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Intersections Inc – IPO: ‘424B4’ on 4/30/04

On:  Friday, 4/30/04, at 3:07pm ET   ·   Accession #:  950123-4-5498   ·   File #:  333-111194

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

 4/30/04  Intersections Inc                 424B4                  1:1.1M                                   RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 424B4       Prospectus Filing: Intersections Inc.               HTML   1.06M 

6,250,000 Shares

________________________________________________________________________________

Investing in our common stock involves risk. See “Risk Factors” beginning on page 9.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The selling stockholder and certain other stockholders have granted the underwriters the right to purchase from them up to 937,500 additional shares of common stock at the same price to cover over-allotments.

The date of this prospectus is April 29, 2004

TABLE OF CONTENTS

      Until May 24, 2004 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PROSPECTUS SUMMARY

      This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before buying shares of our common stock. You should read the entire prospectus carefully before making an investment in our common stock.

Business Overview

      Intersections provides identity theft protection and credit management services on a subscription basis to its subscribers. Our services are principally marketed to customers of our clients and branded and tailored to meet our clients’ specifications. Our clients are principally credit and charge card issuing financial institutions. Our subscribers purchase our services either directly from us or through arrangements with our clients.

      Our services include daily, monthly or quarterly monitoring of our subscribers’ credit files at one or all three of the major credit reporting agencies, Equifax, Experian and TransUnion. We deliver our services online or by mail to our subscribers in a user-friendly format. We also offer credit score analysis tools, credit education, a consumer fraud resource center and identity theft cost coverage.

      Our services enable our subscribers to:

      We provide our services to subscribers principally under the private label brands of our clients, including fifteen large financial institutions. Among those clients are financial institutions that constituted approximately 72% of the credit card market in the United States as of December 31, 2002, based on information from Card Source One. At December 31, 2003, we had 25 clients, and an additional 39 financial and other companies were offering our services through arrangements with our clients.

      We customize our services, branding and pricing to our clients’ specifications. We believe that our services enable our clients to increase customer loyalty, generate a recurring stream of commission and fee income and enhance other client offerings.

      Our subscriber base grew from approximately 57,000 at the end of 1997 to approximately 2.3 million subscribers as of December 31, 2003. Our revenue grew from $1.0 million in 1997 to $147.3 million in 2003. We became profitable in the second quarter of 2002 and have been profitable in every subsequent quarter. We generated pre-tax income for 2003 of $14.6 million.

      We believe that one of the keys to growth in our company and industry is the increased awareness by consumers of the importance of monitoring and understanding their credit records to prevent and mitigate the effects of identity theft. “Identity theft,” as defined in the Identity Theft Survey Report (September 2003) sponsored by the Federal Trade Commission, means misuse of a person’s name or personal information, which includes opening new

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      We believe that another source of growth is the increased awareness by consumers of the importance of their credit files and credit scores. According to data released by the Federal Reserve Bank, consumer debt in the United States grew from $3.6 trillion in 1990 to $8.7 trillion in the first quarter of 2003. This growth together with changes in the federal Fair Credit Reporting Act and state laws and increasing coverage by the media have made consumers aware of how their credit files and credit scores impact the availability of credit.

      We believe these concerns are creating a growing market for our services. According to an Online Banking Report (June 28, 2002), the market for consumer-direct credit reporting is estimated to range from $350 million to $2 billion by 2007, with a mid-range projection of $1 billion.

Our Services

      We provide a flexible and diversified suite of identity theft protection and credit management services that are branded and tailored to meet the specifications of our clients. These services are marketed and delivered to customers of our clients on a subscription basis.

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Growth Strategy

      Our growth has been the result of our success in expanding our subscriber base and in attracting and retaining clients who market our services to their customers. We have supported our growth by enhancing our services and maintaining profitable prices. We expect to generate continued growth from:

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Our Relationship with Equifax

      In November 2001, we issued a $20.0 million senior secured convertible note to CD Holdings, Inc., a subsidiary of Equifax, Inc. Upon the closing of this offering, the senior secured convertible note will be converted automatically into 3,755,792 shares of our common stock, or approximately 26.9% of our outstanding common stock before this offering, and any covenants or other restrictions on us under the note documents will terminate. After this offering, CD Holdings will beneficially own 3.0% of our outstanding common stock, but will not beneficially own any shares of our common stock if the underwriters exercise their over-allotment option in full.

