<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 5, 2000
REGISTRATION NO. 333-33784
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
STOCKPOINT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7375 36-3775977
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2600 CROSSPARK ROAD
CORALVILLE, IOWA 52241
(319) 626-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------------
WILLIAM MCNALLY
GENERAL COUNSEL
STOCKPOINT, INC.
2600 CROSSPARK ROAD
CORALVILLE, IOWA 52241
(319) 626-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
-------------------------
COPIES TO:
<TABLE>
<S> <C>
THOMAS MARTIN, ESQ. FREDERICK W. KANNER, ESQ.
DORSEY & WHITNEY LLP DEWEY BALLANTINE LLP
PILLSBURY CENTER SOUTH 1301 AVENUE OF THE AMERICAS
220 SOUTH SIXTH STREET NEW YORK, NEW YORK 10019
MINNEAPOLIS, MINNESOTA 55402 (212) 259-8000
(612) 340-2600 FAX: (212) 259-6333
FAX: (612) 340-8738
</TABLE>
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND
LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING. [ ]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(C)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [ ]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(D)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [ ]
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
CHECK THE FOLLOWING BOX. [ ]
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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--------------------------------------------------------------------------------
<PAGE> 2
The information in this prospectus is not complete and may be changed. we
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS Subject to completion September 5, 2000
--------------------------------------------------------------------------------
5,000,000 Shares
[STOCKPOINT LOGO]
Common Stock
--------------------------------------------------------------------------------
We are an Internet services company that provides online investment analysis
tools and financial information. This is the initial public offering of our
common stock and no public market currently exists for our common stock.
We are offering 5,000,000 shares of our common stock. We currently expect the
initial public offering price will be between $8.00 and $10.00 per share. We
have applied for our common stock to be quoted on the Nasdaq National Market
under the symbol "STKP."
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE REGULATOR HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
PER SHARE TOTAL
----------------------------------------------------------------------------------
<S> <C> <C>
Public offering price $ $
----------------------------------------------------------------------------------
Underwriting discounts and commissions $ $
----------------------------------------------------------------------------------
Proceeds, before expenses, to Stockpoint $ $
----------------------------------------------------------------------------------
</TABLE>
The underwriters may also purchase up to 750,000 additional shares of common
stock from us at the public offering price, less the underwriting discounts and
commissions, within 30 days from the date of this prospectus. The underwriters
may exercise this option only to cover over-allotments, if any. If the
underwriters exercise the option in full, the total underwriting discounts and
commissions will be $3,622,500, and the total proceeds, before expenses to
Stockpoint, will be $48,127,500.
The underwriters are offering the common stock as set forth under
"Underwriting." Delivery of the shares will be made on or about ,
2000.
UBS Warburg LLC
William Blair & Company
Roth Capital Partners, Inc.
The date of this prospectus is , 2000
<PAGE> 3
[Artwork]
INSIDE FRONT COVER
The artwork consists of the Stockpoint logo on a blue background, with the words
"World Markets," "Tools," "Portfolios," "Wireless," "Quotes," "Charts" and
"Markets" running down the page. The middle of the page reads: "Powered by
Stockpoint." In the left margin there is a list of stock indices.
FOLDOUT
Text at top of page reads: "Stockpoint seamlessly integrates customizable
financial content and applications into client web sites." To the right of the
text is the Stockpoint logo. Below the text are 11 client web site pages and our
financial web site page.
In the upper left-hand corner is the web site page of WR HAMBRECHT + CO,
depicting quote information for Microsoft Corp. Below the web page there is text
that reads: "WR Hambrecht + Co" and "wrhambrecht.com." Overlaying a portion of
this web page is the web page of ILife Inc. Below the web page is text that
reads "ILife Inc." and "consejero.com."
In the upper-middle, there is a chart displaying the stockprice activity of IBM
along side two wireless devices.
In the upper right-hand corner are the web site pages of Worldly Information
Network and Barclays Global Investors. The web page of Worldly Information
Network includes a graph of the Dow Jones Industrial Average and "global
indexes" for the Americas, Asia and Europe. The Americas indexes include Brazil
Bovespa Index, DJ Industrials, Dow Jones 20 Bond Average and Mexican Bolsa.
Below the web site is text that reads: "Worldly Information Network, Inc" and
"Worldlyinvestor.com." The Asia indexes include Australian All Ordinaries and
Hong Kong Seng.
Barclays Global Investors web site page overlays a portion of the
worldlyinvestors.com's web page. The background screen of Barclays Global
Investors' web site page is black, and the screen shows "Currency Calculator"
and a list of currencies a viewer can choose from. Below the web site page of
Barclays Global Investors, there is text that reads: "Barclays Global Investors
"and" barclaysglobal.com." In the middle of the page are the web site pages of
A.B. Watley, Inc. and MyWay.com. The MyWay.com web site depicts AT&T Corporation
and its Analyst Rating Summary, which includes Analyst Opinions and Average
Recommendation. Above the web site page of MyWay.com there is text that reads
"MyWay.com" and "myway.com." The web page of A.B. Watley, Inc. depicts three
graphs: Equity Indices, Interest Rates and Currency tables. Above A.B. Watley's
web site page there is text that reads: "A.B. Watley Group Inc." and
"abwatley.com."
In the lower-right corner are the web site pages of National Discount Brokers
and SURETRADE, Inc. National Discount Brokers' web site page depicts
"stockfinder pro" and several optional sample screens a viewer can select. The
sample screens include: a Blue Chip stocks screen, Growth & Value Screen, Strong
Growth Screen and High Dividend Yield Screen. Below the web site page is text
that reads: "National Discount Brokers" and "ndb.com" The web site page of
SURETRADE.COM. overlays a portion of National Discount Brokers' web page,
depicting "Fund Finder Pro" with twenty two Fund objectives that a viewer can
select. Above the web site page of SURETRADE.COM is text that reads: "SURETRADE,
INC." and "suretrade.com."
In the lower middle of the page are the web site pages of LookSmart Ltd. and
Stockpoint. The web site page of LookSmart depicts performance information for
five individual stocks. The performance information includes Market Price,
Today's Change, Shares, Current Value, $ Gain/Loss and % Gain/ Loss. To the
right of the web page, there is text that reads: "LookSmart Ltd" and
"money.looksmart.com." The Stockpoint.com web site page depicts The Portfolio
Pro product. Above the website page is text that reads "Stockpoint" and
"Stockpoint.com."
In the lower left-hand corner are the web site pages of Robertson Stephens and
Commonwealth Securities Ltd. The Robertson Stephens screen shows a graph named
"The Kebdex" and a viewer can click either "Weekly" or "interactive" to view
different charts. Below the web site page there is text that reads: "Robertson
Stephens" and "internetstocks.com." Overlaying a portion of this web page is the
web site page of Commonwealth Securities. Below the web site page is text that
reads: "Commonwealth Securities Ltd." and "comsec.com.au."
BACK INSIDE COVER
The artwork consists of the Stockpoint logo on a blue background.
<PAGE> 4
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Through and including , 2000, the 25th day after the commencement of
this offering, federal securities law may require all dealers selling shares of
our common stock, whether or not participating in this offering, to deliver a
prospectus. This delivery requirement is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriters and with respect to
unsold allotments or subscriptions.
TABLE OF CONTENTS
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Prospectus summary..................... 3
Risk factors........................... 6
Forward-looking information............ 17
Use of proceeds........................ 18
Dividend policy........................ 18
Dilution............................... 19
Capitalization......................... 20
Selected consolidated financial
information.......................... 21
Management's discussion and analysis of
financial condition and results of
operations........................... 23
Business............................... 35
Management............................. 48
Certain transactions................... 54
Principal stockholders................. 58
Description of capital stock........... 60
Shares eligible for future sale........ 63
Underwriting........................... 65
Legal matters.......................... 67
Experts................................ 67
Where you can find more information.... 67
Index to financial statements.......... F-1
</TABLE>
--------------------------------------------------------------------------------
In making a decision to buy our common stock, you should only rely on the
information contained in this prospectus. We have not authorized anyone to
provide you with other information. We are offering to sell these shares only
where it is legal to sell them. The information in this prospectus is complete
and accurate as to the date on the front cover, but the information may have
changed since that date.
--------------------------------------------------------------------------------
<PAGE> 5
Prospectus summary
Because this is only a summary, it does not contain all of the information that
may be important to you. For a more complete understanding of this offering, we
encourage you to read the entire prospectus, including the information under
"Risk Factors" and the consolidated financial statements and related notes,
before making an investment decision.
STOCKPOINT
Stockpoint is a leading provider of online investment analysis tools and
financial information. We develop and integrate sophisticated financial
applications to provide our clients customized financial web pages. We "host"
these web pages by maintaining the data and applications on our web servers and
by applying Internet-based data management technology we have developed. This
enables our clients to outsource their financial web page production and
maintenance, and provide extensive financial content and analysis tools to their
users.
Our clients include web portals, media companies, traditional and online
brokerage firms, commercial banks, asset managers, electronic communication
networks, 401(k) sponsors and insurance companies. As of June 30, 2000, we had
license agreements with approximately 250 clients. Our business generated
revenues of $6.8 million during 1999 and $6.5 million during the first six
months of 2000. We incurred losses of $3.2 million and $3.7 million during these
periods.
The Internet today is rapidly changing the way individuals conduct financial
transactions. The convenience, speed and the lower cost of conducting trades
over the Internet and the immediate availability of financial information on the
Internet, combined with the current demographic trends favoring investment, have
converged to produce a significant movement to online investing. Forrester
Research has projected that online investment accounts in the U.S. will grow
from $374 billion of assets in 5.4 million online accounts in 1999 to $3.1
trillion of assets in 20.4 million online accounts by 2003, a number that would
represent nearly 53% of U.S. households. Similar developments in electronic
banking, driven by the convenience of electronic bill payment, online fund
transfers, the monitoring of account balances and the trend toward integrated
financial services, are helping to reshape the way both individual and corporate
banking is conducted.
To accommodate this shift, the financial industry has become one of the largest
consumers of Internet technology, demanding both transactional technology and
technology that delivers the online financial information needed to make
intelligent transactional decisions. We believe that the quality and breadth of
the financial information that is offered is rapidly becoming a differentiator
among financial services providers.
With our products and services, our clients are able to offer their users
Internet-based real-time and delayed stock quotes, charting capabilities,
portfolio management and analysis tools, currency utilities, company research
and business news. We also enable our customers to offer many of these features
over wireless devices. We purchase financial content on a nonexclusive basis,
and combine, integrate and manipulate this content with software we have
developed and in a format customized for our clients, to enable users to easily
analyze and manage financial information and to make investment decisions. Our
Internet technologies allow us to rapidly develop financial web pages for
customers desiring to differentiate their financial web sites from others.
Our objective is to be the leading provider of global online investment analysis
tools and financial information that enables our clients to provide extensive
financial content and decision-making tools on their web sites. Key elements of
our strategy include:
+ Enabling the online financial services markets. We intend to rapidly expand
our sales force to reach businesses in the financial services industry and
other financial information providers that require extensive online market
analysis tools and financial information on their web sites. We
3
<PAGE> 6
believe our broad client experience enables us to intelligently recommend and
sell new products, content and services to improve web site functionality.
+ Expanding our existing client relationships. We intend to continue to expand
our relationships with our existing clients by offering additional
value-added products and services that we create or obtain through
partnership or acquisition.
+ Developing innovative product offerings. We intend to focus our development
efforts on refining and extending the capabilities of our current product
suite as well as capitalizing on emerging trends to construct leading edge
products that facilitate data analysis and more informed investment
decisions.
+ Creating a worldwide presence. We intend to expand our product offerings and
international presence to serve the global online financial information needs
of our clients and their users. To further our international objectives, we
recently opened an office in London, England and intend to open an office in
Hong Kong or Singapore during 2000.
+ Pursuing strategic alliances or acquisitions. We intend to accelerate our
global sales and marketing efforts and technology development, and gain
access to compelling content, applications and functionality, through
strategic alliances and acquisitions. We intend to seek acquisitions of
businesses to complement our products or services or to give us access to new
markets.
Our corporate headquarters are located at 2600 Crosspark Road, Coralville, Iowa
52241 and our phone number is (319) 626-5000. Our Internet address is
www.stockpoint.com. Information on our web site is not part of this prospectus.
RISKS
Investing in our common stock involves a number of risks that we have attempted
to summarize under "Risk Factors" starting on page 6. These risks include the
risk that the pending merger announced on August 17, 2000, between Telescan (one
of our competitors) and GlobalNetFinancial.com may cause us to lose our
relationship with GlobalNetFinancial.com as our largest customer.
GlobalNetFinancial.com accounted for 14% of our revenues in 1999, 17.2% of our
revenues in the first six months of 2000, and 4.4% of the revenues that we had
under contract at June 30, 2000 but had not yet recognized.
THE OFFERING
Common stock offered................ 5,000,000 shares.
Common stock to be outstanding after
the offering (1).................... 11,178,239 shares.
Use of proceeds..................... We intend to use the net proceeds to
repay most of our outstanding
indebtedness, to add sales and
marketing personnel, to continue
Internet product development, to
finance one or more data centers and
foreign offices and for working capital
and other general corporate purposes.
Proposed Nasdaq National Market
symbol.............................. "STKP."
------------
(1) The number of shares of our common stock to be outstanding immediately
after this offering excludes 2,852,550 shares of common stock issuable upon
the exercise of options and 2,832,517 shares of common stock issuable upon
the exercise of warrants outstanding as of June 30, 2000, assuming an
initial public offering price of $9.00 per share. The actual number of
warrants and their exercise price will depend on the initial public
offering price. See "Certain Transactions-Bridge Loan Financing."
"Stockpoint" is our federally registered trademark. This prospectus also
contains names, trademarks, service marks and registered trademarks and service
marks of other companies.
4
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
STATEMENT OF OPERATIONS DATA 1997 1998 1999 1999 2000
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $1,427,908 $2,177,946 $6,829,869 $2,438,609 $6,467,852
Cost of revenues.................. 308,608 764,965 2,289,881 913,882 3,078,951
----------- ----------- ----------- ----------- -----------
Gross profit...................... 1,119,300 1,412,981 4,539,988 1,524,727 3,388,901
Operating expenses................ 4,366,476 6,856,777 7,429,328 3,243,082 6,354,866
----------- ----------- ----------- ----------- -----------
Operating loss from continuing
operations...................... (3,247,176) (5,443,796) (2,889,340) (1,718,355) (2,965,965)
Other expense, primarily
interest........................ (688,525) (784,546) (1,058,545) (438,823) (946,247)
Income (loss) from discontinued
operations (1).................. (405,722) (356,946) 780,808 780,808 --
Extraordinary item-gain on
extinguishment of debt.......... -- -- -- -- 233,600
----------- ----------- ----------- ----------- -----------
Net loss.......................... $(4,341,423) $(6,585,288) $(3,167,077) $(1,376,370) $(3,678,612)
=========== =========== =========== =========== ===========
Basic and diluted loss per common
share:
Loss from continuing
operations.................... $(1.27) $(2.10) $(1.35) $(0.74) $(1.25)
Net loss........................ $(1.40) $(2.21) $(1.11) $(0.50) $(1.18)
Weighted average common shares
outstanding................... 3,134,552 3,160,359 3,212,106 3,194,831 3,283,247
Pro forma basic and diluted loss
per common share (2):
Loss from continuing
operations.................... $(0.66) $(0.65)
Pro forma net loss.............. $(0.53) $(0.61)
Weighted average common shares
outstanding................... 5,921,672 6,053,576
OTHER OPERATING DATA:
Unrecognized contracted revenue
at period end (3)............. $140,078 $1,458,000 $10,703,000 $4,903,000 $26,004,000
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
BALANCE SHEET DATA ACTUAL AS ADJUSTED (4)
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents................................... $2,403,390 $30,817,335
Working capital (deficit)................................... (15,979,432) 24,468,832
Total assets................................................ 8,081,690 35,937,396
Total debt.................................................. 12,306,435 272,116
Stockholders' equity (deficiency)........................... (13,799,038) 26,090,987
</TABLE>
------------
(1) On May 29, 1999, we sold the technology and operational assets related to
the products we had marketed to the steel-making industry, recognizing a
gain of $433,133.
(2) As adjusted for the conversion of all outstanding shares of preferred stock
into common stock upon completion of this offering.
(3) Represents contracted revenues at period end less amounts recognized as
revenue in the statement of operations. The balance of unrecognized
contracted revenue at period end will be recognized ratably in future
periods over the duration of our contracts. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(4) As adjusted to reflect the sale of 5,000,000 shares of common stock in this
offering at an assumed offering price of $9.00 per share, after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by us, and the application of a portion of the estimated net
proceeds from this offering to repay most of our outstanding indebtedness,
as described in "Use of Proceeds."
5
<PAGE> 8
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Risk factors
As a Stockpoint stockholder, you will be subject to the risks inherent in our
business. We have attempted to summarize below the risks of which we are aware.
The value of your investment may decline, and could result in a loss of your
entire investment. You should carefully consider the following factors as well
as the other information contained in this prospectus before deciding to buy our
common stock.
RISKS RELATED TO OUR OPERATIONS
WE HAVE A HISTORY OF LOSSES AND EXPECT TO CONTINUE TO GENERATE LOSSES IN THE
FUTURE.
As of June 30, 2000, we had an accumulated deficit of approximately $26.8
million, of which $22.7 million is attributable to our continuing operations. We
have not achieved profitability and expect to continue to incur net losses at
least into 2001. We expect to continue to incur significant operating expenses
and, as a result, will need to generate significant revenues to achieve
profitability, which may not occur. Even if we do achieve profitability, we may
be unable to sustain or increase profitability on a quarterly or annual basis in
the future.
WE HAVE A LIMITED HISTORY IN OPERATING OUR INTERNET-BASED LICENSING BUSINESS.
Our business model depends largely on our ability to license our Internet
products and hosting services to third parties. We began to emphasize this model
only in mid-1998. For us, this means that we have only limited experience in
operating an Internet-based licensing business from which to evaluate our
business prospects and analyze the risks and uncertainties that we face. We will
be adversely affected if we are unsuccessful in anticipating potential business
issues or in addressing unexpected issues as they arise. For you, this means
that you have limited historical information from which to evaluate our
prospects.
GLOBALNETFINANCIAL.COM, OUR LARGEST CUSTOMER, RECENTLY AGREED TO MERGE WITH
TELESCAN, ONE OF OUR COMPETITORS, AND WE CANNOT ASSURE YOU THAT WE WILL BE ABLE
TO MAINTAIN OUR RELATIONSHIP WITH GLOBALNETFINANCIAL.COM.
GlobalNetFinancial.com, which represented 14% of our revenues during 1999 and
17.2% of our revenues during the first six months of 2000, recently announced
that it has agreed to merge with Telescan, Inc., one of our competitors. We
provide a number of products and services to GlobalNetFinancial.com under
contracts that expire over the next twelve months. Because Telescan provides
products and services that are similar to the products and services we provide,
we cannot assure you that we will be able to maintain this relationship at the
same level or at all.
WE MAY NEED MORE CASH AFTER THIS OFFERING AND WE MAY NOT BE ABLE TO OBTAIN IT.
If we do not achieve or maintain significant revenues or profitability or have
not accurately predicted our cash needs, or if we decide to change our business
plans, we may need to raise additional funds in the future. Upon completion of
this offering, we will not have a committed line of credit in place. Any
required funding may not be available to us on favorable terms, if at all. If we
raise additional funds by issuing equity securities, you may experience dilution
in your ownership interest. If we raise additional funds by issuing debt
securities, we may incur significant interest expense and become subject to
covenants that could limit our ability to operate and fund our business. If
additional funds are not available when required, we may be unable to
effectively realize our current plans.
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6
<PAGE> 9
RISK FACTORS
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IF WE ARE UNABLE TO ATTRACT OR RETAIN QUALIFIED DEVELOPMENT STAFF, OUR BUSINESS
COULD BE HARMED.
Our future success depends substantially upon the continued efforts of our
software applications and web programming staff to provide the integration
services necessary to timely create, implement and host web site financial
content for our clients, and to update and expand our web site offerings. None
of our software engineers and web programmers are bound by employment
agreements. Competition for software engineers is intense in markets where we
maintain offices, and we may not be able to retain existing or attract
additional highly qualified programmers in the future. If we lose the services
of a significant number of our applications staff and web programming staff or
are unable to continue to attract additional applications and web programming
staff with appropriate qualifications, the quality of our product offerings and
our ability to retain and expand our client base could suffer.
WE DEPEND ON THE CONTINUED SERVICE OF OUR KEY OFFICERS.
Our future success depends to a significant extent on the continued service and
coordination of our management team. The departure of any of our officers or key
employees could materially adversely affect our ability to implement our
business plan. We have employment agreements with William Staib, Luan Cox,
Christopher Dominguez and Scott Porter, our principal executive officers. These
agreements provide for employment through December 31, 2000, and in the case of
Mr. Porter through March 31, 2001. The agreements provide for automatic renewal
unless terminated by us or the officer. The agreements prohibit solicitation of
our customers and employees for a period after termination of employment. We
also maintain a key person life insurance policy on Mr. Staib, our Chief
Executive Officer. Nevertheless, these employment agreements do not prohibit the
executives from terminating their employment or even competing against the
Company, and the key man insurance on Mr. Staib might not be sufficient to
compensate us for the loss of his services. Further, the employment agreements
provide substantial benefits to these executives upon termination of employment
under certain circumstances.
OUR BUSINESS DEPENDS ON OUR ABILITY TO ENTER INTO AND MAINTAIN RELATIONSHIPS
WITH CONTENT PROVIDERS.
Our business depends on financial data and information, such as stock pricing
information and financial news and research information, obtained from
third-party providers through non-exclusive contractual relationships. Given the
nature of our contracts with providers, we will be required to renegotiate
contracts when they expire (usually one to two years). In particular, the
contract with our key supplier, S&P Comstock, expires in September 2001. We may
not be able to renew our contracts with content providers on favorable terms or
at all. There is intense competition for relationships with these firms and, in
the past, we have been subjected to fee increases when some of these contracts
came up for renewal. We may have to pay significant fees to establish additional
content syndication relationships, particularly if we expand, as expected, in
international markets, or maintain existing relationships in the future. We may
be unable to enter into relationships with these firms or sites on favorable
terms or at all. In addition, while we are not solely reliant on any one content
provider, the loss of a key vendor could render all or a portion of our services
unavailable for a period of time, which could have a negative impact on our
client relationships and cause harm to our reputation.
WE COMPETE WITH ENTITIES THAT RECEIVE FINANCIAL CONTENT FROM THE SAME CONTENT
PROVIDERS AND, TO A MORE LIMITED EXTENT, WE ALSO COMPETE WITH OUR CONTENT
PROVIDERS.
Many of our providers compete with each other and, to some extent, with us for
clients. Many of the financial content providers that we have contracts with or
have approached also provide financial news and information to our competitors
and clients. These content providers may be reluctant to enter into
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7
<PAGE> 10
RISK FACTORS
--------------------------------------------------------------------------------
or maintain strategic relationships with us. To the extent a content provider
desires to provide services to a competitor, or to compete with us directly, it
may be more inclined to aggressively interpret contracts in its favor or to
engage in other hard dealing.
CHANGING TECHNOLOGY AND METHODS OF INTERNET DELIVERY COULD CAUSE OUR RIGHTS
UNDER CONTRACTS TO BE REINTERPRETED.
The terms of our agreements with content suppliers vary widely. The services
that we provide and the methods that we utilize to do so change rapidly, and the
law and legal practice for content supplier contracts are also unsettled and
constantly developing. As a result, we may periodically need to modify and
renegotiate our vendor agreements prior to their expiration. We attempt to
operate our web site customization and hosting services in accordance with our
agreements and to renegotiate them as necessary. However, we cannot assure you
that our vendors will not claim that we owe additional sums or must limit our
activities.
IF OUR CLIENTS DO NOT BELIEVE OUR PRODUCT OFFERINGS PROVIDE THEM WITH A
COMPETITIVE BENEFIT, OUR ABILITY TO ATTRACT AND RETAIN CLIENTS COULD BE
ADVERSELY AFFECTED.
Most of our clients generate revenue through their web sites from advertising
revenue or transaction volume. To the extent that our clients believe that they
do not gain a competitive benefit, whether through increased advertising
revenue, transaction volume or otherwise, from the incorporation of our
financial content into their web sites, our ability to attract and retain
clients could be adversely affected.
WE HAVE LIMITED EXPERIENCE IN RENEWING OUR LICENSE CONTRACTS AND MAY NOT BE ABLE
TO RENEW A SIGNIFICANT PORTION OF THEM.
Only a relatively few of our license contracts, which typically have terms that
vary from one to two years, have come up for renewal. We have limited experience
with the renewal process. If we are unable to renew a significant portion of our
contracts with existing clients, our business and financial performance could be
materially adversely affected.
OUR BUSINESS MAY SUFFER IF WE FAIL TO EFFECTIVELY MANAGE OUR GROWTH.
We have experienced rapid growth in our operations. This rapid growth has
placed, and our anticipated future growth will continue to place, a significant
strain on our managerial, operational and financial resources. Our current
management does not have extensive experience in managing a large corporation.
To manage our growth, we must continue to implement and improve our managerial
controls and procedures and operational and financial systems on a timely basis.
If we are unable to manage our growth effectively, our business could be
materially adversely affected.
OUR INTERNATIONAL OPERATIONS ARE NEW AND MAY NOT BE SUCCESSFUL.
We have only recently commenced operations in a number of international markets
and a key component of our strategy is to continue to expand our international
operations. We have limited experience in developing and obtaining financial
information relating to foreign markets and in marketing, selling and
distributing our products and services internationally. We cannot assure you
that we will be able to successfully develop relationships with international
content providers, or successfully market, sell and distribute our products and
services internationally.
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There are risks in doing business in international markets which could adversely
affect our business, including:
+ difficulties in obtaining international quote and exchange data;
+ regulatory requirements;
+ export restrictions and controls, tariffs and other trade barriers;
+ difficulties in staffing and managing international operations;
+ fluctuations in currency exchange rates;
+ reduced protection for intellectual property rights;
+ seasonal reductions in business activity;
+ potentially adverse tax consequences; and
+ political and economic instability.
The growth of the Internet as a means of conducting international business has
raised many legal issues, including the circumstances under which countries or
other jurisdictions have the right to regulate Internet services available from
service providers located elsewhere. In many cases, there are no laws,
regulations, judicial decisions or governmental interpretations that clearly
resolve these issues. Our costs could increase and the growth of our
international operations could be harmed by any new laws or regulations, or the
application or interpretation of existing laws and regulations to the Internet.
INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL
PERFORMANCE.
We compete with an increasing number of companies that offer charting, stock
quotation and business information web applications, development and hosting
services. We also compete with the in-house development staffs of many of our
clients. We expect both of these forms of competition to continue to intensify.
Some of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
client bases and significantly greater financial, technical and marketing
resources than we do. These factors may provide them with significant advantages
over us. Competitive pressures could result in reduced market share, price
reductions, reduced margins and increased spending on marketing and product
development, any of which could adversely affect our business.
FAILURE TO MAINTAIN OUR REPUTATION FOR RELIABILITY AND QUALITY MAY REDUCE THE
NUMBER OF OUR CLIENTS, WHICH COULD HARM OUR BUSINESS.
It is very important that we maintain our reputation as a reliable developer and
host of financial content for web sites. Many events beyond our control,
including slower response times than usual, systems or operations failures,
errors in the transmission of quotation data or the misreporting of financial
news or analysis by one or more of our content contributors, could harm our
reputation. These events could result in a significant reduction in the number
of our clients, which could materially adversely affect our business.
UNEXPECTED INCREASES IN TRAFFIC MAY STRAIN OUR SYSTEMS.
In the past, we have experienced significant spikes in traffic on the web sites
that we host when there have been important financial news events. Our client
base has increased over time and we are seeking
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to increase it further. Our web site hosting systems must accommodate a high
volume of traffic, often at unexpected times. Our hosted web sites may
experience slower response times than usual, temporary interruption of service
or other problems for these and other reasons. These occurrences could cause our
clients to perceive our services as not being adequate and, therefore, terminate
or not renew their contracts with us. This could adversely affect our business.
SYSTEM FAILURES, TO WHICH WE ARE PARTICULARLY VULNERABLE BECAUSE WE CURRENTLY
OPERATE ONLY ONE COMPUTER DATA CENTER, COULD ADVERSELY AFFECT OUR BUSINESS.
Our systems and operations are vulnerable to damage or interruption from a
variety of factors, including human error, natural disasters, power loss,
telecommunication failures, break-ins, sabotage (physical or electronic),
computer viruses, vandalism and similar unexpected adverse events. We currently
operate only one computer data center. We do not expect to begin operating an
additional facility until at least the fourth quarter of 2000. This increases
our vulnerability, since localized problems at our Iowa facility, such as storm
damage, flooding or localized telephone failure, could make us unable to provide
our services. Unanticipated problems have caused interruptions in delivery of
our services in the past and similar problems could occur in the future. Any
system failure, including network, software or hardware failure, that causes an
interruption in our services or a decrease in responsiveness of our hosted web
sites could result in canceled client contracts, reduced revenue and harm to our
reputation, brand and our relations with our providers and adversely affect our
business.
POTENTIAL FLUCTUATIONS IN OUR QUARTERLY FINANCIAL RESULTS MAKE FINANCIAL
FORECASTING DIFFICULT.
Our quarterly operating results may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside our control. These
factors include:
+ the number, size and timing of new license contracts sold;
+ the number, size and timing of license renewals and terminations;
+ the character of any development services required by our clients;
+ our ability to develop, market and introduce new and enhanced services on a
timely basis;
+ actions taken by our competitors, including new product introductions and
enhancements; and
+ adverse changes in the financial markets.
We believe that quarter-to-quarter comparisons of our operating results may not
be a good indication of our future performance. Investors should not rely on our
operating results for any particular quarter as an indication of our future
operating results.
DIFFICULTIES ASSOCIATED WITH OUR BRAND DEVELOPMENT MAY HARM OUR ABILITY TO
ATTRACT CLIENTS.
We believe that maintaining and increasing awareness of the Stockpoint brand is
an important aspect of our efforts to continue to attract clients. The
importance of brand recognition will increase in the future because of the
growing number of web sites providing financial content and information.
However, our efforts to build brand awareness may not be successful.
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EVENTS RELATED TO OUR FORMER CHIEF EXECUTIVE OFFICER COULD AFFECT OUR REPUTATION
AND HARM OUR BUSINESS.
Robert Staib, our former Chief Executive Officer and a former director, was
arrested in December 1998 and indicted in April 1999 for bank fraud in
connection with the pledge of stock certificates he held in UAL, Inc. to secure
loans to an unrelated company. Robert Staib pleaded guilty to certain
allegations in March 2000 as part of an agreement settling the indictment. His
sentencing is currently set for November 2000. Robert Staib has not been an
officer or director of Stockpoint since his arrest in December 1998.
Nevertheless, publicity related to his sentencing or other events could include
references to us or to William Staib, our Chief Executive Officer and the son of
Robert Staib. Publicity of this type could cause harm to our reputation and
business, and our ability to obtain financing.
ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISRUPTIONS TO OUR
BUSINESS AND MANAGEMENT.
We may acquire products, technologies or businesses that we believe would help
expand our product and service offerings. Any future acquisitions would present
risks, including the difficulty of combining the technology, operations or
workforce of the acquired business with our own, disruption of our ongoing
operations and difficulty in realizing the anticipated financial or strategic
benefits of the transaction. Acquisitions may also divert management's attention
from day-to-day operations. These factors and our limited experience in
negotiating, consummating and integrating acquisitions could adversely affect
our business, earnings, financial condition and, ultimately, our stock price.
Acquisitions that use stock as payment also could result in dilution of our per
share earnings and of your voting rights.
FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR
BRAND-BUILDING EFFORTS AND ABILITY TO COMPETE EFFECTIVELY.
We rely on a combination of trademark and copyright law, trade secret
protection, confidentiality agreements and other contractual arrangements to
protect our intellectual property rights. We do not rely on patented processes
or technologies. The protective steps we have taken may be inadequate to deter
misappropriation of our proprietary information. We may be unable to detect the
unauthorized use of, or take appropriate steps to enforce, our intellectual
property rights. We have registered our trademarks in the United States and we
have pending U.S. applications for other trademarks. Effective trademark,
copyright and trade secret protection may not be available in every country in
which we offer or intend to offer our services. Failure to adequately protect
our intellectual property could harm our brand, devalue our proprietary content
and affect our ability to compete effectively. Defending our intellectual
property rights could also result in the expenditure of significant financial
and managerial resources, which could materially adversely affect our business.
WE MAY HAVE TO DEFEND AGAINST INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS,
INCLUDING A PENDING CLAIM REGARDING "GIF" FORMATS, WHICH COULD INCREASE OUR
COSTS.
Although we believe that our services do not infringe the intellectual property
rights of others, other parties may assert infringement claims against us or
claim that we have violated a patent or infringed a copyright, trademark or
other proprietary right belonging to them. In particular, increasing attempts to
patent software techniques and concepts may lead to an increase in claims of
infringement, particularly with respect to companies involved in the Internet.
As a result of a dispute, we may have to modify our products or enter into a
licensing agreement. This licensing agreement, if required, may not be available
on terms acceptable to us, or at all. Any infringement claims, even if not
meritorious, could
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result in the expenditure of significant financial and managerial resources,
which could materially adversely affect our business.
