurred to hire and train new sales personnel in connection with
our Business Browser product line. Selling and marketing expense decreased as a
percentage of total revenues to 36% for the nine months ended September 30, 1999
from 37% for the nine months ended September 30, 1998. We expect sales and
marketing expenses to increase as we continue to hire additional sales
personnel.
Platform and Product Development Expense. Platform and product development
expense increased 21% to $5.7 million for the nine months ended September 30,
1999 from $4.7 million for the nine months ended September 30, 1998. The
increase was due principally to additional headcount to meet new product
demands. Platform and product development
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<PAGE> 13
expense increased as a percentage of total revenues to 23% for the nine months
ended September 30, 1999 from 21% for the nine months ended September 30, 1998.
General and Administrative Expense. General and administrative expense
increased 44% to $4.2 million for the nine months ended September 30, 1999 from
$2.9 million for the nine months ended September 30, 1998. This increase was
mainly the result of non-recurring expenses incurred by OneSource, which
primarily relate to arrangements which were terminated upon the completion of
our initial public offering in May 1999. Non-recurring expenses included a
termination fee of $0.5 million to each of William Blair Venture Partners III
Limited Partnership and an affiliate of Information Partners Capital Fund, L.P.
in connection with our public offering, a $0.2 million financial advisory fee
and $0.1 million of expense related to the relocation of our headquarters.
General and administrative expense increased as a percentage of total revenues
to 17% for the nine months ended September 30, 1999 from 13% for the nine months
ended September 30, 1998.
Interest Expense, Net. Interest expense, net of interest income, decreased
81% to $0.1 million for the nine months ended September 30, 1999 from $0.5
million for the nine months ended September 30, 1998. This was primarily due to
an increase in interest income related to invested cash balances from the public
offering proceeds and the sale of the CD-Insurance division, as well as the
payoff of a note in May 1999.
Other Income. Other income increased $1.5 million for the nine months ended
September 30, 1999 and was attributable to a software license agreement in
connection with the sale of our CD-Insurance division for the license and
support services provided during the period.
ANNUALIZED CONTRACT VALUE
One measure of the performance of our business is "annualized contract
value." This is a measurement we use for normalized period-to-period comparisons
to indicate business volume and growth, both in terms of new customers and
upgrades and expansions at existing customers. Our presentation and calculation
of annualized contract value may not be comparable to similarly titled measures
used by other companies. It is not an absolute indicator and we cannot guarantee
that any annualized contract value will be ultimately realized as revenues.
We use annualized contract value as a measure of our business because it
shows the growth or decline in our customer base in a way that revenues cannot.
Since our business is a subscription business, revenues are recognized not when
a sale is made, but in ratable portions over the term of the subscription (which
is usually twelve months). As a result, from a revenue viewpoint the addition or
loss of even a major customer contract may not have a dramatic impact on a
quarter-to-quarter basis. On the other hand, by looking at the value of customer
contracts in hand at the end of each quarter, we can more readily see trends in
our business. For example, the addition of a one-year subscription contract with
total payments of $1.0 million may only increase revenues by approximately
$250,000 ($1.0 million divided by four) in the quarter in which the sale is
made, but would increase annualized contract value by $1.0 million. Similarly,
if the customer did not renew that contract, revenues in the next quarter would
only decrease by $250,000, while annualized contract value would decrease by
$1.0 million.
In calculating annualized contract value, we include only those contracts
where the customer has actually been invoiced. Since amounts invoiced are
included in deferred revenues on our balance sheet for all customer contracts
with terms extending beyond the month of invoice, this
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<PAGE> 14
demonstrates that annualized contract value is based on actual customer
contracts reflected in our historical financial statements. To compute
annualized contract value, we multiply the total amount of fees invoiced for one
month and included in deferred revenues by twelve. Annualized contract value is
not intended to be an absolute indicator of future revenues. We only annualize
existing, invoiced contracts, but we do so without regard to the remaining term
of those contracts. Most of our contracts are for 12 months, but as of the date
that we calculate annualized contract value the remaining term of nearly all of
our contracts will be less than 12 months. If a customer fails to pay its
invoiced fees or terminates the contract or if we are unable to renew a
contract, our revenues in subsequent periods may be less than expected based
solely on annualized contract values. Conversely, if we add additional customers
or renew existing contracts at higher rates, our revenues in future periods may
exceed expectations based solely on annualized contract value.
