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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 MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO _________________
COMMISSION FILE NUMBER: 000-25129
MAREX.COM, INC.
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(Exact name of registrant as specified in its charter)
Florida 65-0354269
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2701 South Bayshore Drive, 5th Floor
Miami, Florida 33133
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (305) 285-2003
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 [ ]
The number of shares outstanding of the registrant's Common Stock as of May 8,
2000 was 6,423,806.
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MAREX.COM, INC.
TABLE OF CONTENTS
<TABLE>
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999 ................................................... 2
Condensed Consolidated Statements of Operations for the three months
ended March 31, 2000 and 1999 ........................................... 3
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 ........................................... 4
Notes to Condensed Consolidated Financial Statements .................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk .............. 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ....................................................... 14
Item 2. Changes in Securities and Use of Proceeds ............................... 14
Item 3. Defaults Upon Senior Securities ......................................... 14
Item 4. Submission of Matters to a Vote of Security Holders ..................... 14
Item 5. Other Information ....................................................... 14
Item 6. Exhibits and Reports on Form 8-K ........................................ 15
Signatures .............................................................. 16
</TABLE>
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MAREX.COM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
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(unaudited)
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ASSETS
Current assets:
Cash and cash equivalents $ 20,328,909 $ 3,434,036
Prepaid expenses and other current assets 749,844 70,602
Loan to shareholder -- 22,200
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Total current assets 21,078,753 3,526,838
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Property and equipment, net 1,133,479 692,335
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Other assets:
Trademark, net 18,958 23,021
Software development costs, net 2,172,966 71,668
Deposits 12,609 1,596
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Total other assets 2,204,533 96,285
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Total assets $ 24,416,765 $ 4,315,458
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Capital lease obligations $ 17,184 $ 6,845
Accounts payable and accrued expenses 2,705,031 534,552
Customer deposits 58,753 63,223
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Total current liabilities 2,780,968 604,620
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Long-term liabilities:
Capital lease obligations, net of current portion 51,948 6,734
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Total liabilities 2,832,916 611,354
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Shareholders' equity:
Preferred Stock, par value $.01 per share, 1,000,000
shares authorized, 210,000 shares of Series A1
Convertible Preferred Stock issued and outstanding
as of March 31, 2000, none at December 31, 1999 21,000,000 --
Common Stock, par value $.01 per share, 25,000,000 shares authorized,
6,423,806 and 6,396,806 shares issued and outstanding as of March 31,
2000 and December 31, 1999, respectively 64,238 63,968
Additional paid-in capital 9,518,118 9,530,079
Accumulated deficit (8,998,507) (5,889,943)
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Total shareholders' equity 21,583,849 3,704,104
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Total liabilities and shareholders' equity $ 24,416,765 $ 4,315,458
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</TABLE>
See Notes to Condensed Consolidated Financial Statements
2
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MAREX.COM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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<CAPTION>
Three Months Ended
March 31,
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2000 1999
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Revenues $ 3,447 $ 643
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Operating expenses:
Product development 737,684 75,081
Selling and marketing 929,565 212,810
General and administrative 1,043,860 245,006
Stock-based compensation 489,184 --
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Total operating expenses 3,200,293 532,897
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Loss from operations (3,196,846) (532,254)
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Other income (expense):
Interest income 90,671 79
Interest expense (905) (2,712)
Other (1,484) --
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Total other income (expense) 88,282 (2,633)
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Loss from continuing operations (3,108,564) (534,887)
Loss from discontinued operations -- (43,544)
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Net loss $(3,108,564) $ (578,431)
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Net loss per share, basic and diluted:
Continuing operations $ (0.49) $ (0.11)
Discontinued operations -- (0.01)
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Net loss $ (0.49) $ (0.12)
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Weighted average shares of Common Stock
outstanding 6,406,597 4,928,180
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
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MAREX.COM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Three Months
