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Traffic.com, Inc. – IPO: ‘S-1/A’ on 1/20/06

On:  Friday, 1/20/06, at 10:18am ET   ·   Accession #:  1047469-6-661   ·   File #:  333-127973

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 1/20/06  Traffic.com, Inc.                 S-1/A                  7:5.2M                                   Merrill Corp/New/FA

Document/Exhibit                   Description                      Pages   Size 

 1: S-1/A       Pre-Effective Amendment to Registration Statement   HTML   1.60M 
                          (General Form)                                         
 2: EX-1.1      Underwriting Agreement                              HTML    343K 
 3: EX-3.2      Articles of Incorporation/Organization or By-Laws   HTML     46K 
 4: EX-3.4      Articles of Incorporation/Organization or By-Laws   HTML     80K 
 5: EX-5.1      Opinion re: Legality                                HTML     17K 
 6: EX-10.21    Material Contract                                   HTML     60K 
 7: EX-23.1     Consent of Experts or Counsel                       HTML      8K 

As filed with the Securities and Exchange Commission on January 20, 2006

Registration No. 333-127973

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 7 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

TRAFFIC.COM, INC.
(Exact Name of Registrant as Specified in its Charter)

851 Duportail Road, Wayne, PA 19087
(610) 725-9700
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)

Robert N. Verratti
Chief Executive Officer
Traffic.com, Inc.
851 Duportail Road
Wayne, PA 19087
(610) 725-9700
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)

Copy To:

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

                  If the securities being registered on this form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / /

                  If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /

                  If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /

                  If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /

                  If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. / /

                  The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy theses securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JANUARY 20, 2006.

Traffic.com, Inc. 6,550,000 Shares      of Common Stock

OpenIPO®: The method of distribution being used by the underwriters in this offering differs somewhat from that traditionally employed in firm commitment underwritten public offerings. In particular, the public offering price and allocation of shares will be determined primarily by an auction process conducted by the underwriters and other securities dealers participating in this offering. The minimum size for any bid in the auction is 100 shares. A more detailed description of this process, known as an OpenIPO, is included in "Plan of Distribution" beginning on page 95.

This offering involves a high degree of risk. You should purchase
shares only if you can afford a complete loss of your investment.
See "Risk Factors" beginning on page 8.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

JMP Securities

The date of this prospectus is                          , 2006

TABLE OF CONTENTS

ABOUT THIS PROSPECTUS

              You should rely only on the information contained in this prospectus. Neither we nor the selling stockholders have authorized anyone to provide you with information different from that contained in this prospectus. We and the selling stockholders are offering to sell shares of our common stock and seeking offers to buy shares of our common stock only in jurisdictions where offers and sales are permitted.

PROSPECTUS SUMMARY

              You should read the entire prospectus, including the historical and pro forma financial data and related notes, before making an investment decision. This summary contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the results discussed in the forward-looking statements as a result of certain factors, including those set forth in "Risk Factors" and "Forward-Looking Statements."

Our Company

Overview

              We believe that we are a leading provider of accurate, real-time traffic information in the United States, based on the quality of our traffic data and the extent of our geographic coverage. We offer detailed traffic information, including specific speeds, travel times and delay times. We are able to provide this information by combining traffic incident and event information collected using traditional methods, such as helicopters, video cameras, mobile units and emergency scanners, with comprehensive traffic flow data collected through a large network of roadside traffic sensors. We have built a sophisticated data management system that allows us to process information in real time and deliver customized reports to large numbers of radio, television, Internet, wireless, and in-vehicle navigation system users. Currently, we provide traffic information for 35 of the largest metropolitan areas in the United States, covering approximately 64 million commuters, in such cities as Boston, Chicago, Houston, Los Angeles, New York, Philadelphia, San Diego and San Francisco.

              Our business model to date has been the syndicated content model traditionally used in the radio and television advertising industries. Under this model, we provide our traffic information to radio and television stations in exchange for the right to sell a specified amount of advertising time, generally adjacent to these stations' traffic reports. We then sell this advertising time to national, regional and local advertisers and retain the revenue from these sales.

              We recently expanded our business model to include revenue generation from several sources other than traditional radio and television. In the first quarter of 2004, we began to provide our traffic data to commercial customers for use in satellite radio, in-vehicle navigation systems and other products and services. In July 2005, we launched our enhanced www.traffic.com website and began to offer Internet advertising opportunities to our advertising customers, both on our website and on our media customers' websites. In July 2005, we also launched a consumer subscription wireless service, available through our own and our customers' websites, which as of January 14, 2006, we converted to a free service. We also began to offer wireless advertising opportunities in connection with these services. In 2004, revenue from recently introduced traffic data services provided to commercial customers amounted to $1.4 million, or 3.3% of our total 2004 revenue. For the nine months ended September 30, 2005, revenue from commercial traffic data services amounted to $1.8 million, or 5.6% of our total revenue. Revenue from Internet advertising and consumer subscriptions to date has been minimal.

Our Response to Significant Trends

              Our business is at the intersection of three significant trends:

•

Traffic is bad and getting worse, costing people more in both time and money.

•

Advances in new interactive technology give consumers many choices for the delivery of highly personalized, on-demand traffic information over a number of devices including cell phones, personal digital assistants, or PDAs, handheld and in-vehicle navigation devices, and satellite radio receivers.

1

•

Rapid growth in advertising on the Internet has been driven by advertisers' desire to gain broader exposure in their media campaigns than has been traditionally possible through only radio and television.

              We believe that we are in a unique position to capitalize on these trends with our technology-driven approach to traffic data collection and our ability to attach targeted advertising messages to our traffic reports and deliver them across multiple media formats. We also believe that having broad, cross-media delivery capability, combined with the fact that our users can be targeted based on the nature and times of their travel patterns, makes our suite of traffic services attractive to advertisers.

Superior Traffic Information and Advanced Technology

              Our traffic information, which includes traffic flow data as well as traditional traffic incident and event data, enables drivers to make informed, fact-based decisions as to route selection and departure times based on specific vehicle speeds, travel times and delay times. Our traffic flow data, which has been largely unavailable to consumers in the past, is collected using our own sensor network as well as government sensors. We have aggregated multiple sensor systems to create what we believe to be the largest network of real-time traffic sensors in the United States, covering approximately 23,000 lane miles of roadway. Our incident and event information is gathered using traditional collection methods but is processed using a modern, structured format, making it readily usable across all of our delivery channels.

              Our key strength in collecting and distributing our traffic flow and incident and event information is our proprietary Traffic Information Management System (TIMS). TIMS allows us to collect and analyze traffic information from a number of disparate sources on a real-time basis and to deliver this information across multiple media. TIMS aggregates the traffic data from all sources into a standard format and processes the data for real-time delivery and for archiving. TIMS collects and processes over 25 million traffic flow records and roughly 25,000 incident description records on a daily basis. We believe that our TIMS technology will enable us to add new media formats and new data sources with little incremental development cost, allowing us to achieve higher margins.

Our Strategy

              Our objective is to become recognized internationally, through our services and Traffic.com brand, as the leading provider of timely, high quality traffic information. We intend to achieve our objective through executing the following key business strategies:

•

Provide superior traffic information



•

Grow our Traffic.com brand and our Internet presence



•

Promote an integrated advertising approach through our multiple media channels



•

Expand our data services and strategic relationships



•

Expand geographically

              We plan to expand our traffic information coverage and service offerings in a number of additional U.S. metropolitan areas, with a focus on reaching approximately 50 metropolitan areas by the end of 2006. While we are exploring the expansion of our services to countries in Asia and we may consider expanding our services to other countries, we currently do not have any international operations and are not yet able to determine when we may begin any international operations.

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Challenges and Risks

              Our business is subject to challenges and risks that are more fully described in "Risk Factors" beginning on page 8. We incurred net losses of $21.1 million and $16.0 million for the years ended December 31, 2003 and 2004, respectively, and our net loss increased from $13.1 million for the nine months ended September 30, 2004 to $34.9 million for the nine months ended September 30, 2005, which includes a $14.3 million charge in connection with settlement of litigation (half of which has been paid by an investor affiliate), and $4.2 million in non-cash legal settlement costs. In addition, as of September 30, 2005, we had an accumulated stockholder deficit of $92.6 million. We expect to continue to incur losses for at least the next two years.

              If we do not achieve success with our recently expanded business model into Internet advertising and other interactive technologies, our financial performance could be harmed. In addition, we face substantial competition that could result in pricing pressure, reduce our market share and harm our financial performance.

Corporate Information

              We were incorporated in Delaware on October 23, 1998. Our principal executive offices are located at 851 Duportail Road, Wayne, PA 19087. Our telephone number is (610) 725-9700. Our website address is www.traffic.com. Information contained on, or accessible through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website as part of this prospectus.

              Traffic.com® and Traffic Pulse® are registered trademarks of Traffic.com, Inc. in the United States. Our unregistered trademarks and service marks include Jam Factor™, TrafficInform™, TrafficMax™, TrafficMagnet™, TrafficOne™, Traffic Pulse Broadcaster™ and Traffic Pulse NeXgen™. OpenIPO® is a registered service mark of WR Hambrecht + Co, LLC. All other logos, trademarks, trade names and service marks appearing in this prospectus are the property of their respective holders.