The calculation of annualized contract value for our Web-based products is
illustrated below:
ONE MONTH
OF INVOICED
WEB-BASED FEES IN
DEFERRED DEFERRED ANNUALIZED
MEASUREMENT DATE REVENUES REVENUES CONTRACT VALUE
- ---------------- -------- -------------- --------------
(IN THOUSANDS)
September 30, 1998............... $ 9,441 $1,646.1 $19,754
September 30, 1999............... 15,164 2,846.6 34,159
We have increased annualized contract value attributable to Web-based
products 73% to $34.2 million as of September 30, 1999 from $19.8 million as of
September 30, 1998. The number of Web-based customers has increased 38% to 531
at September 30, 1999 from 386 at September 30, 1998. At the same time, the
average annualized contract value of all Web-based product customers has
increased 26% to $64,300 per customer at September 30, 1999 from $51,200 per
customer at September 30, 1998. This growth was attributable to an increase in
the number of user seats purchased by customers and the addition of new
products.
LIQUIDITY AND CAPITAL RESOURCES
Since acquiring our business from Lotus Development Corporation in 1993, we
have funded our operations through a combination of seller financing, proceeds
received from the sale of Class P common stock and common stock in connection
with the purchase of the business from Lotus Development Corporation, bank debt,
proceeds received from the sale of non-strategic lines of business, capitalized
equipment leases, cash flows from operations and our initial public offering
which closed in May 1999.
Our cash and cash equivalents totaled $14.7 million at September 30, 1999,
compared to $9.0 million at September 30, 1998, an increase of $5.7 million
primarily due to the receipt of proceeds from our initial public offering in May
1999, less funds used to invest in the acquisition of Corporate Technology
Information Services, Inc. Net cash used in operating activities was $0.7
million for the nine months ended September 30, 1999, as compared to net cash
provided by operating activities of $1.0 million for the nine months ended
September 30, 1998. The principal use of cash was to fund our operations.
Net cash used in investing activities was $10.2 million for the nine months
ended September 30, 1999, as compared to net cash provided by investing
activities of $9.4 million for the nine
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<PAGE> 15
months ended September 30, 1998. Cash used in investing activities was primarily
due to $7.6 million of funds placed in escrow for the purchase of Corporate
Technology Information Services, Inc. and expenditures of $2.0 million for
property and equipment for the nine months ended September 30, 1999. Cash
generated in investing activities for the nine months ended September 30, 1998
reflects net cash proceeds from the sale of our CD-Insurance division.
Net cash provided by financing activities was $17.0 million for the nine
months ended September 30, 1999, as compared to net cash used by financing
activities of $1.8 million for the nine months ended September 30, 1998. Net
cash provided by financing activities in 1999 primarily consisted of net
proceeds from the sale of common stock, offset in part by the repurchase and
retirement of common stock, repayments of debt and capital lease obligations.
Net cash used in financing activities in 1998 reflected primarily repayments of
our line of credit and capital lease obligations.
We do not currently have a line of credit but intend to enter into a
revolving line of credit for letters of credit and general working capital.
OneSource recognized a one-time expense of $0.3 million relating to the
unamortized portion of the original issue discount when we paid the outstanding
balance on a note in the principal amount of $6.3 million from the proceeds of
our initial public offering.
We currently anticipate capital expenditures of approximately $0.6 million
for the remainder of 1999, consisting primarily of the purchase of computers,
servers and related equipment.
We believe that our net proceeds from our initial public offering, together
with our current cash and cash equivalents and funds anticipated to be generated
from operations, will be sufficient to satisfy working capital and capital
expenditure requirements for at least the next twelve months.
YEAR 2000 READINESS DISCLOSURE STATEMENT
OneSource has established a Year 2000 compliance program and
anticipates that its products should operate correctly prior to, during, and
after Year 2000. OneSource has been performing Year 2000 tests for the past
three years. Initial Year 2000 work was organized in late 1996 to certify
readiness of the proprietary client software associated with our CD Rom product
line. A more formal organizational effort involving senior management, product
managers, developers and quality assurance personnel was established in early
1998.