      We purchase credit data under an agreement with a subsidiary of Equifax, Equifax Information Services, LLC. The agreement continues until November 26, 2006 and automatically renews for two-year terms unless either party terminates upon twelve months’ notice.

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      We have a separate master agreement with Equifax Consumer Services, Inc. Under the master agreement, we provide our identity theft protection and credit management services to customers of Capital One, which markets those services under an agreement between Capital One and Equifax. The service materials identify us to the subscribers as the provider of those services, using Equifax data. Pursuant to our master agreement with Equifax Consumer Services, Equifax Consumer Services may not modify its agreement with Capital One, waive any right applicable to us or take any discretionary action under that agreement, without our approval. Total revenue earned during 2003 under the master agreement was $44.6 million, or approximately 30% of our revenue, of which approximately $29.4 million, or approximately 66%, was earned for services provided to customers of Capital One.

      Also under the master agreement, we were providing to customers of Equifax a one-time, non-subscription report with data from Equifax, Experian and TransUnion for delivery online. Equifax Consumer Services terminated our provision of that service effective October 16, 2003, when it began to provide those services directly to consumers. The revenue for this report was one-time transactional revenue. As a result, in 2004 we will not have revenue from sales of that report, which was $15.2 million, or 10% of our revenue, in 2003. The contribution to our operating income from these sales was significantly lower as a percentage of revenue than that of our subscription business. We continue to provide Equifax customers with credit monitoring services delivered offline. The revenue for such services constituted less than 1% of our revenue in 2003, and is not expected to constitute a higher percentage of our revenue in 2004. We also are in discussions with Equifax about providing online credit monitoring services to Equifax customers in Canada. At the same time, we expect to continue to compete with Equifax and its subsidiaries in the marketing of identity theft protection and credit management services to consumers.

* * * * * *

      We were incorporated in Delaware in 1999. We conduct certain of our operations through our wholly-owned subsidiary, CreditComm Services LLC, a Delaware limited liability company, which was originally formed in May 1996. Our principal executive offices are located at 14901 Bogle Drive, Chantilly, Virginia 20151 and our telephone number is (703) 488-6100. Our website address is www.intersections.com. Information contained on our website is not incorporated by reference into this prospectus and should not be considered to be a part of this prospectus. Our website address is included here only as an inactive technical reference.

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The Offering

      The common stock outstanding after the offering is based on the number of shares outstanding as of December 31, 2003, and excludes:

      Except as otherwise noted, we have presented the information in this prospectus based on the following assumptions:

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Summary Consolidated Financial Data

      The following summary consolidated financial data should be read in conjunction with “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, all included elsewhere in this prospectus. The pro forma balance sheet data below gives effect to the conversion of all of our outstanding shares of preferred stock and our senior secured convertible note into an aggregate of 8,988,894 shares of common stock. The pro forma as adjusted balance sheet data below gives effect to the conversion of all outstanding shares of our preferred stock and our senior secured convertible note into an aggregate of 8,988,894 shares of common stock and reflects the receipt and application of the estimated net proceeds to us from the sale of common stock in this offering at the initial public offering price of $17.00 per share. We have supplied selected subscriber and other data below under the caption “Other Data.”

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RISK FACTORS

      If you purchase shares of our common stock, you will assume a high degree of risk. In deciding whether to invest, you should carefully consider the following risk factors, as well as the other information contained in this prospectus. Any of the following risks as well as other risks and uncertainties discussed in this prospectus could have a material adverse effect on our business, financial condition, results of operations or prospects and cause the value of our stock to decline, which could cause you to lose all or part of your investment. Additional risks and uncertainties that we are unaware of, or that are currently deemed immaterial, also may become important factors that affect us.

Risks Related to Our Business

We have only recently become profitable and cannot give assurances of our future profitability.

      We incurred significant operating losses from our inception in 1996 through 2001. As of December 31, 2003, we had an accumulated deficit of approximately $15.4 million. We historically incurred and will continue to incur significant marketing costs and commissions to grow our business, which affected our profitability in prior periods and will continue to affect our profitability in future periods. Although we have had revenue growth in recent periods, our growth rates may not be sustainable or indicative of future operating results. Although we became profitable in the second quarter of 2002, we cannot assure you that we will remain profitable.