Ended
March 31,
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations $ (3,108,564) $ (534,887)
Adjustments to reconcile loss from continuing operations to
net cash used in continuing operations
Depreciation 59,395 7,043
Amortization 8,634 4,570
Stock-based compensation 489,184 --
Loss on disposal of property and equipment 1,484 --
Increase in prepaid expenses and other current assets (679,242) (410)
Increase in accounts payable and accrued expenses 2,170,479 183,976
Decrease in customer deposits (4,470) (9,560)
Increase in other assets (11,013) --
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Net cash used in operating activities (1,074,113) (349,268)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (438,011) (15,012)
Additions to software development costs (2,105,869) --
Decrease in loan to shareholder 22,200 --
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Net cash used in investing activities (2,521,680) (15,012)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on due to related party -- (27,630)
Proceeds from related party borrowings -- 189,551
Principal payments on notes payable -- (21,898)
Principal payments on capital lease obligations (8,459) (2,163)
Proceeds from exercise of warrants 49,410 --
Proceeds from issuance of preferred stock 20,449,715 --
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Net cash provided by financing activities 20,490,666 137,860
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Net cash provided by (used in) continuing operations 16,894,873 (226,420)
Net cash used in discontinued operations -- (120,749)
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Net increase (decrease) in cash and cash equivalents 16,894,873 (347,169)
CASH AND CASH EQUIVALENTS, beginning of period 3,434,036 350,042
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CASH AND CASH EQUIVALENTS, end of period $ 20,328,909 $ 2,873
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during each period for interest $ 905 $ 1,791
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
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MAREX.COM, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
In management's opinion, the accompanying unaudited condensed consolidated
financial statements of Marex.com, Inc. and subsidiary (the "Company") contain
all adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the Company's financial position, results of operations and cash
flows for each period shown. The results of operations for the 2000 interim
period presented are not necessarily indicative of the results to be expected
for any subsequent quarter or for the entire year ending December 31, 2000.
The accompanying unaudited interim condensed consolidated financial statements
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission for reporting on Form 10-Q. Certain information and footnote
disclosures normally included in the financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted. The condensed consolidated financial statements should be
read in conjunction with the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
The accounting policies followed for interim financial reporting are the same as
those disclosed in the Notes to Consolidated Financial Statements included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1999.
(2) DISCONTINUED OPERATIONS
On August 24, 1999, the Company's Board of Directors approved a plan to
discontinue the operations of its non-core business subsidiary, Sovereign
Financial Information Services, Inc. ("Sovereign"), in order to focus its
business towards its internet-based services and products for the marine
industry. Sovereign was engaged in the publishing of research reports, stock
handbooks and global industry guides. Sovereign ceased operations on September
30, 1999. Accordingly, Sovereign is reported as a discontinued operation in the
accompanying unaudited condensed consolidated financial statements. The losses
of Sovereign prior to August 24, 1999, are included in the unaudited condensed
consolidated statements of operations under "Loss from discontinued operations."
(3) NET LOSS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share", requires two presentations of earnings per share--"basic" and "diluted".
Basic earnings per share is computed by dividing income available to common
stockholders (the numerator) by the weighted average number of common shares
(the denominator) for the period. The computation of diluted earnings per share
is similar to basic earnings per share, except that the denominator is increased
to include the number of additional common shares that would have been
outstanding if the potentially dilutive common shares had been issued.
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The following options and warrants to purchase shares of common stock were
outstanding at the end of each period, but were not included in the computation
of diluted earnings per share because the Company reported a net loss for each
of the quarters presented and, therefore, the effect would be antidilutive:
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Three Months Ended
March 31,
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2000 1999
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OPTIONS
Outstanding 2,698,700 2,081,000
Weighted average exercise prices $ 6.32 $ 2.10
WARRANTS
Outstanding 409,971 33,000
Weighted average exercise prices $ 9.68 $ 1.83
</TABLE>
(4) SOFTWARE DEVELOPMENT COSTS
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use,"("SOP 98-1") establishes the accounting
for costs of software products developed or purchased for internal use,
including when such costs of software products developed or purchased for
internal use should be capitalized. In accordance with SOP 98-1, the Company has
capitalized $2.1 million of software development associated with development of
its e-commerce solutions in the three months ended March 31, 2000.
