<PAGE>
As filed with the Securities and Exchange Commission on February 16, 2000
Registration No. 333-92325
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
INFORTE CORP.
(Exact name of registrant as specified in its charter)
--------------
Delaware 7373 36-3909334
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
INFORTE CORP.
150 N. Michigan Avenue, Suite 3400
Chicago, Illinois 60601
(312) 540-0900
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------
Philip S. Bligh
Chief Executive Officer
INFORTE CORP.
150 N. Michigan Avenue, Suite 3400
Chicago, Illinois 60601
(312) 540-0900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Edwin D. Mason, Esq. Larry A. Barden, Esq.
Foley & Lardner Sidley & Austin
One IBM Plaza Bank One Plaza
330 N. Wabash Ave. 10 South Dearborn St.
Chicago, Illinois 60611 Chicago, Illinois 60603
(312) 755-1900 (312) 853-7785
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement is declared effective.
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, please 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. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Title of each class of Proposed maximum Proposed maximum
securities to be Amount to be offering price per aggregate Amount of
registered registered(1) share(2) offering price(2) registration fee
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, $.001 par
value.................. 2,300,000 $32.00 $73,600,000 $32,630.40
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any.
(2) The proposed maximum aggregate offering price is estimated solely for the
purpose of calculating the registration fee pursuant to Section 6(b) and
Rule 457(a) of the Securities Act of 1933.
(3) A filing fee of $28,380 was previously paid. An additional fee of $4,250.40
reflecting an increased maximum aggregate offering price is paid herewith.
--------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated February 16, 2000.
2,000,000 Shares
[LOGO OF INFORTE]
Common Stock
-----------
This is an initial public offering of shares of common stock of Inforte Corp.
All of the 2,000,000 shares of common stock are being sold by Inforte.
Prior to this offering, there has been no public market for the common stock.
It is currently estimated that the initial public offering price per share will
be between $30 and $32. The common stock has been approved for quotation on the
Nasdaq National Market under the symbol "INFT".
See "Risk Factors" on page 6 to read about factors you should consider before
buying shares of the common stock.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price................................... $ $
Underwriting discount........................................... $ $
Proceeds, before expenses, to Inforte........................... $ $
</TABLE>
To the extent that the underwriters sell more than 2,000,000 shares of common
stock, the underwriters have the option to purchase up to an additional 300,000
shares from Inforte at the initial public offering price less the underwriting
discount.
-----------
The underwriters expect to deliver the shares in New York, New York on
, 2000.
Goldman, Sachs & Co.
Salomon Smith Barney
William Blair & Company
-----------
Prospectus dated , 2000.
<PAGE>
customer experience design
supply-demand integration
velocity to value
INFORTE E BUSINESS INTEGRATION
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information about our company and the common stock being sold in this offering
and financial statements and the notes to those statements included elsewhere
in this prospectus.
Our Company
Inforte is an eBusiness integrator, providing technology consulting and
systems integration services that enable our clients to use Internet technology
to improve their businesses. Our services help our clients improve both their
competitive positions and operational efficiencies. Our eBusiness experience
allows us to deliver Internet solutions to our clients that integrate all
aspects of a client's business from internal processes to external business
relationships. Instead of a solution that only uses the Internet for one
specific purpose, we focus on creating and deploying solutions that use the
Internet to connect every aspect of a client's business.
We believe that we are one of the few professional services firms that
possess all the skills and methodologies necessary to offer successful
eBusiness solutions. These skills include the ability to:
.develop a strategy for a client's use of the latest Internet
technology;
. integrate these technologies into the software systems that support
internal operations and customer and supplier relationships;
. develop websites that attract and keep customers; and
. implement the technology required to support these solutions rapidly
and cost effectively.
In order to implement the skills described above, we have developed
methodologies such as our project delivery methodology for planning, delivering
and monitoring projects, which we call Velocity to Value (V2V). We believe V2V
allows us to deliver projects with consistently high quality, on time, and
within budget. In addition, we believe that our solutions are successful
because they are developed in collaboration with our clients. We include our
clients in every aspect of the project, from design to implementation. This
helps to ensure that our projects meet client expectations, our solutions are
correctly implemented, and our clients are capable of using and maintaining the
resulting system.
We believe that our approach to eBusiness and our technological skills have
enabled us to achieve:
. a high level of client satisfaction, with 100% of our clients willing
to give us positive references;
. industry-leading employee retention levels;
. industry-leading ratios of project costs to revenues; and
. a doubling of revenues every year without any acquisitions, reaching
$30.1 million for the year ended December 31, 1999.
We perform project-based services primarily for established companies and
an increasing number of newer, Internet-based enterprises. Our representative
clients in the most recent quarter included Alcatel, Citibank, Exp@nets,
Fujitsu, Gloss.com, Intuit, Monsanto, Primedia, R.R. Donnelley, Sun
Microsystems and Zurich American Insurance, each of which has accounted for at
least $200,000 of our revenues since becoming a client.
3
<PAGE>
Our Market Opportunity
Today's Internet technologies allow organizations to improve their
operations and competitive positions with eBusiness solutions that link every
part of their business together with their customers and suppliers. As a
result, we believe that Internet strategies rank among the highest corporate
priorities.
While companies are eager to adopt Internet strategies, the analysis,
design, and implementation of an advanced Internet solution requires special
skills and expertise that few businesses possess. Given the shortage of
qualified personnel, it is also inefficient and difficult for companies to
hire, train, and retain these professionals. Therefore, an increasing number of
businesses engage Internet professional services firms to help them design and
implement effective solutions. Accordingly, the worldwide market for Internet
professional services is projected to grow dramatically. A recent IDC study
estimates that the worldwide market for Internet services will grow from $7.8
billion in 1998 to $78.6 billion in 2003.
Our Strategy
Our strategy is to continue to capitalize on eBusiness opportunities by
expanding our relationships with existing customers and by developing new
business opportunities with established companies and newer, Internet-based
businesses. To accomplish these goals, as well as differentiate us from our
competitors, we will strive to continue to:
. maintain our advanced solution focus, which will allow us to consistently
use leading-edge technologies such as Internet technology and other
emerging technologies;
. maintain client satisfaction on a level at which 100% of our clients would
provide us with positive references;
. attract high quality personnel who possess the strong technical skills
necessary to design and implement our eBusiness solutions; and
. focus on our superior project delivery to clients and our superior internal
operations management, which will improve our ability to obtain new
business from new and existing clients as well as effectively manage our
growth.
Our Offices
We were originally incorporated in Illinois in 1993 as InfoEdge Inc., and
changed our name to Inforte Corp. in 1997. In 1999, we reincorporated in
Delaware. Our executive offices are located at 150 N. Michigan Avenue, Suite
3400, Chicago, Illinois 60601 and our telephone number is (312) 540-0900. Our
web site is located at http://www.inforte.com. The information on our web site
is not a part of this prospectus.
----------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
We have obtained a federal registration of the service mark "Inforte." We
have applied for federal registration of the service marks "Velocity to Value"
and "V2V." Other trademarks and service marks appearing in this prospectus are
the property of their respective holders.
4
<PAGE>
The Offering
The following information assumes that the underwriters do not exercise the
option granted by us to purchase additional shares in this offering. See
"Underwriting."
<TABLE>
<C> <S>
Shares offered by Inforte............... 2,000,000 shares
Shares outstanding after this offering.. 11,721,154 shares(1)
Nasdaq National Market symbol........... "INFT"
Use of proceeds......................... For general corporate purposes,
principally working capital and
capital expenditures.
</TABLE>
- --------
(1) Based on shares outstanding as of December 31, 1999. Excludes 1,929,046
shares of common stock issuable upon the exercise of options with a
weighted average exercise price of $2.76 per share.
Summary Financial Information
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1995 1996 1997 1998 1999
----------- ------ ------ ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues........................... $ 773 $1,999 $5,056 $13,447 $30,088
Operating income (loss)............ 73 296 (140) 1,293 3,689
Pro forma net income (loss)
(unaudited)(1).................... $ 44 $ 173 $ (111) $ 777 $ 2,294
Pro forma diluted earnings (loss)
per share (unaudited)(1).......... $ 0.01 $ 0.02 $(0.02) $ 0.08 $ 0.21
Weighted average common shares
outstanding--diluted.............. 6,950 9,108 5,264 10,143 10,787
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
----------------------
Actual As Adjusted(2)
------- --------------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................ $ 3,792 $60,033
Working capital.......................................... 793 57,034
Total assets............................................. 12,957 69,198
Long-term debt, net of current portion................... -- --
Stockholders' equity..................................... 2,301 58,542
</TABLE>
- --------
(1) During the four years ended December 31, 1998, we operated as a sub-chapter
S corporation under the Internal Revenue Code and in some of the states in
which we did business. As a result, our taxable earnings or loss flowed
through to our stockholders. The pro forma net income (loss) data assumes
that we were subject to income tax had we always operated as a C
corporation. In 1999, we were a C corporation; however, the conversion from
a sub-chapter S corporation to a C corporation resulted in a tax benefit
for accounting purposes due to the recording of deferred tax benefits,
increasing our earnings per share. The pro forma earnings per share for the
year ended December 31, 1999 reflects the earnings per share we would have
reported without the one-time conversion to a C corporation.
(2) Gives effect to the sale of 2,000,000 shares of common stock offered by
this prospectus at an assumed offering price of $31.00 per share, after
deducting the underwriting discount and estimated offering expenses, but
assumes the underwriters do not exercise the option to purchase additional
shares in this offering.
5
<PAGE>
RISK FACTORS
You should carefully consider the following risks before making an
investment decision. If any of the following risks occur, our business, results
of operations, or financial condition could be materially adversely affected,
the trading price of our common stock could decline and you could lose all or
part of your investment.
Risks Related to Inforte
If we fail to identify and successfully transition to the latest and most
advanced solutions or keep up with an evolving industry, we will not compete
successfully for clients and our profits may decrease.
We focus on providing our clients solutions that employ the latest
technologies. If we fail to identify the latest and most advanced solutions, or
if we identify but fail to successfully transition our business to these
advanced solutions, our reputation and our ability to compete for clients and
the best employees could suffer. If we cannot compete successfully for clients,
our revenues may decrease. Also, if our projects do not involve the latest and
most advanced solutions, they would generate lower fees.
Because our market changes rapidly, some of the most important challenges
facing us are the need to:
. effectively use advanced technologies;
. continue to develop our strategic and technical expertise;
. influence and respond to emerging industry standards and other
technological changes;
. enhance our current services; and
. develop new services that meet changing customer needs.
All of these challenges must be met in a timely and cost-effective manner.
We cannot assure you that we will succeed in effectively meeting these
challenges.
If we fail to satisfy our clients' expectations, our existing and continuing
business could be adversely affected.
Our sales and marketing strategy emphasizes our belief that any client we
have ever worked for would give us a positive reference. Therefore, if we fail
to satisfy the expectations of our clients, we could damage our reputation and
our ability to retain existing clients and attract new clients. In addition, if
we fail to perform our engagements, we could be liable to our clients for
breach of contract. Although most of our contracts limit the amount of any
damages to the fees we received, we could still incur substantial cost,
negative publicity, and diversion of management resources to defend a claim,
and as a result, our business results could suffer.
We may be unable to hire and retain employees who are highly skilled in
Internet technology, which would impair our ability to perform client services.
If we are unable to hire and retain highly-skilled individuals, our ability
to retain existing business and compete for new business will be harmed. Due to
the recent growth of the Internet, and in particular electronic commerce,
individuals who are highly skilled in this industry are limited. Individuals
who have the experience and expertise to perform the services we provide to our
clients are even more limited. Consequently, competition for these individuals
is intense. To attract these individuals, we invest a significant amount of
time and money. As competition for these highly-skilled individuals further
intensifies, we may need to increase compensation in order to attract and
retain qualified employees.
6
<PAGE>
In addition, we expect that an important component of overall compensation
for our employees will continue to be equity. It is possible that this
component of our compensation package would be considered less attractive once
we are a public company. In addition, if our stock price does not increase
after this offering, it may be more difficult to retain employees who have been
compensated with stock options.
If we fail to adequately manage our growth, our profitability may be reduced.
If we cannot keep pace with our rapid growth, we will be unable to maintain
high client satisfaction, reducing our profitability. Our business has grown
dramatically over the past several years. For example, our revenue has
increased from $5.1 million in 1997, to $13.4 million in 1998, to $30.1 million
in 1999. We have also expanded our geographic scope to four locations in three
states since our inception and expect to open additional offices. If our growth
exceeds our expectations, our current managerial resources and infrastructure
may be inadequate to handle our rapid growth. Also, our senior management team
has limited collective experience managing a business the current size of
Inforte or a public company.
If our marketing relationships with software vendors deteriorate, we would lose
their client referrals.
We currently have marketing relationships with software vendors, including
Blue Martini, Concur, Genesys, i2, Microsoft, Siebel, and Vignette. Although we
have historically received a large number of business leads from these software
vendors to implement their products, they are not required to refer business to
us and they may terminate these relationships at any time. If our relationships
with these software vendors deteriorate, we may lose their client leads and our
ability to develop new clients could be negatively impacted. Any decrease in
our ability to obtain clients may cause a reduction in our revenues.
If we are unable to rapidly integrate third-party software, we may not deliver
solutions to our clients on a timely basis, resulting in lost revenues and
potential liability.
In providing client services, we recommend that our clients use software
applications from a variety of third-party vendors. If we are unable to
implement and integrate this software in a fully functional manner for our
clients, we may experience difficulties that could delay or prevent the
successful development, introduction, or marketing of services. Software often
contains errors or defects, particularly when first introduced or when new
versions or enhancements are released. Despite internal testing and testing by
current and potential clients, our current and future solutions may contain
serious defects due to third-party software or software we develop or customize
for clients. Serious defects or errors could result in liability for damages,
lost revenues, or a delay in implementation of our solutions.
Our revenues could be negatively affected by the loss of a large client or our
failure to collect a large account receivable.
At times, we derive a significant portion of our revenue from large
projects for a limited number of varying clients. In 1998, our five largest
clients accounted for 36% of revenue and our ten largest clients accounted for
56% of revenue. In 1999, our five largest clients accounted for 36% of revenue
and our ten largest clients accounted for 55% of revenue. Although these large
clients vary from time to time and our long-term revenues do not rely on any
one client, our revenues could be negatively affected if we were to lose one of
these clients or if we were to fail to collect a large account receivable.
7
<PAGE>
In addition, many of our contracts are short-term and provide that our
clients can reduce or cancel our services without incurring any penalty. If our
clients reduce or terminate our services, we would lose revenue and would have
to reallocate our employees and our resources to other projects to attempt to
minimize the effects of that reduction or termination. Accordingly,
terminations, including any termination by a major client, could adversely
impact our revenues.
If we estimate incorrectly the time required to complete our projects, we will
lose money on fixed-price contracts.
A majority of our contracts are fixed-price contracts, rather than
contracts in which the client pays us on a time and materials basis. We must
estimate the number of hours and the materials required before entering into a
fixed-price contract. Our future success will depend on our ability to continue
to set rates and fees accurately and to maintain targeted rates of employee
utilization and project quality. If we fail to accurately estimate the time and
the resources required for a project, any required increase in the time and
resources to complete the project could cause our profits to decline.
Fluctuations in our quarterly revenues and operating results due to cyclical
client demand may lead to reduced prices for our stock.
Our quarterly revenues and operating results have fluctuated significantly
in the past and we expect them to continue to fluctuate significantly in the
future. Historically, we have experienced our greatest sequential growth during
the first and second quarters. We typically experience significantly lower
sequential growth in the third and fourth quarters. We attribute this to the
budgeting cycles of our customers, most of whom have calendar-based fiscal
years and as a result are more likely to incur the expense of our services
during the first half of the year. Our headcount and spending budgets in the
first half of the year reflect this increase in anticipated demand. If in any
year, our sequential growth in the first half is less than we anticipate, our
expenses would be disproportionately high relative to our revenues. Therefore,
our profitability could be reduced and our stock price adversely affected.
Others could claim that we infringe on their intellectual property rights,
which may result in substantial costs, diversion of resources and management
attention, and harm to our reputation.
A portion of our business involves the development of software applications
for specific client engagements. Although we believe that our services do not
infringe on the intellectual property rights of others, we may be the subject
of claims for infringement, which even if successfully defended could be costly
and time-consuming. An infringement claim against us could materially and
adversely affect us in that we may:
. experience a diversion of our financial resources and the attention of
management personnel;
. incur damages and litigation costs, including attorneys' fees;
. be enjoined from further use of the intellectual property;
. be required to obtain a license to use the intellectual property,
incurring licensing fees;
. need to develop a non-infringing alternative, which could be costly and
delay projects; and
. have to indemnify clients with respect to losses incurred as a result of
our infringement of the intellectual property.
8
<PAGE>
Because we are newer and smaller than many of our competitors, we may not have
the resources to effectively compete, causing our revenues to decline.
Many of our competitors have longer operating histories, larger client
bases, longer relationships with clients, greater brand or name recognition,
and significantly greater financial, technical, marketing, and public relations
resources than we do. We may be unable to compete with the full-service
consulting companies entering the Internet professional services market,
including the consulting divisions of the "Big Five" accounting firms, who are
able to offer their clients a wider range of services. If our clients decide to
take their Internet professional services projects to these companies, our
revenues may decline. In addition, new Internet professional services companies
may provide services similar to ours at a lower price, which could cause our
revenues to decline.
Risks Related to Our Industry
If the rate of adoption of Internet-based solutions slows substantially, our
revenues may decrease.
We market our services primarily to firms that want to adopt Internet-based
technologies to transform the way in which they do business. Our revenues could
decrease if companies decide not to integrate Internet technology into their
businesses due to governmental regulations, financial constraints, or other
reasons.
In addition, the IDC study which we refer to in "Prospectus Summary--Our
Market Opportunity" on page 4 and "Business--Industry Background" on page 24
projects significant growth in our market. This study assumes that the
worldwide market for electronic commerce services is being driven by the
adoption of Internet technology by corporations and the number of Internet
users online and that the United States represents the largest part of this
projected growth. This study also assumes that there will be a shortage in
personnel with adequate technical skills and an increase in the complexity of
Internet projects, that Internet projects will become more strategic to
businesses, and that Internet projects will become increasingly linked to
internal operations. However, the growth in the United States market for
electronic commerce services may be limited. IDC recognizes that this growth
may be affected by an economic slowdown, an increase in the use of package
software by corporations to permit them to develop more projects in-house, and
the increased costs of using Internet professional services firms. Accordingly,
there can be no assurance that the market for Internet professional services
will be as large as market research firms predict.