We must replace the subscribers we lose in the ordinary course of business and if we fail to do so our revenue and subscriber base will decline.

      A substantial number of our subscribers cancel their subscriptions each year. Cancellations may occur due to numerous factors, including:

      The number of cancellations within the first 90 days as a percentage of new subscribers was 39.5% in 2001, 33.8% in 2002 and 29.0% in 2003. We analyze subscriber cancellations during the first 90 days because we believe this time period affords the subscriber the opportunity to evaluate the service. The number of cancellations after the first 90 days, as a percentage of the number of subscribers at the beginning of the year plus the net of new subscribers and cancellations within the first 90 days, was 32.2% in 2001, 26.6% in 2002 and 28.6% in 2003. The increase in the percentage of cancellations after 90 days from 2002 to 2003 is related to the launch of a new indirect marketing arrangement in the third quarter of 2002. Under this arrangement, subscribers tended to remain in the service slightly longer than subscribers on an overall basis. As a result, the percentage of cancellations under this indirect marketing arrangement was lower than our overall cancellation percentage during the first 90 days but was slightly higher than our overall cancellation percentage after 90 days. Despite this increase, the total number of cancellations during the year as a percentage of the beginning of the year subscribers plus new subscribers was 47.5% in 2001, 43.4% in 2002, and 40.9% in 2003. Conversely, our retention rates, calculated by taking the sum of the beginning of the year subscribers plus new subscribers less cancellations during the year and dividing that amount by

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      Failure to obtain new subscribers, producing revenue equivalent to the revenue from the canceling subscribers, would result in a reduction in our revenue and the number of our subscribers. Because of the large number of subscribers we need to replace each year, there can be no assurance that we can successfully replace them.

We historically have depended upon a few clients to derive a significant portion of our revenue, and the loss of any of these clients could have a material adverse effect on our growth strategy and prospects.

      Revenue from subscribers obtained through our largest clients in 2002 and 2003, as a percentage of our total revenue, was: Discover — 35% and 18%, American Express — 29% and 23%, Citibank — 14% and 15%, Capital One (through our relationship with Equifax) — 3% and 20%, and Equifax — 7% and 10%, respectively. Substantially all of the revenue from Equifax (not including the revenue from Capital One) was comprised of revenue from a one-time, non-subscription report we provided to customers of Equifax, for which Equifax terminated our services effective October 16, 2003. There can be no assurance that one or more of these key clients or other clients will not terminate their relationship with us. The termination or non-renewal of a key client relationship could have a material adverse effect on our future revenue from existing services of which such client’s customers are subscribers and on our ability to further market new or existing services through such client.

If one or more of our agreements with clients were to be terminated or expire, or one or more of our clients were to reduce the marketing of our services, we would lose access to prospective subscribers and could lose sources of revenue.

      Many of our key client relationships are governed by agreements that may be terminated without cause by our clients upon notice of as few as 60 days without penalty. Under many of these agreements, our clients may cease or reduce their marketing of our services. If one or more of our agreements with clients were to be terminated or expire, or one or more of our clients were to reduce the marketing of our services, we would lose access to prospective subscribers.

      Our typical contracts provide that after termination of the contract we may continue to provide our services to existing subscribers under the same economic arrangements that existed before termination. Under certain of our agreements, however, the clients may require us to cease providing services under existing subscriptions after time periods ranging from 90 days to three years after termination of the contract. Clients under certain contracts also may require us to cease providing services to their customers under existing subscriptions if the contract is terminated for material breach by us. If one or more of these clients were to terminate our agreements with them, and require us to cease providing our services to subscribers, then we would lose significant sources of revenue.

We are substantially dependent upon our consumer identity theft protection and credit management services for a significant portion of our revenue, and market demand for these services could decrease.

      Substantially all of our revenue historically has been derived from consumer identity theft protection and credit management services. We expect to remain dependent on revenue from these services for the foreseeable future. Any significant downturn in the demand for these services would materially decrease our revenue.