Definition: Year 2000 Compliance. In terms of verifying and planning for
Year 2000 compliance for its products, OneSource uses the British Standards
Institute's definition of Year 2000 compliance as stated in DISC PD2000-1:1998:
A Definition of Year 2000 Conformity. According to this definition, Year 2000
conformity means that neither performance nor functionality is affected by dates
prior to, during and after the year 2000, and according to the following rules:
- No value for the current date will cause any interruption in operation.
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<PAGE> 16
- Date-based functionality must behave consistently for dates prior to,
during and after year 2000.
- In all interfaces and data storage, the century in any date must be
specified either explicitly or by unambiguous algorithms or inferencing
rules.
- Year 2000 must be recognized as a leap year.
Web products. OneSource's primary product family is Business Browser, the
critical component of which is business and financial information that is
supported by software and a Web infrastructure that provides the delivery and
viewing of this information. Examples of the information contained in OneSource
products are current news, trade and industry articles, research reports,
executive biographies, private company directories, industry reports and
overviews, and financial statements. These data are provided by information
vendors with whom we have established contractual relationships. OneSource
provides further organization and integration of the data and supports it with a
standardized software model for navigating and accessing the complete data set.
OneSource has verified that the Business Browser product line is Year 2000
compliant. Further Year 2000 testing will continue as new data and software is
released throughout the remainder of 1999.
CD Rom products. OneSource CD Rom software has been working with
post-millennium date variables for some time. Our flagship CD Rom software,
OneSource for Windows, was audited for Year 2000 compliance as part of our
development effort for version 2.1.a in 1997. This software release contains the
small number of changes that were required for Year 2000 compliance. Please note
that network installations of OneSource for Windows have not been, and will not
be, certified as Year 2000 compliant.
Third-party information providers. OneSource relies on content provided by
third-party information providers. Communication with OneSource's information
providers with respect to their Year 2000 compliance status has been completed.
Also, OneSource is minimizing its dependence on third party information
provider's external date formats by accommodating changes in date formats within
the existing production processes.
Third-party application and system software. OneSource invests in
third-party software as components of the data storage and delivery requirements
of our products. OneSource has identified an exhaustive list of such systems
along with research of the current status of their Year 2000 compliance efforts.
This research was complete as of February 1999. OneSource had confirmation of
compliance or a specific plan to replace any non-compliant resource as of March
1999. While OneSource is committed to taking every reasonable action to obtain
assurances from such business partners that their software is Year 2000
compliant, it cannot guarantee the performance of such business partners or
predict whether any of the assurances provided by them may be accurate and
realistic.
Internal Systems. OneSource has completed its inventory of its internal
systems and its assessment of such systems' compliance status was completed as
of May 31, 1999. The scope of these systems ranges from accounting, payroll,
communications, network hardware and applications, Internet access, internal
information systems and data production systems. The majority of our internal
systems and equipment are currently Year 2000 compliant.
Costs. To date we have utilized internal personnel to identify Year 2000
readiness in our supported products, network hardware/applications, internal
business and information systems.
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<PAGE> 17
A large number of our personnel are necessarily involved in this work. We
estimate that the aggregation of all such efforts represents an equivalent of
six full-time employees. Not included in this estimate are those indirect costs
associated with time spent by management or staff discussing Year 2000 issues
internally or with third parties. Such discussions are handled by existing
employees in the ordinary course of business. We have not identified the need to
hire additional staff specifically to address third-party questions or concerns.
Risks. With regard to third-party information suppliers, OneSource is
addressing, through normal operating procedures, any concerns that third-party
information providers may have in their delivery problems associated with Year
2000 issues. OneSource is identifying issues by internal quality assurance or
editorial reviewers. When identified, issues are being handled by contacting the
information provider who may correct the problem at the source or by developing
a workaround in the software. The risks associated with delivery problems
present more serious issues for us as our products could be deprived of certain
data content.
While OneSource does not anticipate a failure in its ability to delivery
data, and has established contingency plans as discussed below, such a failure
may:
- have a material adverse effect upon our business, financial condition
and results of operations
- require us to incur unanticipated material expenses to remedy any
problem
- result in litigation due to our inability to fulfill our contractual
obligations.