Risks Related to the Offering and Ownership of Our Common Stock
Our stock price could be extremely volatile, like many Internet-related stocks.
Recently, the market prices of securities of technology companies,
particularly Internet-related companies, have been highly volatile. In
addition, the market prices for stocks of Internet-related and technology
companies, particularly following an initial public offering, frequently reach
levels that bear no relationship to the operating performance of these
companies. These market prices generally are not sustainable and are subject to
wide variations. If our common stock trades to unsustainably high levels
following this offering, it will likely thereafter experience material
declines.
Volatility of our stock price could result in expensive class action
litigation.
If our common stock suffers from volatility like the securities of other
technology companies, we could be subject to securities class action litigation
similar to that which has been brought against companies following periods of
volatility in the market price of their common stock. Litigation could result
in substantial costs and could divert our resources and senior management's
attention. This could harm our productivity and profitability.
9
<PAGE>
Because we have no immediate plans for the proceeds of this offering nor do we
require them for current operations, we will use them at our discretion in the
future, without stockholder approval.
We expect to use the proceeds of this offering for general corporate
purposes. We have no specific plan for the use of the proceeds, nor can we tell
you that you will agree with our use of the proceeds. Stockholders will not
have the right to approve or disapprove of our use of proceeds. Pending their
use, we intend to invest the net proceeds from this offering in short-term,
investment grade securities or money market instruments.
Substantial amounts of our total outstanding shares are restricted from
immediate resale but may be sold into the market in the near future. This could
cause our stock price to drop, even if our business is doing well.
The federal securities laws impose restrictions on the ability of
stockholders who acquired their shares before this offering to resell their
shares if the resale has not been registered. Also, our directors, executive
officers, stockholders, and major option holders have agreed not to sell their
shares for a period of 180 days after the date of this prospectus. However,
when restrictions on sales by insiders end, the market price of our stock could
drop significantly if the holders of restricted shares sell them or are
perceived by the market as intending to sell them.
Upon completion of this offering, we will have outstanding 11,721,154
shares of common stock, based on shares outstanding as of December 31, 1999,
assuming no exercise of the underwriters' over-allotment option. Of these
shares, the 2,000,000 sold in this offering will be freely tradeable. Of the
remaining 9,721,154 shares, approximately 9,676,250 will be subject to 180 day
lock-up agreements. Upon expiration of these agreements, these shares will
generally be freely tradeable, subject to meeting the holding period and other
requirements of Rule 144 or Rule 701, exemptions permitting public resale of
restricted securities. Following the completion of this offering, we intend to
register up to 4,000,000 shares of common stock reserved for issuance under our
stock option plans of which 84,490 options were exercisable as of December 31,
1999. We also intend to register up to 200,000 shares of common stock reserved
for issuance under our employee stock purchase plan. Upon issuance of the
shares under these plans, all of such shares may be immediately sold.
Our officers and directors will own 66.5% of our outstanding shares after this
offering and will, as a group, be able to control a vote of stockholders.
Immediately following this offering, assuming no exercise of the over-
allotment option, the executive officers and directors set forth below, will
own approximately 67.4% of the outstanding shares of our common stock and will
own individually the percentage set forth opposite their names:
<TABLE>
<C> <S>
. Philip S. Bligh 26.5%
. Stephen C.P. Mack 26.5%
. Ronald G. Meyer 7.7%
. Nick Padgett 6.4%
</TABLE>
If the stockholders listed above act or vote together, they will have the
ability to control the election of our directors and the approval of any other
action requiring the approval of our stockholders, including any amendments to
our certificate of incorporation and mergers or sales of all or substantially
all of our assets, even if the other stockholders perceive that these actions
are not in their best interests.
10
<PAGE>
The authorization of preferred stock, a staggered board of directors and
supermajority voting requirements will make a takeover attempt more difficult,
even if the takeover would be favorable for stockholders.
Our certificate of incorporation and bylaws may have the effect of
deterring, delaying or preventing a change in control of Inforte. For example,
our charter documents provide for:
. the ability of the board of directors to issue preferred stock and to
determine the price and other terms, including preferences and voting
rights, of those shares without stockholder approval;
. the inability of our stockholders to act by written consent or to call a
special meeting;
. advance notice provisions for stockholder proposals and nominations to
the board of directors;
. a staggered board of directors, with three-year terms, which will
lengthen the time needed to gain control of the board of directors; and
. supermajority voting requirements for stockholders to amend provisions
of the charter documents described above.
We are also subject to Delaware law. Section 203 of the Delaware General
Corporation Law prohibits us from engaging in a business combination with any
significant stockholder for a period of three years from the date the person
became a significant stockholder unless, for example, our board of directors
approved the transaction that resulted in the stockholder becoming an
interested stockholder. Any of the above could have the effect of delaying or
preventing changes in control that a stockholder may consider favorable.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except for any historical information, this prospectus contains forward-
looking statements that involve risks and uncertainties. Forward-looking
statements may be located in the material set forth under "Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
well as in the prospectus generally. Any statements contained in this
prospectus that are not of historical fact, are intended to be, and are,
"forward-looking statements," which involve known and unknown risks. We
generally use the following terms and similar expressions to identify forward-
looking statements: "anticipate," "believe," "estimate," "expect," "intend,"
"may," "plan," "potential," "should," "could," and "will." Our actual results
could differ from those indicated by the forward-looking statements made in
this prospectus. Accordingly, you should not place undue reliance on these
forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, or performance. Additionally, we do not assume responsibility for the
accuracy or completeness of these statements. We are under no duty to update
any of the forward-looking statements after the date of this prospectus to
conform these statements to actual results or to changes in our expectations.
11
<PAGE>
USE OF PROCEEDS
Our primary purposes for this offering are to create a public market for
our common stock, obtain additional capital, and facilitate future access to
public capital markets. Since equity is an important component of our employee
compensation, we believe that it is necessary to provide a public market for
our stock in order to attract and retain qualified employees. In addition, we
believe that becoming a public company may provide increased name recognition
in our customer market.
We estimate that the proceeds we receive after deducting underwriting
discounts and estimated offering expenses from the sale of 2,000,000 shares of
common stock will be approximately $56.2 million, given an assumed initial
offering price of $31.00. If the underwriters' over-allotment is exercised in
full, we estimate our net proceeds will be approximately $64.9 million. We
expect to use the net proceeds of the offering for general corporate purposes,
principally for working capital and capital expenditures. Additionally, we may
use an undetermined portion of the net proceeds to acquire or invest in
complementary companies, if suitable opportunities arise and if the acquisition
targets or investment opportunities are consistent with our vision of the
future for our company and our culture. We have no current plans, agreements,
or commitments and are not currently engaged in any negotiations with respect
to any such transaction. Pending these uses, we intend to invest the net
proceeds in short-term, investment grade securities or money market
instruments. Management will have significant discretion as to the use of the
net proceeds from this offering. For additional information on the risks
involved in our use of proceeds see "Risk Factors--Because we have no immediate
plans for the proceeds of this offering nor do we require them for current
operations, we will use them at our discretion in the future, without
stockholder approval" on page 10.
DIVIDEND POLICY
We have not declared nor paid cash dividends on our common stock or any
other securities other than sub-chapter S corporation distributions out of
retained earnings accumulated during the four years ended December 31, 1998,
when we were a sub-chapter S corporation. After this offering, we do not
anticipate paying cash dividends in the foreseeable future and believe that we
will retain all of our future earnings, if any, towards the expansion and
operation of our business. Our board of directors has sole discretion to pay
cash dividends based on our financial condition, results of operation, capital
requirements, contractual obligations, and other relevant factors.
12
<PAGE>
CAPITALIZATION
The following table presents our capitalization as of December 31, 1999, on
an actual basis and an as adjusted basis. The as adjusted information reflects
the sale of 2,000,000 shares of common stock offered by this prospectus at an
assumed offering price of $31.00 per share, after deducting the underwriting
discount and estimated offering expenses, and application of the estimated net
proceeds of $56.2 million.
The as adjusted basis presentation does not include 4,693,846 shares of
common stock reserved for issuance under our option plans, of which 1,929,046
shares are subject to outstanding options as of December 31, 1999. You should
read this information in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and the financial statements
and accompanying notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31, 1999
----------------------
Actual As adjusted
---------- -----------
<S> <C> <C>
Stockholders' equity:
Preferred Stock, $.001 par value, 5,000,000 shares
authorized; no shares issued and outstanding actual
or as adjusted....................................... $ -- $ --
Common stock, $.001 par value; 50,000,000 shares
authorized; 9,721,154 shares issued and outstanding
actual, and 11,721,154 shares issued and outstanding
as adjusted.......................................... 9,721 11,721
Additional paid-in-capital.............................. 411,886 56,650,881
Retained earnings....................................... 1,879,057 1,879,057
---------- -----------
Total stockholders' equity.......................... 2,300,664 58,541,659
---------- -----------
Total capitalization.............................. $2,300,664 $58,541,659
========== ===========
</TABLE>
13
<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the initial public offering price per share of
our common stock and the pro forma as adjusted net tangible book value per
share of our common stock after this offering. We calculate pro forma net
tangible book value per share by calculating the total assets less intangible
assets and total liabilities, and dividing it by the number of outstanding
shares of common stock.
After giving effect to the sale of 2,000,000 shares of common stock, less
underwriting discount and estimated offering expenses, our pro forma net
tangible book value as of December 31, 1999 would have been $58.5 million or
$4.99 per share. This represents an immediate increase in the pro forma as
adjusted net book value of $4.76 per share to existing stockholders and an
immediate dilution of $26.01 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $31.00
Net tangible book value per share at December 31, 1999....... $0.24
Increase per share attributable to new investors............. 4.76
Pro forma net tangible book value per share after this
offering...................................................... 4.99
------
Dilution per share to new investors............................ $26.01
======
</TABLE>
The following table summarizes on a pro forma basis, as of December 31,
1999, the total number of shares of common stock purchased, the total
consideration paid to us, and the average price per share paid by existing
stockholders and purchasers of shares in this offering, assuming an initial
public offering price of $31.00 per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 9,721,154 82.9% $ 421,607 0.7% $ 0.04
New investors.......... 2,000,000 17.1 62,000,000 99.3 $31.00
---------- ----- ----------- -----
Totals............... 11,721,154 100.0% $62,421,607 100.0% $ 5.33
========== ===== =========== =====
</TABLE>
You will experience additional dilution if any of our outstanding options
are exercised. If all outstanding exercisable options were exercised
immediately following completion of this offering, our pro forma net tangible
book value as of December 31, 1999 would have been $58.7 million, or $4.97 per
share. This would represent an immediate dilution of $26.03 per share to you.
See "Management--Options" and "Management--Employee Benefit Plans" for
information on the number of options authorized and issued.
14
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
our financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this prospectus. The statement of operations data for the years ended
December 31, 1997, 1998, and 1999 and the balance sheet data as of December 31,
1998 and 1999 are derived from our audited financial statements, which are
included elsewhere in this prospectus. The statement of operations data for the
year ended December 31, 1996 and balance sheet data as of December 31, 1996 and
1997 are derived from our audited financial statements, which are not included
in this prospectus. The statement of operations data for the year ended
December 31, 1995 and the balance sheet data as of December 31, 1995 are
derived from our unaudited financial statements, which are not included in this
prospectus. Unaudited financial statements include, in our belief, all
adjustments, consisting of only normal recurring adjustments, necessary for
fair presentation of such data.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues......................... $ 773 $1,999 $5,056 $13,447 $30,088
Operating expenses:
Project personnel and related
expenses....................... 572 1,324 2,722 6,830 12,846
Sales and marketing............. 31 174 829 1,467 4,949
Recruiting, retention, and
training....................... -- 51 694 1,165 2,987
Management and administrative... 97 153 951 2,692 5,617
------ ------ ------ ------- --------
Total operating expenses......... 700 1,702 5,196 12,154 26,399
------ ------ ------ ------- --------
Operating income (loss).......... 73 297 (140) 1,293 3,689
Interest income (expense), net,
and other....................... -- (4) (22) 23 147
------ ------ ------ ------- --------
Pretax income (loss)............. 73 293 (162) 1,316 3,836
Pro forma income tax expense
(benefit) (unaudited)(1)........ 29 119 (51) 539 1,542
------ ------ ------ ------- --------
Pro forma net income (loss)
(unaudited)(1).................. $ 44 $ 174 $ (111) $ 777 $ 2,294
====== ====== ====== ======= ========
Pro forma earnings (loss) per
share (unaudited)(1):
Basic........................... $ 0.01 $ 0.03 $(0.02) $ 0.14 $ 0.27
Diluted......................... $ 0.01 $ 0.02 $(0.02) $ 0.08 $ 0.21
Weighted average common shares
outstanding:
Basic........................... 6,950 6,096 5,264 5,517 8,636
Diluted......................... 6,950 9,108 5,264 10,143 10,787
<CAPTION>
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (at period
end):
Cash and cash equivalents........ $ -- $ 11 $ 66 $ 2,698 $ 3,792
Working capital.................. 120 356 155 1,006 793
Total assets..................... 248 529 1,168 5,581 12,957
Long-term debt, net of current
portion......................... -- 62 24 -- --
Stockholders' equity............. 176 363 250 1,661 2,301
</TABLE>
- --------
(1) During the four years ended December 31, 1998, we operated as a sub-chapter
S corporation under the Internal Revenue Code and in some of the states in
which we did business. As a result, our taxable earnings or loss flowed
through to our stockholders. The pro forma net income (loss) data assumes
that we were subject to income tax had we always operated as a C
corporation. In 1999, we were a C corporation; however, the conversion from
a sub-chapter S corporation to a C corporation resulted in a tax benefit
for accounting purposes due to the recording of deferred tax benefits,
increasing our earnings per share. The pro forma earnings per share for the
year ended December 31, 1999 reflects the earnings per share we would have
reported without the one-time conversion to a C corporation.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with "Selected
Financial Data" and our financial statements, together with the notes to those
statements, included elsewhere in this prospectus. The following discussion
contains forward-looking statements that involve risks, uncertainties, and
assumptions such as statements of our plans, objectives, expectations, and
intentions. Our actual results may differ materially from those discussed in
these forward-looking statements because of the risks and uncertainties
inherent in future events, particularly those identified in "Risk Factors."
Overview
Inforte is an eBusiness integrator, providing technology consulting and
systems integration services that enable our clients to capitalize on Internet
technology to improve their businesses. We were founded in 1993 as InfoEdge
Inc. and, in January 1997 we changed our name to Inforte Corp. To date, our
revenue has at least doubled each year since 1993, and all of our growth has
been internally generated, rather than through acquisitions. Since inception,
Inforte has focused on providing clients advanced solutions that employ
leading-edge technologies. Over time, the nature of Inforte's advanced
solutions has shifted from client-server applications to Internet-based
eBusiness applications. Currently, virtually all of Inforte's revenue results
from projects which use Internet technology as part of the solution. We expect
Internet-based solutions to comprise the vast majority of our revenue for the
foreseeable future.
In recent years, our revenue growth has resulted from both an increasing
number of clients and an increasing amount of revenue from each client. For
example, in 1997, 12 clients comprised 90% of our revenue, with each of these
clients contributing $382,000 to revenue on average. For the year ended
December 31, 1999, 29 clients accounted for 90% of our revenue, with each of
these clients contributing $933,000 to revenue on average. The number of
clients contributing $1 million or more of annual revenue has also increased
from one in 1997, to three in 1998, and to eleven in 1999.
The majority of our revenues are from professional services performed on a
fixed-price basis; however, we also perform services on a time and materials
basis. Typically, the first portion of an engagement involves a strategy
project or a discovery phase lasting 30 to 60 days, which we perform on a
fixed-price basis. This work enables us to determine with our clients the scope
of successive phases for design and implementation, which generally last three
to nine months, and to decide whether we will perform these additional phases
for a fixed price or on a time and materials basis. Whether we use fixed
pricing or time and material pricing depends upon our assessment of the
project's risk, and how precisely our clients are able to define the scope of
activities they wish us to perform. Fixed prices are based on estimates from
senior personnel in our consulting organization who project the length of the
engagement, the number of people required to complete the engagement, and the
skill level and billing rates of those people. We then adjust the fixed price
based on various qualitative risk factors such as the aggressiveness of the
delivery deadline and the technical complexity of the solution.
We ask clients to pay 25% of our fixed-price projects in advance to enable
us to secure a project team in a timeframe that is responsive to the client's
needs. We bill the remainder in advance of the work performed based upon a
predetermined billing schedule over the course of the engagement. We normally
will not agree to milestone-based billing schedules. We recognize revenues from
fixed-price contracts on the percentage-of-completion method, based on the
ratio of costs incurred to total estimated costs. Amounts billed before we
perform services are classified as
16
<PAGE>
deferred revenue. We bill time and materials projects twice per month on the
15th and last day of each month. We recognize time and materials revenues as we
perform the services. We do not include in our revenues the reimbursable
expenses we charge to our clients, on either fixed-price or time and material
projects.
In 1997, we decided to increase spending to further accelerate revenue
growth and we used our line of credit to fund these increased levels of
spending, which resulted in a loss for the year. During 1997, relative to the
prior year, we increased sales and marketing spending from $174,000 to
$829,000, recruiting, retention, and training spending from $51,000 to
$694,000, and management and administrative spending from $153,000 to $951,000.
We believe this increased spending was partially responsible for our growth in
revenue of 166% in 1998.
Our revenues and earnings may fluctuate from quarter to quarter based on
factors within and outside of our control. These include:
. the variability in market demand for Internet professional services;
. the length of the sales cycle associated with our service offerings;
. the number, size, and scope of our projects;
. the efficiency with which we deliver projects and use our people;
. the compensation that we pay our people; and
. our ability to keep discretionary expenses within budget.
If revenues do not increase at a rate at least equal to increases in
expenses, our results of operations could be materially and adversely affected.
Results of Operations
The following table shows the percentage of revenues represented by items
included in our statements of operations for the periods indicated:
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Revenues.................................................. 100.0% 100.0% 100.0%
Operating expenses:
Project personnel and related expenses.................. 53.8 50.8 42.7
Sales and marketing..................................... 16.4 10.9 16.4
Recruiting, retention, and training..................... 13.8 8.7 9.9
Management and administrative........................... 18.8 20.0 18.7
----- ----- -----
Total operating expenses.................................. 102.8 90.4 87.7
----- ----- -----
Operating income (loss)................................... (2.8) 9.6 12.3
Interest income (expense), net and other.................. (0.4) 0.2 0.4
----- ----- -----
Income (loss) before income taxes......................... (3.2) 9.8 12.7
----- ----- -----
Pro forma income tax expense (benefit) (unaudited)........ (1.0) 4.0 5.1
----- ----- -----
Pro forma income (loss) (unaudited)....................... (2.2%) 5.8% 7.6%
===== ===== =====
</TABLE>
17
<PAGE>
Years Ended December 31, 1998 and 1999
Revenues. Revenues increased 124% to $30.1 million for the year ended
December 31, 1999 from $13.4 million in 1998. This increase reflected the
increasing size of our client engagements. For the year ended December 31,
1999, on an annualized basis, we had 29 clients accounting for 90% of our
revenue, with each of these clients contributing $933,000 to revenue on
average. This average revenue per client grew from $412,000 in 1998. The number
of clients generating 90% of our revenue was also 29 in 1998. We did not have a
client accounting for more than 10% of our revenue in either 1999 or 1998.