(5) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," ("APB No. 25") and related Interpretations. Under
APB No. 25, compensation cost is measured as the excess, if any, of the quoted
market price of the Company's common stock at the date of grant over the
exercise price of the option granted. Compensation cost for stock options, if
any, is recognized ratably over the vesting period. In March 2000, the Company
granted options to a director at an exercise price below the quoted market price
which resulted in total non-cash compensation of $2,382,000. During the three
months ended March 31, 2000, compensation expense related to the vested portion
of the stock options granted to the director totaled $489,000 and is included in
the unaudited condensed consolidated statement of operations as "Stock-based
compensation."
(6) INCOME TAXES
The Company did not record a benefit for income taxes due to the full valuation
allowance that has been recorded given the uncertainty of the realization of its
deferred income tax assets.
(7) PREFERRED STOCK
The Company has authorized 1,000,000 shares of preferred stock of $.01 par value
with preferences to be determined by the Board of Directors. On March 2, 2000,
the Board of Directors designated 430,000 shares as Series A1 Convertible
Preferred Stock ("Series A1 Preferred Stock").
In March 2000, the Company received net proceeds of approximately $20.4 million
in connection with the sale of 210,000 shares of Series A1 Preferred Stock at
$100 per share. Subsequent to March 31, 2000, the Company completed the private
placement through the sale of an additional 210,000 shares of Series A1
Preferred Stock at $100 per share. The total estimated net proceeds from the
private placement were approximately $40.9 million.
Each share of the Series A1 Preferred Stock is convertible into 7.69 shares of
Common Stock at the option of the holder at any time. Automatic conversion
occurs upon either of the following: completion by the Company of a public
offering which raises gross proceeds of at least $50 million, at an effective
price per
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share to the public of at least $26.00 as adjusted for stock splits, stock
dividends or other similar transactions; or, upon the event that the market
price per share of the Company's Common Stock exceeds $26.00, subject to
adjustments for stock splits, stock dividends, or other similar transactions,
for a consecutive twenty day period following the one-year anniversary of the
effective date of a registration statement covering the Common Stock underlying
the Series A1 Preferred Stock. As of March 31, 2000, none of the Series A1
Preferred Stock had been converted into Common Stock.
The holders of the Series A1 Preferred Stock are entitled to the number of votes
equal to the number of shares of Common Stock into which such Preferred Stock is
convertible.
Upon declaration by the Board of Directors, holders of Series A1 Preferred Stock
shall be entitled to receive dividends ratably in an amount per share equal to
that which the holders would have been entitled had they converted their Series
A1 Preferred Stock into shares of Common Stock.
Upon any liquidation of the Company, holders of record of the Series A1
Preferred Stock shall be entitled to receive, out of the assets of the Company
and before any distribution or payment is made upon any class of security of
lesser rank, an amount per share equal to the lesser of $100 per share or the
assets of the Company available for distribution to its stockholders,
distributed ratably among holders of the outstanding Series A1 Preferred Stock.
After the distribution to the holders of Series A1 Preferred Stock has been
made, the remaining assets of the Company available for distribution to
shareholders shall be distributed pro rata solely among the holders of Common
Stock.
Holders may redeem shares of Series A1 Preferred Stock in the event that the
Company does not honor a conversion. In such a case, the redemption amount is
equal to, at the option of the holder, the market value of the Common Stock that
the shares of Series A1 Preferred Stock would otherwise have been convertible
into or $100 per share.
(8) RELATED PARTY TRANSACTIONS
In March 2000, the Company made a payment of $435,000 to a consultant, who is
also a shareholder of the Company, for strategic business consulting. Under the
arrangement, the consultant is obligated to provide consulting services to the
Company through December 31, 2000. Consulting expense related to the agreement
totaled $108,750 for the three months ended March 31, 2000 and is included in
the accompanying unaudited condensed consolidated statement of operations as a
component of "General and administrative" expenses.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements and the notes to the condensed consolidated
financial statements, which are included elsewhere in this Form 10-Q. It
contains forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, which relate to such matters as
anticipated financial performance, business prospects, technological
developments, and similar matters. Such forward-looking statements involve known
and unknown risks, uncertainties, and other factors which may cause the actual
results, performance, or achievements of the Company to be materially different
from those expressed or implied by such forward-looking statements. Factors
include, but are not limited to, those discussed elsewhere in this report in the
section entitled "Risk Factors" and the risks discussed in our other Securities
and Exchange Commission filings.