In such cases, we would likely suffer a disruption in our revenue stream and
operations could be materially impacted.
Contingency Plans. At this time, our contingency plans relating to the
above discussed Year 2000 issues include having additional support staff and
programmers on call for rapid response dealing with any disruption of our
business during a critical date transition, for example, January 1, 2000 or
February 29, 2000. Our assessment of our products and internal systems for Year
2000 compliance will be an ongoing effort throughout the remainder of this year.
The information contained herein is the product of conclusions made from the
information and test results available to OneSource at this time.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
OneSource does not provide forecasts of its future financial performance.
However, from time to time, information provided by OneSource or statements made
by its employees may contain "forward-looking" information involving risks and
uncertainties. In particular, statements contained in this quarterly report that
are not historical facts constitute forward-looking statements and are made
under the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. OneSource's actual results of operations and financial condition may in
the future vary significantly from those stated in any forward-looking
statements. Factors that may cause such differences include, without limitation,
the risks, uncertainties, and other information discussed below and in our
registration statement filed on Form S-1, as amended, as filed with the
Securities and Exchange Commission on March 3, 1999, as well as the accuracy of
OneSource's internal estimates of revenue and operation expense levels. Each of
these factors, and others, are discussed from time to time in the filings made
by OneSource with the Securities and Exchange Commission.
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<PAGE> 18
ONESOURCE MAY NOT BE ABLE TO RETAIN KEY EMPLOYEES OF CORPORATE TECHNOLOGY.
Because of the valuation OneSource placed on Corporate Technology, its key
founders and employees, several of whom were large stockholders, received a
substantial cash payment upon closing of the acquisition. In certain cases,
these individuals may be financially independent. Additionally, startup and
other companies will seek out these individuals due to the financial result they
have achieved for Corporate Technology. Under the circumstances, OneSource faces
a difficult and significant task of retaining and motivating the key personnel
of Corporate Technology to stay committed to OneSource.
WE WILL INCUR SUBSTANTIAL CHARGES AGAINST EARNINGS IN CONNECTION WITH THE
ACQUISITION. Significant merger-related charges against earnings will increase
OneSource's losses in the fourth quarter of fiscal year 1999 and during the
post-merger integration period. We expect to incur charges of approximately $0.5
million in connection with the acquisition that relate to other integration
costs. These costs may be higher than we anticipate. In addition, we may incur
other unanticipated acquisition costs. These costs may delay the anticipated
benefits of the acquisition. Some of these nonrecurring costs will be charged to
operations in the fourth quarter in fiscal year 1999 while others will be
expensed as incurred during the post-merger integration period.
SUBSCRIBERS OF ONESOURCE AND CORPORATE TECHNOLOGY MAY NOT RENEW THEIR
SUBSCRIPTIONS AS A RESULT OF CONCERNS OVER THE ACQUISITION. The closing of the
acquisition could cause subscribers of OneSource and Corporate Technology to
allow their subscriptions to lapse as a result of concerns over product
evolution, integration and support of the combined company's products. These
non-renewals could have a material adverse effect on the business, operating
results and financial condition of OneSource or Corporate Technology.
WE HAVE A LIMITED OPERATING HISTORY WITH BUSINESS BROWSER ON WHICH TO
EVALUATE OUR PROSPECTS. We began operations as an independent company in 1993.
We began to migrate our business to the Web from CD Rom-based products in early
1996, and launched the Web-based Business Browser product line in December 1996.
Our prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies transitioning to a new product
line, particularly companies in the new and rapidly evolving market for Internet
and Web-based business information products.
OUR BUSINESS BROWSER PRODUCTS HAVE NOT BEEN PROFITABLE AND MAY NOT BECOME
PROFITABLE IN THE FUTURE. We incurred losses from operations of approximately
$1.6 million in 1996, $1.4 million in 1997, $5.0 million in 1998 and $ 4.7
million in the nine months ended September 30, 1999. In addition, we have not
reached the critical mass of users of Web-based products, which we believe is
necessary to leverage effectively our royalty payments and infrastructure
expenses to become profitable. As of September 30, 1999, we had an accumulated
deficit of $13.7 million.