Reflecting our revenue growth, we increased our number of employees to 257 at
December 31, 1999 from 122 at December 31, 1998.
Project personnel and related expenses. Project personnel and related
expenses consist primarily of compensation and fringe benefits for our
professional employees who deliver consulting services and non-reimbursable
project costs. All labor costs for project personnel are included in project
personnel and related expenses, with the exception of the time spent attending
training classes. Internal projects or unassigned time between projects are not
considered training costs, and thus appear in project personnel and related
expenses. These expenses increased 88% to $12.8 million for the year ended
December 31, 1999 from $6.8 million in 1998. The increase was due to the hiring
of additional consulting professionals. We employed 196 consultants on December
31, 1999, up from 93 one year earlier. Project personnel and related expenses
represented 42.7% of revenues for the year ended December 31, 1999, compared to
50.8% in 1998. The decrease as a percentage of revenues was due to rising
revenue per consultant which increased to $210,000 for the year ended December
31, 1999 from $178,000 in 1998. Our utilization in 1999 was higher than our
historical levels. We are actively managing to bring utilization levels down to
our historical levels, and we expect that project personnel and related
expenses will increase as a percentage of revenue going forward. We therefore
do not expect revenue per consultant to increase at the same rate going forward
as it has historically.
Sales and marketing. Sales and marketing expenses consist primarily of
compensation, benefits, and travel costs for employees in the market
development, practice development, and client development groups and costs to
execute marketing programs. Sales and marketing expenses increased 237% to $4.9
million for the year ended December 31, 1999 from $1.5 million in 1998. Of the
dollar spending increase, approximately 70% was due to increased sales spending
related to the growth in our salesforce, with the remainder due to increased
marketing spending, including activities to reinforce the Inforte brand as an
eBusiness integrator. Consequently, sales and marketing expenses as a
percentage of revenues increased to 16.4% for the year ended December 31, 1999
from 10.9% in 1998.
Recruiting, retention, and training. Recruiting, retention, and training
expenses consist of compensation, benefits, and travel costs for personnel
engaged in human resources; costs to recruit new employees; costs of human
resources programs; and training costs, including travel and labor costs. These
expenses increased by 156% to $3.0 million for the year ended December 31, 1999
from $1.2 million in 1998. Of the dollar spending increase, approximately 50%
was due to increased recruiting spending related to the ongoing increase in our
number of employees, with the remainder due to increased spending on human
resources programs and training activities. Recruiting, retention, and training
expenses as a percentage of revenues increased to 9.9% for the year ended
December 31, 1999 from 8.7% in 1998. This increase occurred due to an increased
rate of recruiting spending in 1999, relative to the prior year.
Management and administrative. Management and administrative expenses
consist primarily of compensation, benefits, and travel costs for management,
finance, information technology, and
18
<PAGE>
facilities personnel, together with rent, telecommunications, audit, and legal
costs, and depreciation and amortization of capitalized computers, purchased
software, and property. These expenses increased 109% to $5.6 million for the
year ended December 31, 1999 from $2.7 million in 1998. This increase occurred
in all areas cited above due to the ongoing growth of our business. Management
and administrative expenses as a percentage of revenues declined to 18.7% for
the year ended December 31, 1999 from 20.0% in 1998, as we leveraged fixed
costs over a greater revenue base.
Years Ended December 31, 1997 and 1998
Revenues. Revenues increased 166% to $13.4 million for the year ended
December 31, 1998 from $5.1 million in 1997. This increase reflected an
increasing number of clients. In 1998, we had 29 clients accounting for 90% of
our revenue up from 12 in 1997. Average revenue that each of these clients
contributed was $412,000 in 1998, up from $382,000 in 1997. We did not have a
client accounting for more than 10% of our revenue in 1998, while we had one
10% client in 1997. Reflecting our revenue growth, we increased our number of
employees to 122 at December 31, 1998 from 63 at December 31, 1997.
Project personnel and related expenses. Project personnel and related
expenses increased 151% to $6.8 million in 1998 from $2.7 million in 1997. The
increase was due to the hiring of additional consulting professionals. We
employed 93 consultants on December 31, 1998, up from 48 one year earlier.
Project personnel and related expenses represented 50.8% of revenues for 1998,
compared to 53.8% for 1997. The decrease as a percentage of revenues was due to
rising revenue per consultant, which increased to $178,000 in 1998 from
$144,000 in 1997.
Sales and marketing. Sales and marketing expenses increased 77% to $1.5
million for 1998 from $829,000 for 1997. The increase was due to an increase of
the sales and marketing headcount to 11 on December 31, 1998 from 3 one year
earlier and to general growth of the business. Sales and marketing expenses as
a percentage of revenues decreased to 10.9% for 1998 from 16.4% for 1997, due
to marketing spending growing at a slower rate than the rate of revenue growth.
Recruiting, retention, and training. Recruiting, retention, and training
expenses increased by 68% to $1.2 million for 1998 from $694,000 for 1997. This
increase was due to increased hiring and general growth of the business.
Recruiting, retention, and training expenses as a percentage of revenues
decreased to 8.7% for 1998 from 13.8% for 1997, as a result of lowering the
cost per hire by decreasing the use of professional search firms.
Management and administrative. Management and administrative expenses
increased 183% to $2.7 million for 1998 from $951,000 for 1997. The increase
was due to increased headcount, increased facilities costs, and general growth
of the business. Management and administrative expenses as a percentage of
revenues increased to 20.0% for 1998 from 18.8% for 1997, as we ramped-up the
management team and facilities costs at a pace faster than the rate of revenue
growth.
19
<PAGE>
Quarterly Results of Operations
The following table summarizes our unaudited quarterly operating results
for each of the eight quarters ended December 31, 1999. This information has
been prepared on the same basis as the audited financial statements appearing
elsewhere in this prospectus. All necessary adjustments, consisting only of
normal recurring adjustments, have been included to present fairly the
quarterly results. These unaudited quarterly results should be read in
conjunction with our financial statements, together with the related notes,
included elsewhere in this prospectus. The operating results in any quarter are
not necessarily indicative of the results that may be expected for any future
period.
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(in thousands, except per share data and percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $2,669 $3,491 $3,643 $3,644 $4,857 $7,118 $8,559 $9,554
Operating expenses:
Project personnel and
related expenses...... 1,519 1,764 1,779 1,768 2,273 3,016 3,604 3,953
Sales and marketing.... 177 351 527 412 803 1,343 1,465 1,338
Recruiting, retention,
and training.......... 238 340 289 298 433 599 937 1,018
Management and
administrative........ 527 722 665 778 827 1,269 1,479 2,042
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............... 2,461 3,177 3,260 3,256 4,336 6,227 7,485 8,351
------ ------ ------ ------ ------ ------ ------ ------
Operating income........ 208 314 383 388 521 891 1,074 1,203
Interest income
(expense), net and
other.................. (5) -- 15 13 28 24 44 51
------ ------ ------ ------ ------ ------ ------ ------
Income before income
taxes.................. 203 314 398 401 549 915 1,118 1,254
Pro forma income tax
expense
(unaudited)(1)......... 84 129 162 164 219 366 447 510
------ ------ ------ ------ ------ ------ ------ ------
Pro forma net income
(unaudited)(1)......... $ 119 $ 185 $ 236 $ 237 $ 330 $ 549 $ 671 $ 744
====== ====== ====== ====== ====== ====== ====== ======
Pro forma diluted
earnings per share
(unaudited)(1)......... $ 0.01 $ 0.02 $ 0.02 $ 0.02 $ 0.03 $ 0.05 $ 0.06 $ 0.07
Weighted average common
shares outstanding--
diluted................ 9,366 9,716 10,416 10,379 10,523 10,571 10,831 11,001
As a percentage of
revenues:
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Project personnel and
related expenses...... 56.9 50.5 48.8 48.5 46.8 42.4 42.1 41.4
Sales and marketing.... 6.6 10.1 14.5 11.3 16.6 18.9 17.2 14.0
Recruiting, retention,
and training.......... 8.9 9.7 7.9 8.2 8.9 8.4 10.9 10.6
Management and
administrative........ 19.8 20.7 18.3 21.4 17.0 17.8 17.3 21.4
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............... 92.2 91.0 89.5 89.4 89.3 87.5 87.5 87.4
------ ------ ------ ------ ------ ------ ------ ------
Operating income........ 7.8 9.0 10.5 10.6 10.7 12.5 12.5 12.6
Interest income
(expense), net and
other.................. (0.2) -- 0.4 0.4 0.6 0.4 0.6 0.5
------ ------ ------ ------ ------ ------ ------ ------
Income before income
taxes.................. 7.6 9.0 10.9 11.0 11.3 12.9 13.1 13.1
Pro forma income tax
expense................ 3.1 3.7 4.4 4.5 4.5 5.2 5.3 5.3
------ ------ ------ ------ ------ ------ ------ ------
Pro forma net income.... 4.5% 5.3% 6.5% 6.5% 6.8% 7.7% 7.8% 7.8%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- --------
(1) During the four quarters ended December 31, 1998, we operated as a sub-
chapter S corporation under the Internal Revenue Code and in some of the
states in which we did business. As a result, our taxable earnings or loss
flowed through to our stockholders. The pro forma net income data assumes
that we were subject to income tax had we always operated as a C
corporation. In 1999, we were a C corporation; however, the conversion from
a sub-chapter S corporation to a C corporation resulted in a tax benefit
for accounting purposes due to the recording of deferred tax benefits,
increasing our earnings per share in certain quarters. The pro forma
earnings per share for the four quarters ended December 31, 1999 reflects
the earnings per share we would have reported without the one-time
conversion to a C corporation.
Historically, we have experienced our greatest sequential growth during the
first and second quarters. We typically experience significantly lower
sequential growth in the third and fourth quarters. We attribute this to the
budgeting cycles of our clients, most of whom have calendar-based fiscal years.
Our headcount and spending budgets in the first half of the year reflect this
anticipated increase in demand. If in any year
20
<PAGE>
our sequential growth in the first half is less than we anticipate, our results
of operations could be materially and adversely affected.
Liquidity and Capital Resources
Since our inception, we have funded our operations through internally
generated funds and bank borrowings. Working capital is needed primarily to
fund project personnel and related expenses. Generally, we ask our clients to
pay 25% of our fixed fees in advance and we bill the remainder in advance of
performing the work. As of December 31, 1999, our accounts receivable (less
deferred revenue) equaled 14 days of sales outstanding; however, since December
31, 1997, days of sales outstanding have been as high as 41 days. We believe
our current days of sales outstanding is unsustainably low, and we expect it
will rise going forward. We do not, however, expect them to rise above normal
industry levels of current days of sales outstanding and believe that we will
have adequate cash flow to manage our accounts receivable in the ordinary
course of business.
At December 31, 1999, we had cash and cash equivalents of $3.8 million.
This increased from $2.7 million at December 31, 1998, and $66,000 at December
31, 1997.
We have a $2.5 million line of credit with Citibank, N.A. which bears
interest at the prime rate, which was 8.5% at December 31, 1999. The line of
credit is secured by substantially all our assets. No amounts were outstanding
under the line of credit at December 31, 1998 or December 31, 1999.
Net cash provided by operating activities for the year ended December 31,
1999 totaled $4.3 million compared to $3.7 million for the year ended December
31,1998.
Net cash used in investing activities for the year ended December 31, 1999
totaled $1.4 million primarily for computers, purchased software, and property.
Net cash used in investing activities for 1998 was $741,000 for computers,
purchased software, and property. We expect our capital expenditure needs to
continue to grow as our business grows.
Net cash used in financing activities for the year ended December 31, 1999
totaled $2.0 million, used primarily for distributions to sub-chapter S
corporation stockholders of $2.1 million to enable them to pay income taxes.
Net cash used in financing activities for the year ended December 31, 1998
totaled $325,000, consisting primarily of principal payments of $300,000 on our
line of credit.
We believe that our current cash and cash equivalents, available borrowing
under our line of credit, internally generated funds, and the proceeds of this
offering will be sufficient to meet our working capital and capital expenditure
requirements for the foreseeable future.
Year 2000 Readiness
Many currently installed computer systems and software products are
designed to accept only two-digit entries to identify a year in the date code
field. Consequently, after January 1, 2000, these systems could malfunction or
fail because they may not be able to distinguish between twentieth century
dates and twenty-first century dates. A failure of these systems to correctly
recognize dates beyond January 1, 2000 would disrupt our operations and client
operations. We may experience operational difficulties caused by undetected
errors or defects in our internal systems. To date, we have not experienced
Year 2000 disruptions and are not aware that our clients have experienced any
material disruptions. We cannot guarantee, however, that a Year 2000 system
failure will not occur or that a Year 2000 remediation plan that we implemented
will not create a problem interacting with other software applications.
To address these issues, we performed a Year 2000 assessment of our
critical hardware and software systems, and made contingency plans, reviewing
both our information technology systems
21
<PAGE>
and our non-information technology systems. The providers of these systems have
either confirmed to us that these systems are Year 2000 compliant or have
provided, or are expected to provide, the information necessary for us to
implement upgrades to make them Year 2000 compliant. We have implemented
upgrades and tested these systems as part of our Year 2000 efforts. We have
completed all of our Year 2000 contingency plans. We believe the most
reasonably likely worst case Year 2000 scenario is a temporary
telecommunications failure which would impair communications among our offices.
We believe that such a disruption would not have a material adverse effect on
our operations. However, a prolonged telecommunications failure beyond our
control could have a material adverse effect on our business, results of
operations, and financial condition.
Our standard client contract does not warrant Year 2000 compliance other
than the warranties provided by vendors of the software used in our solutions.
We have reviewed significant non-standard client contracts to determine our
exposure for failure to provide Year 2000 compliant solutions. We believe these
contracts do not present a material Year 2000 risk to us. Nevertheless, under
either contractual arrangement, we may become involved in disputes regarding
Year 2000 problems occurring in solutions we have developed or implemented or
arising from the interactions of our solutions with other software
applications.
22
<PAGE>
BUSINESS
Overview
Inforte is an eBusiness integrator, providing technology consulting and
systems integration services that enable our clients to use Internet technology
to improve their businesses. eBusiness is the business-wide integration of
systems that takes advantage of the latest electronic technology to improve a
company's business model. As an eBusiness integrator, we focus on helping our
clients build Internet solutions and integrate these online operations with
their internal operations and the operations of suppliers and customers. We
believe that our experience with all aspects of eBusiness enables us to enhance
our clients' competitive positions and improve their operational efficiencies.
Our client base consists primarily of large, established companies and
includes an increasing number of newer, Internet-based enterprises.
Representative clients in the past year included Alcatel, Citibank, CompUSA,
Exp@nets, Fujitsu, Gloss.com, Intuit, Monsanto, Primedia, R.R. Donnelley, Sun
Microsystems, Yahoo! and Zurich American Insurance. Our proprietary approach to
planning and delivering projects, Velocity to Value, helps to ensure that we
deliver projects on time and within budget. We believe that this approach,
coupled with our knowledge of business strategy, operations and technology
skills, has enabled us to achieve high levels of client satisfaction. When
surveyed, each one of the over 120 clients served since our inception indicated
that it would provide a positive reference.
We have grown rapidly since our inception in September 1993. To date, our
revenue has at least doubled each year, and all of our growth has been
internally generated rather than through acquisitions. As of December 31, 1999,
we employed 257 people in our offices in Chicago, Dallas, Los Angeles, and San
Francisco. Reflecting the importance we place on employee motivation and
ownership, each of our employees is a stock or option holder.
Industry Background
Widespread acceptance of the Internet has created numerous opportunities
for companies seeking growth and increased efficiencies in highly competitive
and rapidly changing markets. We believe that many senior executives now rank
the development and execution of an Internet strategy among their highest
corporate priorities.
When the Internet first emerged, companies used the Internet in ways they
had previously used traditional print media, creating web sites to display
information about their products and services. As more and more customers began
to use the Internet, companies responded by making their web sites interactive,
offering customers the ability to order a product or service via the Internet.
As companies became convinced of the value of interacting with customers
through the Internet, they extended similar functionality to suppliers.
Today, companies recognize that the Internet enables powerful
functionality, well beyond simple displays of information and order processing.
As a result, a growing number of companies today seek more advanced Internet
applications that are able to electronically link every part of their business
together with their customers and suppliers. In addition, with competitors now
only a click away, organizations are seeking to differentiate themselves by
providing premier experiences for their customers with web sites that are easy
to use and offer personalized service. These solutions also enable new
enterprises to create new online business models which are primarily Internet-
based, thereby avoiding the need to make substantial investments in bricks and
mortar.
Although companies are eager to capture the opportunities presented by the
Internet, the analysis, design, and implementation of an effective Internet
solution requires special skills and expertise which many companies do not
possess. These special skills include the ability to
. assess the strategic implications of the Internet for a business,
23
<PAGE>
. integrate new online business processes with existing capabilities for
processing business transactions internally and with customers and
suppliers,
. develop creative initiatives for brand, content, and user experience,
and
. implement the technology required to support these solutions.
The availability of high quality professionals experienced in creating,
implementing, and integrating advanced Internet solutions is highly limited,
making the market extremely competitive for these individuals. It is often
inefficient and difficult for companies seeking to implement their own
advanced solutions to hire, train, and retain in-house personnel. As a result,
an increasing number of businesses, from start-ups to established companies,
engage professional services firms to help them design and implement these
solutions. Accordingly, the market for eCommerce professional services is
projected to grow dramatically. A recent IDC study estimates that the
worldwide market for Internet services will grow from $7.8 billion in 1998 to
$78.6 billion in 2003, representing a compound annual growth rate of nearly
60%.