OVERVIEW
Marex.com is a provider of e-commerce solutions for the marine industry. The
Exchange, the first procurement tool that we developed, is an Internet-based
trading exchange for the marine industry. We began registering members for the
Exchange in November 1998. The Exchange allows buyers to solicit quotes online
from sellers for specific equipment, parts and supplies. Buyers are displayed
the best prices available, which are updated on a real-time basis as bids are
posted. Through the Exchange, we seek to provide a worldwide search capability
to buyers for equipment, parts and supplies and create a lowest price forum for
buyers to take advantage of spot market pricing of sellers' overstocked and
available inventory. Sellers utilizing the Exchange will gain access to an
expanded wholesale customer base and have greater opportunity to resell slow
moving inventory.
In addition to the Exchange, we are developing e-commerce solutions that will
automate the procurement process of marine businesses. We expect our solutions
to offer increased procurement efficiency and access to Internet distribution
channels.
DISCONTINUED OPERATIONS
On August 24, 1999, our Board of Directors approved a plan to discontinue the
operations of our non-core business subsidiary, Sovereign Financial Information
Services, Inc. ("Sovereign"), in order to focus our business towards
Internet-based services and products for the marine industry. Sovereign was
engaged in the publishing of research reports, stock handbooks and global
industry guides. Sovereign ceased operations on September 30, 1999. During the
three months ended March 31, 1999, our loss from discontinued operations was
$44,000. There was no loss from discontinued operations during the three months
ended March 31, 2000.
The financial information in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" refers to our continuing operations and
excludes the operations of Sovereign.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 AND 1999
REVENUES
The Exchange generates revenues by charging a transaction fee for completed
transactions. The fee is based on a sliding scale ranging from approximately 10%
for smaller transactions to 4% for larger transactions. Revenues are recognized
at the completion of a transaction. A transaction is considered completed when
the buyer has received and approved the merchandise that was purchased through
the Exchange, and we have remitted the purchase price, less the transaction fee,
to the seller. For the three months ended March 31, 2000, we recorded revenues
of $3,000 generated from $86,000 of completed transactions through the Exchange.
For the same period in 1999, we recorded revenues of $600 generated from $16,000
of completed transactions through the Exchange. The increase resulted primarily
from increased usage of the Exchange by our members.
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PRODUCT DEVELOPMENT
Product development expenses consist primarily of compensation for product
development personnel, cost of outside contractors, amortization of software
development costs, and other costs associated with the operations and
enhancements of the website. Product development expenses increased to $738,000
for the three months ended March 31, 2000, compared to $75,000 for the same
period in 1999. The change related primarily to increases of $384,000 in
personnel and personnel related costs, and $136,000 in outside contractor costs.
The balance was comprised of overhead and operating costs directly associated
with the development and maintenance of the website. We expect product
development expenses to continue to increase as we develop and enhance the
functionality of the website.
SELLING AND MARKETING
Selling and marketing expenses consist primarily of compensation for sales and
marketing personnel, advertising, trade shows and related marketing costs.
Selling and marketing expenses increased to $930,000 for the three months ended
March 31, 2000, compared to $213,000 for the same period in 1999. The change is
primarily due to increases of $233,000 in personnel and personnel related costs,
and $287,000 in advertising and marketing costs. The balance was comprised of
overhead and operating costs directly associated with selling and marketing
activities. We expect selling and marketing expenses to continue to increase as
we increase awareness about our company and improve our positioning within the
market.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of compensation for
administrative personnel, facilities expenses, professional fees, and general
corporate expenses. General and administrative expenses increased to $1.0
million for the three months ended March 31, 2000, compared to $245,000 for the
same period in 1999. The change related primarily to increases of $599,000 in
personnel and personnel related costs, which includes a performance-based
payment of $420,000 to the Chief Executive Officer, and to $123,000 in
professional fees, which includes $109,000 for strategic business consulting
services provided by a consultant who is also a shareholder. The balance was
comprised of corporate charges directly associated with the administrative
functions of our company. We expect general and administrative expenses to
continue to increase as we add personnel and incur additional corporate expenses
associated with the evolution of our business.
STOCK-BASED COMPENSATION
For the three months ended March 31, 2000, we recorded non-cash compensation
expense of $489,000 relating to stock options granted to a director. We did not
incur any stock-based compensation expense in 1999.
OTHER INCOME AND EXPENSE
We recorded $91,000 of interest income for the three months ended March 31,
2000, as a result of our investments in marketable securities which were derived
from the net proceeds of the private placements completed in 1999 and March
2000. Interest expense for the three months ended March 31, 2000 was $900,
compared to $3,000 in the three months ended March 31, 1999, as a result of the
decrease in our notes payable and loan from related party balances.
LOSS FROM CONTINUING OPERATIONS
Our loss from continuing operations increased to $3.1 million for the three
months ended March 31, 2000, from $535,000 in the three months ended March 31,
1999. The change resulted from the increase in costs, as described above,
associated with the launch of the Exchange which was in the development stage
until November 1998 and the development of other e-commerce products.
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LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through the
private sales of Common Stock, Preferred Stock, short-term borrowings from
banks, and borrowings from our Chief Executive Officer who is also President,
Chairman of the Board of Directors and a shareholder.
Net cash used in operating activities was $1.1 million for the three months
ended March 31, 2000, primarily as a result of a net loss from continuing
operations of $3.1 million and an increase of $679,000 in prepaid expenses and
other current assets. The net loss was offset by an increase of $2.2 million in
accounts payable and accrued expenses and the non-cash stock-based compensation
expense of $489,000.
Net cash used in investing activities was $2.5 million for the three months
ended March 31, 2000, primarily due to $2.1 million of software development
costs related to the development of our e-commerce solutions and $438,000
relating to leasehold improvements to the new office, the purchase of computer
and office equipment, and the purchase of furniture and fixtures.
Net cash provided by financing activities was $20.5 million, which was primarily
due to the sale of 210,000 shares of Series A1 Preferred Stock on March 3, 2000,
resulting in net proceeds of $20.4 million. The sale was the first of two
installments, which combined, resulted in gross cash proceeds of $42.0 million.
The second installment, completed on May 3, 2000, resulted in estimated net
proceeds of $20.4 million.
At March 31, 2000, cash and cash equivalents totaled $20.3 million, while our
working capital was $18.3 million. In comparison, as of December 31, 1999, cash
and cash equivalents totaled $3.4 million, while our working capital was $2.9
million. The increase was primarily due to the sale of Series A1 Preferred Stock
during the three months ended March 31, 2000. To date, our primary uses of cash
have been in operating activities to fund the development and promotion of our
e-commerce solutions.
We expect to experience significant growth in our operating expenses during the
foreseeable future. We anticipate that such operating expenses, as well as
planned capital expenditures, will constitute a material use of our cash
resources. We believe that the net proceeds from our sale of Series A1 Preferred
Stock will be sufficient to meet our working capital and operating resources
requirements for at least the next twelve months. In the event that our working
capital and operating resources requirements during the next twelve months
exceed the cash proceeds from our sale of Series A1 Preferred Stock, we may not
be able to raise additional capital on acceptable terms or at all.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of Effective Date of FASB Statement
No. 133". SFAS No. 137 defers for one year the effective date of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
will require us to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
We will adopt SFAS No. 133 as required for our first quarterly filing in 2001.
We believe the adoption of this Statement will not have a material effect on our
results of operations and financial position.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB
101 provides guidance on accepted accounting principles generally accepted in
the United States to revenue recognition issues in financial statements. We will
adopt SAB 101 as required in the second quarter of 2000. We do not expect the
adoption of SAB 101 to have a material impact on our consolidated results of
operations and financial position.
RISK FACTORS
WE HAVE A LIMITED OPERATING HISTORY
Marex.com, Inc. was founded in 1992 but did not launch the Exchange until
November 1998. Thus, we have a limited operating history on which to base an
evaluation of our e-commerce business and
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prospects. Our prospects must be considered in light of the risks,
uncertainties, expenses and difficulties frequently encountered by companies in
their early stages of development, particularly companies in new and rapidly
evolving markets such as B2B e-commerce. Many of these risks are described in
this "Risk Factors" section. There can be no assurance that we will be able to
address these risks.
WE HAVE A HISTORY OF LOSSES
We have incurred losses from operations in each period since our inception. We
expect to incur substantial operating losses and have continued negative cash
flows from operations for the foreseeable future. We expect to significantly
increase our spending on sales and marketing, product development, and general
and administrative expenses. In addition, we have no material revenues to date.
If our revenue does not increase substantially or if our expenses increase
further than we expect, we may not become profitable.
OUR QUARTERLY OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT
Due to our limited operating history, we believe that period-to-period
comparisons of revenues and results of operations are not meaningful. The
fluctuations in our operating results may fall below the expectations of
investors and securities analysts. Our failure to meet these expectations will
likely cause a significant decline in the market price of our stock.
THE BUSINESS TO BUSINESS ("B2B") E-COMMERCE MODEL IS NOT PROVEN
Our B2B e-commerce model is based on the expansion of the Exchange and the
launch of our other procurement solutions for B2B e-commerce within the marine
industry. This business model is new and not proven and depends upon our ability
to, among other things: sell purchasing solutions to marine industry
participants; achieve high rates of adoption by customers; and generate
significant revenues from the use of our Internet-based solutions. We cannot be
certain that the business model will be successful, that it can achieve or
sustain revenue growth, or that it can generate any profits. The success of this
business model will require, among other things, that we develop and market
solutions with broad market acceptance by users and strategic partners. We
cannot be certain that B2B e-commerce on the Internet, our e-commerce solution,
or our services and brand in particular, will achieve broad market acceptance.
IF WE FAIL TO RELEASE NEW E-COMMERCE SOLUTIONS ON A TIMELY BASIS, OUR BUSINESS
WOULD BE ADVERSELY AFFECTED
We plan to introduce new e-commerce solutions to service the requirements of
marine industry participants and to increase the potential transaction volumes.
If we fail to introduce new products on a timely basis, we may experience
supplier and buyer dissatisfaction which will adversely affect our business. In
addition, any new product that does not achieve market acceptance may cause
damage to our reputation or brand name.
WE FACE INTENSE COMPETITION
We perceive competition to be intense and we expect it to increase significantly
in the future. We face competition from other companies with e-commerce
offerings as well as traditional suppliers and distributors of marine products
and marine companies that have or may develop their own online solutions. In
addition, providers of online marketplaces and online auction services that
currently focus on other industries may expand their services to include marine
products. Our competitors and potential competitors may develop superior
Internet solutions that achieve greater market acceptance than the Marex.com
solution. In addition, substantially all of our prospective customers have
established long-standing relationships with some competitors and potential
competitors. We cannot be certain that we can compete successfully against
current and future competitors.
OUR SOLUTION AND SERVICES ARE NEW AND FACE RAPID TECHNOLOGICAL CHANGES
The Internet market for the Marex.com solution is characterized by rapid
technological advances, evolving standards in the Internet and software markets,
changes in customer requirements and frequent
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new product and service introductions and enhancements. As a result, we believe
that our future success depends upon our ability to enhance current
Internet-based solutions and services, to develop and introduce new solutions
and services that will achieve market acceptance, and where necessary, to
integrate Internet-based solutions with customers' systems. If we do not
adequately respond to the need to develop and introduce new solutions or
services, then our business will be negatively affected. Further, we may incur
significant expense to integrate purchasing solutions with customers' systems
and to maintain this integration as customers' systems evolve. Failure to
provide this integration may delay or altogether dissuade the marine market or a
particular customer from adopting our Internet-based solutions.
WE WILL NEED TO MANAGE OUR EXPANDING BUSINESS
Our growth has placed, and is expected to continue to place, a significant
demand on our sales, marketing, managerial, operational, information technology
and other resources. If we cannot manage our growth effectively, our business
will be adversely affected. We expect to need a significant number of new
employees to expand our business. Our current information systems, procedures
and controls may not support expanded operations and may hinder our ability to
take advantage of the market for e-commerce purchasing solutions to the marine
industry.
WE DEPEND ON KEY PERSONNEL
Our performance is substantially dependent on the performance of the executive
officers and other key employees. Failure to successfully manage personnel
requirements would have a negative effect on the business. We have experienced
difficulty from time to time in hiring the personnel necessary to support the
growth of our business, and we may experience similar difficulty in hiring and
retaining personnel in the future. Competition for senior management,
experienced sales and marketing personnel, software developers, and other
employees is intense, and we cannot be certain that we will be successful in
attracting and retaining personnel. The loss of the services of any executive
officers or key employees could have a negative effect on the business. Failure
to obtain or retain the services of necessary executive officers or key
employees may not support existing or expanded operations, and may hinder our
ability to take advantage of the market for e-commerce purchasing solutions to
the marine industry.
WE EXPECT THE PRICE OF OUR COMMON STOCK TO BE VOLATILE
The market price of the Common Stock may fluctuate significantly in response to
a number of factors, some which are beyond our control, including the following:
quarterly variations in operating results; changes in market valuation of
Internet commerce companies; announcements of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital commitments;
loss of a major customer or strategic partner, or failure to complete a sale to
a significant customer; additions or departures of any key personnel; future
sales of our Common Stock; and stock market price and volume fluctuations, which
are particularly common among highly volatile securities of Internet companies.
SECURITY PROBLEMS MAY INHIBIT THE GROWTH OF INTERNET-BASED PURCHASING SOLUTIONS
A significant barrier to the adoption of e-commerce is the secure transmission
of confidential information over public networks. Users generally are concerned
with security and privacy on the Internet and any publicized security problems
could inhibit the growth of the Internet, and therefore inhibit the Marex.com
solution as a means of conducting transactions. If there is a breach in our
security system, we may be required to make significant expenditures to protect
against security breaches and to alleviate problems caused by such breaches.
SYSTEM FAILURE MAY CAUSE INTERRUPTION OF SERVICES
The performance of our server and networking hardware and software
infrastructure is critical to our business and reputation, and affects our
ability to process transactions, provide high quality customer service and
attract and retain customers, suppliers, users and strategic partners. Any
disruption to this infrastructure resulting from a natural disaster or other
event could result in an interruption in service,
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<PAGE> 14
fewer transactions and, if sustained or repeated, could impair our reputation
and the attractiveness of the services.
WE WILL REQUIRE ADDITIONAL CAPITAL FOR OPERATIONS
We currently anticipate that current available funds will be sufficient to meet
anticipated needs for working capital and capital expenditures for at least the
next 12 months. We will need to raise additional funds in the future in order to
fund rapid expansion, to develop new or enhanced solutions and services, to
respond to competitive pressures or to acquire complementary businesses,
technologies or services.
WE DEPEND ON INTELLECTUAL PROPERTY RIGHTS
Our intellectual property is important to us. We seek to protect intellectual
property through copyrights, trademarks, trade secrets, confidentiality
provisions in customer, supplier and strategic relationship agreements,
nondisclosure agreements with third parties, employees and contractors. We
cannot assure that measures we take to protect intellectual property will be
successful or that third parties will not develop alternative purchasing
solutions that do not infringe upon our intellectual property. In addition, we
could be subject to intellectual property infringement claims by others. Failure
to protect against misappropriation of intellectual property, or claims that we
are infringing the intellectual property of third parties could have a negative
effect on our business.
REGULATION OR TAXATION OF THE INTERNET OR TRANSACTING BUSINESS OVER THE INTERNET
Due to the increasing popularity and use of e-commerce, it is possible that a
number of taxes, laws and regulations may be adopted in the U.S. and abroad with
particular applicability to the Internet and e-commerce transactions. It is
possible that governments will adopt taxes and enact legislation that may be
applicable in areas such as content, product distribution, network security,
encryption and the use of key escrow, data and privacy protection, electronic
authentication or "digital" signatures, illegal and harmful content, access
charges and re-transmission activities. Moreover, the applicability to the
Internet of existing laws governing issues such as property ownership, content,
taxation, defamation and personal privacy is uncertain. Taxes, laws or
regulations may limit the growth of the Internet, dampen e-commerce and reduce
the number of transactions, increase the cost of doing business or increase
legal exposure. Any of these factors could have a negative effect on our
business.