In December 1999, we received correspondence from Unisys alleging that the
compression algorithms we use to generate Graphic Interchange Format, or GIF,
images require a license. We are currently negotiating with Unisys to obtain a
license agreement and believe that any licensing fee and royalty payments that
we may be required to pay for the right to use Unisys' algorithms would not have
a material effect on our business and financial condition. We cannot assure you
that Unisys will grant us a license or, if a license is granted, that the
licensing arrangement will be on commercially reasonable terms. Our failure to
obtain a license could seriously harm our business.
The services we provide make extensive use of licensed third-party content and
some use of licensed third-party technology. In the license agreements with
respect to these items, the licensors have generally agreed to defend, indemnify
and hold us harmless with respect to any claim by a third party that any
licensed content or software infringes any intellectual property right. These
provisions may not be adequate to protect us from infringement claims.
DIFFICULTIES IN DEVELOPING NEW AND ENHANCED SERVICES AND FEATURES COULD HARM OUR
BUSINESS.
We intend to introduce additional and enhanced products and services to retain
our current clients, expand the products and services our clients use and
attract new clients. If our services are not favorably received or a competitor
introduces a service that we are unable to provide, potential clients may choose
a competitor's products or services and current clients may decline to renew
their contracts with us. We may experience difficulties that could delay or
prevent our introduction of new services. These difficulties may include the
inability to obtain or maintain third-party technology license agreements. New
services could contain errors that are discovered after introduction. If so, we
may need to significantly modify the design or implementation of these services
to correct any errors. If we experience difficulties in introducing new services
or if these new services do not attract significant licensing interest, our
business could be materially adversely affected.
WE MAY NOT BE ABLE TO ADAPT AS INTERNET TECHNOLOGIES AND CLIENT DEMANDS EVOLVE.
To be successful, we must adapt to our rapidly changing market by continually
enhancing the technologies used in our products and services, and introducing
new technology to address the changing needs of our business and consumers. If
we are unable, for technical, legal, financial or other reasons, to adapt in a
timely manner to changing market conditions or business and client requirements,
our business could be materially adversely affected.
WE HAVE GRANTED OPTIONS TO PURCHASE COMMON STOCK AT LOW EXERCISE PRICES IN THE
PAST THAT WILL RESULT IN FUTURE CHARGES TO OUR EARNINGS.
In the past, we have granted options to purchase our common stock at exercise
prices less than fair market value. We will recognize deferred compensation
expenses relating to the difference between the exercise price and fair value of
our stock at the date of grant. We expect to incur deferred compensation
expenses through the end of 2004, which will harm our operating results in those
periods. We expect to recognize deferred compensation expenses of approximately
$600,000 in 2000 and the remaining deferred compensation expenses of
approximately $1,400,000 over the next three years.
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RISKS RELATED TO OUR INDUSTRY
IF THE MARKET FOR PRODUCTS AND SERVICES RELATED TO INTERNET-BASED FINANCIAL
INFORMATION DOES NOT DEVELOP AS WE ANTICIPATE, WE MIGHT NOT ACHIEVE OUR BUSINESS
OBJECTIVES.
The market for Internet-based financial information has only recently begun to
develop. Because the market for our services is new, it is difficult to
accurately predict the growth rate and ultimate size of this market. In
addition, the market is rapidly evolving and is characterized by an increasing
number of potential competitors. The economic viability of the business models
used by some of our smaller business to consumer and other Internet customers is
uncertain. Further, current market conditions call into question whether these
customers will have access to additional capital when required. As a result, we
could experience client attrition if these clients are unable to continue to pay
for or renew their contracts with us. We also could be adversely affected by
industry consolidation involving our Internet clients. The market for our
services may not continue to develop, or may develop more slowly than we expect,
and our product offerings may never achieve significant market acceptance.
THE GROWTH OF OUR BUSINESS DEPENDS ON GROWTH IN THE FINANCIAL SERVICES INDUSTRY
AND A DOWNTURN IN THAT INDUSTRY COULD ADVERSELY EFFECT OUR BUSINESS.
A downturn in the financial markets could result in a decline in interest in
individual investing, which could adversely affect the market for our services.
In addition, U.S. financial institutions are continuing to consolidate, which
may increase our clients' leverage to negotiate prices and decrease the overall
potential market for some of our services. These factors, as well as other
changes occurring in the financial services industry, could have a material
adverse effect on our business.
CONCERNS ABOUT THE SECURITY AND OPERATION OF OUR WEB SITE HOSTING SERVICES COULD
INCREASE OUR EXPENDITURES OR DECREASE OUR CLIENT BASE.
There have been several recent widely-publicized instances of "hackers"
compromising the integrity, security and operation of web sites. We may have to
incur significant costs to protect our web site or those of our clients or to
alleviate problems caused by "hacking" if there is any:
+ perceived increase in "hacking" activity;
+ perception that our web site or the web sites that we host are particularly
vulnerable to this kind of activity; or
+ instances in which our web site or one of the web sites we host is affected
by this kind of activity.
In addition to increased costs, any of these occurrences may decrease our
ability to retain existing clients or attract new ones.
OUR ABILITY TO MAINTAIN AND INCREASE OUR CLIENT BASE DEPENDS ON THE CONTINUED
GROWTH IN USE AND EFFICIENT OPERATION OF THE INTERNET.
Our business would be materially adversely affected if Internet usage does not
continue to grow or grows slowly. Internet usage may be inhibited for a number
of reasons, such as:
+ inadequate Internet infrastructure to support the demands placed on it as
usage grows;
+ continued security and authentication concerns with respect to transmission
over the Internet of confidential information;
+ privacy concerns, including those related to the placement by web sites of
information on a user's hard drive without the user's knowledge or consent;
+ any well-publicized compromise of web site or Internet transmission security;
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+ inconsistent quality of Internet products and services;
+ limited availability of cost-effective, high-speed access to the Internet;
and
+ significant future Internet service provider delays or outages.
POTENTIAL LIABILITY FOR INFORMATION DISPLAYED ON OUR WEB SITE OR THE WEB SITES
OF OUR CLIENTS MAY REQUIRE US TO DEFEND AGAINST LEGAL CLAIMS, WHICH MAY RESULT
IN SIGNIFICANT EXPENSE.
If any information that we publish proves to be erroneous, we might face
lawsuits based on claims of losses resulting from actions taken on the basis of
that information. We may also be subject to claims for defamation, libel,
copyright or trademark infringement or claims based on other theories relating
to the information we publish on our web site and the web sites of our clients.
These types of claims have been brought, sometimes successfully, against online
services as well as other print publications in the past. We could also be
subject to claims based upon the content that is accessible from our web site or
our clients' web sites through links to other web sites. Our insurance and
contractual indemnification provisions may not adequately protect us against
many of these claims. Defending against any claims like this could result in the
expenditure of significant financial and managerial resources, whether our
insurance covers us or not.
THE LAW RELATING TO INTERNET PRIVACY IS EVOLVING AND MAY AFFECT THE CONTENT OF
OUR WEB SITE AND THE INFORMATION WE PRESENT FROM OUR ADVERTISERS.
Although we are not aware of any legislation or regulatory requirement in the
United States that would directly require a business to notify visitors to its
web site that the data captured in visiting the site may be used by marketing
entities for direct promotion, some local governmental authorities have broadly
construed consumer protection statutes to prohibit those practices. In
particular, the Attorney General of the State of Michigan notified us that it
intended to take action against us if we did not agree to negotiate a settlement
of Michigan's claim that the placement, without notification, of cookies on the
computers of consumers that visited our site violated Michigan's consumer
protection statute. Although we had drafted and have now implemented a privacy
statement that provides the notice, and believe we will come to a reasonable
settlement of the Michigan dispute, we cannot assure you that other
jurisdictions will not object to web practices related to cookies and similar
practices. Some countries, including political entities in the European Union,
have adopted specific statutes prohibiting these practices.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE INTERNET COULD
INCREASE OUR COSTS OF TRANSMITTING DATA AND LEGAL AND REGULATORY EXPENDITURES
AND DECREASE OUR CLIENT BASE.
Existing domestic and international laws or regulations specifically regulate
communications or commerce on the Internet. Laws and regulations that address
issues such as user privacy, pricing, online content regulation, taxation and
the characteristics and quality of online products and services are under
consideration by federal, state, local and foreign governments and agencies.
Several telecommunications companies have petitioned the Federal Communications
Commission to regulate Internet service providers and online services providers
in a manner similar to the regulation of long distance telephone carriers and to
impose access fees on such companies. This regulation, if imposed, could
increase the cost of transmitting data over the Internet. It may take years to
determine the extent to which existing laws relating to issues such as
intellectual property ownership and infringement, libel, obscenity and personal
privacy are applicable to the Internet. The Federal Trade Commission and
government agencies in some states have been investigating Internet companies
regarding their use of
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personal information. We could incur additional expenses if any new regulations
regarding the use of personal information are introduced or if these agencies
chose to investigate our privacy practices. Further, due to the global nature of
the Internet, it is possible that some states, the United States or foreign
countries might attempt to levy taxes on our activities. Any new laws or
regulations relating to the Internet, or adverse application or interpretation
of existing laws, could decrease the rate of growth in the use of the Internet
and the demand for our products and services.
RISKS RELATED TO THE OFFERING
THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK AND THE PRICE IN THIS
OFFERING MAY NOT BE INDICATIVE OF THE PRICE AFTER THE OFFERING, WHICH MAY
DECLINE BELOW THE INITIAL PUBLIC OFFERING PRICE.
Prior to this offering, there has been no public market for our common stock.
The initial public offering price will be negotiated between us and the
representatives of the underwriters. The principal factors to be considered in
determining the initial public offering price include the information set forth
in this prospectus and otherwise available to the representatives, the history
and prospects for the industry in which we compete, the ability of our
management, the prospects for future earnings, the present state of our
development and our current financial position, the general condition of the
securities markets at the time of this offering and the recent market prices of,
and the demand for, publicly traded common stock of generally comparable
companies. The initial public offering price should not be considered an
indication of the actual value of the common stock and may not be indicative of
the price that will prevail in the public market after the offering. In
particular, the market price of our common stock may decline below the initial
public offering price. After this offering, an active trading market may not
develop or be sustained.
THE MARKET PRICES OF INTERNET COMPANIES WITH CONTINUING LOSSES LIKE US HAVE
RAPIDLY DECLINED RECENTLY AND DRAMATIC FLUCTUATIONS IN MARKET PRICES FOR OUR
STOCK COULD EXPOSE US TO SECURITIES LITIGATION.
The prices at which our common stock will trade could be subject to wide
fluctuations in response to changes in earnings or revenue estimates by analysts
or other events or factors, many of which are beyond our control. The stock
market has from time to time experienced extreme price and volume fluctuations
which have often been unrelated to the operating performance of the companies
affected. The market prices for securities of Internet-related companies like us
with continuing losses have recently declined significantly and rapidly.
Investors may experience a material decline in the market price of our common
stock, regardless of our operating performance. In the past, following periods
of volatility in the market price of a particular company's securities,
securities class action litigation has often been brought against that company.
If we may become involved in securities litigation in the future, it could cause
us a substantial loss and divert resources and the attention of management from
our business.
SUBSTANTIAL SALES OF OUR COMMON STOCK, OR THE PERCEPTION THAT SUBSTANTIAL SALES
MAY OCCUR, COULD CAUSE OUR STOCK PRICE TO FALL AND MAKE IT DIFFICULT FOR US TO
SELL ADDITIONAL SECURITIES.
If our stockholders sell substantial amounts of our common stock, in the public
market following this offering, the market price of our common stock could fall.
These sales might also make it more difficult for us to sell equity securities
in the future at a time and price that we deem appropriate. After this offering,
we will have 11,178,239 outstanding shares of common stock, assuming no exercise
of the underwriters' over-allotment options and no exercise of outstanding
options or warrants. Of these shares, the 5,000,000 shares sold in this offering
will be freely tradeable, except for any shares
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purchased by our "affiliates," as defined in Rule 144 under the Securities Act.
The 6,171,114 shares of common stock outstanding prior to this offering will be
available for sale in the public market immediately after the offering, except
for any shares held by our affiliates. The remaining 7,125 shares will become
eligible for resale 90 days after the effective date of this offering. In
addition, the holders of the 1,369,668 shares of common stock and the holders of
warrants to purchase 2,503,517 shares of our common stock will be entitled to
have the resale of their shares registered under the Securities Act, or to
participate in subsequent registrations, or both. Most of our current
stockholders, as well as option and warrant holders, have agreed not to sell any
of their shares of common stock for 180 days after the date of this prospectus.
After the date of this prospectus, we intend to register up to shares issuable
upon the exercise of outstanding stock options and reserved for issuance under
our stock option plans. Once we register these shares, they can be sold in the
public market immediately following issuance.
OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DISCOURAGE A TAKEOVER.
Provisions of our certificate of incorporation, bylaws and Delaware law could
make it more difficult for a third party to acquire us, even if doing so would
be beneficial to our stockholders.
MANAGEMENT COULD SPEND OR INVEST THE PROCEEDS OF THIS OFFERING IN WAYS WITH
WHICH YOU MAY NOT AGREE.
Our management will have significant discretion in applying the net proceeds of
this offering, and may spend or invest the proceeds from this offering
ineffectively or in ways with which you may not agree. Because our management
currently owns 36.7% of our voting stock and will own 21.0% after this offering,
it may be more difficult for you to object to these and other management
decisions.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.
If you purchase shares of our common stock, you will incur immediate and
substantial dilution of $6.67 per share in net tangible book value per share.
WE WILL INCUR AN EXTRAORDINARY CHARGE IN THE QUARTER IN WHICH WE COMPLETE THIS
OFFERING AS A RESULT OF PAST WARRANT ISSUANCES AND THE REPAYMENT OF OUTSTANDING
INDEBTEDNESS WITH PROCEEDS FROM THIS OFFERING.
In connection with two recent financings, we issued warrants at low exercise
prices to support $3 million in loans we received. The value attributed to these
warrants (approximately $1.3 million) is treated as interest expense which we
will recognize over the 19 and 15 month terms of the loan arrangements. We
intend to repay the loans with the proceeds of this offering and will incur an
extraordinary charge for the unamortized balance of the value of the warrants in
the quarter in which this offering is completed. As of June 30, 2000, the
unamortized balance was approximately $1,000,000.
WE DO NOT INTEND TO PAY DIVIDENDS.
We currently intend to retain any earnings for use in the operation and
expansion of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future.
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Forward-looking statements
This prospectus includes forward-looking statements. We have based these
statements on our current expectations and projections about future events.
These forward-looking statements include statements about:
+ our strategies;
+ the future growth of the Internet;
+ worldwide growth in use of Internet as a source of information for personal
financial planning and transactions;
+ buying patterns of our clients;
+ trends based on our perceptions of past activity; and
+ other statements that are not historical facts.
When used in this prospectus, the words "anticipate," "believe," "expect,"
"estimate" and similar expressions are generally intended to identify
forward-looking statements. Our actual results may vary materially from those
anticipated or implied by these forward-looking statements as a result of a
number of risks and uncertainties, including the risks described in "risk
factors" or elsewhere in this prospectus.
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Use of proceeds
Based on an assumed initial public offering price of $9.00 per share, after
deducting the underwriting discounts and commissions and estimated offering
expenses, we estimate that we will receive net proceeds from this offering of
approximately $41,850,000, or approximately $48,127,500 if the underwriters'
over-allotment option is exercised in full.
We intend to use approximately $13,200,000 of the net proceeds from this
offering to repay most of our outstanding indebtedness, including interest. All
repayments will include the amount of interest accrued through the date of
repayment. We specifically intend to repay the following debt outstanding as of
June 30, 2000, plus accrued interest:
+ $4,145,000 of notes payable with two banks which bear interest at the prime
rate;
+ $5,900,000 principal amount of debentures which bear interest at 8.75% and
mature September 30, 2002; and
+ $2,970,000 outstanding under two lines of credit with a commercial bank which
bear interest at the prime rate and are secured by substantially all our
assets.
We intend to pay up to a total of $285,000 to executive officers and other
employees as bonuses, and $60,000 of expenses to a former executive officer,
upon completion of this offering.
The remaining proceeds will be used primarily to add sales and marketing
personnel for our Internet business, to continue development of our Internet
products, to finance one or more data centers and foreign offices and for
working capital and other general corporate purposes. The amounts we actually
expend for such purposes may vary and will depend on a number of factors,
including the amount of our future revenues. We expect that the proceeds from
this offering will be sufficient to meet our needs at least through 2001.
In addition, we may acquire businesses, products and technologies that are
complementary to ours, and a portion of the net proceeds may be used for these
acquisitions. We have no agreements with respect to any material acquisitions as
of the date of this prospectus.
Pending these uses, we intend to invest the net proceeds from this offering in
short-term, investment-grade, interest-bearing securities.
Dividend policy
We currently intend to retain any earnings for use in the operation and
expansion of our business and therefore do not anticipate paying any other cash
dividends in the foreseeable future.
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Dilution
If you invest in our common stock, your interest will be diluted to the extent
of the difference between the public offering price per share of our common
stock and the pro forma net tangible book value per share of our common stock
after this offering. Pro forma net tangible book value dilution per share
represents the difference between the amount per share paid by purchasers of
shares of common stock in this offering and the pro forma net tangible book
value per share of common stock immediately after completion of this offering.
Our pro forma net tangible book value as of June 30, 2000 was $(14,357,277), or
$(2.32) per share of common stock. Pro forma net tangible book value per share
is equal to our total tangible assets less total liabilities, divided by the
number of outstanding shares of common stock after giving effect to the
conversion of our outstanding preferred stock into common stock in connection
with this offering. After giving effect to our sale of 5,000,000 shares of
common stock offered by this prospectus at an assumed initial offering price of
$9.00 per share and after deducting the underwriting discount and estimated
offering expenses payable by us, and the write-off of unamortized deferred
financing costs and debt discount associated with the indebtedness that will be
repaid with the proceeds of this offering, our as adjusted pro forma net
tangible book value as of June 30, 2000 would have been approximately
$26,090,987, or $2.33 per share. This represents an immediate increase in pro
forma net tangible book value of $4.65 per share to existing stockholders and an
immediate dilution of $6.67 per share to new investors purchasing shares in this
offering. If the initial public offering price is higher or lower, the dilution
will be greater or less, respectively. The following table illustrates this per
share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $9.00
Pro forma net tangible book value per share as of June 30,
2000...................................................... $(2.32)
Increase in pro forma net tangible book value per share
attributable to this offering............................. 4.65
------
Pro forma net tangible book value per share after the
offering.................................................. 2.33
-----
Dilution per share to new investors......................... $6.67
=====
</TABLE>
The following table summarizes, on the pro forma basis described above, as of
June 30, 2000, the differences between the number of shares of common stock
purchased from us, the total cash consideration paid to us and the average price
per share paid by existing stockholders and new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders................ 6,178,239 55% $12,080,443 21% $1.96
New Investors........................ 5,000,000 45 45,000,000 79 9.00
---------- --- ----------- ---
Total........................... 11,178,239 100% $57,080,443 100%
========== === =========== ===
</TABLE>
The above tables exclude all options and warrants that will remain outstanding
upon completion of this offering. At June 30, 2000, there were 2,852,550 shares
of common stock reserved for issuance upon exercise of outstanding options with
a weighted average exercise price of $3.43 per share, and 2,832,517 shares of
common stock issuable upon exercise of outstanding warrants with a weighted
average exercise price of $3.92 per share, assuming an initial public offering
price of $9.00 per share. The actual number of warrants and their exercise price
will depend on the initial public offering price. See "Certain
Transactions-Bridge Loan Financing". The above tables also assume that the
underwriters do not exercise their over-allotment option.
--------------------------------------------------------------------------------
19
<PAGE> 22
--------------------------------------------------------------------------------
Capitalization
The following table sets forth our capitalization as of June 30, 2000 as
follows:
+ on an actual basis;
+ on a pro forma basis to give effect to the conversion of all outstanding
shares of our preferred stock into 2,782,437 shares of common stock; and
+ on a pro forma, as adjusted basis to reflect both the conversion of all
outstanding shares of our preferred stock into common stock as described
above and the sale of 5,000,000 shares of common stock in this offering at an
assumed public offering price of $9.00 per share, the application of the
estimated net proceeds from this offering to repay most of our outstanding
indebtedness, and the write off of unamortized deferred financing costs and
debt discount associated with the indebtedness, as described in "Use of
Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 2000
ACTUAL PRO FORMA AS ADJUSTED
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt............................................. $12,306,435 $12,306,435 $272,116
------------ ------------ ------------
Stockholders' equity (deficiency):
Preferred Stock, no par value per share;
5,000,000 shares authorized:
Convertible Series A Voting Preferred Stock,
320,000 shares issued and outstanding
(convertible into 750,000 shares of common
stock), no shares outstanding pro forma
and as adjusted........................... 1,965,991 -- --
Convertible Series B Voting Preferred Stock,
282,720 shares issued and outstanding
(convertible into 662,625 shares of common
stock), no shares outstanding pro forma
and as adjusted........................... 1,733,639 -- --
Convertible Series C Voting Preferred Stock,
773,254 shares issued and outstanding
(convertible into 1,369,812 shares of
common stock), no shares outstanding pro
forma and as adjusted..................... 5,455,319 -- --
Common stock, $.01 par value per share;
75,000,000 shares authorized; 3,395,802
shares issued and outstanding, 6,178,239
shares outstanding pro forma, 11,178,239
shares outstanding as adjusted.............. 33,959 61,782 111,782
Common stock warrants.......................... 1,676,598 1,676,598 1,676,598
Additional paid-in capital..................... 3,800,530 12,927,656 54,077,656
Deferred stock-based compensation.............. (1,682,379) (1,682,379) (1,682,379)
Accumulated deficit............................ (26,782,695) (26,782,695) (28,092,670)
------------ ------------ ------------
Total stockholders' equity (deficiency)..... (13,799,038) (13,799,038) 26,090,987
------------ ------------ ------------
Total capitalization................... $(1,492,603) $(1,492,603) $26,363,103
============ ============ ============
</TABLE>
The outstanding stock information presented in the table excludes all options
and warrants that will remain outstanding upon completion of this offering. At
June 30, 2000, there were 2,852,550 shares of common stock issuable upon the
exercise of outstanding options with a weighted average price of $3.43 per
share, and 2,832,517 shares of common stock issuable upon the exercise of
outstanding warrants with a weighted average price of $3.92 per share, assuming
an initial public offering price of $9.00 per share. The actual number of
warrants and their exercise price will depend on the initial public offering
price. See "Certain Transactions-Bridge Loan Financing." The above table also
assumes that the underwriters do not exercise their over-allotment option.
--------------------------------------------------------------------------------
20
<PAGE> 23
--------------------------------------------------------------------------------
Selected consolidated financial information
The following selected consolidated financial data should be read in conjunction
with the consolidated financial statements and related notes and with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this prospectus. The consolidated statement of
operations data for 1995 through 1999 and the balance sheet data at December 31
for each of 1995 through 1999 are derived from our audited financial statements.
The selected statement of operations data for the six months ended June 30, 1999
and 2000 and the selected balance sheet data at June 30, 2000 are derived from
our unaudited interim consolidated financial statements and, in our opinion,
include all adjustments, consisting only of normal recurring accruals, that are
necessary for a fair presentation of our financial condition and results of
operations for these periods. Historical results are not necessarily indicative
of future results.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
STATEMENT OF OPERATIONS DATA(1) 1995 1996 1997 1998 1999 1999 2000
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $363,454 $862,488 $1,427,908 $2,177,946 $6,829,869 $2,438,609 $6,467,852
Cost of revenues................ 334,745 273,003 308,608 764,965 2,289,881 913,882 3,078,951
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit.................... 28,709 589,485 1,119,300 1,412,981 4,539,988 1,524,727 3,388,901
----------- ----------- ----------- ----------- ----------- ----------- -----------
Research and development........ 285,483 579,548 1,057,071 1,101,471 1,637,150 606,149 1,909,530
Sales and marketing............. 297,654 254,273 752,675 1,566,030 1,590,899 684,593 2,084,751
General and administrative...... 1,499,340 1,845,637 2,556,730 3,523,006 3,588,977 1,577,940 2,038,378
Deferred compensation........... -- -- -- 666,270 612,302 374,400 322,207
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating expense... 2,082,477 2,679,458 4,366,476 6,856,777 7,429,328 3,243,082 6,354,866
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating loss from continuing
operations.................... (2,053,768) (2,089,973) (3,247,176) (5,443,796) (2,889,340) (1,718,355) (2,965,965)
Other expense, primarily
interest...................... (206,570) (394,505) (688,525) (784,546) (1,058,545) (438,823) (946,247)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss from continuing
operations.................... (2,260,338) (2,484,478) (3,935,701) (6,228,342) (3,947,885) (2,157,178) (3,912,212)
Income (loss) from discontinued
operations.................... 726,808 (177,877) (405,722) (356,946) 780,808 780,808 --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss before extraordinary
item.......................... (1,533,530) (2,662,355) (4,341,423) (6,585,288) (3,167,077) (1,376,370) (3,912,212)
Gain on extinguishment of
debt.......................... -- -- -- -- -- -- 233,600
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss........................ (1,533,530) (2,662,355) (4,341,423) (6,585,288) (3,167,077) (1,376,370) (3,678,612)
Cumulative dividends on
preferred stock............... -- -- (40,266) (409,418) (412,918) (206,458) (206,458)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss applicable to common
stockholders.................. $(1,533,530) $(2,662,355) $(4,381,689) $(6,994,706) $(3,579,995) $(1,582,828) $(3,885,070)
=========== =========== =========== =========== =========== =========== ===========
Basic and diluted income (loss)
per common share(2):
Loss from continuing
operations.................. $(0.73) $(0.81) $(1.27) $(2.10) $(1.35) $(0.74) $(1.25)
Income (loss) from
discontinued operations..... 0.23 (0.05) (0.13) (0.11) 0.24 0.24 --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss before extraordinary
item........................ (0.50) (0.86) (1.40) (2.21) (1.11) (0.50) (1.25)
Gain on extinguishment of
debt........................ -- -- -- -- -- -- 0.07
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss...................... $(0.50) $(0.86) $(1.40) $(2.21) $(1.11) $(0.50) $(1.18)
=========== =========== =========== =========== =========== =========== ===========
Weighted average common shares
outstanding................. 3,084,131 3,084,131 3,134,552 3,160,359 3,212,106 3,194,831 3,283,247
Pro forma basic and diluted
income (loss) per common
share(3):
Loss from continuing
operations.................. $(0.66) $(0.65)
Income (loss) from
discontinued operations..... 0.13 --
----------- -----------
Loss before extraordinary
item........................ (0.53) (0.65)
Gain on extinguishment of
debt........................ -- 0.04
----------- -----------
Net loss...................... $(0.53) $(0.61)
=========== ===========
Weighted average pro forma
common shares outstanding... 5,921,672 6,053,576
OTHER OPERATING DATA:
Unrecognized contracted revenue
at period end (4)............. $-- $84,265 $140,078 $1,458,000 $10,703,000 $4,903,000 $26,004,000
</TABLE>
--------------------------------------------------------------------------------
21
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL INFORMATION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
BALANCE SHEET DATA 1995 1996 1997 1998 1999 2000
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents................. $612,242 $596,073 $242,609 $221,098 $2,203,623 $2,403,390
Working capital (deficit)................. 300,606 (186,491) (498,987) (5,350,171) (2,668,644) (15,979,432)
Total assets........................ 2,589,959 2,343,636 2,588,254 3,794,347 6,089,138 8,081,690
Short term debt........................... -- 10,000 -- 4,395,000 1,755,821 12,075,469
Long term debt............................ 3,750,000 5,750,000 5,550,000 5,900,000 10,536,681 230,966
Stockholders' equity (deficiency)......... (2,464,310) (5,071,034) (4,627,141) (9,745,756) (11,426,863) (13,799,038)
</TABLE>
------------
(1) We have reclassified our statement of operations data for 1995 through 1999
to give effect to the sale in May 1999 of our technology and operational
assets related to our products sold to the steel-making industry for
approximately $750,000, recognizing a gain of $433,133 on such sale.
(2) We computed net loss per share information applicable to common stockholders
by including cumulative dividends on our preferred stock. For additional
information, see Note 1 to our consolidated financial statements.
(3) We prepared the pro forma income (loss) per common share information for the
year ended December 31, 1999 and the six months ended June 30, 2000 by
assuming that our preferred stock was converted into common stock as of the
beginning of the earliest period presented, or as of the issuance date for
shares of Series C preferred stock issued in lieu of dividends. These
conversions will occur automatically upon completion of this offering.
(4) Represents contracted revenues at period end less amounts recognized as
revenue in our statement of operations.
--------------------------------------------------------------------------------
22
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------
You should read the following discussion and analysis together with the
"Selected Consolidated Financial Information" and our consolidated financial
statements and the related notes included later in this prospectus. The
following discussion contains forward-looking statements that reflect our plans,
estimates and beliefs. Our actual results could differ substantially from those
discussed below as the result of many factors, including those discussed below
and elsewhere in this prospectus, particularly in "Risk Factors."
OVERVIEW
We were incorporated in 1987 as Milltech HOH, Inc., an Illinois corporation, and
reincorporated in 1993 as Neural Applications Corporation, a Delaware
corporation. We originally developed, marketed and supported software based
solutions for industrial, financial and other data intensive markets. We derived
virtually all of our revenue through 1995, and a majority of our revenue from
1996 through 1998, from sales of our software products designed to increase the
efficiency of electric arc furnaces in the metals industry. We sold our
technology and operational assets related to that business in May 1999 for
$750,000 plus future royalties, resulting in a gain of $450,000. We do not
expect to receive a material amount of future royalties. We have classified the
operating results of this software business as "discontinued operations" in our
consolidated statements of operations and the related assets and liabilities as
"net assets of discontinued operations" in our balance sheets. The discussion
below of our results of operations relates solely to our continuing operations.
During 1997, we began to shift our primary focus to the development and sale of
online investment analysis tools and financial information for the Internet. In
March 1997, we acquired Ethos Corporation, a California company formed in July
1995 that had developed a web site featuring stock quotation capability (then
"www.investorsedge.com"). This web site is the predecessor of our current
Stockpoint.com web site. We accounted for the acquisition of Ethos as a pooling
of interests and restated our financial statements for periods prior to the
acquisition to include the combined financial information of both companies for
all periods presented.
Since 1997, we have placed increasing emphasis on the enhancement of our
Internet business. In July 1999, to better reflect our position as an Internet
applications and financial information services provider, we changed our name to
Stockpoint, Inc.
RESULTS OF OPERATIONS
Our revenues include license fees for hosting and custom software application
services for financial web sites and advertising revenues from banner ads placed
on our web site and those of our clients. In addition, we have historically
generated revenues from assorted data mining and financial services consulting
projects for our clients. We anticipate that licensing revenues will represent
the vast majority of our revenues in future periods.
Our Internet business model has evolved from an initial dependence on
advertising revenues from our web site to our current model, which emphasizes
licensing of web site products and services to business clients. During 1997,
our revenues began to shift from advertising revenues to licensing revenues.
Licensing of web site products and services to business clients comprised 48% of
our 1997 revenues, 57% of our 1998 revenues and 84% of our 1999 revenues. Our
license agreements typically provide for a flat fee for the agreement's term. We
base this fee principally on the client's selection of
--------------------------------------------------------------------------------
23
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------
site features. We also generally charge a per-view fee if page views exceed the
amount stated in the contract.
Our average contract size has increased from $3,500 in 1997 to $60,000 in 1999
and $120,000 for the six months ended June 30, 2000. These increases have been
primarily the result of the introduction of more comprehensive product offerings
and the expansion of our client base to include companies interested in
licensing more sophisticated product options. In addition, beginning in 1999, we
have been emphasizing two-year contracts, which increases the average licensing
revenues per contract.
Although we generally bill our clients up-front for a portion of our services,
we recognize revenues ratably over the period of the contract. We reflect the
obligation to provide the contracted services as "deferred revenue" on our
balance sheet. This means that we record a liability to balance our accounts
receivable or cash, depending on whether we have collected our billings. We
amortize deferred revenue as we provide the services. Our licensing contracts
typically have lengths of one or two years. We recognize revenue for special
projects as we perform the services.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements"
("SAB 101"), which summarizes the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. For
periods after December 31, 1999, we have applied SAB 101 to development fees,
and the related costs, that are negotiated with and essential to the
functionality of our license agreements and recognize the revenues and related
costs ratably over the license period. We have not applied SAB 101 to our
financial statements as of December 31, 1999, because application would have had
an immaterial effect.
Our direct cost of revenues primarily includes fees for data feeds and licenses,
custom applications and development charges and maintenance of infrastructure,
programming and quality assurance. We show these costs in our statement of
operations as "cost of revenues." We also include the direct development and
related costs associated with our data mining applications and consulting
services for projects in the Internet and financial services markets in our cost
of revenues. The fees charged under our vending agreements generally are
established as an annual amount or are incurred on a per client basis. In some
situations our fees for data feeds and licenses are fixed until we and our
clients exceed a specified usage volume. Upon exceeding the specified level, we
incur additional fees at a variable rate. Costs associated with custom
applications and development charges and maintenance of infrastructure,
programming and quality assurance vary with the number of clients and level of
volume. We expect that an increasing percentage of cost of revenues will be
variable cost components that will increase as our volume rises.
Operating expense includes research and development, sales and marketing,
general and administrative and deferred compensation expense. These costs
primarily include compensation and related benefits for personnel along with
professional fees, travel, employee recruiting expense and occupancy costs.
