U.S. 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, 1999
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: 000-25525
MININGCO.COM, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-4034015
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
220 EAST 42ND STREET, 24TH FLOOR
NEW YORK, NEW YORK 10017
(Address of Principal Executive Officer and Zip Code)
(212) 849-2000
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act 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 |_| No |X|
As of May 10, 1999, there were 12,060,110 shares of the registrant's
common stock outstanding.
<PAGE>
MININGCO.COM, INC.
FORM 10-Q
INDEX
Page
Number
------
PART I FINANCIAL INFORMATION
ITEM 1: Condensed Financial Statements:
Condensed Balance Sheets as of March 31, 1999 (unaudited)
and December 31, 1998....................................... 3
Unaudited Condensed Statements of Operations for the three
months ended March 31, 1999 and 1998........................ 4
Unaudited Condensed Statements of Cash Flows for the three
months ended March 31, 1999 and 1998........................ 5
Notes to Unaudited Condensed Interim Financial Statements... 6
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 15
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk.. 31
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings........................................... 31
ITEM 2: Changes in Securities and Use of Proceeds................... 31
ITEM 3: Defaults Upon Senior Securities............................. 32
ITEM 4: Submission of Matters to a Vote of Security Holders......... 32
ITEM 5: Other Information........................................... 32
ITEM 6: Exhibits and Reports on Form 8-K............................ 32
ITEM 7: Signatures.................................................. 33
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1: Condensed Financial Statements
MiningCo.com, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 85,025,800 $ 10,644,300
Accounts receivable, net of allowance for doubtful accounts
of $66,200 and $146,000, respectively 1,470,800 917,300
Prepaid assets 642,900 100,000
------------- ------------
Total current assets 87,139,500 11,661,600
------------- ------------
Property and equipment, net 4,557,600 3,302,000
Deferred offering costs -- 568,700
Deposits 305,800 125,400
------------- ------------
Total assets $ 92,002,900 $ 15,657,700
============= ============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued expenses $ 8,346,500 $ 6,413,200
Accrued compensation 707,600 181,700
Guide fees payable 450,400 462,400
Deferred revenue 16,600 --
Current portion of notes payable 364,600 154,000
Current installments of obligations under capital leases 189,000 219,000
------------- ------------
Total current liabilities 10,074,700 7,430,300
------------- ------------
Notes payable, excluding current portion 776,600 620,600
Deferred rent 41,200 47,700
Obligations under capital leases, excluding current installments 126,100 149,400
Redeemable convertible preferred stock -- 32,071,700
Stockholders' equity (deficit):
Preferred stock, $0.001 par value; 5,000,000 shares authorized,
no shares issued and outstanding -- --
Common stock, $0.001 par value; 50,000,000 shares authorized,
12,057,635 and 2,202,558 shares issued and outstanding
at March 31, 1999 and December 31, 1998, respectively 12,100 2,200
Additional paid-in capital 123,186,100 3,231,000
Deferred compensation (3,635,600) (1,238,900)
Accumulated deficit (38,578,300) (26,656,300)
------------- ------------
Total stockholders' equity (deficit) 80,984,300 (24,662,000)
------------- ------------
Commitments and contingencies - -
Total liabilities and stockholders' equity (deficit) $ 92,002,900 $ 15,657,700
============= ============
</TABLE>
See accompanying notes to interim condensed financial statements.
3
<PAGE>
MiningCo.com, Inc.
Condensed Statements of Operations
Three months ended March 31,
----------------------------
1999 1998
------------ -----------
(Unaudited) (Unaudited)
Revenues $ 2,367,400 $ 152,000
Cost of revenues 2,197,200 538,200
Non-cash compensation 3,616,600 18,000
------------ -----------
Gross profit (loss) (3,446,400) (404,200)
------------ ----------
Operating expenses:
Sales and marketing 5,257,000 301,100
General and administrative 1,892,900 581,000
Product development 970,200 461,200
Non-cash compensation 374,000 200,000
------------ --------
Total operating expenses 8,494,100 1,543,300
------------ --------
Loss from operations (11,940,500) (1,947,500)
Other income (expense), net 18,500 (477,600)
------------ ----------
Net loss (11,922,000) 2,425,100)
Cummulative dividends and accretion (659,600) --
------------ ----------
Net loss attributable to common stockholders $(12,581,600) $(2,425,100)
============ ==========
Net loss per common share $ (4.07) $ (1.43)
============ ==========
Weighted average shares outstanding 3,094,959 1,695,894
============ ==========
See accompanying notes to interim condensed financial statements.
4
<PAGE>
MiningCo.com, Inc.
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1999 1998
------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net Loss $(11,922,000) $(2,425,100)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 422,900 90,400
Amortization of debt discount and issuance costs -- 211,600
Non-cash compensation expense 3,990,600 218,000
Deferred interest on debt -- 254,400
Other (6,400) 800
Changes in operating assets and liabilities:
Accounts receivable, net (553,500) 31,000
Other assets (723,300) (8,200)
Accounts payable and accrued expenses 1,933,300 (163,100)
Accrued compensation 525,900 26,000
Guide fees payable (12,000) (4,300)
Deferred revenue 16,600 (32,500)
------------ -----------
Net cash used in operating activities (6,327,900) (1,801,000)
------------ -----------
Cash flows used in investing activities:
Capital expenditures (1,678,500) (13,100)
------------ -----------
Net cash used in investing activities (1,678,500) (13,100)
------------ -----------
Cash flows from financing activities:
Proceeds from issuance of common stock related to initial
public offering and concurrent placement, net 81,049,000 --
Proceeds from issuance of common stock in connection with
the exercise of warrants and options 115,400 1,600
Proceeds from secured credit facility 781,300 150,000
Principal payments under secured credit facility (73,200) (9,200)
Proceeds from issuance of loans payable -- 1,800,000
Principal payments under capital leases (53,300) (39,700)
Deferred offering/financing costs 568,700 (34,800)
------------ -----------
Net cash provided by financing activities 82,387,900 1,867,900
------------ -----------
Net increase in cash and cash equivalents 74,381,500 53,800
Cash and cash equivalents at beginning of period 10,644,300 303,200
------------ -----------
Cash and cash equivalents at end of period $ 85,025,800 $ 357,000
============ ===========
</TABLE>
See accompanying notes to interim condensed financial statements.
