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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 June 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
- ------------------------------- ---------------------------------
(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
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------
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
- --
The number of shares of the issuer's Common Stock, $0.01 par value per share,
outstanding as of August 12, 1999 was 9,986,191.
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ONESOURCE INFORMATION SERVICES, INC.
INDEX
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<TABLE>
<CAPTION>
Page
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet as of
June 30, 1999 (unaudited) and December 31, 1998 3
Consolidated Statement of Operations (unaudited):
Three months and six months ended June 30, 1999 and 1998 4
Consolidated Statement of Cash Flows (unaudited):
Six months ended June 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 20
PART II OTHER INFORMATION
Item 2. Recent Sales of Unregistered Securities and Use of Proceeds 20
Item 6. Exhibits and Reports on Form 8-K 21
Signature 22
Exhibit Index 23
</TABLE>
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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)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
Assets (unaudited) (see Note 1)
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................................... $ 22,743 $ 8,665
Accounts receivable, net of allowance for doubtful accounts of
$284 and $300 at June 30, 1999 (unaudited) and
December 31, 1998, respectively............................................. 5,395 9,621
Deferred subscription costs..................................................... 5,957 6,662
Prepaid expenses and other current assets....................................... 239 426
-------- ---------
Total current assets........................................................ 34,334. 25,374
Property and equipment, net.......................................................... 2,433 1,770
Other assets......................................................................... 892 502
-------- ---------
Total assets............................................................. $ 37,659 $ 27,646
======== =========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of capital lease obligations.................................... $ 330 $ 471
Accounts payable................................................................ 1,043. 995
Accrued expenses................................................................ 2,297 3,378
Accrued royalties............................................................... 3,729 4,626
Deferred revenues............................................................... 15,259 18,022
-------- ---------
Total current liabilities................................................... 22,658 27,492
Capital lease obligations and long-term debt......................................... 122 6,465
-------- ---------
Total liabilities........................................................ 22,780 33,957
-------- ---------
Stockholders' equity (deficit):
Preferred stock, $0.01 par value:
1,000,000 shares authorized, no shares issued and outstanding at June
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 June 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; 9,973,404 and 6,775,313 shares issued and
9,973,404 and 6,665,423 shares outstanding at June 30, 1999 (unaudited)
and December 31, 1998, respectively......................................... 100 68
Additional paid-in capital...................................................... 28,353 724
Unearned compensation........................................................... (432) (39)
Accumulated deficit............................................................. (13,065) (10,444)
Accumulated other comprehensive loss............................................ (77) (138)
Common stock held in treasury, at cost.......................................... ---- (6)
-------- ---------
Total stockholders' equity (deficit)..................................... 14,879 (6,311)
-------- ---------
Total liabilities and stockholders' equity (deficit)..................... $ 37,659 $ 27,646
======== =========
</TABLE>
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)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
-------------------------- ------------------------
June 30, June 30,
-------- --------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues:
Web-based product..................................................... $ 7,513 $ 3,419 $ 14,416 $ 6,047
CD Rom product........................................................ 867 4,273 2,107 9,595
--------- --------- --------- ---------
8,380 7,692 16,523 15,642
--------- --------- --------- ---------
Cost of revenues:
Web-based product..................................................... 3,331 1,872 6,301 3,159
CD Rom product........................................................ 354 1,643 841 3,622
--------- --------- --------- ---------
3,685 3,515 7,142 6,781
--------- --------- --------- ---------
Gross profit.......................................................... 4,695 4,177 9,381 8,861
--------- --------- --------- ---------
Operating expenses:
Selling and marketing................................................. 2,994 2,904 5,921 5,701
Platform and product development...................................... 1,947 1,528 3,665 3,089
General and administrative............................................ 2,257 1,051 3,117 2,008
--------- --------- --------- ---------
Total operating expenses.......................................... 7,198 5,483 12,703 10,798
--------- --------- --------- ---------