Deferred compensation expense results from the difference between the exercise
price of vested options and the fair value of our stock at the date of grant. We
expect deferred compensation costs to continue through the end of 2004 as the
result of vesting of employee options granted in 1998 and 1999 at an exercise
price less than the estimated fair value of our stock at that time. We expect to
recognize approximately $600,000 of deferred compensation expense for the year
ended December 31, 2000.
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24
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------
The following table sets forth, for the periods indicated, selected financial
data expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
1997 1998 1999 1999 2000
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................................. 21.6 35.1 33.5 37.5 47.6
------ ------ ----- ----- -----
Gross profit..................................... 78.4 64.9 66.5 62.5 52.4
------ ------ ----- ----- -----
Operating expenses:
Research and development....................... 74.0 50.6 24.0 24.9 29.5
Sales and marketing............................ 52.7 71.9 23.3 28.1 32.2
General and administrative..................... 179.1 161.8 52.5 64.7 31.5
Deferred compensation.......................... -- 30.6 9.0 15.4 5.0
------ ------ ----- ----- -----
Total operating expenses.................. 305.8 314.9 108.8 133.1 98.2
------ ------ ----- ----- -----
Operating loss from continuing operations........ (227.4) (250.0) (42.3) (70.6) (45.8)
Other expense, primarily interest................ 48.2 36.0 15.5 18.0 14.6
------ ------ ----- ----- -----
Loss from continuing operations.................. (275.6)% (286.0)% (57.8)% (88.6)% (60.4)%
====== ====== ===== ===== =====
</TABLE>
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2000 AND 1999
REVENUES
Revenues increased 165% from approximately $2,400,000 for the six months ended
June 30, 1999 to approximately $6,500,000 for the six months ended June 30,
2000. The increase in revenues was due to an increase in the number of corporate
licensing agreements and the increased average revenues per licensing agreement.
Revenues from licenses increased 229% from $1,900,000 for the six months ended
June 30, 1999 to $6,200,000 for the six months ended June 30, 2000.
GlobalNetFinancial.com, Inc., a company that recently agreed to merge with a
competitor, represented 21.6% and 17.2% of our total revenues for the six months
ended June 30, 1999 and 2000.
Advertising revenues remained approximately the same at $200,000 for the six
months ended June 30, 1999 and 2000. Revenues from advertising were 8% of total
revenues for the six months ended June 30, 1999 but decreased to 3% of total
revenues for the six months ended June 30, 2000 due to the increase in total
revenues. We expect that advertising revenues will account for a minimal
percentage of our future revenues.
Revenues from our data mining and financial services consulting business
decreased 67% from $300,000 for the six months ended June 30, 1999 to $100,000
for the six months ended June 30, 2000. The decrease was due to completion of
the consulting contracts and the allocation of personnel to projects associated
with our Internet financial services business. We have eliminated this business
as a separately pursued activity and do not anticipate significant consulting
revenues during 2000.
UNRECOGNIZED CONTRACTED REVENUES
Our unrecognized contracted revenue, which represents total revenues contracted
less revenues recognized, increased 430% from approximately $4,900,000 at June
30, 1999 to approximately $26,000,000 at June 30, 2000. This increase resulted
from a higher size and number of licenses under contract. Of the $26,000,000 in
unrecognized revenue at June 30, 2000, we estimate based on the duration of our
contracts that we will recognize $9,000,000 as revenue during 2000 and
$12,000,000 in 2001. We expect to recognize the balance of this unrecognized
revenue in 2002 and 2003. The actual amounts we recognize in any particular year
will depend on the release date of the client's web site.
--------------------------------------------------------------------------------
25
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------
COST OF REVENUES
Cost of revenues increased 237% from approximately $900,000 for the six months
ended June 30, 1999 to approximately $3,100,000 for the six months ended June
30, 2000. The increase was due to higher costs associated with additional
licensing revenues and international expansion, including fees and charges for
data feeds from content and Internet service providers. Also, an increase in
costs incurred for infrastructure, programming and quality assurance contributed
to the higher cost of revenues in the first half of 2000.
As a percentage of total costs of revenues for the six months ended June 30,
1999 and 2000, fees for data feeds and licenses were 46% and 62%, custom
application and development charges and maintenance of infrastructure,
programming and quality assurance were 44% and 38%, and costs associated with
data mining and financial services consulting projects were 10% and 0%.
As a percentage of revenues, costs of revenues increased by 27% from 37.5% for
the six months ended June 30, 1999 to 47.6% for the six months ended June 30,
2000. This increase resulted primarily from additional fees and charges for data
feeds associated with the renegotiation of some data contracts, our
international expansion and fees related to acquisition of new content that has
not yet achieved economies of scale.
GROSS PROFIT
Gross profit as a percentage of revenues decreased from 62.5% for the six months
ended June 30, 1999 to 52.4% for the six months ended June 30, 2000. Our gross
profit percentage decreased primarily because of additional costs associated
with the renegotiation of some data contracts, our international expansion
including additional international content, and additional domestic content
associated with the higher license revenues during the first half of 2000. These
additions to the cost of revenues related to new content have reduced our gross
profit in the short term because they have not yet achieved economies of scale.
We anticipate that these additions to content will help to generate additional
revenues in the future. On an absolute dollar basis, gross profit increased 122%
from approximately $1,500,000 for the six months ended June 30, 1999 to
approximately $3,400,000 for the six months ended June 30, 2000. This increase
is primarily attributable to the increase in our revenues.
OPERATING EXPENSES
Research and Development. Research and development expense consists primarily
of compensation and benefits for software programmers and developers. Research
and development costs increased 215% from approximately $600,000 for the six
months ended June 30, 1999 to approximately $1,900,000 for the six months ended
June 30, 2000. The increase in these costs was due to an increased level of
personnel to support a higher volume of clients, and add to our product
offerings and $100,000 in consulting fees to plan for future infrastructure
growth. In addition, wage increases to existing development personnel were also
necessitated due to competitive pressure for developers thereby adding to
research and development costs. As a percentage of revenues, research and
development costs increased from 24.9% for the six months ended June 30, 1999 to
29.5% for the six months ended June 30, 2000. On an absolute dollar basis, we
expect our research and development costs to continue to increase as we expand
our infrastructure and develop additional product offerings.
Sales and Marketing. Sales and marketing expense includes compensation,
benefits, commissions for our direct sales force and marketing staff,
advertising, travel expense and fees paid to a public relations firm. Sales and
marketing expense increased 205% from approximately $700,000 for the six months
ended June 30, 1999 to approximately $2,100,000 for the six months ended June
30, 2000. The increase in sales and marketing was primarily due to additional
sales and marketing personnel and associated compensation, sales commissions and
benefits. Sales and marketing costs increased as a percentage of revenues from
28.1% for the six months ended June 30, 1999 to 32.2% for the six
--------------------------------------------------------------------------------
26
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------
months ended June 30, 2000. On an absolute dollar basis, we expect our sales and
marketing costs to rise in the future to accommodate our continued efforts to
increase contracted revenues.
General and Administrative. General and administrative expense consists of
compensation and benefits for finance and administrative personnel, occupancy
costs, professional and consulting fees, employee recruiting and relocation and
travel expenses. General and administrative expense increased 29% from
approximately $1,600,000 for the six months ended June 30, 1999 to approximately
$2,050,000 for the six months ended June 30, 2000. This increase was due
principally to an accrual for incentives of $200,000, $100,000 associated with
the elimination of an administrative position and an increase in other general
and administrative costs of $150,000. General and administrative expense
decreased as a percentage of revenues from 64.7% for the six months ended June
30, 1999 to 31.5% for the six months ended June 30, 2000. On an absolute dollar
basis, we expect our general and administrative costs to continue to increase in
the future to support our planned business growth.
Deferred Compensation. The deferred compensation charges we incurred in the
first six months ended June 30, 1999 and 2000 were computed by multiplying the
vesting employee stock options by the difference between the exercise price and
the estimated fair value of the underlying common stock on the date of grant.
Deferred compensation expense decreased 14% from approximately $400,000 for the
six months ended June 30, 1999 to approximately $300,000 for the six months
ended June 30, 2000. Deferred compensation decreased as a percentage of revenues
from 15.4% for the six months ended June 30, 1999 to 5.0% for the six months
ended June 30, 2000. We expect that deferred compensation expense will decline
in future periods because we do not anticipate issuing options in the future at
a price below the then current market value of our common stock.
OTHER EXPENSE
Other expense consists primarily of interest on debt. Interest expense increased
116% from approximately $400,000 for the six months ended June 30, 1999 to
approximately $900,000 for the six months ended June 30, 2000. The increase was
due to higher borrowing on our bank lines of credit, an increase in the interest
rate for our credit lines from 6.25% during the first half of 1999 to 9.50%
during the first half of 2000 and interest incurred on $5,900,000 of outstanding
debentures. For the six months ended June 30, 2000, we also incurred a charge of
$300,000 for costs associated with the issuance of warrants in December 1999 and
March 2000. The unamortized cost of the warrants will be charged to expense at
the time of our initial public offering and will be reflected as an
extraordinary charge in the quarter in which the offering is completed. As of
June 30, 2000, the unamortized balance was approximately $1,000,000.
LOSS FROM CONTINUING OPERATIONS
Loss from continuing operations increased 81% from approximately $2,200,000 for
the six months ended June 30, 1999 to approximately $3,900,000 for the six
months ended June 30, 2000. Our operating expense and other expense for the six
months ended June 30, 2000 rose 98%, or $3,600,000 on a combined basis, over the
first half of 1999. This increase in expense was partially offset by our
$1,900,000 improvement in gross profit. We expect our loss from continuing
operations in 2000 to exceed the 1999 level due to increases in our operating
expenses especially as related to our expansion of sales and marketing
activities in the U.S. and internationally.
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUES
Revenues increased 214% from approximately $2,200,000 for 1998 to approximately
$6,800,000 for 1999. The increase in revenues was due principally to the
increase in the number of corporate licensing agreements for our financial
services and the increased average revenues per licensing agreement.
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Revenues from licenses increased 364% from $1,200,000 for 1998 to $5,800,000 for
1999. One client, GlobalNetFinancial.com, Inc., represented 10% and 14% of our
total revenues for 1998 and 1999, respectively.
Advertising revenues decreased 53% from $750,000 for 1998 to $300,000 for 1999.
This decrease somewhat offset our higher licensing revenues. We expect that
advertising revenues will account for a decreasing percentage of our future
revenues.
Although less significant, revenues from our data mining and financial services
consulting business increased 226% from $250,000 for 1998 to $700,000 for 1999.
The increase was due to $500,000 in revenues recognized for work performed on a
consulting contract received in the first quarter of 1999. This contract had a
duration of one year and is now completed.
UNRECOGNIZED CONTRACTED REVENUES
Our unrecognized contracted revenue increased 634% from approximately $1,500,000
at the end of 1998 to approximately $10,700,000 at the end of 1999. We attribute
this increase to our larger number of licenses under contract.
COST OF REVENUES
Cost of revenues increased 199% from approximately $800,000 for 1998 to
approximately $2,300,000 for 1999. The increase was due primarily to an increase
in costs associated with higher licensing revenues, including fees and charges
for data feeds from various exchanges and Internet service providers along with
costs incurred for infrastructure, programming and quality assurance.
As a percentage of total cost of revenues for 1998 and 1999, fees for data feeds
and licenses were 52% and 53%, custom application and development charges and
maintenance of infrastructure, programming and quality assurance were 42% and
29%, and costs associated with data mining and financial services consulting
projects were 6% and 18%.
As a percentage of revenues, cost of revenues declined 5% from 35.1% for 1998 to
33.5% for 1999. This decrease resulted primarily because costs associated with
custom application and development charges and maintenance of infrastructure,
programming and quality assurance rose at a slower pace than revenues.
GROSS PROFIT
Gross profit as a percentage of revenues increased from 64.9% for 1998 to 66.5%
for 1999. Our gross profit percentage did not significantly increase because our
cost of data and other fees associated with the additional license revenues
remained relatively fixed as a percentage of revenues. We expect our content
costs to increase as a percentage of revenues and reduce our gross profit
percentage in the future. On an absolute dollar basis, gross profit increased
221% from approximately $1,400,000 for 1998 to approximately $4,500,000 for 1999
due primarily to higher revenues.
OPERATING EXPENSES
Research and Development. Research and development costs increased 49% from
approximately $1,100,000 during 1998 to approximately $1,600,000 for 1999. The
increase in these costs was due to greater client volume and the increased level
of personnel necessary to support this volume. Higher wages for the computer
programmers and developers necessary to expand our product offerings also
contributed to the increase. Research and development costs decreased as a
percentage of revenues from 50.6% for 1998 to 24.0% for 1999.
Sales and Marketing. Sales and marketing expense remained relatively constant
at $1,600,000 for 1998 and 1999. Sales and marketing costs decreased as a
percentage of revenues from 71.9% for 1998 to 23.3% for 1999.
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General and Administrative. General and administrative expense increased 2%
from approximately $3,500,000 for 1998 to approximately $3,600,000 for 1999.
This increase was due to a $600,000 increase in professional and consulting fees
and a $300,000 increase in bad debt expense, partially offset by a $300,000
reduction in travel expense and a $500,000 reduction in compensation and benefit
expenses. General and administrative expense decreased as a percentage of
revenues from 161.8% for 1998 to 52.5% for 1999.
Deferred Compensation. The deferred compensation charges we incurred in 1998
and 1999 were computed by multiplying the vesting employee stock options by the
difference between the exercise price and the estimated fair value of the
underlying common stock on the date of grant. Deferred compensation expense
decreased from approximately $700,000 in 1998 to approximately $600,000 for 1999
due to an accelerated vesting schedule of options in 1998. Deferred compensation
decreased as a percentage of revenues from 30.6% for 1998 to 9.0% for 1999.
OTHER EXPENSE
Interest expense increased 35% from approximately $800,000 for 1998 to
approximately $1,100,000 for 1999 due to higher borrowing on our bank lines of
credit and, to a lesser extent, interest incurred on the $5,900,000 of
debentures we issued in 1998. These debentures were outstanding for only a
portion of 1998.
LOSS FROM CONTINUING OPERATIONS
Loss from continuing operations decreased 37% from approximately $6,200,000 for
1998 to approximately $3,900,000 for 1999. Our total 1999 operating expense and
other expense rose 11%, or $800,000 on a combined basis, over 1998. However, our
$3,100,000 improvement in gross profit, primarily due to increased revenues,
more than offset these increased expenses.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES
Revenues increased 53% from approximately $1,400,000 for 1997 to approximately
$2,200,000 for 1998. The increase in revenues was due primarily to an increase
in license revenues as the result of a larger number of corporate licensing
agreements and also to an increase in the average revenues per licensing
agreement. Revenues from license agreements increased 79% or $500,000 from
$700,000 for 1997 to $1,200,000 for 1998.
Advertising revenues increased 25% from $600,000 for 1997 to $750,000 for 1998.
In addition, revenues from projects related to our data mining and financial
services consulting was $100,000 in 1997 and $250,000 in 1998. During 1997, we
began using our new licensing strategy and de-emphasizing online advertisements
and consulting services.
UNRECOGNIZED CONTRACTED REVENUES
Unrecognized contracted revenue increased by 941% from approximately $150,000 at
the end of 1997 to approximately $1,500,000 at the end of 1998. This increase
was the result of growth in the number of licenses we had under contract.
COST OF REVENUES
Cost of revenues increased 148% from approximately $300,000 for 1997 to
approximately $800,000 for 1998. Our cost of revenues increased as a percentage
of revenues from 21.6% in 1997 to 35.1% in 1998. These increases resulted
primarily from higher costs for custom application and development,
infrastructure, programming and quality assurance to respond to the increase in
revenue and anticipated increase in business volume. In addition, as the number
of our corporate licensing
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agreements increased, our data feed and Internet service provider charges
increased as a percentage of revenues.
As a percentage of total cost of revenues for 1997 and 1998, fees for data feeds
and licenses were 66% and 52%, custom application and development charges and
maintenance of infrastructure, programming and quality assurance were 22% and
42%, and costs associated with data mining and financial services consulting
projects were 12% and 6%.
GROSS PROFIT
Gross profit as a percentage of revenues decreased from 78.4% in 1997 to 64.9%
in 1998. This decline was due principally to an increase in data feed and
Internet service provider charges. On an absolute dollar basis, gross profit
increased 26% from approximately $1,100,000 for 1997 to approximately $1,400,000
for 1998. This increase resulted from the increase in our revenues.
OPERATING EXPENSES
Research and Development. Research and development costs increased
approximately $50,000 or 4% from 1997 to 1998. The increase was due to the
hiring of additional staff to develop and enhance our services. Although
research and development costs increased in absolute dollars in 1998, they
decreased as a percentage of revenues from 74.0% in 1997 to 50.6% in 1998. This
decrease as a percentage of revenues was due to the increase in our revenues.
Sales and Marketing. Sales and marketing expense increased 108% from
approximately $800,000 in 1997 to approximately $1,600,000 in 1998. We began
increasing our sales and marketing efforts in late 1997 and continued to do so
through 1998. In particular, we added to our direct sales force, expanded our
public relations programs and increased our attendance at trade shows.
General and Administrative. General and administrative expense increased 38%
from approximately $2,600,000 in 1997 to approximately $3,500,000 in 1998. This
increase was due to a $500,000 increase in compensation and benefit expense, a
$300,000 increase in travel expense and a $100,000 increase in recruiting
expenses.
Deferred Compensation. The $700,000 deferred compensation expense we incurred
in 1998 resulted from the vesting of employee stock options granted in July 1998
at an exercise price below the estimated fair value of our common stock.
OTHER EXPENSE
Other expense consists primarily of interest on debt. Interest expense increased
14% from approximately $700,000 in 1997 to approximately $800,000 in 1998. This
increase resulted from higher borrowing on our bank lines of credit and, to a
lesser extent, interest incurred on the $5,900,000 of debentures we issued in
1998. These debentures were outstanding for only a portion of 1998.
LOSS FROM CONTINUING OPERATIONS
Loss from continuing operations increased 58% from approximately $3,900,000 in
1997 to approximately $6,200,000 in 1998. Although our revenues and gross profit
increased during 1998, our investment in operations and increase in interest
payments on debt resulted in increased losses from continuing operations.
QUARTERLY OPERATING RESULTS FROM CONTINUING OPERATIONS
The following table sets forth, for the periods presented, quarterly financial
data from our statements of operations. We believe that the quarterly
information has been prepared on substantially the same basis as our audited
financial statements and includes all adjustments, consisting only of normal
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recurring adjustments, necessary for a fair presentation of the financial
information for the periods presented. You should read this information in
conjunction with the audited financial statements and notes to those statements
included later in this prospectus. Our operating results in any quarter are not
necessarily indicative of our future operating results.
<TABLE>
<CAPTION>
QUARTER ENDED
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1998 1998 1999 1999 1999 1999 2000 2000
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.............. $462,992 $858,638 $933,118 $1,505,491 $1,992,900 $2,398,360 $2,738,018 $3,729,834
Cost of revenues...... 253,640 344,662 401,897 511,985 593,283 782,716 1,349,515 1,729,436
----------- ----------- ----------- ---------- ---------- ----------- ----------- -----------
Gross profit....... 209,352 513,976 531,221 993,506 1,399,617 1,615,644 1,388,503 2,000,398
Total operating
expenses............. 2,216,778 2,032,128 1,724,191 1,518,891 1,865,800 2,320,446 3,096,069 3,258,797
Other expense......... 215,354 233,101 229,585 209,238 323,397 296,325 395,918 550,329
----------- ----------- ----------- ---------- ---------- ----------- ----------- -----------
Loss from continuing
operations........... $(2,222,780) $(1,751,253) $(1,422,555) $(734,623) $(789,580) $(1,001,127) $(2,103,484) $(1,808,728)
=========== =========== =========== ========== ========== =========== =========== ===========
</TABLE>
Revenues have increased from quarter to quarter due almost entirely to increases
in licensing revenues. As our revenues have increased, the costs associated with
revenue generation have risen to accommodate our growth and we have increased
our spending on additional content and infrastructure.
Gross profit on an absolute dollar basis has generally increased due to
continued higher revenues. In the first quarter of 2000, gross profit declined
from the prior third and fourth quarter levels due to higher costs for data
feeds, content and other direct costs of revenues, including custom application
and development charges, infrastructure, programming and quality assurance. The
increase in costs for data feeds and content were primarily due to costs
associated with our international expansion, vendor agreements for news and
additional content providers. In the second quarter of 2000 our gross profit
increased over the first quarter 2000 due to higher licensing revenue and a
lower increase in cost of revenues.
Gross profit as a percentage of revenues generally increased from the third
quarter of 1998 through the third quarter of 1999. This increase in the gross
profit percentage was due to an increase in our revenues associated with the
development and growth of our business generated from corporate licensing
agreements and a lower increase in our cost of revenues for data feeds, content
and other direct costs of revenues.
From the fourth quarter of 1999 through the first quarter of 2000, the gross
profit percentage decreased as a result of renegotiation of some of our content
agreements to specifically permit our corporate licensing business model, and
our acquisition of additional content in anticipation of our international
expansion. Gross profit as a percentage of revenues declined during the fourth
quarter of 1999 to 67% and during the first quarter of 2000 to 51% from the
gross profit percentage of 70% in the third quarter of 1999. These decreases
were due to an increase in our cost of data feeds and other content charges
associated with the renegotiation of some data contracts, our international
expansion and fees related to the acquisition of new content that had not yet
achieved economies of scale.
Our cost of data feeds and content charges increased from 23% of revenues during
the fourth quarter of 1999 to 30% of revenues during the first quarter of 2000,
along with an increase in other direct costs associated with cost of revenues,
including custom application and development charges, infrastructure,
programming and quality assurance. During the second quarter of 2000 our gross
profit as a percentage of revenues increased to 54% as some of our contracts
achieved some economies of scale, and our cost of data feeds and other content
charges declined from 30% of revenues to 29% of revenues. In addition, our cost
of revenues for custom application and development charges,
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infrastructure, programming and quality assurance declined from 19% of revenues
to 17% of revenues. As our business grows and realizes increasing economies of
scale, our gross profit percentage is anticipated to improve. However, there can
be no assurance provided that our gross profit percentage will improve in future
quarters.
Operating expenses declined in the fourth quarter of 1998 and succeeding first
two quarters of 1999 due to a cost containment program. Expenses increased in
the third and fourth quarters of 1999 as well as in the first and second
quarters of 2000 to accommodate our increased licensing level and international
expansion. Operating expense is expected to continue to increase in absolute
dollars however, we anticipate that operating expense as a percentage of revenue
will begin to decline in future quarters starting in 2001. Interest expense in
the third quarter of 1999 was higher due to a 200 basis point increase in the
interest rate under our credit line retroactive to the first quarter. Interest
expense in the fourth quarter of 1999 and the first two quarters of 2000
remained relatively high compared to prior quarters due to borrowing costs
associated with additional debt. We will incur an extraordinary charge for the
remaining unamortized balance of the debt discount for interest cost applicable
to the warrants issued for the additional debt in the quarter in which the
offering is completed. As of June 30, 2000 the unamortized balance was
approximately $1,000,000.
LIQUIDITY AND CAPITAL RESOURCES
We have generated losses in every year of our operations and have financed those
losses, as well as the growth of our business, through a series of private
placements and bank borrowings.
During the six months ended June 30, 2000 we generated approximately $100,000 of
cash from operating activities. We used approximately $650,000, $1,300,000,
$3,800,000 and $3,650,000 of cash in continuing operating activities during the
six months ended June 30, 1999 and the years ended December 31, 1999, 1998 and
1997, respectively. We used this cash primarily to fund losses of approximately
$1,400,000, $3,200,000, $6,600,000 and $4,300,000 during these periods. The
losses were partially offset in most of these periods by adjustments for noncash
items such as depreciation and compensation expense related to options and
warrants and increases in deferred revenue.
We used cash in continuing investing activities of approximately $350,000,
$150,000 and $600,000 (the second and third amounts excluding $750,000 generated
from the sale of discontinued operations), $800,000 and $500,000 during the six
months ended June 30, 2000 and 1999 and the years ended December 31, 1999, 1998
and 1997, respectively. We applied cash primarily to finance the costs for
computer hardware and software.
The financing activities that have funded these cash uses consist of a series of
debt and equity placements and bank financings. We conducted a private placement
of units consisting of our series C preferred stock and debentures in 1997 and
1998, generating $9,800,000 of cash in 1997 and $1,150,000 of cash in 1998 (net
of issuance costs). The debentures, which represented half of these proceeds,
are secured by an irrevocable letter of credit issued by the bank that also
extended credit to us under a credit line in 1998. We applied the cash proceeds
from this private placement in 1997 to repayment of $5,500,000 of outstanding
borrowings under a bank line of credit, resulting in net cash from financing
activities of $4,200,000 in 1997. Although we repaid $910,000 of borrowings
under a line that matured in 1998, we also obtained two additional credit lines
from two commercial banks that contributed $5,100,000 of cash from financing
activities in 1998, resulting in net cash from financing activities of
$5,300,000 in 1998. Additional borrowings under these credit lines became
unavailable after December 1998, impairing our ability to finance cash consumed
in operating activities during much of 1999. We satisfied our cash needs, in
part, during this period with proceeds from sale of our metals business.
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We renegotiated the borrowings under our two credit agreements in December 1999.
We had $4,145,000 plus $300,000 of accrued interest outstanding under these
agreements, $1,145,000 of which had matured in September 1999. We negotiated an
extension of these agreements to June 30, 2001 and obtained waivers of various
covenant defaults. The renegotiated agreement requires us to repay all sums
outstanding under the credit agreements, and either repay the full amount of the
debentures or obtain a replacement letter of credit, contemporaneously with the
closing of this offering. We intend to use a portion of the proceeds from the
offering to repay these debentures. We will incur an extraordinary charge for
the remaining unamortized portion of the financing costs related to our
debentures when we repay them.
At the same time as we renegotiated our existing credit agreements in December
1999, we obtained a new $2,500,000 line of credit from a third bank that is
secured by substantially all of our assets and by guarantees and collateral from
eight investors. We issued warrants to purchase 750,000 shares of our common
stock to the investors for these guarantees. Our agreement with the investors
requires us to repay the line on the earlier of completion of this offering or
June 30, 2001. If we default, the investors may assume the bank's position. We
are currently amortizing over the credit line term a $540,000 debt discount that
represents the value of the warrants. We intend to repay this credit line in
full with proceeds from this offering and will incur an extraordinary charge for
the remaining unamortized balance of this debt discount in the quarter in which
the offering is completed. As of June 30, 2000, the unamortized balance was
approximately $350,000.
We financed cash needs during the first six months of 2000 with proceeds from
the $2,500,000 line of credit, and from a new $500,000 line of credit from the
same bank obtained in March 2000. Three investors guaranteed this new line of
credit and secured it with letters of credit or the pledge of deposit accounts.
We issued warrants to purchase 150,000 shares of common stock to the investors
for these guarantees. We are also required to repay this line of credit by June
30, 2001. We will amortize over the term of the credit line an $800,000 debt
discount that represents the value of the warrants. We intend to repay this
credit line in full with proceeds from this offering and will incur an
extraordinary charge for the remaining unamortized balance of this debt discount
in the quarter in which the offering is completed. As of June 30, 2000, the
unamortized balance was approximately $650,000.
We intend to use the net proceeds of this offering to repay most of our
outstanding indebtedness, to add sales and marketing personnel for our Internet
business, to continue development of our Internet products, to finance one or
more data centers and foreign offices and for working capital and other general
corporate purposes. In addition, we will consider strategic alliances and
acquisitions that we deem appropriate to enhance our business and operations. We
estimate that, as a result of this public offering, we will have sufficient
capital to meet our needs through at least the year 2001. Upon completion of the
offering, we will not have a committed line of credit in place.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No.133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as "derivatives"), and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure these
instruments at fair value. Recognition of gains or losses resulting from changes
in the value of derivatives is based on the use of each derivative instrument
and whether it qualifies for hedge accounting. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. We have not yet
determined the effect of SFAS No. 133 on our consolidated financial statements.
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DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposure relates to interest rates on our variable rate
debt. Our debt that bears this risk are our notes payable and lines of credit in
the amount of $7,115,000 outstanding at June 30, 2000. This debt bears interest
at the prime rate. We expect to repay this debt with a portion of the proceeds
of this offering.
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Business
GENERAL
Stockpoint is a leading provider of online investment analysis tools and
financial information. We develop and integrate sophisticated financial
applications to provide our clients customized financial web pages. We "host"
these web pages by maintaining the data and applications on our web servers and
by applying Internet-based data management technology we have developed. This
enables our clients to outsource their financial web page production and
maintenance, and provide extensive financial content and analysis tools to their
users.
Our clients include web portals, media companies, traditional and online
brokerage firms, commercial banks, asset managers, electronic communication
networks, 401(k) sponsors and insurance companies. As of June 30, 2000, we had
approximately 250 clients, including companies such as Barclays Global
Investors, SURETRADE, VerticalNet, Inc. and U.S. Bancorp Piper Jaffray Inc.
We offer comprehensive solutions for businesses seeking to add financial content
to their web sites. With the products and services we provide and host, our
clients are able to offer their users Internet-based real-time and delayed stock
quotes, charting capabilities, portfolio management and analysis tools, currency
utilities, company research and business news. We also enable our customers to
offer many of these features over wireless devices. Our services create an
online environment that allows our clients' users to easily analyze and manage
their holdings using detailed financial information and advanced Internet
technologies.
Since 1999, we have generated substantially all of our total revenues from
technology licenses. Our revenue is derived from license agreements under which
we provide customized financial content and applications directly from our data
center over the Internet to our clients' users. Most of our client contracts
have initial terms of one or two years.
INDUSTRY OVERVIEW
TRENDS
In recent years, the proliferation of personal computers, the widespread
adoption of the Internet, and the advent of increasingly powerful and easy to
use Internet navigation tools has resulted in explosive growth in the use of the
Internet as a global communications tool, a source of fast and easy access to
unprecedented breadth of information and an international means of commerce.
Industry sources estimate that the number of Internet users worldwide will grow
from 304 million in 2000 to 500 million in 2003.
Coincident with this revolution in the use of information technology has been a
rapid trend toward individual money management. During the past ten years, high
returns generated by the longest sustained positive U.S. stock market in
post-war history, together with an increase in retirement assets and the number
of investment options available, have caused substantial growth in the ownership
of financial assets worldwide. According to the Board of Governors of the
Federal Reserve System, total financial assets of U.S. households and nonprofit
organizations was $21.8 trillion at the end of 1995. By the end of 1999, that
number increased to $34.9 trillion. Furthermore, the Investment Company
Institute estimates that in early 1999, 48.2% of all U.S. households owned
equity securities directly in the form of individual stocks or indirectly
through mutual funds.
Taken together, these two trends have resulted in a dramatic increase in the use
of online financial services and trading. Investors are increasingly looking to
the Internet for information about their financial assets. According to
Forrester Research Inc., there were 5.7 million U.S. households using the
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Internet to execute financial transactions and obtain financial information in
1999. Forrester Research predicts that this number will increase to 21 million
households by 2003, when 53% of U.S. households are expected to be online. In
addition, both retail and institutional investors are increasingly demanding
up-to-the-minute information on security prices and business trends, and the
market analysis tools necessary to assimilate this information. Many investors
are using this information to manage their financial assets more actively.
Moreover, instead of resorting to a broker or other financial intermediary,
individual investors now have access to online trading services that allow them
to rapidly execute their own transactions at a lower cost than that historically
charged by traditional brokers. Forrester Research has projected that online
investing accounts in the U.S. will grow from $374 billion of assets in 5.4
million online accounts in 1999 to $3.1 trillion of assets in 20.4 million
online accounts by 2003. The growth in electronic and online financial services
has not been limited to equity trading. Commercial banks have increasingly
broadened both the breadth of financial services they provide and the means of
accessing those services electronically. Many banking clients now not only have
online access to account information, but also have the ability to transfer
those assets between insured accounts, fixed income investments and equity
investments online.
ISSUES
As a result of these developments, many companies that have an Internet
presence, including web portals and media companies, have developed or are
developing financial market content for their web sites in an effort to enhance
their attractiveness to Internet users and to assist in user retention. In
particular, many financial services companies such as commercial and investment
banks, mutual fund companies and 401(k) plan sponsors are concluding that the
availability of stock quotes, analysis and business information on their web
sites is a prerequisite to the generation of significant web traffic and
e-commerce transactions. The quality and breadth of financial information
offered is rapidly becoming a differentiator among financial services providers.
Unlike many other web page development projects, the financial information
components of an Internet site require multiple skills not commonly available
through a single provider. Companies must contract for not only the web graphics
and display development services offered by many web site developers, but must
also purchase specialized applications software to provide graphing and
analysis, specialized database software to manage quote and financial
information, and hardware and communications infrastructure to handle the
storage and transmission of this information. Many of the available applications
are inflexible, cannot be customized to the company's existing web site, or
require extensive programming and customization to integrate with the other
applications that will be used on the site. Even if the developer is capable of
creating these applications and infrastructure, the company must purchase
financial content from various suppliers to display through the system. This
requires not only the integration of disparate content data, but the negotiation
of individual provider contracts.
Further, a company must constantly monitor and revise the software and hardware
tools that manage actively updated information in order for the financial
information components of a web site to be competitive. As a result, any company
that is considering internally adding and maintaining financial information and
analysis capabilities on its web site faces a considerable and on-going
expenditure of time, effort and expense.