5
<PAGE>
MININGCO.COM, INC.
NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS
(1) Organization and Business
MiningCo.com, Inc. ("MiningCo") was incorporated in New York on June 27,
1996 (inception) as General Internet Inc. and commenced operations on that date.
In December 1998, MiningCo reincorporated in Delaware. MiningCo's Internet
service, miningco.com, is an Internet news, information and entertainment
service. MiningCo's network is comprised of numerous GuideSites, each of which
focuses on a particular topic and is managed by a human guide. The guides are
independent contractors who are compensated based on the greater of a monthly
guarantee or a percentage of advertising revenues generated by all of the
GuideSites. MiningCo's primary revenue source is the sale of advertising.
MiningCo's business is characterized by rapid technological change, new
product and service development and evolving industry standards. Inherent in
MiningCo's business are various risks and uncertainties, including its limited
operating history, uncertain profitability, history of losses, anticipated
continuing losses, the dependence on the Internet and risks associated with
Internet advertising.
(2) Summary of Operations and Significant Accounting Policies
(a) Initial Public Offering and Concurrent Placement
On February 23, 1999, MiningCo and Comcast Interactive Investments, Inc.
("Comcast") entered into a common stock purchase agreement pursuant to which
MiningCo agreed to sell $2,500,000 of common stock to Comcast. These common
shares were purchased directly from MiningCo in a private placement transaction
at a price of 93% of the initial public offering price per share. The
underwriters did not receive any discount or commission related to this
transaction. The closing of the concurrent placement was contingent upon the
closing of MiningCo's initial public offering ("IPO").
On March 24, 1999, MiningCo completed its IPO which resulted in the
issuance of 3,450,000 shares of common stock at $25.00 per share (which included
450,000 shares in connection with the exercise of the underwriters'
over-allotment option) and the concurrent placement of 107,527 shares to Comcast
at $23.25 per share. In addition, upon the closing of the IPO, 3,346,715,
6,597,596 and 7,301,811 shares of Series A, B and C convertible preferred stock,
respectively, converted into 6,139,640 shares of common stock and $341,300 in
unsecured promissory notes payable was forgiven. Net proceeds from the offering
and concurrent placement, after underwriting and placement agent fees of $6.0
million and offering costs of $1.7 million were approximately $81.0 million.
6
<PAGE>
MININGCO.COM, INC.
NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS
(Continued)
(b) Unaudited Interim Financial Information
The interim financial statements as of March 31, 1999 and for the three
months ended March 31, 1999 and 1998 have been prepared by MiningCo and are
unaudited. In the opinion of management, the unaudited interim financial
statements have been prepared on the same basis as the annual financial
statements and reflect all adjustments, which include only normal recurring
adjustments, necessary to present fairly the financial position of MiningCo as
of March 31, 1999 and the results of its operations and its cash flows for the
three month periods ended March 31, 1999 and 1998. The financial data and other
information disclosed in these notes to financial statements related to these
periods are unaudited. The results for the three month period ended March 31,
1999 are not necessarily indicative of the results to be expected for any
subsequent quarter or the entire fiscal year ending December 31, 1999. The
balance sheet at December 31, 1998 has been derived from audited financial
statements at that date.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission's rules and regulations. It is suggested that these unaudited interim
financial statements be read in conjunction with MiningCo's audited financial
statements and notes thereto for the year ended December 31, 1998 as included in
MiningCo's Registration Statement on Form S-1 filed with the Securities and
Exchange Commission in March 1999.
(c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(d) Cash and Cash Equivalents
MiningCo considers all highly liquid securities with original maturities
of three months or less to be cash equivalents, which principally consist of
money market accounts.
(e) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method over
three years, which is the estimated useful life of the related assets. Leasehold
improvements are amortized over their estimated useful lives, or the term of the
related lease, whichever is shorter. Equipment under capital leases is stated at
the present value of minimum lease payments and is amortized using the
straight-line method over the shorter of the lease term or the estimated useful
life of the assets.
7
<PAGE>
MININGCO.COM, INC.
NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS
(Continued)
(f) Deferred Offering Costs
Deferred offering costs at December 31, 1998 represented costs incurred in
connection with MiningCo's IPO. These costs were charged against additional paid
in capital at the close of the IPO on March 24, 1999.
(g) Income Taxes
MiningCo accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in results of operations in
the period that includes the enactment date.
(h) Revenue and Expense Recognition
Revenue Recognition
To date, substantially all of MiningCo's revenues have been derived from
the sale of advertisements on miningco.com. MiningCo offers numerous sizes and
types of advertising placement, including banner advertisements, button
advertisements, text links and sponsorship programs. Advertising revenues are
derived principally from short-term advertising contracts in which MiningCo
typically guarantees a minimum number of impressions to advertisers over a
specified period of time for a fixed fee. Revenues from advertising sales are
recognized ratably in the period in which the advertisement is displayed,
provided that no significant MiningCo obligations remain, at the lesser of the
ratio of impressions delivered over total guaranteed impressions or the straight
line basis over the term of the contract, and collection of the resulting
receivable is probable. Payments received from advertisers prior to displaying
their advertisements on miningco.com are recorded as deferred revenue and are
recognized as revenue ratably as the advertisements are displayed. Pursuant to
its agreements with advertisers, MiningCo generally guarantees a minimum number
of impressions (times that an advertisement appears in pages viewed by the users
of miningco.com) to be delivered over a specified period of time for a fixed
fee. To the extent minimum guaranteed impression levels are not met ratably over
the contract period, MiningCo defers recognition of the corresponding pro-rata
portion of the revenues relating to such unfulfilled obligations until the
guaranteed impression levels are achieved. When there is no guarantee of a
minimum number of impressions, MiningCo recognizes revenues in the period in
which the advertisement is displayed. MiningCo's short-term advertising
agreements are generally terminable by either party upon relatively short
notice. MiningCo's agreements with its electronic commerce partners are
typically longer in length, and in certain cases, entitle MiningCo to a share of
revenues generated by sales over a particular threshold resulting from direct
links from miningco.com. To date, MiningCo has recognized minimal revenue from
these revenue sharing agreements. MiningCo's revenue derived from these revenue
sharing agreements will be recognized by MiningCo upon notification from its
advertisers and electronic commerce partners of sales attributable to
miningco.com.
