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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the period from _______ to _______.
Commission File Number: 000-21751
MESSAGEMEDIA, INC.
(Exact Name of Registrant as specified in its charter)
Delaware 33-0612860
------------------- -------------------------
(State or jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
6060 SPINE ROAD
BOULDER, CO 80301
(Address, including zip code, of principal executive offices)
(303) 440-7550
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes No
--- ----
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Common Stock, $0.001 Par Value - 56,323,272 shares as of June 30, 2000.
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MESSAGEMEDIA, INC.
INDEX
<TABLE>
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 (unaudited) and
December 31, 1999 3
Consolidated Statements of Operations (unaudited) for the three months
and six months ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows (unaudited) for the six months
ended June 30, 2000 and 1999 5
Notes to the Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Factors Affecting Operating Results and Market Price of Stock 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MESSAGEMEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
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ASSETS (unaudited) (note 1)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 34,405 $ 37,920
Accounts receivable trade, net 9,777 4,278
Prepaid expenses and other 2,517 749
--------- ---------
Total current assets 46,699 42,947
Furniture, equipment and software, net 10,745 4,728
Intangible assets, net 49,221 75,162
Deposits and other 405 354
--------- ---------
Total assets $ 107,070 $ 123,191
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,698 $ 2,482
Accrued compensation and related liabilities 2,943 1,912
Deferred revenue 794 324
Capital lease obligations, current portion 43 25
Other accrued liabilities 1,606 1,022
Payable to related party 8,892 --
--------- ---------
Total current liabilities 16,976 5,765
Capital lease obligations 60 36
--------- ---------
Total long term liabilities 60 36
Minority interest 6,156 --
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized, none
outstanding at June 30, 2000 and December 31, 1999 -- --
Common stock, $0.001 par value; 100,000,000 shares authorized,
56,323,272 and 54,920,498 shares issued and outstanding at
June 30, 2000 and December 31, 1999, respectively 56 55
Additional paid-in-capital 212,458 208,343
Warrants 321 321
Deferred compensation (961) (1,332)
Accumulated other comprehensive income 231 --
Accumulated deficit (128,227) (89,997)
--------- ---------
Total stockholders' equity 83,878 117,390
--------- ---------
Total liabilities and stockholders' equity $ 107,070 $ 123,191
========= =========
</TABLE>
See accompanying notes.
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MESSAGEMEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ ------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 8,476 $ 1,302 $ 15,519 $ 2,056
Cost of revenues 3,861 273 6,792 381
------------ ------------ ------------ ------------
Gross profit 4,615 1,029 8,727 1,675
Operating expenses:
Marketing and sales 5,080 1,370 10,579 2,312
Research, development
and engineering 1,433 852 2,698 1,789
General and administrative 4,380 1,638 7,873 2,985
Restructuring charge -- -- -- 1,025
Depreciation and amortization 13,962 3,403 27,672 6,816
------------ ------------ ------------ ------------
Total operating expenses 24,855 7,263 48,822 14,927
------------ ------------ ------------ ------------
Loss from operations (20,240) (6,234) (40,095) (13,252)
Interest income 386 136 899 167
Interest expense (95) (54) (99) (71)
Foreign currency loss (55) -- (55) --
Other income / (expense) (11) -- (15) --
------------ ------------ ------------ ------------
Net loss before minority interest (20,015) (6,152) (39,365) (13,156)
Minority interest 430 -- 1,135 --
------------ ------------ ------------ ------------
Net loss applicable to
common shares $ (19,585) $ (6,152) $ (38,230) $ (13,156)
============ ============ ============ ============
Net loss per share, basic
and diluted $ (0.35) $ (0.14) $ (0.69) $ (0.31)
Weighted-average common shares
used in per share computation,
basic and diluted 56,178,520 43,971,636 55,751,117 42,286,890
</TABLE>
See accompanying notes.
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MESSAGEMEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(38,230) $(13,156)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 27,672 6,815
Loss on disposal of assets -- 1
Common stock issued for services -- 61
Compensation expense for stock options 371 156
Minority Interest (1,135) --
Changes in operating assets and liabilities:
Accounts receivable (5,496) (266)
Prepaid expenses and other (1,767) 21
Deposits and other (51) 2
Accounts payable 216 (740)
Accrued compensation and related liabilities 1,031 69
Deferred revenue 470 (36)
Merger integration and relocation accrual -- 378
Payable to related party 1,153 --
Other accrued liabilities 584 193
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (15,182) (6,502)
INVESTING ACTIVITIES
Additions to furniture, equipment and software (7,677) (323)
Proceeds from sale of fixed assets -- 2
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (7,677) (321)
FINANCING ACTIVITIES
Proceeds from issuance of common stock, net 4,116 12,810
Proceeds from minority partner 7,291 --
Proceeds from related party loan 7,729 --
Repayment of amount due to stockholder -- (395)
Repayment of loan from bank -- (97)
Repayment of capital lease obligations (19) (42)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 19,117 12,276
Effect of exchange rate changes on cash
and cash equivalents 227 --
Net increase (decrease) in cash and cash
equivalents (3,515) 5,453
Cash and cash equivalents at the beginning
of period 37,920 4,659
-------- --------
Cash and cash equivalents at the end
of period $ 34,405 $ 10,112
======== ========
</TABLE>
See accompanying notes.
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MESSAGEMEDIA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
(GAAP) for interim financial information and with instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-month and
six-month periods ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included on MessageMedia, Inc's ("MessageMedia" or the
"Company") Form 10-K for the year ended December 31, 1999.
2. JOINT VENTURE
On March 13, 2000, we entered into a definitive agreement with @viso Limited
("@viso"), a strategic partnership between Vivendi and SOFTBANK Corp.
("SOFTBANK"), to create MessageMedia Europe B.V., Inc. ("MME"), a joint venture
between MessageMedia and @viso. Under terms of the joint venture agreement,
MessageMedia owns 51% and @viso owns 49% of the joint venture. The initial
capitalization of the joint venture was funded with $14.8 million during the
second quarter. MME is consolidated into our financial statements. For the six
months ended June 30, 2000, MME recorded revenue of approximately $134,000 and a
loss after minority interest of approximately $1.2 million. The June 30, 2000
consolidated balance sheet includes total assets of $14.0 million for MME. These
results include the expensed costs associated with the establishment of MME.