Loss from operations.............................................. (2,503) (1,306) (3,322) (1,937)
Interest expense, net...................................................... (206) (186) (299) (430)
Gain on sale of product line............................................... ---- 12,797 ---- 12,797
Other income............................................................... 500 ---- 1,000 ----
--------- --------- --------- ---------
Income (loss) before income taxes................................. (2,209) 11,305 (2,621) 10,430
Provision for income taxes................................................. ---- 250 ---- 250
--------- --------- --------- ---------
Net income (loss)................................................. (2,209) 11,055 (2,621) 10,180
--------- --------- --------- ---------
Less income attributable to Class P
common stock.......................................................... ---- 999 ---- 1,124
--------- --------- --------- ---------
Net income (loss) attributable to
common stock................................................... $ (2,209) $ 10,056 $ (2,621) $ 9,056
========= ========= ========= =========
Class P common stock:
Basic and diluted earnings per share.................................. ---- $ 1.39 ---- $ 1.57
Weighted average Class P common
shares outstanding................................................ ---- 717,119 ---- 717,146
Common stock:
Basic earnings (loss) per share....................................... $ (0.27) $ 1.52 $ (0.35) $ 1.37
Diluted earnings (loss) per share..................................... $ (0.27) $ 1.14 $ (0.35) $ 1.07
Weighted average common shares outstanding:
Basic............................................................. 8,206,563 6,635,152 7,454,580 6,628,345
Diluted........................................................... 8,206,563 8,809,085 7,454,580 8,468,016
Pro forma earnings per share:
Basic................................................................. $ (0.25) $ 1.46 $ (0.32) $ 1.34
Diluted............................................................... $ (0.25) $ 1.13 $ (0.32) $ 1.08
Weighted average common shares outstanding:
Basic............................................................. 8,744,663 7,577,454 8,220,732 7,570,647
Diluted........................................................... 8,744,663 9,751,387 8,220,732 9,410,318
</TABLE>
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)
<TABLE>
<CAPTION>
For the six months ended
------------------------
June 30,
--------
1999 1998
---- ----
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows relating to operating activities
Net income (loss).......................................................... $(2,621) $10,180
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization.......................................... 772 753
Compensation expense relating to grants of stock options............... 45 ----
Amortization of debt discount.......................................... 52 60
Loss on sale leaseback transaction..................................... ---- 45
Gain on sale of product line........................................... ---- (12,797)
Changes in assets and liabilities:
Accounts receivable................................................. 4,165 3,254
Deferred subscription costs......................................... 704 (400)
Prepaid expenses and other assets................................... 120 (14)
Accounts payable.................................................... 76 (191)
Accrued expenses.................................................... (1,070) (129)
Accrued royalties................................................... (896) 807
Deferred revenues................................................... (2,562) (1,046)
------- -------
Net cash provided (used) by operating activities....................... (1,215) 522
------- -------
Cash flows relating to Investing activities
Investment in certificate of deposit....................................... (415) ----
Purchases of property and equipment........................................ (1,326) (450)
Capitalization of software development costs............................... (113) (204)
Net proceeds from sale of product line..................................... ---- 10,563
------- -------
Net cash provided (used) by investing activities....................... (1,854) 9,909
------- -------
Cash flows relating to financing activities
Proceeds from issuance of common stock, net................................ 27,092 12
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..................................... (252) (373)
------- -------
Net cash provided (used) by financing activities....................... 17,169 (1,664)
------- -------
Effect of exchange rate changes on cash and cash equivalents.................... (22) 36
------- -------
Increase in cash and cash equivalents........................................... 14,078 8,803
Cash and cash equivalents, beginning of period.................................. 8,665 341
------- -------
Cash and cash equivalents, end of period........................................ $22,743 $ 9,144
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest..................................................... $ 764 $ 159
Cash paid for taxes........................................................ 154 0
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
</TABLE>
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 June 30, 1999 and
for the three and six months ended June 30, 1998 and 1999 are unaudited. In the
opinion of OneSource's management, the June 30, 1998 and 1999 unaudited interim
consolidated financial statements include all adjustments, consisting 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 six month period ended June 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.