The Inforte Solution
We provide technology consulting and systems integration services that
enable our clients to create and deploy eBusiness solutions. Key elements of
the Inforte solution include:
End-to-End eBusiness Integration. We focus on providing clients "end-to-
end" eBusiness solutions."End-to-end" means that we provide a comprehensive
integration of our solutions with the software systems that support internal
operations, customer relationships, and supplier relationships. For example,
an end-to-end solution could give customers online search, selection and
payment capabilities, link customer order information directly to our client's
production facility, and link the production facility with third-party
suppliers. An end-to-end solution could also allow detailed customer profiling
based on their past purchasing behavior, time and location visited on the web
site, as well as their use of other communication channels such as mail and
telephone. Our solutions encompass all aspects of eBusiness, including:
. strategy--developing a business strategy that takes advantage of the
latest technology;
. customer experience management--creating a positive interactive online
experience for customers along with the ability to manage all customer
interactions;
. business-to-consumer electronic commerce--enabling businesses to
transact sales and services with consumers over the Internet;
. business-to-business electronic commerce--allowing businesses to use the
Internet to interact with suppliers of goods and services; and
. internal operations management--facilitating interactions between a
company and its employees through the use of the latest technology.
Our solutions enable clients to use Internet technology to enhance their
competitive positions and improve their operational efficiencies. We believe
that we are one of the few professional services firms that possess all the
skills necessary to offer end-to-end eBusiness solutions.
Advanced Technological Skills. We identify and use the latest technology
to design and build solutions for clients to interact with customers and
suppliers and process business transactions effectively. We have extensive
experience working with applications from leading software vendors, such as
Concur, Microsoft, Siebel, and Vignette. We believe that our experience using
these applications and deploying enterprise-wide systems gives our consultants
functional skills and insights into a wide range of business processes.
Additionally, many of these software vendors are also customers of ours,
engaging us to deploy solutions in their internal environments and develop
solutions that integrate their products with products of other software
vendors.
24
<PAGE>
To continuously maintain the high level of advanced technological skills
among our employees, we have a group of individuals whose sole purpose is to
capture, organize, and disseminate our knowledge capital internally.
Velocity to Value (V2V). Velocity to Value (V2V) is our methodology that
helps us deliver our projects on time and within budget. Using V2V, we
structure and price projects in multiple, shorter phases, as opposed to one
long project, thereby delivering functionality to our clients more quickly.
This allows our clients to more successfully compete given the accelerated
business pace caused by the Internet. We believe that the success of our V2V
approach is demonstrated by our high client satisfaction and our ratio of
project costs to revenue, which is among the best in the industry.
Collaborative Client Involvement. We believe our solutions are successful
because they are developed in collaboration with our clients. Because the
ultimate success of any project will depend upon the client's ability to
effectively operate and support the related systems and technology on an on-
going basis, our co-management approach is designed to include substantial
client participation in all phases of the project. This allows the client to
have a thorough understanding of what has been done, how it was completed, and
why it was performed. We believe our co-management philosophy differs from that
of many service providers, who limit the client's role in project delivery.
Additionally, we encourage our clients to use our web sites eStrategy.com and
inforte.com, which contain information and ideas to inspire our clients'
thinking about new ways to use the Internet to enable eBusiness. We believe our
collaborative knowledge transfer philosophy has contributed to consistently
high project success rates and client satisfaction.
Inforte Strategy
Our strategy is to continue to capitalize on eBusiness opportunities. We
intend to expand our relationships with existing clients and to develop
relationships with additional large, established companies and emerging
Internet enterprises. The following are the key elements of our strategy:
Maintain Advanced Solution Focus. We focus on providing clients advanced
solutions. Advanced solutions are those solutions that combine the latest
technology with innovative business approaches. Advanced solutions are
constantly evolving as technology evolves. We attempt to continually update our
offerings for clients by combining the latest technology with innovative
business models. We believe that this focus has enabled us to establish Inforte
today as a leading provider of solutions for eBusiness models. We will continue
to seek to identify early technology trends and work closely with the providers
of leading-edge technology so that we can offer our clients the most advanced
solutions available. We expect this to enhance our ability to generate
assignments from existing and new clients, to achieve high margins, to maintain
our position of technological leadership, and to provide challenging
assignments to our employees.
Ensure Continued Client Satisfaction. We strive to ensure high client
satisfaction. Since our inception, we have provided services to over 120
clients and based on our client surveys we believe that 100% of those would
give us positive references. We believe that maintaining this standard is a
distinct advantage when competing for new clients, gaining follow-on business
from current clients, and attracting new employees. We will continue to survey
clients each quarter to assess their satisfaction and to link management
compensation to these results. Our quarterly surveys ask clients open-ended
questions on measurements they consider important and ask them to numerically
score us on these factors. For comparability purposes, our client surveys also
request numerical scores on nine set factors, including expertise, project
management skills, business understanding, price, and responsiveness.
Continue to Attract High Quality Personnel. Our advanced solution focus
requires that we retain highly motivated, intelligent people of exceptional
quality. We believe the best way to continue to attract and retain highly
qualified personnel is to provide an intellectually challenging environment,
25
<PAGE>
compensation equal to or better than our competitors, and a strong corporate
culture. Additionally, we will continue to focus on our sophisticated
recruiting, retention, and career development processes that have resulted in
ratios for internal employee referrals, offers-to-acceptances, and voluntary
turnover that we believe to be among the best in the industry.
Continue Superior External and Internal Business Execution. We believe the
most critical factor for successful operations and growth of a consulting
business is consistently delivering high quality services on a timely basis and
within budget. We will continue emphasizing and improving on our delivery
expertise, including our V2V methodology, knowledge management, and other
internal processes to compete effectively in the future. We will also continue
to refine the systems and processes that comprise our internal infrastructure,
which we consider to be advanced for a company of our size. These systems and
processes include our:
. 11-stage sales and marketing methodology which includes steps to
identify and communicate with potential clients, understand client
needs, manage proposals and negotiations, and track the results of those
efforts;
. staffing system which efficiently assigns employees to projects;
. revenue forecast procedures;
. project risk management;
. formal measurement of client satisfaction;
. recruiting, referral, and employee satisfaction programs;
. web-based internal computer network, which is used to share proprietary
knowledge internally;
. regional office-opening process; and
. management accountability for quantifiable operating measurements.
Inforte Services
We work with our clients to determine how they can best design and
implement eBusiness solutions to effectively capitalize on Internet technology.
In most client engagements, our Strategic Services Group first develops an
overall plan for using Internet technology to create new online business
operations and to integrate the client's internal operations and external
relationships with customers and suppliers. After defining this plan, our two
other practice groups create, design, and implement solutions. Our Customer
Experience Management Group focuses on processes and technologies that help our
clients to effectively manage their customer relationships. Our Strategic
Operations Management Group focuses on the integration and implementation of
these systems with the client's existing infrastructure as well as managing its
supplier relationships, internal processes and technologies. All three service
groups often work together to provide effective eBusiness solutions for our
clients.
All of our projects are governed by V2V, our project-delivery methodology.
We structure and price our projects in shorter, multiple phases, to ensure that
each phase meets the client's business objectives. Strategic Services Group
engagements typically last 30 to 60 days, depending on scope. Customer
Experience Management and Strategic Operations Management projects generally
last three to nine months, with significant functionality typically delivered
every three months.
Strategic Services Group
Our Strategic Services Group applies its knowledge of business processes
and technology to define the client's strategy for using Internet technology to
improve its business. A team of
26
<PAGE>
experienced strategy consultants works closely with the client's senior
executives to work through strategic scenarios, provide recommendations, and
specify how to implement the agreed-upon approach.
The strategy created by the Strategic Services Group defines the projects
necessary to implement Internet-based solutions. Our Strategic Services Group
also identifies significant changes needed in the client's structure, business
processes, and external relationships with suppliers and partners and makes
recommendations for implementing the changes while minimizing disruptions to
the client's existing business.
Customer Experience Management Group
Our Customer Experience Management Group delivers solutions that not only
enhance our clients' information about their customers, but also enrich and
personalize the customers' online experience. Our project teams work closely
with the client's senior sales, service, marketing, and technology executives
to design new business processes, design technical systems, customize software
applications from third-party vendors, and implement the solutions.
Our Customer Experience Management Group delivers the following types of
solutions:
. business process design in the areas of electronic commerce, sales,
service, and marketing;
. web sites for selling to or servicing customers;
. online communities so that customers with similar interests may interact
with each other;
. Internet-based processes and technologies facilitating brand-building,
customer experience design, tailored marketing strategies, personalized
interaction with customers, and the tracking of all customer
interactions; and
. Internet-based and other software platforms required to link all sales,
service, and marketing channels to provide a comprehensive profile of
all the ways a customer interacts with a business.
Strategic Operations Management Group
Our Strategic Operations Management Group focuses on projects aimed at
helping our clients use Internet technology to improve internal communications
and business processes and to provide closer external links to suppliers. This
improves the coordination of customers ordering products online and suppliers
fulfilling those orders.
Our Strategic Operations Management practice area delivers the following
types of Internet-based solutions for clients:
. business process design along the supply chain, which includes
purchasing, order fulfillment, logistics, transportation, and warehouse
management;
. employee self-service for goods and services, including corporate
travel, benefits administration, time reporting, and expense management;
. trading exchanges, often referred to as "hubs", that provide a central
location for organizations to trade with each other, to quickly access
information about logistics and delivery, and to automate inter-company
transactions; and
. linking of supplier operations to the sales and service operations of
the business in real-time.
27
<PAGE>
Velocity to Value (V2V) -- Inforte's Delivery Approach
Velocity to Value is our proprietary methodology for planning and
delivering projects. It is designed to ensure that we agree with our clients on
the scope of the project and that we deliver our projects on time and within
budget. V2V establishes a set of processes for project governance, risk
management, and management oversight to accomplish these goals. These processes
are designed to establish support for the project by client executives as well
as to determine client expectations and goals and to monitor and resolve
ongoing project issues. These processes include:
. mandatory meetings of steering committees comprised of executive
representatives from our company, our client, and participating software
vendors;
. weekly management meetings to assess and mitigate project risks;
. quality assurance reviews; and
. bi-monthly project efficiency reporting.
Using V2V, we structure and price projects in multiple, shorter phases, as
opposed to one long project, thereby enabling us to deliver functionality to
our clients more quickly. We believe this approach lessens project risk for us
and for the client, as there is quick validation of whether the project is
meeting the client's objectives. As a result of these multiple, shorter phases,
we have more opportunities to detect and correct any misalignment of client
expectations, compared with a longer project where the misalignment may not be
noticed until the end of the project.
We believe that adherence to these processes has provided us with superior
project management capabilities. We also believe that our high client
satisfaction and our low ratio of project costs to revenue demonstrate our
abilities to successfully structure and deliver fixed-fee projects on time and
within budget.
Our V2V methodology focuses on the following three phases:
Discovery. During the discovery phase, a multi-disciplinary team, comprised
of our employees, the client and its business partners, identifies the
project's scope and business requirements. The business requirements encompass
all aspects of the solution, including:
. interactive marketing and branding;
. customer experience design;
. customer and supplier integration; and
. technology and infrastructure needs.
We begin the discovery process with the creation of what we call a success
plan, which assesses the organization's goals, expectations, and preparedness
for the project. Once the requirements and their corresponding benefits are
clearly understood, we work with the client to build and assess solution
alternatives that will be included in a conceptual design.
Design. During the design phase, we convert success plans and conceptual
designs into detailed specifications. We design and prototype the components of
the solution which create interactive, more personalized website experiences
for customers, and integrate customer transactions with other business
applications, including production, customer service, accounting and other
business functions. In conjunction with the creative aspects of the design, we
define
28
<PAGE>
specifications of required data, business processes and software applications.
We also prototype key technology decisions to ensure that the overall design
will be stable and flexible enough to support the client's future business
needs.
Implementation. During the implementation phase we address all aspects of
solution construction, implementation, and production roll-out. We encourage
the use of pilot implementations and incremental functional releases, as it
reduces misalignment of client expectations and delivers functionality to our
clients more quickly. During this implementation phase we:
. design creative content of the client's website;
. configure and customize third-party software applications;
. program and test customized software source code, including links with
other customer and business partner systems;
. develop test data;
. roll-out and refine the marketing campaign based on the interactive,
more personalized website experience that we develop for customers; and
. train client and business partner personnel to use and manage the
solution.
Because our clients collaborate with us throughout our projects, they
learn how to use and manage the solutions during the course of our engagement.
As a result, we generally are able to effectively transition product support
to the client within a month after completing the implementation phase.
Clients
We focus on clients who want to improve their business by deploying
comprehensive eBusiness solutions to integrate new online operations, existing
internal operations, and their external relationships with customers and
suppliers. We primarily target large, established companies and an increasing
number of emerging, Internet enterprises. Since our inception, we have
performed engagements for more than 120 clients.
Representative clients during the past twelve months include:
Alcatel Monsanto
BAX Global Primedia
Citibank ProBusiness
CompUSA Quaker Oats
Credit Union National Association (CUNA) Mutual
Republic Mortgage Insurance
Cummins Engine Corp.
Exp@nets Rockwell
Fluor R.R. Donnelley
Fujitsu Scudder Kemper
Gloss.com Sun Microsystems
Harris Bank Yahoo!
Intuit Zurich American Insurance
The clients listed above together generated over two-thirds of our
revenues for the most recent twelve months. The number of customers from whom
we have generated $1 million or more of annual revenue has increased from one
in 1997, to three in 1998, to eleven in 1999. In 1998 and 1999, we did not
have any customers who accounted for more than 10% of revenue.
29
<PAGE>
Client Case Studies
The following case studies illustrate the way in which we help our clients
design and implement end-to-end eBusiness solutions to enhance their
competitive positions.
BAX Global--Business-to-Business Trading Exchange Solution
Client: BAX Global, a $1.8 billion global transportation and supply chain
management company, offers multi-modal freight forwarding to business-to-
business shippers worldwide.
Strategic Imperative: In a competitive industry, BAX Global needs to
maintain its strong position by continually adding flexible, value-added
shipping services--and by using the Internet to facilitate location-
independent, business-to-business electronic commerce. BAX Global wanted to
develop a new offering for food service distributors wanting to quickly supply
fresh seafood to their customers across the United States, which was difficult
because of the highly perishable nature of seafood and its constant price
volatility.
Inforte Solution: We helped BAX Global create a business-to-business
Internet trading exchange, BAXMart.com, that allows seafood suppliers and
distributors to sell seafood in real-time, delivered nationwide within 24
hours. Following our Velocity to Value methodology, a multi-disciplinary
project team, including client personnel and representatives from seafood
suppliers and distributors, was able to deploy the first pilot within eight
weeks of project initiation. The rapid implementation of this solution enabled
BAX Global to build increased loyalty with its seafood distributors, to become
the logistics company for a larger number of seafood distributors, and to gain
differentiation from its competitors through this value-added service.
The BAXMart.com Internet trading exchange operates as follows:
. Fresh seafood suppliers display their daily inventories on the Internet,
using information they receive from fishing boats at sea. As customers
buy the seafood, BAXMart.com updates available inventories in real time.
When a supplier makes a sale, an electronic message is sent directly
from the supplier to the BAX Global shipping terminal, notifying it of
the required delivery and facilitating prompt shipping.
. Food distributors throughout the United States can place sales orders
for seafood products from any location with Internet access. Since
supplier inventories are managed in real-time, distributors can check
for immediate availability and pricing, including sales tax and
distribution costs to their own location. They can also tell BAX Global
to deliver product orders to their normal distribution house or directly
to the food service customer overnight, an innovative service for fresh
seafood delivery.
Gloss.com--Business-to-Consumer Electronic Commerce Solution
Client: A new venture, Gloss.com is one of the first on-line beauty web
sites founded by beauty industry insiders.
Strategic Imperative: Gloss.com planned to establish itself in the online
beauty market by providing customers with the best beauty information,
products, and services through exclusive product offerings and an online beauty
magazine. In addition to creative design, Gloss.com needed to successfully
manage product distribution with a seamless order management, inventory,
accounting, and customer information system.
Inforte Solution: Gloss.com selected Inforte based on its knowledge of end-
to-end eBusiness solutions and its record of delivering them within aggressive
timeframes. We deployed the eCommerce business and technical components of the
solution, integrating with software from Blue
30
<PAGE>
Martini for merchandising and store management, PeopleSoft for order management
and financials, and third-party systems for warehouse management. Our solution
helped Gloss.com to accomplish the following:
. seamless communication of order information between customer and
warehouse, providing stock management, shipping data, real-time product
availability information, and order status updates to customer service
personnel;
. processing of financial information through the system, to include: the
transfer of credit card information directly to accounts receivable, the
logging of accounting and billing data; and the tracking of sales
figures by vendor and stock keeping units for efficient and timely
inventory control; and
. a personalized online buying experience, conveying a department store
feel, with each brand retaining its own identity and "shelf space."
A fourth quarter launch in 1999 was critical to the site's success due to
the high volume of cosmetics and fragrances sold during the holiday season and
due to Gloss.com's extensive advertising campaign, which was intended to drive
traffic to the web site during this period. Using its Velocity to Value
methodology, Inforte delivered the solution within an ambitious 13-week
schedule, resulting in a successful launch of the web site.
Intuit--Customer Experience Management Solution
Client: Intuit is the leading provider of personal finance and small
business software, selling products such as Quicken, QuickBooks, and Turbo Tax.
Strategic Imperative: Intuit's vision is to leverage the market-leading
position of its application software, by enhancing and adding online services
to become the preferred partner to individuals and small businesses for
financial services.
Inforte Solution: We are helping Intuit enhance Quicken.com and
QuickBooks.com to include online services such as payroll, to add the ability
to tailor each customer's experience, and to offer greater levels of customer
service.
Intuit selected us based on our understanding of integrated customer
management and business-to-business and business-to-consumer electronic
commerce solutions. Our Strategic Services team worked with our Customer
Experience Management experts to customize and deploy Intuit"s enterprise-wide
applications to meet the following solution requirements:
. Intuit needed enterprise-wide applications for sales, marketing, and
service, together with an approach that makes all customer information
available regardless of whether the customer contacts Intuit over the
phone or on the web. We are working with Intuit to add customer self-
service to Intuit's web properties, so that customers can access and
modify their own information without assistance from a customer service
representative. We also are working with Intuit to add call center
support for customers needing further assistance.
. Intuit needed a design that supported both business-to-business and
business-to-consumer operations to handle both small business and
individual customers. We are helping Intuit create highly personalized
web interactions for each customer based on that customer"s information
and their customer segment. Our solution will recognize the different
support needs of each segment, while maximizing profitability to Intuit
across each customer segment.
We will implement phase one of the solution at year-end in time for the
small business financial reporting season, with other functional components
phasing in on a predetermined schedule in
31
<PAGE>
accordance with our V2V methodology. Our V2V project governance processes and
phasing approach will allow Intuit to revamp its strategy and systems for
customer management and web services in approximately four months.