WE RELY ON OUR BUSINESS BROWSER PRODUCT LINE, AND WE WILL NOT SUCCEED UNLESS
DEMAND FOR OUR BUSINESS BROWSER PRODUCTS CONTINUES TO GROW. Subscription
revenues from our Business Browser product line accounted for 90% of total
revenues for the nine months ended September
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<PAGE> 19
30, 1999, 53% of total revenues in 1998 and 11% in 1997. These subscription
revenues accounted for 97% of our total annualized contract value at the end of
September 1999, 83% at the end of 1998 and 29% at the end of 1997. We have
phased out CD Rom products that are not part of the Business Browser product
line. As a result, our future financial condition will depend heavily on the
success or failure of our Business Browser product line. Business Browser
products were introduced in December 1996 and it is difficult to predict demand
and market acceptance for these products in the new and rapidly evolving
Web-based business information services market. If the demand for Business
Browser products does not grow, whether due to competition, lack of market
acceptance, failure of Internet or Web use to grow in general, technological
change or other factors, our business would suffer significantly.
ANNUALIZED CONTRACT VALUE MAY NOT BE AN ACCURATE INDICATION OF OUR
PERFORMANCE. We use "annualized contract value" as a measurement for normalized
period-to-period comparisons to indicate business volume and growth. Our
presentation and calculation of annualized contract value may not be comparable
to similarly titled measures used by other companies. It is not an absolute
indicator and we cannot guarantee that any annualized contract value will be
ultimately realized as revenues.
COMPETITION IN OUR INDUSTRY IS INTENSE AND MANY OF OUR COMPETITORS HAVE
GREATER RESOURCES THAN WE DO; THIS COMPETITION MAY ADVERSELY AFFECT OUR
FINANCIAL RESULTS. The business information services industry is intensely
competitive. We face direct or indirect competition from the following types of
companies:
o large, well-established business and financial information providers
such as Dow Jones, Dialog, Lexis-Nexis, Pearson, Reuters, Thomson,
Primark and McGraw-Hill
o on-line information services or Websites targeted to specific markets
or applications, such as NewsEdge, Factset and Bloomberg
o providers of sales, marketing and credit information such as Dun &
Bradstreet
o Web retrieval, Web "portal" companies and other free or low-cost mass
market on-line services such as Excite, Infoseek, Lycos, Yahoo! and
AOL/Netscape
o free or low-cost specialized business and financial information
Websites such as Hoovers.com, Marketwatch.com, Multex.com and
TheStreet.com
Based on reported operating results, industry reports and other publicly
available information, we believe that many of our existing competitors, as well
as a number of prospective competitors, have longer operating histories, greater
name recognition, larger customer bases and significantly greater financial,
technical and marketing resources than we do. As a result, they may be able to
respond more quickly to new or emerging technologies and changes in user
requirements, or to devote greater resources to the development, promotion and
sale of their products than we can. These competitors may be able to undertake
more extensive marketing campaigns, adopt more aggressive pricing policies and
make more attractive offers to potential employees, customers and information
providers. Our competitors also may develop products that are equal or superior
to our products or that achieve greater market acceptance than our products.
IF OUR INFORMATION PROVIDERS STOPPED DOING BUSINESS WITH US, WE COULD NOT
CONTINUE TO SELL BUSINESS BROWSER. We do not own or create the original content
distributed through our
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<PAGE> 20
products. We depend entirely on information providers to supply information and
data feeds to us on a timely basis. Our products could experience interruptions
due to any failure or delay in the transmission or receipt of this information.
IF OUR SOFTWARE IS DEFECTIVE, IT MIGHT BE COSTLY TO CORRECT; WE COULD GET
SUED AND OUR REPUTATION COULD BE HARMED. Complex software like the software we
develop for our products may contain errors or defects, especially when first
implemented, that may be very costly to correct. Defects or errors also could
result in downtime and our business could suffer significantly from potential
adverse customer reaction, negative publicity and harm to our reputation.