8
<PAGE>
MININGCO.COM, INC.
NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS
(Continued)
A portion of MiningCo's revenues are from barter advertisements
(agreements whereby MiningCo trades advertisements on miningco.com in exchange
for advertisements on third-party web sites). Barter advertising revenues and
expenses are recorded at the fair market value of services provided or received,
whichever is more determinable in the circumstances. Revenue from barter
advertising transactions is recognized as income when advertisements are
delivered on miningco.com. Barter expense is recognized when MiningCo's
advertisements are run on third-party web sites, which is typically in the same
period when barter revenue is recognized. Barter expense is included as a
component of cost of revenues. Barter advertising revenues and expenses were
$237,000 and $13,000 for the three months ended March 31, 1999 and 1998,
respectively.
At March 31, 1999, accounts receivable include approximately $637,000 of
unbilled receivables, $393,900 of which have been subsequently billed. Such
unbilled receivables represent the recognized sales value of short term
advertising contracts that were earned but not billable to customers at March
31, 1999. The terms of the related advertising contracts typically require
billing at the end of 30, 60 or 90 days from the signing of the contract.
Expense Recognition-Guide Compensation
MiningCo's guides are compensated at an amount equal to the greater of a
monthly minimum guarantee or a percentage of net advertising revenues generated
by the entire GuideSite network, which is distributed among the guides based on
the user traffic on their respective GuideSites. Net advertising revenues has
been defined as total advertising revenues received less particular types of
non-cash revenues, third-party advertising sales representative organization
fees and marketing expenses. Guides are currently entitled to a percentage of
net transaction revenues and net syndication revenues. In addition, management
may distribute a semi-annual discretionary bonus to guides. Guide compensation
is included as a component of cost of revenues.
Expense Recognition-Distribution and Syndication Partnerships
MiningCo has entered into distribution and syndication partnership
agreements that drive traffic to miningco.com. Through these partnerships,
MiningCo provides content to a partner's web site, and users can link to
miningco.com by clicking on the content. MiningCo has agreements to provide
content to some of the leading Internet service providers, content web sites,
search engines/Internet directories and broadband cable-related sites. These
short term agreements typically require MiningCo to make payments, which are
expensed, that are either fixed or are based on the amount of user traffic
directed from the partner's site to miningco.com. MiningCo's fixed fees are paid
on a monthly basis and contracts in which fees are paid in advance are deferred
and amortized over the contract term.
9
<PAGE>
MININGCO.COM, INC.
NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS
(Continued)
(i) Product Development Expenses
Product development expenses include personnel and consulting costs
associated with the design, development and testing of miningco.com and
MiningCo's systems and editorial personnel costs. MiningCo generally expenses
its product development expenses as incurred. Software development costs are
required to be capitalized when a product's technological feasibility has been
established by completion of a working model of the product. To date, completion
of a working model of MiningCo's service and general release have substantially
coincided. As a result, MiningCo has not capitalized any software development
costs since those costs have not been significant.
(j) Basic and Diluted Net Loss Per Common Share
MiningCo adopted SFAS No. 128, "Computation of Earnings Per Share," during
the year ended December 31, 1997. In accordance with SFAS No. 128 and the SEC
Staff Accounting Bulletin No. 98, basic earnings per share is computed using the
weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consist of the
incremental common shares issuable upon the conversion of the convertible
preferred stock (using the if-converted method) and shares issuable upon the
exercise of stock options and warrants (using the Treasury Stock method); common
equivalent shares are excluded from the calculation if their effect is
anti-dilutive. Pursuant to SEC Staff Accounting Bulletin No. 98, all options,
warrants or other potentially dilutive instruments issued for nominal
consideration, prior to the anticipated effective date of an initial public
offering (including the IPO), are required to be included in the calculation of
basic and diluted net loss per share, as if they were outstanding for all
periods presented. As a result, MiningCo has included 218,890 shares of common
stock in the calculation of basic and diluted net loss per common share for the
three month period ended March 31, 1998 which relate to certain investor
warrants issued for nominal consideration, all of which were exercised in
December 1998 when MiningCo exercised its right to call those warrants.
Diluted net loss per common share for the three months ended March 31,
1999 and 1998, does not include the effect of options to purchase 2,346,528 and
932,590 shares of common stock and 65,860 and 379,320 warrants to purchase
common stock, respectively.
(k) Stock Split
All common share and per share amounts in the accompanying financial
statements have been adjusted retroactively for a 1.00-for-2.809 reverse stock
split of MiningCo's common stock which was approved by the Board of Directors
and stockholders and effected on March 19, 1999.
10
<PAGE>
MININGCO.COM, INC.
NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS
(Continued)
(l) Recent Accounting Pronouncements
As of January 1, 1998, MiningCo adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income", which establishes standards for reporting and
displaying comprehensive income and its components in a full set of general
purpose financial statements. The adoption of this standard has had no impact on
MiningCo's financial statements. Accordingly, MiningCo's comprehensive net loss
is equal to its net loss for all periods presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information", which establishes standards for the way
that a public enterprise reports information about operating segments in annual
financial statements, and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. In the initial
year of application, comparative information for earlier years must be restated.
MiningCo has determined that it does not have any separately reportable business
segments.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), which provides
guidance for determining whether computer software is internal-use software and
on accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. MiningCo does not expect the adoption of
SOP 98-1 to have a material effect on its capitalization policy.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, and for hedging activities. SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. This
statement is not expected to affect MiningCo as MiningCo currently does not
engage or plan to engage in derivative instruments or hedging activities.