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The Offering

              The total number of shares of our common stock set forth above that will be outstanding immediately after this offering is based on 12,758,239 shares outstanding as of September 30, 2005, after giving effect to the conversion of all of our convertible preferred stock into 9,242,312 shares of common stock upon the closing of this offering, and excludes:

•

2,042,782 shares of common stock issuable upon the exercise of outstanding stock options as of September 30, 2005 at an average exercise price of approximately $2.05 per share;



•

1,669,570 shares of common stock issuable upon the exercise of outstanding warrants as of September 30, 2005 at an average exercise price of approximately $1.50 per share;



•

1,793,427 shares of common stock available for future issuance under our stock option plans; and



•

300,562 shares of common stock issued to ICG Holdings, Inc. on October 28, 2005 in connection with a settlement of litigation.

              Unless we specifically state otherwise, all information in this prospectus:

•

assumes no exercise by the underwriters of their over-allotment option to purchase up to 829,392 additional shares from us and 153,108 additional shares from the selling stockholders; and



•

assumes the conversion of all outstanding shares of our convertible preferred stock into 9,242,312 shares of our common stock upon the closing of this offering.

              This offering will be made through the OpenIPO process, in which the allocation of shares and the public offering price are primarily based on an auction in which prospective purchasers are required to bid for the shares. This process is described under "Plan of Distribution."

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Summary Consolidated Financial Data

              Set forth below is a summary of our historical consolidated financial data at the dates and for the periods indicated. This data is only a summary and should be read together with "Use of Proceeds," "Selected Historical Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the notes to those statements, in each case, included elsewhere in this prospectus.

              The summary historical consolidated financial data presented below for the years ended December 31, 2002, 2003 and 2004 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary historical consolidated financial data presented below for the nine months ended September 30, 2004 and as of and for the nine months ended September 30, 2005 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. In the opinion of management, the unaudited financial statements for the nine months ended September 30, 2004 and September 30, 2005 have been prepared on a basis consistent with the audited financial statements. In the opinion of management, the unaudited financial statements include all adjustments, which are normally recurring adjustments, necessary for a fair presentation of the results of operations for the periods presented. Results of operations for the interim periods are not necessarily indicative of the results that might be expected for any other interim period or for an entire year.

              The pro forma consolidated statement of operations data, including shares and per share data, for the year ended December 31, 2004, gives effect to the conversion of Series E and Series E-1 convertible preferred stock as though they occurred on January 1, 2004. The pro forma consolidated statement of operations data for the nine months ended September 30, 2005 gives effect to the conversion of the Series E, Series E-1, and Series F convertible preferred stock as though they occurred on January 1, 2005.

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(1)

Includes a $14.3 million charge in connection with the settlement of litigation, half of which was paid by an investor affiliate and half of which was paid by us.

(2)

Includes gains recognized on the redemption of Series D preferred stock and gains recognized on the exchange of Series A through D preferred stock as described in Note 10 to the financial statements.

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              The following table presents a summary of our consolidated balance sheet data as of September 30, 2005:

•

on an actual basis;



•

on a pro forma basis to reflect the conversion of all of our convertible preferred stock into 9,242,312 shares of common stock upon the closing of this offering; and



•

on a pro forma as adjusted basis to give effect to the issuance of 6,550,000 shares of common stock by us in this offering, our receipt of the estimated net proceeds, after deducting underwriting discount and estimated offering expenses payable by us, and the application of the net proceeds as described in "Use of Proceeds."

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RISK FACTORS

              An investment in our common stock involves a high degree of risk. You should consider carefully the following factors and the other information in this prospectus before deciding to purchase any shares of our common stock. If any of the following risks were actually to occur, our business, financial condition or results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you might lose all or part of your investment.

Risks Related to Our Business

We have a history of operating losses, expect to continue to incur losses and may never become profitable.

              As of September 30, 2005, we had an accumulated stockholders' deficit of $92.6 million. We have incurred net losses in each year since our inception, including net losses of $26.9 million, $21.1 million and $16.0 million for the years ended December 31, 2002, 2003 and 2004 and $34.9 million for the nine months ended September 30, 2005. Losses are expected to continue for at least the next two years as we seek to increase our product and service offerings, expand into new geographic markets and undertake the operational and regulatory compliance obligations applicable to a public company. If our revenue grows more slowly than we anticipate, or if our operating expenses are higher than we expect, we may not be able to achieve, sustain or increase profitability, in which case our financial condition will suffer and our stock price could decline.

If we do not achieve success with our recently expanded business model into Internet advertising and other interactive media, our financial performance could be harmed.

              Historically, our revenue has been derived primarily by selling the advertising inventory we receive in exchange for the provision of our traffic services to radio and television stations. In July 2005, we began to expand our business model to increase the brand recognition of Traffic.com and to expand our Internet services through an enhanced website. Although we currently have a small number of unique visitors to our website, we intend to invest significant resources in our branding campaign to increase brand recognition of Traffic.com. Substantially all of our revenue from our enhanced website is expected to be derived from Internet advertising. Our success in attracting Internet advertisers will depend, in large part, on our ability to significantly increase the number of visitors to our website. We have no significant operating history in conducting our business through the Internet or in attracting Internet advertisers. To date, we have had minimal revenue from Internet advertising. We may fail in our strategy to obtain advertising revenue from our website.

              We have also expanded our business model to increase our provision of traffic data services to commercial customers for use in their websites and products, such as in-vehicle navigation systems. We have limited revenue to date from the provision of data services to commercial customers. Given our limited operating history in this area and the recent introduction of these products, it is difficult for us to predict whether and to what extent consumer demand for these third party products and services, or any others that we attempt to offer, will increase and to forecast revenue and other financial data from these delivery channels. We may fail in our strategy to obtain revenue from commercial customers for our traffic data services.

We face substantial competition that could result in pricing pressure, reduce our market share and harm our financial performance.

              We face formidable competition in every aspect of our business. In radio and television advertising, we face competition from traditional providers of traffic information such as Westwood One, Inc. and Clear Channel Communications, Inc. These competitors have more employees and significantly greater financial, sales and marketing, and managerial resources. These competitors also

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have broader geographical coverage for their products and services. Additionally, these competitors have longer operating histories and more established relationships with advertisers and own a large number of media outlets. They can use their experience and resources against us in a variety of competitive ways, including by making acquisitions, investing more aggressively in research and development and competing more aggressively for advertisers and other customers. We are also experiencing and expect to continue to experience increased price competition, which could result in a decline in our revenue from radio and television advertising. For example, at the end of 2004, we decided not to renew our agreement with a large network radio customer that had proposed unacceptable pricing terms to us, based on a competing proposal, even though our revenue from various advertising customers who purchased advertising time on this network's stations had been $6.7 million in 2003 and $5.6 million in 2004. We also compete with smaller, start-up companies that make use of publicly available traffic data from government sources. Further, we face competition from several companies that are developing technologies to predict traffic conditions using available traffic data. Also, there are application developers which are providing traffic products and services using data from our competitors. Federal, state and local governmental agencies also provide selected traffic flow data. If our competitors are more successful than we are at generating revenue from traffic information, our revenue may decline.

We derive a significant portion of our revenue from a limited number of advertisers. If we are unable to maintain these advertiser relationships or attract additional advertisers, or if there is a general downturn in advertising activity, our revenue will be adversely affected.

              For the years ended December 31, 2002, 2003 and 2004, and for the nine months ended September 30, 2005, revenue from our top five advertisers accounted for approximately 30.7%, 24.1%, 18.0% and 19.7%, respectively, of our total revenue. For the year ended December 31, 2002, one advertiser accounted for 16.0% of our total revenue. Although our top five advertisers may change from year to year, we anticipate that a limited number of advertisers will continue to represent a significant percentage of our revenue for the foreseeable future. In addition, although we have had repeat business from many of our key advertisers, the majority of these arrangements do not obligate our key advertisers to make any minimum or specified level of purchases and the terms of these agreements may change from year to year. Therefore, our relationships with these key advertisers may not continue in the future, and we generally are not guaranteed any minimum level of revenue from them. The loss of one or more of our large advertisers without replacement by other advertisers of similar size, or fewer or smaller orders, would adversely affect our revenue. If we were to fail to attract other large customers to replace this revenue or if we did not increase revenue from existing customers, our future revenue would not reach or exceed historical levels. Further, spending on advertising tends to decline during an economic recession or downturn. As a result, our advertising revenue is likely to be adversely affected by a recession or downturn in the United States economy, the economy of an individual geographic market in which we derive significant advertising revenue, or other events or circumstances that adversely affect advertising activity.

If the market for Internet advertising fails to continue to develop, our revenue and our results of operations could be harmed.

              We recently expanded our business model to focus on providing Internet services through our enhanced website and the websites of our customers. We expect that substantially all of our revenue from our enhanced website will be derived from Internet advertising. We have invested and intend to continue to invest significant resources in our branding campaign for www.traffic.com in order to attract visitors and in turn advertisers to our website. Even if we are successful in increasing the number of visitors to our website, we may not be able to attract a sufficient number of advertisers. The Internet advertising market is relatively new and rapidly evolving, and it uses different measurements than traditional media to gauge its effectiveness. As a result, it is difficult to predict the demand for and market acceptance of our Internet advertising services. The placement of advertisements on our

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website, particularly by those entities that have historically relied upon traditional media for advertising, requires the acceptance of a new way of conducting business, measuring success and evaluating new advertising products and services. Such advertisers may determine that advertising on our website is less effective for promoting their products and services than traditional advertising media. Further, new technologies may be developed that can block us from displaying Internet advertisements on our website. The market for Internet advertising may not continue to grow or become sustainable. If the market for Internet advertising fails to continue to develop or develops more slowly than we expect, our business and results of operations could be harmed.