Primedia--Business-to-Business Electronic Commerce Solution
Client: Primedia is a billion-dollar provider of specialized information
for targeted audiences in the education, business and special interest consumer
markets. One of its subsidiaries, Bacon's Information, provides a wide range of
information and assistance for anyone needing to research, contact, or monitor
the media.
Strategic imperative: Bacon's distributed its traditional information
offerings on CD-ROM, meaning that customers could not receive updated data
until Bacon's shipped the next product release. Also, Bacon's clients could not
add their own contact and media information to Bacon's data. Bacon's needed to
migrate these products to the Internet, before new Internet-based competitors
emerged.
Inforte Solution: Bacon's selected us on the basis of our demonstrated
experience with other information services clients, coupled with our eBusiness
vision and deployment capabilities. We enabled Bacon's to make its products
available to its customers through an extranet, allowing authorized customers
to access information over a password-protected Internet site. The solution
helped Bacon"s to accomplish the following:
. Strengthen its competitive position through a product that offers
immediate access to updated information and greater functionality,
thereby creating a better customer experience and increasing loyalty.
. Reduce distribution costs by making the product completely available
over the Internet. In addition, the new offering reduces customer
service costs since its browser-based solution does not include
traditional installation processes and the associated technical support.
Following the initial implementation, we were engaged by Bacon's on
subsequent releases of these products.
Sales and Marketing
We market our services with a team-selling approach that combines dedicated
sales professionals from our practice development and client development groups
with our senior delivery executives. We believe our team model is superior to a
traditional professional services sales model where one individual must manage
the sales process in addition to providing the services. Our practice
development group focuses on selling to new customers, while our client
development group focuses on maintaining and extending relationships with
existing customers.
We use a proprietary sales and marketing methodology, which we call SAMM,
to capture detailed information on sales opportunities. SAMM is based on an
enterprise relationship management system that we have heavily customized to
track potential contracts at each of the 11 stages of our sales cycle. We
project revenue based on a probability analysis of each sales opportunity,
allowing us to manage continually our hiring needs and spending plans.
Our market development efforts are designed to build Inforte's brand name
and recognition in the marketplace. Our activities include seminars and
briefings that target corporate executives, public speaking opportunities,
attendance at industry conferences, regular meetings with market analysts,
32
<PAGE>
public relations programs, electronic brochures, and use of our web site
properties, such as inforte.com and eStrategy.com.
We complement our internal sales and marketing processes with selected
formalized industry alliances. We receive leads from a number of leading
software vendors with whom we have non-exclusive marketing relationships,
including Blue Martini, Concur, Genesys, i2, Microsoft, Siebel, and Vignette.
We continually search for new software vendors with whom we can share business
leads, and expect to add new relationships from time to time, as well as work
with other software vendors with whom we do not have a formalized relationship.
People & Culture
We have grown from 26 people at the end of 1996, 63 people at the end of
1997, 122 people at the end of 1998, to 257 employees as of December 31, 1999.
Of these, 196 were consultants, 18 were in sales and marketing, including 10
quota-based sales personnel, 12 were in human resources, and 31 were management
or administrative personnel. None of our employees is represented by a labor
union, and we believe our employee relations are excellent.
We consider our culture to be rewarding and fun. We think our culture is a
key reason we are able to attract high quality employees despite the tight
labor market. We have sophisticated recruiting, retention, and career
development processes that have resulted in ratios for internal employee
referrals, offers-to-acceptances, and voluntary turnover that we believe are
all among the best in the industry. All employees receive stock options when
they join us, as we believe that equity ownership is an important component of
employee motivation and compensation.
Core Values. We have defined our core values to be:
. Integrity. We must always make honorable decisions with regard to our
clients and employees.
. Meritocracy. Employees advance at our company based strictly on their
own merit. We regularly provide verbal and written feedback and coaching
on employee performance.
. Growth. We believe a high-growth environment is more stimulating and
results in more opportunity for our company and our employees. In
addition to valuing business growth, we assist and encourage our
employees to grow as their careers develop.
. Focus. We focus on our strengths, and we stick to them. We therefore
focus on accepting projects where we can deliver advanced solutions on
time and within budget.
. Customer service. Our success results from our clients, and we will do
all that we can to serve them. We will measure client satisfaction and
strive to continue to have 100% of our clients willing to give us a
positive reference.
We consider adherence to these principles to be critical to our long-term
success. We reinforce these principles regularly in our recruiting process,
training schools, company meetings, and internal communications.
Recruiting. During 1999, 70% of our new hires came to us through referrals
from our existing employees. We believe our strong culture results in our
employees actively encouraging their friends and former co-workers to join us.
We also believe that our strong referral program, which includes a referral
bonus system, increases the quality of our recruiting while lowering recruiting
costs. We supplement our employee referral program with Internet-based
recruiting, direct sourcing, campus hiring, and the limited use of professional
search firms.
33
<PAGE>
Retention. We believe that our voluntary turnover rate is among the best in
the industry, at less than one-half of the industry average. We believe our
work environment promotes the retention of our employees because it:
. exposes them to the most advanced technologies and solutions;
. allows them to work with highly intelligent and motivated people;
. teaches them industry-best project delivery skills;
. addresses their concerns, such as excessive travel;
. provides personal satisfaction due to our high rate of client
satisfaction;
. offers enjoyable social activities; and
. ties our executive officers' bonuses to retention.
In addition, our employees receive written feedback on their individual
performance three times each year. Our employees also meet regularly with their
career coach, a senior person within our company who reviews the employee's
progress and jointly helps the employee develop career goals and objectives.
Coaches also convey informal feedback outside of the employee's immediate
project activities.
Many companies experience an increase in turnover after going public. It is
possible that we may experience a similar increase.
Learning. All new hires undergo initial training at our Chicago
headquarters learning our culture and business methods and participating in
simulated client engagements. We believe this training is crucial to instilling
a unified culture throughout our organization. We supplement this initial
training with other sessions, including project management, and with training
on business skills such as effective presentations and client interviewing. Our
employees also participate in training classes provided by software partners
and in self-study courses on specific technical topics.
Compensation Philosophy. We have structured our compensation program to
attract and retain highly skilled professionals by offering competitive base
salaries with annual bonus opportunities. We pay additional, substantial
bonuses for sales referrals, employee referrals, and completion of training
certifications. Some executives and practice development employees are eligible
for quarterly bonuses based on corporate and personal performance. Each
employee receives stock options when they join us, with additional options
possible based upon performance.
Competition
We compete in the Internet professional services market, which is
relatively new and highly competitive. We expect competition to intensify as
the market evolves. We believe that our competitors fall into several
categories, including the following:
. Internet consulting firms and online agencies who offer varying
combinations of creative design and technology skills, such as
AGENCY.COM, iXL, Proxicom, Razorfish, Scient, USWeb/CKS, US Interactive,
and Viant;
. other technology consulting firms such as Cambridge Technology Partners,
eLoyalty, and Sapient;
. Andersen Consulting and the consulting arms of the Big Five accounting
firms;
. large systems integration or outsourcing firms such as Computer
Sciences, EDS, and IBM;
34
<PAGE>
. strategy consulting firms, such as Bain, Booz.Allen & Hamilton, Boston
Consulting Group, Diamond Technology Partners, and McKinsey;
. professional services divisions of software application vendors; and
. internal information technology departments of current and potential
clients.
In addition, many of our competitors have longer operating histories,
larger client bases, longer relationships with clients, greater brand or name
recognition, and significantly greater financial, technical, marketing, and
public relations resources than us.
We believe that only a few of our competitors possess all of the skills
necessary to offer the comprehensive integration of internal operations,
customer relationships and supplier relationships that we provide. We expect,
however, that many of these competitors will evolve their service offerings
over time to more closely match our current capabilities. We believe that the
principal competitive factors in the Internet professional services market are:
a strategy offering, a complete Internet integration model that integrates the
customer experience with the supply chain, a proven record of project delivery,
and high customer satisfaction. We believe that our service offerings allow us
to compete favorably in all of the above areas.
There are relatively low barriers to entry into the Internet professional
services market. Existing or future competitors may develop or offer services
that are comparable or superior to ours at a lower price, which could have
cause our revenues to decline.
Facilities
Our headquarters are located in 33,065 of square feet of leased office
space in Chicago, Illinois. Our senior management, national sales, marketing,
human resources, and administrative personnel, as well as the Chicago-based
consultants use this facility. The lease term expires on December 31, 2005,
with no option to renew. We have regional offices that are used by regional
management, sales, and recruiting personnel, as well as consultants residing in
the region. We lease 3,139 of square feet of office space in Newport Beach,
California. This lease term expires on May 31, 2000, with a one- to three-year
renewal option. We have also entered into short-term leases for professional
office space in San Mateo, California and Irving, Texas.
Legal Proceedings
From time to time, we may be involved in litigation incidental to the
conduct of its business. To date, we have never been a party to any material
legal proceedings.
35
<PAGE>
MANAGEMENT
Executive Officers, Directors, and Proposed Directors
Upon completion of the offering the board of directors will consist of
seven members. The following table provides information with respect to our
executive officers, directors, and proposed directors:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Philip S. Bligh............ 32 President, Chief Executive Officer, and Chairman
Stephen C.P. Mack.......... 34 Chief Operating Officer and Director
Nick Padgett............... 33 Chief Financial Officer and Director
Ronald G. Meyer............ 33 Vice President, Client Development
Edgar D. Jannotta.......... 68 Proposed Director
Ray C. Kurzweil ........... 51 Proposed Director
Michael E. Porter.......... 52 Proposed Director
Al Ries ................... 73 Proposed Director
</TABLE>
Philip S. Bligh co-founded Inforte and has served as Chairman of the board
of directors of Inforte since inception in September 1993. Mr. Bligh also
currently serves as President and Chief Executive Officer. Before founding
Inforte, Mr. Bligh served in various technology consulting roles for Andersen
Consulting from October 1988 to February 1991 and as a project manager for
Systems Software Associates, an enterprise software provider, from April 1991
through Inforte's founding. Mr. Bligh holds a BS in chemical engineering from
University College London, England and serves as an adjunct professor in
management at DePaul University's Kellstadt Graduate School of Business.
Stephen C.P. Mack joined Inforte in October 1994 and has served as a
director since that time. Mr. Mack is currently Inforte's Chief Operating
Officer, overseeing the consulting organization. Before joining Inforte, from
February 1988 to October 1994, Mr. Mack worked at Andersen Consulting, where he
was, most recently, a project manager responsible for the design and
implementation of enterprise-wide operational and decision support systems for
large, multinational corporations. Mr. Mack holds a Master's degree in
engineering and management from the University of Birmingham, England.
Nick Padgett has served as Inforte's Chief Financial Officer since December
1997. Mr. Padgett has been a director of Inforte since its founding in
September 1993. Before joining Inforte, Mr. Padgett served as an equity
research analyst for William Blair & Company, from August 1994 to December
1997. Before William Blair, Mr. Padgett served in various technology consulting
roles for Andersen Consulting from June 1988 to September 1992. Mr. Padgett
holds an MBA from the Amos Tuck School of Business Administration at Dartmouth
College and a BS in computer science from Western Illinois University.
Ronald G. Meyer joined Inforte in November 1995 and has served in various
senior management roles. Currently, Mr. Meyer is Vice President of Client
Development, responsible for maintaining and extending Inforte's relationships
with existing clients. Before joining Inforte, Mr. Meyer served as a product
development manager for Computer Associates' warehouse management and logistics
solutions from November 1993 to October 1995. Before Computer Associates, from
June 1988 to November 1993, Mr. Meyer worked at Andersen Consulting, most
recently as a project manager. Mr. Meyer holds a BS in computer science from
Western Illinois University.
Edgar D. Jannotta, a proposed director of Inforte, has served as senior
director of William Blair & Company since January 1996. Mr. Jannotta joined
William Blair & Company in 1959, became a partner in January 1965, assistant
managing partner in 1973, managing partner in 1977, and senior partner in 1995.
Mr. Jannotta is chairman of the board of trustees of the University of Chicago
and president and a director of Lyric Opera of Chicago. Mr. Jannotta received
an AB from Princeton
36
<PAGE>
University and an MBA from Harvard Business School. Mr. Jannotta is a former
chairman of the Securities Industry Association and former director of the New
York Stock Exchange, Inc. Mr. Jannotta serves as a director of AAR Corporation,
Aon Corporation, Bandag, Incorporated, Molex Incorporated, and Unicom
Corporation.
Ray C. Kurzweil, a proposed director of Inforte, is chairman and chief
executive officer of Kurzweil Technologies, Inc., a software development firm
he founded in 1995. Mr. Kurzweil was the principal developer of many advanced
technologies, including the first omni-font optical character recognition, the
first print-to-speech reading machine for the blind, the first CCD flat-bed
scanner, the first text-to-speech synthesizer, the first music synthesizer that
could recreate acoustical instruments, and the first commercially marketed
large vocabulary speech recognition software. Mr. Kurzweil successfully founded
and sold four technical businesses including Kurzweil Applied Intelligence,
Inc. and Kurzweil Educational Systems, Inc. Mr. Kurzweil's numerous awards
include Inventor of the Year from Massachusetts Institute of Technology in
1988. His book, The Age of Intelligent Machines, was named Best Computer
Science Book of 1990. His current best-selling book, The Age of Spiritual
Machines, When Computers Exceed Human Intelligence is published by Viking
Press. Mr. Kurzweil holds a BS in Computer Science and Literature from the
Massachusetts Institute of Technology. Mr. Kurzweil serves as a director of
Medical Manager Corp., a medical software systems company.
Michael E. Porter, a proposed director of Inforte, is the C. Roland
Christensen Professor of Business Administration at Harvard Business School and
a leading authority on competitive strategy and international competitiveness.
Dr. Porter joined the Harvard Business School faculty in 1973 after receiving a
B.S.E. with high honors in aerospace and mechanical engineering from Princeton
University in 1969, an M.B.A. with high distinction in 1971 from Harvard
Business School and a Ph.D. in Business Economics from Harvard University in
1973. Dr. Porter teaches competitive strategy and counsels corporate executives
and government leaders on enhancing competitiveness. He serves on the boards of
directors of Parametric Technology Corporation, R&B Falcon Corporation, and
Thermo Quest Corporation. Dr. Porter is the author of 16 books and over 60
articles including Competitive Strategy: Techniques for Analyzing Industries
and Competitors, On Competition, and The Competitive Advantage of Nations.
Al Ries, a proposed director of Inforte, is chairman of Ries & Ries, an
Atlanta based strategic consulting firm which he co-founded in 1994. Prior to
1994 Mr. Ries was a principal in Trout & Ries, marketing strategists. Mr. Ries
has extensive experience in marketing, having entered the field in 1950,
joining the advertising and sales promotion department of General Electric. Mr.
Ries joined the advertising firm of Needham, Louis and Brorby in 1955, followed
by Marsteller, Inc. in 1961. Mr. Ries founded the advertising firm of Ries,
Cappiello and Colwell in 1963, which changed its name in 1979 to Trout & Ries.
Mr. Ries obtained a BA in Liberal Arts from DePauw University, and has authored
or co-authored a number of popular books on marketing strategy, including
Positioning: The Battle For Your Mind; Marketing Warfare; Focus: The Future of
Your Company Depends On It; and The 22 Immutable Laws of Branding. His latest
book, The 11 Immutable Laws of Internet Branding, will be published in 2000.
Key Employees
We have many other key employees. A partial listing, consisting of the
heads of our major functional areas and our practice areas, follows:
Philip Clement (age 33) has served as Inforte's Vice President of Market
Development since March 1997. Before joining Inforte, from June 1993 through
November 1996, Mr. Clement was vice president of business development for
Wizdom Systems, a provider of process design and data modeling software. Mr.
Clement holds masters degrees in business administration and in public policy
analysis from the University of Chicago and a BA in anthropology from the
University of Southern California.
37
<PAGE>
Daniel Gathof (age 32) has served as Inforte's Vice President of Human
Resources since June 1998. Mr. Gathof joined Inforte from Deloitte and Touche,
where he served as a director of experienced hire recruiting from June 1996 to
June 1998. Before Deloitte and Touche, Mr. Gathof served as a director of human
resources at SHL Systemhouse from September 1992 to June 1996. Mr. Gathof
worked in various human resources roles with Andersen Consulting from August
1989 to September 1992. Mr. Gathof holds a BA in political science from Knox
College.
Richard Miller (age 33) joined Inforte in April 1998 and has served in
various senior delivery and management roles. Currently, Mr. Miller is Vice
President of Regions. In this capacity, Mr. Miller is responsible for ensuring
consistency in recruiting, sales, and delivery across all geographies, and for
overseeing regional expansion. Before joining Inforte, Mr. Miller worked as a
management consultant from June 1996 to April 1998 at Arthur Andersen and from
June 1994 to June 1996 at Ernst & Young. Prior to his consulting experience,
Mr. Miller held various finance and internal consulting positions from May 1989
to September 1992 with First Interstate Bank. Mr. Miller has a BS in finance
from California State, Long Beach and a MBA from Indiana University.
Frank Suljic (age 33) has served as Inforte's Vice President of Practice
Development since June 1997. Before joining Inforte, Mr. Suljic served from
April 1996 to June 1997 as a vice president of business development for
IndeNET, a distributor of satellite-based television media, where he was
responsible for sales, marketing, and consumer services. Prior to IndeNET, Mr.
Suljic co-founded Paradigm Research Inc., a boutique management consulting
firm, in June 1994 and served as a partner and vice president of business
development until April 1996. Before Paradigm, Mr. Suljic was a client account
executive at IBM from December 1989 to June 1994. Mr. Suljic holds an MBA from
the University of Chicago and a BS in industrial engineering from the
University of Wisconsin-Madison.
David Sutton (age 36) has served as Inforte's Vice President of the
Strategic Services Group since September 1999. In this capacity, Mr. Sutton
leads Inforte's management consulting practices. Before joining Inforte, Mr.
Sutton was a vice president at Computer Sciences Corporation (CSC), serving in
the CSC Index management consulting unit there from September 1994 to September
1999. Prior to CSC, Mr. Sutton served in various management consulting roles
with GRC International from May 1987 to August 1994, Booz.Allen & Hamilton from
January 1986 to May 1987, and BDM International from January 1994 to January
1996. Mr. Sutton holds an MBA from George Washington University and a BS in
computer science engineering from the University of Virginia.