11
<PAGE>
MININGCO.COM, INC.
NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS
(Continued)
(3) Property and Equipment
Property and equipment consists of the following:
March 31, 1999 December 31, 1998
--------------- -----------------
(Unaudited)
Equipment and computer hardware, including
assets under capital leases of $664,700 $ 5,660,200 $ 4,062,200
Leasehold improvements 104,500 32,400
Furniture and fixtures 26,200 17,800
----------- -----------
5,790,900 4,112,400
Less accumulated depreciation and
amortization, including assets under
capital leases of $299,400,
and $239,900, respectively (1,233,300) (810,400)
----------- -----------
Total $ 4,557,600 $ 3,302,000
=========== ===========
(4) Redeemable Convertible Preferred Stock
The following are the components of the redeemable convertible preferred
stock at December 31, 1998:
Series A: Par value $0.001; 3,346,715 shares authorized, issued and outstanding
at December 31, 1998; liquidation preference of $1.5 per share plus unpaid
dividends of 9% per annum ($5,325,700 in the aggregate at December 31, 1998).
Series B: Par value $0.001; 6,597,596 shares authorized, issued and outstanding
at December 31, 1998; liquidation preference of $1.8 per share plus unpaid
dividends of 9% per annum ($12,602,100 in the aggregate at December 31, 1998).
Series C: Par value $0.001; 8,717,949 shares authorized, 7,301,811 issued and
outstanding at December 31, 1998; liquidation preference of $1.95 per share plus
unpaid dividends of 9% per annum ($14,403,100 in the aggregate at December 31,
1998).
Upon the closing of MiningCo's IPO, 3,346,715, 6,597,596 and 7,301,811
shares of Series A, B and C convertible preferred stock, respectively, converted
into 6,139,640 shares of common stock.
12
<PAGE>
MININGCO.COM, INC.
NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS
(Continued)
(5) Concentration of Credit Risk
Financial instruments which subject MiningCo to concentrations of credit
risk consist primarily of cash and cash equivalents, short term investments and
accounts receivable. MiningCo maintains cash and cash equivalents with various
domestic financial institutions. MiningCo performs periodic evaluations of the
relative credit standing of these institutions. From time to time, MiningCo's
cash balances with any one financial institution may exceed Federal Deposit
Insurance Corporation insurance limits.
MiningCo's customers are concentrated in the United States. MiningCo
performs ongoing credit evaluations and establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of customers, historical
trends and other information. To date, such losses have been within management's
expectations.
For the three months ended March 31, 1999 and 1998, there were zero and
two customers, respectively, that accounted for more than 10% of revenue
generated by MiningCo and zero and three customers, respectively, that accounted
for more than 10% of gross receivables.
(6) Non-cash Compensation
MiningCo recorded a non-cash charge of $3.6 million for guide
compensation. MiningCo has granted fully vested, non-qualified stock options to
purchase 199,500 shares of common stock at an exercise price of $25.00 per share
to a substantial majority of its guides. The options have a two year term.
Accordingly, such amount was recorded as a non-cash compensation expense in
MiningCo's statement of operations with an offsetting increase in additional
paid in capital.
(7) Stock Option Plan
MiningCo's Board of Directors has authorized 1,886,800 shares at December
31, 1998 of its common stock for issuance pursuant to its 1998 Stock
Option/Stock Issuance Plan (successor plan to MiningCo's 1997 Employee Incentive
Stock Option Plan). In 1999, the Board of Directors and shareholders increased
the authorized number of shares authorized under the plan by 1,338,085 shares,
effectively authorizing 3,224,885 in the aggregate. These options have ten year
terms and have been issued at the fair market value of MiningCo's common stock
on the date of the applicable grant (except for certain 1998 options issued with
exercise prices less than the deemed fair value at the date of grant). Incentive
options granted to stockholders who own more than 10% of the outstanding stock
of MiningCo must be issued at 110% of the fair market value of the stock on the
date that the options are granted.
13
<PAGE>
MININGCO.COM, INC.
NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS
(Continued)
(8) Employment Agreements
During January 1999, MiningCo entered into employment agreements with two
employees. The employment arrangements provide for minimum salary levels,
incentive compensation and severance benefits, among other items. MiningCo
granted 133,500 options in the aggregate to the two employees. The exercise
price of the options was $4.21 per share. As a result, MiningCo recorded
deferred compensation expense in the amount of $2.8 million in the first quarter
of 1999 relating to the 133,500 options for the difference between the deemed
fair value of MiningCo's common stock (the initial public offering price of
$25.00 for accounting purposes) and the exercise price of the options at the
grant date of $4.21 per share. This amount is presented as a reduction of
shareholders' equity and amortized over the four-year vesting period of the
applicable options.
(9) Employee Stock Purchase Plan
MiningCo's Employee Stock Purchase Plan ("ESPP") was adopted by the Board
of Directors in February 1999. The ESPP will provide eligible employees of
MiningCo the opportunity to apply a portion of their compensation to the
purchase of shares of common stock at a 15% discount. MiningCo has reserved
125,000 authorized but unissued shares of common stock for issuance under the
ESPP.
(10) Lease Line of Credit
During the first quarter of 1999, MiningCo entered into a lease line of
credit for $781,300 to finance capital equipment. Payments due are $232,200 in
1999, $268,000 in 2000, $273,300 in 2001 and $7,000 in 2002. The effective rate
of the credit facility is 16%.
(11) Supplemental Cash Flow Information
The amount of cash paid for interest was $33,852 and $11,764 for the three
months ended March 31, 1999 and 1998, respectively.
In March 1999, MiningCo converted all outstanding shares of convertible
preferred stock into 6,139,640 shares of common stock and $341,300 of unsecured
promissory notes payable was forgiven.