THE STOCKPOINT SOLUTION
To address the demand for Internet-based financial information and analysis, we
offer our clients a menu of financial applications and content. We seamlessly
integrate these applications and content into our clients' sites to provide a
comprehensive solution for the financial information component of their Internet
strategy. We host these sites on behalf of our clients, relieving them of the
cost and expense of
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monitoring actively updated web content. Our web applications have been
specifically developed by us to allow customization to the "look and feel" of a
client's web site. In addition, we provide custom services to integrate the
proprietary data maintained by our clients. All of these features can be
purchased as a complete package or as individual functions and rapidly
integrated into the existing features of a client's web site.
We enable our clients to provide a broad range of financial information and
analysis to their users. We offer delayed and real-time U.S. stock exchange
quotation capabilities, as well as information on trading in international
markets. We provide industry-leading charting capabilities in both traditional
static image formats, and interactive Java format. We provide portfolio tracking
tools that enable our clients to offer their consumers the means of actively
monitoring their own portfolios. We offer international currency translation
utilities that provide currency translation on a real-time basis. Through
reseller relationships, we also offer company profiles, analyst and research
information, live market commentary, mutual fund data and other financial news.
We have specifically designed our products for ease of customization. Our
software permits us to add a client's graphics and to alter the color and
display layout to duplicate the look and feel used by our clients while
retaining our robust product functions. Our products are modular in design to
permit a client to add additional features as they need more functionality. We
have also designed the products to facilitate custom extensions that can be
built to make use of proprietary data or content provided by a client.
As part of our comprehensive solution, we also offer web site hosting, data
center and content services. We maintain sophisticated communications,
processing and storage capacity and infrastructure for web pages at our
facilities. By establishing content contracts for the financial information that
we host on our clients' behalf, we provide rapid access to a broad spectrum of
financial data that can be displayed and manipulated by our proprietary software
tools. As a result, we are able to reduce our clients' day-to-day management
requirements while at the same time providing them with the actively updated
financial content that they require.
We believe that our comprehensive capabilities in financial information
solutions for the Internet allow us to provide high quality financial
information and analysis web functionality. We believe that we have developed a
reputation for comprehensive, reliable and high quality financial web pages.
GROWTH STRATEGY
Our objective is to be the leading provider of global online investment analysis
tools and financial information that enables our clients to provide extensive
financial content and decision-making tools on their web sites. Key elements of
our strategy include:
+ ENABLING THE FINANCIAL SERVICES MARKETS. We intend to rapidly expand our
sales force to reach businesses in industries that require online investment
analysis tools and financial information on their web sites. At June 30,
2000, we had contracts with approximately 250 companies in a number of
different industries. We believe this broad client experience enables us to
intelligently recommend and sell new products, content and services to
improve web site functionality. For example, our clients include eight of
Gomez Advisors' top 20 rated online brokerage firms. We plan to focus our
marketing efforts on web portals, media companies, traditional and online
brokerage firms, commercial banks, asset managers, electronic communication
networks, 401(k) sponsors and insurance companies.
+ EXPANDING OUR EXISTING CLIENT RELATIONSHIPS. We intend to continue to
strengthen our relationships with our existing clients by offering additional
value-added products and services that we create or
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obtain through partnership or acquisition. For example, in July 2000 we began
marketing our Portfolio Pro product to our existing clients.
+ DEVELOPING PRODUCT OFFERINGS USING INNOVATIVE TECHNOLOGY. We maintain a
large development staff that creates innovative products and services. We
intend to focus our development efforts on refining and extending the
capabilities of our current products as well as capitalizing on emerging
trends to construct leading edge products that facilitate data analysis and
more informed investment decisions. For example, we recently introduced a
suite of wireless applications that enables users to view financial charts on
their cell phones and some other portable devices. We also intend to
establish one or more data centers, which may be leased or owned, to maintain
the scalability and availability of our web hosting services.
+ CREATING A WORLDWIDE PRESENCE. We intend to expand our product offerings and
international presence to serve the global online financial information needs
of our clients and their users. For example, Commonwealth Securities Limited,
Australia's largest online brokerage firm, recently engaged us to provide
U.S. securities data for their web site. We also supply select clients with
online financial market data from Belgium, Canada, Denmark, France, Italy,
the Netherlands and the United Kingdom. To further our international
objectives, we recently opened an office in London, England and intend to
open an office in Hong Kong or Singapore during 2000. Revenues from
international clients represented approximately 4% of our total revenues in
1999 and approximately 6% for the six months ended June 30, 2000.
+ PURSUING STRATEGIC ALLIANCES OR ACQUISITIONS. We intend to accelerate our
global sales and marketing efforts and technology development, and gain
access to compelling content, applications and functionality, through
strategic alliances and acquisitions. For example, our relationships with
content providers allow us to cost effectively deliver financial applications
and content to our clients' web sites. We intend to seek acquisitions of
businesses to complement our products or services or to give us access to new
markets.
STOCKPOINT TARGET MARKETS
We focus our sales and marketing efforts in eight key online financial services
markets. Depending on the scope of their current Internet financial offering,
clients will either license a full finance channel or license individual tools
or applications. Although we have summarized below our eight key online markets
and provided examples of clients in each market, you should not rely on the
identity of these clients in evaluating Stockpoint. With the exception of
GlobalNetFinancial.com, none of these clients accounted for more than 10% of our
revenues and our contracts with most of these clients expire during the next two
years.
WEB PORTAL AND MEDIA COMPANIES
Internet "portal" and media web sites either create proprietary content or
aggregate content from various sources to attract and retain visitors. Most of
these sites include financial content as one of the key content elements
included for this purpose. Financial content is fundamentally different from
other types of content because of the technological challenge of distributing an
increasingly complex analysis of financial information. This complexity is
attributed to an increasing rate of transactions, the number of world markets
and the number of users.
Many portal and media sites do not have the required technical resources or
expertise to build their own investment site. They prefer to outsource this
development and functionality to others, such as Stockpoint. In our experience,
a typical portal or media client will tend to license a full-featured financial
site as opposed to buying a la carte. Examples of these clients served by us
include LookSmart Ltd. and MyWay.com, for both of whom we host a full financial
channel, and GlobalNetFinancial.com, ZDTV, TheStreet.co.uk and Worldly
Information Network, Inc.
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ONLINE BROKERAGE FIRMS
We currently have contracts with eight of the top 20 online brokerages as ranked
by Gomez Advisors. Online brokerages must have an established web-based
investing presence and continue to offer innovative products and applications to
differentiate their offerings from those of others. For example, they may
license charts or stock screening functionality to augment an existing site.
Over time, we believe these clients will retain outside contractors to provide
additional functionality to either reduce the number of their vendor
relationships or buy new products outside of their principal expertise. Examples
of online brokerage clients served by us include National Discount Brokers Group
Inc., SURETRADE and A.B. Watley, Inc.
TRADITIONAL BROKERAGE FIRMS
Traditional brokerage firms are also adding Internet functionality to their
service offerings. Many traditional brokerage firms have experienced an erosion
of their share of the online brokerage marketplace and perceive a potential
competitive threat from growing online brokerage firms. In our experience, while
online brokerage firms may license specific tools and applications, traditional
brokerage firms seek more of a full scope solution which can be brought to
market rapidly. Examples of online investment banks served by us include
Commonwealth Securities Ltd., Robertson Stephens, U.S. Bancorp Piper Jaffray
Inc., Deutsche Bank, RW Baird & Co., Inc., WR Hambrecht & Co., eMeyerson.com,
Inc. and USAA.
COMMERCIAL BANKS
Many commercial banks are beginning to offer full scope financial portals and
brokerage services. We believe that many of these banks intend to develop a more
comprehensive financial solution for their consumers and will expand their
offerings to include investment financial information and analytical tools.
Examples of commercial banks served by us include M&T Bank Corp. and Union Bank
of California N.A.
MUTUAL FUNDS/ASSET MANAGEMENT
These companies typically have an established web presence and license specific
applications and functionality. The business objective of these clients is to
differentiate themselves with a more compelling user experience or by offering a
more cost effective data solution for its advisors. An example of one of these
clients is Fremont Funds and Barclays Global Investors.
STOCK EXCHANGES AND ELECTRONIC COMMUNICATION NETWORKS (ECNS)
Although their primary focus is to facilitate trade execution, stock exchanges
and ECNs are also building web sites for users to track their investments.
Exchanges and ECNs have a diverse set of needs ranging from a la carte
applications to full web site offerings. An example of an ECN that is our
customer is MarketXT, Inc.
CORPORATIONS
We provide quote information for corporate investor relations sites, including
the sites of several Fortune 500 companies. Typically, these pages include the
company's specific stock quote, fundamental data and access to SEC reports. An
example of a corporation we serve is Coca Cola Co.
401(K) PLAN SPONSORS
We provide 401(k) online tracking tools to employers. This online capability
allows the employees to track the performance of their 401(k) investments in
real-time. An example of a client utilizing this functionality is
PricewaterhouseCoopers LLP.
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STOCKPOINT PRODUCT OFFERINGS
Our financial products, which we generally offer on a bundled basis, enable
financial services companies to provide financial information on their web
sites. Our financial product offerings include:
QUOTATION FEATURES
We license real-time and delayed stock and mutual fund quotes for securities of
the following countries: Canada, Denmark, France, Italy, the Netherlands, the
United Kingdom and the United States. For most of these countries, our
applications provide current price, open, change, high, low, 52-week high and
low, earnings per share, volume, shares outstanding, market capitalization,
dividend, ex-dividend, and price/earnings ratio. Stock quotes are available
either on web sites that we host or over wireless web-capable telephones.
CHARTING
Classic Quick Charts. We believe that our Classic Quick Charts provide
easy-to-read information that distinguishes them from many competitive
offerings. These fast, cleanly designed charts show price performance and volume
for securities in our database. The Classic Quick Charts allow users to select
time increments including, one minute, ten minutes, hourly and daily. Classic
Quick Charts also include interactive features such as moving average, and the
ability to plot against other stocks and indexes. Technical indicators can be
added for comparison, which include Bollinger bands, moving averages
convergence/divergence, on balance volume, price rate of change, relative
strength, standard deviation and stochastics.
Interactive Charts. This feature expands on Classic Quick Charts to provide
minute-by-minute updates of charted information. We offer intraday price
performance and volume on securities in our database. The intraday interactive
charts allow users to select time increments including tick-by-tick, one minute,
ten minutes, hourly and daily. Users have the ability to zoom in on date and
time ranges by clicking and dragging on the chart, and technical indicators can
be added for comparison without refreshing the chart or web page.
We also provide charts containing intraday information for United States and
international markets over wireless web-capable telephones and other devices.
PORTFOLIO TRACKING AND MANAGEMENT
Our personal portfolio manager allows users to track the performance of their
portfolios from their PCs. Our web-based personal portfolio manager lets users
easily edit multiple portfolios and calculate current profit and loss for
individual and combined portfolios. The personal portfolio manager includes a
login screen, portfolio setup screen, portfolio menu screen and a data export
feature. Easily customized to complement a client's web site, our personal
portfolio manager serves as a tool to generate return visits by users.
We also offer the following products in this category: stock and mutual fund
screening applications, automatic portfolio alerting via email, an interactive
Java portfolio manager and a scrolling, personalized desktop stock ticker.
INDEXES AND CURRENCY DATA
We provide the major market indexes for the United States as well as for most
international markets. We also permit the client to display prices of
international currencies in real time and display this information in a currency
table featuring cross-reference functionality. All of this data is stored by our
proprietary databases in both intraday and historical formats, and can be
plotted with our charting applications.
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NEWS AND ANALYST INFORMATION
Through reseller relationships with numerous content sources, we provide an
extensive offering of news and analyst information. We obtain this information
on a non-exclusive basis.
Company Profiles. We offer company profiles from Market Guide, which feature
comprehensive fundamental information on U.S. and foreign companies trading on
the NYSE, Nasdaq and AMEX. Companies are continually added and updated.
Analyst and Research Information. We offer this feature from Zacks Investment
Research, an industry leader for analyst information. Zacks provides analyst
summaries, analyst opinions, average recommendations, earnings per share,
surprise percentage, consensus estimates and industry rank. Income statements
and balance sheets are also available.
News Wire Services. Through a relationship with Comtex Scientific Corporation,
we offer full-text news stories from wire services such as Business Wire, PR
Newswire, AP Online and UPI. For international news, we have a relationship with
AFX News Limited. Our news service tracks news stories by category and keyword,
and can automatically display charts and quotes for companies referenced in each
story.
SEC Filings. We have contracted with TRW Inc. to obtain real-time SEC filings.
Also, through a service provided by Edgar Online, users can read the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" excerpt from SEC filings for publicly-traded companies. We recently
launched our IPO Center, which enables the user to track initial public offering
filings and new issue pricings, evaluate after-market performance and review the
filing history of specific investment banks.
Live Market Commentary. This feature is offered through Briefing.com, a top
provider of live market commentary and analysis on the Internet, focusing on
important news affecting markets and providing insight on possible trading
implications. Briefing.com covers upgrades and downgrades, earnings reports,
economic releases, technical trading points, market sectors and technology
stocks.
Mutual Fund Data. We offer mutual fund data from Value Line. The Value Line
mutual fund offering contains comprehensive performance data on over 8,300 U.S.
retail funds. Listing includes sector distribution, top 10 holdings,
administration information, Value Line Rankings, performance (one, three, five
and ten years), fund distribution and management overview.
RELATIONSHIPS WITH CONTENT PROVIDERS
We provide substantive content through our financial product offerings in two
broad categories: quote information and market/company information. All content
utilized on both Stockpoint.com and client web sites is obtained from
third-party content providers. We do not currently generate any original content
but instead rely on contractual relationships with major vendors of
electronically available financial information for our content feeds.
For pricing information, news and information, mutual fund data, analyst
information and other feeds, we maintain contractual arrangements with S&P
Comstock, Comtex Scientific Corporation, Briefing.com, MarketGuide, Zacks,
CDA/Wiesenberger, Commodity Systems, Inc., TRW and AFX News Limited. These
relationships vary in term from one month to several years, and include both
variable and fixed price payment provisions. Generally, the contracts may not be
assigned by either party without the consent of the other party. We believe that
we are not solely reliant on any one content provider and that there are
alternative sources for any single type of content. However, the need to replace
any key vendors could render all or a portion of our services unavailable for a
period of time, resulting in a significant negative impact on our client
relationships and harm to our reputation.
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SALES AND MARKETING
We currently have a sales staff of 16 employees. Our sales offices are located
in San Francisco, New York City and London. Our sales team is assigned to one of
three major domestic regions. We currently focus our sales efforts directly on
target-market clients. All sales people currently receive commissions on license
sales, upsells and renewals to existing clients. We expect to expand our direct
sales staff and to open an office in Hong Kong or Singapore during 2000. In
addition, we sell our products and services through distributors and resellers.
During the production phase, our six client service representatives manage and
address client concerns and oversee the progress of the client's project.
Our five-person marketing staff currently focuses on public-relations, client
communication and product marketing programs. These programs have expanded our
brand recognition. We have done only a limited amount of web-based or other
advertising. Substantially all of our client web sites have the "Powered by
Stockpoint" logo, which we believe has enhanced our brand awareness as our
client base has grown. We also derive substantial name recognition and receive
initial client contacts through our web site, Stockpoint.com.
CUSTOMIZATION ACTIVITIES
We believe that our ability to customize our applications differentiates us from
our competitors. Our clients expect that their web sites will be unique and will
not look the same as sites we host for our other clients. Our clients also
require that the web applications we develop and host mirror the appearance of
their other web pages and integrate seamlessly into their web sites.
We designed our proprietary server and application software to enable us to
create customized web sites without expending the enormous effort typically
associated with custom development. For example, we designed our charting
technology with approximately 80 configurable parameters that permit our web
designers to configure chart sizes, fonts, colors, time increments and settings
for moving averages, technical indicators and comparison stocks or indexes. This
design enables us to customize at a reduced cost and with a faster turnaround
time than would be possible by modifying the underlying program code.
In some instances, our clients require that we develop customized extensions of
our applications to assimilate and manipulate data that is provided by the
client. For example, we provide a charting solution to clients of MarketXT Inc.
that incorporates their ECN's quote and trade data. Also, we have integrated
proprietary industry group data from US Bancorp Piper Jaffray Inc. to enable
their clients to chart that data versus other securities.
In other cases, our customization activities have led to the creation of new
products. For example, through a contract with GlobalNetFinancial.com, we have
created product offerings for quotes, charts and portfolios that utilize stock
market data from Denmark, Italy, the Netherlands and the United Kingdom.
To customize the appearance of our hosted web pages to meet our clients' needs,
we maintain a staff of 24 web site developers. These developers perform the web
site development for clients and also establish the communications links and
data transfers required to integrate clients' web sites with the pages we host
on their behalf. We also maintain a staff of applications programmers who
develop custom extensions of our applications to assimilate client data or
provide specialized functionality.
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PRODUCT DEVELOPMENT
We have a three-pronged approach to product development:
+ CLIENT DRIVEN DEVELOPMENT. By maintaining close relationships with our
clients through our client services and sales groups, we stay attuned to our
clients' needs. This input, plus client directed development, largely drives
the priorities of our development group. Examples of products created by
customer driven development include our international index data, currency
conversion functionality and expansion of our product offerings to include
Great Britain and Italian equity securities.
+ DEVELOPMENT BASED UPON ANTICIPATED MARKET NEEDS. Since 1997, we have
retained Forrester Research to assist us in predicting market trends for the
Internet financial marketplace. We leverage our relationship with Forrester
Research and our internal research and development and marketing groups to
anticipate market needs. We then either develop or acquire products to meet
these needs. Examples of products created by this type of development are our
Classic Quick Charts, our Java-based scrolling stock ticker and enhancements
to our personal portfolio manager application.
+ INNOVATIVE TECHNOLOGY DEVELOPMENT. We place considerable emphasis on
research and development to pursue innovative technology applications. We
have a staff of 16 engineers with expertise in fields such as computer
science, advanced mathematics, financial theory and artificial intelligence.
We currently have several products under development which we believe will
result in future upsell opportunities to our existing client base. The new
products include Portfolio Pro, Alerts Engine, IPO Center and a suite of
Financial Guidance products. We also are developing a suite of wireless
products which provide users access to our Web-based financial product
offerings through wireless devices.
In July 2000, we released a transaction-based portfolio product known as
Portfolio Pro. This product is available on our website, www.stockpoint.com.
Portfolio Pro features the ability to track transaction details of an online
investor. By capturing the transaction details, it allows for asset allocation
analysis and tax lot accounting. In the future, we intend to add the capability
of charting an individual's historical portfolio performance versus various
indices. We also intend to link our transaction-based portfolio product to
various brokerage firms, which will enable these firms to provide electronic
portfolio updates from their data centers.
During the third quarter of 2000, we plan to release version 1.0 of our Alerts
Engine product. The Alerts Engine will notify users via e-mail of stock activity
based on user-definable thresholds in stock prices, volume and news activity.
Notification will be available both via wired as well as wireless devices.
In March 2000, we released version 1.0 of our wireless product suite. This
version is designed to deliver financial content through wireless devices. The
wireless product has been designed to be compatible with all wireless web
devices that support standard wireless application protocols. Our development
plan over the next six months includes providing users with the access to the
functionality in our Web-based products, namely Portfolio Pro, E-Mail alert and
IPO Center.
In April 2000, we released version 1.1 of our IPO Center product which features
the ability to monitor current IPO filings and pricings. In addition, the IPO
Center lists current filings and pricings, and enables an investor to access a
summary of a company's offering by clicking on a linked ticker symbol.
During the third quarter of 2000, we plan to release version 1.0 of our
Financial Guidance product suite. This product suite is designed to help
consumers interactively plan their financial future through the combination of
advice, education and "what-if" analyses. This product is intended to be our
initial
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product release resulting from our development efforts to create applications
that facilitate data analysis and more informed investment decisions.
STOCKPOINT.COM
In addition to our licensing business, we operate Stockpoint.com, a free
financial web site that serves both as a technology showcase to support our
licensing business and as a proving ground for new product offerings.
Stockpoint.com offers investors an online environment in which they can analyze
and manage their holdings using comprehensive financial information and advanced
web technologies. Through Stockpoint.com, we field-test and obtain feedback on
our new products to ensure that our products meet end-user expectations.
We do not intend to invest a significant amount of resources in promoting
Stockpoint.com as a consumer site. Instead, we intend to focus on the
business-to-business marketplace and to use Stockpoint.com as a complement to,
rather than a competitor with, the offerings of our business clients.
Although we receive some advertising-based revenues from Stockpoint.com, it is
not a significant portion of our total business. We do not have any
subscription-based revenues from Stockpoint.com end-users.
COMPETITION
We compete with a number of companies that offer charting, stock quotation and
business information web applications, development and hosting services. The
number of these competitors continues to grow as new entities enter various
Internet-related markets as a result of the recent growth in Internet traffic
and the Internet's perceived future opportunities. It is possible that new
competitors may rapidly acquire a significant market share. Further, there are
an increasing number of quotation, financial news and information sources that
compete for the attention of consumers and advertisers that are sought by our
clients. We expect both of these forms of competition to continue to increase.
We compete for web site clients with a number of other providers of web-based
quotation, charting and financial news applications, such as MarketWatch.com,
Inc., Telescan Inc., Reuters Group PLC, Thompson Financial Services and S&P
Personal Wealth. We also compete with client web site development companies and
the in-house development staff of large corporations.
Competitive pressures could result in reduced market share, price reductions,
reduced margins and increased spending on marketing and product development, any
of which could adversely affect our business, financial condition and operating
results.
Our ability to compete effectively depends on many factors, including the
originality, timeliness, comprehensiveness and trustworthiness of our
applications and hosting, the ease in use of services developed by us and the
effectiveness of our sales and marketing efforts. We believe the principal
competitive factors in the online services market include system performance,
product differentiation, quality and quantity of content, user friendliness,
price, client support, effectiveness of marketing techniques and consistency and
quality of services. We believe that we compete effectively in these areas. We
also believe that our strategy of focusing on business-to-business licensing of
products combined with ongoing services and continued expansion of the range of
our services offerings may serve to lessen the impact of future competitive
pressures. There is, however, no assurance that these marketing strategies will
be successful. Finally, we believe that once our online financial products are
embedded in a client's web site, that client will find the difficulties inherent
in replacing our products with those provided by another vendor to be a
disincentive to changing providers.
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Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
client bases and significantly greater financial, technical and marketing
resources than us. This may allow them to devote greater resources than we can
to the development and promotion of their services. These competitors may also
engage in more extensive research and development, undertake more far-reaching
marketing campaigns, adopt more aggressive pricing policies and make more
attractive offers to existing and potential employees, outside contributors,
strategic partners and advertisers. Our competitors may develop relationships
with providers and develop or acquire content that is equal or superior to ours
or that achieves greater market acceptance than ours.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
We rely on a combination of copyright, trademark and trade secret laws and
confidentiality procedures to protect our proprietary intellectual property
rights. We generally enter into agreements that govern the assignment of
inventions and the ownership and protection of proprietary information with
employees and agreements that govern nondisclosure of proprietary information
with clients. We also work to limit access to and distribution of our software,
documentation and other proprietary information. We seek to use copyright law to
protect our documentation and other written materials. We do not, however, rely
on patents or patented technology to protect our proprietary information.
"Stockpoint" is our federally registered trademark.
We license virtually all of the financial data that is used to provide the
content at our web sites pursuant to agreements with content suppliers, the
terms of which vary widely. The services that we provide and the methods that we
utilize to do so change rapidly. Also, the law and legal practice for content
supplier contracts are unsettled and constantly developing. As a result, we must
periodically modify and renegotiate our vendor agreements. We attempt to operate
our web site customization and hosting services in accordance with our
agreements and to renegotiate them as necessary. However, although we do not
believe we are in violation of our agreements, we cannot assure you that our
vendors will not claim that we owe additional sums or must limit our activities.
Some of our applications incorporate technology widely available on the Internet
and from other sources. During the past two years, there has been a renewed
effort to obtain protection of techniques used in software products through
patent and other protections. As the number of software products and delivery
techniques proliferates on the Internet, we believe that we may become subject
to infringement claims. We have been notified by a patent holder that it
believes our use of GIF compression algorithms incorporated into our web hosting
applications may require a license. Although we do not believe that we derive
substantial revenue from the use of these algorithms and can obtain a license,
if one is required, without materially affecting our operations, we cannot be
certain that other parties will not allege that the our technology and services
violate their rights.
COMPUTER AND NETWORK OPERATIONS
We maintain a data center in Coralville, Iowa at which we host virtually all of
the financial content for our clients' web sites. We operate multiple servers,
mass storage devices and sophisticated routers and switching systems to
accommodate high capacity web traffic. We use Intel-based servers with the
Microsoft NT operating system that access high capacity database storage devices
using SQL Server as well as our own proprietary database applications.
Our data center has separate air conditioning units. The power system includes
power conditioning and battery back-up. We also have a full "zero downtime"
emergency generator system capable of providing emergency power to our entire
Coralville facility. Data is regularly backed up and stored
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off-site and certain data is duplicated on separate storage devices within the
data center. The building in which the data center is located is secured by
24-hour card key access.
End-users access our data center through the Internet. We have two connections
to the Internet. Our principal connection is a DS3 (45 Mbit) through NetINS with
access through UUNET, Sprintlink and Cable & Wireless. We have contracted with
UUNET for an additional DS3 connection. We use a load balancing solution for
distributing client requests over our base of servers.
We have designed our data center with a high degree of redundancy and
interoperability. We have implemented a detailed, automated monitoring system
over the data center. The system pages and alerts data center technicians
immediately upon any system failures, even as traffic is switched automatically
to redundant systems. Except for scheduled maintenance, our data center is
available 24 hours a day, 365 days a year. We maintain business interruption
insurance in the amount of $12 million.
We believe that our computer and communications hardware systems are adequate
for existing operations. We purchase additional or upgraded hardware as required
to meet any significant increases in actual or anticipated traffic. We are
currently reviewing strategies for improving our disaster recovery capabilities
and the responsiveness of our services to users. We plan to use a portion of the
net proceeds from this offering to establish one or more additional data
centers, which may be leased or owned, or co-location arrangements.
EMPLOYEES
As of June 30, 2000, we had a total of 134 employees, consisting of 44 in
production, 41 in research and development, 22 in general or administrative
roles and 27 in sales and marketing. All of these employees are located in the
United States. None of our employees is subject to a collective bargaining
agreement or represented by a labor union. We have experienced no work stoppages
and believe that our relationships with our employees are good.
We maintain key man life insurance on William Staib in the amount of $4,000,000,
payable to us.
FACILITIES
Our principal administrative, support and research and development facility, and
our data center, is located in approximately 25,600 square feet of leased office
space in Coralville, Iowa. We pay an annual rent of approximately $280,000 for
this facility. Our lease on this facility runs through August 2004, with an
option to extend for an additional five-year period. We believe that our current
Iowa facilities are adequate to meet our needs for the foreseeable future.
We lease approximately 8,900 square feet of office space in San Francisco for
sales and marketing and web site development personnel at an annual rent of
approximately $365,000. Our lease in San Francisco runs through April 17, 2001.
We also lease approximately 800 square feet of office space in New York City and
345 square feet of office space in London, England. The rent for the New York
space is $13,420 per month and the lease is a month-to-month lease, terminable
upon 90 days' notice. The rent for the London space is 2,600 pounds sterling per
month and the lease expires in September 2000. Upon expiration, the London lease
will convert into a month-to-month lease, terminable upon 30 days' notice.
We also plan to use a part of the proceeds from this offering to establish one
or more data centers.
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BUSINESS
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LITIGATION
From time to time we have been, and expect to continue to be, subject to legal
proceedings and claims in the ordinary course of business. We are not aware of
any legal proceedings or claims that we believe will have, individually or in
the aggregate, a material adverse effect on our business, financial condition or
results of operations.
In December 1999, we received correspondence from Unisys alleging that the
compression algorithms we use to generate Graphic Interchange Format, or GIF,
images require a license. We are currently negotiating with Unisys to obtain a
license agreement and believe that any licensing fee and royalty payments that
we may be required to pay for the right to use Unisys' algorithms would not have
a material effect on our business and financial condition. We cannot assure you
that Unisys will grant us a license or, if a license is granted, that the
licensing arrangement will be on commercially reasonable terms.
In June 2000, the Attorney General of the State of Michigan notified us that it
intended to take action against us if we did not agree to negotiate a settlement
of Michigan's claim that the placement, without notification, of cookies on the
computers of consumers that visited our site violated Michigan's consumer
protection statute. Although we have drafted and have now implemented a privacy
statement that provides the notice, and believe we will come to a reasonable
settlement of the Michigan dispute, we cannot assure you as to when or if, or
the terms upon which, the dispute will be concluded.
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Management
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Stockpoint are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---------------------------------------------------------------------------------------------------
<S> <C> <C>
William E. Staib.................................... 30 Chief Executive Officer and Director
Scott D. Porter..................................... 52 Chief Financial Officer
Luan A. Cox......................................... 29 Executive Vice President, Sales
L. Christopher Dominguez............................ 32 Executive Vice President
Carolyn S. Mattimore................................ 42 Vice President, Marketing
Santosh K. Ananthraman.............................. 35 Vice President, Research
Naftaly J. Stramer.................................. 44 Vice President, Development
Harry O Hefter...................................... 71 Chairman of the Board of Directors
David G. Sengpiel................................... 46 Director
Terry E. Branstad................................... 53 Director
George G. Daly...................................... 58 Director
B. Thomas Henry..................................... 46 Director
</TABLE>
William E. Staib has served as a director since May 1992 and as Chief Executive
Officer since December 1998. Mr. Staib has served as Stockpoint's Chief
Technology Officer since June 1998 and as its Vice President of Technology from
1992 to 1998. In 1998, Mr. Staib was named as the "State of Iowa's Young
Entrepreneur of the Year" by the U.S. Small Business Administration. In 1996,
Mr. Staib led the team which developed Stockpoint's core technology for
distributing and displaying historical chart and quote data on the Internet. In
1992, he was recognized for creating "One of the Six Most Outstanding
Engineering Achievements in the United States" by the National Society of
Professional Engineers. Mr. Staib is the inventor of one international and two
U.S. patents and holds B.S. and M.S. degrees in electrical engineering from
Stanford University. Mr. Staib is the son of Robert Staib, our former Chief
Executive Officer.
Scott D. Porter has served as Stockpoint's Chief Financial Officer since July
1999. From August 1998 to February 1999, Mr. Porter was the Chief Financial
Officer of RSPnet.com, a provider of Internet services that was acquired by
VirtualFund.com, Inc. during 1999. From April 1991 to July 1998, Mr. Porter was
the President (and previously Chief Financial Officer) of Parsons Technology,
which was acquired by Intuit Inc. in 1994 and by The Learning Company in 1998.
Mr. Porter has a B.S. in accounting and an M.B.A. degree from the University of
Colorado and is also a Certified Public Accountant.
Luan A. Cox has served as Executive Vice President, Sales since November 1999.
Ms. Cox joined Stockpoint in April 1998 as Director of Technology Sales and
served as its Senior Vice President of Sales from July 1999 to October 1999.
From April 1997 to April 1998, Ms. Cox was the Director of Business Development
at Quote.com, an Internet financial services company. From April 1996 to April
1997, Ms. Cox served as Internet Director for 1-800-MUTUALS, Inc. a mutual fund
company. From February 1995 to April 1996, she was an account manager for
Independent Advantage Financial, an investment planning and insurance company.
Prior to that time, she was a senior sales associate with Jefferson-Pilot
Insurance Company. Ms. Cox graduated from the University of North Texas in 1992
with a B.B.A. in finance and has held Series 6, 7, 63 and 65 Security Licenses
with the National Association of Securities Dealers.
L. Christopher Dominguez has served as an Executive Vice President of Stockpoint
since July 1999. From April 1995 to July 1999, he served as Vice President of
Sales of Ethos Corporation, which
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MANAGEMENT
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Stockpoint acquired in 1997. From September 1993 to September 1994, he served as
Advertising Director of BuySide Magazine. Mr. Dominguez received a B.A. from
Denison University.
Carolyn S. Mattimore joined Stockpoint in August 1999 and serves as its Vice
President, Marketing. From July 1996 to January 1999, Ms. Mattimore was a
strategic marketing consultant for venture-backed start-up companies in the
Boston, Massachusetts area. From August 1991 to July 1995, she was Vice
President of Marketing for First Call, a subsidiary of Thomson Financial. She
has also held a Series 7 Security License with the National Association of
Securities Dealers. Ms. Mattimore has an M.P.A. from Harvard University, John F.
Kennedy School of Government and a B.B.A. from St. Mary's College, Notre Dame.
Santosh K. Ananthraman, has been Vice President of Research at Stockpoint since
March 2000. From January 1999 to February 2000 he was Chief Technology Officer
of Neural Inc., a former subsidiary of ours, and from 1997 to 1998 he held
various positions in our Intelligent System Services division. Mr. Ananthraman
specializes in the areas of data mining and personalization. He has successfully
directed numerous consulting projects with companies such as Nasdaq, Engineering
Animation, Harley Davidson, John Deere and Daimler-Chrysler. After he received
his Ph.D. from Duke University in 1993, he also served as an Adjunct Assistant
Professor of Electrical and Computer Engineering at the University of Iowa from
1993 to 1998, where he taught graduate classes and co-supervised M.S. and Ph.D.
students. Mr. Ananthraman served on grant review panels for the National Science
Foundation and has reviewed articles for numerous research publications. He has
also has published extensively in his area of expertise. He received his B.S. in
electrical engineering from Regional Engineering College in India.