Douglas Turk (age 30) joined Inforte in June 1997 and has served in various
senior management roles. Currently, Mr. Turk is Vice President of Customer
Experience Management, with overall management responsibility for this practice
area. Before joining Inforte, Mr. Turk co-founded Reservations On-Line, an e-
commerce company that provided technology solutions for the distribution of
reservations and tickets, and served as director of operations there from
January 1996 to March 1997. Prior to Reservations On-Line, Mr. Turk served as a
business analyst and team leader at EDS from May 1992 to June 1994. Before EDS,
Mr. Turk served as an accountant with Wortzman Company from June 1991 to April
1992. Mr. Turk holds JD and MBA degrees from DePaul University and a BS in
business administration from John Carroll University.
Darius Vaskelis (age 30) joined Inforte in August 1997, and has served in
various senior delivery and management roles. Currently, Mr. Vaskelis is Vice
President of Strategic Operations Management, with overall management
responsibility for this practice area. Before joining Inforte, Mr. Vaskelis
served from July 1994 to August 1997 as director of information systems at
Hospitality Resources Incorporated. Before Hospitality Resources Incorporated,
Mr. Vaskelis served as networking manager at Lakeview Technology from March
1994 to July 1994. Prior to this, Mr. Vaskelis worked from January 1993 to
March 1994 at the University of Illinois Hospital & Clinics as a systems
integration specialist. From February 1990 to January 1993 Mr. Vaskelis served
as technical and marketing support specialist with IBM. Mr. Vaskelis holds a BA
in political science from University of Illinois at Chicago.
38
<PAGE>
Board Composition
We currently have three directors. Following the offering, our board of
directors will be expanded to seven members and Messrs. Jannotta, Kurzweil,
Porter, and Ries will join the board as independent directors. Upon the
completion of the offering, the terms of office of the members of the board of
directors will be divided into three classes, with each class consisting, as
nearly as possible, of one-third of the total number of directors. The term of
office of the first class will expire at the annual meeting of stockholders in
2001, the term of office of the second class will expire at the annual meeting
of stockholders in 2002, and the term of office of the third class will expire
at the annual meeting of stockholders in 2003. At each annual meeting of
stockholders after the initial classification, the successors to directors
whose terms will then expire will be elected to serve from the time of election
and qualification until the third annual meeting following election. In
addition, the authorized number of directors may be changed only by resolution
of the board of directors or the affirmative vote of 66 2/3% of our outstanding
voting stock, and a reduction of the authorized number of directors will not
remove any director before that director's term of office expires. Board
vacancies resulting from any increase in the size of the board of directors can
only be filled by a majority of directors then in office. As a result of any
increase in the number of directors, any additional directorships will be
distributed among the three classes, so that, as nearly as possible, each class
will consist of one-third of the total number of directors. This classification
of the board of directors may have the effect of delaying or preventing changes
in control or management of Inforte.
Board Committees
Following the offering, the board of directors intends to appoint an audit
committee and a compensation committee. Our independent directors will serve as
the members of these two committees.
The audit committee will review our audited financial statements and
accounting procedures and recommend the employment of, and approve the fee
arrangements with, independent accountants for both audit functions and for
advisory and other consulting services.
The compensation committee will review and approve the compensation and
benefits for our key executive officers, administer our employee benefits and
stock purchase plans, and make recommendations to our board of directors
regarding grants of stock options and any other incentive compensation
arrangements.
Compensation Committee Interlocks and Insider Participation
Before this offering, our executive officers made all decisions concerning
officers compensation. After this offering, none of the members of our
compensation committee will be an officer or employee of our company. No
director or executive officer serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors.
Directors' Compensation
Our directors receive no cash compensation for their service as directors,
but are reimbursed for all reasonable out-of-pocket expenses for attendance at
board meetings. Our four proposed directors will receive stock options from the
company for 20,000 shares of common stock each. The options will be exercisable
at the initial public offering price, will have a term of 10 years, and will
vest one-third each year, beginning on the first anniversary of the date of
grant.
39
<PAGE>
Executive Compensation
The following table summarizes the compensation we paid or accrued for
services rendered for the years ended December 31, 1999 and 1998, to our
President and our other executive officers:
<TABLE>
<CAPTION>
Long-term
Compensation
Awards
Annual Compensation Securities
------------------- Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation
- --------------------------- ---- ------------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Philip S. Bligh............. 1999 $ 150,250 $ 122,184 -- --
President, Chief Executive 1998 117,500 5,507 -- --
Officer, and Chairman
Stephen C.P. Mack........... 1999 124,075 300,381 -- --
Chief Operating Officer and 1998 117,500 5,761 -- --
Director
Nick Padgett................ 1999 85,550 57,728 -- --
Chief Financial Officer and 1998 91,500 -- -- --
Director
Ronald G. Meyer............. 1999 125,925 75,223 -- --
Vice President, Client 1998 117,500 -- -- --
Development
</TABLE>
Options
We did not grant any options under the stock option plans during the last
fiscal year to the executive officers named in the summary compensation table.
The following table sets forth information regarding options exercised by our
executive officers during 1999 or held by them on December 31, 1999:
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised In-
Unexercised Options at the-Money Options at
Shares Fiscal Year-End Fiscal Year-End(1)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Philip S. Bligh......... -- -- -- -- -- --
Stephen C.P. Mack....... -- -- -- -- -- --
Nick Padgett............ 50,000 $ 250,750 -- 250,000 -- $1,691,250
Ronald G. Meyer......... 500,000 $2,177,500 -- -- -- --
</TABLE>
- --------
(1)We determined that the common stock had a fair market value of $7.00 per
share on December 31, 1999.
Employee Benefit Plans
1995 Incentive Stock Option Plan
In 1995, our stockholders approved the 1995 Incentive Stock Option Plan.
Effective as of September 1, 1995, the 1995 Plan was amended and restated
effective as of December 31, 1997. Our 1995 Plan provides for the issuance of
incentive stock options and nonqualified stock options to officers and other
key employees.
We have reserved an aggregate of 4,900,000 shares of common stock for
issuance through our stock option plan, of which 365,000 were available for
grant as of December 31, 1999. Only options that are vested may be exercised.
The options expire after a period of time following the termination of
employment. Options that expire unexercised or that are forfeited become
available again for issuance under the 1995 Plan. All of the option agreements
contain customary anti-dilution adjustments which provide for adjustments to
the exercise price and number of shares for events such as stock splits, stock
dividends, and consolidations. We do not intend to issue any additional options
under this 1995 Plan.
40
<PAGE>
Amended and Restated 1997 Incentive Compensation Plan
On December 31, 1997, our stockholders approved the 1997 Incentive
Compensation Plan. On December 1, 1999, our stockholders approved the Amended
and Restated 1997 Incentive Compensation Plan. This plan permits the grant of
stock options and other stock awards to our employees and non-employee
directors. We have reserved an aggregate of 4,000,000 shares of common stock
for issuance through this 1997 Plan, plus annual increases beginning in 2001
equal to the lesser of: (1) 1,000,000 shares, (2) 5% of the outstanding shares,
or (3) a number determined by the board of directors. Of the shares of common
stock available under this 1997 Plan, 2,399,800 were available for grant as of
December 31, 1999.
The 1997 Plan authorizes incentive and non-qualified stock options.
Additionally, the 1997 Plan authorizes the grant of stock appreciation rights
independently of, or with respect to, options granted or outstanding, as well
as other types of stock-based awards, such as restricted stock, performance
shares or performance units. The stock options generally have ten-year terms
and vest in accordance with provisions determined by the board of directors.
Typically, these options vest 25% each year beginning on the anniversary date
of grant.
Amended and Restated Employee Stock Purchase Plan
We have reserved 200,000 shares of common stock for issuance under our
Amended and Restated 1999 Employee Stock Purchase Plan, plus annual increases
beginning in 2001 equal to the lesser of: (1) 400,000 shares, (2) 2% of the
outstanding shares, or (3) a number determined by the board of directors. As of
the date of this prospectus, no shares have been issued under the 1999 Purchase
Plan.
All employees of our company are eligible to participate. However, any
employee who immediately after a grant owns stock possessing 5% or more of the
total combined voting power or value of all classes of our capital stock may
not participate. No employee may receive rights to purchase stock at a rate
which exceeds $25,000 worth of stock for each calendar year.
The 1999 Purchase Plan, which is intended to qualify under Section 423 of
the Internal Revenue Code, permits the board of directors to determine the
length of each offering period. However, no offering period may extend for more
than 27 months. Participants may elect to have their payroll deductions
accumulated and used to purchase shares of common stock at the end of an
offering period, or at any interim purchase date determined by the board of
directors. A participant is limited to $21,250 in payroll deductions per year.
The price of stock purchased under the 1999 Purchase Plan is 85% of the lower
of the fair market value of the common stock at the beginning of the offering
period or the fair market value of the common stock on a purchase date.
401(k) Retirement/Savings Plan
Our 401(k) plan covers our full-time employees located in the United
States, and is intended to qualify under Section 401(k) of the Internal Revenue
Code. Any contributions to the 401(k) plan by employees, and the investment
earnings on these contributions, are not taxable to employees until withdrawn
from the 401(k) plan. Up to the statutorily prescribed annual limit, which was
$10,000 in 1998, Employees may elect to contribute up to 15% of their current
compensation to the 401(k). The 401(k) plan permits us to make matching
contributions; however, we do not do so, nor do we currently have plans to do
so.
RELATED PARTY TRANSACTIONS
On December 31, 1998, we made a $106,190 loan, with recourse, to Stephen
C.P. Mack, our Chief Operating Officer, to enable him to exercise Inforte stock
options. The loan bore interest at 7.75% per year. Mr. Mack repaid the loan in
full on September 30, 1999.
41
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of December 31, 1999. We have listed each
person that beneficially owns more than five percent of the outstanding common
stock; each of our directors and executive officers; and all directors and
executive officers as a group.
Each of the stockholders has sole voting and investment power with respect
to the shares beneficially owned by that stockholder. The address for each
principal stockholder is 150 N. Michigan Avenue, Suite 3400, Chicago, Illinois
60601.
For purposes of calculating amounts beneficially owned by a stockholder
before the offering, the number of shares deemed outstanding includes 9,721,154
shares outstanding as of December 31, 1999 prior to the offering and 11,721,154
shares after the offering. Shares of common stock subject to options currently
exercisable or exercisable within 60 days of December 31, 1999 are deemed
outstanding for the purpose of computing the percentage ownership of the person
holding such options but are not deemed outstanding for computing the
percentage ownership of any other person.
For purposes of calculating the percentage beneficially owned after the
offering, the number of shares deemed outstanding includes the shares being
sold in this offering, assuming no exercise of the underwriters' overallotment
option.
<TABLE>
<CAPTION>
Percent of
Number of Common Stock
Shares of -----------------
Common Before After
Stock Offering Offering
--------- -------- --------
<S> <C> <C> <C>
Executive Officers, Directors and Proposed
Directors
Philip S. Bligh.................................. 3,100,000 31.9% 26.5%
Stephen C.P. Mack (1)............................ 3,100,000 31.9 26.5
Nick Padgett (2)................................. 760,000 7.7 6.4
Ronald G. Meyer (3).............................. 900,000 9.3 7.7
Edgar D. Jannotta (4)............................ -- -- --
Ray C. Kurzweil (4).............................. -- -- --
Michael E. Porter (4)............................ -- -- --
Al Ries (4)...................................... -- -- --
All executive officers and directors as a group
(4 persons)(1).................................. 7,860,000 80.0 66.5
Five Percent Stockholder
Roger Neale...................................... 750,000 7.7% 6.4%
</TABLE>
- --------
(1) Includes 450,000 shares which are subject to transfer pursuant to a pending
divorce settlement.
(2) Includes 100,000 shares issuable upon the exercise of stock options that
become exercisable upon Inforte's initial public offering.
(3) Excludes 100,000 shares owned by grantor retained annuity trusts
established by Mr. Meyer and his wife over which they have no investment or
voting power, but of which they are beneficiaries.
(4) Excludes shares which the proposed directors may purchase in this offering.
42
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Upon the closing of this offering, we will be authorized to issue up to
50,000,000 shares of common stock, $.001 par value per share, and 5,000,000
shares of preferred stock, $.001 par value per share.
Common Stock
As of December 31, 1999, there were 9,721,154 shares of common stock
outstanding that were held of record by 31 stockholders. Based upon the number
of shares outstanding as of December 31, 1999 and giving effect to the issuance
of 2,000,000 shares of common stock in this offering, there will be 11,721,154
shares of common stock outstanding upon completion of this offering.
Holders of common stock are entitled to one vote for each share on all
matters to be voted upon by the stockholders. There are no cumulative voting
rights. Subject to any preferences in favor of any outstanding preferred stock,
holders of common stock are entitled to receive dividends if and when dividends
are declared by our board of directors. Please see "Dividend Policy" on page 12
for information on our dividend policy.
In the event of a liquidation of our company, holders of common stock will
receive any assets remaining after the payment of liabilities and payment of
any liquidation preference granted to the holders of preferred stock.
Holders of common stock have no preemptive or conversion rights or other
subscription rights and there are no redemption or sinking fund provisions
applicable to the common stock. The rights of the holders of common stock are
junior to, and may be adversely affected by, the rights of the holders of
preferred stock that we may designate in the future.
Preferred Stock
Upon the closing of this offering, the board of directors will have the
authority to issue up to 5,000,000 shares of preferred stock, $.001 par value
per share, in one or more series without stockholder approval. The board of
directors may designate for any series
.the number of shares and name of the series;
.the voting powers of the series, including the right to elect directors,
if any;
.the dividend rights and preferences, if any;
.the redemption terms, if any;
.the preferred amounts payable on liquidation or dissolution;
.the terms upon which the series may be converted into any other series or
class of our stock, including the common stock; and
.any other terms that are not prohibited by law.
Issuance of preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, a majority of the
outstanding voting stock of our company. No shares of preferred stock are
currently outstanding, and we have no plans to issue any shares of preferred
stock.
43
<PAGE>
Anti-Takeover Effects of our Certificate of Incorporation and Bylaws and
Delaware Law
Our certificate of incorporation, our bylaws, and anti-takeover provisions
of the Delaware General Corporation Law may have the effect of preventing or
delaying a person from acquiring or seeking to acquire a substantial equity
interest in, or control of our company.
Certificate of Incorporation and Bylaws. Upon completion of the offering,
our certificate of incorporation and bylaws, will:
. divide our board of directors into three classes, with each class
serving a staggered three-year term,
. provide that stockholder actions may be taken only at a meeting of
stockholders and not by written consent of stockholders,
. contain an advance notice requirement for stockholders to submit
nominations for directors or other stockholders' proposals, and
. require the affirmative vote of our outstanding voting stock in order to
amend the provisions of our certificate of incorporation and bylaws
relating to:
. classification of the board of directors,
. the number of authorized directors,
. nomination of directors,
. procedure for calling special meetings of stockholders,
. stockholders' notice requirements, and
. stockholders' ability to act by written consent in lieu of meeting.
We intend these provisions to enhance the likelihood of continuity and
stability in the composition of the board of directors and in the policies
formulated by the board. In addition, these provisions are designed to reduce
our vulnerability to an unsolicited acquisition proposal. The provisions also
are intended to discourage tactics that may be used in proxy fights. However,
these provisions could have the effect of discouraging others from making
tender offers for our shares and, as a consequence, they also may inhibit
fluctuations in the market price of our shares that could result from actual or
rumored takeover attempts. These provisions also may have the effect of
preventing changes in our management.
Delaware Takeover Statute. Section 203 of the Delaware General Corporation
Law generally prohibits us, as a Delaware corporation, from engaging in any
business combination with any interested stockholder, unless:
. the board of directors approved in advance either the business
combination or the transaction which resulted in the stockholder
becoming an interested stockholder,
. upon completion 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 which was outstanding
at the time the transaction began, or
. the business combination is approved by the board of directors and
authorized at a stockholders' meeting by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
Section 203 may delay, defer, or prevent a change in control of our
company, as well as reduce the price that an investor may be willing to pay for
shares of our common stock in the future. An
44
<PAGE>
interested person is defined as a person or affiliate or associate of a person
that owns 15% or more of the outstanding voting stock of a corporation. Messrs.
Bligh and Mack will be exempt from the restrictions on transactions under
Section 203 because they acquired their shares before our company was a public
company.
Limitation of Liability and Indemnification
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
. breach of their duty of loyalty to the corporation;
. acts or omissions not in good faith;
. intentional misconduct or knowing violations of law;
. unlawful payments of dividends or stock redemptions; and
. any transaction from which the director derived an improper personal
benefit.
Our bylaws require us to indemnify our directors, executive officers,
employees, and other agents to the fullest extent permitted by law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. We may also obtain insurance for
any officer, director, employee, or other agent for any liability arising out
of his or her actions in such capacity, regardless of whether the bylaws permit
indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our bylaws. These
agreements, among other things, will indemnify our directors and executive
officers for expenses (including attorneys' fees), judgments, fines, and
settlement amounts which they may incur in any action or proceeding because
they are an officer or director. We believe that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.
At present, there is no pending litigation or proceeding involving a
director or officer of our company in which indemnification is required or
permitted, and we are not aware of any threatened litigation or proceeding that
may result in a claim for indemnification.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Co., Inc. The transfer agent's address is 40 Wall Street, New
York, New York 10005 and its telephone number is (212) 936-5100.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Shares Eligible for Future Sale
Before this offering there has been no market for our common stock. Future
sales of substantial amounts of common stock in the public market could
adversely affect the market price of our common stock.
Upon completion of this offering, we will have outstanding an aggregate of
11,721,154 shares of common stock, assuming the issuance of 2,000,000 shares of
common stock in this offering, no exercise of the underwriters' over-allotment
option and no exercise of options after December 31, 1999. All of the shares
sold in this offering will be freely tradeable without restriction or further
registration under the Securities Act, except for any shares purchased by
existing "affiliates" of our company. Our affiliates are people or entities
that directly or indirectly control our company, are controlled by our company,
or are under common control of our company. Sales by our affiliates would be
subject to the restrictions described below.
The remaining 9,721,154 shares of common stock held by existing
stockholders as of December 31, 1999 were issued and sold by us in reliance on
exemptions from the registration requirements of the Securities Act. These
shares will be "restricted" securities within the meaning of Rule 144 under the
Securities Act and may not be publicly sold in the absence of registration
under the securities laws unless they qualify for an exemption from
registration under Rule 144 or Rule 701. In addition, holders of stock options
could exercise their options and sell the shares issued upon exercise as
described below.
Rule 144
Rule 144 is one of the exemptions referred to above. Generally, Rule 144 as
currently in effect permits a shareholder (including an affiliate) who has
beneficially owned restricted shares for a least one year to sell, beginning
three months after the date of this prospectus, within any three-month period
shares which do not exceed the greater of:
. 1% of the outstanding shares of common stock of the company (which will
equal approximately 117,212 shares immediately after this offering); or
. the average weekly trading volume on the Nasdaq National Market in the
common stock during the four calendar weeks preceding the sale.