14
<PAGE>
MININGCO.COM, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF MININGCO CONTAINS FORWARD-LOOKING STATEMENTS RELATING TO FUTURE
EVENTS AND THE FUTURE PERFORMANCE OF MININGCO WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT OF 1993, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. STOCKHOLDERS ARE CAUTIONED THAT SUCH
STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. MININGCO'S ACTUAL RESULTS AND TIMING
OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT
LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS THAT MAY AFFECT FUTURE RESULTS"
AND ELSEWHERE IN THIS REPORT AND IN MININGCO'S OTHER PUBLIC FILINGS MADE WITH
THE SECURITIES AND EXCHANGE COMMISSION.
OVERVIEW
miningco.com is a leading Internet news, information and entertainment
service. Our service is a network of over 650 web sites, each of which focuses
on a specific topic and is managed by a knowledgeable human guide. Through these
GuideSites(TM), the guides create and maintain Internet directories that include
approximately 400,000 pre-screened links to other web sites, which are
summarized by the guides, enabling users to quickly find relevant Internet
content. The GuideSite network also provides original high-quality content,
consisting primarily of text, that is created regularly by the guides on
thousands of subjects. Additionally, since our GuideSites focus on specific
topics, users with like interests can form communities by communicating with
each other directly or through the guides. We believe that our service offers an
enjoyable and efficient Internet experience for users across a broad range of
topics, creating highly targeted marketing opportunities for advertisers and for
businesses that market their products and services over the Internet. According
to Media Metrix, over 5.8 million unique users visited miningco.com in March
1999, making miningco.com the third largest news/information/entertainment
Internet property in terms of audience reach and the 23rd largest Internet
property overall in that month.
To date, substantially all of MiningCo's revenues have been derived from
the sale of advertisements on miningco.com. These sales have been made both to
companies that advertise their products and services over the Internet and to
electronic commerce marketers. MiningCo expects to derive its revenue
principally from the sale of advertising on miningco.com for the foreseeable
future. MiningCo currently offers advertisers and electronic commerce partners
numerous sizes and types of advertising placement, including banner
advertisements, button advertisements and text links. MiningCo also offers
sponsorship programs and other promotional opportunities to build brand
awareness and drive user traffic to an advertiser's or electronic commerce
partner's web site. To date, sales of advertisements on miningco.com have been
generated primarily by MiningCo's internal advertising sales organization and,
to a lesser extent, by third-party advertising sales representatives.
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Revenues from advertising sales are recognized ratably in the period in
which the advertisement is displayed, provided that no significant MiningCo
obligations remain, at the lesser of the ratio of impressions delivered over
total guaranteed impressions or the straight line basis over the term of the
contract, and collection of the resulting receivable is probable. Payments
received from advertisers prior to displaying their advertisements on
miningco.com are recorded as deferred revenues and are recognized as revenues
ratably as the advertisements are displayed. Pursuant to its agreements with
advertisers, MiningCo generally guarantees a minimum number of impressions, or
times that an advertisement is delivered to users of miningco.com, to be
delivered over a specified period of time for a fixed fee. To the extent these
minimum guaranteed impression levels are not met ratably over the contract
period, MiningCo defers recognition of the corresponding pro-rata portion of the
revenues related to such unfulfilled obligation until the guaranteed impression
levels are achieved. When there is no guarantee of a minimum number of
impressions, MiningCo recognizes revenue in the period in which the
advertisement is displayed.
For both quarters ended March 31, 1999 and 1998, approximately 10% of
MiningCo's revenues were generated by agreements where MiningCo traded
advertisements on miningco.com in exchange for advertisements on third-party web
sites without receiving any cash payment. The corresponding expenses from these
barter arrangements, which equal the amount of the barter revenues from these
arrangements, are included as a component of cost of revenues.
Advertisers on miningco.com enter into short-term agreements, typically
one to three months in duration. MiningCo's agreements with its electronic
commerce partners are typically longer in duration, ranging from six months to
two years and, in particular cases, these agreements entitle MiningCo to a share
of revenues generated by sales of merchandise and services over a particular
threshold resulting from direct links from miningco.com. Through March 31, 1999,
MiningCo had not recognized any material revenues from these revenue sharing
agreements. Any revenues MiningCo derives from these revenue sharing agreements
will be recognized by MiningCo upon notification from its advertisers and
electronic commerce partners of sales attributable to miningco.com.
Guide compensation, including any compensation that results from the grant
of stock options to the guides, is included as a component of cost of revenues.
Guides are currently compensated at an amount equal to the greater of a monthly
minimum guarantee or a percentage of net advertising revenues generated by the
entire GuideSite network, which is distributed among the guides based on the
user traffic on their respective GuideSites. Guides are also currently entitled
to share a percentage of net transaction revenues and net syndication revenues.
MiningCo has granted fully vested, non-qualified stock options to purchase
199,500 shares of common stock to a substantial majority of its guides. The
exercise price per share of these options is $25.00 and the options have two
year terms. Since the guides are independent contractors, MiningCo has recorded
non-cash compensation expense of approximately $3.6 million representing the
fair market value of the options at the date of grant. This non-cash
compensation expense has been included as a component of cost of revenues during
the quarter ended March 31, 1999.
To date, MiningCo has recorded deferred compensation expense of
approximately $4.5 million in connection with the grant of stock options to
employees and directors, representing the difference between the deemed value of
the common stock at the date of grant for accounting purposes and the exercise
price of the related options. This expense is amortized over the vesting period,
typically four years, of the applicable options. MiningCo currently expects to
amortize the following amounts of deferred compensation expense annually:
1999--$1.1 million; 2000--$1.0 million; 2001--$1.0 million; and 2002--$0.9
million. Amortization of deferred compensation expense was $478,000 for the year
ended December 31, 1998 and $379,000 for the quarter ended March 31, 1999 of
which the $5,000 related to deferred compensation expense for the grant of
options to operations personnel has been included in cost of revenues.
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Results of Operations
Revenues
Revenues consist primarily of advertising revenues on miningco.com.