If federal, state or local government agencies decide not to enter into agreements with us or terminate existing agreements with us, our expansion and the geographic scope of our business could be limited.

              Our right to construct our sensor network in various metropolitan areas and to own the traffic flow data produced by this network is derived from agreements that we have with the U.S. federal government and state and local governments. We are the principal subcontractor under a competitively bid contract with the U.S. Department of Transportation (U.S. DOT) and have agreements with state and local agencies under which we provide them with traffic data from our sensor network in metropolitan areas. If the federal government were to terminate our contract for our failure to perform, our ability to expand our sensor network into additional metropolitan areas would be harmed. If our reputation or relationship with state and local government agencies were impaired or if one or more state and local government agencies otherwise ceased doing business with us or significantly decreased the amount of business it does with us, we may be unable to continue to collect traffic data for one or more metropolitan areas in which our sensor network is currently deployed.

              As of December 31, 2005, we had formal agreements with 17 state and local agencies that enable us to install, operate and maintain our sensor network on public highways. On November 1, 2005, we executed an agreement with the Utah Department of Transportation to integrate probe data into TIMS in Salt Lake City. We also have agreements with state and local agencies that enable us to acquire government data that we use to produce traffic reports. We need similar agreements to enable us to install, operate and maintain our sensors on public highways, and to acquire government data in additional metropolitan areas.

              Among the factors that could materially adversely affect our federal and state and local government contracting business are:

•

budgetary constraints affecting government spending generally, and annual changes in fiscal policies or available funding;



•

failure by us to comply with the requirements of the agreements, including failure to comply with data specifications and performance measures under our subcontract with the U.S. DOT, which could lead to various remedies being pursued against us, including contract termination, liquidated damages or a local public agency having the right to buy from us all system hardware including, among other items, sensor poles, solar panels and any components from system upgrades for a particular deployment area at fair market value;



•

changes in government programs, priorities, procurement policies, permit policies or requirements;



•

new legislation, regulations or government policy changes on the nature and amount of services the government may obtain from private contractors; and



•

delays in the payment of our invoices by government payment offices due to problems with, or upgrades to, government information systems, or for other reasons.

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              These or other factors could cause governmental agencies to exercise their right to not enter into agreements, to terminate agreements or to not exercise options to renew agreements, any of which could prevent the expansion and limit the geographic scope of our business.

If we fail to manage our growth effectively, our business and operating results will be harmed.

              We have experienced, and continue to experience, rapid expansion of our business and operations, which has placed, and will continue to place, significant demands on our management, and our operational, technical and financial infrastructure. Continued growth will require continued investment in personnel, facilities, technology infrastructure, and financial and management systems and controls. We have recently begun to expand the media formats through which our traffic information is provided, which may require the addition of new personnel, technologies and infrastructure. If we do not effectively manage our growth, the quality of our products and services could suffer, which could negatively affect our brand and our operating results. Furthermore, this expansion could result in our expenses increasing faster than our revenue, causing our operating margins to be adversely affected.

              Our ability to manage future growth, if it occurs, will depend upon our ability to scale the capacity, reliability and security of our proprietary TIMS technology and our ability to improve our operational, financial and management controls and our reporting systems and procedures. These systems enhancements and improvements may require significant capital expenditures and allocation of valuable management resources. We may not be successful in implementing all of the processes that are necessary to support our growth or in attracting and integrating new personnel. If these processes are not implemented successfully, our ability to manage our growth would be impaired, and we may have to make significant additional expenditures to address these issues, which could harm our financial position.

              Our business strategy in the future may also include the acquisition of other businesses or licensing of technologies. We may not be able to identify, negotiate, integrate or finance any such future acquisition or license successfully. If we engage in any such strategic transaction, then we may encounter unforeseen operating challenges and expenses that may require a significant amount of management time that otherwise would be devoted to running our operations, which may harm our business and results of operations.

A failure of TIMS or a catastrophic event at our primary facility could result in reduced revenue and the loss of customers.

              To be successful, TIMS, our proprietary system, has to perform well. Our ability to manage future growth, if it occurs, will depend upon the scalability, reliability and security of TIMS. TIMS could experience an unforeseen operational failure. Moreover, maintaining TIMS as a state-of-the-art system could be more expensive than we expect. Operational failures could be expensive to remedy and could require us to develop additional capacity and computing power. An expansion of TIMS and our network infrastructure to process increasingly complex services and user traffic on our website could result in inefficiencies and may increase the risk of an operational failure. The costs associated with a TIMS operational failure could harm our operating results.

              Our data facility is vulnerable to damage or interruption from fire, loss of primary and backup generator and battery power, telecommunications failures, terrorist attacks, wars, Internet failures, computer viruses, adverse weather conditions and other events beyond our control. We do not currently have the capability to immediately switch over all of our systems to a back-up facility. In the event that a catastrophic event destroys part or all of our Philadelphia, Pennsylvania database storage facility, our business would be disrupted and we would be prevented from providing services to our clients for an extended period of time. An unexpected closure of our database facility could result in lengthy interruptions in our services. In addition, our traffic flow data sensor network in one or more metropolitan areas could be damaged by adverse weather

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conditions, such as a hurricane or earthquake, which would lead to a disruption in our services in those locations. Any damage to or failure of our systems could result in interruptions in our services, which could reduce our revenue and profits and damage our brand.

Failure to protect our intellectual property rights or our domain names, or failure to obtain issuances of the patents for which we have filed applications, could harm our brand-building efforts, devalue our proprietary content and impair our ability to compete effectively.

              The steps we have taken to protect our intellectual property may not be adequate to safeguard our proprietary information, technology and processes, including TIMS, our proprietary system. We have filed five patent applications with the U.S. Patent & Trademark Office. In addition, on January 12, 2006, we purchased a patent related to traffic collection and distribution. We cannot assure you that the continued prosecution of any of our patent applications will lead to the issuance of U.S. patents. We do not own any copyrights registered with the U.S. Copyright Office.

              We are, and may in the future be, subject to intellectual property rights claims. For example, we are currently in a dispute with WSI Corporation, a weather information services firm, over ownership of one of our pending patents which relates to our second generation television product. Any intellectual property claims, with or without merit, could be time-consuming, expensive to litigate or settle and could divert management resources and attention. In addition, if our technologies are not able to withstand any third-party claims or rights against their use, we could suffer a loss in revenue and harm to our business.

              Effective trademark and service mark protection may not be available in every country in which we may later offer our services. Our continued ability to market one or more of our services under their current names could be adversely affected in those jurisdictions where another person registers, or has a pre-existing registration on, one or more of them. Failure to adequately protect our intellectual property could harm our brand, devalue our proprietary content, and affect our ability to compete in the marketplace.

              In addition, we have registered various domain names relating to our brand, including www.traffic.com, www.mytraffic.com and www.trafficpulse.com. If we fail to maintain these registrations, it will be difficult for us to succeed in our strategy to increase recognition of our brand. If a third party acquires domain names similar to ours and engages in a business that may be harmful to our reputation or confusing to our customers, our revenue may decline, and we may incur additional expenses in maintaining our brand. Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. We may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our trademarks, service marks and other proprietary rights.

Other persons may assert claims that our business operations or technology infringe or misappropriate their intellectual property rights, which could increase our costs of operation and distract management and could result in expensive settlement costs.

              Other companies or individuals, including our competitors, may claim that we infringe or misappropriate their intellectual property rights. A determination that we have infringed the intellectual property rights of a third party could expose us to substantial damages, restrict our operations or require us to procure costly licenses to the intellectual property that is the subject of the infringement claims. Such a license may not be available to us on acceptable terms or at all. Any effort to defend ourselves from assertions of infringement or misappropriation of a third party's intellectual property rights, whether or not we are successful, would be expensive and time-consuming and would divert management resources. Any adverse determination that we have infringed the intellectual property rights of a third party, or the costs we incur to defend ourselves

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against such claims, whether or not we are successful, would have a material adverse impact on our business and results of operations.

Use of our traffic information could result in consumer claims brought against us. Any imposition of liability for these claims that is not covered by insurance could adversely impact our financial results.

              We deliver our traffic information through a variety of channels, including radio, television, the Internet, wireless devices and in-vehicle navigation systems. Reliance on this traffic information could result in claims against us based on negligence or other legal theories. Users of our traffic information could claim to have suffered injuries or losses as a result of relying on our traffic information. In particular, consumers could bring claims against us based on route-selection advice that we provide through our website, wireless services or information provided for use in in-vehicle navigation systems. We may incur substantial costs to defend ourselves against even baseless claims and our financial condition and reputation could be materially adversely affected if we are found liable for traffic information that we make available. We could also face product liability claims for products that use our traffic information, such as in-vehicle navigation systems. Although we maintain general liability insurance, our insurance may not cover potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed or may not be available or be prohibitively expensive to maintain or obtain in the future. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage could result in substantial costs.

If we fail to retain our executive officers and to recruit qualified employees, we may be unable to manage our operations effectively and/or pursue our business strategy.

              Our future success depends on the continued service of our executive officers and other key personnel. Any loss or interruption of these individuals' services could result in our inability to manage our operations effectively and/or pursue our business strategy. Our success and future growth depend on our ability to recruit and retain qualified employees, including, among others, engineers, developers, business, finance and governmental/legislative experts and sales and marketing personnel. Due to competition, we may not be able to retain our existing employees or be able to recruit and retain other highly qualified personnel in the future. We do not maintain key person life insurance policies on any of our employees.