WE MAY HAVE DIFFICULTY IN IDENTIFYING AND COMPETING FOR ACQUISITION
OPPORTUNITIES. Our business strategy includes the pursuit of strategic
acquisitions. From time to time we may engage in discussions with third parties
concerning potential acquisitions of niche expertise, business and proprietary
rights. In executing our acquisition strategy, we may be unable to identify
suitable companies as acquisition candidates, making it more difficult to
acquire suitable companies on favorable terms.
PURSUING AND COMPLETING POTENTIAL ACQUISITIONS COULD DIVERT MANAGEMENT
ATTENTION AND FINANCIAL RESOURCES AND MAY NOT PRODUCE THE DESIRED BUSINESS
RESULTS. If we pursue any acquisition, our management could spend a significant
amount of time and management and financial resources in the acquisition process
and to integrate the acquired business with our existing business. To pay for an
acquisition, we may use capital stock, or cash or a combination of both.
Alternatively, we may borrow money from a bank or other lender. If we use cash
or debt financing, our financial liquidity will be reduced. In addition, from an
accounting perspective, an acquisition may involve nonrecurring charges or
involve amortization of significant amounts of goodwill that could adversely
affect our results of operations.
Despite the investment of these management and financial resources and
completion of due diligence with respect to these efforts, an acquisition may
not produce the revenue, earnings or business synergies that we anticipated, and
an acquired technology or proprietary right may not perform as expected for a
variety of reasons, including:
o difficulty in the assimilation of the operations, technologies, rights,
products and personnel of the acquired company
o risks of entering markets in which we have no or limited prior
experience
o expenses of any undisclosed or potential legal liabilities of the
acquired company
o the potential loss of key employees of the acquired company
WE MAY EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY RESULTS, WHICH
MAKES IT DIFFICULT FOR INVESTORS TO MAKE RELIABLE PERIOD-TO-PERIOD COMPARISONS
AND CONTRIBUTES TO VOLATILITY IN THE MARKET PRICE FOR OUR COMMON STOCK. Our
quarterly revenues, gross profits and results of operations have fluctuated
significantly in the past and we expect them to continue to fluctuate
significantly in the future. In addition, we believe that an important measure
of our business is the annualized contract value at the end of each period,
which also may fluctuate. Causes of such fluctuations have included and may
include, among other factors:
o changes in demand for our products
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<PAGE> 21
o the dollar value and timing of both new and renewal subscriptions
o competition (particularly price competition)
o increases in selling and marketing expenses, as well as other operating
expenses
o technical difficulties or system downtime affecting our products on the
Web generally
o economic conditions specific to the Web, as well as general economic
conditions
o consolidation of our customers
In addition, a substantial portion of our expenses, including most product
development and selling and marketing expenses, must be incurred in advance of
revenue generation. If our projected revenue does not meet our expectations,
then we are likely to experience an even larger shortfall in our operating
profit (loss) relative to our expectations.
Any one or more of these factors could affect our business, financial
condition and results of operations, and this makes the prediction of results of
operations on a quarterly basis unreliable. As a result, we believe that
period-to-period comparisons of our historical results of operations and
annualized contract values are not necessarily meaningful and that you should
not rely on them as an indication for future performance. Also, due to these and
other factors, it is possible that our quarterly results of operations
(including the annualized contract value) may be below expectations. If this
happens, the price of our common stock would likely decrease.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
OneSource is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. However, our exposure to currency
exchange rate fluctuations has been and is expected to continue to be modest due
to the fact that the operations of our United Kingdom subsidiary are almost
exclusively conducted in local currency. Operating results are translated into
United States dollars and consolidated for reporting purposes. The impact of
currency exchange rate movements on intercompany transactions was immaterial for
fiscal year 1998 and for the nine months ended September 30, 1999.
OneSource also owns financial instruments that are sensitive to market
risks as part of its investment portfolio. The investment portfolio is used to
preserve OneSource's capital until it is required to fund operations, including
the Company's marketing and product development activities. None of these
market-risk sensitive instruments are held for trading purposes. The investment
portfolio contains instruments that are subject to the risk of a decline in
interest rates. We do not enter into derivatives or any other financial
instruments for trading or speculative purposes.
PART II- OTHER INFORMATION
Item 2. RECENT SALES OF UNREGISTERED SECURITIES AND USE OF PROCEEDS.
USE OF PROCEEDS
On May 19, 1999, we commenced an initial public offering of 3,636,000
shares of common stock, $0.01 par value per share, pursuant to a final
prospectus dated May 19, 1999. The prospectus was contained in the OneSource's
registration statement on Form S-1, which was
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<PAGE> 22
declared effective by the Securities and Exchange Commission (SEC File No.
333-73263) on May 18, 1999. Of the 3,636,000 shares of common stock offered,
2,500,000 shares were offered and sold by OneSource and 1,136,000 shares were
offered and sold by certain stockholders of OneSource. The offering closed on
May 24, 1999 upon the sale of all 3,636,000 shares. The aggregate offering price
of the offering to the public was $43,632,000, with proceeds to OneSource and
the selling stockholders, after deduction of the underwriting discount, of
$27,900,000 and $12,677,760, respectively. The aggregate amount of expenses
incurred by OneSource in connection with the issuance and distribution of the
shares of common stock sold in the offering were approximately $3.9 million,
including approximately $3.0 million in underwriting discounts and commissions
and $0.9 million in other offering expenses.
The net proceeds to OneSource from the offering, after deducting
underwriting discounts and commissions and other offering expenses was
approximately $27.0 million.
The net proceeds from the offering, less $6.8 million used to pay off
long-term debt and $7.6 million used to acquire Corporate Technology Information
Services, Inc., have been invested in interest bearing, investment grade
securities.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
Exhibit
Number Description
------ -----------
2.1 Agreement and Plan of Merger dated as of September
8, 1999, by and among OneSource, Corporate
Technology Information Services, Inc., OneSource
Content Corporation and Andrew Campbell (previously
filed as Exhibit 2.1 to OneSource's Form 8-K filed
on September 13, 1999 and incorporated herein by
reference).
2.2 Escrow Agreement dated September 8, 1999, by and
among OneSource, Corporate Technology Information
Services, Inc., Andrew Campbell and Citizens Bank of
Massachusetts (previously filed as Exhibit 2.2 to
OneSource's Form 8-K filed on September 13, 1999 and
incorporated herein by reference).
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
On September 13, 1999, OneSource filed a report on Form 8-K in
connection with its acquisition of Corporate Technology Information
Services, Inc. Pro forma financial statements will be included on
Form 8-K/A.
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<PAGE> 23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ONESOURCE INFORMATION SERVICES, INC.
Date: November 12, 1999 By: /s/ Roy D. Landon
----------------------------
Roy D. Landon
Vice President, Chief Financial
Officer (Principal Financial
Officer)
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<PAGE> 24
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
======= ========================================================= ============
2.1 Agreement and Plan of Merger dated as of September *
8, 1999, by and among OneSource, Corporate Technology
Information Services, Inc., OneSource Content Corporation
and Andrew Campbell (previously filed as Exhibit 2.1 to
OneSource's Form 8-K filed on September 13, 1999 and
incorporated herein by reference).
2.2 Escrow Agreement dated September 8, 1999, by and among *
OneSource, Corporate Technology Information Services,
Inc., Andrew Campbell and Citizens Bank of Massachusetts
(previously filed as Exhibit 2.2 to OneSource's Form 8-K
filed on September 13, 1999 and incorporated herein by
reference).
27.1 Financial Data Schedule *
* Exhibit included in EDGAR filing with Securities and Exchange Commission.
-24-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ONESOURCE
INFORMATION SERVICES, INC.'S CONSOLIDATED BALANCE SHEET (UNAUDITED) FOR
SEPTEMBER 30, 1999 AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 14,665
<SECURITIES> 0
<RECEIVABLES> 6,500
<ALLOWANCES> 288
<INVENTORY> 0
<CURRENT-ASSETS> 34,678
<PP&E> 7,683
<DEPRECIATION> 4,934
<TOTAL-ASSETS> 38,460
<CURRENT-LIABILITIES> 24,322
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 13,979
<TOTAL-LIABILITY-AND-EQUITY> 38,460
<SALES> 25,241
<TOTAL-REVENUES> 25,241
<CGS> 10,805
<TOTAL-COSTS> 10,805
<OTHER-EXPENSES> 19,129
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99
<INCOME-PRETAX> (3,292)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,292)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,292)
<EPS-BASIC> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