Revenues increased from $152,000 for the three months ended March 31, 1998 to
$2.4 million for the three months ended March 31, 1999. This period-to-period
growth was primarily attributable to an increase in (1) the number of
advertisers and the average commitment per advertiser, (2) our web site traffic
and (3) the number of our sales people. MiningCo anticipates that revenues from
advertising will continue to account for substantially all of MiningCo's
revenues for the foreseeable future, and that barter revenues will remain
relatively constant as a percentage of MiningCo's total revenues.
Cost of Revenues
Cost of revenues increased to $5.8 million for the three months ended
March 31, 1999 from $556,000 for the three months ended March 31, 1998. Cost of
revenues consists primarily of guide compensation, third party Internet
advertising sales organization fees, salaries of operations personnel, site
hosting and depreciation costs and barter advertising expenses. The absolute
dollar increase in cost of revenues was due to an increase in site hosting costs
to support the increase in web site traffic, as well as an increase in equipment
costs, depreciation and staff costs required to support the expansion of our
site and services. In addition, cost of revenues includes the non-cash
compensation expense relating to MiningCo's granting stock options to the guides
at the closing of the initial public offering to purchase 199,500 shares of
common stock. This non-cash compensation charge, which is included as a
component of cost of revenues, is based on the value of the options granted to
the guides and amounted to $3.6 million for the three months ended March 31,
1999.
Operating Expenses
Sales and Marketing
Sales and marketing expenses consist primarily of online and offline
advertising costs, salaries and commissions of internal sales and marketing
personnel, public relations costs, payment to third-party Internet companies to
drive user traffic to miningco.com and other marketing related expenses. Sales
and marketing expenses were $5.3 million for the three months ended March 31,
1999 and $301,000 for the three months ended March 31, 1998. This
period-to-period increase was primarily attributable to the expansion of
MiningCo's offline marketing and online advertising efforts as well as increased
sales and marketing personnel and related expenses. In addition, sales and
marketing expenses in absolute dollars have increased as MiningCo has continued
to develop and implement its branding and marketing campaigns. MiningCo expects
that sales and marketing expenses will increase significantly in absolute
dollars for the foreseeable future, particularly in the near term, as MiningCo
implements significant new branding and marketing campaigns. MiningCo also
expects that sales and marketing expenses will continue to increase in absolute
dollars for the foreseeable future as MiningCo increases expenditures for
marketing, promotion and branding, expands its internal advertising sales force
and hires additional marketing personnel.
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General and Administrative
General and administrative expenses consist primarily of salaries and
related costs for general corporate functions, including finance, accounting,
facilities and legal expenses, and fees for professional services. General and
administrative expenses were $1.9 million for the three months ended March 31,
1999 and $580,000 for the three months ended March 31, 1998. This
period-to-period increase was primarily attributable to increased salaries and
related expenses associated with hiring additional personnel, facility-related
expenses and costs relating to MiningCo's initial public offering. MiningCo
expects that it will incur additional general and administrative expenses as it
hires additional personnel and incurs additional costs related to the growth of
its business and its operation as a public company, including directors' and
officers' liability insurance, investor relations programs and professional
service fees. Accordingly, MiningCo anticipates that general and administrative
expenses will continue to increase in absolute dollars in future periods.
Product Development
Product development expenses include personnel and consulting costs
associated with the design, development and testing of miningco.com and
MiningCo's systems and editorial personnel costs. MiningCo expenses its product
development costs as incurred. Product development expenses were $1.0 million
for the three months ended March 31, 1999 and $461,000 for the three months
ended March 31, 1998. This period-to-period increase was primarily attributable
to increased staffing levels to support the growth and development of
miningco.com. MiningCo believes that timely deployment of new and enhanced
features and technology are critical to attaining its strategic objectives.
Accordingly, MiningCo intends to continue recruiting and hiring experienced
product development personnel and to make additional investments in product
development. MiningCo expects that product development expenditures will
increase in absolute dollars in future periods.
Non-cash Compensation Expense
During 1998 and the first quarter of 1999, MiningCo recorded deferred
compensation expense of $4.5 million in the aggregate for the difference between
the exercise price and the deemed fair value of stock options granted by
MiningCo to employees, consisting of operational and non-operational personnel,
and directors. This amount is being amortized over the vesting periods of the
individual stock options, which are typically four years. During the three
months ended March 31, 1999, amortization of these non-cash charges for
non-operational personnel amounted to $374,000. During the three months ended
March 31, 1999, amortization of these non-cash charges for operational personnel
was $5,000; which amount is included as a component of gross profit.
Other Income (Expense), Net
Other income (expense), net includes interest expense related to
MiningCo's debt and capital lease obligations, net of interest income from
MiningCo's cash and cash equivalents. Other income (expense), net was $19,000
for the three months ended March 31, 1999 and $(478,000) for the three months
ended March 31, 1998. The increase in other income was primarily attributable to
the decrease in notes payable.
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Cumulative Dividends and Accretion of Convertible Preferred Stock
Cumulative dividends on MiningCo's convertible preferred stock and
accretion of costs associated with the convertible preferred stock issuance
amounted to $659,600 and $0 for the three months ended March 31, 1999 and 1998.
Up to the date of the IPO, each share of convertible preferred stock was
entitled to a cumulative dividend at a rate of $0.135, $0.162 and $0.176 per
share per annum for the Series A, B and C convertible preferred stock,
respectively. Upon the close of the IPO, 3,346,715, 6,597,596 and 7,301,811
shares of Series A, B and C convertible preferred stock, respectively, converted
into an aggregate of 6,139,640 shares of common stock.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, MiningCo has financed its operations primarily
through the private placement of equity securities, the incurrence of
indebtedness and more recently, from its initial public offering and concurrent
placement. In March 1999, MiningCo received net proceeds of approximately $81.0
million from its initial public offering and concurrent private placement of
shares of MiningCo's common stock.
Net cash used in operating activities was $6.3 million for the three
months ended March 31, 1999 and $1.8 million for the three months ended March
31, 1998. Net cash used in operating activities for these periods was primarily
attributable to MiningCo's net losses during these periods, adjusted for certain
non-cash items, and a higher level of accounts receivable resulting from an
increase in MiningCo's revenues, which was partially offset by increases in
accounts payable, accrued expenses and deferred revenues.
Net cash used in investing activities was $1.7 million for the three
months ended March 31, 1999 and $13,000 for the three months ended March 31,
1998. All net cash used in investing activities related to capital expenditures,
primarily for the acquisition of equipment.
Net cash provided by financing activities was $82.4 million for the three
months ended March 31, 1999 and $1.9 million for the three months ended March
31, 1998. Net cash provided by financing activities for the three months ended
March 31, 1999 consisted primarily of approximately $81.0 million in net
proceeds received by MiningCo in connection with the closing of its initial
public offering and concurrent placement in March 1999 and $781,300 from a
secured credit facility. Net cash provided by financing activities for the three
months ended March 31, 1998 consisted primarily of $1.8 million of net proceeds
received by MiningCo from the issuance of loans payable.
As of March 31, 1999, MiningCo had $85.0 million of cash and cash
equivalents. MiningCo's principal commitments consist of obligations outstanding
under capital and operating leases and notes payable. Although MiningCo has no
material commitments for capital expenditures, management anticipates that it
will experience a substantial increase in its capital expenditures and lease
commitments consistent with its anticipated growth in operations, infrastructure
and personnel. MiningCo currently anticipates that it will continue to
experience significant growth in its operating expenses for the foreseeable
future and that its operating expenses will be a material use of MiningCo's cash
resources. MiningCo believes that the existing cash and cash equivalents and
short-term investments will be sufficient to meet its anticipated cash needs for
working capital and capital expenditures for at least the next 12 months.
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MiningCo's ability to generate significant revenues is uncertain. MiningCo
has incurred substantial costs to create, launch and enhance miningco.com and to
grow its business. At March 31, 1999, MiningCo had an accumulated deficit of
$38.6 million. MiningCo expects losses from operations and negative cash flow to
continue for the foreseeable future as a result of its expansion plans and its
expectation that its operating expenses, particularly sales and marketing
expenses, will increase significantly in the next several years. Although
MiningCo has experienced revenue growth in recent periods, MiningCo's revenues
may not remain at their current level or increase in the future. If MiningCo's
revenues do not increase substantially, MiningCo may not achieve profitability,
which would have a material adverse effect on MiningCo's business, results of
operations and financial condition. Even if MiningCo achieves profitability, it
may not sustain or increase profitability on a quarterly or annual basis in the
future.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept or recognize only two-digit entries in the date code field. These
systems may recognize a date using "00" as the year 1900 rather than the year
2000. As a result, computer systems and/or software used by many companies and
governmental agencies may need to be upgraded to comply with Year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities.
MiningCo is exposed to the risk that the systems on which it depends to
conduct its operations are not Year 2000 compliant.
State of Readiness. MiningCo has substantially completed the process of
determining the Year 2000 readiness of its information technology systems, which
includes the hardware and software necessary to provide and deliver miningco.com
and its non-information technology systems, including telephone systems and
other office equipment used internally. MiningCo's assessment plan consists of
the following steps:
o evaluating MiningCo's date dependent code, software and hardware and
evaluating external dependencies
o quality assurance testing of MiningCo's internally-developed
proprietary software and systems incorporated in miningco.com
o contacting third-party vendors and licensors of material hardware,
software and services that are related to the delivery of
miningco.com
o contacting vendors of material non-information technology systems
used by MiningCo
o formulating repair or replacement requirements and implementing
corrective measures
o evaluating the need for, and preparing and implementing, if
required, a contingency plan.
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o To date, MiningCo's assessment has determined the following:
o Internally developed software and systems have been checked for date
dependent code, and all material files and systems are Year 2000
compliant. MiningCo believes that recently installed code is also
Year 2000 compliant.
o MiningCo has been informed by vendors of material hardware and
software components of its information technology systems that the
products used by MiningCo are currently Year 2000 compliant.
o MiningCo's hosting service, Frontier Global Center, has certified
that its systems are Year 2000 compliant.
o Commercial software upon which MiningCo is dependent is either Year
2000 compliant or will be upgraded to be compliant in the normal
course of business through upgrades or installation of software
patches.
o Substantially all hardware used in MiningCo's network operations and
all of the hardware used in its office operations has been certified
as Year 2000 compliant by its vendors.
o MiningCo's telephone system, fax machines and mail systems have been
certified as Year 2000 compliant.
o MiningCo's landlords and third-party advertising sales
representative and servicing organizations have not yet provided
MiningCo with information regarding their Year 2000 compliance.
While MiningCo has assessed the Year 2000 readiness of each of its
material internal systems, it will not conduct an end-to-end system test until
the second quarter of 1999. Accordingly, MiningCo cannot yet assess whether its
internal system, as a whole, is Year 2000 compliant. In addition, MiningCo will
continue to attempt to obtain verification from all remaining distributors,
suppliers and vendors that their systems are Year 2000 compliant. MiningCo
intends to complete its assessment, and the replacement or remediation of any
non-Year 2000 compliant technologies, by the end of the third quarter of 1999.
Costs. MiningCo estimates that the total cost for its Year 2000 compliance
efforts will be approximately $250,000. Most of these expenses relate to the
operating costs associated with time spent by employees in Year 2000 compliance
matters. If MiningCo encounters unexpected difficulties, or if it is unable to
obtain compliance information from material third parties, it may need to spend
additional amounts to ensure that its systems are Year 2000 compliant.
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Risks. Although MiningCo has received compliance information from its
material third-party vendors, it has not received compliance information from
all of its third-party vendors. In addition, it is possible that MiningCo's
third-party vendors were mistaken in certifying that their systems are Year 2000
compliant. In addition, MiningCo will not conduct an end-to-end system test
until the second quarter of 1999. The failure of MiningCo to fix its internal
systems or to fix or replace material third-party software, hardware or services
on a timely basis could result in lost revenues, increased operating costs and
other business interruptions, any of which could have a material adverse effect
on MiningCo's business, results of operations and financial condition. Moreover,
the failure to adequately address Year 2000 compliance issues could result in
claims of mismanagement and related litigation, which would be costly and
time-consuming to defend.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside MiningCo's control will be Year 2000 compliant. The failure by those
entities to be Year 2000 compliant could result in a systemic failure beyond the
control of MiningCo, such as a prolonged Internet, telecommunications or
electrical failure, which could also prevent MiningCo from delivering
miningco.com, decrease the use of the Internet or prevent users from accessing
miningco.com, any of which would have a material adverse effect on MiningCo's
business, results of operations and financial condition.