If we expand into international markets, our inexperience outside the United States would increase the risk that our international expansion efforts will not be successful, which would in turn limit our prospects for growth.

              We are exploring the provision of our services in countries in Asia and we may consider providing our services in other countries outside the United States. Expansion into international markets requires significant management attention and financial resources. In addition, we face the following risks associated with any expansion outside the United States:

•

challenges caused by distance, language and cultural differences;



•

legal, legislative and regulatory restrictions;



•

currency exchange rate fluctuations;



•

foreign exchange controls that might prevent us from repatriating cash earned in countries outside the United States;



•

economic instability and export restrictions;



•

longer payment cycles in some countries;



•

credit risk and higher levels of payment fraud;

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•

potentially adverse tax consequences;



•

nationalization or seizure of private assets; and



•

higher costs associated with doing business internationally.

These risks could harm our international expansion efforts, which would in turn harm our business prospects.

We may need to raise additional capital and may not be able to raise additional funds on favorable terms or at all, which could limit our ability to grow and could dilute the ownership interests of existing stockholders.

              Our future capital needs are difficult to predict. We may require additional capital in order to take advantage of opportunities, including strategic alliances and potential acquisitions, or to respond to changing business conditions and unanticipated competitive pressures. Additionally, funds generated from our operations may be less than anticipated. While we believe that our current capital resources along with the proceeds from this offering will be sufficient to fund our operations through at least the next 18 months, we may need to raise additional funds either by borrowing money or issuing additional equity in order to fund operations, handle unforeseen contingencies or take advantage of new opportunities. We may not be able to raise such funds on favorable terms, if at all. If we are unable to obtain additional funds, then we may be unable to take advantage of new opportunities or take other actions that otherwise might be important to our business or prospects. If we raise additional funds through the issuance of equity securities, these securities may have rights, preferences or privileges senior to those of our common stock, and our stockholders will experience dilution of their ownership interests. A failure to obtain additional equity financing or an inability to obtain financing on acceptable terms could require us to incur indebtedness that has high rates of interest or substantial restrictive covenants, including prohibitions on the payment of dividends.

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Risks Related to this Offering and Our Common Stock

Our stock price may be volatile and you may lose all or a part of your investment.

              Prior to this offering, there has not been a public market for our common stock. Even though we anticipate that our shares will be quoted on The Nasdaq National Market, an active trading market for our common stock may not develop following this offering. You may not be able to sell your shares quickly or at the current market price if trading in our stock is not active. The initial public offering price for the shares will be determined by negotiations between the underwriters and us and may not be indicative of prices that will prevail in the trading market.

              In addition, the trading prices of securities of technology and Internet companies have been highly volatile. Accordingly, the trading price of our common stock is likely to be subject to wide fluctuations. Factors, some of which are beyond our control, that could affect the trading price of our common stock may include:

•

variations in our results of operations;



•

announcements of significant agreements, technological innovations or strategic alliances by us or by our competitors;



•

addition or loss of significant customers;



•

changes in federal policies or new regulation or legislation which impact our subcontract with the U.S. DOT;



•

recruitment or departure of key personnel;



•

litigation, legislation, regulation or technological developments that adversely affect our business; and



•

changes in the estimates of our results of operations.

              In the past, following periods of volatility in the market price of a public company's securities, securities class action litigation has often been instituted against the public company. Regardless of its outcome, this type of litigation could result in substantial costs to us and a likely diversion of our management's attention. You may not receive a positive return on your investment when you sell your shares and you may lose the entire amount of your investment.

Control by principal stockholders could limit the ability of our other stockholders to influence corporate matters and could prevent them from realizing a premium over the market price on their investment.

              Our executive officers, directors and 5% stockholders together beneficially own approximately 85.3% of our common stock immediately prior to the closing of this offering, including shares subject to options and warrants that confer beneficial ownership of the underlying shares, and will own approximately 58.0% of our common stock after the sale of the shares in this offering, based on the number of shares outstanding as of September 30, 2005 and assuming no exercise of the underwriters' over-allotment option. Accordingly, these stockholders, for the foreseeable future, will continue to have significant influence over our affairs including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets. This concentrated control will limit your ability to influence corporate matters and, as a result, we may take actions that our stockholders do not view as beneficial. For example, this concentration of ownership could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could cause the market price of our common stock to decline or prevent our stockholders from realizing a premium over the market price for their shares of our common stock.

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We will incur increased costs as a result of being a public company, which may adversely affect our financial condition and results of operations.

              As a public company, we will incur significant additional legal, accounting and other expenses. The Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission and The Nasdaq National Market, have required changes in corporate governance practices of public companies. We expect these new rules and regulations to further increase our legal and financial compliance costs and to make certain compliance and reporting activities more time-consuming. For example, as a result of being a public company, we will be required to adopt policies regarding internal controls and disclosure controls and procedures. We also expect it to be more difficult and more expensive for us to obtain and maintain director and officer liability insurance, which may cause us to accept reduced policy limits and reduced coverage or to incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. While we cannot predict with certainty what the additional costs will be, a review of comparable companies would suggest that the additional costs could be between $1.5 million and $3.0 million annually. These costs and the demands on management time and attention as a result of our being a public company may harm our business, financial condition and results of operations.

The future sale of shares of our common stock may negatively affect our stock price.

              Sales of substantial amounts of shares of our common stock in the public market, or the prospect of such sales, could adversely affect the market price of our common stock. Upon completion of this offering, and based upon the shares outstanding on September 30, 2005, and assuming no exercise of the underwriters' over-allotment option, we will have outstanding 19,308,239 shares of common stock. Approximately 93.4% of the shares outstanding prior to this offering are subject to lock-up agreements under which the holders of such shares have agreed not to sell or otherwise dispose of any of their shares for a period of 180 days after the date of this prospectus without the prior written consent of WR Hambrecht + Co, LLC. After the 180-day period, based on the number of shares outstanding as of September 30, 2005 and assuming no exercise by the underwriters of their over-allotment option, 10,176,783 shares held by current stockholders will be eligible for sale under Rule 144, Rule 144(k) or Rule 701. In addition, 800,154 outstanding shares of common stock that are not subject to lock-up agreements may be sold on or after the date of this prospectus under Rule 144(k) and 45,281 outstanding shares of common stock that are not subject to lock-up agreements may be sold under Rule 701 following 90 days after the date of this prospectus. The remaining 1,736,021 shares held by existing stockholders will become eligible for sale from time to time in the future under Rule 144 or Rule 144(k). Certain existing stockholders holding approximately 11,881,646 shares of common stock are also entitled to certain registration rights with respect to their shares of common stock. In addition, as of September 30, 2005, there were options to acquire 2,042,782 shares of common stock outstanding, exercisable at an average exercise price of $2.05 per share, and we have reserved an additional 1,793,427 shares of common stock for issuance under stock option plans. As of September 30, 2005, there were warrants to acquire 1,669,570 shares of common stock outstanding, exercisable at an average exercise price of $1.50 per share. To the extent that option and warrant holders exercise outstanding options and warrants, there may be further dilution and the sales of shares issued upon such exercises could cause our stock price to drop further.

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Provisions in Delaware law and our charter documents may make it difficult for a third party to acquire us and could depress the price of our common stock.

              Provisions in our certificate of incorporation and bylaws, as amended and restated upon the closing of this offering, may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:

•

Our board of directors has the right to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors.



•

Our board of directors may issue, without stockholder approval, shares of preferred stock with rights, preferences and privileges determined by the board of directors. The ability to authorize and issue preferred stock with voting or other rights or preferences makes it possible for our board of directors to issue preferred stock with super voting, special approval, dividend or other rights or preferences on a discriminatory basis that could impede the success of any attempt to acquire us.



•

Our certificate of incorporation provides for the board of directors to be divided into three classes, each with staggered three-year terms. As a result, only one class of directors will be elected at each annual meeting of stockholders, and each of the two other classes of directors will continue to serve for the remainder of their respective three-year terms, limiting the ability of stockholders to reconstitute the board of directors.

              As a Delaware corporation, we are also subject to certain Delaware anti-takeover provisions. Under Delaware law, a corporation may not engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction. Our board of directors could rely on Delaware law to prevent or delay an acquisition of us, which could have the effect of reducing your ability to receive a premium on your common stock.

We may apply the proceeds of this offering to uses that do not improve our operating results or increase the value of your investment.

              We intend to use the net proceeds from this offering to repay our senior secured credit facility and for general corporate purposes, including working capital and capital expenditures. Following repayment of our senior secured credit facility, we anticipate entering into a new credit facility, although we have not reached an agreement with any lender. However, we may not be able to reach an agreement at all or on terms we consider favorable to us.

              We may also use a portion of the net proceeds to acquire or invest in companies and technologies that we believe will complement our business. However, we do not have more specific plans for the net proceeds from this offering other than those outlined in "Use of Proceeds" and will have broad discretion in how we use the net proceeds of this offering. These proceeds could be applied in ways that do not improve our operating results or increase the value of your investment.

You will incur immediate and substantial dilution in the book value of your investment.

              The initial public offering price of our common stock is substantially higher than ($2.82), the net tangible book value per share of our common stock as of September 30, 2005, calculated on a pro forma basis for this offering. Therefore, if you purchase our common stock in this offering, you

17

will incur an immediate dilution of $9.85 in net tangible book value per share from the price you paid, based on the assumed initial public offering price of $11.50 per share.