3. OTHER COMPREHENSIVE INCOME
Other comprehensive income on the June 30, 2000 balance sheet consists of a
foreign currency translation gain related to MessageMedia Europe.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission (SEC) staff issued
Staff Accounting Bulletin 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance regarding the recognition, presentation,
and disclosure of revenue in the financial statements filed with the SEC. In
March 2000, the SEC issued SAB 101B that delayed the required implementation of
SAB 101 until the fourth quarter of the fiscal year beginning after December 15,
1999. We are currently evaluating the impact, if any, of adopting SAB 101.
5. CONTINGENCIES
On July 19, 2000, Orion Learning (Orion) filed an action against MessageMedia in
the United States District Court for the Southern District of California. In the
action, Orion alleges that in 1998, we breached an agreement to compensate Orion
for services in locating and recruiting a Chief Financial Officer (CFO) for
MessageMedia. Orion alleges it was entitled to compensation in the form of
MessageMedia stock equal
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to 25% of the CFO's first year compensation of $180,000, or $45,000. Orion
contends it has suffered monetary damages measured as the highest value of
MessageMedia stock from and after January 20, 1999 to the present. We have not
been served with a summons and complaint in the action, and it is still
undetermined if we will have to pay any damages related to this action.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Report on Form 10-Q may contain forward-looking statements including
statements regarding the Company's strategy, financial performance and revenue
sources, that involve risks and uncertainties. The Company's actual results may
differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in the subsection entitled "Factors Affecting
Operating Results and Market Price of Stock" commencing on page 11. Readers are
urged to carefully review and consider the various disclosures made by the
Company in this report and in the Company's other reports filed with the SEC
that attempt to advise interested parties of certain risks and factors that may
affect the Company's business. The following discussion should be read in
conjunction with the Company's financial statements and notes thereto.
COMPANY OVERVIEW
MessageMedia, Inc. ("MessageMedia or the "Company") is a leading provider of
permission-based, comprehensive e-messaging solutions. E-messaging is our term
to describe our suite of services that utilize the medium of e-mail to develop
and foster permission-based relationships with customers. Our suite of services
and products, including Internet-based marketing ("e-marketing"), customer care,
e-commerce messaging, customer intelligence and information distribution
solutions, enable businesses to use e-messaging as a strategic tool to increase
sales, improve customer communication and develop long-term customer loyalty and
customer dialogue. Our e-messaging solutions, available on an
outsourced-subscription basis or as packaged software, licensed on a hosted
basis or a client in-house basis, allow businesses to establish and enhance
two-way customer dialogue across the extended enterprise, from marketing to
sales to customer service. By leveraging the cost-effective reach, flexibility
and widespread acceptance of e-mail, our solutions enable businesses to create,
deliver and continually refine targeted, permission-based e-messaging campaigns.
Our staff of client service professionals assist our clients in building their
businesses through the strategic implementation and use of our suite of service
applications.
Through our professional staff of client service representatives, we deliver our
outsourced e-messaging services specifically tailored to each client's business
objectives. After an initial sale is made, we appoint an account management team
to act as the client's primary point of contact for all relationship and
campaign management issues. We provide end-to-end e-messaging mailing and
campaign management solutions, including creating a detailed specification of
customer needs, developing the web interfaces, customizing the database,
implementing project plans, campaign roll-out and post-mailing analysis. Our
proprietary technology allows us to track and review current and past
e-messaging campaigns, providing valuable information that allows us to tailor
and fine-tune our clients e-messaging campaigns to optimize effectiveness. Our
services provide clients with:
o a comprehensive set of e-messaging solutions for businesses that seek to
increase sales, improve customer communication and develop long-term
customer loyalty;
o permission-based e-messaging to create an immediate two-way dialogue with
their customers;
o tools to track, review and refine e-messaging campaigns by leveraging our
expertise and proprietary technology;
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o rapidly deployable, cost-effective outsourced solutions which eliminate the
need to invest in the technology, hardware and human resources necessary to
implement and manage a comprehensive set of e-messaging services; and
o the ability to manage large volumes of simple or complex customer
communications and easily integrate more advanced e-messaging applications.
Our clients cover a broad range of industry segments, including Internet Service
Providers/portals, retail/e-tail, publishing, high tech, travel/entertainment
and financial services. In June 1998, we were recapitalized by SOFTBANK Corp.
and affiliates, ("SOFTBANK"), a leading investor in the Internet sector. We
intend to leverage our strategic relationship with SOFTBANK through
introductions to companies within the SOFTBANK family of investments and
capitalize on the expertise and advice of its partners with respect to building
e-businesses.
We have incurred net operating losses in each quarter since inception. As of
June 30, 2000, we had an accumulated deficit of approximately $128.2 million. To
date, we have not generated significant revenues. There can be no assurance that
our future revenues will increase and our ability to generate significant future
revenues is subject to substantial uncertainty. In addition, because we expect
to introduce new functionality of our services and explore opportunities to
merge with or acquire complementary businesses and technologies, we expect to
continue to incur significant operating losses for the foreseeable future.
RESULTS OF OPERATIONS
Revenues
We currently derive our revenue from outsourced e-messaging services and
software products and related support services. Our outsourced e-messaging
services include information distribution, e-mail marketing, e-customer care,
e-commerce messaging and customer intelligence. Our software products provide
e-messaging and customer intelligence capabilities for clients desiring their
own "in-house" solution.
In December 1998, we acquired Distributed Bits LLC ("DBits") and Email
Publishing Inc. ("Epub"). Dbits was a development stage company developing
customer email management systems and solutions and Epub was a leading provider
of outsourced email message delivery services and organizations. In August 1999,
we acquired Revnet Systems, Inc. ("Revnet") and Decisive Technology Corporation
("Decisive"). Revnet was a leading developer and supplier of software solutions
providing businesses and organizations with "in-house" e-mail message delivery
capability and outsourced e-mail message delivery services. Decisive was a
leading provider of online customer intelligence solutions such as surveys. In
March 2000, MME began operations.