Shares properly sold in reliance on Rule 144 must be sold through "broker's
transactions" or to market makers, and there must be current public information
about the company available. Shares sold under Rule 144 to persons who are not
affiliates become freely tradable without restriction or registration under the
securities laws. The restrictions of Rule 144 do not apply to a person who has
beneficially owned their shares for at least two years (including "tacked on"
holding periods) and who is not an affiliate of the company. Therefore, unless
otherwise restricted by contract, "144(k) shares" may be sold immediately upon
the completion of this offering.
Rule 701
Rule 701 of the Securities Act of 1933 is another one of the exemptions
referred to above. Securities issued in reliance upon Rule 701 are restricted
securities, subject to any contractual restrictions described below, and may be
sold under Rule 701 beginning three months after the date of this prospectus by
affiliates if they comply with Rule 144, other than the holding period
requirements, and by non-affiliates, subject only to the manner of sale
provision of Rule 144.
46
<PAGE>
Generally, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to sell the shares three months
after the effective date of this offering in reliance on Rule 144, without
having to comply with the holding period and notice filing requirements of Rule
144. If the owner of the shares is a non-affiliate, there is no requirement to
comply with the public information, volume limitation or notice filing
provisions of Rule 144.
Lock-up Agreements
All of our executive officers, directors, and significant stockholders and
option holders have signed lock-up agreements in favor of the underwriters
which prohibit them from selling or otherwise disposing of any shares of common
stock or convertible securities for a period of 180 days after the date of this
prospectus unless Goldman, Sachs & Co. consents in writing to the sale or
disposition. As of December 31, 1999 approximately 9,676,250 shares will become
eligible for sale in the public market upon expiration of the lock-up
agreements 180 days after the date of this prospectus.
Stock Plans
Following this offering, we intend to file a registration statement
covering approximately 4,000,000 shares of common stock reserved for issuance
under our stock option plans and 200,000 shares reserved for issuance under our
employee stock purchase plan. Accordingly, once issued, shares to be registered
in this manner may be resold in the open market, except to the extent the
shares are subject to vesting restrictions or the lock-up agreements.
Affiliates will still be required to comply with Rule 144. As of December 31,
1999, options to purchase 1,929,046 shares of common stock were issued and
outstanding of which 84,490 shares were exercisable.
47
<PAGE>
UNDERWRITING
Inforte and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to conditions set
forth in the underwriting agreement each underwriter has severally agreed to
purchase the number of shares indicated in the following table. Goldman, Sachs
& Co., Salomon Smith Barney Inc. and William Blair & Company, L.L.C. are the
representatives of the underwriters.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Goldman, Sachs & Co.............................................
Salomon Smith Barney Inc. ......................................
William Blair & Company, L.L.C. ................................
---------
Total......................................................... 2,000,000
=========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 300,000
shares from the company to cover such sales. They may exercise that option for
30 days. If any shares are purchased pursuant to 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 Inforte will pay to the underwriters. Such amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase 300,000 additional shares.
<TABLE>
<CAPTION>
Paid by Inforte
-------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share....................................... $ $
Total........................................... $ $
</TABLE>
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
such securities dealers may resell any shares purchased from the underwriters
to certain 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 offering price, the representatives may change the offering price and
the other selling terms.
Inforte, its directors, executive officers, stockholders, and significant
option holders have each agreed with the underwriters not to dispose of or
hedge any of their common stock or securities convertible into or exchangeable
for shares of common stock during the period from the date of this prospectus
continuing through the date 180 days after the date of this prospectus, except
with the prior written consent of the representatives. This agreement does not
apply to any existing employee benefit plans. See "Shares Available for Future
sale" for a discussion of transfer restrictions.
48
<PAGE>
Before the offering, there has been no public market for the shares. The
initial public offering price will be negotiated among Inforte and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be the company's historical performance, estimates of the
company's business potential and earnings prospects, an assessment of the
company's management, and the consideration of the above factors in relation to
market valuation of companies in related businesses.
The common stock has been approved for quotation on the Nasdaq National
Market under the symbol "INFT."
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions, 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.
Stabilizing transactions consist of certain 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.
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 such 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.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
At Inforte's request, the underwriters have reserved at the initial public
offering price up to 90,000 additional shares of common stock for sale to
Inforte's outside directors. There can be no assurance that any of the reserved
shares will be so purchased. The number of shares available for sale to the
general public in the offering will be reduced by the number of reserved shares
sold. Any reserved shares not so purchased will be offered to the general
public on the same basis as the other shares offered hereby.
Inforte estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$1,419,005.
Inforte has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
The validity of the shares of common stock issued in this offering will be
passed upon for us by the law firm of Foley & Lardner, Chicago, Illinois. Legal
matters in connection with this offering will be passed upon for the
underwriters by the law firm of Sidley & Austin.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements and schedule at December 31, 1999 and 1998 and for each of the three
years in the period ended December 31, 1999 as set forth in their reports. We
have included our financial statements and schedule in this prospectus and
elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
49
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement (of which this prospectus is a part) under the Securities Act of
1933, relating to the common stock we are offering. This prospectus does not
contain all the information that is in the registration statement. Portions of
the registration statement have been omitted as allowed by the rules and
regulations of the Securities and Exchange Commission. Statements in this
prospectus which summarize documents are not necessarily complete, and in each
case you should refer to the copy of the document filed as an exhibit to the
registration statement. For further information regarding our company and our
common stock, please see the registration statement and its exhibits and
schedules. You may examine the registration statement free of charge at the
public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission as Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661 and 7 World Trade Center, Thirteenth Floor, New York,
New York 10048. Copies of the registration statement may also be obtained from
the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, or by calling the Commission at 1-800-SEC-0330,
regarding registrants, such as Inforte, that file electronically with the
Commission. In addition, the registration statement and other public filings
can be obtained from the Commission's web site at http://www.sec.gov. Our web
site is http://www.inforte.com.
We intend to furnish our stockholders written annual reports containing
audited financial statements certified by an independent public accounting
firm.
50
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors............................................. F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Stockholders' Equity......................................... F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Inforte Corp.
We have audited the accompanying balance sheets of Inforte Corp. as of
December 31, 1998 and 1999, and the related statements of operations,
stockholders' equity, 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 auditing standards generally
accepted in the United States. 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Inforte Corp. at December
31, 1998 and 1999, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Chicago, Illinois
January 20, 2000
F-2
<PAGE>
INFORTE CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1999
---------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................ $2,698,110 $ 3,792,027
Accounts receivable, less allowance for doubtful
accounts of $275,000 in 1998, and $600,000 in 1999.. 2,024,258 6,324,250
Prepaid expenses and other current assets............ 97,640 681,563
Note receivable from stockholder..................... 106,190 --
Deferred income taxes................................ -- 652,293
---------- -----------
Total current assets............................... 4,926,198 11,450,133
Computers, purchased software, and property, net....... 655,181 1,487,503
Deferred income taxes.................................. -- 19,766
---------- -----------
Total assets....................................... $5,581,379 $12,957,402
========== ===========
Liabilities and stockholders' equity
Current liabilities:
Note payable--Former stockholder..................... $ 23,835 $ 0
Accounts payable..................................... 476,984 1,352,472
Income taxes payable................................. -- 311,512
Accrued expenses..................................... 1,499,724 4,122,175
Deferred revenue..................................... 1,919,428 4,870,579
---------- -----------
Total current liabilities.......................... 3,919,971 10,656,738
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares
authorized, none issued and outstanding at December
31, 1999............................................ -- --
Common stock, $0.001 par value in 1999; authorized--
50,000,000 shares; issued and outstanding--8,375,000
at December 31, 1998, and 9,721,154 at December 31,
1999................................................ 247,550 9,721
Additional paid-in capital........................... -- 411,886
Retained earnings.................................... 1,447,164 1,879,057
Note receivable from stockholder..................... (33,306) 0
---------- -----------
Total stockholders' equity......................... 1,661,408 2,300,664
---------- -----------
Total liabilities and stockholders' equity......... $5,581,379 $12,957,402
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
INFORTE CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Revenues.................................. $5,055,723 $13,447,034 $30,088,477
Operating expenses:
Project personnel and related expenses.. 2,721,625 6,830,187 12,845,711
Sales and marketing..................... 828,805 1,467,334 4,949,494
Recruiting, retention, and training..... 694,224 1,164,771 2,986,896
Management and administrative........... 950,591 2,691,545 5,617,572
---------- ----------- -----------
Total operating expenses.............. 5,195,245 12,153,837 26,399,673
---------- ----------- -----------
Operating income (loss)................... (139,522) 1,293,197 3,688,804
Interest income (expense), net and other.. (22,420) 22,604 147,187
---------- ----------- -----------
Pretax income (loss)...................... (161,942) 1,315,801 3,835,991
Income tax expense........................ -- -- 1,286,661
---------- ----------- -----------
Net income (loss)......................... $ (161,942) $ 1,315,801 $ 2,549,330
========== =========== ===========
Pro forma net income (loss) data
(unaudited):
Pro forma income tax expense (benefit).. $ (51,273) $ 538,730 $ 1,542,479
---------- ----------- -----------
Pro forma net income (loss)............. $ (110,669) $ 777,071 $ 2,293,512
========== =========== ===========
Pro forma earnings (loss) per share:
Basic................................. $ (0.02) $ 0.14 $ 0.27
========== =========== ===========
Diluted............................... $ (0.02) $ 0.08 $ 0.21
========== =========== ===========
Weighted Average common shares
outstanding:
Basic................................... 5,263,562 5,517,329 8,635,537
========== =========== ===========
Diluted................................. 5,263,562 10,142,768 10,786,978
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
INFORTE CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------- Additional Total
Number of Paid-In Notes Retained Stockholders'
Shares Amount Capital Receivable Earnings Equity
--------- --------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997................... 4,900,000 $ 69,194 $ -- $ -- $ 293,305 $ 362,499
Issuance of common
stock................. 600,000 49,306 -- -- -- 49,306
Net loss............... -- -- -- -- (161,942) (161,942)
--------- --------- -------- -------- ----------- -----------
Balance at December 31,
1997................... 5,500,000 118,500 -- -- 131,363 249,863
Net income............. -- -- -- -- 1,315,801 1,315,801
Exercise of stock
options............... 2,860,000 116,000 -- -- -- 116,000
Issuance of common
stock................. 15,000 13,050 -- -- -- 13,050
Note receivable from
stockholder........... -- -- -- (33,306) -- (33,306)
--------- --------- -------- -------- ----------- -----------
Balance at December 31,
1998................... 8,375,000 247,550 -- (33,306) 1,447,164 1,661,408
Exercise of stock
options............... 1,346,154 174,057 -- -- -- 174,057
Subchapter S
distributions......... -- -- -- -- (2,117,437) (2,117,437)
Proceeds from note
receivable............ -- -- -- 33,306 -- 33,306
Reclassification of
amount due to change
from no par value
stock to $0.001 par
value share........... -- (411,886) 411,886 -- -- --
Net income............. -- -- -- -- 2,549,330 2,549,330
--------- --------- -------- -------- ----------- -----------
Balance at December 31,
1999................... 9,721,154 $ 9,721 $411,886 $ -- $ 1,879,057 $ 2,300,664
========= ========= ======== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
INFORTE CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1997 1998 1999
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)......................... $(161,942) $ 1,315,801 $ 2,549,330
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization............ 49,403 204,199 555,368
Deferred income taxes.................... -- -- (672,059)
Changes in operating assets and
liabilities:
Accounts receivable...................... (508,494) (1,067,234) (4,299,992)
Prepaid expenses and other current
assets.................................. (25,614) (71,546) (583,923)
Accounts payable......................... 150,637 312,973 875,488
Income taxes payable..................... -- -- 311,512
Accrued expenses and other .............. 208,451 1,211,581 2,622,451
Deferred revenue......................... 127,200 1,792,228 2,951,151
--------- ----------- -----------
Net cash (used in) provided by operating
activities............................... (160,359) 3,698,002 4,309,326
Cash flows from investing activities
Note receivable -- Stockholder............ -- -- 139,496
Purchases of property and equipment....... (99,166) (740,967) (1,387,690)
--------- ----------- -----------
Net cash used in investing activities..... (99,166) (740,967) (1,248,194)
Cash flows from financing activities
Net proceeds from (repayments of) line of
credit................................... 300,000 (300,000) --
Principal payments on note payable--
Former stockholder....................... (34,650) (37,994) (23,835)
Proceeds from issuance of common stock.... 49,306 13,050 --
Proceeds from the exercise of stock
options.................................. -- -- 174,057
Sub-chapter S distributions............... -- -- (2,117,437)
--------- ----------- -----------
Net cash provided (used in) by financing
activities............................... 314,656 (324,944) (1,967,215)
--------- ----------- -----------
Net increase in cash and cash
equivalents.............................. 55,131 2,632,091 1,093,917
Cash and cash equivalents, beginning of
year..................................... 10,888 66,019 2,698,110
--------- ----------- -----------
Cash and cash equivalents, end of year.... $ 66,019 $ 2,698,110 $ 3,792,027
========= =========== ===========
Noncash activities:
Note receivable -- Stockholder.......... $ -- $ (116,000) $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
INFORTE CORP.
NOTES TO FINANCIAL STATEMENTS
1. Nature of Business
Inforte Corp. (Inforte) is an eBusiness integrator, providing technology
consulting and systems integration services that enable its clients to use
Internet technology to improve their businesses. Inforte focuses on helping its
clients create, design, and implement end-to-end eBusiness models, which are
models that integrate, through the power of the Internet, its clients' internal
operations and external relations with customers and suppliers.
2. Significant Accounting Policies
Cash and Cash Equivalents
Inforte considers all highly liquid investments with an original maturity
of 90 days or less to be cash equivalents.
Computers, Purchased Software, and Property
Computers, purchased software, and property are stated at cost. Inforte
provides for depreciation and amortization using the straight-line method over
their estimated useful lives as follows:
<TABLE>
<CAPTION>
Asset Classification Estimated Useful Life
-------------------- --------------------------------
<S> <C>
Office furniture............................ 3-5 years
Computers and equipment..................... 2-3 years
Purchased software.......................... 2-3 years
Leasehold improvements...................... Estimated useful life or life of
lease (whichever is shorter)
</TABLE>
Repairs and maintenance are charged to expense as incurred. Significant
improvements are capitalized and depreciated. Upon retirement or sale, the cost
of the assets disposed of and the related accumulated depreciation are removed
from the accounts, and any resulting gain or loss is included in the results of
operations.
Revenue Recognition
Revenues pursuant to fixed-fee contracts are generally recognized as
services are rendered on the percentage-of-completion method of accounting
based on the ratio of costs incurred to total estimated costs. The cumulative
impact of any revision in estimates of the percent complete is reflected in the
period in which the changes become known. Revenues pursuant to time-and-
material contracts are generally recognized as services are performed. Amounts
billed prior to rendering services are classified as deferred revenue. Revenues
exclude reimbursable expenses chargeable to the client.
Financial Instruments and Concentrations of Credit Risk
Financial instruments which potentially subject Inforte to concentrations
of credit risk consist principally of cash and cash equivalents and accounts
receivable. Inforte performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Inforte
maintains an allowance for potential credit losses, and such losses have been
within management's expectations.
For the year ended December 31, 1997, one customer accounted for 27% of
revenue and 11% of accounts receivable at December 31, 1997. For the year ended
December 31, 1998 no customer accounted for more than 10% of revenue and no
customer accounted for more than 10% of accounts
F-7
<PAGE>
INFORTE CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
receivable at December 31, 1998. For the year ended December 31, 1999, two
customers accounted for 5% and 4%, respectively, of revenue and 19% and 11%,
respectively, of accounts receivable at December 31, 1999.
Use of Accounting Estimates
The preparation of the 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 the
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.
Reclassifications
Certain reclassifications were made to the 1998 financial statements to
conform with the 1999 presentation.
3. Computers, Purchased Software, and Property
Computers, purchased software, and property at December 31 consist of the
following:
<TABLE>
<CAPTION>
1998 1999
-------- ----------
<S> <C> <C>
Office furniture........................................... $ 40,873 $ 60,652
Computers and equipment.................................... 730,882 1,384,679
Leasehold improvements..................................... 24,008 417,633
Purchased software......................................... 165,505 302,058
-------- ----------
961,268 2,165,022
Less: Accumulated depreciation and amortization............ 306,087 677,519
-------- ----------
$655,181 $1,487,503
======== ==========
</TABLE>
4. Line of Credit and Note Payable to Former Stockholder
Inforte has a $2,500,000 line of credit which expires August 31, 2000 and
bears interest at prime (8.5% at December 31, 1999). No amounts are outstanding
under this line of credit at December 31, 1999.
The note payable to the former stockholder which had an interest rate of
9.25% was paid in 1999.
Interest paid was $22,540 in 1997, $9,476 in 1998, and $741 in 1999.
5. Income Taxes and Distribution to Shareholders
For 1997 and 1998, the stockholders of Inforte elected, under Subchapter S
of the Internal Revenue Code, to include Inforte's income or loss in their
personal federal and state income tax returns. Accordingly, Inforte was
generally not subject to federal or state income taxes in these years. Inforte
continued to be subject to state income taxes either by statute or election in
certain states. There were no federal taxes paid in 1997 and 1998, and
$1,306,000 was paid in 1999. State income taxes paid were $11,662 in 1997,
$1,800 in 1998, and $258,923 in 1999. The stockholders of Inforte terminated
their S corporation election as of January 1, 1999. During 1999 Inforte
distributed $2,117,437 to former S-Corporation stockholders.
F-8
<PAGE>
INFORTE CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Income tax expense for the year ended December 31, 1999 consists of the
following:
<TABLE>
<CAPTION>
Current:
<S> <C>
Federal........................................................ $1,578,053
State.......................................................... 380,667
----------
1,958,720
Deferred:
Federal........................................................ (541,448)
State.......................................................... (130,611)
----------
(672,059)
----------
$1,286,661
==========
</TABLE>
The reconciliation of income taxes computed using the federal statutory
rate of 34% for the year ended December 31, 1999 is as follows:
<TABLE>
<S> <C>
Federal income tax at the statutory rate............................. 34.0%
State income tax, net of federal tax benefit......................... 4.6
Nondeductible expenses............................................... 1.6
Recording of net deferred tax asset due to termination of S
Corporation status.................................................. (6.7)
----
33.5%
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Deferred income tax assets:
Allowance for doubtful accounts............................... $234,000
Accrued bonuses and vacation pay.............................. 297,313
Other......................................................... 145,862
Deferred rent................................................. 83,407
--------
Gross deferred tax assets....................................... 760,582
Deferred income tax liability:
Use of cash basis for income tax purposes..................... (88,523)
--------
Deferred income tax liability................................. (88,523)
--------
Net deferred income tax asset................................... $672,059
========
</TABLE>
F-9
<PAGE>
INFORTE CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share. There were 5,000,975 stock options outstanding at December
31, 1997, that could have potentially diluted basic earnings per share and were
not included in the fully diluted computation at December 31, 1997, because
their effects would have been antidilutive.