We do not intend to pay dividends for the foreseeable future.

              We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors.

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Risks Related to the Auction Process for this Offering

If there is insufficient demand for our shares, the price of our shares could decline and potential investors may not be able to sell their shares for a profit.

              We will determine the initial public offering price for the shares sold in this offering through an auction conducted by the underwriters. We believe that the auction process will reveal a clearing price for the shares of our common stock offered in this offering. The clearing price is the highest price at which all of the shares offered (including the shares subject to the underwriters' over-allotment option) may be sold to potential investors. Although the underwriters and we may elect to set the initial public offering price below the auction-clearing price, the public offering price may be at or near the clearing price. If there is little or no demand for our shares at or above the initial public offering price once trading begins, the price of our shares would decline following the initial public offering. If your objective is to make a short-term profit by selling the shares you purchase in the offering shortly after trading begins, you should not submit a bid in the auction.

Some bids made at or above the initial public offering price may not receive an allocation of shares.

              The underwriters may require that bidders confirm their bids before the auction for the initial public offering closes. If a bidder is requested to confirm a bid and fails to do so within a required time frame, that bid will be rejected and will not receive an allocation of shares even if the bid is at or above the initial public offering price. Further, if the auction process leads to a pro rata reduction in allocated shares and a rounding down of share allocations pursuant to the rules of the auction, a bidder may not receive any shares in the offering despite having bid at or above the initial public offering price. In addition, we, in consultation with the underwriters, may determine, in our sole discretion, that some bids that are at or above the initial public offering price are manipulative of or disruptive to the bidding process, not creditworthy, or otherwise not in our best interest, in which case such bids may be rejected or reduced. For example, in previous transactions for other issuers in which the auction process was used, the underwriters have rejected or reduced bids when the underwriters, in their sole discretion, deemed the bids not creditworthy or had reason to question the bidder's intent or means to fund its bid. In the absence of other information, the underwriters or a participating dealer may assess a bidder's creditworthiness based solely on the bidder's history with the underwriters or participating dealer. The underwriters have also rejected or reduced bids that they deemed, in their sole discretion, to be potentially manipulative or disruptive or because the bidder had a history of alleged securities law violations. Other conditions for valid bids, including eligibility and account funding requirements of participating dealers, may vary. As a result of these varying requirements, a bidder may have its bid rejected by the underwriters or a participating dealer while another bidder's identical bid is accepted.

Potential investors may receive a full allocation of the shares they bid for if their bids are successful and should not bid for more shares than they are prepared to purchase.

              If the initial public offering price is at or near the clearing price for the shares offered in this offering, the number of shares represented by successful bids will equal or nearly equal the number of shares offered by this prospectus. Successful bidders may therefore be allocated all or nearly all of the shares that they bid for in the auction. Therefore, we caution investors against submitting a bid that does not accurately represent the number of shares of our common stock that they are willing and prepared to purchase.

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FORWARD-LOOKING STATEMENTS

              This prospectus contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Forward- looking statements include, but are not limited to, statements about:

•

our expectations regarding our future operating results;



•

plans for our expanded business model focused on increasing our brand recognition on the Internet and other interactive services;



•

future traffic information technologies and services and for enhancements of our existing technologies and services;



•

plans for adding metropolitan areas to our traffic data collection network;



•

elements of our growth strategy including expanding our strategic relationships and into geographic areas outside the United States;



•

anticipated trends and challenges in our business and the markets in which we operate;



•

expectations with respect to our intellectual property position and our ability to protect our intellectual property; and



•

our ability to attract customers, including television and radio stations, data service customers, advertisers and advertising agencies.

              In some cases, you can identify forward-looking statements by such terms as "may," "might," "will," "objective," "intend," "should," "could," "can," "would," "expect," "believe," "estimate," "predict," "potential," "plan," "is designed to" or the negative of these terms, and similar expressions.

              These statements reflect our current views with respect to future events and are based on assumptions and estimates, which are subject to risks and uncertainties including those discussed under the heading "Risk Factors" and elsewhere in this prospectus. Accordingly, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this prospectus. We do not intend to update any of these forward-looking statements to reflect circumstances or events that occur after the statement is made. We qualify all of our forward-looking statements by these cautionary statements.

              You should understand that various factors, in addition to those discussed elsewhere in this document, could affect our future results and could cause results to differ materially from those expressed in such forward-looking statements, including:

•

we have a history of operating losses, expect to continue to incur losses and may never become profitable;



•

we may not achieve success with our recently expanded business model into Internet advertising and interactive platforms, which would harm our financial performance;



•

we face substantial competition that could result in pricing pressure, reduce our market share and harm our financial performance;

20

•

we derive a significant portion of our revenue from a limited number of advertisers, and if we are unable to maintain these advertiser relationships or attract additional advertisers, our revenue will be adversely affected;



•

if the market for Internet advertising fails to continue to develop, our revenue and our results of operations could be harmed;



•

if the United States federal government and state and local governmental agencies decide not to enter into agreements with us or terminate existing agreements, it could prevent our expansion and limit the geographic scope of our business;



•

if we fail to manage our growth effectively, our business and operating results will be harmed;



•

a failure of TIMS or a catastrophic event at our primary facility could result in reduced revenue and the loss of customers;



•

pending litigation could have a material adverse effect on our business, operating results and financial condition;



•

failure to protect our intellectual property rights or our domain names, or failure to obtain issuance of the patents for which we have filed applications, could harm our brand-building efforts, devalue our proprietary content and/or impair our ability to compete effectively;



•

other persons may assert claims that our business operations or technology infringe or misappropriate their intellectual property rights, which could increase our costs of operation and distract management and could result in expensive settlement costs;



•

use of our traffic information could result in consumer claims brought against us that are not adequately covered by insurance, which could adversely impact our financial results;



•

if we fail to retain our executive officers and to recruit qualified employees, we may be unable to manage our operations effectively and/or pursue our business strategy;



•

if we expand into international markets, our inexperience outside the United States would increase the risk that our international expansion efforts will not be successful, which would in turn limit our prospects for growth; and



•

we may need to raise additional capital and may not be able to raise additional funds on favorable terms or at all, which could limit our ability to grow and dilute the ownership interests of existing stockholders.

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USE OF PROCEEDS

              We estimate that our net proceeds from the sale of 6,550,000 shares of common stock being offered hereby, after deducting the underwriting discount and estimated offering expenses payable by us, will be approximately $67.8 million, assuming the shares are offered at $11.50 per share, which is the mid-point of the estimated offering price range set forth on the cover page of this prospectus. We will not receive any of the proceeds from the sale of shares of our common stock by the selling stockholders if the underwriters exercise their over-allotment option.

              We currently intend to use the net proceeds from this offering as follows:

•

$37.5 million to repay all outstanding principal and accrued and unpaid interest under our senior secured credit facility;



•

$4.0 million to $6.0 million for our initiative to promote the Traffic.com brand and our Internet presence;



•

$1.0 million to $2.0 million for facilities, including new traffic operations centers in metropolitan areas in which we plan to expand;



•

$3.0 million to $4.0 million for information technology infrastructure and software development costs related to development of new products; and



•

the remaining proceeds for general corporate purposes, including working capital.

              We also believe opportunities may exist to expand our current business through selected acquisitions, and we may utilize a portion of the net proceeds for such purposes, although we have no current agreements or commitments with respect to any transactions of this type.

              The amounts and timing of our actual expenditures will vary depending on many factors, including the rate of our expansion into new metropolitan areas and the amount of cash flow generated from our operations, especially the extent of revenue generated by efforts to expand our business model into Internet and wireless advertising, other interactive services and the provision of data services. Accordingly, our management will have broad discretion in applying the proceeds from this offering.

              Our senior secured credit facility matures on March 31, 2008. We have used borrowings under that facility to fund our general working capital needs. Our senior secured credit facility has a stated interest rate of 6.316%; however, the amount actually required to satisfy our repayment obligation is based upon our lender's achieving an internal rate of return of 15% on the date of repayment. We have estimated the proceeds required to terminate this facility based on an estimated date of repayment of January 31, 2006. (For a discussion of our senior secured credit facility, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness".) Following repayment of our senior secured credit facility, we anticipate entering into a new credit facility, although we have not reached an agreement with any lender.

DIVIDEND POLICY

              We do not currently intend to pay any cash dividends on our common stock, and instead intend to retain earnings, if any, for future operation and expansion of our business. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, capital requirements and liquidity, contractual restrictions under any loans or other agreement, governmental requirements and any other factors that our board of directors may deem relevant.

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CAPITALIZATION

              The following table sets forth our cash and cash equivalents and consolidated capitalization as of September 30, 2005:

•

on an actual basis;



•

on a pro forma basis to reflect the conversion of all of our convertible preferred stock into 9,242,312 shares of common stock upon the closing of this offering; and



•

on a pro forma as adjusted basis to give effect to the issuance of 6,550,000 shares of common stock by us in this offering, our receipt of the estimated net proceeds, after deducting the underwriting discount and estimated offering expenses payable by us, and the application of the net proceeds as described in "Use of Proceeds."