Revenue for the periods presented was earned as detailed in the table below:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
(in thousands) (in thousands)
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Messaging and related services $ 5,907 $ 1,302 $10,330 $ 2,056
Software licenses and services 2,569 -- 5,189 --
------- ------- ------- -------
Total revenues $ 8,476 $ 1,302 $15,519 $ 2,056
======= ======= ======= =======
</TABLE>
For the three months ended June 30, 2000, revenues increased to approximately
$8.5 million as compared to approximately $1.3 million for the three months
ended June 30, 1999. The messaging increase is
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primarily attributable to an increase in the number of clients using our
services, increased e-messaging volume, and an incremental increase in revenue
as a result of the Decisive acquisition and MME. The increase in software
revenue is attributable to the acquisition of Revnet and significant efforts to
increase software sales.
For the six months ended June 30, 2000, revenues increased to approximately
$15.5 million as compared to approximately $2.1 million for the six months ended
June 30, 1999. This increase is due to an increase in the number of clients,
increased e-messaging volume, the acquisitions of Revnet and Decisive, and MME.
Cost of Revenues
The cost of revenues for e-messaging and related services consists of salaries,
benefits, consulting fees and operational costs related to providing our
outsourced e-messaging services. Cost of revenues for software licenses consists
of software packaging and distribution costs. We have incurred cost of revenues
from messaging and related services and software licenses, as detailed in the
table below:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
(in thousands) (in thousands)
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Messaging and related services $3,407 $ 273 $6,210 $ 381
Software licenses and services 454 -- 582 --
------ ------ ------ ------
Total cost of revenues $3,861 $ 273 $6,792 $ 381
====== ====== ====== ======
</TABLE>
For the three months ended June 30, 2000, the cost of revenues increased to
approximately $3.9 million as compared to approximately $273,000 for the three
months ended June 30, 1999. The messaging increase is primarily attributable to
increased headcount needed to service our growing e-messaging customer base and
the related growth in the number of mailings and e-messaging volumes, and the
incremental increase in cost of revenues as a result of MME and the acquisition
of Decisive. The software increase is due to the acquisition of Revnet in August
1999 and significant efforts to increase software sales.
For the six months ended June 30, 2000, the cost of revenues increased to
approximately $6.8 million as compared to approximately $381,000 for the six
months ended June 30, 1999. The messaging increase is primarily attributable to
increased headcount needed to service our growing customer base and the related
growth in the number of mailings and e-messaging volumes, and MME. The software
increase is due to the acquisition of Revnet and significant efforts to increase
software sales.
Operating Expenses
Operating expenses consist of marketing and sales, research, development and
engineering, and general and administrative expenses. Overall operating expenses
increased in the six months ended June 30, 2000 as compared to the same period
in 1999 due to increased headcount and related expenses. Operating expenses for
the six months ended June 30, 2000 include the operating results of Revnet and
Decisive as a result of their acquisition in August 1999, and MME, which began
operations in March 2000. Revnet, Decisive and MME are not included in the
comparable period for the six months ended June 30, 1999.
During the six months ended June 30, 1999, we incurred a merger integration and
restructuring charge in connection with the relocation of our corporate
headquarters from San Diego, California to Boulder, Colorado. We expect
operating expenses to continue to be substantial as development and enhancement
of technological capabilities associated with our e-messaging and software
services continue, as we explore opportunities to merge with or acquire
complementary businesses or technologies and as we add staff to
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service our growing customer base. We also anticipate that expenses necessary
for the introduction of new services and promotion of our products will be
substantial.
Marketing and sales expenses. Marketing and sales expenses, which include
salaries, wages, consulting fees, advertising, trade shows, travel and other
marketing expenses, increased to approximately $5.1 million for the three months
ended June 30, 2000, as compared to approximately $1.4 million for the three
months ended June 30, 1999. This increase is primarily due to growth in
headcount in sales, client services and marketing staff, as a result of
increased sales efforts related to our new e-messaging services and an
incremental increase in headcount from acquisitions. Additionally, advertising
and promotional spending increased as a result of promoting our new e-messaging
services and products, and expenses were incurred by MME.
For the six months ended June 30, 2000, marketing and sales expenses increased
to approximately $10.6 million as compared to approximately $2.3 million for the
six months ended June 30, 1999. This increase is primarily due to growth in
sales, client services and marketing headcount, increased advertising and
promotional spending, and expenses incurred by MME.
Research, development and engineering expenses. Research, development and
engineering expenses, which include salaries, wages, and consulting fees to
support the development, enhancement and maintenance of our products and
services, increased to approximately $1.4 million for the three months ended
June 30, 2000, as compared to approximately $852,000 for the three months ended
June 30, 1999. This increase is due to growth in headcount and related
compensation expense associated with ongoing research, development and
engineering efforts.
For the six months ended June 30, 2000, research, development and engineering
expenses increased to approximately $2.7 million, as compared to approximately
$1.8 million for the six months ended June 30, 1999. This increase is due to
growth in headcount and related compensation expense.
General and administrative expenses. General and administrative expenses consist
primarily of salaries, wages, professional and consulting fees, and other
expenses associated with the general management and administration of the
company. General and administrative expenses increased to approximately $4.4
million for the three months ended June 30, 2000, as compared to $1.6 million
for the three months ended June 30, 1999. This increase is primarily due to an
increase in headcount and related compensation expense as a result of the
company's growth. Additionally, there was an incremental increase in headcount
and related expenses due to the acquisitions of Revnet and Decisive in August
1999, and MME.
General and administrative expenses increased to approximately $7.8 million for
the six months ended June 30, 2000, as compared to $3.0 million for the six
months ended June 30, 1999. This increase is primarily due to growth in
headcount and related compensation expense.
Restructuring charges. In the first quarter of 1999, we recorded a charge of
$1,025,000 as a result of our decision to relocate our corporate headquarters
from San Diego, California to a new facility in Boulder, Colorado. This decision
was made to create efficiencies in our messaging services operations, reduce
overhead by centralizing our offices to one facility and eliminate duplication
of efforts from similar positions in the separate offices. The merger
integration and restructuring activity of MessageMedia, D-Bits, and Epub
included a company wide staff reduction which resulted in approximately $632,000
of employee severance pay and other related expenses and approximately $393,000
in moving expenses and costs related to closing the San Diego facility.