Naftaly J. Stramer has been Vice President of Development of Stockpoint since
October 1999. Between 1994 and 1999, Mr. Stramer served as Software Assurance
Manager and as Manager of Development Services for Stockpoint. Prior to joining
Stockpoint, Mr. Stramer served as a senior SQA engineer at Intergraph
Corporation for five years. Prior to Intergraph, he was a Computer Engineer and
Group Leader for Rafael, the Armament Development Authority based in Israel. Mr.
Stramer holds a B.SC. in Computer Engineering from the Israel Institute of
Technology.
Harry O. Hefter has served as a director of Stockpoint since 1987, has served as
Chairman since December 1998 and from 1987 to February 1997, and was Vice
Chairman from February 1997 to December 1998. Mr. Hefter has for more than the
last thirty years also served as President of the HOH group of companies in
Chicago, Illinois, which provide specialized services relating to the
engineering, integration and optimization of process control systems,
architecture and construction management for industry and government. Mr. Hefter
is a Civil Engineer with over 40 years of experience in the engineering field.
David G. Sengpiel has served as a director of Stockpoint since January 1997.
Since March 1999, Mr. Sengpiel has been the Chief Operating Officer of Quester
I.T., Inc., a software company that provides consulting, research and training
in the application of language analysis, addressing, marketing and
communications issues. From August 1997 to March 1999, Mr. Sengpiel was Chief
Operating Officer of CareMedic, Inc., which automates Medicare reimbursement
processes. From 1995 until August 1997, Mr. Sengpiel was a Vice President with
Equity Dynamics, Inc., a consulting firm, and with Pappajohn Capital Resources,
a venture capital firm. From 1993 to 1995, Mr. Sengpiel was Alternative
Investments Manager for Farm Bureau Life Insurance Company.
Terry E. Branstad became a director of Stockpoint in September 2000. Mr.
Branstad served as Governor of Iowa from 1982 to 1999. Mr. Branstad is currently
a financial planner with the firm of Robert W. Baird, Inc. Mr. Branstad is also
a director of Featherlite, Inc., a manufacturer of specialty trailers and
motorcoaches. Mr. Branstad has a J.D. from Drake Law School.
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MANAGEMENT
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George G. Daly became a director of Stockpoint in August 2000. Mr. Daly has
served as Dean of the Leonard N. Stern School of Business and is the Richard R.
West Professor of Business, New York University for more than the past five
years. In addition to his academic career, Mr. Daly served as Chief Economist at
the U.S. Office of Energy Research and Development in 1974. Mr. Daly also serves
as a director of W.R. Berkley Corporation, an insurance company. Mr. Daly
received his M.A. and Ph.D. in Economics from Northwestern University.
B. Thomas Henry became a director of Stockpoint in September 2000. Mr. Henry has
served as Director of Business & International Development of Gomez
Advisors/Gomez.com, an e-commerce portal and research company, since March 1999.
From June 1998 to March 1999, Mr. Henry served as Vice President of Marketing of
WebSpective Software, a software company. From January 1997 to November 1997,
Mr. Henry served as President and Chief Executive Officer of Quote.com, a
financial information services company. From June 1996 until December 1996, Mr.
Henry was a start-up venture consultant for PFN, Inc. From September 1995 until
May 1996, Mr. Henry was Senior Director of Product Development at IAC, a
subsidiary of Thomson. Mr. Henry received his M.L.A. from Harvard University,
Graduate School of Design, and a B.A. from Princeton University.
Stockpoint maintains an audit committee and a compensation committee. Currently,
Mr. Hefter, Mr. Sengpiel and Mr. Daly are members of both committees. We also
maintain a management committee consisting of Mr. Staib, Ms. Cox and Mr.
Dominguez that meets regularly to coordinate operations between the Company's
two principal offices and to discuss and determine strategic matters.
All executive officers are chosen by the Board of Directors and serve at the
Board's discretion. Directors are divided into three classes, each of which
consists, as nearly as possible, of one-third of the board. One class will be
elected at each annual meeting of stockholders to serve a three year term.
Messrs. Staib and Sengpiel serve as Class I directors, whose term expires at the
2001 annual meeting of stockholders. Messrs. Hefter and Henry serve as Class II
directors, whose term expires at the 2002 annual meeting of stockholders.
Messrs. Daly and Branstad serve as Class III directors, whose term expires at
the 2003 annual meeting of stockholders.
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MANAGEMENT
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EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by our Chief Executive
Officer and by our other most highly compensated executive officers during the
year ended December 31, 1999 whose compensation exceeded $100,000. This
prospectus refers to these executives as the Named Executive Officers.
SUMMARY COMPENSATION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) UNDERLYING OPTIONS COMPENSATION (2)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
William E. Staib (3)......................... 1999 $130,000 -- 300,000 $2,600
Director & Chief Executive Officer
Timothy S. Yamauchi (4)...................... 1999 116,458 $38,739 142,500 2,337
Chief Operating Officer
Luan A. Cox.................................. 1999 78,125 275,532 252,000 3,200
Executive Vice President, Sales
L. Christopher Dominguez (5)................. 1999 82,916 126,660 127,500 --
Executive Vice President
Santosh K. Ananthraman....................... 1999 87,938 12,163 52,500 2,255
Vice President of Research
</TABLE>
------------
(1) For Ms. Cox and Mr. Dominguez, the amounts represent sales commissions.
(2) Represents 401(k) plan matching contributions by Stockpoint.
(3) Mr. Staib was appointed acting Chief Executive Officer in December 1998 and
elected Chief Executive Officer in June 1999. Prior to that time, he was
Chief Technology Officer.
(4) Mr. Yamauchi resigned effective August 28, 2000.
(5) Mr. Dominguez was appointed Executive Vice President in July 1999.
The following table sets forth information with respect to stock option granted
during the fiscal year ended December 31, 1999 to each of the Named Executive
Officers.
OPTION GRANTS IN LAST FISCAL YEAR
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO FAIR VALUE EXERCISE
OPTIONS EMPLOYEES ON DATE PRICE PER EXPIRATION
GRANTED IN FISCAL YEAR OF GRANT SHARE DATE
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
William E. Staib............ 300,000 16.3% $4.80 $4.80 9/15/09
Timothy S. Yamauchi......... 90,000 4.9 4.80 4.80 9/15/09
52,500 2.9 4.00 1.00 1/1/09
Luan A. Cox................. 195,000 10.6 4.80 4.80 9/15/09
57,000 3.1 4.00 1.00 1/1/09
L. Christopher Dominguez.... 60,000 3.3 4.80 4.80 9/15/09
67,500 3.7 4.00 1.00 1/1/09
Santosh K. Ananthraman...... 52,500 2.9 4.00 1.00 1/1/09
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK APPRECIATION
FOR OPTION TERMS (1)
0% (2) 5% 10%
---------------------------- ------------------------------------
<S> <C> <C> <C>
William E. Staib............ $1,260,000 $2,958,000 $5,562,000
Timothy S. Yamauchi......... 378,000 887,400 1,668,600
420,000 717,150 1,172,850
Luan A. Cox................. 819,000 1,922,700 3,615,300
456,000 778,620 1,273,380
L. Christopher Dominguez.... 252,000 591,600 1,112,400
540,000 922,050 1,507,950
Santosh K. Ananthraman...... 420,000 717,150 1,172,850
</TABLE>
------------
(1) The potential realizable value amounts represent hypothetical gains that
could be achieved for the respective options if exercised at the end of the
option term. These gains are based on assumed rates of stock price
appreciation of 0%, 5% and 10% from the date of grant to the end of the
option term based upon an initial public offering price of $9.00 per share.
These assumptions do not represent our estimate or projection of the future
common stock price. Actual gains, if any, on stock option exercises are
dependent on the future performance of our common stock, overall market
conditions and the option holder's continued employment through the vesting
period.
(2) Value is based on the difference between the per share exercise price of the
options and the assumed initial public offering price of $9.00 per share.
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The following table summarizes the value of options held at December 31, 1999 by
the Named Executive Officers. No options were exercised by the Named Executive
Officers during 1999.
AGGREGATED OPTION VALUES AT DECEMBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1999 AT DECEMBER 31, 1999 (1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William E. Staib........................ 97,125 224,875 $503,400 $1,092,600
Timothy S. Yamauchi..................... 31,600 148,400 170,720 927,280
Luan A. Cox............................. 47,800 207,200 204,560 1,094,440
L. Christopher Dominguez................ 26,775 123,225 159,480 812,520
Santosh K. Ananthraman.................. 19,525 55,325 156,200 442,600
</TABLE>
------------
(1) Value is based on the difference between the per share exercise price of the
options and the assumed initial public offering price of $9.00 per share.
EMPLOYMENT AGREEMENTS
We have employment agreements with Mr. Staib, Mr. Porter, Ms. Cox and Mr.
Dominguez. The agreements provide for annual base salaries of $130,000 for Mr.
Staib, $135,000 for Mr. Porter, $150,000 for Ms. Cox and $150,000 for Mr.
Dominguez. Each officer is also entitled to annual incentive compensation. Upon
completion of this offering, Mr. Staib's salary will increase to $180,000. The
agreements also provide for, upon completion of this offering, cash bonus
payments of $60,000 to Mr. Staib, $29,000 to Mr. Porter, $30,000 to Ms. Cox and
$30,000 to Mr. Dominguez.
The agreements with Mr. Staib, Ms. Cox and Mr. Dominguez expire in December
2000, subject to automatic annual renewals absent a 90-day notice of nonrenewal
by either party. The agreement with Mr. Porter expires in March 2001, subject to
automatic annual renewal absent a 90-day notice of nonrenewal by either party.
In the event the employment of Messrs. Staib or Dominguez is terminated "without
cause" or as a result of a "constructive termination," the officer will continue
to receive annual salary and health benefits for a period of nine months after
termination and 40% of those options granted in September 1999 which remain
unvested will vest. In the event the employment of Mr. Porter is terminated
without cause or as a result of a constructive termination, Mr. Porter will
continue to receive annual salary and health benefits for a period of nine
months after termination. In the event of the termination of Ms. Cox's
employment without cause or as a result of constructive termination, she
receives $450,000 plus nine months of benefits. In addition, if termination
occurs within 12 months following a change in control, the annual salary and
health benefits of each of Messrs. Staib and Dominguez will continue for a
period of 18 months. The employment agreements with Mr. Staib, Ms. Cox and Mr.
Dominguez also provide that all unvested stock options held by these individuals
will immediately vest upon a change in control. In accordance with an employment
agreement he had with Stockpoint, Timothy Yamauchi will receive his base salary
and health benefits through May 2001 and a $30,000 severance payment and will be
entitled to exercise vested stock options that he holds through August 2001.
STOCK OPTION PLANS
In December 1995, the Board of Directors approved the 1995 Long-Term Incentive
and Stock Option Plan (as amended, the "1995 Plan") and the 1995 Nonemployee
Director Stock Option Plan (the "Directors' Plan"). The 1995 Plan authorizes the
issuance of up to 3,500,000 shares of common stock,
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MANAGEMENT
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subject to an annual increase equal to 1 1/2% of the outstanding shares of
common stock as of the December 31 of the immediately preceding year. The
Directors' Plan authorizes the issuance of up to 250,000 shares of common stock.
Under the 1995 Plan, options that are intended to qualify as incentive stock
options, options that are not intended to so qualify, stock appreciation rights,
restricted stock or performance awards may be granted to full or part-time
employees, officers, consultants, directors (other than nonemployee directors)
or independent contractors. The 1995 Plan will terminate on November 30, 2005.
Under the Director's Plan, in which only nonemployee directors are eligible to
participate, non-qualified stock options to purchase 7,500 shares of common
stock, vesting in three equal annual installments, are automatically granted to
each director eligible to participate on the date such person first becomes a
director and an additional 7,500 shares, vesting one year following the date of
grant, is automatically granted on the date of each annual meeting of
stockholders. All options under the Directors Plan have terms of ten years and a
per share exercise price equal to the fair market value of a share of common
stock on the date of the grant.
In July 1998, the Board of Directors exchanged all outstanding options for
non-qualified options under the 1995 Plan in an identical number, at an exercise
price of $1.00 per share, and on a vesting schedule identical to that of the
exchanged options.
We have granted options to most of our employees. At June 30, 2000,
non-qualified options to purchase an aggregate of 2,785,050 shares of common
stock were outstanding under the 1995 Plan with a weighted average exercise
price of $3.41 per share. At June 30, 2000, options to purchase 30,000 shares of
common stock were outstanding under the Directors' Plan with a weighted average
exercise price of $4.67 per share.
COMPENSATION OF DIRECTORS
Directors are not currently paid fees for attending meetings. Harry O. Hefter
receives a $20,000 consulting fee annually for management services he performs.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
As permitted by Section 145 of the Delaware General Corporation Law, our Amended
and Restated Bylaws provide that we shall indemnify such persons for such
liabilities in such manner under such circumstances and to such extent as
permitted by Section 145. Our Board of Directors may authorize the purchase and
maintenance of insurance and the execution of individual agreements for the
purpose of such indemnification. We are required to advance all reasonable costs
and expenses (including attorneys' fees) incurred in defending any action, suit
or proceeding to all persons entitled to indemnification under the Bylaws, all
in the manner, under the circumstances and to the extent permitted by Section
145.
At present, there is no pending litigation or proceeding involving a director,
officer or employee of Stockpoint for which indemnification has been sought. We
are not aware of any threatened litigation that may result in claims for
indemnification.
As permitted by the Delaware General Corporation Law, our Amended and Restated
Certificate of Incorporation includes a provision that eliminates the personal
liability of directors for monetary damages for breach of fiduciary duty as a
director except liability for (a) any breach of the director's duty of loyalty
to the corporation or its stockholders, (b) acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the Delaware General Corporation Law or (d) any transaction from
which the director derived an improper personal benefit.
We maintain Directors and Officers Insurance which covers all directors and
officers. The total amount of coverage is $3,000,000, including the costs of
defense.
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Certain transactions
CONSULTING AGREEMENT
In August 1999, Stockpoint and Equity Dynamics entered into a one-year
consulting agreement. John Pappajohn, a principal of Equity Dynamics,
beneficially owns approximately 18.3% of our common stock. Under the agreement,
Equity Dynamics agreed to provide a minimum of 20 days per year of management,
financial and other advisory services in exchange for which it is to be paid
$50,000 per year and received warrants to purchase an aggregate of 187,500
shares of common stock at an exercise price of $4.00 per share. The warrants are
immediately exercisable and expire five years from the date of the agreement.
BANK GUARANTEES
We have, in large part, financed our operations through bank lines of credit and
other debt facilities guaranteed by John Pappajohn and Robert Staib, our former
Chief Executive Officer. We issued to Mr. Pappajohn warrants to purchase an
aggregate of 806,250 shares of common stock at $2.67 per share in consideration
of his guarantee of three lines of credit from April 1993 through June 1996.
Robert Staib, our former Chief Executive Officer, also guaranteed a series of
our credit agreements in seven transactions or renewals from November 1994
through June 1996. He also purported to pledge marketable securities as
collateral for these guarantees. For these guarantees, we issued warrants to
Robert Staib to purchase an aggregate of 1,209,375 shares of common stock at
$2.67 per share, expiring at various times from November 1999 through June 2001,
as well as guarantee fees aggregating $25,000. Included among these guarantees
was the guarantee of two unsecured lines of credit aggregating $4,145,000 which
remain outstanding and on which Robert Staib remains a guarantor.
Robert Staib also guaranteed a commercial bank's obligations under several
irrevocable standby letters of credit that secure $5,900,000 of our outstanding
debentures and agreed to pledge marketable securities as collateral. We paid
Robert Staib $50,000 in November 1997 for the guarantee and pledge, issued to
Robert Staib warrants to purchase 750,000 shares of common stock at $5.33 per
share and agreed to issue to Robert Staib warrants for an additional 150,000
shares during each year Robert Staib's guarantee of our line of credit remained
outstanding. In August 1997, we and Robert Staib entered into an amended
Indemnification and Hold Harmless Agreement and a Reimbursement and
Subordination Agreement pursuant to which we agreed to indemnify Robert Staib
for losses he incurred because of his guarantees.
In connection with loans he had guaranteed for an unrelated company, Robert
Staib was arrested in December 1998, indicted in April 1999 for bank fraud and
pled guilty to certain allegations in March 2000 as part of an agreement
settling the indictment. At our request, Robert Staib ceased any involvement in
our business in December 1998. Robert Staib formally resigned as our Chairman
and CEO in April 1999. At the time of his arrest in December 1998, we were
informed by our principal commercial lenders that they believed the collateral
pledged by Robert Staib to secure our outstanding credit lines, as well as the
letter of credit on the debentures, was not authentic. The lenders ceased making
any further advances under our credit arrangements. We eventually restructured
these credit arrangements in December 1999 under agreements that require, among
other things, that they be repaid upon completion of this offering. A
description of the restructured agreements is contained above under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources." The banks have reserved any rights
to proceed against Robert Staib under his guarantees.
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<PAGE> 57
CERTAIN TRANSACTIONS
--------------------------------------------------------------------------------
In September 1999, warrants to purchase 140,625 shares held by Robert Staib
expired unexercised. In December 1999, we entered into an agreement with Robert
Staib to settle any claims related to his employment and disputes relating to
the validity of his guarantees and the warrants he had received. We agreed not
to pursue any action to invalidate Robert Staib's warrants to purchase 750,000
shares of common stock at $2.67 per share in exchange for his cancellation and
return of all 1,050,000 warrants previously issued at $5.33 per share and the
remaining 318,750 warrants issued at $2.67 warrant per share. Of the 750,000
warrants, warrants to purchase 468,500 shares will expire in February 2001, and
warrants to purchase 281,500 shares will expire in June 2001. We also agreed to
pay Robert Staib $60,000 upon completion of this offering in settlement of all
other claims, including claims for reimbursement of expenses incurred during his
employment.
The settlement agreement also requires Robert Staib to deposit all of his common
stock and preferred stock of Stockpoint, and all common stock he receives on
exercise of any warrants, in a voting trust agreement, which is described below.
The settlement agreement prohibits any transfer by Robert Staib of any of such
common or preferred stock, except to creditors, or to persons that are not
affiliated or related by blood or marriage, to Robert Staib.
VOTING TRUST AGREEMENT
On December 3, 1999, Robert Staib entered into a voting trust agreement with
U.S. Bank, National Association, as trustee. Under the agreement, Robert Staib
delivered 369,000 shares of our common stock and 1,600 shares of our Series B
convertible preferred stock to the trustee. In addition, Robert Staib agreed to
deliver to the trustee any shares issued upon the exercise of his warrants to
purchase 750,000 shares of our common stock. Under the terms of the agreement,
the shares subject to the agreement may not be sold, pledged or transferred by
the trustee without the consent of Robert Staib and us. The trustee is entitled
to exercise all shareholder rights, including the right to vote and express a
consent. With respect to any matters submitted for stockholder approval, the
trustee will vote the shares in the same proportion as the shares not held by
the trustee voting on the matters have voted.
The voting trust agreement will terminate upon the earliest of any of the
following events:
+ the trustee has resigned, died or dissolved and no substitute trustee is
selected by us within 30 days after the date of resignation or death of the
trustee;
+ we are dissolved and liquidated;
+ all of the shares subject to the agreement have been transferred to one or
more persons;
+ we have commenced a voluntary case, or are subject to an involuntary case,
under applicable bankruptcy law;
+ Robert Staib and we mutually agree to terminate this agreement; or
+ upon the later to occur of December 31, 2002 or the date on which Robert
Staib beneficially owns less than 5% of our outstanding common stock.
We have agreed with the underwriters for this offering that prior to the
expiration of the later to occur of December 31, 2002 and the date on which
Robert Staib beneficially owns less than 5% of our outstanding common stock, we
will not agree to terminate the voting trust agreement unless all independent
disinterested directors conclude that terminating the agreement is in the best
interests of our company and stockholders. In the event of the resignation,
death or dissolution of the trustee prior to the later to occur of December 2002
or the date on which Robert Staib beneficially owns less than 5% of our
outstanding common stock, we also are obligated to appoint a successor trustee.
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CERTAIN TRANSACTIONS
--------------------------------------------------------------------------------
BRIDGE LOAN FINANCING
We entered into a $2,500,000 line of credit with a commercial bank in December
1999. This line of credit is secured by substantially all of our assets, as well
as guaranteed, and secured by letters of credit or deposit accounts pledged by,
eight investors, including John Pappajohn. In consideration of the guarantees
and pledges, we issued to the investors warrants to purchase 30 shares of common
stock for each $100 of the credit line that the investors guaranteed, or
warrants to purchase a total of 750,000 shares of common stock. The warrants
expire in December 2004 and may be exercised at any time prior to then at a
price of $5.00 per share. The exercise price, however, will be adjusted to the
price, if lower:
+ at which we issue shares of our common stock in a private transaction,
excluding shares issued under employee options, outstanding warrants and
other instruments;
+ equal to 50% of the price at which we conduct a bona fide public offering; or
+ equal to 50% of the consideration received per share in any business
combination in which we engage while the warrants are outstanding.
If the exercise price is adjusted, the number of shares covered by each warrant
will also be adjusted to the number obtained by multiplying the number of shares
initially issuable by the initial exercise price and dividing the result by the
adjusted exercise price. If we complete a public offering of our common stock
pursuant to a firm commitment underwriting at a price less than $10 per share,
then the exercise price will be adjusted to 50% of the public offering price and
the number of shares which can be purchased will be equal to $3,750,000 divided
by the new exercise price. The agreement pursuant to which the investor
guarantees were received requires that the credit line be repaid by June 30,
2001 and provides that the investors may purchase, and may assume the bank's
position under, the credit agreement in the event of specified defaults. Mr.
Pappajohn received warrants to purchase 375,000 shares in consideration of the
guarantee of $1,250,000 of the line of credit.
We entered into a $500,000 line of credit with a commercial bank in March 2000.
This line of credit is secured by substantially all of our assets, as well as
guaranteed, and secured by letters of credit or deposit accounts pledged by
three investors. In consideration of the guarantees and pledges, we issued to
the investors warrants to purchase 30 shares of common stock for each $100 of
the credit line that the investors guaranteed, or warrants to purchase a total
of 150,000 shares of common stock. The warrants expire in March 2005 and may be
exercised at any time prior to that date at a price of $6.67 per share. The
exercise price, however, will be adjusted to the price, if lower:
+ at which we issue shares of our common stock in a private transaction,
excluding shares issued under employee options, outstanding warrants and
other instruments;
+ equal to 50% of the price at which we conduct a bona fide public offering; or
+ equal to 50% of the consideration received per share in any business
combination, excluding a pooling of interest transaction, in which we engage
while the warrants are outstanding.
If the exercise price is adjusted, the number of shares covered by each warrant
will also be adjusted to the number obtained by multiplying the number of shares
initially issuable by the initial exercise price and dividing the result by the
adjusted exercise price. If we complete a public offering of our common stock
pursuant to a firm commitment underwriting at a price less than $13.33 per
share, then the exercise price will be adjusted to 50% of the public offering
price and the number of shares which can be purchased will be equal to
$1,000,000 divided by the new exercise price. The agreement pursuant to which
the investor guarantees were received requires that the credit line be repaid by
June 30, 2001 and provides that the investors may purchase, and may assume the
bank's position under, the credit agreement in the event of specified defaults.
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56
<PAGE> 59
CERTAIN TRANSACTIONS
--------------------------------------------------------------------------------
The following table shows the total number of shares that would be issuable upon
the exercise of, and the exercise price of, the warrants described above based
on the initial public offering prices indicated.
<TABLE>
<CAPTION>
$8 $9 $10
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
December 1999 Warrants
Shares of common stock.................................... 937,500 833,333 750,000
Exercise price per share.................................. $4.00 $4.50 $5.00
March 2000 Warrants
Shares of common stock.................................... 250,000 222,222 200,000
Exercise price per share.................................. $4.00 $4.50 $5.00
</TABLE>
If the initial public offering price is less than $8.00 per share, the number of
shares issuable upon exercise of the warrants will be increased, and the
exercise price per warrant will be decreased, based on the formula described
above.
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57
<PAGE> 60
--------------------------------------------------------------------------------
Principal stockholders
The following table sets forth information regarding the beneficial ownership of
our common stock as of June 30, 2000 by:
+ each person known by us to beneficially own more than 5% of our outstanding
common stock;
+ each director;
+ each Named Executive Officer; and
+ all directors and executive officers as a group.
Except as otherwise noted, each stockholder has sole voting and investment power
with respect to the shares set forth opposite that stockholder's name.
This table lists applicable percentage ownership based on 6,178,239 shares of
common stock outstanding as of June 30, 2000, after giving effect to the 3 for 2
stock split declared on July 20, 2000 and the conversion of all outstanding
shares of preferred stock, and also lists applicable percentage ownership based
on 11,178,239 shares outstanding immediately following the completion of this
offering.
<TABLE>
<CAPTION>
NUMBER PERCENT OF OUTSTANDING SHARES
NAME OF BENEFICIAL OWNER OF SHARES BEFORE OFFERING AFTER OFFERING
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Harry O. Hefter...................................... 1,500,000 24.3% 13.4%
180 North Wabash Avenue
Chicago, IL 60601
John Pappajohn (1)................................... 1,350,103 18.9 11.3
2116 Financial Center
Des Moines, IA 50309
U.S. Bank National Association
as trustee for Robert B. Staib (2)................. 1,122,750 16.2 9.4
601 Second Avenue South
Minneapolis, MN 55402
William E. Staib (3)................................. 584,126 9.3 5.2
Edgewater Private Equity Fund........................ 375,000 6.1 3.4
900 Michigan Avenue, 14th Floor
Chicago, IL 60601
L. Christopher Dominguez (4)......................... 109,034 1.7 1.0
Luan A. Cox (5)...................................... 87,050 1.4 *
Timothy S. Yamauchi (6).............................. 67,625 1.1 *
David G. Sengpiel (7)................................ 31,500 * *
512 58th Street
West Des Moines, IA 50266
Terry E. Branstad.................................... -- -- --
George G. Daly....................................... -- -- --
B. Thomas Henry...................................... -- -- --
All directors and officers as a group (12 persons)
(8)................................................ 2,438,757 36.7% 21.0%
</TABLE>
------------
* Less than 1%.
(1) Includes 772,917 shares of common stock issuable on exercise of outstanding
warrants, assuming an initial public offering price of $9.00 per share;
56,250 shares of common stock and 32,109 shares of common stock issuable
upon the
--------------------------------------------------------------------------------
58
<PAGE> 61
PRINCIPAL STOCKHOLDERS
--------------------------------------------------------------------------------
conversion of 20,550 shares of Series A Preferred Stock owned by Halkis
Ltd., an entity of which Mr. Pappajohn is the sole proprietor; 56,250 shares of
common stock and 32,109 shares of common stock issuable upon the conversion
of 20,550 shares of Series A Preferred Stock owned by Thebes Ltd., an entity
of which Mr. Pappajohn's wife is the sole proprietor; and 56,250 shares of
common stock and 32,109 shares of common stock issuable upon the conversion
of 20,550 shares of Series A Preferred Stock owned Mr. Pappajohn's wife. Mr.
Pappajohn disclaims any beneficial ownership in any shares owned by Thebes
and his wife.
(2) Includes 372,750 shares held by U.S. Bank National Association, trustee of
the Robert B. Staib Voting Trust dated December 3, 1999, established for
the benefit of Robert Staib. Also includes 750,000 shares of common stock
issuable upon the exercise of outstanding warrants held by Robert Staib.
Upon exercise of these warrants, the shares will be automatically deposited
into the trust. Under the terms of the voting trust agreement, the trustee
may vote on all matters that come before any stockholders' meeting for
stockholder approval and will vote the Staib shares in the same proportion
as the shares not held by the trustee voting on the matters have voted.
(3) Includes 134,126 shares of common stock subject to stock options
exercisable within 60 days of June 30, 2000.
(4) Includes 64,676 shares of common stock subject to stock options exercisable
within 60 days of June 30, 2000 and 24,632 shares issuable upon the
exercise of warrants.
(5) Includes 87,050 shares of common stock subject to stock options exercisable
within 60 days of June 30, 2000.
(6) Includes 67,625 shares of common stock subject to stock options exercisable
within 60 days of June 30, 2000. Mr. Yamauchi resigned as Chief Operating
Officer of Stockpoint, effective August 28, 2000.
(7) Includes 22,500 shares of common stock subject to stock options exercisable
within 60 days of June 30, 2000 and 9,000 shares of common stock.
(8) Includes 435,249 shares of common stock subject to stock options
exercisable within 60 days of June 30, 2000 and 24,632 shares of common
stock issuable upon the exercise of outstanding warrants.
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59
<PAGE> 62
--------------------------------------------------------------------------------
Description of capital stock
Our authorized capital stock consists of 80,000,000 shares of capital stock, of
which 75,000,000 shares are common stock, $.01 par value per share, and
5,000,000 shares are shares of preferred stock, no par value, undesignated as to
rights and preferences. As of June 30, 2000, 3,395,802 shares of common stock
were issued and outstanding and held by approximately 127 stockholders of
record, and 1,375,974 shares of preferred stock were issued and outstanding and
held by approximately 166 stockholders. Upon the closing of this offering, all
outstanding shares of preferred stock will convert into an aggregate of
2,782,437 shares of common stock.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by our stockholders. If Stockpoint is liquidated or
dissolved, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to any prior distribution
rights of any preferred stock then outstanding. The common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable. Subject to
the prior rights and preferences of any outstanding preferred stock, the holders
of the common stock are entitled to receive ratably any dividends by the Board
of Directors out of funds legally available for dividends. See "Dividend
Policy."
PREFERRED STOCK
The Board of Directors is authorized, without further stockholder approval, to
issue the undesignated shares of preferred stock and to determine the price,
rights, preferences, privileges and restrictions, including voting rights, of
those shares. The Board of Directors has authority to issue preferred stock in
one or more series and to fix voting power (full or limited, or no voting
power), and the designations, preferences and relative, participating, optional
or other special rights and qualifications or restrictions of the undesignated
preferred stock as the Board of Directors shall determine, without further vote
or action by the stockholders. These rights include the dividend rights,
conversion rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series. Issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of Stockpoint without further action
by the stockholders and may adversely affect voting and other rights of holders
of our common stock.
WARRANTS
At June 30, 2000, we had outstanding warrants to purchase 2,832,517 shares of
common stock with an average weighted exercise price of $3.92 per share,
assuming an initial public offering price of $9.00 per share. The actual number
of warrants and their exercise price will depend on the initial public offering
price. The warrants expire between June 2001 and March 2005. See "Certain
Transactions--Bridge Loan Financing."
REGISTRATION RIGHTS
After this offering, the holders of 1,369,668 shares of common stock will be
entitled to rights with respect to the registration of those shares under the
Securities Act as follows:
+ DEMAND REGISTRATION RIGHTS: At any time one year or more after the effective
date of an initial public offering of our common stock, the holders of at
least 51% of the eligible securities then outstanding may, on one occasion
only, demand in writing that we, at our expense and subject to
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60
<PAGE> 63
DESCRIPTION OF CAPITAL STOCK
--------------------------------------------------------------------------------
certain limitations, file a registration statement covering the sale of those
securities. At the request of the holders of a majority of the securities to
be registered, the method of disposition of the securities will be an
underwritten public offering. We will select the managing underwriter of any
public offering.
+ PIGGYBACK REGISTRATION RIGHTS: From and after the date on which one year has
elapsed from the date we first consummate a public offering of our common
stock, each time we determine to proceed with the actual preparation and
filing of a registration statement other than certain limited purpose
registration statements, we will give written notice of our determination to
all record holders of eligible securities, who will have the right to include
those securities in the registration statement, subject to certain conditions
and restrictions.
+ S-3 REGISTRATION RIGHTS: At any time one year or more after the effective
date of an initial public offering, and provided that we qualify for use of
the relevant form, holders of a majority of the outstanding eligible
securities may request, on one occasion only, that we file at our expense
subject to certain limitations, a registration statement on Form S-3 covering
the sale of the eligible securities.
The holders of warrants to purchase a total of 2,397,959 shares of our common
stock have rights to require us to include those shares in any registration
statement, other than a registration statement filed in connection with an
initial public offering, that we file prior to the expiration date of the
relevant warrant. These rights include the right to require us to use our best
efforts to qualify the warrant shares for sale in the states any warrantholder
designates. We will bear the entire cost and expense of any registration like
this other than the fees of counsel for the warrantholders and any registration
fees, transfer taxes or underwriting discounts or commissions applicable to the
warrant shares.
ANTI-TAKEOVER PROVISIONS
As a Delaware corporation, we are subject to the provisions of Section 203 of
the Delaware General Corporation Law. Section 203, subject to certain
exemptions, prohibits a Delaware corporation from engaging in any of a broad
range of "business combinations" and "control share acquisitions" involving an
"interested" stockholder, or any affiliate or associate of such interested
stockholder, for a period of three years following the date that such
stockholder became an interested stockholder, unless:
+ prior to such date, the Board of Directors of the corporation approved either
the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder;
+ upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced excluding, for purposes of determining the number of
shares outstanding, those shares owned (i) by persons who are directors and
also officers and (ii) by employee stock plans in which employee participants
do not have the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer; or
+ on or subsequent to such date, the business combination is approved by the
Board of Directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder.