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Numerator
Numerator for basic and diluted earnings
(loss) per common share:
Net income (loss)....................... $ (161,942) $ 1,315,801 $ 2,549,330
========== =========== ===========
Pro forma net income (loss)--unaudited
....................................... $ (110,669) $ 777,071 $ 2,293,512
========== =========== ===========
Denominator
Denominator for basic earnings (loss) per
common share:
Weighted-average shares.................. 5,263,562 5,517,329 8,635,537
---------- ----------- -----------
Effect of dilutive securities:
Employee stock options.................... -- 4,625,439 2,151,441
---------- ----------- -----------
Denominator for diluted earnings (loss)
per common share:
Adjusted weighted-average shares........ 5,263,562 10,142,768 10,786,978
========== =========== ===========
</TABLE>
7. Related Party Transactions
A note receivable with recourse was executed between Inforte and one of its
stockholders in December 1998 related to the exercise of stock options. There
were no interest payments required while the note was outstanding, and the term
was indefinite as it could be repaid at any time. The note bore interest at
7.75% which was accrued annually. This note and accrued interest were repaid in
full on September 30, 1999.
At December 31, 1998, Inforte had a note receivable from a stockholder for
$33,306 classified as a reduction of stockholders' equity, which was
subsequently repaid through a distribution to the stockholder in April 1999.
8. Stockholders' Equity
Stock Option and Incentive Plans
The 1995 Incentive Stock Option Plan (1995 Plan) provides for the issuance
of incentive stock options and nonqualified stock options to officers and other
key employees of Inforte. Inforte has reserved an aggregate of 4,900,000 shares
for issuance under the 1995 Plan, of which 365,000 were available for grant as
of December 31, 1999. As of December 31, 1999, Inforte does not intend to issue
any additional options under the 1995 Plan.
The stock options may be exercised only to the extent that they have vested
in accordance with provisions determined by the Board of Directors with terms
not to exceed 10 years.
On December 31, 1997, the stockholders approved the 1997 Incentive
Compensation Plan (1997 Plan), which permits the grant of stock options and
other stock awards to employees and directors of Inforte. On December 1, 1999,
the stockholders approved the Amended and Restated
F-10
<PAGE>
INFORTE CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
1997 Incentive Compensation Plan. Inforte has reserved an aggregate of
4,000,000 shares of common stock for issuance through this 1997 Plan, plus
annual increases beginning in 2001 equal to the lessor of: (1) 1,000,000
shares, (2) 5% of the outstanding shares, or (3) a number determined by the
Board of Directors. Of the shares of common stock available under this 1997
Plan, 2,399,800 were available for grant as of December 31, 1999. The 1997 Plan
authorizes the grant of both incentive and nonqualified stock options, and
further authorizes the grant of stock appreciation rights independently of or
with respect to options granted or outstanding. Stock options generally have
10-year terms and vest in accordance with provisions determined by the Board of
Directors. A restricted stock program, performance program, and bonus shares
program have also been established under the 1997 Plan. Awards under the
restricted stock program and performance program are earned over a period of
time upon the achievement of certain performance objectives. Restricted share
grants may not be sold or otherwise disposed of until the restrictions lapse.
Performance shares are payable in cash, common stock, or a combination thereof
when earned. Bonus shares allow participants to elect to receive shares of
common stock in lieu of a portion or all of cash bonuses paid by Inforte. Stock
appreciation rights and restricted stock have not been granted to date.
A summary of stock option information follows:
<TABLE>
<CAPTION>
1995 Plan 1997 Plan
--------------------- --------------------
Weighted- Weighted-
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding on January 1, 1997.. 4,150,000 $0.03 -- $ --
Granted......................... 725,000 0.13 125,975 0.24
---------- ----- --------- -----
Outstanding on December 31,
1997........................... 4,875,000 0.05 125,975 0.24
Granted......................... -- -- 573,875 0.47
Exercised....................... (2,860,000) 0.04 -- --
Canceled........................ (215,000) 0.03 (25,950) 0.37
---------- ----- --------- -----
Outstanding on December 31,
1998........................... 1,800,000 0.06 673,900 0.43
Granted......................... -- -- 960,375 5.35
Exercised....................... (1,237,500) 0.03 (108,654) 1.21
Canceled........................ (125,000) 0.02 (34,075) 1.53
---------- ----- --------- -----
Outstanding on December 31,
1999........................... 437,500 0.16 1,491,546 3.52
========== ===== ========= =====
Exercisable at December 31,
1999........................... -- -- 84,490 1.59
Available for grant at December
31, 1999....................... 365,000 2,399,800
Fair value of options granted
during twelve months ended
December 31, 1999.............. $1.55
</TABLE>
<TABLE>
<CAPTION>
1995 Plan
---------
Options Outstanding Options Exercisable
---------------------------- --------------------
Weighted
Average
Remaining Weighted Weighted
Life Average Exercisable Average
Number of (in Exercise Options at Exercise
Range of Exercise Prices Options years) Price 12/31/99 Price
------------------------ --------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.05..................... 187,500 7.21 $0.05 -- --
$0.24..................... 250,000 8.00 0.24 -- --
------- ---- ----- --- ---
Total..................... 437,500 7.66 0.16 -- --
======= ==== ===== === ===
</TABLE>
F-11
<PAGE>
INFORTE CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
1997 Plan
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------- --------------------
Weighted
Average
Remaining Weighted Weighted
Life Average Exercisable Average
Number of (in Exercise Options at Exercise
Range of Exercise Prices Options years) Price 12/31/99 Price
------------------------ --------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.24-$0.33............... 407,960 8.26 $0.28 42,791 $0.27
$0.87-$1.43............... 321,561 9.18 $1.14 27,586 $0.87
$3.50..................... 161,500 9.70 $3.50 -- --
$7.00..................... 600,525 9.80 $7.00 14,113 $7.00
--------- ---- ----- ------ -----
Total..................... 1,491,546 9.24 $3.52 84,490 $1.59
========= ==== ===== ====== =====
</TABLE>
As permitted by Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," stock option and incentive plans are
accounted for in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Generally, no compensation expense is recognized for stock options if exercise
prices equal the market value of the underlying shares of stock at the
measurement date. To date, Inforte has granted options with exercise prices
equal to market value on the measurement date (generally, the date of grant).
Had stock options and incentive plans been accounted for at fair value in
accordance with SFAS No. 123, Inforte's net income (loss) on a pro forma basis
would have been:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1997 1998 1999
--------- ---------- ----------
<S> <C> <C> <C>
Net income (loss)
As reported................................. $(161,942) $1,315,801 $2,549,330
Pro forma................................... (162,910) 1,303,951 2,446,269
Pro forma earnings (loss) per share........... $ (0.03) $ 0.13 $ 0.23
</TABLE>
The fair value of stock options used to compute pro forma net income (loss)
and pro forma net income (loss) per share is the estimated present value at
grant date using the minimum value option-pricing model with the following
assumptions: dividend yield of 0%, risk-free interest rates ranging from 6.0%
to 4.62%, and a weighted-average expected option life of four years.
9. Lease Commitments
At December 31, 1999, Inforte was obligated for future minimum lease
payments under operating leases that have initial or remaining noncancelable
terms in excess of one year, as follows:
<TABLE>
<S> <C>
2000............................................................. $ 850,688
2001............................................................. 960,828
2002............................................................. 995,077
2003............................................................. 1,029,946
2004 and thereafter.............................................. 2,167,089
----------
Total minimum lease payments..................................... $6,003,628
==========
</TABLE>
Rent expense for operating leases was $164,243, $284,017, and $631,265 for
the years ended December 31, 1997, 1998, and 1999, respectively.
F-12
<PAGE>
INFORTE CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. Benefit Plan
Inforte sponsors a 401(k) savings plan covering all employees. Inforte has
not made any discretionary contributions to the plan. Administrative costs
during 1997, 1998, and 1999 related to this plan are not considered material.
11. Pro Forma Income Taxes (Unaudited)
The pro forma provision (benefit) for income taxes reflects the income tax
expense that would have been reported if Inforte had been a C corporation. The
components of pro forma income taxes are as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
------------------
1997 1998
-------- --------
<S> <C> <C>
Pro forma income taxes:
Current:
Federal................................................... $ -- $438,766
State..................................................... -- 105,842
-------- --------
Total current........................................... -- 544,608
Deferred:
Federal................................................... (41,308) (4,736)
State..................................................... (9,965) (1,142)
-------- --------
Total deferred.......................................... (51,273) (5,878)
-------- --------
Total pro forma income taxes (benefit).................. $(51,273) $538,730
======== ========
</TABLE>
The following table reconciles the expected corporate federal income tax
expense (computed by multiplying Inforte's income before income taxes by 34%)
to Inforte's pro forma income tax expense:
<TABLE>
<CAPTION>
Year ended
December 31,
------------------
1997 1998
-------- --------
<S> <C> <C>
Expected pro forma income tax expense (benefit)............. $(54,966) $447,372
State income taxes, net of federal tax effect............... (6,577) 69,103
Other permanent items....................................... 10,270 22,255
-------- --------
$(51,273) $538,730
======== ========
</TABLE>
Deferred income tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred income tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred income tax assets and liabilities of changes in tax rates is
recognized in income in the period that includes the enactment date.
F-13
<PAGE>
INFORTE CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The tax effects of temporary differences that give rise to significant
portions of the unaudited pro forma deferred income tax assets and liability
as of December 31, 1998, are presented below:
<TABLE>
<CAPTION>
As of
December 31, 1998
-----------------
<S> <C>
Pro forma deferred income tax assets:
Allowance and deferrals.................................. $ 115,058
Accrued bonuses and vacation pay......................... 140,739
Other.................................................... 133,239
Depreciation............................................. 11
---------
Gross deferred income tax assets........................... 389,047
Pro forma deferred income tax liability:
Use of cash basis for income tax purposes................ (133,229)
---------
Deferred income tax liability............................ (133,229)
---------
Net deferred income tax asset.............................. $ 255,818
=========
</TABLE>
F-14
<PAGE>
INFORTE
E BUSINESS INTEGRATION
Inforte Builds
eBusiness
Solutions
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely
on any unauthorized information or representations. This prospectus is an
offer to sell only the shares offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Cautionary Note Regarding Forward-Looking Statements..................... 11
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Capitalization........................................................... 13
Dilution................................................................. 14
Selected Financial Data.................................................. 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 23
Management............................................................... 36
Related Party Transactions............................................... 41
Principal Stockholders................................................... 41
Description of Capital Stock............................................. 43
Shares Eligible for Future Sale.......................................... 46
Underwriting............................................................. 48
Legal Matters............................................................ 49
Experts.................................................................. 49
Additional Information................................................... 50
Index to Financial Statements............................................ F-1
</TABLE>
------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 Shares
Inforte Corp.
Common Stock
------------
------------
Goldman, Sachs & Co.
Salomon Smith Barney
William Blair & Company
Representatives of the Underwriters
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the registrant in connection with the sale of
the common stock being registered. All amounts are estimates, except for the
Securities and Exchange Commission registration fee, the NASD filing fee and
the Nasdaq listing fee. All of these costs and expenses will be borne by the
registrant.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee................. $ 15,180
NASD filing fee............................................... 5,500
Nasdaq listing fee............................................ 81,625
Blue Sky fees and expenses.................................... 15,000
Transfer agent expenses and fees.............................. 6,000
Printing and engraving........................................ 215,000
Accountants' fees and expenses................................ 147,700
Legal fees and expenses....................................... 250,000
Miscellaneous................................................. 683,000
----------
Total....................................................... $1,419,005
==========
</TABLE>
Item 14. Indemnification of Directors and Executive Officers.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or permits a Delaware corporation to grant, indemnity to present or
former directors and executive officers, as well as certain other persons
serving at the request of the corporation in related capacities. This permitted
indemnity is sufficiently broad to permit indemnification for liabilities
arising under the Securities Act of 1933, including reimbursement for expenses
incurred.
The indemnification authorized under Delaware law is not exclusive and is
in addition to any other rights granted to officers and directors under the
certificate of incorporation or bylaws of the corporation or any agreement
between officers and directors and the corporation. The registrant's
certificate of incorporation and bylaws provide for the indemnification of
directors, former directors and executive officers to the maximum extent
permitted by Delaware law. The registrant's certificate of incorporation and
bylaws also provide that it may purchase and maintain insurance on behalf of a
director or officer against liability asserted against the director or officer
in such capacity. In addition, the registrant has entered into Indemnification
Agreements (Exhibit 10.7 hereto) with each executive officer and director. The
Underwriting Agreement (Exhibit 1.1) also provides for cross-indemnification
among the registrant and the underwriters with respect to certain matters,
including matters arising under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
Within the past three years, we have sold the following securities which
were not registered under the Securities Act:
Between July 31, 1996 and August 15, 1998, we sold a total of 1,665,000
shares of our common stock to six of our key employees for aggregate
consideration of approximately $116,550.
II-1
<PAGE>
The purchases and sales were exempt pursuant to Section 4(2) of the Securities
Act as transactions by an issuer not involving a public offering, where the
purchasers represented their intention to acquire the securities for investment
only, not with a view toward distribution, and received or had access to
adequate information about Inforte.
Since adoption of our incentive stock option plan in 1995 and through
December 31, 1999, we have granted stock options to employees to purchase
6,535,225 shares of common stock with exercise prices ranging from $0.02 to
$7.00 per share pursuant to the plan. Of these options, 4,206,154 have been
exercised for an aggregate consideration of $290,060. The issuance of common
stock upon exercise of the options was exempt pursuant to Rule 701, as a
transaction pursuant to a compensatory benefit plan.
No underwriters were employed in any of the above transactions.
Appropriate legends were affixed to the share certificates issued in the
transactions.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1+ Form of Underwriting Agreement
3.1+ Certificate of Incorporation
3.2+ Amended and Restated Bylaws
5.1+ Legal Opinion of Foley & Lardner as to legality of securities
10.2+ Loan Agreement dated as of September 16, 1999 between the
registrant and Citibank, N.A.
10.3+ Amended and Restated 1995 Incentive Stock Option Plan
10.4+ Amended and Restated 1997 Incentive Compensation Plan
10.5+ Form of Stock Option Agreement
10.6+ Amended and Restated 1999 Employee Stock Purchase Plan
10.7+ Form of Director/Officer Indemnification Agreement
10.8+ Shareholder Loan Agreement
23.1 Consent of Independent Auditors
23.2+ Consent of Foley & Lardner (included in Exhibit 5.1)
23.3+ Consent of International Data Corporation
24.1+ Power of Attorney
27.1+ Financial Data Schedule for Year ended December 31, 1999
99.1+ Consent of Al Ries as Proposed Director
99.2+ Consent of Edgar D. Jannotta as Proposed Director
99.3+ Consent of Ray Kurzweil as Proposed Director
99.4+ Consent of Michael E. Porter as Proposed Director
</TABLE>
- --------
+ Previously filed.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
II-2
<PAGE>
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt deliver 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 such 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 issues.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on February 16, 2000.
Inforte Corp.
/s/ Philip S. Bligh
By___________________________________
Philip S. Bligh, President, Chief
Executive Officer, and Chairman
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Philip S. Bligh President, Chief Executive February 16, 2000
______________________________________ Officer, and Chairman
Philip S. Bligh
Chief Operating Officer February 16, 2000
______________________________________ and Director
Stephen C. P. Mack
/s/ Nick Padgett Chief Financial Officer, February 16, 2000
______________________________________ Chief Accounting Officer,
Nick Padgett and Director
</TABLE>
II-4
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
INFORTE CORP.
<TABLE>
<CAPTION>
Additions
-------------------
Charged
Balance at to Costs Charged to Balance
Beginning and Other at End of
of Period Expenses Accounts Deductions Period
---------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Description
- -----------
Year ended December 31,
1997
Reserves and allowances
deducted from asset
accounts
Allowance for doubtful
accounts.............. $ 0 $ 20,000 $ -- $ -- $ 20,000
Year ended December 31,
1998
Reserves and allowances
deducted from asset
accounts
Allowance for doubtful
accounts.............. $ 20,000 $255,000 $ -- $ -- $275,000
Year ended December 31,
1999
Reserves and allowances
deducted from asset
accounts
Allowance for doubtful
accounts.............. $275,000 $325,000 $ -- $ -- $600,000
</TABLE>
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying balance sheets of Inforte Corp. as of
December 31, 1998 and 1999 and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999 and have issued our report thereon dated January 20,
2000 (included elsewhere in this Registration Statement). Our audits also
included the financial statement schedule listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Chicago, Illinois
January 20, 2000
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1+ Form of Underwriting Agreement
3.1+ Certificate of Incorporation
3.2+ Amended and Restated Bylaws
5.1+ Legal Opinion of Foley & Lardner as to legality of securities
10.2+ Loan Agreement dated as of September 16, 1999 between the
registrant and Citibank, N.A.
10.3+ Amended and Restated 1995 Incentive Stock Option Plan
10.4+ Amended and Restated 1997 Incentive Compensation Plan
10.5+ Form of Stock Option Agreement
10.6+ Amended and Restated 1999 Employee Stock Purchase Plan
10.7+ Form of Director/Officer Indemnification Agreement
10.8+ Shareholder Loan Agreement
23.1 Consent of Independent Auditors
23.2+ Consent of Foley & Lardner (included in Exhibit 5.1)
23.3+ Consent of International Data Corporation
24.1+ Power of Attorney
27.1+ Financial Data Schedule for Year ended December 31, 1999
99.1+ Consent of Al Ries as Proposed Director
99.2+ Consent of Edgar D. Jannotta as Proposed Director
99.3+ Consent of Ray Kurzweil as Proposed Director
99.4+ Consent of Michael E. Porter as Proposed Director
</TABLE>
- --------
+ Previously filed.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated January 20, 2000, in the Registration Statement,
as amended, (Form S-1 No. 333-92325) and related Prospectus of Inforte Corp.
dated February 16, 2000.
/s/ Ernst & Young LLP
Chicago, Illinois
February 16, 2000