              The table above is based on 3,515,927 shares outstanding as of September 30, 2005, and excludes the following:

•

2,042,782 shares of common stock issuable upon the exercise of stock options outstanding as of September 30, 2005, at an average exercise price of approximately $2.05 per share;



•

1,669,570 shares of common stock issuable upon the exercise of warrants outstanding as of September 30, 2005, at an average exercise price of approximately $1.50 per share;



•

1,793,427 shares of common stock available for future issuance under our stock option plans; and



•

300,562 shares of common stock issued to ICG Holdings, Inc. on October 28, 2005 in connection with a settlement of litigation.

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DILUTION

              Dilution is the amount by which the offering price paid by the purchasers of the common stock to be sold in this offering will exceed the pro forma as adjusted net tangible book value per share of common stock after the offering. The pro forma net tangible book value per share is equal to the amount of our total tangible assets (total assets less intangible assets) less total liabilities, divided by the number of shares of our common stock outstanding as of September 30, 2005. Our pro forma net tangible book value as of September 30, 2005 was approximately $(36.0) million, or $(2.82) per share. After giving effect to the sale of 6,550,000 shares of common stock in this offering at an assumed initial public offering price of $11.50 per share, the mid-point of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the underwriting discount and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of September 30, 2005 would have been $31.8 million, or $1.65 per share of common stock. This represents an immediate increase in net tangible book value of $4.47 per share to existing stockholders and an immediate dilution in net tangible book value of $9.85 per share to new investors.

              The following table illustrates this per share dilution:

              If the underwriters exercise their over-allotment option in full, our pro forma as adjusted net tangible book value will increase to $2.02 per share, representing an increase to existing stockholders of $4.84 per share, and there will be an immediate dilution in pro forma net tangible book value of $9.48 per share to new investors.

              The following table summarizes, on a pro forma as adjusted basis as of September 30, 2005, the total number of shares of common stock purchased from us, after giving effect to this offering and the conversion upon the closing of this offering of all of our shares of preferred stock outstanding at that date, assuming no exercise of outstanding options and warrants, the total consideration paid to us and the average price per share paid by the existing stockholders and by new investors purchasing shares in this offering:

              As of September 30, 2005, there were 2,042,782 shares of our common stock issuable upon the exercise of outstanding options at an average exercise price of approximately $2.05 per share and 1,669,570 shares of our common stock issuable upon exercise of outstanding warrants at an average exercise price of approximately $1.50 per share. After this offering and assuming the exercise of all stock options and warrants outstanding as of September 30, 2005, our pro forma as adjusted net tangible book value as of September 30, 2005 would have been approximately $38.5 million, or $1.67 per share of our common stock, representing an immediate increase in pro forma as adjusted net tangible book value of $4.49 per share to existing stockholders and an immediate dilution in pro forma as adjusted net tangible book value of $9.83 per share to new investors.

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

              The selected historical consolidated statement of operations data for the three years ended December 31, 2002, 2003 and 2004 and the selected consolidated balance sheet data as of December 31, 2003 and 2004 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected historical consolidated statement of operations data for the years ended December 31, 2000 and 2001 and the consolidated balance sheet data at December 31, 2000, 2001 and 2002, have been derived from our audited consolidated financial statements not included in this prospectus. Our selected historical consolidated financial data presented below for the nine months ended September 30, 2004 and 2005 and as of September 30, 2005, have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus.

              In the opinion of management, the unaudited financial statements for the nine months ended September 30, 2004 and September 30, 2005, have been prepared on a basis consistent with the audited financial statements and include all adjustments, which are normally recurring adjustments, necessary for a fair presentation of the results of operations for the periods presented. Results of operations for the interim periods are not necessarily indicative of the results that might be expected for any other interim period or for an entire year.

              The pro forma consolidated statement of operations data, including shares and per share data, for the year ended December 31, 2004 gives effect to the conversion of Series E and Series E-1 convertible preferred stock as though they occurred on January 1, 2004. The pro forma consolidated statements of operations data for the nine months ended September 30, 2005 gives effect to the conversion of the Series E, Series E-1, and Series F convertible preferred stock as though they occurred on January 1, 2005.

              The selected historical consolidated financial data presented below should be read together with our consolidated financial statements and the notes to those statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.

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(1)

Includes a $14.3 million charge in connection with the settlement of litigation, half of which has been paid by an investor affiliate and half of which was paid by us.

(2)

Includes gains recognized on the redemption of Series D preferred stock and gains recognized on the exchange of Series A through D preferred stock as described on Note 10 to the financial statements.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

              The following discussion of our financial condition and results of operations should be read in conjunction with the "Selected Historical Consolidated Financial Data" and our consolidated financial statements and the notes to those statements appearing elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this prospectus, particularly under the caption "Risk Factors."

Overview

Introduction

              We believe that we are a leading provider of accurate, real-time traffic information in the United States, based on the quality of our traffic data and the extent of our geographic coverage. We offer detailed traffic information, including specific speeds, travel times and delay times. We are able to provide this information by combining traffic incident and event information collected using traditional methods, such as helicopters, video cameras, mobile units and emergency scanners, with comprehensive traffic flow data collected through a large network of roadside traffic sensors. We have built a sophisticated data management system that allows us to process information in real time and deliver customized reports to large numbers of radio, television, Internet, wireless device, and in-vehicle navigation system users. Currently, we provide traffic information for 35 of the largest metropolitan areas in the United States, covering approximately 64 million commuters, in such cities as Boston, Chicago, Houston, Los Angeles, New York, Philadelphia, San Diego and San Francisco.

              The traffic flow data that we provide has been largely unavailable to consumers in the past. By combining traffic incident and flow data, our system is designed to enable drivers to make informed decisions as to route selection and departure times. We collect flow data using our own sensor network as well as government-owned sensors. We have aggregated multiple sensor network systems to create what we believe to be the largest network of real-time traffic sensors in the United States, covering approximately 23,000 lane miles of roadway. Our Traffic Information Management System (TIMS) allows us to aggregate traffic data from all sources into a standard format and process the data for real-time delivery and for archiving. TIMS collects and processes over 25 million traffic flow records and roughly 25,000 incident description records on a daily basis.

              We were incorporated in Delaware under the name Argus Networks, Inc. in October 1998. In November 1998, Encompass Corporation, a Pennsylvania corporation incorporated in 1995, was merged into our company. In October 1999, we changed our name to Traffic.com, Inc. and in May 2001, we changed our name to Mobility Technologies, Inc. In March 2005, we changed our name back to Traffic.com, Inc.

              In 1999, we began construction of our sensor network, and in 2000, we began to license our traffic data to the U.S. Department of Transportation (U.S. DOT) and certain state and local government agencies. We began selling our traffic information to radio stations in 2000 and to television stations in 2001 in exchange for advertising inventory. In the first quarter of 2004, we expanded our business model and began to provide traffic data services to businesses for their own commercial purposes. In July 2005, we launched our enhanced website which is designed to include advertising and offers wireless services. In July 2005, we also began to offer advertising sponsorships on our second-generation television product, Traffic Pulse NeXgen, and on our wireless service.

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Revenue Profile and Business Trends

              To date, substantially all of our revenue has been derived from the sale of advertising on radio and television stations, as well as from providing our traffic data to the U.S. DOT and certain state and local government agencies. We believe that our newer revenue opportunities, including Internet and wireless advertising, and commercial traffic data services, will become an increasingly larger percentage of our total revenue. We intend to invest significant resources in our marketing campaign in order to increase brand recognition of Traffic.com.

              Advertising.    In 2000, we entered into our first contracts with radio stations to provide traffic information in exchange for advertising inventory, which we then sell through our own direct sales force. In 2001, we signed our first contracts with television stations, under which we also provide traffic information in exchange for advertising inventory. Certain of our radio and television contracts require us to provide production services, such as announcers and producers, and/or make cash payments, in addition to providing traffic information. We also enter into contracts with certain radio stations under which we buy advertising time solely in exchange for cash in order to be able to offer advertisers access to a more comprehensive range of markets. We do not provide traffic information to these stations. Our television and radio contracts are generally for a term of one to three years and may be terminated with no penalty by either party if the other party breaches the agreement or is in bankruptcy. Some of the three-year agreements may be terminated by the customer after 18 months upon 30 days notice to us.

              In July 2005, we began to offer Internet advertising on our enhanced website and the websites of our customers and we recently began to offer advertising on our wireless consumer services. Based on industry reports of projected growth in the Internet advertising market from $12.0 billion in 2004 to $22.0 billion in 2008, and based on our strategy to increase awareness of our Traffic.com brand, we believe that Internet and wireless advertising provide us with an attractive opportunity to increase our revenue. The Internet and wireless advertising markets, however, are new and rapidly evolving. We have had no significant revenue from Internet and wireless advertising to date and currently have only a relatively small number of unique visitors to our website. Our success in attracting Internet advertisers will depend, in large part, on our ability to significantly increase the number of visitors to our website. We intend to invest significant resources in our branding campaign to increase brand recognition of Traffic.com.

              We currently expect Internet and wireless advertising to increase to between 15% and 30% of our total revenue within the next three years, as we invest in our branding campaign in the expectation that the number of visitors to our www.traffic.com website and users of our wireless services will grow. We expect our radio and television advertising revenue to increase in dollar amount as we expand the number of metropolitan areas in which we provide traffic information, but to decrease as a percentage of total revenue to between 55% and 65% within the next three years. We are actively seeking to stimulate growth of Internet and wireless advertising by developing co-branding opportunities on our media customers' websites, such as www.weather.com and www.comcast.net, and by increasing the services offered on our own website.