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If we lose our ability to purchase data from any of the three major credit reporting agencies, each of which is a competitor of ours, demand for our services could decrease.

      We rely on the three major credit reporting agencies, Equifax, Experian and TransUnion, to provide us with essential data for our consumer identity theft protection and credit management services. The Equifax agreement continues until November 26, 2006 and automatically renews for successive two-year terms unless either party terminates the agreement upon twelve-months’ prior notice. Our agreements with Experian and TransUnion may be terminated by them on 30 days and 60 days notice, respectively. Each of the three major credit reporting agencies owns its consumer credit data and is a competitor of ours in providing credit information directly to consumers, and may decide that it is in their competitive interests to stop supplying data to us. Any interruption, deterioration or termination of our relationship with one or more of the three credit reporting agencies would be disruptive to our business and could cause us to lose subscribers.

CD Holdings, a subsidiary of Equifax, has been and may continue to be an investor in us, and any adverse changes in our relationship with Equifax or its subsidiaries or affiliates after this offering could have a material adverse effect on our business.

      CD Holdings, a subsidiary of Equifax, owns approximately 26.9% of our outstanding common stock before this offering, and will own approximately 3.0% of our outstanding common stock after this offering if the underwriters do not exercise the over-allotment option. If the underwriters exercise the over-allotment option in full, Equifax will not beneficially own any shares of our common stock. We also purchase credit data from an Equifax subsidiary, and receive revenue from an Equifax subsidiary based on our provision of identity theft protection and credit management services to customers of the Equifax subsidiary and subscribers obtained through the subsidiary’s contract with Capital One. At the same time, we expect to continue to compete with Equifax and its subsidiaries in the marketing of identity theft protection and credit management services to consumers. Any disruption or deterioration of our relationship with Equifax and its subsidiaries could have a material adverse effect on our business, including loss of the ability to purchase credit data owned by Equifax or obtain subscription revenue or subscribers through Equifax.

If we experience system failures or interruptions in our telecommunications or information technology infrastructure, our revenue could decrease and our reputation could be harmed.

      Our operations depend upon our ability to protect our telecommunications and information technology systems against damage or system interruptions from natural disasters, technical failures and other events beyond our control. We receive credit data electronically, and this delivery method is susceptible to damage, delay or inaccuracy. A significant portion of our business involves telephonic customer service as well as mailings, both of which depend upon the data generated from our computer systems. Unanticipated problems with our telecommunications and information technology systems may result in a significant system outage or data loss, which could interrupt our operations. Our infrastructure may also be vulnerable to computer viruses, hackers or other disruptions entering our systems from the credit reporting agencies, our clients and subscribers or other authorized or unauthorized sources. Our business could be materially adversely affected if there is any damage to our telecommunications and information technology systems, failure of communication links or other loss that causes interruption in, or damage to, our operations.

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We and our clients outsource telemarketing to third parties who may take actions that lead to negative publicity and consumer dissatisfaction.

      We and our clients solicit some of our subscribers through outbound telemarketing that we outsource to third-party contractors. In outbound telemarketing, the third-party contractors make the initial contact with potential subscribers. We attempt to control the level and quality of the services provided by these third parties through a combination of contractual provisions, monitoring, on-site visits and records audits. In arrangements where we bear the marketing cost, which represented 35% of new subscribers acquired in 2003, approximately 85% of new subscribers were obtained through outbound telemarketing by our vendors. In arrangements where the clients bear the marketing cost, which represented 65% of new subscribers acquired in 2003, approximately 31% of new subscribers were obtained through outbound telemarketing by outsourced vendors. Any quality problems could result in negative publicity and customer dissatisfaction, which could cause us to lose clients and subscribers and decrease our revenue.

We may lose subscribers and significant revenue if our existing services become obsolete, or if we fail to introduce new services with broad consumer appeal or fail to do so in a timely or cost-effective manner.

      Our growth depends upon developing and successfully introducing new services that generate client and consumer interest. Our failure to introduce these services or to develop new services, or the introduction or announcement of new services by competitors, could render our existing services noncompetitive or obsolete. Although we have a limited history of developing and introducing services outside the areas of identity theft protection and consumer credit management, we are currently developing or introducing new services in the area of small business credit information and fraud detection. There can be no assurance that we will be successful in developing or introducing these or any other new services. Our failure to develop, introduce or expand our services could harm our business and prospects.

We expect that our revenue, expenses and operating results may be subject to significant fluctuations, which could contribute to wide fluctuations in period-to-period performance and could have a material adverse effect on the price of our stock.

      These fluctuations may be attributable to a number of factors, many of which are beyond our control, including:

      Any one or a combination of these factors could contribute to wide fluctuations in period-to-period performance and have an adverse effect on our stock price.

We may be unable to meet our future capital requirements to grow our business which could adversely impact our financial condition and growth strategy.

      We cannot assure you that the net proceeds from this offering, together with currently available funds, will be sufficient to meet our needs, including our anticipated working capital and capital expenditure requirements for the foreseeable future. We may need to raise additional funds in the future in order to operate and expand our business. There can be no assurance that

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We may raise additional funds in the future, which could cause dilution to our existing stockholders or adversely affect their voting or other rights.

      We may seek additional funding in the future through public or private financings and the terms of these financings may adversely affect the holdings or the rights of our stockholders. If we raise funds by selling more stock, your ownership share in us will be diluted, and we may grant future investors rights superior to those of the common stock that you are purchasing. If additional funds are raised by issuing debt, we may be subject to covenants limiting our operations. As a result, our stock price may decline and you may not be able to sell your shares at or above the initial public offering price.

If we are not able to hire and retain qualified personnel, our ability to grow and maintain our business could be adversely affected.

      Our success depends on the continued services of our key senior management and our marketing, customer service and technology personnel. If one or more of these individuals were unable or unwilling to continue in their present positions, our business could be materially adversely affected. In addition, we do not maintain key person life insurance on our senior management other than Michael R. Stanfield, our chairman and chief executive officer. We also believe that our future success will depend, in part, on our ability to attract, retain and motivate skilled managerial, marketing and other personnel. We may not be able to attract, assimilate or retain highly qualified employees in the future, which could result in increased labor costs and operating expenses and diminished customer service, any of which would have a material adverse effect on our results of operations and ability to grow and maintain our business.

Our failure to protect private data could damage our reputation and cause us to expend capital and resources to protect against future security breaches.

      Our services are based upon the collection, distribution and protection of sensitive private data. Unauthorized users might access that data or human error might cause the wrongful dissemination of that data. If we experience a security breach, the integrity of our services may be affected. We have incurred and may incur in the future significant costs to protect against the threat of a security breach or to alleviate problems caused by a breach. Moreover, any public perception that we have engaged in the unauthorized release of, or have failed to adequately protect, private information could adversely affect our ability to attract and retain clients and subscribers and could subject us to legal claims from clients or subscribers. We cannot assure you that we would prevail in such litigation. In addition, unauthorized third parties might alter information in our databases, which would adversely affect both our ability to market our services and the credibility of our information.

We are subject to government regulation and increasing public scrutiny, which could impede our ability to market and provide our services and have a material adverse effect on our business.

      Our consumer identity theft protection and credit management services involve the use of consumer credit reports governed by the federal Fair Credit Reporting Act and similar state laws and regulations governing the use of consumer credit information. Our services involve the use of nonpublic personal information that may be subject to the federal Gramm-Leach-Bliley Act and state laws and regulations governing consumer privacy. Telemarketing of our services is subject to federal and state telemarketing regulation. These laws and regulations are subject to revision. We cannot predict the impact of legislative or regulatory changes on our business.

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      For example, the Federal Trade Commission has enacted the national Do Not Call Registry, which enables consumers to elect to prohibit telemarketers from calling them. We may not be able to reach potential subscribers because they are placed on the national Do Not Call Registry.

      We commenced marketing our services in Canada in 2003. Various Canadian federal and provincial laws govern our services, including provincial credit reporting laws similar in scope to the Fair Credit Reporting Act in the United States and privacy laws. These laws vary by province and are subject to changes that may affect our business.

      Although we do not believe that we are engaging in, and do not plan to engage in, activities prohibited by laws or regulations governing our activities, any allegation or finding that we are violating such laws or regulations could harm our business. Furthermore, the media often publicizes perceived non-compliance with consumer protection regulations and violations of fair dealing with consumers. If we received this kind of publicity or became associated with other entities receiving negative publicity, our reputation, client and subscriber relationships, and consumer acceptance and subscriber loyalty could be materially adversely affected.

Laws requiring the free issuance of credit reports by credit reporting agencies could impede our ability to obtain new subscribers or maintain existing subscribers and could have a material adverse effect on our revenue.

      Laws in several states, including Colorado, Georgia, Illinois, Maine, Maryland, Massachusetts, New Jersey and Vermont, require credit reporting agencies to provide each consumer one credit report (or two credit reports, in the case of Georgia) per year upon request without charge. On December 4, 2003, the President signed into law certain amendments to the federal Fair Credit Reporting Act. Among other things, these amendments provide consumers the ability to receive one free consumer credit report per year from each major consumer credit reporting agency and require each consumer credit reporting agency to provide the consumer a credit score along with his or her credit report for a reasonable fee as determined by the Federal Trade Commission. We are not required to comply with these requirements because we are not a “consumer reporting agency.” A “consumer reporting agency” generally means any person who for monetary fees regularly engages in assembling consumer credit information for the purpose of furnishing consumer reports to third parties. Our services do not provide consumer credit information to third parties. These laws do apply to the three major credit reporting agencies from which we purchase data for our services. The rights of consumers to obtain free annual credit reports from these credit reporting agencies and credit scores for a fee could cause consumers to believe that the value of our services is reduced or replaced by those free credit reports, which would adversely impact the marketability of our services and could have a material adverse effect on our revenue, results of operations and business.

A significant downturn in the charge or credit card industry or a trend in that industry to reduce or eliminate marketing programs could harm our business.

      We depend upon clients in the charge and credit card industry. Services marketed through our charge and credit card issuer clients have accounted for substantially all of our revenue. Therefore, a significant downturn in the charge and credit card industry could harm our business. The reduction or elimination of marketing programs within our charge and credit card issuer clients could materially adversely affect our ability to acquire new subscribers and to expand the range of services offered to current subscribers.

Competition could reduce our market share or decrease our revenue.

      Several of our competitors offer services that are similar to, or that directly compete with, our services. Competition for new subscribers is also intense. Even after developing a client relationship, we compete within the client organization with other services for appropriately targeted customers because client organizations typically have only limited capacity to market third-party services like ours. Many of our competitors have greater financial and other

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If we are unable to enforce or defend our ownership and use of our intellectual property, our competitive position and operating results could be harmed.

      The success of our business depends in part on the intellectual property involved in our processes, systems, methodologies, materials and software. We rely on a combination of trade secret, patent, copyright, trademark and other laws, license agreements and nondisclosure, noncompetition and other contractual provisions and technical measures to protect our intellectual property rights. However, current law may not provide for adequate protection of our intellectual property. In addition, legal standards relating to the validity, enforceability and scope of protection of proprietary rights are uncertain and evolving, and we cannot assure you ========= of the future viability or value of any of our proprietary rights. Our business could be harmed if we are not able to protect our intellectual property. The same would be true if a court found that our services infringe another party’s intellectual property rights. Any intellectual property lawsuits in which we are involved, either as a plaintiff or as a defendant, could cost us a significant amount of time and money and detract management’s attention from operating our business. In addition, if we do not prevail on any intellectual property claims, this could result in a change to our processes, systems, methodologies, materials and software and could reduce our profitability.

Risks Related to the Offering

Purchasers in this offering will suffer immediate dilution.

      If you purchase common stock in this offering, the value of your shares based upon our actual book value will immediately be less than the offering price you paid. This reduction in the value of your equity is known as “dilution.” Based upon the pro forma net tangible book value of our common stock at December 31, 2003, the net tangible book value of your shares will be $12.68 less per share than the price you would pay in the offering. If the options and warrants we previously granted or those we may grant in the future are exercised, additional dilution is likely to occur. As of December 31, 2003, options to purchase 2,999,556 shares of common stock at the weighted-average exercise price of $9.37 per share were outstanding, of which 2,755,385 were employee stock options and the remaining 244,171 were non-employee stock options, and warrants to purchase 212,956 shares of common stock at the weighted-average exercise price of $9.10 per share were outstanding. In addition, if we raise additional funding by issuing more equity securities, the newly-issued shares will further dilute your percentage ownership of our shares and may also reduce the value of your equity.

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Our stock price will fluctuate after this offering and an active public market for our common stock may not develop or continue, which may cause your investment in our common stock to suffer a decline in value and could impede your ability to sell your shares at or above the initial offering price.

      If you purchase shares of our common stock in the offering, you will pay a price that was not established in a competitive market. Rather, you will pay a price that we negotiated with the representatives of the underwriters based upon an assessment of the valuation of our stock. The public market may not agree with or accept this valuation, in which case you may not be able to sell your shares at or above the initial offering price.

      In addition, the market price of our common stock may fluctuate significantly in response to period-to-period fluctuations in our revenue, expenses and operating results and other factors which are beyond our control. The stock market in general has recently experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of listed companies. These broad market fluctuations could result in extreme fluctuations in the price of our common stock, which could cause a decline in the value of your shares.

A large number of shares of our common stock may be sold in the market following the offering, which could cause the market price of our common stock to decline.

      Our sale, or the sale or resale by our stockholders, of shares of our common stock after this offering, or the perception that such sales may occur, could cause the market price of the common stock to decline.

      After this offering, we will have 16,952,850 shares of common stock outstanding. Of these shares, the 6,250,000 shares sold in this offering (7,187,500 shares if the underwriters’ over-allotment option is exercised in full) will be freely transferable without restriction except for any shares purchased by our “affiliates” as defined in Rule 144 of the Securities Act. The remaining 10,702,850 shares of common stock held by our existing stockholders will be “restricted securities” and will become eligible for public sale when registered or when they qualify for an exemption from registration under the Securities Act.

      Almost all of our existing stockholders will have signed lock-up agreements before the commencement of this offering. Under these lock-up agreements, these stockholders will agree, subject to limited exceptions, not to sell or pledge any shares owned by them as of the date of this prospectus for a period of at least 180 days thereafter, unless they first obtain the written consent of Deutsche Bank Securities Inc. At the end of the lock-up period, approximately 10,464,080 shares of common stock, excluding shares issuable upon exercise of vested options and warrants, will be eligible for immediate resale in accordance with the provisions of Rule 144 of the Securities Act. There can be no assurance that our existing stockholders will not be released from the lock-up agreements prior to the 180th day after this offering.

      Upon the completion of this offering, the holders of 10,545,735 shares of our common stock and 149,138 shares issuable upon the exercise of warrants have the right under specified circumstances to require us to register their shares for resale to the public or to participate in a registration of shares by us.

Insiders will continue to have substantial control over us after this offering and could delay or prevent a change in corporate control, which may harm the market price of our common stock.

      After this offering, our directors, executive officers and principal stockholders, together with their affiliates, will beneficially own, in the aggregate, approximately 54% of our outstanding common stock, or 52% if the underwriters exercise their over-allotment option in full. These

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We will have discretionary authority over the use of our net proceeds from this offering.

      We will have the discretion to allocate the net proceeds received by us from this offering. Moreover, because of the number and variability of factors that determine our use of the net proceeds of this offering, there can be no assurance that such applications will not vary substantially from our current intentions.

Provisions in our certificate of incorporation and bylaws and under Delaware law could prevent or delay transactions that stockholders may favor.

      We are incorporated in Delaware. Our certificate of incorporation and bylaws, as well as Delaware corporate law, contain provisions that could delay or prevent a change of control or changes in our management that a stockholder might consider favorable, including a provision which authorizes our board of directors to issue preferred stock with such voting rights, dividend rates, liquidation, redemption, conversion and other rights as our board of directors may fix without further stockholder action. If a change of control or change in management is delayed or prevented, the market price of our common stock could decline.

      Delaware law also prohibits a corporation from engaging in a business combination with any holder of 15% or more of its capital stock until the holder has held the stock for three years unless, among other possibilities, the board of directors approves the transaction. This provision may prevent changes in our management or corporate structure. Also, under applicable Delaware law, our board of directors is permitted to and may adopt additional anti-takeover measures in the future.

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FORWARD-LOOKING STATEMENTS

      This prospectus contains forward-looking statements that involve risks and uncertainties. We may, in some cases, use words such as “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “will,” or “may,” or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. Forward-looking statements in this prospectus may include statements about:

      There are a number of important factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements. These important factors include those that we discuss in this prospectus under the caption “Risk Factors.” You should read these factors and the other cautionary statements made in this prospectus as being applicable to all related forward-looking statements wherever they appear in this prospectus. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

      You should rely only on the information contained in this prospectus. We have not authorized anyone to provide information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.

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USE OF PROCEEDS

      Our net proceeds from the sale of the shares of common stock by us will be approximately $45,780,000, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any of the proceeds from the sale of the shares of common stock by the selling stockholders, including pursuant to the underwriters’ over-allotment option.

      We expect to use approximately $6.0 million of the net proceeds to expand our business into new markets including the small business and Canadian markets, with the balance to be used to introduce new services for consumers, small businesses and financial institutions and for working capital and other general corporate purposes.

      We also may use a portion of the net proceeds from this offering to improve our technology, systems and operating infrastructure, and to acquire or invest in businesses, joint ventures, technologies, products, services or assets that complement our business. We currently do not have any commitments or agreements with respect to any such transactions. Furthermore, we have not determined the amounts we plan to spend on certain of the items listed above or the timing of these expenditures. As a result, we will have broad discretion to allocate the net proceeds from this offering. Until we use the net proceeds, we may invest them in short-term, interest-bearing, investment grade and U.S. government securities.

DIVIDEND POLICY

      We never have paid or declared any cash dividends on our common stock and have no plans to do so in the foreseeable future. We currently intend to retain future earnings, if any, to finance the growth and development of our business. Future dividends, if any, will depend on, among other things, our results of operations, capital requirements and such other factors as our board of directors may, in its discretion, consider relevant.

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CAPITALIZATION

      The following table sets forth our capitalization as of December 31, 2003:

      This table should be read with our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

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DILUTION

      The pro forma net tangible book value of our common stock as of December 31, 2003 was approximately $27,501,431, or $1.97 per share of common stock, after giving effect to the conversion of all of our outstanding shares of preferred stock and our senior secured convertible note into an aggregate of 8,988,894 shares of our common stock. Pro forma net tangible book value per share is equal to our total assets less intangible assets and less total liabilities, divided by the number of pro forma shares of our common stock outstanding as of December 31, 2003. After giving effect to the issuance and sale of the 6,250,000 shares offered by this prospectus at the initial public offering price of $17.00 per share, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of December 31, 2003 would have been $73,281,431, or $4.32 per share. This represents an immediate increase in pro forma net tangible book value of $1.97 per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $12.68 per share to investors purchasing shares in this offering. The following table illustrates this per share dilution:

      The following table shows at December 31, 2003, on the pro forma basis described above, the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders for their common stock and by new investors purchasing common stock in this offering:

      The tables above assume no exercise of stock options or warrants outstanding as of December 31, 2003. As of December 31, 2003, there were outstanding options to purchase 2,999,556 shares of common stock at a weighted average exercise price of $9.37 and warrants to purchase 212,956 shares of common stock at a weighted average exercise price of $9.10. Additionally, options to purchase 1,038,843 shares of common stock at the initial public offering price will be granted upon the closing of this offering, and there will be 1,736,157 options available for future grant under our 2004 stock option plan. To the extent we issue additional shares or the option holders exercise these outstanding options or any options we grant in the future, there will be further dilution to new investors.

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SELECTED CONSOLIDATED FINANCIAL DATA

      This section presents our historical financial data. The selected consolidated financial data is qualified by reference to and should be read carefully in conjunction with the consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. The selected consolidated financial data in this section is not intended to replace the financial statements.

      The selected consolidated statement of operations data for the years ended December 31, 2001, 2002 and 2003 and the selected consolidated balance sheet data as of December 31, 2002 and 2003 set forth below are derived from our audited financial statements, which are included elsewhere in this prospectus. The selected consolidated statement of operations data for the years ended December 31, 1999 and 2000 and the selected consolidated balance sheet data as of December 31, 1999, 2000 and 2001 set forth below are derived from our audited financial statements which are not included in this prospectus.

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