EBITDA
EBITDA is defined as operating income (loss) before interest, taxes,
depreciation, amortization, minority interest and foreign currency exchange
gains and losses. For the three months ended June 30, 2000, EBITDA increased to
approximately ($6.3) million from ($2.8) million for the three months ended June
30,
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1999. For the six months ended June 30, 2000, EBITDA increased to approximately
($12.4) million from ($6.4) million for the six months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, we had $34.4 million in cash and cash equivalents. We believe
that existing cash resources will be sufficient to support our currently
anticipated working capital and capital expenditure requirements through
mid-2001.
Net cash used in operating activities was approximately $15.3 million and $6.5
million for the six months ended June 30, 2000 and 1999, respectively. Net
operating cash flows for the six months ended June 30, 2000 were primarily
attributable to net losses, and increases in accounts receivable and prepaid
expenses, partially offset by non-cash charges for depreciation and
amortization, and increases in minority interest, related party accounts
payable, accrued compensation and other accrued liabilities.
Net cash used in investing activities was approximately $7.7 million and
$321,000 for the six months ended June 30, 2000 and 1999, respectively.
Investing activities related to additions to furniture, equipment and software.
Net cash provided by financing activities was approximately $19.2 million and
$12.3 million for the six months ended June 30, 2000 and 1999, respectively. Net
cash provided by financing activities for the six months ended June 30, 2000
related primarily to proceeds from a related party loan and the exercise of
stock options.
We expect to increase expenditures for applications including computer equipment
and furniture and fixtures associated with new employees and facility expansion,
bandwidth and networking equipment and infrastructure, additional sales and
marketing employees, equipment and additional employees related to product
development, increased promotion and branding efforts, and development and
acquisition of new technology.
Capital requirements in any particular period will depend on the timing of these
expenditures.
FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones we face. If any of the following risks actually 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 may lose all or part of your investment.
WE HAVE A HISTORY OF OPERATING LOSSES AND FUTURE LOSSES ARE LIKELY.
We have an accumulated deficit of approximately $128.2 million as of June 30,
2000. We have not achieved profitability and expect to continue to incur
operating losses at least into 2001. We intend to continue to invest heavily in
acquisitions, infrastructure development and marketing. Accordingly, we expect
to continue to incur significant operating and capital expenditures and, as a
result, we will need to generate significant revenue to achieve and maintain
profitability. Although our revenue has grown in recent quarters, we cannot
assure you that we will achieve sufficient revenue for profitability. Even if we
do achieve profitability, we cannot assure you that we can sustain or increase
profitability on a quarterly or annual basis in the future. If revenue grows
slower than we anticipate, or if operating expenses exceed our
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expectations or cannot be adjusted accordingly, our business, results of
operations and financial condition will be materially and adversely affected.
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING
HISTORY AND RECENTLY HAVE CHANGED OUR BUSINESS MODEL.
We were incorporated in March 1994 for the purpose of developing an Internet
payment system. In 1998 we changed our business model to one focused on
generating revenue solely by providing e-messaging solutions to our customers.
An investor in our common stock must consider the risks and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets, including the Internet e-messaging market. These risks include our:
o ability to sustain historical revenue growth rates;
o need to manage our expanding operations;
o need to successfully integrate our recent and any future acquisitions;
o competition;
o ability to offer products and services, including our information
distribution, e-mail marketing, e-customer care, e-commerce messaging and
customer intelligence offerings, that achieve broad market acceptance.
o ability to attract, retain and motivate qualified personnel;
o ability to maintain our current, and develop new, strategic relationships;
o ability to anticipate and adapt to the changing Internet market; and
o ability to attract and retain a large number of customers from a variety of
industries.
We also depend on the growing use of the Internet for marketing, advertising,
commerce and communication. We cannot assure you that our business strategy will
be successful or that we will successfully address these risks.
OUR MARKETS ARE RELATIVELY NEW AND UNPROVEN AND OUR SUCCESS DEPENDS ON MARKET
ACCEPTANCE AND THE EFFECTIVENESS OF OUR E-MESSAGING SERVICES.
Demand and market acceptance for Internet e-messaging solutions is uncertain.
Our future success is highly dependent on an increase in the use of the Internet
as a marketing, advertising and communications medium. The adoption of Internet
e-messaging, particularly by those entities that historically have relied upon
traditional media for marketing and advertising, requires the acceptance of a
new way of conducting business, exchanging information and marketing products
and services. Many of our current or potential e-messaging customers have little
or no experience using the Internet for marketing and advertising purposes and
they have allocated only a limited portion of their budgets to Internet
e-messaging. Moreover, our customers may find Internet e-messaging to be less
effective for promoting their products and services relative to traditional
marketing and advertising media. If our e-messaging platform fails to meet
customers' demands, the use of our e-messaging services may decline over time
and our business would suffer.
SUBSTANTIAL SALES OF OUR COMMON STOCK BY OUR LARGE STOCKHOLDERS COULD CAUSE OUR
STOCK PRICE TO FALL.
A limited number of stockholders hold a large portion of our common stock. To
the extent our large stockholders sell substantial amounts of our common stock
in the public market, the market price of our common stock could fall. Several
transactions completed by us over the last several months increased both the
number of our securities available for resale to the public and the number of
our securities held by our largest stockholders. For instance, in connections
with our acquisition of Revnet and Decisive, we issued 5,316,618 shares of our
common stock and assumed options to purchase up to approximately 1,148,493
additional shares of our common stock. Additionally, we issued 4,095,124 shares
of our common stock in a private placement. Affiliates of two of our largest
stockholders, Softbank Corp and Pequot Capital Management, Inc. acquired 975,611
of the shares sold in the private placement. All of the shares referred to above
have been registered for resale on Registration Statements on Form S-3 which
have been declared effective by the SEC. Accordingly, all such shares may be
resold into the public markets without restrictions.
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<PAGE> 13
WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE FUTURE ACQUISITIONS.