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61
<PAGE> 64
DESCRIPTION OF CAPITAL STOCK
--------------------------------------------------------------------------------
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the stockholder. For purposes of Section
203, an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock. These provisions may have the effect of
discouraging, delaying, deferring or preventing a change in control of
Stockpoint.
Our amended and restated certificate of incorporation provides that the board of
directors is divided into three classes of directors, with each class serving a
staggered three-year term. The number of directors is fixed by resolution of the
board of directors consisting of at least three but not more than 11 directors.
The size of our board is currently fixed at four members. Unless a change in the
size of the board is approved by a majority of the entire board of directors,
any increase or decrease in the number of directors must be approved by holders
of at least 75% of the outstanding common stock. Newly-created directorships
resulting from any increase in the number of directors may be filled by a
majority of the directors then in office and any other vacancy may be filled by
a majority of remaining directors then in office or a sole remaining director.
As a result of the classification of our board of directors, approximately
one-third of the members of our board of directors will be elected each year.
When coupled with the provision of our amended and restated certification of
incorporation authorizing the board of directors to fill newly-created
directorships or vacancies and increase the size of the board up to 11, these
provisions may prevent stockholders from removing incumbent directors and
simultaneously gaining control of the board by filling vacancies created by the
removals with their own nominees. The amendment of the provisions relating to
the structure and classification of our board of directors would require
approval by holders of at least 75% of the outstanding common stock.
LISTING
We have applied for quotation of our common stock on the Nasdaq National Market
under the symbol "STKP."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock will be Norwest Bank
Minnesota, National Association.
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<PAGE> 65
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Shares eligible for future sale
Prior to this offering, there has been no public market for our common stock. We
cannot make any predictions regarding the effect, if any, that future sales of
substantial amounts of our common stock, or the perception that those sales
might occur, could have on the market price for our common stock. Nevertheless,
sales of substantial amounts of our common stock in the public market could
adversely affect the prevailing market price. These factors could also make it
more difficult for us to raise additional equity capital in the future.
Upon completion of this offering, we will have outstanding a total of 11,178,239
shares of our common stock, assuming no exercise of the underwriters' option to
purchase additional shares and no exercise of outstanding options and warrants.
All of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act unless the shares
are purchased by "affiliates" as that term is defined in Rule 144 under the
Securities Act. The remaining 6,178,239 shares of common stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144 or Rule 701 under
the Securities Act, rules that are summarized below. 6,171,114 of the shares
held by existing stockholders were acquired more than two years ago. Subject to
the lock-up agreements described below, all of those shares, except shares held
by persons who are "affiliates" of Stockpoint under SEC rules, will be eligible
for immediate sale in the public markets under Rule 144(k). The remaining 7,125
shares will become eligible for resale 90 days after the effective date of this
offering under Rule 701.
LOCK-UP AGREEMENTS
Our directors, executive officers, five percent stockholders and most other
holders of our common stock, options and warrants have entered into "lock-up"
agreements providing that they will not sell, offer to sell, contract to sell,
hypothecate, pledge, grant any option to sell or otherwise dispose of, directly
or indirectly, any shares of common stock or securities convertible into or
exercisable or exchangeable for common stock for a period of 180 days after the
date of this prospectus without the prior written consent of UBS Warburg LLC.
Although UBS Warburg LLC may release the shares subject to the lock-up
agreements in whole or in part at any time, we understand that it has no current
plan to do so.
RULE 144
In general, under Rule 144 as currently in effect, a person who has beneficially
owned shares of our common stock for at least one year would be entitled to
sell, within any three-month period beginning 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of:
+ 1% of the number of shares of common stock then outstanding, which will equal
approximately shares immediately after this offering; or
+ the average weekly trading volume of the common stock on the Nasdaq National
Market during the four calendar weeks preceding the filing of a notice on
Form 144 with respect to the sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
us.
RULE 144(K)
Under Rule 144(k), a person who has not been one of our affiliates at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least
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63
<PAGE> 66
SHARES ELIGIBLE FOR FUTURE SALE
--------------------------------------------------------------------------------
two years, including the holding period of any prior owner other than an
affiliate, is entitled to sell those shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
RULE 701
In general, under Rule 701 as currently in effect, each of our employees,
consultants or advisors who purchases shares from us in connection with a
compensatory stock plan or other written agreement is eligible to resell those
shares 90 days after the effective date of this offering in reliance on Rule
144, but without compliance with certain restrictions, including the holding
period, contained in Rule 144.
REGISTRATION RIGHTS
The holders of 1,369,668 shares of our common stock and holders of warrants to
purchase an aggregate of 2,503,517 shares of our common stock have various
rights with respect to the registration of their shares under the Securities
Act. Registration of these shares would result in their becoming freely
tradeable without restriction, except for shares purchased by affiliates. See
"Description of Capital Stock--Registration Rights."
STOCK OPTIONS
After the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act to register all shares of common
stock issuable under our stock option plans. See "Management--Stock Option
Plans." This Form S-8 registration statement is expected to be become effective
immediately upon filing and shares covered by that registration statement will
then be eligible for sale in the public markets, subject to Rule 144 limitations
applicable to affiliates.
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<PAGE> 67
--------------------------------------------------------------------------------
Underwriting
Stockpoint and the underwriters for the offering named below have entered into
an underwriting agreement. Subject to conditions, each underwriter has severally
agreed to purchase the number of shares indicated in the following table. UBS
Warburg LLC, William Blair & Company, L.L.C. and Roth Capital Partners, Inc. are
the representatives of the underwriters.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------------------------------------------------------------------------
<S> <C>
UBS Warburg LLC.............................................
William Blair & Company, L.L.C. ............................
Roth Capital Partners, Inc..................................
----------------
Total.................................................. 5,000,000
================
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have a 30-day option to buy from us up to an
additional 750,000 shares at the initial public offering price less the
underwriting discounts and commissions to cover these sales. If any shares are
purchased under this option, the underwriters will severally purchase shares in
approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase up to
an additional 750,000 shares.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
-----------------------------------------------------------------------------------------
<S> <C> <C>
Per Share................................................... $ $
Total.................................................. $ $
</TABLE>
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $650,000.
Shares sold by the underwriters to the public will initially be offered at the
initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any of these
securities dealers may resell any shares purchased from the underwriters to
other brokers or dealers at a discount of up to $ per share from the initial
public offering price. If all the shares are not sold at the initial public
offering price, the representatives may change the offering price and other
selling terms.
The underwriters have informed us that they do not expect discretionary sales to
exceed 5% of the shares of common stock to be offered.
We, each of our directors, executive officers and certain of our stockholders
have agreed not to offer, sell, contract to sell, pledge or otherwise dispose
of, directly or indirectly, or file with the SEC a registration statement under
the Securities Act relating to, any shares of common stock or securities
convertible into or exchangeable for common stock for a period of 180 days after
the date of this prospectus without the prior written consent of UBS Warburg
LLC.
The underwriters have reserved for sale, at the initial public offering price,
up to 250,000 shares of common stock being offered for sale to our customers,
business partners and other parties, including our employees. The number of
shares available for sale to the general public will be reduced to the extent
these persons purchase the reserved shares. Any reserved shares not so purchased
will be offered by the underwriters to the general public on the same terms as
the other shares in this offering.
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<PAGE> 68
UNDERWRITING
--------------------------------------------------------------------------------
Prior to this offering, there has been no public market for the common stock.
The initial public offering price will be negotiated between us and the
representatives. The principal factors to be considered in determining the
initial public offering price include:
+ the information set forth in this prospectus and otherwise available to the
representatives;
+ the history and the prospects for the industry in which we compete;
+ the ability of our management;
+ our prospects for future earnings, the present state of our development and
our current financial position;
+ the general condition of the securities markets at the time of this offering;
and
+ the recent market prices of, and the demand for, publicly traded common stock
of generally comparable companies.
In connection with the offering, the underwriters may purchase and sell shares
of common stock in the open market. These transactions may include stabilizing
transactions. Stabilizing transactions consist of bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress. These transactions may also include
short sales and purchases to cover positions created by short sales. Short sales
involve the sale by the underwriters of a greater number of shares than they are
required to purchase in the offering.
Short sales may be either "covered short sales" or "naked short sales." Covered
short sales are sales made in an amount not greater than the underwriters'
over-allotment option to purchase additional shares in the offering. The
underwriters may close out any covered short position by either exercising their
over-allotment option or purchasing shares in the open market. In determining
the source of shares to close out the covered short position, the underwriters
will consider, among other things, the price of shares available for purchase in
the open market as compared to the price at which they may purchase shares
through the over-allotment option. Naked short sales are sales in excess of the
over-allotment option. The underwriters must close out any naked short position
by purchasing shares in the open market. A naked short position is more likely
to be created if the underwriters are concerned that there may be downward
pressure on the price of the shares in the open market after pricing that could
adversely affect investors who purchase in the offering.
The underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of that underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise affect
the market price of the common stock. As a result, the price of the common stock
may be higher than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued by the underwriters at
any time. These transactions may be effected on the Nasdaq National Market, in
the over-the-counter market or otherwise.
We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act of 1933, and to contribute to
payments that the underwriters may be required to make in respect thereof.
In April 2000, we entered into an agreement with Dain Rauscher Wessels under
which Dain Rauscher agreed to provide financial advisory and investment banking
services to us. Under the terms of this agreement, we will be required to pay
$250,000 to Dain Rauscher upon completion of this offering.
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<PAGE> 69
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Legal matters
Dorsey & Whitney LLP, Minneapolis, Minnesota, will pass upon the validity of the
issuance of shares of common stock offered by this prospectus for Stockpoint.
Dewey Ballantine LLP, New York, New York will pass upon various legal matters in
connection with the offering for the underwriters.
Experts
The consolidated financial statements of Stockpoint as of December 31, 1998 and
1999 and for the years ended December 31, 1997, 1998 and 1999 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
Where you can find more information
We have filed with the SEC a registration statement on Form S-1 with respect to
the shares of common stock offered by this prospectus. This prospectus, which
constitutes a part of the registration statement, does not contain all of the
information contained in the registration statement and the exhibits and
schedules that are another part of the registration statement. In particular,
statements contained in this prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each case we
refer you to the copy of that contract or other document to the extent filed as
an exhibit to the registration statement for a more complete description. For
further information on Stockpoint and our common stock, you should review the
registration statement, including exhibits and schedules.
You may read and copy all or any portion of the registration statement or any
reports, statements or other information we file at the SEC's public reference
room at Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC, 20549
and at the regional offices of the SEC located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. You can request copies of these documents upon payment
of a duplicating fee by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings, including the registration statement, are also available
on the SEC's web site at http://www.sec.gov.
Upon completion of this offering, we will be required to file periodic reports,
proxy statements and other information with the SEC. These documents will be
available for inspection and copying as described above.
We intend to furnish our stockholders with annual reports containing financial
statements audited by our independent auditors and to make available to our
stockholders quarterly reports containing unaudited financial data for the first
three quarters of each fiscal year.
--------------------------------------------------------------------------------
67
<PAGE> 70
STOCKPOINT, INC.
--------------------------------------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
PAGE
------------------------------------------------------------------
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999
and June 30, 2000 (unaudited)............................. F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999 and for the six months
ended June 30, 1999 and 2000 (unaudited).................. F-5
Consolidated Statements of Stockholders' (Deficiency) for
the Years Ended December 31, 1997, 1998 and 1999 and for
the six months ended June 30, 2000 (unaudited)............ F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999 and for the six months
ended June 30, 1999 and 2000 (unaudited).................. F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
--------------------------------------------------------------------------------
F- 1
<PAGE> 71
STOCKPOINT, INC.
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Stockpoint, Inc.:
We have audited the accompanying consolidated balance sheets of Stockpoint, Inc.
(formerly Neural Applications Corporation) and subsidiary as of December 31,
1998 and 1999, and the related consolidated statements of operations,
stockholders' (deficiency), and cash flows for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Stockpoint, Inc. and subsidiary at
December 31, 1998 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles.
As discussed in Note 13 to the consolidated financial statements, the Company
discontinued the operations of its metals segment on May 28, 1999, when it sold
the technology and operational assets of the metals segment. The gain on sale
and results prior to the sale are included in discontinued operations in the
accompanying consolidated financial statements.
/s/ DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa
February 8, 2000
(July 20, 2000 as to Note 15)
--------------------------------------------------------------------------------
F- 2
<PAGE> 72
STOCKPOINT, INC.
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999 2000
-------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
ASSETS (NOTES 2 AND 9)
CURRENT ASSETS:
Cash and cash equivalents........................... $221,098 $2,203,623 $2,403,390
Accounts receivable, less allowance for doubtful
accounts of $58,208 for 1998, $150,000 for 1999
and $150,000 for 2000............................ 1,118,310 1,859,852 2,702,780
Prepaid expenses and other assets................... 146,323 247,201 564,160
Net current assets of discontinued operations (Note
13).............................................. 804,201 -- --
---------- ---------- -----------
Total current assets............................. 2,289,932 4,310,676 5,670,330
---------- ---------- -----------
SOFTWARE, EQUIPMENT AND FURNITURE:
Purchased software.................................. 214,473 322,665 454,437
Equipment........................................... 1,388,863 1,886,301 2,123,253
Furniture and fixtures.............................. 56,360 67,227 96,599
---------- ---------- -----------
Total............................................ 1,659,696 2,276,193 2,674,289
Less accumulated depreciation....................... (571,133) (929,071) (1,154,121)
---------- ---------- -----------
Software, equipment and furniture, net.............. 1,088,563 1,347,122 1,520,168
---------- ---------- -----------
OTHER ASSETS:
Software development costs, less accumulated
amortization of $191,654 for 1998, $204,519 for
1999 and $220,299 for 2000 (Note 1).............. 28,645 15,780 --
Deferred development costs.......................... -- -- 332,953
Deferred offering costs............................. -- -- 228,945
Deferred financing costs, less accumulated
amortization of $108,865 for 1998, $215,512 for
1999 and $301,778 for 2000....................... 387,207 415,560 329,294
---------- ---------- -----------
Total other assets............................... 415,852 431,340 891,192
---------- ---------- -----------
Total................................................. $3,794,347 $6,089,138 $8,081,690
========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
--------------------------------------------------------------------------------
F- 3
<PAGE> 73
STOCKPOINT, INC.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRO FORMA
(NOTE 14)
DECEMBER 31, JUNE 30, JUNE 30,
1998 1999 2000 2000
--------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
CURRENT LIABILITIES:
Short-term debt (Notes 2 and 16)...................... $4,145,000 $1,750,000 $12,034,319
Forgivable loan (Note 2).............................. 250,000 -- --
Accounts payable...................................... 796,370 1,566,781 2,783,531
Deferred revenue...................................... 1,498,181 2,808,181 5,517,593
Accrued installation and warranty costs............... 46,282 296,086 391,268
Other accrued liabilities............................. 833,956 552,451 881,901
Customer deposits..................................... 70,314 -- --
Current portion of long-term debt (Note 2)............ -- -- 12,650
Current portion of capital lease (Note 8)............. -- 5,821 28,500
------------ ------------ ------------
Total current liabilities........................... 7,640,103 6,979,320 21,649,762
------------ ------------ ------------
LONG-TERM LIABILITIES:
Long-term debt, net of debt discount and less current
portion (Note 2).................................... 5,900,000 10,508,421 134,633
Capital lease, less current portion (Note 8).......... -- 28,260 96,333
------------ ------------ ------------
Total long-term liabilities......................... 5,900,000 10,536,681 230,966
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 2, 7, 8, 9 and 16)
STOCKHOLDERS' (DEFICIENCY) (Note 11):
Preferred stock, no par value; 5,000,000 shares
authorized:
Convertible Series A Preferred Stock, 320,000 shares
issued at December 31, 1998 and 1999 and June 30,
2000 ($2,000,000 liquidation value, convertible into
750,000 shares of common stock) (Note 4), no pro
forma shares outstanding............................ 1,965,991 1,965,991 1,965,991 $--
Convertible Series B Preferred Stock, 282,720 shares
issued at December 31, 1998 and 1999 and June 30,
2000 ($1,767,000 liquidation value, convertible into
662,625 shares of common stock) (Note 4), no pro
forma shares outstanding............................ 1,733,639 1,733,639 1,733,639 --
Convertible Series C Preferred Stock, 773,254 shares
issued at December 31, 1998 and 1999 and June 30,
2000 ($6,968,988 liquidation value, convertible into
1,369,812 shares of common stock) (Note 4), no pro
forma shares outstanding............................ 5,455,319 5,455,319 5,455,319 --
Common stock, $.01 par value per share; 75,000,000
shares authorized; 3,194,552, 3,264,177 and 3,395,802
shares issued at December 31, 1998 and 1999 and June
30, 2000, respectively (Note 5 and 15), 6,178,239 pro
forma shares outstanding.............................. 31,946 32,642 33,959 61,782
Common stock warrants (Note 7).......................... -- 819,868 1,676,598 1,676,598
Additional paid-in capital.............................. 2,599,110 3,864,739 3,800,530 12,927,656
Deferred compensation (Note 6).......................... (1,594,755) (2,194,978) (1,682,379) (1,682,379)
Accumulated deficit..................................... (19,937,006) (23,104,083) (26,782,695) (26,782,695)
------------ ------------ ------------ ------------
Total stockholders' (deficiency).................... (9,745,756) (11,426,863) (13,799,038) $(13,799,038)
------------ ------------ ------------ ============
Total................................................... $3,794,347 $6,089,138 $8,081,690
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
--------------------------------------------------------------------------------
F- 4
<PAGE> 74
STOCKPOINT, INC.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
1997 1998 1999 1999 2000
------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS:
REVENUES (Note 10)............................... $1,427,908 $2,177,946 $6,829,869 $2,438,609 $6,467,852
COST OF REVENUES (excluding deferred compensation
of $86,257 for 1998, $124,337 for 1999, $35,419
for June 30, 1999 and $30,481 for June 30,
2000).......................................... 308,608 764,965 2,289,881 913,882 3,078,951
----------- ----------- ----------- ----------- -----------
GROSS PROFIT..................................... 1,119,300 1,412,981 4,539,988 1,524,727 3,388,901
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Research and development (excluding deferred
compensation of $61,176 for 1998, $114,005
for 1999, $73,074 for June 30, 1999 and
$62,887 for June 30, 2000)................... 1,057,071 1,101,471 1,637,150 606,149 1,909,530
Sales and marketing (excluding deferred
compensation of $58,229 for 1998, $137,552
for 1999, $32,134 for June 30, 1999 and
$27,655 for June 30, 2000)................... 752,675 1,566,030 1,590,899 684,593 2,084,751
General and administrative (excluding deferred
compensation of $460,608 for 1998, $236,408
for 1999, $233,773 for June 30, 1999 and
$201,184 for June 30, 2000).................. 2,556,730 3,523,006 3,588,977 1,577,940 2,038,378
Deferred compensation (Note 6)................. -- 666,270 612,302 374,400 322,207
----------- ----------- ----------- ----------- -----------
Total operating expenses..................... 4,366,476 6,856,777 7,429,328 3,243,082 6,354,866
----------- ----------- ----------- ----------- -----------
OPERATING LOSS FROM CONTINUING OPERATIONS........ (3,247,176) (5,443,796) (2,889,340) (1,718,355) (2,965,965)
OTHER EXPENSE, PRIMARILY INTEREST................ (688,525) (784,546) (1,058,545) (438,823) (946,247)
----------- ----------- ----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS.................. (3,935,701) (6,228,342) (3,947,885) (2,157,178) (3,912,212)
DISCONTINUED OPERATIONS (Note 13):
Income (loss) from operations.................... (405,722) (356,946) 347,675 347,675 --
Gain on disposition.............................. -- -- 433,133 433,133 --
----------- ----------- ----------- ----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM..................... (4,341,423) (6,585,288) (3,167,077) (1,376,370) (3,912,212)
GAIN ON EXTINGUISHMENT OF DEBT (Note 2)............ -- -- -- -- 233,600
----------- ----------- ----------- ----------- -----------
NET LOSS........................................... (4,341,423) (6,585,288) (3,167,077) (1,376,370) (3,678,612)
CUMULATIVE DIVIDENDS ON PREFERRED STOCK............ (40,266) (409,418) (412,918) (206,458) (206,458)
----------- ----------- ----------- ----------- -----------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS......... $(4,381,689) $(6,994,706) $(3,579,995) $(1,582,828) $(3,885,070)
=========== =========== =========== =========== ===========
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE --
HISTORICAL:
Loss from continuing operations................ $(1.27) $(2.10) $(1.35) $(0.74) $(1.25)
Income (loss) from discontinued operations..... (0.13) (0.11) 0.24 0.24 --
----------- ----------- ----------- ----------- -----------
Loss before extraordinary item................. (1.40) (2.21) (1.11) (0.50) (1.25)
Gain on extinguishment of debt................. -- -- -- -- 0.07
----------- ----------- ----------- ----------- -----------
Net loss....................................... $(1.40) $(2.21) $(1.11) $(0.50) $(1.18)
=========== =========== =========== =========== ===========
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE --
PRO FORMA (UNAUDITED) (Note 14):
Loss from continuing operations................ $(0.66) $(0.65)
Income from discontinued operations............ 0.13 --
----------- -----------
Loss before extraordinary item................. (0.53) (0.65)
Gain on extinguishment of debt................. -- 0.04
----------- -----------
Net loss....................................... $(0.53) $(0.61)
=========== ===========
</TABLE>
See notes to consolidated financial statements.
--------------------------------------------------------------------------------
F- 5
<PAGE> 75
STOCKPOINT, INC.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIENCY)
Years Ended December 31, 1997, 1998 and 1999 and Six Months Ended June 30, 2000
(unaudited)
<TABLE>
<CAPTION>
SUBSIDIARY CONVERTIBLE CONVERTIBLE CONVERTIBLE
SERIES A SERIES A SERIES B SERIES C COMMON ADDITIONAL
PREFERRED PREFERRED PREFERRED PREFERRED COMMON STOCK PAID-IN
STOCK STOCK STOCK STOCK STOCK WARRANTS CAPITAL
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996...... $100,000 $1,965,991 $1,733,639 $-- $31,346 $-- $108,285
Issuance of 694,618 shares of
Convertible Series C Preferred
Stock, net of issue costs of
$414,684......................... -- -- -- 4,885,316 -- -- --
Redemption of subsidiary Series A
Preferred Stock.................. (100,000) -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- --
---------- ----------- ----------- ----------- ------- ---------- ----------
Balance at December 31, 1997...... -- 1,965,991 1,733,639 4,885,316 31,346 -- 108,285
Issuance of 78,636 shares of
Convertible Series C Preferred
Stock, net of issue costs of
$29,997.......................... -- -- -- 570,003 -- -- --
Deferred compensation............. -- -- -- -- -- -- 2,491,425
Amortization of deferred
compensation (including $230,400
allocated to discontinued
operations)...................... -- -- -- -- -- -- --
Cashless exercise of warrants for
60,000 shares of common stock.... -- -- -- -- 600 -- (600)
Net loss.......................... -- -- -- -- -- -- --
---------- ----------- ----------- ----------- ------- ---------- ----------
Balance at December 31, 1998...... -- 1,965,991 1,733,639 5,455,319 31,946 -- 2,599,110
Issuance of 7,125 shares of common
stock............................ -- -- -- -- 70 -- 4,680
Deferred compensation............. -- -- -- -- -- -- 1,261,575
Amortization of deferred
compensation (including $49,050
allocated to discontinued
operations)...................... -- -- -- -- -- -- --
Issuance of common stock
warrants......................... -- -- -- -- -- 819,868 --
Cashless exercise of warrants for
62,501 shares of common stock.... -- -- -- -- 626 -- (626)
Net loss.......................... -- -- -- -- -- -- --
---------- ----------- ----------- ----------- ------- ---------- ----------
Balance at December 31, 1999...... -- 1,965,991 1,733,639 5,455,319 32,642 819,868 3,864,739
Deferred compensation
(unaudited)...................... -- -- -- -- -- -- (190,392)
Amortization of deferred
compensation (unaudited)......... -- -- -- -- -- -- --
Issuance of common stock warrants
(unaudited)...................... -- -- -- -- -- 856,730 --
Cashless exercise of warrants for
83,813 shares of common stock
(unaudited)...................... -- -- -- -- 838 -- (838)
Exercise of warrants for 47,812
shares of common stock
(unaudited)...................... -- -- -- -- 479 -- 127,021
Net loss (unaudited).............. -- -- -- -- -- -- --
---------- ----------- ----------- ----------- ------- ---------- ----------
Balance at June 30, 2000
(unaudited)...................... $-- $1,965,991 $1,733,639 $5,455,319 $33,959 $1,676,598 $3,800,530
========== =========== =========== =========== ======= ========== ==========
<CAPTION>
DEFERRED ACCUMULATED
COMPENSATION DEFICIT
---------------------------------- --------------------------
<S> <C> <C>
Balance at December 31, 1996...... $-- $(9,010,295)
Issuance of 694,618 shares of
Convertible Series C Preferred
Stock, net of issue costs of
$414,684......................... -- --
Redemption of subsidiary Series A
Preferred Stock.................. -- --
Net loss.......................... -- (4,341,423)
------------ ------------
Balance at December 31, 1997...... -- (13,351,718)
Issuance of 78,636 shares of
Convertible Series C Preferred
Stock, net of issue costs of
$29,997.......................... -- --
Deferred compensation............. (2,491,425) --
Amortization of deferred
compensation (including $230,400
allocated to discontinued
operations)...................... 896,670 --
Cashless exercise of warrants for
60,000 shares of common stock.... -- --
Net loss.......................... -- (6,585,288)
------------ ------------
Balance at December 31, 1998...... (1,594,755) (19,937,006)
Issuance of 7,125 shares of common
stock............................ -- --
Deferred compensation............. (1,261,575) --
Amortization of deferred
compensation (including $49,050
allocated to discontinued
operations)...................... 661,352 --
Issuance of common stock
warrants......................... -- --
Cashless exercise of warrants for
62,501 shares of common stock.... -- --
Net loss.......................... -- (3,167,077)
------------ ------------
Balance at December 31, 1999...... (2,194,978) (23,104,083)
Deferred compensation
(unaudited)...................... 190,392 --
Amortization of deferred
compensation (unaudited)......... 322,207 --
Issuance of common stock warrants
(unaudited)...................... -- --
Cashless exercise of warrants for
83,813 shares of common stock
(unaudited)...................... -- --
Exercise of warrants for 47,812
shares of common stock
(unaudited)...................... -- --
Net loss (unaudited).............. -- (3,678,612)
------------ ------------
Balance at June 30, 2000
(unaudited)...................... $(1,682,379) $(26,782,695)
============ ============
</TABLE>
See notes to consolidated financial statements.
--------------------------------------------------------------------------------
F- 6
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STOCKPOINT, INC.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
1997 1998 1999 1999 2000
---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................. $(4,341,423) $(6,585,288) $(3,167,077) $(1,376,370) $(3,678,612)
Adjustments to reconcile net loss to net cash flows
from operating activities of continuing operations:
(Income) loss from discontinued operations......... 405,722 356,946 (347,675) (347,675) --
Gain on disposition of discontinued operations..... -- -- (433,133) (433,133) --
Depreciation and amortization...................... 243,187 361,495 521,015 218,559 711,627
Gain on extinguishment of debt..................... -- -- -- -- (233,600)
Noncash expense related to stock options and
warrants......................................... -- 896,670 858,810 337,200 379,208
Net changes in assets and liabilities:
Accounts receivable................................ (66,648) (508,159) (741,542) 65,407 (842,928)
Prepaid expenses and other assets.................. (81,581) (6,477) 9,953 (16,436) (316,959)
Deferred development costs......................... -- -- -- -- (332,953)
Accounts payable................................... 136,874 404,099 770,411 27,815 1,216,750
Deferred revenue................................... 133,137 900,954 1,310,000 (20,302) 2,709,412
Accrued liabilities and customer deposits.......... (60,808) 388,846 (102,015) 896,085 514,632
----------- ----------- ----------- ----------- -----------
Net cash flows from operating activities of
continuing operations.......................... (3,631,540) (3,790,914) (1,321,253) (648,850) 126,577
Net cash flows from discontinued operations...... (407,746) (727,083) 835,009 835,009 --
----------- ----------- ----------- ----------- -----------
Net cash flows from operating activities......... (4,039,286) (4,517,997) (486,244) 186,159 126,577
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for software, equipment and furniture... (477,919) (749,923) (623,487) (136,579) (352,403)
Expenditures for software development costs.......... -- (38,597) -- -- --
Proceeds from sale of discontinued operations........ -- -- 750,000 750,000 --
----------- ----------- ----------- ----------- -----------
Net cash flows from investing activities......... (477,919) (788,520) 126,513 613,421 (352,403)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under bank lines of
credit............................................. -- 5,055,000 2,475,000 -- 5,855,000
Payments on borrowings under bank lines of credit.... (5,510,000) (910,000) -- -- (5,360,000)
Proceeds from borrowings under note payable.......... -- -- -- -- 45,200
Payments on borrowings under note payable............ -- -- -- -- (4,317)
Payments on capital lease............................ -- -- (2,494) -- (8,845)
Payments for bank line of credit fees................ -- -- (135,000) -- --
Payments for deferred offering costs................. -- -- -- -- (228,945)
Payments for issuance costs of debentures............ (411,575) (29,997) -- -- --
Payments for issuance costs of preferred stock....... (414,684) (29,997) -- -- --
Proceeds from issuance of Convertible Series C
Preferred Stock.................................... 5,300,000 600,000 -- -- --
Proceeds from issuance of debentures................. 5,300,000 600,000 -- -- --
Proceeds from issuance of common stock............... -- -- 4,750 3,000 127,500
Redemption of subsidiary Series A Preferred Stock.... (100,000) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash flows from financing activities......... 4,163,741 5,285,006 2,342,256 3,000 425,593
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.......................................... (353,464) (21,511) 1,982,525 802,580 199,767
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...... 596,073 242,609 221,098 221,098 2,203,623
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............ $242,609 $221,098 $2,203,623 $1,023,678 $2,403,390
=========== =========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the period for interest............. $699,021 $663,110 $936,018 $-- $489,763
=========== =========== =========== =========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchased by capital lease................. $-- $-- $36,575 $-- $99,597
Issuance of common stock warrants for consulting
services........................................... -- -- 279,868 -- 57,000
Issuance of common stock warrants in connection with
bank line of credit................................ -- -- 540,000 -- 799,730
</TABLE>
See notes to consolidated financial statements.
--------------------------------------------------------------------------------
F- 7
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STOCKPOINT, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
In July 1999, Neural Applications Corporation amended its certificate of
incorporation to change its name to Stockpoint, Inc. (which individually or
collectively with its wholly-owned subsidiary discussed below is referred to
herein as the "Company"). The Company operates in a single business segment. The
Company is a provider of financial information and market analysis components
for Internet web sites. The Company integrates sophisticated financial content
and applications to provide its clients customized web sites that the Company
hosts. In doing so, the Company enables organizations such as brokerages,
commercial and investment banks, mutual funds, 401(k) plans, portals and media
companies to outsource essential web site functionality. The Company also
engages in projects to provide data mining applications and financial services
consulting to businesses related to their Internet web sites.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Stockpoint, Inc.
and its wholly-owned subsidiary. Prior to June 1999, such subsidiary was Ethos
Corporation, which was acquired by the Company on March 6, 1997 (see Note 11).
In June 1999, Ethos Corporation was merged into the Company. Simultaneously,
certain assets were contributed to a newly formed subsidiary named Neural, Inc.
Intercompany accounts and transactions have been eliminated.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has had recurring
operating losses since inception, which has resulted in an accumulated deficit
of $23,104,083 at December 31, 1999. Management is continuing its efforts to
market the Company's existing products and services and develop new products and
services to enable the Company to achieve a revenue base that can support its
operations. Management believes that existing capital resources and financing
available under the Company's line of credit will be adequate to satisfy minimum
capital requirements for at least twelve months.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Material estimates that are
particularly susceptible to significant change in the near-term relate to the
allowance for doubtful accounts and accrued installation and warranty costs.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of accounts receivable, accounts payable, customer deposits, and
notes payable approximate the carrying values of the instruments due to the
short-term maturities of such instruments or, for long-term notes payable, due
to no significant change in interest rates since their issuance.
CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are subject to concentration of credit
risk consist primarily of cash and cash equivalents and trade accounts
receivable which are generally not collateralized. The Company's policy is to
place its cash and cash equivalents with high credit quality financial
institutions
--------------------------------------------------------------------------------
F- 8
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STOCKPOINT, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
in order to limit the amount of credit exposure. The Company's trade accounts
receivable are primarily with customers in the financial services industry. The
Company maintains allowances for probable credit losses.
CONCENTRATION OF SOURCES OF CONTENT
The Company obtains financial data and information, such as stock pricing
information, financial news, and research information, from a limited number of
content providers through nonexclusive contractual relationships with terms that
usually range from one to two years. The Company may not be able to renew these
contracts on favorable terms or a change in content providers could cause
significant service disruptions which would adversely affect the business.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include interest earning deposits with original
maturities of ninety days or less.
PURCHASED SOFTWARE, EQUIPMENT, AND FURNITURE
Purchased software, equipment, and furniture are recorded at cost. Depreciation
is provided using the straight-line method over the estimated useful lives
(three to five years) of the related assets. The Company reviews such assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
SOFTWARE DEVELOPMENT COSTS
Software development costs for products and significant product enhancements
incurred subsequent to the establishment of their technological feasibility and
prior to their general release to customers are capitalized. The ultimate
recovery of the costs is dependent on the Company's ability to successfully
complete the products or enhancements under development and to achieve a level
of market acceptance, which will generate revenues and profits in amounts
sufficient to permit such recovery. The Company evaluates the recoverability of
capitalized software development costs by project on a periodic basis.
The Company begins amortizing software development costs when the products and
product enhancements are released to customers. Amortization expense was
$55,064, $29,948 and $12,865 for the years ended December 31, 1997, 1998 and
1999, respectively. Capitalized software development costs are amortized pro
rata based upon revenue earned over total anticipated revenue from the related
products or product enhancement or straight-line over three years, whichever
method results in the greatest amortization expense.
DEFERRED OFFERING COSTS
Incremental costs directly attributable to the Company's planned initial public
offering of its common stock have been deferred and will be offset against the
proceeds of the offering.
DEFERRED FINANCING COSTS
Incremental costs directly attributable to the Company's line of credit
agreement and private placement offering of debentures have been deferred and
are being amortized as interest expense over the life of the line of credit
agreement and debentures, respectively.
PRODUCT SUPPORT AND WARRANTY COSTS
Estimated costs anticipated to be incurred during the product support and
warranty period related to the Company's discontinued metals segment (see Note
13) was accrued when revenue from the system
--------------------------------------------------------------------------------
F- 9
<PAGE> 79
STOCKPOINT, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
sale was recognized. The Company remains liable for such costs for systems sold
prior to the sale of the metals segment.
REVENUE RECOGNITION AND DEFERRED REVENUE
Revenues from Internet advertising, license, and maintenance and support
agreements are recognized ratably over the periods of the agreements. Revenues
from services for projects and Internet development agreements are recognized as
project or development time is incurred. Deferred revenue represents amounts
billed to customers as permitted by the agreements which have not yet been
recognized as revenue.
The staff of the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB 101") in
December 1999. SAB 101 summarizes the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The application of SAB 101 to revenue recognition for development fees that are
negotiated with and essential to the functionality of the license agreement
would have had an immaterial effect on the Company's financial statements as of
December 31, 1999. The Company has applied SAB 101 to such development fees on a
prospective basis. The Company, beginning January 1, 2000, defers development
fees, and the related costs, that are negotiated with and essential to the
functionality of the license agreement and recognizes the revenues and related
costs ratably over the license period.
DEBT DISCOUNT
Original issue debt discount associated with the value assigned to detachable
common stock warrants issued in connection with the Company's lines of credit is
being amortized as interest expense over the life of the line of credit
agreements.
INCOME TAXES
Deferred income taxes are provided to recognize the tax effect of temporary
differences between the basis of assets and liabilities for tax and financial
statement purposes. A valuation allowance is provided to reduce deferred tax
assets to the amount considered realizable.
STOCK BASED COMPENSATION
The Company measures stock-based compensation cost with employees as the excess
of the fair value of the Company's common stock at date of grant over the amount
the employee must pay for the stock. The Company measures stock-based
compensation with other than employees as the fair value of the goods or
services received or the fair value of the equity instrument issued, whichever
is more reliably measurable.
If compensation cost for stock option grants to employees had been determined
based on fair value at the grant dates consistent with the method prescribed by
Statement of Financial Accounting Standards
--------------------------------------------------------------------------------
F- 10
<PAGE> 80
STOCKPOINT, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
No. 123, "Accounting for Stock Based Compensation," the Company's net loss
applicable to common stockholders and net loss per share would have been the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1998 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss applicable to common stockholders:
As reported....................................... $(4,381,689) $(6,994,706) $(3,579,995)
Pro forma......................................... (4,442,009) (7,018,879) (3,651,326)
Net loss per common share:
As reported....................................... $(1.40) $(2.21) $(1.11)
Pro forma......................................... (1.42) (2.22) (1.14)
</TABLE>
The Company's calculations were made using the Black-Scholes option pricing
model with the following weighted average assumptions: seven year expected life
of option; stock volatility of zero; risk-free interest rates of 6.25%, 5.5% and
6.0% in 1997, 1998 and 1999, respectively; and no dividends during the expected
term. The pro forma amounts for compensation cost may not be indicative of the
effects on net loss applicable to common stockholders and net loss per common
share for future years.
NET LOSS PER COMMON SHARE INFORMATION
The Company's net loss per common share is based upon the weighted average
number of common shares outstanding during the periods presented. Equivalent
shares in the form of convertible preferred
--------------------------------------------------------------------------------
F- 11
<PAGE> 81
STOCKPOINT, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
stock, stock options and warrants are excluded from the calculation since they
are antidilutive. The Company's net loss per common share is calculated as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1997 1998 1999 1999 2000
-------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Loss from continuing operations......... $(3,935,701) $(6,228,342) $(3,947,885) $(2,157,178) $(3,912,212)
Cumulative dividends on preferred
stock................................. (40,266) (409,418) (412,918) (206,458) (206,458)
----------- ----------- ----------- ----------- -----------
Loss from continuing operations
applicable to common stockholders..... (3,975,967) (6,637,760) (4,360,803) (2,363,636) (4,118,670)
Income (loss) from discontinued
operations............................ (405,722) (356,946) 780,808 780,808 --
----------- ----------- ----------- ----------- -----------
Loss before extraordinary item.......... (4,381,689) (6,994,706) (3,579,995) (1,582,828) (4,118,670)
Gain on extinguishment of debt.......... -- -- -- -- 233,600
----------- ----------- ----------- ----------- -----------
Net loss applicable to common
stockholders.......................... $(4,381,689) $(6,994,706) $(3,579,995) $(1,582,828) $(3,885,070)
=========== =========== =========== =========== ===========
Basic and diluted loss per common share:
Loss from continuing operations....... $(1.27) $(2.10) $(1.35) $(0.74) $(1.25)
Income (loss) from discontinued
operations.......................... (0.13) (0.11) 0.24 0.24 --
----------- ----------- ----------- ----------- -----------
Loss before extraordinary item........ (1.40) (2.21) (1.11) (0.50) (1.25)
Gain on extinguishment of debt........ -- -- -- -- 0.07
----------- ----------- ----------- ----------- -----------
Net loss.............................. $(1.40) $(2.21) $(1.11) $(0.50) $(1.18)
=========== =========== =========== =========== ===========
Weighted average common shares
outstanding........................... 3,134,552 3,160,359 3,212,106 3,194,831 3,283,247
=========== =========== =========== =========== ===========
Potential common shares excluded from
per share computation because they
were antidilutive:
Convertible preferred stock......... 2,454,552 2,660,910 2,758,200 2,681,097 2,782,437
Options............................. 633,225 882,975 2,478,450 1,274,100 2,852,550
Warrants............................ 2,530,125 3,280,334 2,715,958 3,325,334 2,726,959
----------- ----------- ----------- ----------- -----------
Total............................... 5,617,902 6,824,219 7,952,608 7,280,531 8,361,946
=========== =========== =========== =========== ===========
</TABLE>
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The recognition of gains or losses resulting from
changes in the values of derivatives is based on the use of each derivative
instrument and whether it qualifies for hedge accounting. SFAS No. 137 deferred
the effective date of SFAS No. 133 to fiscal years beginning after June 15,
2000. The Company has not yet determined the effect of SFAS No. 133 on the
consolidated financial statements.
SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement
Benefits" is not applicable to the Company's operations.
--------------------------------------------------------------------------------
F- 12
<PAGE> 82
STOCKPOINT, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RECLASSIFICATION
Certain reclassifications have been made to prior years amounts to conform with
the current period presentation.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim consolidated financial statements and the related information in the
notes as of June 30, 2000 and for the six months ended June 30, 1999 and 2000
are unaudited. Such interim consolidated financial statements have been prepared
on the same basis as the audited consolidated financial statements and, in the
opinion of management, reflect all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the financial position,
the results of operations and cash flows for the interim periods presented. The
results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
2. NOTES PAYABLE
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999 2000
-----------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
Debentures, 8.75%, due September 30, 2002,
collateralized by irrevocable letters of credit to
pay principal and accrued interest in an amount equal
to 107% of the principal amount of the debentures,
waiver of collateral violation with bank providing
the irrevocable letters of credit only exists through
June 30, 2001 as discussed below..................... $5,900,000 $5,900,000 $5,900,000
Prior lines of credit, 8.25%, restructured to notes
payable in December 1999............................. 4,145,000 -- --
Notes payable to banks, interest rate at prime (8.5% at
December 31, 1999), $1,145,000 due June 30, 2001 and
$3,000,000 due November 2, 2002, waiver of collateral
violation with banks only exists through June 30,
2001 as discussed below.............................. -- 4,145,000 4,145,000
Lines of credit, interest rate at prime (8.5% at
December 31, 1999), due June 30, 2001, collateralized
by substantially all of the Company's assets......... -- 2,475,000 2,970,000
Note payable to the Iowa Department of Economic
Development, forgivable loan, 6%, see repayment terms
below, collateralized by certain software, equipment
and furnishings, and accounts receivable............. 250,000 250,000 106,400
Note payable, 8%, due January 25, 2005, collateralized
by equipment......................................... -- -- 40,883
Unamortized debt discount.............................. -- (511,579) (980,681)
---------- ----------- ----------
Total notes payable, net of discount................... 10,295,000 12,258,421 12,181,602
Less current portion................................... 4,395,000 1,750,000 12,046,969
---------- ----------- ----------
Long-term debt, net of discount........................ $5,900,000 $10,508,421 $134,633
========== =========== ==========
</TABLE>
--------------------------------------------------------------------------------
F- 13
<PAGE> 83
STOCKPOINT, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's debentures are due earlier, at the Company's option, if the
Company completes a public offering of its common stock at a price of at least
$5.33 per share and generates net proceeds of at least $15,000,000. The
debentures also prohibit the Company from pledging any of its existing assets to
collateralize any indebtedness without the consent of a majority of the holders
of the debentures. During 1999, the Company obtained a waiver from the debenture
holders which allows the Company to pledge up to $3,000,000 of Company assets.
The irrevocable letters of credit related to the debentures and the prior lines
of credit, which were restructured to notes payable as discussed below, are
collateralized by a pledge of marketable securities held by the Company's former
chairman of the Board of Directors and chief executive officer. The lenders
alleged that the marketable securities were counterfeit and in December 1998
informed the Company that the Company would not be able to borrow any additional
amounts available under the lines of credit. Due to the uncertainty regarding
the validity of the pledge, the Company classified the borrowings under the
lines of credit as current at December 31, 1998.
On December 3, 1999 the lines of credit were terminated and the balances
outstanding were restructured to notes payable. Under the terms of the
restructuring agreement, the lenders agreed to waive any events of default
existing on December 3, 1999 under the lines of credit and the irrevocable
letters of credit related to the debentures through June 30, 2001. Accordingly,
these amounts have been classified as long-term at December 31, 1999.
The notes payable require repayment and either (a) the debentures must be
repaid, (b) a replacement letter of credit must be obtained or (c) cash
collateral equal to 120% of the letters of credit must be provided if before
June 30, 2001 the Company completes a strategic transaction. A strategic
transaction is defined as an initial public offering of an equity security by
the Company, a sale of substantially all of the Company's assets, or any other
strategic transaction including a merger or joint venture involving a major
component of the Company's business.
Covenants under the notes payable require, among others, that the Company will
not incur any other debt or liens except for the new bank line of credit
discussed below; not declare or pay any dividends; not redeem any capital stock;
and limit annually its capital leases, capital expenditures, and salaries of
certain employees to specified levels. The Company was in compliance with these
covenants as of December 31, 1999.
In December 1999, the Company obtained from a bank a new $2,500,000 line of
credit, which expires on June 30, 2001. A group of guarantors entered into
credit support agreements with the bank as additional collateral for the line of
credit. The Company granted to the guarantors warrants for the purchase of
750,000 shares of the Company's common stock at an exercise price of $5.00 per
share as consideration for their credit support. The value assigned to the
warrants, shown as debt discount, has been based on the estimated rate of
interest that would have been required for the line of credit if the credit
support had not been obtained. The warrants expire in December 2004. The
warrants also provide for an adjustment to the exercise price, and the number of
common shares which can be purchased, if the Company completes a public offering
of its common stock pursuant to a firm commitment at a price less than $10 per
share. The exercise price in such event will be adjusted to 50% of the public
offering price and the number of shares of common stock which can be purchased
will be equal to $3,750,000 divided by the new exercise price. The Company also
granted to the guarantors the right to name one representative to the Company's
Board of Directors. Covenants under the line of credit and guaranty agreements
require, among others, that the Company will prepay the obligation to the extent
of the proceeds from any sale of the Company's assets or any equity or debt
issuance; prepay the obligation upon any consolidation, merger, or transfer of
substantially all
--------------------------------------------------------------------------------
F- 14
<PAGE> 84
STOCKPOINT, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
assets of the Company; obtain approval before entering into capital leases above
annual specified levels; and make draws under the line of credit only in
accordance with the Company's cash flow budget. The Company was in compliance
with these covenants as of December 31, 1999.
In January 2000, the Company repaid $1,750,000 of the balance outstanding under
the line of credit as required by the cash flow budget provision of the
agreement. Accordingly, this amount has been classified as a current liability
at December 31, 1999.
During February 2000, the Company obtained final approval of the terms for
repayment of its forgivable loan with the Iowa Department of Economic
Development ("Department"). Prior to such approval, the loan was due and payable
as of June 30, 1999. The Department agreed to forgive $170,000 of principal and
$63,600 of accrued interest on the loan. Such amounts were recorded as gain on
extinguishment of debt in the first quarter of the Company's 2000 calendar year.
The remaining principal balance will be repaid, with interest at 6%, in
approximately equal monthly installments during 2002 through 2004. The
forgivable loan has been reclassified to long-term at December 31, 1999.
3. INCOME TAXES
Due to the Company's history of operating losses, a valuation allowance was
provided for the Company's net deferred tax asset at December 31, 1998 and 1999
and June 30, 2000 and no tax benefit was recognized for the years ended December
31, 1997, 1998 and 1999 and the six months ended June 30, 1999 and 2000.
The tax effects of significant items comprising the Company's net deferred tax
asset and the related valuation allowance are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
----------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, net of allowance....................... $23,200 $64,500
Inventories................................................. 568,100
Accrued vacation pay........................................ 41,100 64,000
Accrued warranties.......................................... 12,000 107,000
Nonqualified stock options.................................. 358,100 660,700
Stock warrants.............................................. 69,500
Other accrued liabilities................................... 15,700
Accrual to cost method adjustment........................... 296,700
Net operating loss carryforward............................. 6,429,000 7,011,000
---------- ----------
Total deferred tax assets................................... 7,743,900 7,976,700
---------- ----------
Deferred tax liabilities:
Software development costs.................................. (16,700) (7,300)
Fixed assets and other intangibles.......................... (36,000) (111,200)
---------- ----------
Total deferred tax liabilities.............................. (52,700) (118,500)
---------- ----------
Net deferred tax asset...................................... 7,691,200 7,858,200
Valuation allowance......................................... (7,691,200) (7,858,200)
---------- ----------
Net deferred tax asset recognized........................... $-- $--
========== ==========
</TABLE>
--------------------------------------------------------------------------------
F- 15
<PAGE> 85
STOCKPOINT, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 1999, the Company has a net operating loss carryforward for
federal and state income tax purposes of approximately $20,623,000. The net
operating loss carryforward will expire from 2008 to 2014.
4. PREFERRED STOCK
The Board of Directors has the authority to issue preferred stock in one or more
series and to determine the price, voting powers, preferences, dividend rights,
conversion rights, and other rights or restrictions without further stockholder
approval.
The Company sold 320,000 shares of Series A preferred stock in April 1993 and
282,720 shares of Series B preferred stock in June 1994 at a price of $6.25 per
share. The Series A and Series B preferred stock stockholders are entitled to
vote with the common stock stockholders as a single class with each share of
Series A and Series B preferred stock being entitled to the number of votes
equal to the number of shares of common stock into which it is convertible. Each
share of Series A and Series B preferred stock is convertible, at the holder's
option, into 2.34375 shares of common stock. Antidilution rights also exist for
the Series A and Series B preferred stock stockholders.
The Series A or Series B preferred stock will also automatically convert into
common stock (a) immediately upon the closing of an initial public offering of
common stock if the aggregate proceeds are greater than or equal to $5,000,000
or (b) upon approval of the holders of two-thirds or more of the outstanding
Series A or Series B preferred stock. No dividends are payable on the Series A
and Series B preferred stock unless the Company, in its sole discretion,
declares a dividend with respect to its common stock, or on any series of
preferred stock ranking equal to or junior to the Series A and Series B
preferred stock. Upon liquidation, dissolution, or winding up, after the payment
of any amounts in respect of any series of preferred stock entitled to a
liquidation preference over the Series A and Series B preferred stock, the
holders of the Series A and Series B preferred stock are entitled to receive an
amount per share equal to $6.25 plus any declared but unpaid dividends on such
shares, prior to any payment to the holders of the common stock. If assets
available for distribution are insufficient to pay holders of Series A and B
stock, then such holders shall share ratably in any distribution of assets of
the Company in proportion to amounts that would have been payable with respect
to their shares if all amounts were paid.
The Company sold 694,618 and 78,636 shares of Series C preferred stock during
1997 and 1998, respectively, at a price of $7.63 per share. The holders of the
Series C preferred stock are entitled to vote, on the basis of one vote for each
share of common stock issuable upon conversion, with the holders of the common
stock, Series A preferred stock, and Series B preferred stock, on all matters
upon which shareholders have the right to vote. In addition, the approval of the
holders of at least a majority of the Series C preferred stock will be required
(i) to authorize or issue any shares of any class or series of the Company's
capital stock (or securities convertible into shares of the Company's capital
stock) having a preference as to dividends or liquidation senior to the Series C
preferred stock, (ii) to merge or consolidate with any corporation where the
surviving corporation has any class of stock that would rank prior to the Series
C preferred stock, (iii) to amend, alter or repeal any provisions of the
certificate of designation governing the Series C preferred stock, so as to
adversely affect the rights or preferences of Series C preferred stock, (iv) to
declare or pay any dividend or make any other distribution on any class of
capital stock of the Company other than a dividend paid on the Series C
preferred stock and (v) to issue any convertible debt security that provides for
the payment of interest or other distributions.
--------------------------------------------------------------------------------
F- 16
<PAGE> 86
STOCKPOINT, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In the event of the dissolution, liquidation or winding up of the Company,
holders of the Series C preferred stock will be entitled to receive $7.63 per
share plus all accumulated and unpaid dividends, before any distribution is made
to holders of the common stock or preferred stock ranking junior to the Series C
preferred stock. The Series C preferred stock will rank on a par with the Series
A preferred stock and Series B preferred stock in the event of liquidation,
however, the Series C preferred stock is senior to the Series A and B preferred
stock with respect to dividends.
The Series C preferred stock bears dividends, cumulative whether or not earned,
at the rate of $0.534 per share per annum. Such dividends will be payable, if
and when declared out of funds legally available, on March 31 and September 30
of each year. Dividends not paid on the date when due will not thereafter be
payable in cash, subject to optional redemption, as described below, but shall
thereafter only be convertible into shares of common stock, as described below.
The aggregate cumulative unpaid dividends at December 31, 1999 were $862,602.
The Series C preferred stock, with an initial conversion value of $5.09 per
share, and all accumulated but unpaid dividends on the Series C preferred stock,
will be convertible, at the option of the holder at any time after issuance,
into common stock at the rate of $5.09 per common share. The conversion rate for
the Series C preferred stock is subject to adjustment from time to time in the
event of certain stock dividends, stock divisions and combinations of the common
stock, and the issuance of any common stock at a price, or of any other
securities convertible into or exercisable to purchase common stock at a price,
less than the conversion price then in effect. If the Company issues securities
at a price less than the conversion price then in effect, the conversion price
adjusts based on a weighted average of the stock outstanding. In the case of a
consolidation or merger of the Company with or into any other corporation, or in
case of any sale or transfer of all or substantially all of the assets of the
Company, a holder of Series C preferred stock is entitled, thereafter, to
receive upon conversion the consideration which the holder would have received
had he or she converted immediately prior to the occurrence of the event. The
conversion price of the Series C preferred stock at December 31, 1999 is $5.03.
The Series C preferred stock, and any dividends accumulated thereon, will be
automatically converted into common stock at the then current conversion rate in
the event of (i) the closing of an underwritten public offering of the common
stock at a price of not less than $5.33 per share that generates net proceeds to
the Company of not less than $15,000,000, or (ii) the vote of holders of at
least two-thirds of the outstanding shares of Series C preferred stock.
On or after September 30, 2004, the Company may, at its option, redeem all or
any portion of the Series C preferred stock at a cash redemption price equal to
$7.63 per share plus all accumulated but unpaid dividends to the date fixed for
redemption. In case of the redemption of less than all of the then outstanding
shares of Series C preferred stock, the Company shall effect such redemption pro
rata. Any holder of Series C preferred stock may elect to convert such shares
into common stock up to the date fixed for redemption.
Each holder of the Series A, Series B and Series C preferred stock is also a
party to a Registration Rights Agreement granting to such holder the right to
require the Company to register the common stock issuable upon conversion of the
Series A, Series B and Series C preferred stock upon completion of an initial
public offering of the Company's common stock. All expenses of the registration,
other than underwriting discounts and commissions, incurred in connection with
such registration shall be borne by the Company.
--------------------------------------------------------------------------------
F- 17
<PAGE> 87
STOCKPOINT, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMON STOCK
Holders of common stock are entitled to one vote per share on all matters
submitted to a vote by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably any dividends, as may be declared from time to time
by the Board of Directors out of funds legally available therefor, and will be
entitled to receive pro rata all assets of the Company available for
distribution, after payment of liabilities and any prior distribution rights of
preferred stock, upon liquidation.
6. STOCK OPTIONS
During April 1993, the Board of Directors adopted the 1993 Stock Incentive Plan
(the "1993 Plan"). Under the 1993 Plan, options or other awards may be granted
to purchase up to an aggregate of 750,000 shares of the Company's common stock.
During December 1995, the Company's stockholders approved the 1995 Long Term
Incentive and Stock Option Plan (the "1995 Plan"). Under the 1995 Plan, options
or other awards may be granted to purchase up to 878,018 shares of the Company's
common stock. Awards granted under the 1993 and 1995 Plans may be options that
are intended to qualify as incentive stock options, options that are not
intended to so qualify, stock appreciation rights ("SARs"), restricted stock or
performance awards. Incentive stock options may only be granted to full-time or
part-time employees; other awards may be granted to full-time or part-time
employees, officers, consultants, directors (other than nonemployee directors)
or independent contractors. A committee appointed by the Board of Directors
determines the exercise price (subject to the restriction that the exercise
price of incentive stock options must be not less than 100% of fair market value
on the date of grant), term (provided that the term of options may not exceed
ten years) and other conditions of all awards under the 1993 and 1995 Plans.
On July 20, 1998, the 1993 Stock Incentive Plan was rescinded, upon the exchange
of all outstanding options granted under the 1993 Plan for options in an
identical number, at an exercise price of $1.00 per share, and on a vesting
schedule identical to that of the options previously granted under the 1993
Plan. At the same time, the Board of Directors amended the 1995 Plan to increase
the number of shares of common stock on which options or other awards may be
exercised from 878,018 to 1,500,000. Also, on July 20, 1998, the Company
cancelled all outstanding options granted under the 1995 Plan and issued options
in an identical number, and on a vesting schedule identical to that of the
options previously granted, at an exercise price of $1.00 per share.
In September 1999, the Board of Directors amended the 1995 Plan to change the
authorized number of shares of common stock on which options or other awards may
be exercised to 3,000,000 plus shares equal to one and one-half percent of the
number of shares of common stock outstanding as of the December 31 immediately
preceding the year in which such options may be granted and to change the
vesting schedule for all outstanding options and future awards of options with
20% of the total grant to vest on the first anniversary of the award and 1.67%
of the total grant to vest each month thereafter until fully vested.
The fair value of the Company's common stock for 1997, as determined in good
faith by the Company's Board of Directors, was equal to or below the exercise
price of options granted in 1997 and, therefore, no compensation expense was
recognized related to stock options. The fair value of the Company's common
stock as of July 20, 1998 and as of the date of other options granted during the
remainder of 1998 and through August 31, 1999, as determined in good faith by
the Company's Board of Directors, was $4.00 per share. The fair value of the
Company's common stock as of September 15, 1999, as determined by an independent
appraisal, was $4.80 per share which the
--------------------------------------------------------------------------------
F- 18
<PAGE> 88
STOCKPOINT, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company has used to value stock options granted from September 1, 1999 through
December 31, 1999. The Company has recognized compensation expense of $896,670
and $661,352 during 1998 and 1999 (including amounts allocated to discontinued
operations of $230,400 and $49,050), respectively, based on the vesting period
of the options and the difference between the exercise price of the options and
the fair value of the Company's common stock.
Options outstanding and exercisable at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
OPTIONS
OUTSTANDING
WEIGHTED
AVERAGE
REMAINING OPTIONS
CONTRACTUAL EXERCISABLE
EXERCISE PRICE SHARES LIFE (IN YEARS) SHARES
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$1.00..................................................... 1,239,450 8.18 409,338
$4.00..................................................... 170,250 9.59 --
$4.80..................................................... 1,008,750 9.71 154,800
--------- --------------- -----------
2,418,450 8.91 564,138
========= =============== ===========
</TABLE>
A summary of stock option activity under the 1993 and 1995 Plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
FAIR OPTION OPTION
OPTIONS OPTION PRICE VALUE PRICE OPTIONS PRICE
OUTSTANDING PER SHARE PER SHARE PER SHARE EXERCISABLE PER SHARE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.... 455,468 $ 2.67 $2.67 134,850 $ 2.67
Granted at premium............ 247,500 5.33 $4.00 5.33
Cancelled..................... (114,743) 2.67-5.33 3.37
--------- ---------- -------- ----- ----------- ---------
Balance at December 31, 1997.... 588,225 2.67-5.33 3.65 171,300 3.09
Cancelled..................... (588,225) 2.67-5.33 3.65
Reissued at discount.......... 588,225 1.00 4.00 1.00
Granted at discount........... 315,000 1.00 4.00 1.00
Cancelled..................... (72,750) 1.00 1.00
--------- ---------- -------- ----- ----------- ---------
Balance at December 31, 1998.... 830,475 1.00 1.00 298,890 1.00
Granted at discount........... 660,075 1.00 4.00 1.00
Granted at market............. 147,750 4.00 4.00 4.00
Granted at discount........... 22,500 4.00 4.80 4.00
Granted at market............. 1,008,750 4.80 4.80 4.80
Exercised..................... (7,125) 1.00 1.00
Cancelled..................... (243,975) 1.00 1.00
--------- ---------- -------- ----- ----------- ---------
Balance at December 31, 1999.... 2,418,450 1.00-4.80 2.79 564,138 2.05
Granted at market............. 200,250 5.00 5.00 5.00
Granted at market............. 13,500 5.33 5.33 5.33
Granted at market............. 49,500 6.00 6.00 6.00
Granted at market............. 204,750 6.67 6.67 6.67
Granted at discount........... 36,750 6.67 8.50 6.67
Cancelled..................... (138,150) 1.00-4.80 3.14
--------- ---------- -------- ----- ----------- ---------
Balance at June 30, 2000
(unaudited)................... 2,785,050 $1.00-6.67 $3.41 708,522 $ 2.11
========= ========== ======== ===== =========== =========
</TABLE>
--------------------------------------------------------------------------------
F- 19
<PAGE> 89
STOCKPOINT, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1999, an additional 629,469 are available for future grants
under the 1995 Plan.
The Board of Directors also granted to the members of the Company's former
Scientific Advisory Board options to purchase a total of 37,500 shares of the
Company's common stock at a purchase price of $2.67 per share which expire in
August 2000.
During December 1996, the Company's stockholders approved the Nonemployee
Director Stock Option Plan (the "Directors' Plan"). The Company has reserved
75,000 shares of common stock for issuance upon exercise of options granted
under the Directors' Plan. Only nonemployee directors of the Company are
eligible to participate in the Directors' Plan and only non-qualified stock
options may be granted. Each director eligible to participate in the Directors'
Plan is automatically granted an option to purchase 7,500 shares of common stock
on the date such person first becomes a director; this option vests in three
equal installments beginning on the first anniversary of grant. Each director
eligible to participate in the Directors' Plan who has served since the date of
the last annual meeting of stockholders and will continue to serve is
automatically granted an option to purchase 7,500 shares of common stock on the
date of each annual meeting of stockholders; this option vests in its entirety
on the date one year after the date of grant. All options granted under the
Directors' Plan have terms of ten years and a per share exercise price equal to
the fair market value of a share of common stock on the date of grant. At
December 31, 1999, options to purchase 22,500 shares of common stock have been
granted under the Directors' Plan at an exercise price of $2.67-$4.00, with
12,500 shares exercisable at December 31, 1999.
--------------------------------------------------------------------------------
F- 20
<PAGE> 90
STOCKPOINT, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMON STOCK WARRANTS
A summary of common stock warrant activity is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WARRANT WARRANT
WARRANT PRICE PRICE
SHARES PER SHARE PER SHARE
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1996................................ 2,062,125 $ 2.67 $2.67
Warrants granted to six employees and consultants in
connection with the merger with Ethos Corporation (see
Note 11)............................................... 468,000 5.33 5.33
---------- ---------- -----
Balance at December 31, 1997................................ 2,530,125 2.67-5.33 3.16
Warrants granted to the Company's former chief executive
officer in consideration of his pledge of marketable
securities as security for the irrevocable letter of
credit, which serves as collateral for the debentures
(Note 2)............................................... 750,000 5.33 5.33
Warrants granted to the Company's former chief executive
officer in consideration of his pledge of marketable
securities as collateral for prior bank lines of credit
(Note 2)............................................... 150,000 5.33 5.33
Warrants granted to placement agent in consideration of
services provided related to the debenture/preferred
stock private placement................................ 45,209 5.33 5.33
Warrants expired.......................................... (15,000) 2.67 2.67
Warrants exercised........................................ (180,000) 2.67 2.67
---------- ---------- -----
Balance at December 31, 1998................................ 3,280,334 2.67-5.33 3.81
Warrants granted to the Company's former chief executive
officer in consideration of his pledge of marketable
securities as collateral for prior bank lines of credit
(Note 2)............................................... 150,000 5.33 5.33
Warrants granted to financial consultant for services
rendered............................................... 45,000 2.67 2.67
Warrants granted to consultant for consulting contract.... 187,500 4.00 4.00
Warrants granted for guarantee on new line of credit (Note
2)..................................................... 750,000 5.00 5.00
Warrants expired.......................................... (140,625) 2.67 2.67
Warrants exercised........................................ (187,500) 2.67 2.67
Warrants to the Company's former chief executive officer
cancelled.............................................. (1,368,750) 2.67-5.33 4.71
---------- ---------- -----
Balance at December 31, 1999................................ 2,715,959 2.67-5.33 3.91
Warrants granted for guarantee on new line of credit (Note
16).................................................... 150,000 6.67 6.67
Warrants expired.......................................... (1,500) 2.67 2.67
Warrants exercised........................................ (187,500) 2.67 2.67
---------- ---------- -----
Balance at June 30, 2000 (unaudited)........................ 2,676,959 $2.67-6.67 $4.15
========== ========== =====
</TABLE>
At December 31, 1999, the weighted average remaining life of the warrants is 3.9
years and 2,715,959 warrants were exercisable at a weighted average price of
$3.91 per share. The warrants also provide for registration rights similar to
those granted the preferred stockholders (see Note 4) and antidilution rights.
The Company has valued warrants issued to consultants during 1999 at
approximately $280,000 and has recognized expense over the term of the
consulting agreements of $197,458 for the
--------------------------------------------------------------------------------
F- 21
<PAGE> 91
STOCKPOINT, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
year ended December 31, 1999 for the difference between the exercise price of
the warrants and the fair value of warrants granted.
The warrants exercised during 1998 and 1999 provided for a cashless exercise
under which the warrant holder received 60,000 and 62,501 shares of common
stock, respectively, based on the $4.00 per share fair value of the Company's
common stock.
In December 1999, the Company entered into a settlement and general release
agreement with its former chairman of the board and chief executive officer
("executive"). The agreement cancels warrants held by the executive to purchase
1,050,000 and 318,750 shares of the Company's stock at $5.33 and $2.67 per
share, respectively (the executive retained 750,000 warrants at $2.67 per
share); cancels the executive's right to receive 450,000 of additional warrants
at an exercise price of $5.33 per share (150,000 of which would have been
granted on January 1, 2000); requires the Company to pay the executive $60,000
at the earliest of an initial public offering or June 30, 2001 in consideration
of the executive entering into the agreement; and provides both the Company and
the executive a general release from all claims between the parties. The
executive is also required to place all common stock and Series B preferred
stock of the Company owned by the executive, and any shares of stock in the
Company acquired by the executive upon exercise of warrants, into a voting trust
controlled by an independent third party. The agreement has been filed with the
bankruptcy court as the executive is in involuntary bankruptcy, however, a
creditor of the executive has filed a motion in the bankruptcy proceedings to
set aside the settlement agreement.
8. LEASES
The Company leases its offices and certain equipment under operating leases.
Rental expense incurred under operating leases was $390,534, $398,500 and
$401,769 for the years ended December 31, 1997, 1998, and 1999, respectively.
In October 1993, the Company entered into an operating lease with Liberty
Growth, L.C., ("Liberty") for the lease of a 25,600 square foot building (the
"Facility") which was completed in July 1994. Liberty erected the Facility in
accordance with plans and specifications agreed upon between Liberty and the
Company and provided furniture, fixtures, and equipment in the Facility as
specified in the lease. The lease was for an initial term of five years,
beginning September 1994, with options given to the Company to extend for two
additional terms of five years each. The Company exercised the first renewal
option in September 1998. The monthly rental upon renewal will be adjusted to
reflect Liberty's actual mortgage interest cost as discussed below. The lease
provides that the Company will pay for all taxes, insurance, utilities,
alterations and improvements, and repair and maintenance on or with respect to
the Facility, furniture, fixtures and equipment. The monthly rental of $23,248
effective March 1999 ($23,840 previously) is the sum of the following:
a. payments of principal (based on a 20 year loan amortization period) and
interest on Liberty's mortgage loan on the Facility (the "Mortgage Loan");
the interest rate under the mortgage loan is 8% for the first five years
and on the fifth and tenth anniversaries of the loan is subject to
adjustment by the bank based on comparable interest rates with a 7% minimum
and 12% maximum rate;
b. the amount of the annual land lease rental on the underlying real estate;
and
c. an amount equal to 14% times the difference between (i) the cost to Liberty
of all improvements constructed or purchased by Liberty and the furniture,
fixtures and equipment, and (ii) the original principal amount of the
Mortgage Loan.
--------------------------------------------------------------------------------
F- 22
<PAGE> 92
STOCKPOINT, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Under the terms of the lease, the Company has an option, exercisable effective
January 1, 1998 and continuing through the termination or expiration of the
lease, to purchase the Facility and furniture, fixtures and equipment at a
purchase price to be determined by appraisal, but in no event less than
Liberty's cost as established for purposes of calculating the rent payable under
the lease.
In May of 1999, the Company subleased part of the building rented from Liberty.
The sublease is for an eighteen month term, terminating October 31, 2000.
Sublease receipts were $50,400 the year ended December 31, 1999.
The Company's capital lease, its estimated aggregate minimum annual payments
under all operating leases with initial noncancellable lease terms in excess of
one year and its noncancellable sublease receipts are as follows as of December
31, 1999:
<TABLE>
<CAPTION>
NONCANCELLABLE NONCANCELLABLE
CAPITAL OPERATING SUBLEASE
YEAR ENDED DECEMBER 31, LEASES LEASES RECEIPTS
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000................................................... $9,529 $ 687,003 $72,000
2001................................................... 9,529 390,639 --
2002................................................... 9,529 282,435 --
2003................................................... 9,529 278,976 --
2004................................................... 6,353 185,984 --
------- -------------- --------------
Minimum lease payments................................. 44,469 $1,825,037 $72,000
============== ==============
Less amounts representing interest..................... 10,388
-------
Present value of minimum lease payments................ 34,081
Current portion of capital lease obligations........... 5,821
-------
Capital lease obligations due after one year........... $28,260
=======
</TABLE>
9. COMMITMENTS AND CONTINGENT LIABILITIES
On June 10, 1994, the Company entered into an Agreement For Private Development
with the City of Coralville, Iowa (the "City"). The Company and Liberty jointly
received a $175,000 Economic Development Grant from the City during 1994.
According to the agreement, these proceeds were used by Liberty to reduce the
costs of the building (see Note 8). The Company pays property taxes to the City
based on the assessed value of the property and the City will use such property
taxes to pay debt service on the bonds which were issued by the City for this
grant. The Company has guaranteed that commencing January 1, 1998 to January 1,
2004, it will make every effort to maintain an employment level of at least 100
full time jobs. The Company at December 31, 1999 maintained an employment level
of 79 full time jobs. If the Company is in default of any terms of the
agreement, the City may take action to recover the grant paid to the Company. As
of December 31, 1999, management believes that the Company was in compliance
with the terms of the agreement. The Company anticipates that its property tax
payments will be sufficient to pay the debt service costs on the bonds.
On June 30, 1994, the Company entered into an Industrial New Jobs Training
Agreement with Kirkwood Community College ("Kirkwood"). The term of the
agreement is ten years. Based on an estimate of new jobs that the Company would
create ("New Employees"), Kirkwood issued bonds in the amount of $200,000 and
the proceeds were to be used to reimburse approximately $150,000 of the
Company's training costs incurred between June 30, 1994 and August 1, 1997 with
the remaining $50,000 to be used by Kirkwood to cover administrative costs of
the agreement. Any amounts received by the Company under this agreement are to
be repaid using a portion of the New Employees' state
--------------------------------------------------------------------------------
F- 23
<PAGE> 93
STOCKPOINT, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
income taxes which have been withheld by the Company ("New Jobs Withholding
Credits"). The New Jobs Withholding Credits are credits available under the New
Jobs Training Act of the State of Iowa and are not the result of any additional
costs incurred by the Company, but are a defined portion of the Company's
current tax withholding obligation. The Company will make repayments by paying
New Jobs Withholding Credits to Kirkwood for ten years and Kirkwood will use the
New Jobs Withholding Credits to pay the debt service on the bonds. As of
December 31, 1999, the Company has received $77,224 from Kirkwood, Kirkwood has
incurred $47,353 of administrative costs, and the Company has repaid $145,455
through New Jobs Withholding Credits.
If the Company is in default of any terms of the agreement, Kirkwood may take
action to collect any payments due under the agreement. Kirkwood has a lien on
certain Company assets including accounts receivable, equipment, patents and
contract rights. The lien is subordinated to the security interests granted
under the notes payable to the Iowa Department of Economic Development.
The Company has employment agreements with Mr. Staib, Mr. Yamauchi, Mr. Porter,
Ms. Cox and Mr. Dominguez, the Company's Chief Executive Officer, Chief
Operating Officer, Chief Financial Officer, Executive Vice President, Sales and
Executive Vice President, respectively, which provide for annual base salaries
of $130,000, $150,000, $135,000, $150,000 and $150,000, respectively, and
additional annual incentive compensation. The agreements also provide that, upon
completion of an initial public offering, Mr. Staib, Mr. Yamauchi, Mr. Porter,
Ms. Cox and Mr. Dominguez will receive cash bonus payments of $60,000, $45,000,
$29,000, $30,000 and $30,000, respectively, and that Mr. Staib's salary will be
increased to $180,000. The agreements with Mr. Staib, Mr. Yamauchi, Ms. Cox and
Mr. Dominguez expire in December 2000, subject to automatic annual renewals
absent a 90-day notice of nonrenewal by either party. The agreement with Mr.
Porter expires in March 2001, subject to automatic annual renewal absent a
90-day notice of nonrenewal by either party.
In the event the employment of Messrs. Staib, Yamauchi or Dominguez is
terminated without cause or as a result of a constructive termination, the
officer will continue to receive annual salary and health benefits for a period
of nine months after termination and 40% of those options granted in September
1999 which remain unvested will vest. In the event the employment of Mr. Porter
is terminated without cause or as a result of a constructive termination, Mr.
Porter will continue to receive annual salary and health benefits for a period
of nine months after termination. In the event of the termination of Ms. Cox's
employment without cause or as a result of constructive termination, she
receives $450,000 plus nine months of benefits. In addition, if termination
occurs within 12 months following a change in control, the annual salary and
health benefits of each of Messrs. Staib, Yamauchi, and Dominguez will continue
for a period of 18 months. The employment agreements with Mr. Staib, Mr.
Yamauchi, Ms. Cox and Mr. Dominguez also provide that all unvested stock options
held by these individuals will immediately vest upon a change in control.
From time to time the Company has been subject to legal proceedings and claims
in the ordinary course of business. The Company is not aware of any legal
proceedings or claims that management believes will have, individually or in the
aggregate, a material adverse effect on its business, financial condition or
results of operations.
In December 1999, the Company received correspondence from Unisys alleging that
the compression algorithms used to generate Graphic Interchange Format, or GIF,
images requires a license. The Company is currently negotiating with Unisys to
obtain a license agreement and believes that any licensing fee and royalty
payments that may be required to pay for the right to use Unisys' algorithms
would not have a material effect on the business or financial condition. The
Company, however, can
--------------------------------------------------------------------------------
F- 24
<PAGE> 94
STOCKPOINT, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
provide no assure that Unisys will grant the Company a license or, if a license
is granted, that the licensing arrangement will be on commercially reasonable
terms.
10. MAJOR CUSTOMER SALES
Sales to major customers from continuing operations, comprising 10% or more of
total revenue for the year were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1998 1999
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Customer A.................................................. -- 10% 14%
Customer B.................................................. -- 10 --
Customer C.................................................. 25% 16 --
</TABLE>
11. MERGER WITH ETHOS CORPORATION
On March 6, 1997 the Company negotiated an agreement and plan of merger with
Ethos Corporation ("Ethos"), a California corporation engaged in Internet
publication and interactive financial services, to acquire all of the
outstanding shares of common stock of Ethos in exchange for 434,552 shares of
the Company's common stock. Also, the holders of Ethos' redeemable preferred
stock were paid $100,000 for the redemption of such preferred stock. The Company
also entered into certain employment/ consulting agreements and noncompetition
agreements with Ethos' employees and consultants which involved the issuance of
468,000 warrants to purchase the Company's common stock exercisable at $5.33 per
share, and the issuance of 97,500 options to purchase the Company's common stock
exercisable at $5.33 per share, all of which will vest over one to five year
periods depending on the agreement. The transaction was accounted for as a
pooling of interests. The financial statements for periods prior to the merger
have been restated to include the combined financial information of the
companies for all periods presented. The following data summarizes the separate
results of operations of the Company and Ethos for the period before the
combination was consummated.
<TABLE>
<CAPTION>
REVENUES
FROM LOSS FROM
CONTINUING CONTINUING
OPERATIONS OPERATIONS
----------------------------------------------------------------------------------------
<S> <C> <C>
Period from January 1, 1997 to March 6, 1997:
Stockpoint, Inc........................................... $28,620 $(544,717)
Ethos Corporation......................................... $74,442 $(6,554)
</TABLE>
12. 401(k) PLAN
The Company maintains a 401(k) retirement plan covering substantially all of its
employees. The Company will match an employee's contribution to the plan up to
2% of the employee's salary. The Company contributed $49,156 and $47,428 to the
plan under the matching program for the years ended December 31, 1998 and 1999,
respectively. There were no Company contributions to the plan for the year ended
December 31, 1997.
--------------------------------------------------------------------------------
F- 25
<PAGE> 95
STOCKPOINT, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. DISCONTINUED OPERATIONS
On May 28, 1999 the Company sold the technology and operational assets related
to products sold to the steelmaking industry (metals segment) for $750,000. The
Company also entered into a royalty agreement with the buyer whereby royalties,
ranging from 6% to 10%, will be paid on sales or licenses of the software only
portions of certain products. Royalties will be paid for 10 years or until
$3,000,000 is paid. The asset purchase agreement was retroactive to April 2,
1999.
The accompanying statements of operations have been reclassified so that the
results for the metals segment's operations are classified as discontinued
operations for all periods presented. The assets and liabilities of the
discontinued operations have been reclassified in the balance sheet as "net
assets of discontinued operations." As the sale closed less than a year
subsequent to December 31, 1998, the net assets of the discontinued operations
have been classified as current assets as of December 31, 1998. The statements
of cash flows and related notes to the consolidated financial statements have
also been reclassified to conform to the discontinued operations presentation.
Summary operating results of the discontinued operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1998 1999
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues.............................................. $1,708,427 $2,160,104 $1,747,809
Operating expenses.................................... 2,114,149 2,517,050 1,400,134
---------- ---------- ----------
Income (loss) from discontinued operations............ $(405,722) $(356,946) $347,675
========== ========== ==========
</TABLE>
A summary of the net assets of the discontinued operations are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
----------------------------------------------------------------------------
<S> <C>
Current assets:
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. $ 126,831
Inventories............................................... 395,908
Prepaid expenses.......................................... 1,000
------------
Net current assets..................................... 523,739
------------
Software and equipment, net................................. 198,895
Patents, net................................................ 68,400
Software development costs, net............................. 13,167
------------
Net noncurrent assets.................................. 280,462
------------
Net assets............................................. $ 804,201
============
</TABLE>
14. PRO FORMA INFORMATION (UNAUDITED)
The pro forma stockholders' deficiency information presented as of June 30, 2000
has been prepared assuming that the Company's preferred stock had been converted
into common stock as of June 30, 2000 which conversion will occur automatically
upon completion of the initial public offering. The pro forma income (loss) per
common share information presented for the year ended December 31, 1999 and the
six months ended June 30, 2000 has been prepared assuming that the Company's
preferred stock had been converted into common stock as of the beginning of such
periods or as of their
--------------------------------------------------------------------------------
F- 26
<PAGE> 96
STOCKPOINT, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
issuance date for shares of Series C preferred stock issued in lieu of dividends
resulting in the elimination of dividends. The Company's pro forma net loss per
share is calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1999 2000
-------------------------------------------------------------------------------------------
<S> <C> <C>
Historical net loss:
Loss from continuing operations........................... $(3,947,885) $(3,912,212)
Income from discontinued operations....................... 780,808 --
------------ --------------
Loss before extraordinary item............................ (3,167,077) (3,912,212)
Gain on extinguishment of debt............................ -- 233,600
------------ --------------
Net loss.................................................. $(3,167,077) $(3,678,612)
============ ==============
Pro forma basic and diluted income (loss) per common share:
Loss from continuing operations........................... $(0.66) $(0.65)
Income from discontinued operations....................... 0.13 --
------------ --------------
Loss before extraordinary item............................ (0.53) (0.65)
Gain on extinguishment of debt............................ -- 0.04
------------ --------------
Net loss.................................................. $(0.53) $(0.61)
============ ==============
Weighted average common shares outstanding--historical...... 3,212,106 3,283,247
Preferred stock converted into common shares--pro forma..... 2,709,566 2,770,329
------------ --------------
Weighted average common shares outstanding--pro forma....... 5,921,672 6,053,576
============ ==============
</TABLE>
15. SUBSEQUENT EVENT
On July 20, 2000, the Board of Directors approved an increase in the number of
authorized shares of common stock from 20,000,000 to 75,000,000 and authorized a
three-for-two stock split. The par value of the common stock was maintained at
the pre-split amount of $0.01 per share. Retroactive restatement has been made
in the financial statements and notes to all share and per share data affected
by the three-for-two stock split.
16. SUBSEQUENT EVENTS (UNAUDITED)
The Company entered into an additional $500,000 line of credit with a bank on
March 30, 2000. The line of credit is collateralized by substantially all of the
Company's assets. The line of credit bears interest at the prime rate and
expires on June 30, 2001. A group of guarantors entered into credit support
agreements with the bank as additional collateral for the line of credit. The
Company granted to the guarantors warrants to purchase 150,000 shares of the
Company's common stock at an exercise price of $6.67 per share as consideration
for their credit support. The exercise price, however, is subject to adjustment
to the price, if lower, (1) at which the Company issues shares of common stock
in a private transaction (excluding shares issued under employee options,
outstanding warrants and certain other instruments), (2) equal to 50% of the
price at which the Company conducts a bona fide public offering or (3) equal to
50% of the consideration received per share in any business combination
(excluding a pooling of interest transaction) in which the Company engages while
the warrants are outstanding. If the exercise price is adjusted the number of
shares covered by each warrant will also be adjusted to the number obtained by
multiplying the number of shares initially issuable by the initial exercise
price and dividing the result by the adjusted exercise price. The Company
assigned a value of $799,730 to the warrants.
--------------------------------------------------------------------------------
F- 27
<PAGE> 97
STOCKPOINT, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In July 2000, the Board of Directors amended the 1995 Long Term Incentive and
Stock Option Plan to increase the authorized number of shares of common stock on
which options or other awards may be exercised by 500,000.
In July 2000, the Board of Directors amended the Nonemployee Director Stock
Option Plan to increase the authorized number of shares of common stock on which
options or other awards may be exercised from 75,000 to 250,000.
In June 2000, the Attorney General of the State of Michigan notified the Company
that it intended to take action against them if they did not agree to negotiate
a settlement of Michigan's claim that the placement, without notification, of
cookies on the computers of consumers that visited the Company's site violated
Michigan's consumer protection statute. Although the Company has drafted and
have now implemented a privacy statement that provides the notice, and
management believes the Company will come to a reasonable settlement of the
Michigan dispute, the Company cannot provide assurance as to when or if, or the
terms upon which, that dispute will be concluded.
On July 31, 2000, the bankruptcy court issued an order confirming the validity
of the settlement agreement as discussed in Note 7.
* * * * *
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Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by Stockpoint in
connection with the registration of the common stock hereunder. All amounts are
estimated, except for the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $16,698
NASD filing fee............................................. 6,825
Nasdaq National Market listing fee.......................... 80,000
Legal fees and expenses..................................... 150,000
Accountants' fees and expenses.............................. 125,000
Printing expenses........................................... 225,000
Blue sky fees and expenses.................................. 5,000
Transfer Agent and Registrar fees and expenses.............. 5,000
Miscellaneous............................................... 36,477
--------
Total.................................................. $650,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. Our Amended and Restated Bylaws provide for indemnification of
such persons for such liabilities in such manner under such circumstances and to
such extent as permitted by the Delaware General Corporation Law. We have also
purchased directors and officers liability insurance, which covers matters
arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1997, we have issued and sold the following securities that were
not registered under the Securities Act:
(1) From January 1997 through June 2000, we granted options to purchase an
aggregate of 3,247,050 shares of common stock under our stock option plans
to executive officers, directors and employees. We have issued these
options in reliance upon an exemption from registration under Rule 701 and
Section 4(2) of the Securities Act.
(2) In March 1997, in connection with the acquisition of Ethos Corporation, we
issued an aggregate of 434,552 shares of common stock to 8 shareholders of
Ethos and warrants to purchase an aggregate of 468,000 shares of common
stock to six employees and consultants. No underwriter was involved in
this offering and no commissions were paid. We issued these shares in
reliance upon an exemption from registration under Section 4(2) of the
Securities Act. Based upon representations made to us and the information
we supplied to the investors, all investors had adequate access to
information about our company. The investors represented their intentions
to acquire the securities for investment only and not with the view to
offer for sale in connection with any distribution and appropriate legends
were affixed to the certificates representing the securities.
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(3) Between November 1997 and January 1998, we sold to accredited investors an
aggregate of 773,255 shares of Series C convertible preferred stock for an
aggregate purchase price of $5,900,000 and senior secured debentures in an
aggregate principal amount of $5,900,000. Upon the closing of this
offering, all of the outstanding shares of Series C convertible preferred
stock will convert into an aggregate of 1,369,812 shares of common stock.
In addition, in April 1998, we issued warrants to purchase an aggregate of
45,209 shares of common stock at an exercise price of $5.33 per share to
Donald Muller and Securities Corporation of Iowa for services provided in
connection with the sale of the Series C convertible preferred stock. We
issued these securities in reliance upon an exemption from registration
under Rule 506 of Regulation D and Section 4(2) of the Securities Act.
Based upon representations made to us by the investors and the information
we supplied to the investors, all investors had adequate access to
information about our company. In addition, based upon representations
made by the investors to us, the investors were able to bear the financial
risk of the investment. The investors represented their intentions to
acquire the securities for investment only and not with the view to offer
for sale in connection with any distribution and appropriate legends were
affixed to the certificates representing the securities. We did not make
any offer to sell the securities by means of a general solicitation or
general advertising.
(4) In April 1998, we issued warrants to purchase an aggregate of 750,000
shares of common stock at an exercise price of $5.33 per share to Robert
Staib, our former CEO and director, in consideration of his personal
guarantee of a letter of credit supporting our senior secured debentures
and pledge of marketable securities as collateral. No underwriter was
involved in this offering and no commissions were paid. We issued these
warrants in reliance upon an exemption from registration under Rule 506 of
Regulation D and Section 4(2) of the Securities Act. Based on the
information we supplied and the investor's relationship with our company,
the investor had adequate access to information about our company.
(5) We issued warrants to purchase an aggregate of 468,750 shares of common
stock to John Pappajohn in consideration of his personal guarantee of our
credit agreements from May 1995 through June 1996. In June and September
1998, we sold 60,000 shares of common stock to John Pappajohn upon the
cashless exercise of his outstanding warrants. No underwriter was involved
in this offering and no commissions were paid. We issued these warrants in
reliance upon an exemption from registration under Rule 506 of Regulation
D and Section 4(2) of the Securities Act. Based on the information we
supplied and the investor's relationship with our company, the investor
had adequate access to information about our company.
(6) In November 1998 and November 1999, we issued to Robert Staib warrants to
purchase an aggregate of 300,000 shares of common stock at an exercise
price of $5.33 per share in consideration of his guarantee and pledge
relating to the letter of credit supporting our outstanding debentures.
The warrants were subsequently canceled under the terms of a settlement
agreement in December 1999. No underwriter was involved in this offering
and no commissions were paid. We issued these warrants in reliance upon an
exemption from registration under Rule 506 of Regulation D and Section
4(2) of the Securities Act. Based on the information we supplied and the
investor's relationship with our company, the investor had adequate access
to information about our company.
(7) In March 1999, we issued warrants to purchase an aggregate of 45,000
shares of common stock at an exercise price of $2.67 per share to Dominion
& Co. for consulting services provided. No underwriter was involved in
this offering and no commissions were paid. We issued these warrants in
reliance upon an exemption from registration under Rule 506 of Regulation
D and Section 4(2) of the Securities Act. Based on the information we
supplied and the investor's
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relationship with our company, the investor had adequate access to
information about our company.
(8) In August 1999, we issued warrants to purchase an aggregate of 187,500
shares of common stock at an exercise price of $4.00 per share to Equity
Dynamics, Inc. under the terms of a consulting agreement. John Pappajohn
is a principal of Equity Dynamics, Inc. No underwriter was involved in
this offering and no commissions were paid. We issued these warrants in
reliance upon an exemption from registration under Rule 506 of Regulation
D and Section 4(2) of the Securities Act. Based on the information we
supplied and the investor's relationship with our company, the investor
had adequate access to information about our company.
(9) In connection with a bridge financing completed in December 1999, we
issued warrants to purchase an aggregate of 750,000 shares of common stock
at an exercise price of $5.00 per share, subject to adjustment, to eight
investors in consideration of their guarantees and pledges. No underwriter
was involved in this offering and no commissions were paid. We issued
these warrants in reliance upon an exemption from registration under Rule
506 of Regulation D and Section 4(2) of the Securities Act. Based on the
information we provided to the investors and their relationship with us,
each had adequate access to information about our company.
(10) In connection with a bridge financing completed in March 2000, we issued
warrants to purchase an aggregate of 150,000 shares of common stock at an
exercise price of $6.67 per share, subject to adjustment, to three
investors in consideration of their guarantees and pledges. No underwriter
was involved in this offering and no commissions were paid. We issued
these warrants in reliance upon an exemption from registration under Rule
506 of Regulation D and Section 4(2) of the Securities Act. Based on the
information we provided to the investors and their relationship with us,
each had adequate access to information about our company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
-----------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
2.1** Asset Purchase Agreement dated as of April 2, 1999 among
Systems Alternatives, Inc., Registrant and The David J.
Joseph Company
2.2** Amendment dated as of May 25, 1999 to the Asset Purchase
Agreement dated as of April 2, 1999 among Systems
Alternatives, Inc., Registrant and The David J. Joseph
Company
3.1** Certificate of Incorporation of the Registrant
3.2** Amended and Restated Certificate of Incorporation of the
Registrant
3.3** Certificate of Amendment of Certificate of Incorporation of
the Registrant
3.4** Bylaws of the Registrant
3.5** Amended and Restated Bylaws of the Registrant
3.6** Certificate of Amendment of Certificate of Incorporation
dated July 24, 2000.
4.1** Specimen of Common Stock Certificate
4.2** Registration Rights Agreement dated as of August 15, 1997
among Registrant and the Purchasers named therein
4.3** Trust Indenture dated as of August 1, 1997 between
Registrant and First Trust & Savings Bank
4.4** Robert B. Staib Voting Trust dated December 3, 1999.
</TABLE>
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<TABLE>
<CAPTION>
NUMBER DESCRIPTION
-----------------------------------------------------------------------
<C> <S>
4.5** Master Agreement dated as of December 3, 1999 among
Registrant and John Pappajohn, Gerald M. Kirke, Iowa Farm
Bureau Federation, Derace Schaffer, Matthew P. Kinley,
Dominion Securities Inc., Michael J Richards, Joseph Dunham
as the Guarantors, and Equity Dynamics, Inc., as the Agent
for the Guarantors
4.6** Form of Stock Purchase Warrant issued December 3, 1999.
4.7** Registration Rights Agreement dated as of December 3, 1999
by and among the Registrant and the Purchasers listed
therein
4.8** Master Agreement dated as of March 30, 2000 among Registrant
and Zeke Investment Partners, Matthew P. Kinley, Joseph
Dunham as the Guarantors, and Equity Dynamics, Inc., as the
Agent for the Guarantors
4.9** Form of Stock Purchase Warrant issued March 30, 2000.
4.10** Registration Rights Agreement dated as March 30, 2000 by and
among the Registrant and the Purchasers listed therein
4.11** Form of Lock-up Agreement
5.1 Opinion of Dorsey & Whitney LLP
10.1** 1995 Long-Term Incentive and Stock Option Plan
10.2** 1995 Nonemployee Director Stock Option Plan
10.3** Employment Agreement, dated December 20, 1999, between
Registrant and William E. Staib
10.4** Employment Agreement, dated December 20, 1999, between
Registrant and Timothy S. Yamauchi
10.5** Employment Agreement, dated December 20, 1999, between
Registrant and Luan Cox
10.6** Employment Agreement, dated December 20, 1999, between
Registrant and L. Christopher Dominguez
10.7** Sublease dated May 24, 1999 between Registrant and Systems
Alternatives International LLC for office space located at
2600 Crosspark Road, Coralville, Iowa
10.8** Lease dated September 30, 1999 between The Robert Dollar
Building Associates, Ltd. and Registrant for office space
located at 311 California Street, San Francisco, California
10.9** Consulting Agreement dated August 24, 1999 between
Registrant and Equity Dynamics, Inc.
10.10** Master Note dated as of November 28, 1997 of Registrant in
favor of The Northern Trust Company
10.11** Master Note dated as of September 14, 1998 of Registrant in
favor of The Northern Trust Company
10.12** Reimbursement and Subordination Agreement dated as of August
1, 1997 between Robert B. Staib and Registrant
10.13** Indemnification and Hold Harmless Agreement dated February
27, 1996 between Robert B. Staib and Registrant
10.14** Amendment dated August 1, 1997 to Indemnification and Hold
Harmless Agreement dated February 27, 1996 between Robert B.
Staib and Registrant
10.15** Restructuring Agreement dated as of December 3, 1999 among
Registrant, The Northern Trust Company and Iowa State Bank &
Trust
10.16** S&P ComStock Information Distribution License Agreement
dated September 23, 1999 between S&P ComStock, Inc. and
Registrant
10.17** Employment Agreement dated March 1, 2000 between Registrant
and Scott D. Porter
10.18** First Amendment to Restructuring Agreement dated as of March
29, 2000 among the Registrant, The Northern Trust Company
and Iowa State Bank & Trust
</TABLE>
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<TABLE>
<CAPTION>
NUMBER DESCRIPTION
-----------------------------------------------------------------------
<C> <S>
10.19** Settlement Agreement and General Release dated December 3,
1999, by and between Robert B. Staib and the Registrant
10.20** First Amendment to Employment Agreement, dated May 15, 2000,
between Registrant and Scott D. Porter
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 5.1)
24.1** Power of Attorney (included on signature page)
27.1** Financial Data Schedule
</TABLE>
------------
* To be filed by amendment.
** Previously Filed.
(b) Financial Statement Schedules
Not applicable.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters at
the closing specified in the underwriting agreement certificates in those
denominations and registered in those names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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Signatures
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this Amendment No. 2 to the Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Coralville, State of Iowa, on September 5, 2000.
STOCKPOINT, INC.
By: /s/ WILLIAM E. STAIB
------------------------------------
William E. Staib
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2
to the Registration Statement on Form S-1 has been signed on September 5, 2000
by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
-------------------------------------------------------------------------------------------------------
<C> <S>
/s/ WILLIAM E. STAIB Chief Executive Officer and Director (principal
--------------------------------------------------- executive director)
William E. Staib
/s/ SCOTT D. PORTER Chief Financial Officer (principal financial and
--------------------------------------------------- accounting officer)
Scott D. Porter
* Chairman of the Board of Directors
---------------------------------------------------
Harry O. Hefter
* Director
---------------------------------------------------
David G. Sengpiel
Director
---------------------------------------------------
Terry E. Branstad
Director
---------------------------------------------------
George G. Daly
/s/ B. THOMAS HENRY Director
---------------------------------------------------
B. Thomas Henry
*By: /s/ WILLIAM E. STAIB
---------------------------------------------
Attorney-in-fact
</TABLE>
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EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
----------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1** Asset Purchase Agreement dated as of April 2, 1999 among
Systems Alternatives, Inc., Registrant and The David J.
Joseph Company.
2.2** Amendment dated as of May 25, 1999 to the Asset Purchase
Agreement dated as of April 2, 1999 among Systems
Alternatives, Inc., Registrant and The David J. Joseph
Company.
3.1** Certificate of Incorporation of the Registrant.
3.2** Amended and Restated Certificate of Incorporation of the
Registrant.
3.3** Certificate of Amendment of Certificate of Incorporation of
the Registrant.
3.4** Bylaws of the Registrant.
3.5** Amended and Restated Bylaws of the Registrant.
3.6** Certificate of Amendment of Certificate of Incorporation
dated July 24, 2000.
4.1** Specimen of Common Stock Certificate.
4.2** Registration Rights Agreement dated as of August 15, 1997
among Registrant and the Purchasers named therein.
4.3** Trust Indenture dated as of August 1, 1997 between
Registrant and First Trust & Savings Bank.
4.4** Robert B. Staib Voting Trust dated December 3, 1999.
4.5** Master Agreement dated as of December 3, 1999 among
Registrant and John Pappajohn, Gerald M. Kirke, Iowa Farm
Bureau Federation, Derace Schaffer, Matthew P. Kinley,
Dominion Securities Inc., Michael J. Richards, Joseph Dunham
as the Guarantors, and Equity Dynamics, Inc., as the Agent
for the Guarantors.
4.6** Form of Stock Purchase Warrant issued December 3, 1999.
4.7** Registration Rights Agreement dated as of December 3, 1999
by and among the Registrant and the Purchasers listed
therein.
4.8** Master Agreement dated as of March 30, 2000 among Registrant
and Zeke Investment Partners, Matthew P. Kinley, Joseph
Dunham as the Guarantors, and Equity Dynamics, Inc., as the
Agent for the Guarantors.
4.9** Form of Stock Purchase Warrant issued March 30, 2000.
4.10** Registration Rights Agreement dated as March 30, 2000 by and
among the Registrant and the Purchasers listed therein.
4.11** Form of Lock-up Agreement.
5.1 Opinion of Dorsey & Whitney LLP.
10.1** 1995 Long-Term Incentive and Stock Option Plan.
10.2** 1995 Nonemployee Director Stock Option Plan.
10.3** Employment Agreement, dated December 20, 1999, between
Registrant and William E. Staib.
10.4** Employment Agreement, dated December 20, 1999, between
Registrant and Timothy S. Yamauchi.
10.5** Employment Agreement, dated December 20, 1999, between
Registrant and Luan Cox.
10.6** Employment Agreement, dated December 20, 1999, between
Registrant and L. Christopher Dominguez.
10.7** Sublease dated May 24, 1999 between Registrant and Systems
Alternatives International LLC for office space located at
2600 Crosspark Road, Coralville, Iowa.
10.8** Lease dated September 30, 1999 between The Robert Dollar
Building Associates, Ltd. and Registrant for office space
located at 311 California Street, San Francisco, California.
10.9** Consulting Agreement dated August 24, 1999 between
Registrant and Equity Dynamics, Inc.
</TABLE>
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<TABLE>
<CAPTION>
NUMBER DESCRIPTION
----------------------------------------------------------------------
<C> <S>
10.10** Master Note dated as of November 28, 1997 of Registrant in
favor of The Northern Trust Company.
10.11** Master Note dated as of September 14, 1998 of Registrant in
favor of The Northern Trust Company.
10.12** Reimbursement and Subordination Agreement dated as of August
1, 1997 between Robert B. Staib and Registrant.
10.13** Indemnification and Hold Harmless Agreement dated February
27, 1996 between Robert B. Staib and Registrant.
10.14** Amendment dated August 1, 1997 to Indemnification and Hold
Harmless Agreement dated February 27, 1996 between Robert B.
Staib and Registrant.
10.15** Restructuring Agreement dated as of December 3, 1999 among
Registrant, The Northern Trust Company and Iowa State Bank &
Trust.
10.16** S&P ComStock Information Distribution License Agreement
dated September 23, 1999 between S&P ComStock, Inc. and
Registrant.
10.17** Employment Agreement dated March 1, 2000 between Registrant
and Scott D. Porter.
10.18** First Amendment to Restructuring Agreement dated as of March
29, 2000 among the Registrant, The Northern Trust Company
and Iowa State Bank & Trust.
10.19** Settlement Agreement and General Release dated December 3,
1999, by and between Robert B. Staib and the Registrant.
10.20** First Amendment to Employment Agreement, dated May 15, 2000,
between Registrant and Scott D. Porter
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 5.1).
24.1** Power of Attorney.
27.1** Financial Data Schedule.
</TABLE>
------------
* To be filed by amendment.
** Previously Filed.
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