              Traffic Data Services.    In the first quarter of 2004, we entered into our first commercial traffic data services agreement with XM Satellite Radio Holdings, Inc., which uses our traffic data for 21 metropolitan areas. The XM Satellite Radio agreement has a term of five years. Subsequently, we entered into a five-year traffic data services agreement with NAVTEQ Corporation, which has been using our traffic data since June 2004 in conjunction with its mapping data as content in a variety of services, including in-vehicle navigation systems. In 2005, we entered into a three-year agreement with The Weather Channel, Inc., which uses our traffic data to provide traffic information on its website, cable networks, local programming and desktop application. We also entered into a two-year agreement with Motorola, Inc., which has been using our traffic data since March 2005 to provide traffic information in its VIAMOTO solution, a suite of location software for cell phones. Most

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recently, we have entered into a three-year agreement with Comcast Cable Communications Management LLC, which will provide our traffic incident, event and flow data on its www.comcast.net website starting in the first quarter of 2006. In each of these agreements, either party may terminate the agreement with no penalty, if the other party breaches the agreement or is in bankruptcy. We currently expect that our traffic data services revenue, excluding government data services, will increase as a percentage of our total revenue from approximately $1.4 million, or 3.3%, of total revenue in 2004 and $1.8 million, or 5.6%, of total revenue in the first nine months of 2005 to between 8% to 10% of total revenue within the next three years.

              Traffic.com Website and Consumer Wireless Services.    In July 2005, we launched our enhanced www.traffic.com website and we began to offer our consumer wireless services, which allow drivers to receive route-specific information on wireless devices. We have commenced a focused campaign to attract users and advertisers to our website and to websites of our media customers that are co-branded with www.traffic.com. In November 2005, our servers reported approximately 940,000 unique visitors to our website, which represented a 74% increase from September 2005. These new distribution channels are designed to provide advertising opportunities for our advertising customers.

              Operations and Infrastructure Support for New Revenue Opportunities.    Since 1999, we have made a significant investment in our development and enhancement of TIMS, our proprietary system for collecting, analyzing and distributing traffic data through a variety of delivery channels, as well as our sensor network for collecting traffic data in real time. Based on this investment and the resulting scalability and flexibility of TIMS, which is designed to allow for very high and increasing transaction volumes and to integrate with new technologies with minimal additional development effort, we believe that we should be able to incorporate new revenue opportunities at relatively low additional cost. As we have added new products and services, we have expended approximately $1.3 million in 2004 and the first nine months of 2005 on technology infrastructure and development capital and expect to spend a total of $3.0 million to $4.0 million in the last three months of 2005 and in 2006. As we expand our geographic coverage we have expended approximately $0.8 million in 2004 and the first nine months of 2005 on facilities expansion, principally new traffic operations centers, and anticipate spending a total of $1.0 million to $2.0 million on new facilities in the last three months of 2005 and 2006.

Sources of Revenue

Advertising

              Radio and Television Advertising.    In exchange for providing traffic information, cash and/or production services (including announcers and producers) to radio and television station customers, we receive the right to sell advertising time adjacent to traffic, news or weather reports as well as the right to sell advertisements on our customers' websites. Additionally, under certain of our contracts with radio stations to which we do not provide traffic information, we buy for cash the right to sell a set amount of advertising time, primarily to expand our advertising sales coverage. We refer to the advertising time that we receive in exchange for these two types of contracts as "owned inventory." As of September 30, 2005, we had contracts to acquire owned inventory from over 370 radio stations (including 109 to which we provide our traffic information) and with 43 television stations. Revenue from owned inventory advertising grew from $11.3 million in 2002 to $26.0 million in 2003 to $30.3 million in 2004 and $24.8 million in the first nine months of 2005.

              We supplement our owned inventory by purchasing additional advertising time for cash from time to time from radio stations that are not under contract with us. These purchases, referred to as "cash buys," usually are made to satisfy specific advertisers' needs for additional coverage on particular stations or in smaller markets. Because cash buys are purchased in the spot market on an as-needed basis, the cost of acquiring this advertising is higher than the cost of owned inventory. As

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a result, margins for the sale of cash buys are generally lower than the margins that can be achieved from the sale of owned inventory. As we expand our presence into a larger number of metropolitan areas in the United States, we expect our cash buys to decrease in relation to our owned inventory.

              Revenue from our radio and television advertising is recognized in the month that an advertisement is aired.

              In the fourth quarter of 2004, we introduced our second generation television product, Traffic Pulse NeXgen, which provides 2D and 3D color graphics that simulate the sense of flying over highways, bridges and other roadways. Because NeXgen depicts moving vehicles, buildings, billboards and other items on the reported routes, these graphics can be branded with an advertiser's name or logo. Due to its recent introduction, we have not sold any NeXgen sponsorships to date. Based on product placement advertising trends in television programming and films, however, we believe this will be an attractive opportunity for advertisers. Any revenue from this advertising channel will be recognized as the programming is aired.

              In May 2005, we launched our first traffic-focused, four-hour television news program, which is broadcast during the morning commuting hours on a Viacom-owned UPN station in Philadelphia. This program changes the standard morning news format by focusing first on traffic, which constitutes approximately 40% of airtime, then approximately 40% on weather and the balance on news. We produce and broadcast this program from our own studio facility in our principal office. This program, which we expect to introduce in other markets, provides us with significant opportunities for promoting our brand name on air, which we believe could lead to an increase in the number of users of our other services, such as our website and consumer wireless services. In return for this service, we received an upfront fee from Viacom, and receive advertising inventory. In addition, we are entitled to all of the advertising revenues earned from the sale of any naming, sponsorship or other promotional rights related to NeXgen. Viacom has a one-time right to terminate this agreement at a specified time.

              We amortize the initial license fee received from Viacom ratably over a period of five years, which represents the initial contract term. We intend to recognize any sponsorship and promotional revenues generated from the contract with Viacom over the period that the sponsorship or promotion is aired. As of September 30, 2005, no revenues had yet been generated from sponsorships or promotional rights. In addition, we recognize revenue from the advertising spots we receive from Viacom at the time an advertisement airs.

              Internet and Wireless Advertising.    With the introduction of our enhanced website and consumer wireless services in July 2005, we have begun to offer advertising on our own www.traffic.com website and our wireless services, in addition to offering advertising on the websites of a number of our customers. Given the recent introduction of our enhanced website, we currently have a small number of unique visitors to our website and an even smaller number of subscribers for our consumer wireless services. We have not generated any significant revenue from either Internet or wireless advertising to date. We intend to invest a total of $4 million to $6 million in the last three months of 2005 and in 2006 in our branding campaign to increase brand recognition of Traffic.com. Revenue from Internet and wireless advertising will be recognized over the period during which the advertisement is displayed or aired. We price Internet and wireless advertisements based upon a cost per thousand delivered. We are not required to display or air any minimum number of Internet or wireless advertisements. In some cases, we have agreed with our radio and television customers to whom we provide website traffic data services to share revenue from any subscriptions for our wireless services generated directly from their websites, with the customer receiving approximately 20% of the revenue generated. In accordance with EITF 99-19, the Company would recognize the gross revenue subject to this revenue-sharing arrangement with the applicable customer payment recorded as a direct cost of revenue. As of January 14, 2006, however, we have ceased charging subscription fees for our wireless services.

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              We believe that our multiple media delivery platforms provide advertisers with an attractive cross-media campaign opportunity. Our advertisers can reach their customers at various times of day using advertisements associated with our traffic content aired on radio and television, placed on our website and embedded in our wireless services. We believe that this cross-media opportunity will result in heightened interest in our services from advertisers.

Traffic Data Services

              Government Services.    In 1999, in a competitive bidding process under the 1998 Transportation Equity Act for the 21st Century (TEA-21), we were awarded, as principal subcontractor to the U.S. DOT, a subcontract to enable us to deploy an intelligent transportation infrastructure system (now our sensor network) to collect and distribute traffic flow data. TEA-21 envisioned a program in more than 40 metropolitan areas. Under the terms of this subcontract, of the $2.0 million received by our prime contractor for each designated metropolitan area, we are paid 95% or $1.9 million to provide to federal and state transportation agencies the traffic flow data from our sensor network in these areas for non-commercial purposes, such as research, infrastructure planning and congestion management. We retain the exclusive right to use this data for commercial purposes. As a condition to our receipt of federal funds for each metropolitan area, we are required to commit, or have a third party provide, an additional $0.5 million in cash or services per metropolitan area deployed.

              Under our subcontract, we own and are responsible for constructing, operating and maintaining our sensor networks. We have engaged a third party contractor for the installation of the sensors used in our network. As part of this arrangement, the contractor acquires and assembles the component parts of the sensors, installs the sensors on a site (typically a pole) and calibrates the sensors. More than one sensor can be mounted at one site, in order to cover more than one direction on a roadway or multiple roadways in close proximity. We pay the contractor a specified amount per site, which amount varies per metropolitan area based on the number of sites to be installed in that area. There are a number of third parties capable of providing site installation services. A number of factors are considered in the planning phase of the network installation process that determines the number of sites required in a metropolitan area. Some metropolitan areas have existing sensors on targeted roadways which we can utilize in our system. In those instances, our installation efforts will focus on supplementing the existing sensors, which can reduce the number of sensors that we need to install. The size of the metropolitan area and the number of congested roads is also a factor. The distance between sensors varies based on availability of roadside locations to install the sensors and the distance between exit or entrance ramps, but the sensors are generally at a set distance.