As part of our business strategy, we intend to focus on acquiring, or making
significant investments in, additional companies, products and technologies that
complement our business. The successful implementation of this strategy depends
on our ability to identify suitable acquisition candidates, acquire those
companies on acceptable terms and integrate their operations successfully with
our business. If we make additional acquisitions, we could have difficulty in
assimilating the acquired products, services or technologies into our
operations. These difficulties could disrupt our ongoing business, distract our
management and employees, increase our expenses and adversely affect our results
of operations. Furthermore, we may incur debt or issue equity securities to pay
for any future acquisitions. The issuance of equity securities could be dilutive
to our existing stockholders.
OUR FAILURE TO ENHANCE OUR EXISTING PRODUCTS AND INTRODUCE NEW PRODUCTS ON A
TIMELY BASIS COULD CAUSE OUR REVENUE TO FALL.
We are continually developing significant enhancements for our e-messaging
services and products. Any delay or difficulty associated with the introduction
of these enhancements could significantly harm our business, results of
operations and financial condition. We also may not be able to develop the
underlying core technologies necessary to create new products or enhancements,
or to license those products from third parties.
WE NEED TO ATTRACT AND RETAIN QUALIFIED PERSONNEL AND MAY NOT BE ABLE TO DO SO.
Our success depends on the continued service of our key senior management
personnel in particular A. Laurence Jones, our President and Chief Executive
Officer. The loss of any member of our senior management team could have a
material adverse effect on our future operating results. Our future success also
depends on our continuing ability to attract, retain and motivate highly skilled
employees. We face significant competition for individuals with the skills and
experience required to perform in required roles and may not be able to attract
or retain such individuals in the future.
WE ANTICIPATE FLUCTUATIONS IN OUR FUTURE OPERATING RESULTS.
We expect that our future operating results will fluctuate significantly. These
fluctuations may be due to a number of factors, many of which are beyond our
control. Some of the factors that may cause fluctuations include the following:
o Market response to our e-messaging services;
o Difficulties in the development or deployment of new e-messaging products
or services;
o The timing and rate at which we increase our expenses to support projected
growth;
o Fluctuating market demand for our products and services;
o The degree of acceptance of the Internet as a medium for communicating with
customers;
o Product introductions and service offerings by our competitors;
o The mix of the products and services provided by us; and
o The cost of compliance with applicable government regulations, including
anti-SPAM legislation.
Our revenue for the foreseeable future will remain dependent on e-messaging
activity, the fees that we charge for our services and license fees for software
products. These future revenues are difficult to forecast. In addition, we plan
to significantly increase our operating expenses to increase our sales and
marketing operations, to upgrade and enhance our e-messaging solutions and to
market and support our solutions. We may be unable to adjust spending quickly
enough to offset any unexpected revenue shortfall. If we have a shortfall in
revenue in relation to our expenses, or if our expenses precede increased
revenue,
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our business, results of operations and financial condition would be materially
and adversely affected. This would likely affect the market price of our common
stock in a manner which may be unrelated to our long-term operating performance.
We believe that marketing and advertising sales in traditional media, such as
television and radio, generally are lower in the first calendar quarter of each
year. Seasonal or cyclical patterns may develop in our industry if our market
makes the transition from an emerging to a more developed medium. Our revenue
may also be affected by seasonal and cyclical patterns in Internet e-messaging
spending if they emerge.
We believe that period-to-period comparisons of our operating results are not
meaningful and should not be relied upon as an indication of our future
performance. Due to the factors we have listed above and other factors, it is
likely that our future operating results will at times not meet the expectations
of market analysts or investors. If our operating results fail to meet
expectations, the price of our common stock could fall.
WE NEED TO EFFECTIVELY MANAGE OUR GROWTH.
An effective planning and management process is required to successfully
implement our business plan in the rapidly evolving market for Internet
e-messaging. We continue to increase the scope of our operations, and we have
grown our workforce substantially. As of January 1, 1995, we had 5 employees
and, as of June 30, 2000, we had 414 employees. In addition, we plan to continue
to expand our sales and marketing programs and our service offerings. This
growth has placed, and our anticipated future growth in our operations will
continue to place, a significant strain on our management systems and resources.
We expect that we will need to continue to improve our financial and managerial
controls and reporting systems and procedures, and will need to continue to
expand, train and manage our workforce. Our future performance also may depend
on the effective integration of acquired businesses. Such integration, even if
successful, may require a significant period of time and expense, and may place
a significant strain on our resources. Our business, results of operations and
financial condition will be materially and adversely affected if we are unable
to effectively manage our expanding operations.
WE DEPEND ON THIRD-PARTY PROVIDERS OVER WHOM WE HAVE NO CONTROL TO OPERATE OUR
E-MESSAGING PLATFORM.
We depend heavily on several third-party providers of Internet and related
telecommunication services, including hosting and co-location companies, in
operating our e-messaging platform. These companies may not continue to provide
services to us without disruptions in service, at the current cost, or at all.
Although we believe that we could obtain these services from other sources if
need be, the costs associated with any transition to a new service provider
would be substantial, requiring us to reengineer our computer systems and
telecommunications infrastructure to accommodate a new service provider. This
process would be both expensive and time-consuming.
In addition, failure of our Internet and related telecommunications providers to
provide the data communications capacity in the time frame required by us could
cause interruptions in the services we provide. Despite precautions taken by us,
unanticipated problems affecting our computer and telecommunications systems in
the future could cause interruptions in the delivery of our e-messaging
services, causing a loss of revenue and potential loss of customers.
WE RELY ON A FEW CUSTOMERS FOR A SIGNIFICANT PORTION OF OUR REVENUE.
A significant portion of our revenues are generated by a limited number of
customers. We expect that we will continue to depend on large contracts with a
small number of significant customers. This situation can cause our revenue and
earnings to fluctuate between quarters based on the timing of contracts. None of
our customers has any obligation to purchase additional products or services
from us above current contractual minimums. Consequently, if we fail to develop
relationships with significant new customers, our business and financial
condition will suffer.
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<PAGE> 15
COMPETITION IN OUR INDUSTRY IS INTENSE.
We believe none of our competitors offer the full range of solutions provided
by us. However, the market for our products and services is intensely
competitive. There are no substantial barriers to entry into our business, and
we expect that established and new entities will enter the market for
e-messaging services and interactive Internet communications in the near
future.
Our principal competitors in the e-messaging services arena include 24x7, Inc.,
Axciom, Inc., Cyber Data Systems, Inc., DoubleClick, Inc., eGain Communications
Corporation, EmailChannel, Inc., Exactis.com, Inc., Experian, Inc., Kana
Communications, Inc., MarketHome, Inc., MatchLogic, Inc., Mustang Software,
Inc., NetCreations, Inc., PostX Corporation and ReplyNet, Inc. We also compete
with BroadVision, Inc., Digital Impact, E-Care Group and Mypoints.com, Inc. for
one-to-one marketing.
We may experience additional competition from Internet Service Providers and
other large established businesses that enter the market for e-messaging
services. Companies such as ADVO Inc., America Online, Inc., AT&T, IBM
Corporation, Harte-Hanks, Inc., Hewlett-Packard Company, Integrion Financial
Network LLC, The Interpublic Group of Companies, Inc., Microsoft Corporation
and Foote Cone & Belding, some of whom are current clients of ours, which
possess large, existing customer bases, substantial financial resources and
established distribution channels could develop, market or resell a number of
messaging services.
The Internet, in general, and our e-messaging solutions, in particular, also
must compete for a share of advertisers' total advertising budgets with
traditional advertising media such as television, radio, cable and print.
Consequently, we compete with advertising and direct marketing agencies. To the
extent that e-messaging is perceived to be a limited or ineffective advertising
medium, companies may be reluctant to devote a significant portion of their
advertising budget to our e-messaging solutions, which could limit the growth
of e-messaging and negatively effect our business.
We also expect that competition may increase as a result of industry
consolidation. Potential competitors may choose to enter the market for
e-messaging services by acquiring one or more of our existing competitors or by
forming strategic alliances with such competitors. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products or services to address the needs of our potential e-messaging
customers. Accordingly, it is possible that new competitors or alliances may
emerge and rapidly acquire significant market share. Increased competition is
likely to result in price reductions, reduced gross margins and loss of market
share, any of which would have a material adverse effect on our business,
results of operations and financial condition. We also may experience
competition from internal information systems and development groups of our
current and prospective clients that have better access to senior management.
Many of our current and potential competitors have longer operating histories,
greater name recognition, larger customer bases, more diversified lines of
products and services and significantly greater resources than we do. These
competitors may be able to undertake more extensive marketing campaigns, adopt
more aggressive pricing policies and make more attractive offers to potential
customers. In addition, many of our current or potential competitors have broad
distribution channels that may be used to bundle competing products or services
directly to end-users or purchasers. If these competitors bundle competing
products or services for their customers, the demand for our products and
services could substantially decline. As a result of the above factors, we
cannot assure you that we will compete effectively with current or future
competitors or that competitive pressures will not have a material adverse
effect on our business, financial condition and results of operations.
THE MARKETS FOR OUR PRODUCTS ARE UNDEVELOPED AND RAPIDLY CHANGING, WHICH MAKES
AN INVESTMENT IN OUR COMPANY RISKY.
The Internet and Internet e-messaging markets are characterized by rapidly
changing technologies, evolving industry standards, frequent new product and
service introductions, changing customer demands and
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increasing numbers of service providers. Our products and services are designed
around current technical standards and our revenue depends on continued
industry acceptance of these standards. While we intend to provide
compatibility with the most popular industry standards, widespread adoption of
a proprietary or closed standard could prevent us from doing so. The standards
on which our products and services are or will be based may not be accepted by
the industry.
New market entrants have introduced or are developing products and services for
use on the Internet and the World Wide Web that compete with our products. The
products, services or technologies developed by others may render our products
and services noncompetitive or obsolete. Accordingly, our future success will
depend on our ability to adapt to rapidly changing technologies and to enhance
existing solutions and develop and introduce a variety of new solutions to
address new industry standards and our customers' changing demands. We may
experience difficulties that could delay or prevent the successful design,
development, introduction or marketing of our solutions. In addition, our new
solutions or enhancements must meet the requirements of our current and
prospective customers and must achieve significant market acceptance. Material
delays in introducing new solutions and enhancements may cause customers to
forego purchases of our solutions and purchase those of our competitors.
The degree to which our e-messaging platform is accepted and used in the
marketplace will depend on continued growth in the use of e-mail as a primary
means of communications by businesses and consumers. An increase in the use of
e-messaging also will depend on market acceptance of e-mail as a method for
targeted marketing of products and services. Our ability to successfully
differentiate our services from random mass e-mailing products and services
which have encountered substantial resistance from consumers will also be
important. Businesses that already have invested substantial resources in
traditional or other methods of conducting business may be reluctant to adopt
new commercial methods or strategies that may limit or compete with their
existing businesses. Individuals with established patterns of purchasing goods
and services may be reluctant to alter those patterns.
WE FACE RISKS OF DEFECTS AND DEVELOPMENT DELAYS IN OUR PRODUCTS AND SERVICES.
Products and services based on sophisticated software and computing systems
often encounter development delays. Our underlying software may contain hidden
errors and failures when introduced or when usage increases. It is possible
that we may experience delays in the development of the software and computing
systems underlying our services. Despite testing that our clients and we
conduct, we may not locate errors if they occur. Also, we may experience
development delays. These occurrences could harm our reputation and revenue
growth.
IF CURRENT GROWTH RATES CONTINUE, THE CAPACITY OF OUR SOFTWARE OR HARDWARE
COULD BE STRAINED, LEADING TO SLOWER RESPONSE TIMES OR SYSTEM FAILURES.
If the volume of messages that our systems process significantly increases, the
capacity of our software or hardware could be strained. This could lead to
slower response time or system failures. We have made and intend to continue to
make substantial investments to increase our server capacity by adding new
servers and upgrading our software as necessary. However, our products and
services may not be able to meet the growing demand as the number of World Wide
Web and Internet users increases. We also depend, as do our customers, on Web
browsers, e-mail clients and Internet and online service providers for access
to our services. Some users of our services have experienced difficulties due
to system failures unrelated to our system, products or services. If we cannot
effectively address these capacity constraints, our business and financial
condition could be materially and adversely affected.