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:
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<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for common stock (in thousands):
Net income..................................... ---- $ 11,055 ---- $ 10,180
Less: income attributable
to Class P common stock................... ---- 999 ---- 1,124
--------- --------- --------- ---------
---- $ 10,056 ---- $ 9,056
========= ========= ========= =========
Denominator for common stock:
Weighted average shares
outstanding used for basic
earnings per share........................ 8,206,563 6,635,152 7,454,580 6,628,345
Effect of dilutive securities:
Stock options.................................. ---- 1,690,129 ---- 1,356,856
Common stock warrants.......................... ---- 483,804 ---- 482,816
--------- --------- --------- ---------
Weighted average shares
outstanding used for diluted
earnings per share........................ 8,206,563 8,809,085 7,454,580 8,468,017
========= ========= ========= =========
</TABLE>
Total potential common equivalent shares consist of 3,895,041 stock options
outstanding with a weighted average exercise price of $2.31 per share and
473,526 common stock warrants exercisable at $0.06 per share as of June 30,
1999.
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for Class P common stock
(in thousands):
Yield earned by Class P common
stock..................................... ---- $ 180 ---- $ 357
Income attributable to
Class P common stock...................... ---- 819 ---- 767
------ ------ ------ ------
---- $ 999 ---- $1,124
====== ====== ====== ======
</TABLE>
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
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.
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6. Comprehensive Income (Loss)
Total comprehensive income (loss) was ($2,184,000) and ($2,560,000) for the
three and six months ended June 30, 1999, respectively, and $11,065,000 and
$10,169,000 for the three and six months ended June 30, 1998, respectively.
7. Geographic Information
Revenue was distributed geographically as follows:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
United States.................................... $6,380 $5,975 $12,603 $12,271
United Kingdom................................... 2,000 1,717 3,920 3,371
------ ------ ------- -------
$8,380 $7,692 $16,523 $15,642
====== ====== ======= =======
</TABLE>
Substantially all of OneSource's identifiable assets are located in the
United States.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 $14.4 million, or 87% of
total revenues, for the six months ended June 30, 1999, an increase from $6.0
million, or 39% of total revenues, for the six months ended June 30, 1998. In
the same period, CD Rom product revenues decreased to $2.1 million, or 13% of
total revenues from $9.6 million, or 61% of total revenues. As of June 30, 1999,
493 organizations subscribed to our Business Browser product line, and the
annualized contract value for these organizations was $31.1 million.
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
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and will be recognized ratably as other income. During the six months ended June
30, 1999, OneSource recorded $1.0 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 6% to $14.9 million as of June 30, 1999 from $15.9 million as
of December 31, 1998 and increased 91% from $7.8 million as of June 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 JUNE 30, 1999 AND JUNE 30, 1998
Revenues. Total revenues increased 9% to $8.4 million for the quarter ended
June 30, 1999 from $7.7 million for the quarter ended June 30, 1998. During the
second quarter 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 $1.0 million for the quarter ended June 30, 1998. Excluding
these revenues from total revenues for the quarter ended June 30, 1998, total
revenues for the quarter ended June 30, 1999 increased by 25%.
Web-based product revenues increased 120% to $7.5 million for the quarter
ended June 30, 1999 from $3.4 million for the quarter ended June 30, 1998. The
increase was attributable to the
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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 $0.9 million in the
second quarter of 1999 from $4.3 million in the second quarter of 1998 as
OneSource continues to transition away from its legacy CD Rom business.
Cost of Revenues. Total cost of revenues increased 5% to $3.7 million for
the quarter ended June 30, 1999 from $3.5 million for the quarter ended June 30,
1998. As a percentage of total revenues, total cost of revenues decreased to 44%
for the quarter ended June 30, 1999 from 46% for the quarter ended June 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 78% to $3.3 million for the
quarter ended June 30, 1999 from $1.9 million for the quarter ended June 30,
1998. As a percentage of Web-based product revenues, cost of Web-based product
revenues decreased to 44% for the quarter ended June 30, 1999 from 55% for the
quarter ended June 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 $0.4 million for the
quarter ended June 30, 1999 from $1.6 million for the quarter ended June 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 41% for the quarter ended June 30, 1999 from
38% for the quarter ended June 30, 1998.
Selling and Marketing Expense. Selling and marketing expense increased 3%
to $3.0 million for the quarter ended June 30, 1999 from $2.9 million for the
quarter ended June 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 quarter ended June 30, 1999 from 38% for the
quarter ended June 30, 1998. We expect sales and marketing expenses to increase
in dollar terms as we continue to hire additional sales personnel.
Platform and Product Development Expense. Platform and product development
expense increased 27% to $1.9 million for the quarter ended June 30, 1999 from
$1.5 million for the quarter ended June 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 23%
for the quarter ended June 30, 1999 from 20% for the quarter ended June 30,
1998.
General and Administrative Expense. General and administrative expense
increased 115% to $2.3 million for the quarter ended June 30, 1999 from $1.1
million for the quarter ended June 30, 1998. This increase was the result of
non-recurring expenses incurred by OneSource which primarily relate to past
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 27% for
the quarter ended June 30, 1999 from 14% for the quarter ended June 30, 1998.
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Interest Expense, Net. Interest expense, net of interest income, increased
11% to $0.21 million for the quarter ended June 30, 1999 from $0.19 million for
the quarter ended June 30, 1998. This was primarily due to unamortized interest
related to the repayment of a note, but was partially offset by 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
June 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 SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
Revenues. Total revenues increased 6% to $16.5 million for the six months
ended June 30, 1999 from $15.6 million for the six months ended June 30, 1998.
During the first six 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 six months ended June 30, 1998.
Excluding these revenues from total revenues for the six months ended June 30,
1998, total revenues for the six months ended June 30, 1999 increased by 25%.
Web-based product revenues increased 138% to $14.4 million for the six
months ended June 30, 1999 from $6.0 million for the six months ended June 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 78% to $2.1 million for the first six months of 1999 from
$9.6 million for the first six months of 1998 as OneSource continues to
transition away from its legacy CD Rom business.
Cost of Revenues. Total cost of revenues increased 5% to $7.1 million for
the six months ended June 30, 1999 from $6.8 million for the six months ended
June 30, 1998. As a percentage of total revenues, total cost of revenues was 43%
for the six months ended June 30, 1999 and the six months ended June 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 99% to $6.3 million for the
six months ended June 30, 1999 from $3.2 million for the six months ended June
30, 1998. As a percentage of Web-based product revenues, cost of Web-based
product revenues decreased to 44% for the six months ended June 30, 1999 from
52% for the six months ended June 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 77% to $0.8 million for the six
months ended June 30, 1999 from $3.6 million for the six months ended June 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 40% for the six months ended June 30, 1999
from 38% for the six months ended June 30, 1998.
Selling and Marketing Expense. Selling and marketing expense increased 4%
to $5.9 million for the six months ended June 30, 1999 from $5.7 million for the
six months ended
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<PAGE> 12
June 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 as a percentage of total revenues
was 36% for the six months ended June 30, 1999 and for the six months ended June
30, 1998. We expect sales and marketing expenses to increase in dollar terms as
we continue to hire additional sales personnel.
Platform and Product Development Expense. Platform and product development
expense increased 19% to $3.7 million for the six months ended June 30, 1999
from $3.1 million for the six months ended June 30, 1998. The 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 22%
for the six months ended June 30, 1999 from 20% for the six months ended June
30, 1998.
General and Administrative Expense. General and administrative expense
increased 55% to $3.1 million for the six months ended June 30, 1999 from $2.0
million for the six months ended June 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 19% for
the six months ended June 30, 1999 from 13% for the six months ended June 30,
1998.
Interest Expense, Net. Interest expense, net of interest income, decreased
30% to $0.30 million for the six months ended June 30, 1999 from $0.43 million
for the six months ended June 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.
Other Income. Other income increased $1.0 million for the six months ended
June 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
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<PAGE> 13
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 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 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:
<TABLE>
<CAPTION>
One Month
Of Invoiced
Web-based Fees In
Deferred Deferred Annualized
MEASUREMENT DATE Revenues Revenues Contract Value
- ---------------- --------- ----------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
June 30, 1998.................................................... $ 7,766 $1,218.3 $14,619
June 30, 1999.................................................... 14,905 2,587.5 31,051
</TABLE>
We have increased annualized contract value attributable to Web-based
products 112% to $31.1 million as of June 30, 1999 from $14.6 million as of June
30, 1998. The number of Web-based customers has increased 53% to 493 at June 30,
1999 from 322 at June 30, 1998. At the same time, the average annualized
contract value of all Web-based product customers has increased 39% to $63,000
per customer at June 30, 1999 from $45,400 per customer at June 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 $22.7 million at June 30, 1999,
compared to $9.1 million at June 30, 1998, an increase of $13.6 million
primarily due to the receipt of proceeds from our initial public offering in May
1999. Net cash used in operating activities was $1.2
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<PAGE> 14
million for the six months ended June 30, 1999 as compared to net cash provided
by operating activities of $0.5 million for the six months ended June 30, 1998.
The principle use of cash was to fund our operations.
Net cash used in investing activities was $1.9 million for the six months
ended June 30, 1999, as compared to net cash provided by investing activities of
$9.9 million for the six months ended June 30, 1998. Cash used in investing
activities was primarily due to expenditures of $1.3 million for property and
equipment for the six months ended June 30, 1999 and cash generated in investing
activities reflects net cash proceeds from the sale of our CD-Insurance division
for the six months ended June 30, 1998.
Net cash provided by financing activities was $17.2 million for the six
months ended June 30, 1999, as compared to net cash used by financing activities
of $1.7 million for the six months ended June 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 $2.6 million
for 1999, including approximately $0.7 million in connection with the relocation
of our corporate headquarters, in July 1999.
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 six months.
YEAR 2000 READINESS DISCLOSURE STATEMENT
OneSource has established a Year 2000 compliance program and anticipates
that our products and internal systems 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 Requirements. According to this definition,
Year 2000 conformity means that neither
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<PAGE> 15
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.
- 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 has assessed existing web-based products to review
our overall compliance status. To date, OneSource has completed all work
associated with creating company awareness of Year 2000 issues, organizing and
executing high-level plans to address the concern, and inventorying existing
systems, data and software for Year 2000 exposure. In addition, impact analysis
and detailed plans for resolving problem situations have been completed. Initial
assessment and testing of the products was completed in June 1999. Final
testing, further inspection, and correction of minor issues for these products
is expected to be completed by September 1999. Further Year 2000 testing will
continue as new data and software is released throughout 1999.
The critical component of the OneSource web-based product line is business
and financial information, which is supported by software and a Web
infrastructure that provides the delivery and viewing of this information. This
data is 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.
CD products. The "UK Companies" product is the only CD Rom product that is
undergoing Year 2000 testing. On June 30, 1999, OneSource discontinued the sale
of its CD Rom products, except for this one UK product. 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. The OneSource for Windows software applies a convention
for two-digit years that considers years 60 to 99 as 20th century dates (1960 to
1999), and all other two-digit years (00 to 59) as 21st century dates. 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 will be completed in
August 1999. 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
-15-
<PAGE> 16
from such business partners that their software is Year 2000 compliant, we can
not 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.
Year 2000 Verification Strategy. To verify Year 2000 compliance, OneSource
simulates receipt of data containing 21st century dates, and runs this data
through our publication processes as part of an internal Year 2000 verification
exercise. As data is verified, it is included and available for access within
the products, allowing customers to demonstrate that the relevant part of the
OneSource product they are using is 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. 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 deliver
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
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<PAGE> 17
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.
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 $ 3.3
million in the six months ended June 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 June 30, 1999, we had an accumulated deficit of $ 13.1
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 87% of total
revenues for the six months ended June 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 June 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.
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<PAGE> 18
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:
- large, well-established business and financial information providers
such as Dow Jones, Dialog, Lexis-Nexis, Pearson, Reuters, Thomson,
Primark and McGraw-Hill
- on-line information services or Websites targeted to specific markets
or applications, such as NewsEdge, Factset and Bloomberg
- providers of sales, marketing and credit information such as Dun &
Bradstreet
- 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
- 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 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
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<PAGE> 19
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:
- difficulty in the assimilation of the operations, technologies,
rights, products and personnel of the acquired company
- risks of entering markets in which we have no or limited prior
experience
- expenses of any undisclosed or potential legal liabilities of the
acquired company
- 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:
- changes in demand for our products
- the dollar value and timing of both new and renewal subscriptions
- competition (particularly price competition)
- increases in selling and marketing expenses, as well as other
operating expenses
- technical difficulties or system downtime affecting our products on
the Web generally
- economic conditions specific to the Web, as well as general economic
conditions
- 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
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<PAGE> 20
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 six months ended June 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 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, have been invested in interest bearing, investment grade
securities.
-20-
<PAGE> 21
CHANGES IN SECURITIES
During the three months ended June 30, 1999, OneSource has issued options
to purchase an aggregate of 41,721 shares of common stock pursuant to its 1999
Stock Option and Incentive Plan, exercisable at a weighted average price of
$12.00 per share. During the same period options to purchase 46,903 shares,
issued pursuant to OneSource's 1993 Stock Purchase and Option Plan, were
exercised. The following table lists options granted between April 1, 1999 and
June 30, 1999.
Options Option
Date Granted Price
---- ------- ------
May 19, 1999 41,721 $12.00
All such issuances were made in reliance on Rule 701 under the Securities
Act of 1933, as amended.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
Exhibit
Number Description
------- -----------
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
There were no reports on Form 8-K filed by OneSource for the quarter
ending June 30, 1999.
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<PAGE> 22
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: August 12, 1999 By: /s/ Roy D. Landon
-----------------------------------
Roy D. Landon
Vice President, Chief Financial
Officer (Principal Financial
Officer)
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<PAGE> 23
EXHIBIT INDEX
Sequentially
Numbered
Exhibit Number Description Page
- -------------- ----------- ------------------
27.1 Financial Data Schedule *
* Exhibit included in EDGAR filing with Securities and Exchange Commission.
-23-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ONESOURCE
INFORMATION SERVICES, INC.'S CONSOLIDATED BALANCE SHEET (UNAUDITED) FOR JUNE 30,
1999 AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 22,743
<SECURITIES> 0
<RECEIVABLES> 5,679
<ALLOWANCES> 284
<INVENTORY> 0
<CURRENT-ASSETS> 34,334
<PP&E> 6,975
<DEPRECIATION> 4,542
<TOTAL-ASSETS> 37,659
<CURRENT-LIABILITIES> 22,658
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 14,779
<TOTAL-LIABILITY-AND-EQUITY> 37,659
<SALES> 16,523
<TOTAL-REVENUES> 16,523
<CGS> 7,142
<TOTAL-COSTS> 7,142
<OTHER-EXPENSES> 12,703
<LOSS-PROVISION> 0
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</TABLE>