SEASONALITY
Our business is seasonal due to the impact of the buying and selling patterns of
the members that utilize our system. We believe that the second and third
quarters are the peak periods for the recreational marine industry. In addition,
the recreational marine industry is highly cyclical and is highly affected by a
number of factors. Some of those factors are: (i) economic conditions, (ii)
consumer confidence levels, and (iii) weather conditions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not hold any market risk sensitive instruments. As a result, this item is
not applicable to the Company's consolidated balance sheet as of March 31, 2000.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are currently not involved in, or aware of, any material litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 2, 2000, the Board of Directors authorized 430,000 shares of Series A1
Preferred Stock. Each share of the Series A1 Preferred Stock is convertible into
7.69 shares of Common Stock at the option of the holder at any time. Automatic
conversion occurs upon either of the following: our completion of a public
offering which raises gross proceeds of at least $50 million, at an effective
price per share to the public of at least $26.00 as adjusted for stock splits,
stock dividends or other similar transactions; or, upon the event that the
market price per share of our Common Stock exceeds $26.00, subject to
adjustments for stock splits, stock dividends, or other similar transactions,
for a consecutive twenty day period following the one-year anniversary of the
effective date of a registration statement covering the Common Stock underlying
the Series A1 Preferred Stock.
The holders of the Series A1 Preferred Stock are entitled to the number of votes
equal to the number of shares of Common Stock into which such Preferred Stock is
convertible.
Upon declaration by the Board of Directors, holders of Series A1 Preferred Stock
shall be entitled to receive dividends ratably in an amount per share equal to
that which the holders would have been entitled had they converted their Series
A1 Preferred Stock into shares of Common Stock.
Upon any liquidation of our company, holders of record of the Series A1
Preferred Stock shall be entitled to receive, out of our assets and before any
distribution or payment is made upon any class of security of lesser rank, an
amount per share equal to the lesser of $100 per share or our remaining assets
available for distribution to our stockholders, distributed ratably among
holders of the outstanding Series A1 Preferred Stock.
After the distribution to the holders of Series A1 Preferred Stock has been
made, our remaining assets available for distribution to shareholders shall be
distributed pro rata solely among the holders of Common Stock.
Holders may redeem shares of Series A1 Preferred Stock in the event that we do
not honor a conversion. In such a case, the redemption amount is equal to, at
the option of the holder, the market value of the Common Stock that the shares
of Series A1 Preferred Stock would otherwise have been convertible into or $100
per share.
We completed a $42 million private placement from the sale of Series A1
Preferred Stock. The sale consisted of two installments that occurred on March
2, 2000 and May 3, 2000. Through each installment, the Company sold 210,000
shares at $100 per share. After deducting the costs of the sale of Series A1
Preferred Stock, our estimated net proceeds were approximately $40.9 million.
The net proceeds have been used for general corporate purposes, development of
products and to expand our operations. Funds that have not been used have been
primarily invested in marketable securities. We also may use a portion of the
net proceeds to acquire or invest in businesses, technologies, products or
services.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
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<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT DESCRIPTION OF DOCUMENT
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
On March 8, 2000, the Company filed a report on Form 8-K which
announced the sale of the Series A1 Preferred Stock in a private
placement.
15
<PAGE> 17
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.
MAREX.COM, INC.
DATE: May 12, 2000 By: /s/ David A. Schwedel
----------------------------------------------
David A. Schwedel
Chairman of the Board of Directors, President
and Chief Executive Officer
DATE: May 12, 2000 By: /s/ Kenbian A. Ng
----------------------------------------------
Chief Financial Officer
(Principal Financial and Accounting Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MAREX.COM,
INC.'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 20,328,909
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,078,753
<PP&E> 1,287,616
<DEPRECIATION> 154,137
<TOTAL-ASSETS> 24,416,765
<CURRENT-LIABILITIES> 2,780,968
<BONDS> 0
0
21,000,000
<COMMON> 64,238
<OTHER-SE> 519,611
<TOTAL-LIABILITY-AND-EQUITY> 24,416,765
<SALES> 3,447
<TOTAL-REVENUES> 3,447
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,200,293
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 905
<INCOME-PRETAX> (3,108,564)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,108,564)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,108,564)
<EPS-BASIC> (.49)
<EPS-DILUTED> (.49)
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