THE SUCCESS OF OUR E-MESSAGING PLATFORM DEPENDS ON INCREASED USAGE AND THE
STABILITY OF THE INTERNET.
Our success will depend, in large part, upon the maintenance of the Internet
infrastructure, such as a reliable network backbone with the necessary speed,
data capacity and security, and timely development of enabling products such as
high speed modems, for providing reliable Internet access and services and
improved content. We cannot assure you that the Internet infrastructure will
continue to effectively support the
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demands placed on it as the Internet continues to experience increased numbers
of users, frequency of use or increased bandwidth requirements of users. Even
if the necessary infrastructure or technologies are developed, we may have to
spend a considerable amount of money and time to adapt our solutions
accordingly. Furthermore, the Internet has experienced a variety of outages and
other delays due to damage to portions of its infrastructure. Any future
outages or delays could impact the Internet sites of customers using our
solutions.
We believe that the future of the Internet as a center for commerce will depend
in significant part on the following factors:
o Continued rapid growth in the number of households and commercial,
educational and government institutions with access to the Internet;
o The level of usage by individuals;
o The number and quality of products and services designed for use on the
Internet; and
o Expansion of the Internet infrastructure.
The degree to which e-mail will become a common method of communication depends
on the extent that users increasingly prefer e-mail over traditional means of
communication. The growth of e-mail also depends on widespread access to
reliable and affordable e-mail services by individuals, businesses and other
organizations. Because usage of the Internet as a medium for on-line exchange
of information, advertising, merchandising and entertainment is a recent
phenomenon, it is difficult to predict whether the number of users drawn to the
Internet will continue to increase and whether any significant market for our
e-messaging platform, or any substantial commercial use of the Internet, will
develop. We cannot assure you that Internet usage patterns, and reliance on
e-mail communication in particular, will continue to grow and will not decline
as the newness of this method of communication wears off. It also is uncertain
whether the cost of Internet access will decrease. If either the Internet or
e-mail communication fails to achieve increased acceptance and does not become
accessible to a broad audience at moderate costs, the market for our products
and services will be jeopardized. The success of our business also depends on a
significant expansion of the Internet infrastructure to provide adequate
Internet access and proper management of Internet traffic.
ANY SYSTEM FAILURE MAY HARM OUR BUSINESS OR REPUTATION.
The continuing and uninterrupted performance of our computer systems and our
customers' computer systems is critical to our ability to provide outsourced
services. Sustained or repeated system failures would reduce the attractiveness
of our solutions to our customers and could harm our business reputation.
Slower response time or system failures may also result from straining the
capacity of our deployed software or hardware due to an increase in the volume
of e-messages delivered through our servers. To the extent that we do not
effectively address any capacity constraints or system failures, our business,
results of operations and financial condition would be materially and adversely
affected.
Our operations are dependent on our ability to protect our computer systems
against damage from fire, power loss, water damage, telecommunications
failures, vandalism, infection by computer viruses, other malicious acts and
similar unexpected adverse events. In addition, interruptions in our solutions
could result from the failure of our Internet and related telecommunications
providers to provide the necessary data communications capacity in the time
frame we require. Despite precautions we have taken, unanticipated problems
affecting our systems have from time to time in the past caused, and in the
future could cause, interruptions in the delivery of our solutions.
WE FACE SECURITY RISKS AND POTENTIAL LIABILITY ASSOCIATED WITH MISAPPROPRIATION
OF CONFIDENTIAL INFORMATION.
We currently retain highly confidential customer information in a secure
database server. We cannot assure you, however, that we will be able to prevent
unauthorized individuals from gaining access to this database
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server. Any unauthorized access to our servers could result in the theft of
confidential customer information such as e-mail addresses. It also is possible
that one of our employees could attempt to misuse confidential customer
information, exposing us to liability. We use disclaimers and limitation of
warranty provisions in our client agreements in an attempt to limit our
liability to clients, including liability arising out of systems failure.
However, such provisions may not be enforceable or effective in limiting our
exposure to damage claims.
OUR MEANS OF PROTECTING OUR PROPRIETARY RIGHTS MAY BE INADEQUATE AND OUR
COMPETITORS MAY DEVELOP SIMILAR TECHNOLOGY.
We rely on a combination of trade secret, copyright and trademark laws,
nondisclosure agreements, and other contractual provisions and technical
measures to protect our proprietary rights. We believe that, due to the rapid
pace of technological innovation for Internet products, our ability to
establish and maintain a position of technology leadership in the industry
depends more on the skills of our development personnel than upon the legal
protections afforded our existing technology. Trade secret, copyright and
trademark protections may not be adequate to safeguard the proprietary software
underlying our products and services. We may not have adequate remedies for any
breach and our trade secrets may otherwise become known. Moreover,
notwithstanding our efforts to protect our intellectual property, competitors
may be able to develop functionally equivalent e-messaging technologies without
infringing any of our intellectual property rights. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use products or technology that we consider proprietary,
and third parties may attempt to develop similar technology independently. In
addition, effective protection of intellectual property rights may be
unavailable or limited in certain countries. Accordingly, our means of
protecting our proprietary rights may not be adequate and our competitors may
independently develop similar technology.
We generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and generally control access to
and distribution of our technologies, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights from
unauthorized use or disclosure, parties may attempt to disclose, obtain or use
our solutions or technologies. We cannot assure you that the steps we have
taken will prevent misappropriation of our solutions or technologies,
particularly in foreign countries where laws or law enforcement practices may
not protect our proprietary rights as fully as in the United States.
We have licensed, and we may license in the future, elements of our trademarks,
trade dress and similar proprietary rights to third parties. While we attempt
to ensure that the quality of our brand is maintained by these business
partners, such partners may take actions that could materially and adversely
affect the value of our proprietary rights or our reputation. In addition, we
currently license certain software and communication systems from third
parties. Our failure to maintain these licenses, or to find replacements for
such technology in a timely and cost-effective manner, could have a material
adverse effect on our business, results of operations and financial condition.
WE HAVE IN THE PAST, AND MAY IN THE FUTURE, BECOME INVOLVED IN PATENT
INFRINGEMENT CLAIMS WHICH RESULT IN A SIGNIFICANT DRAIN ON OUR RESOURCES AND
PREVENT OUR MANAGEMENT TEAM FROM FOCUSING ON MORE PROFITABLE TASKS.
As the volume of Internet commerce increases, and the number of products and
service providers that support Internet commerce increases, we believe that
Internet commerce technology providers may become increasingly subject to
infringement claims. We have been subject to claims of alleged infringement of
intellectual property rights in the past, and may become involved in additional
claims in the future. In addition, we may initiate claims of litigation against
third parties for infringement of our proprietary rights or to establish the
validity of our proprietary rights. Any such claims, with or without merit,
could be time consuming, result in costly litigation, disrupt or delay the
enhancement or shipment of our products and services or require us to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable or favorable to us, which
could have a material adverse effect on our business, financial condition and
results of operations. Litigation to determine the validity of
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any claims could result in significant expense to us and divert the efforts of
our technical and management personnel from productive tasks, whether or not
such litigation is determined in our favor. In addition, patent litigation
often gives rise to counterclaims by the defendants, which could include
challenges to the validity of patents held by us. In the event of an adverse
ruling in any such litigation, we may be required to pay substantial damages,
discontinue the use and sale of infringing products, expend significant
resources to develop non-infringing technology or obtain licenses to infringing
technology. Our failure to develop or license a substitute technology could
have a material adverse effect on our business.
IN THE FUTURE, WE MAY BE SUBJECT TO INCREASED GOVERNMENT REGULATION.
Laws and regulations directly applicable to Internet communications, commerce
and advertising are becoming more prevalent. We believe that we are not
currently subject to direct regulation by any government agency in the United
States, other than regulations that are generally applicable to all businesses
and newly enacted laws prohibiting unsolicited commercial e-mail, or spam, or
laws intended to protect minors. A number of legislative and regulatory
proposals are under consideration by federal and state lawmakers and regulatory
bodies and may be adopted with respect to the Internet. Some of the issues that
such laws or regulations may cover include user privacy, obscenity, fraud,
pricing and characteristics and quality of products and services. The adoption
of any such laws or regulations may decrease the growth of the Internet, which
could in turn decrease the projected demand for our products and services or
increase our cost of doing business. Moreover, the applicability to the
Internet of existing U.S. and international laws governing issues such as
property ownership, copyright, trade secret, libel, taxation and personal
privacy is uncertain and developing. Any new legislation or regulation, or
application or interpretation of existing laws, could have a material adverse
effect on our business.
OUR STOCK PRICE HAS BEEN VOLATILE IN THE PAST AND MAY BE VOLATILE IN THE
FUTURE, REGARDLESS OF OUR ACTUAL OPERATING PERFORMANCE.
The stock market in general, and Internet companies in particular, including
our company, have experienced extreme price and volume fluctuations that often
have been unrelated or disproportionate to operating performance. The trading
prices of many Internet companies' stocks are at or near historical highs and
these trading prices and multiples are substantially above historical levels.
These trading prices and multiples may not be sustained. Broad market and
industry factors may reduce our stock price, regardless of our actual operating
performance. In addition, the trading price of our common stock could fluctuate
in response to factors such as:
o quarterly fluctuations in our revenue and financial results both in
absolute terms and relative to analyst and investor expectations;
o changes in recommendations of securities analysts;
o announcements of technological innovations or new services or products;
o publicity regarding actual or potential results with respect to
technologies, services or products under development;
o disputes or other developments concerning proprietary rights, including
copyright and litigation matters; and
o other events or factors, many of which are beyond our control.
In the past, companies that have experienced volatility in the market price of
their stock have been the object of securities class action litigation. If we
were the object of securities class action litigation, it could result in
substantial costs and a diversion of management's attention and resources.
FACTORS RELATED TO INTERNATIONAL EXPANSION COULD IMPAIR OUR BUSINESS.
On March 13, 2000, we signed definitive agreements for the European joint
venture, and on April 4, 2000, we signed letters of intent to establish joint
ventures in the UK and Australia. To be successful, we believe we must continue
to expand our international operations and hire additional international
personnel. If we
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are unable to successfully expand internationally, our business could suffer.
Our ability to successfully expand internationally depends on a number of
factors, including:
o difficulties in managing and staffing international operations;
o currency exchange rate fluctuations;
o unexpected changes in regulatory requirements in other countries;
o uncertain protection of intellectual property in other countries;
o tariffs, export controls and other trade barriers;
o longer accounts receivable payment cycles and difficulties in collecting
accounts receivable;
o potentially adverse tax consequences; and
o the burdens of complying with a wide variety of, and potentially
inconsistent, laws in other countries.
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE INHERENTLY
UNCERTAIN.
This document contains certain forward-looking statements that involve risks
and uncertainties. We use words such as "anticipate", "believe", "expect",
"future", "intend", "plan" and similar expressions to identify forward-looking
statements. These statements are only predictions. Although we believe that the
expectations reflected in these forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this document. Our actual
results could differ materially from those anticipated in these forward-looking
statements for many reasons, including the risks faced by us and described on
the preceding pages and elsewhere in this document.
We believe it is important to communicate our expectations to our investors.
However, there may be events in the future that we are not able to predict
accurately or over which we have no control. The risk factors listed above, as
well as any cautionary language in this document, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Before you
invest in our common stock, you should be aware that the occurrence of the
events described in these risk factors and elsewhere in this document could
have a material adverse effect on our business, operating results, financial
condition and stock price.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of our investments are in
short-term investments. Due to the nature of our short-term investments,
however, we have concluded that there is no material interest rate risk
exposure. We also face exposure to adverse movements in foreign currency
exchange rates. A portion of our debt obligations is denominated in a currency
which exposes us to risks associated with changes in foreign exchange rates. We
are evaluating the financial instruments available to mitigate this exposure.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The management of the Company is not aware of any events required to
be reported hereunder.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A.) Exhibits
(B.) Reports on Form 8-K
None
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MESSAGEMEDIA, INC.
Date: August 14, 2000 By: /s/ A. Laurence Jones
------------------------------------
A. Laurence Jones
President and Chief Executive
Officer and Director
(Principal Executive Officer)
By: /s/ David R. Callejas
------------------------------------
David R. Callejas
Corporate Controller
(Principal Chief Accounting Officer)
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