              Our ability to recognize revenue from our federal subcontract is based on when we obtain formal customer acceptance of the system. Revenue is then recognized over the estimated service period of the contract of 15 years. Revenue recognized under our federal subcontract totalled $0.1 million in 2001, $0.3 million in 2002, $0.3 million in 2003, $0.4 million in 2004 and $0.6 million in the first nine months of 2005.

              In addition, as a subcontractor to the U.S. DOT, we must enter into agreements with state or local government agencies responsible for the metropolitan areas in which we deploy our sensor network, in order to proceed with deployment of the network. Once the relevant state or local agency accepts our proposal and enters into a contract with us, we are required to meet certain milestones, including federal acceptance of our plans, designs and architecture. As of December 31, 2005, we have completed our sensor network and received system acceptance from the relevant transportation agencies in Boston, Chicago, Philadelphia, Pittsburgh, Providence, San Diego, St. Louis and Tampa. We are collecting data from sensor networks that we are in the process of constructing in Los Angeles, Oklahoma City, Phoenix, San Francisco, and Washington, DC. We are under contract to deploy our sensor network in Baltimore, Detroit, and Seattle. On November 1, 2005, we executed an agreement with the Utah Department of Transportation to

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integrate probe data into TIMS in Salt Lake City. As of December 31, 2005, we are recognizing revenue from our sensor network in connection with our subcontract from the U.S. DOT in Boston, Chicago, Philadelphia, Pittsburgh, Providence, San Diego, St. Louis and Tampa.

              We are obligated to reinvest in activities and equipment related to our sensor network or share a specified percentage of our revenue that is directly attributable to the commercial sales of flow data generated under the program from the sensors we install and own. This amount is calculated as 5% of revenue generated from commercial sales of such flow data between $250,000 and $1.0 million and 10% of such revenue over $1.0 million. This amount does not include revenue from sales of flow data collected from government-owned sensor systems, which constitutes a significant amount of the flow data for many of the metropolitan areas that we cover, or from information which is gathered independently about incidents and events. To date, the total amount of our reinvestment and revenue sharing has not been material, and has amounted to less than $50,000 over the first nine months of 2005. The activities funded are determined in consultation with the relevant state or local agency. These funds may be used for a number of purposes, including integrating the existing state and local agency intelligent transportation systems with our sensor network or installing additional sensors.

              Commercial Traffic Data Services.    In the first quarter of 2004, we began to enter into agreements with companies to provide our traffic data directly to these customers for their own use in their websites and media and service offerings. Our first such agreement was with XM Satellite Radio and, since that time, we have entered into agreements with NAVTEQ, Motorola, The Weather Channel and Comcast. Revenue from our other traffic data services agreements includes one or more of annual usage and exclusivity fees, fees for 24/7 support services, and in-vehicle traffic data subscription fees. Revenue from these data service agreements was $1.4 million in 2004, the first year in which we recognized such revenue, and $1.8 million in the first nine months of 2005. Revenue recognition from these contracts varies, based upon contract minimums, subscriber growth and special services provided by us.

              Under our NAVTEQ agreement, NAVTEQ has paid us $9.9 million as an advance against subscription, license and other fees payable by NAVTEQ. Upon expiration or earlier termination of the agreement, we are required to repay NAVTEQ an amount equal to (i) any portion of the $9.9 million advance payment that has not yet been earned, less (ii) aggregate specified annual minimum license fees of $0.4 million in each of the first, second and third years of the agreement, $0.8 million in the fourth year of the agreement and $1.0 million in the fifth year of the agreement. Upon expiration of the agreement, if it is not renewed, up to $1.9 million of any remaining portion of the advance fee that we are required to repay may, at our option, be repaid in quarterly installments over three years at an interest rate of prime plus 1%.

              The NAVTEQ agreement has a term of five years. The agreement may be terminated by either party upon a material breach not cured within thirty days' notice, a performance failure caused by a force majeure event not cured within six months or bankruptcy of the other party. A material breach includes a material breach by us of our service level commitment to NAVTEQ, but only if more than 15% of the covered population is affected by the service failure for more than 180 days or the failure lasts longer than 270 days. Each party may terminate the agreement if the other sells all or substantially all of its business to certain specified entities.

              Consumer Wireless Subscriptions. Following the completion of our enhanced website, we began to offer subscription wireless services to consumers in July 2005. On January 14, 2006, we began to offer all of our wireless services free of charge to consumers, as we plan to focus on obtaining advertising-based revenues from these services. Users can sign up for a number of my traffic.com personalized traffic services within the my traffic.com section of the traffic.com website.

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              We have begun to offer advertising opportunities and sponsorships associated with our subscription services to our advertising customers, although we have generated only minimal advertising revenue from this source to date.

              Revenue from advertising and sponsorships in connection with our wireless services will be recognized over the period during which the advertisement or sponsorship is displayed and will be recognized as advertising revenue in our statement of operations.

              License Agreement. In April 2002, we entered into an intellectual-property based financing transaction, which was structured as a license agreement, that resulted in funding of $11.0 million. Under the license agreement, we transferred various intellectual property rights, including patents, copyrights, trademarks and domain names, to the technology development corporation and were granted an exclusive license to use the intellectual property rights in exchange for a quarterly royalty payment. The royalty payments were equal to a percentage ranging from 1% to 5% of the net revenue from the use of the licensed intellectual property rights, up to $0.3 million per quarter. We classified the license agreement for accounting purposes as a research and development agreement and recognized revenue based on the completion of new Developed Technology (as defined in the statement of work within the license agreement).

              We maintained the right to repurchase the intellectual property rights at any time upon payment of $11.0 million less any royalty payments made to the technology development corporation through the repurchase date. In April 2003, we and the technology development corporation agreed to terminate the license agreement. In exchange for a payment of $10.0 million and the issuance of $0.4 million in debt (which represented the then-current value of the license agreement less interim royalty payments), the intellectual property rights reverted to us.

Cost of Revenue

              Cost of revenue consists of media inventory expenses, traffic data collection expenses, and other technology costs associated with maintaining TIMS.

              Media Inventory.    Media inventory expenses consist of cash paid to purchase advertising inventory under long-term contracts with radio stations. In addition, media inventory expenses include cash payments to radio stations to purchase additional advertising inventory in the spot market on an as-needed basis, which we refer to as "cash buys." As we expand our presence into a larger number of metropolitan areas in the United States, we expect our media inventory expenses to decrease as a percentage of total revenue.

              Traffic Data Collection Expenses.    Traffic data collection expenses consist of the costs of personnel, both full-time and part-time, the costs of aircraft and automobiles, the monitoring of police and emergency response vehicles, the depreciation of our traffic flow data sensor network, the use of state and local agency data sources where available (including sensors and cameras), and our own camera network. These expenses also include occupancy and communications costs for our national operations center and local operations centers. Traffic data collection costs are expected to continue to increase as we expand from our presence in 29 metropolitan areas as of September 30, 2005. We plan to utilize existing operations centers where it is efficient and effective to do so.

              Other Technology Expenses.    Technology expenses primarily consist of personnel and related costs for employees engaged in the development and ongoing maintenance of TIMS, including hardware and internal product development expenses and the cost of consultants engaged to assist with various software development programs. In addition, these expenses include communications costs; capital depreciation of computer hardware; and the depreciation of certain technology costs capitalized in accordance with SOP 98-1, "Accounting for the Costs of Computer

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Software Developed or Obtained for Internal Use." We expect to continue to incur development costs as we add products and services.

              License Agreement.    License agreement expenses consisted of royalty payments and certain development costs related to intellectual property covered by the license agreement.

Operating Expenses

              Research and Development    In accordance with Statement of Position (SOP) 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," research and development costs include those labor costs incurred during the application development stage of internally developed software. In addition, research and development costs also include costs associated with licensing third-party software and other quality assurance costs.

              Sales and Marketing Expenses.    Sales and marketing expenses primarily consist of personnel and related costs for employees engaged in sales, business development and marketing, including salaries, commissions, and other variable compensation, travel expenses and costs associated with trade shows, advertising and other marketing efforts and bad debt expense. While the operating costs associated with our traditional radio and television relationships have remained relatively flat over the last year, we have incurred additional costs in connection with our business development efforts related to Internet advertising and product development. Since mid-2005, we have significantly increased our expenditure of funds for brand marketing and expect to continue or increase this spending for the foreseeable future. We currently expect to spend approximately $1.5 million on our brand marketing in the last three months of 2005 and to spend approximately $3.0 million to $4.0 million in 2006.

              General and Administrative Expenses.    General and administrative expenses consist of personnel and related costs of our management, finance, human resources, technology support and administrative personnel, professional fees and other corporate expenses. As we expand our business and incur additional expenses associated with being a public company, we believe that general and administrative expenses will also increase. While we cannot predict with certainty what the additional costs of being a public company will be, a review of comparable companies would suggest that additional costs could be between $1.5 million and $3.0 million annually.

              Legal Settlements.    Legal settlement expenses consist primarily of the settlement against us and our investor affiliate in the Santa Fe litigation. Although we are required, in accordance with the SEC Staff Accounting Bulletin Topic 5T, Accounting for Expense or Liabilities Paid by Principal Stockholder(s), to recognize the full amount of the settlement in our statement of operations, one-half of the settlement, which has been paid by our investor affiliate, is treated as a capital contribution to us. Legal settlement expenses also include the fair value of common stock and warrants issued to two investors in settlement of claims.

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Results of Operations

              The following table sets forth the items in our historical statements of operations for the periods indicated as a percentage of total revenue: