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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------------
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 September 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)
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<S> <C>
Delaware 33-0612860
------------------------------ -------------------------------------
(State or jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
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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 - 56,415,582 shares as of September 30, 2000.
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MESSAGEMEDIA, INC.
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets as of September 30, 2000 (unaudited) and
December 31, 1999 3
Consolidated Statements of Operations (unaudited) for the three months
and nine months ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows (unaudited) for the nine months
ended September 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 21
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
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MESSAGEMEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
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<CAPTION>
September 30, December 31,
2000 1999
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<S> <C> <C>
ASSETS (unaudited) (note 1)
Current assets:
Cash and cash equivalents $ 22,462 $ 37,920
Accounts receivable trade, net 10,430 4,278
Prepaid expenses and other 2,196 749
--------- ---------
Total current assets 35,088 42,947
Furniture, equipment and software, net 15,275 4,728
Intangible assets, net 36,250 75,162
Deposits and other 634 354
--------- ---------
Total assets $ 87,247 $ 123,191
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,051 $ 2,482
Accrued compensation and related liabilities 3,293 1,912
Deferred revenue 520 324
Capital lease obligations, current portion 859 25
Other accrued liabilities 2,366 1,022
Payable to related party 7,680 --
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Total current liabilities 17,769 5,765
Capital lease obligations 219 36
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Total long-term liabilities 219 36
Minority interest 4,675 --
Stockholders' equity :
Preferred stock, 5,000,000 shares authorized, none
outstanding at September 30, 2000 and December 31, 1999 -- --
Common stock, $0.001 par value; 100,000,000 shares authorized,
56,415,582 and 54,920,498 shares issued and outstanding at
September 30, 2000 and December 31, 1999, respectively 56 55
Additional paid-in-capital 212,676 208,343
Warrants 321 321
Deferred compensation (772) (1,332)
Accumulated other comprehensive income (227) --
Accumulated deficit (147,470) (89,997)
--------- ---------
Total stockholders' equity 64,584 117,390
--------- ---------
Total liabilities and stockholders' equity $ 87,247 $ 123,191
========= =========
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See accompanying notes.
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MESSAGEMEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
(Unaudited)
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<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 10,231 $ 3,053 $ 25,750 $ 5,109
Cost of revenues 4,806 1,686 11,598 2,067
------------ ------------ ------------ ------------
Gross profit 5,425 1,367 14,152 3,042
Operating expenses:
Marketing and sales 5,807 3,491 16,386 5,803
Research, development
and engineering 1,495 1,053 4,193 2,842
General and administrative 4,864 2,009 12,737 4,994
Restructuring charge -- -- -- 1,025
Depreciation and amortization 14,297 8,672 41,969 15,488
------------ ------------ ------------ ------------
Total operating expenses 26,463 15,225 75,285 30,152
------------ ------------ ------------ ------------
Loss from operations (21,038) (13,858) (61,133) (27,110)
Interest income 416 118 1,315 285
Interest expense (149) (9) (248) (80)
Foreign currency gain 152 -- 97 --
Other income/(expense) (69) -- (84) --
------------ ------------ ------------ ------------
Net loss before minority interest (20,688) (13,749) (60,053) (26,905)
Minority interest 1,445 -- 2,580 --
------------ ------------ ------------ ------------
Net loss applicable to
common shares $ (19,243) $ (13,749) $ (57,473) $ (26,905)
============ ============ ============ ============
Net loss per share, basic
and diluted $ (0.34) $ (0.29) $ (1.03) $ (0.61)
Weighted-average common shares
used in per share computation,
basic and diluted 56,368,356 47,355,875 55,962,002 43,995,120
</TABLE>
See accompanying notes.
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MESSAGEMEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
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<CAPTION>
Nine Months Ended September 30,
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2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(57,473) $(26,905)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 41,990 15,488
Compensation expense for stock options 559 1,189
Minority interest (2,580) --
Exchange gain (409) --
Changes in operating assets and liabilities:
Accounts receivable (6,793) (1,883)
Prepaid expenses and other (865) (76)
Deposits and other (283) (95)
Accounts payable 605 222
Accrued compensation and related liabilities 1,380 1,024
Deferred revenue 196 162
Payable to related party 555 --
Other accrued liabilities 1,374 (244)
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NET CASH USED IN OPERATING ACTIVITIES (21,744) (11,118)
INVESTING ACTIVITIES
Additions to furniture, equipment and software (12,359) (1,156)
Cash and cash equivalents acquired with acquisitions -- 2,053
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (12,359) 897
FINANCING ACTIVITIES
Proceeds from issuance of common stock, net 4,334 13,531
Proceeds from minority partner 7,255 --
Proceeds from related party loan 7,552 --
Repayment of amount due to stockholder -- (395)
Repayment of capital lease obligations (373) (169)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 18,768 12,967
Effect of exchange rate changes on cash
and cash equivalents (123) --
Net increase (decrease) in cash and cash
equivalents (15,458) 2,746
Cash and cash equivalents at the beginning
of period 37,920 4,659
-------- --------
Cash and cash equivalents at the end
of period $ 22,462 $ 7,405
======== ========
</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
nine-month periods ended September 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., 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.
MessageMedia Europe is consolidated into our financial statements. For the nine
months ended September 30, 2000, MessageMedia Europe recorded revenue of
approximately $443,000 and a loss after minority interest of approximately
$2.1 million. The September 30, 2000 consolidated balance sheet includes total
assets of $11.3 million for MessageMedia Europe. These results include the
expensed costs associated with the establishment of MessageMedia Europe.
3. OTHER COMPREHENSIVE INCOME
Other comprehensive income on the September 30, 2000 balance sheet consists of a
$227,000 foreign currency translation loss 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 will adopt SAB 101 in the fourth quarter of 2000 and expect a minor
impact to earnings.
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5. BUSINESS SEGMENTS
In the third quarter of 2000, we organized our business operations under two
reportable segments based on the definitions of segments provided under
Statement of Financial Accounting Standard No. 131: messaging and related
services, and software licenses and services. We do not have any intersegment
revenue, and we evaluate segment performance based on gross profit.
The revenue and gross profit by segment are as follows:
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<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
(in thousands) (in thousands)
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenues:
Messaging and related services $ 6,843 $ 2,265 $17,173 $ 4,321
Software licenses and services 3,388 788 8,577 788
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Total revenues $10,231 $ 3,053 $25,750 $ 5,109
======= ======= ======= =======
Gross profit:
Messaging and related services $ 2,570 $ 662 $ 6,690 $ 2,337
Software licenses and services 2,855 705 7,462 705
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Total gross profit $ 5,425 $ 1,367 $14,152 $ 3,042
======= ======= ======= =======
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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 our strategy, financial performance, and revenue sources
that involve risks and uncertainties. Our 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 in this report and in our other
reports filed with the SEC that attempt to advise interested parties of certain
risks and factors that may affect our business. The following discussion should
be read in conjunction with our financial statements and notes thereto.
COMPANY OVERVIEW
We are a leading provider of permission-based, comprehensive Internet-based
marketing and service solutions including e-mail marketing ("e-messaging"),
online customer intelligence ("e-intelligence"), and online customer care
services ("e-services"), as well as a full line of hosted and enterprise
software applications designed to advance a complete online dialogue between
organizations and their customers. Our customers use our suite of services and
products as strategic tools to increase sales, improve customer communication
and develop long-term customer loyalty and customer dialogue. Our 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 customers in
building their businesses through the strategic implementation and use of our
suite of service applications.
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Through our professional staff of client service representatives, we deliver our
outsourced 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 customer's primary point of contact for all relationship and campaign
management issues. We provide end-to-end e-messaging, e-intelligence, e-service,
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 campaigns,
providing valuable information that allows us to tailor and fine-tune our
clients campaigns to optimize effectiveness. Our services provide customers
with:
o a comprehensive set of e-messaging, e-intelligence, and e-service 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;
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, e-intelligence,
and e-service solutions; and
o the ability to manage large volumes of simple or complex customer
communications and easily integrate more advanced e-messaging,
e-intelligence, and e-service applications.
Our customers cover a broad range of industry segments, including Internet
service providers/portals, retail/e-tail, publishing, high tech,
travel/entertainment and financial services. Our customer portfolio features
Cisco Systems, Inc., Dell Computer Corporation, Columbia House, E*TRADE Group,
Inc., AOL Time Warner, Inc., Yahoo!, Inc., Microsoft Corporation, CMP Media,
Inc., Barclays Bank PLC, Electronic Data Systems Corporation, Universal Studios,
Inc., Hoover's Online, and Bertelsmann Online International GmbH. In June 1998,
we were recapitalized by SOFTBANK Corp. and its 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
September 30, 2000, we had an accumulated deficit of approximately $147.5
million. There can be no assurance that our future revenues will increase or not
decrease. In addition, since 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 derive our revenue from outsourced services, and software products and
related support services. Our outsourced services include information
distribution, e-mail marketing, e-services, e-commerce messaging and
e-intelligence. Our software products provide e-messaging and e-intelligence
capabilities for customers 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
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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 e-intelligence
solutions such as surveys. In March 2000, MessageMedia Europe began operations.
For the three months ended September 30, 2000, revenues increased to
approximately $10.2 million compared to approximately $3.1 million for the three
months ended September 30, 1999. This increase is primarily attributable to an
increase in the number of customers using our products and services, increased
e-messaging volume, and an incremental increase in revenue as a result of the
Decisive and Revnet acquisitions, and the startup of MessageMedia Europe.
For the nine months ended September 30, 2000, revenues increased to
approximately $25.8 million compared to approximately $5.1 million for the nine
months ended September 30, 1999. This increase is due to an increase in the
number of customers, increased e-messaging volume, the acquisitions of Decisive
and Revnet, and the startup of MessageMedia Europe.
Cost of Revenues
The cost of revenues for e-messaging, e-intelligence, and e-service consists of
salaries, benefits, consulting fees, and operational costs related to providing
our outsourced services. Cost of revenues for software licenses consists of
software packaging and distribution costs.
For the three months ended September 30, 2000, the cost of revenues increased to
approximately $4.8 million compared to approximately $1.7 million for the three
months ended September 30, 1999. This increase is primarily attributable to
increased headcount required to service our growing customer base, the related
growth in the number of mailings and e-messaging volume, and the incremental
increase in cost of revenues as a result of the startup of MessageMedia Europe
and the acquisitions of Decisive and Revnet.
For the nine months ended September 30, 2000, the cost of revenues increased to
approximately $11.6 million compared to approximately $2.1 million for the nine
months ended September 30, 1999. This increase is primarily attributable to
increased headcount needed to service our growing customer base, the related
growth in the number of mailings and e-messaging volumes, the startup of
MessageMedia Europe, and the Decisive and Revnet acquisitions.
Operating Expenses
Our operating expenses consist of marketing and sales, research, development and
engineering, and general and administrative expenses. Operating expenses
increased in the three and nine-month periods ended September 30, 2000 compared
to the same periods in 1999 due to increased headcount and related expenses.
Operating expenses for the three and nine month periods ended September 30, 2000
include the operating results of Revnet and Decisive as a result of those
acquisitions in August 1999, and MessageMedia Europe, which began operations in
March 2000. MessageMedia Europe was not included in the comparable periods ended
September 30, 1999, and Revnet and Decisive were not included in the full
periods ended September 30, 1999.
During the nine months ended September 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,
e-intelligence, and e-service solutions and software services continue, as we
explore opportunities to merge with or acquire
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complementary businesses or technologies, and as we add employees to 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 $5.8 million for the three months
ended September 30, 2000, compared to approximately $3.5 million for the three
months ended September 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, e-intelligence, and
e-service solutions and an incremental increase in headcount from the Decisive
and Revnet acquisitions and the startup of MessageMedia Europe. Additionally,
advertising and promotional spending increased as a result of promoting our new
services and products in both the United States and Europe.
For the nine months ended September 30, 2000, marketing and sales expenses
increased to approximately $16.4 million compared to approximately $5.8 million
for the nine months ended September 30, 1999. This increase is primarily due to
growth in domestic and international sales, client services, and marketing
headcount and increased advertising and promotional spending.
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 $1.5 million for the three months ended
September 30, 2000, compared to approximately $1.1 million for the three months
ended September 30, 1999. This increase is due to growth in headcount and
related compensation expense associated with our ongoing research, development
and engineering efforts.
For the nine months ended September 30, 2000, research, development and
engineering expenses increased to approximately $4.2 million, compared to
approximately $2.8 million for the nine months ended September 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 $4.9
million for the three months ended September 30, 2000, compared to $2.0 million
for the three months ended September 30, 1999. This increase is primarily due to
increases in our administrative staff 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 the startup of MessageMedia Europe.
General and administrative expenses increased to approximately $12.7 million for
the nine months ended September 30, 2000, compared to $5.0 million for the nine
months ended September 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 e-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.
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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 September 30, 2000, EBITDA loss
increased to approximately ($6.7) million from ($5.2) million for the three
months ended September 30, 1999. For the nine months ended September 30, 2000,
EBITDA loss increased to approximately ($19.2) million from ($11.6) million for
the nine months ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, we had $22.5 million in cash and cash equivalents, $14.4
million of which was in the United States and $8.1 million in MessageMedia
Europe. 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 $21.7 million and $11.1
million for the nine months ended September 30, 2000 and 1999, respectively. Net
operating cash flows for the nine months ended September 30, 2000 were primarily
attributable to net losses, and increases in minority interest and accounts
receivable, partially offset by non-cash charges for depreciation and
amortization, and increases in accrued compensation and other accrued
liabilities.
Net cash used in investing activities was approximately $12.4 million for the
nine months ended September 30, 2000 and net cash provided by investing
activities was $897,000 for the nine months ended September 30, 1999. Investing
activities related to additions to furniture, computer equipment and software.
Net cash provided by financing activities was approximately $18.8 million and
$13.0 million for the nine months ended September 30, 2000 and 1999,
respectively. Net cash provided by financing activities for the nine months
ended September 30, 2000 related primarily to proceeds from a related party loan
and the exercise of stock options.
We expect to increase expenditures for computer equipment, 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 deciding to
purchase our common stock. 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 harmed. 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 $147.5 million as of September
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 revenues to achieve and maintain
profitability. Although our revenues have grown in recent quarters, we cannot
assure you that we will achieve sufficient revenues for profitability. Even if
we
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do achieve profitability, we cannot assure you that we can sustain or increase
profitability on a quarterly or annual basis in the future. If revenues grow
slower than we anticipate, or if operating expenses exceed our 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, e-intelligence, and e-service
markets. 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-services, e-commerce messaging and
e-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 communications. We cannot assure you that our business strategy
will be successful or that we will successfully address these risks. If we do
not successfully address these risks, our business could be seriously harmed.
OUR MARKETS ARE RELATIVELY NEW AND UNPROVEN AND OUR SUCCESS DEPENDS ON MARKET
ACCEPTANCE AND THE EFFECTIVENESS OF OUR E-MESSAGING, E-INTELLIGENCE, AND
E-SERVICE SOLUTIONS. IF OUR SOLUTIONS ARE NOT ADOPTED BY MARKET PARTICIPANTS,
OUR REVENUE GROWTH WILL SUFFER.
Demand and market acceptance for Internet e-messaging, e-intelligence, and
e-service 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 these Internet services, 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 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 e-messaging, e-intelligence, and e-service.
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 year 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 connection with our
acquisitions 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
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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.
WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE FUTURE ACQUISITIONS, WHICH COULD
THREATEN OUR FUTURE GROWTH.
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 and cause our stock price to fall.
OUR FAILURE TO ENHANCE OUR EXISTING PRODUCTS AND INTRODUCE NEW PRODUCTS ON A
TIMELY BASIS COULD CAUSE OUR REVENUES TO FALL.
We are continually developing significant enhancements for our e-messaging,
e-intelligence, and e-service solutions 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,
WHICH COULD HARM OUR BUSINESS.
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, WHICH COULD CAUSE
OUR STOCK PRICE TO FALL.
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, e-intelligence, and e-service
solutions;
o difficulties in the development or deployment of new 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.
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Our revenue for the foreseeable future will remain dependent on e-messaging,
e-intelligence, and e-service 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
online 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, 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 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.
IF WE FAIL TO EFFECTIVELY MANAGE OUR GROWTH, OUR BUSINESS COULD SUFFER.
An effective planning and management process is required to successfully
implement our business plan in the rapidly evolving market for Internet
e-messaging, e-intelligence, and e-service. 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 September 30, 2000, we had 488 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 harmed 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. INTERRUPTIONS IN OUR SERVICES CAUSED BY ONE OF THESE
PROVIDERS COULD HAVE AN ADVERSE EFFECT ON REVENUE.
We depend heavily on several third-party providers of Internet and related
telecommunication services, including hosting and co-location companies, in
operating our e-marketing 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 and
e-intelligence services, causing a loss of revenue and potential loss of
customers.
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WE RELY ON A FEW CUSTOMERS FOR A SIGNIFICANT PORTION OF OUR REVENUE. LOSING A
SIGNIFICANT CUSTOMER COULD SUBSTANTIALLY DIMINISH 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.
COMPETITION IN OUR INDUSTRY IS INTENSE, AND OUR BUSINESS COULD BE HARMED IF WE
DO NOT COMPETE EFFECTIVELY.
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,
e-intelligence, and e-service solutions and interactive Internet communications
in the near future.
Our principal competitors in the e-messaging services arena include 24/7, Inc.,
Acxiom, Inc., BroadVision, Inc., CheetahMail, Inc., ClickAction, Inc., Cyber
Data Systems, Inc., Digital Impact, Inc., DoubleClick, Inc., e2 Communications,
eGain Communications Corporation, EmailChannel, Inc., E.Piphany, Inc., Experian,
Inc., FloNetwork, Inc., Kana Communications, Inc., L-Soft, Inc., MarketHome,
Inc., MatchLogic, Inc., PostX Corporation, ReplyNet, Inc, Responsys, and
SatMetrix Systems.
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 marketing
services.
The Internet, in general, and our e-messaging, e-intelligence, and e-service
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 affect 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, e-intelligence, and e-service solutions 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 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 harm 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
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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, e-intelligence, and e-service markets are
characterized by rapidly changing technologies, evolving industry standards,
frequent new product and service introductions, changing customer demands, and
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 uncompetitive 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,
WHICH COULD HARM OUR REVENUE GROWTH.
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
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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 e-messaging 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 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. Since 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.
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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, WHICH COULD HARM OUR BUSINESS.
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 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, e-intelligence, and e-service 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
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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 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, WHICH COULD
HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
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,
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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 a definitive agreement 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 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.
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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.
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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SIGNATURES
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: November 14, 2000 By: /s/ A. Laurence Jones
-----------------------------
A. Laurence Jones
President and Chief Executive
Officer and Director
(Duly Authorized Officer)
By: /s/ David R. Callejas
-----------------------------
David R. Callejas
Corporate Controller
(Chief Accounting Officer)
22
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