Contingency Plan. As discussed above, MiningCo is engaged in an ongoing
Year 2000 assessment and has developed no contingency plans to address the
worst-case scenario that might occur if technologies it is dependent upon
actually are not Year 2000 compliant. The results of MiningCo's Year 2000
simulation testing and the responses received from all third-party vendors and
service providers will be taken into account in determining the need for and
nature and extent of any contingency plans. MiningCo intends to develop any
required contingency plan by the end of the second quarter of 1999.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS RELATING TO FUTURE EVENTS
AND THE FUTURE PERFORMANCE OF MININGCO WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1993, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED. STOCKHOLDERS ARE CAUTIONED THAT SUCH STATEMENTS INVOLVE
RISKS AND UNCERTAINTIES. MININGCO'S ACTUAL RESULTS AND TIMING OF CERTAIN EVENTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE
SET FORTH BELOW AND ELSEWHERE IN THIS REPORT AND IN MININGCO'S OTHER PUBLIC
FILINGS MADE WITH THE SECURITIES AND EXCHANGE COMMISSION.
Because we have only been in business for a short period of time, there is
limited information upon which you can evaluate our business.
We were incorporated in June 1996 and launched miningco.com in April 1997.
Accordingly, you can only evaluate our business based on our limited operating
history. As a young company, we face risks and uncertainties relating to our
ability to successfully implement our business plan. If we are unsuccessful in
addressing these risks and uncertainties, our business, results of operations
and financial condition will be materially adversely affected.
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We have lost money every quarter and every year, and we expect to lose money in
the future.
If our revenues do not increase substantially, we may never become
profitable. We have not generated enough revenues to exceed the substantial
amounts we have spent to create, launch and enhance miningco.com and to grow our
business. Even if we do achieve profitability, we may not sustain or increase
profitability on a quarterly or annual basis in the future.
A portion of our historical revenues have been derived from barter
agreements. In 1998, approximately 10% of our revenues were derived from
agreements where we traded advertisements on miningco.com in exchange for
advertisements on other web sites without receiving any cash payments. We expect
that these barter revenues will continue to account for approximately 10% of our
revenues in the future.
Our costs of revenues combined with our operating expenses have exceeded
our revenues for all quarters. We have historically funded our operations by
selling our stock and not by generating income from our business. At March 31,
1999, our accumulated deficit was $38.6 million. We expect to continue to lose
money for the foreseeable future because we plan to continue to incur
significant expenses.
Fluctuations in our operating results may negatively impact our stock price.
Our quarterly operating results may fluctuate significantly in the future
due to a variety of factors that could affect our revenues or our expenses in
any particular quarter. It is possible that in some future periods our results
of operations may be below the expectations of public market analysts and
investors. In this event, the price of our common stock is likely to fall.
You should not rely on our results of operations during any particular
quarter as an indication of our results for a full year or any other quarter.
Factors that may affect our quarterly results include:
o the demand for advertising on miningco.com;
o the number of users on, and the frequency of their use of,
miningco.com since our advertising revenues are typically based on
user traffic;
o our ability to attract and retain advertisers and electronic
commerce partners;
o our ability to meet the minimum numbers of advertisements that we
are required to deliver to users by many of our advertising
contracts, since our failure to do this would result in our
deferring recognition of the related revenues and would reduce our
available advertising inventory in subsequent periods;
o changes in rates paid for advertising on miningco.com;
o the timing and amount of our costs related to advertising sales and
marketing efforts; and
o fees we may pay for distribution or content or other costs we may
incur as we expand our operations.
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Our operating expenses are based on our expectations of our future
revenues and are relatively fixed in the short term. Given our limited operating
history and our difficulties in accurately estimating the user traffic
historically experienced on our website, user traffic and page views on our
website are difficult to forecast accurately. Consequently, since revenues from
Internet advertising will make up a significant amount of our revenues for the
foreseeable future, our revenues are difficult to forecast accurately. In
particular, we intend to expend significant amounts to expand our internal
advertising sales force and to build brand awareness of miningco.com. We may be
unable to adjust spending quickly enough to offset any unexpected revenue
shortfall. If we have a shortfall in revenues in relation to our expenses, or if
our expenses precede increased revenues, then our results of operations and
financial condition would be materially adversely affected.
Seasonal factors may affect our quarterly operating results.
Seasonality of our user traffic on miningco.com and our advertising
revenues may cause our total revenues to fluctuate. User traffic on web sites
has typically declined during the summer and year-end vacation and holiday
periods. We believe that advertising sales in traditional media, such as
television and radio, generally are lower in the first and third calendar
quarters of each year. Similar seasonal or other patterns may develop in our
business.
We will only be able to execute our business plan if Internet usage grows.
Our business would be adversely affected if Internet usage does not grow.
Internet usage may be inhibited for any of the following reasons:
o the Internet infrastructure may not be able to support the demands
placed on it, and its performance and reliability may decline as
usage grows;
o security and authentication concerns with respect to the
transmission over the Internet of confidential information, such as
credit card numbers, and attempts by unauthorized computer users,
so-called hackers, to penetrate online security systems; and
o privacy concerns, including those related to the ability of web
sites to gather user information without the user's knowledge or
consent.
We will only be able to execute our business plan if Internet advertising
increases.
Our business, results of operations and financial condition would be
materially adversely affected if the Internet advertising market develops more
slowly than we expect or if we are unsuccessful in increasing our advertising
revenues. Revenues from Internet advertising will make up a significant amount
of our revenues for the foreseeable future. Since the Internet advertising
market is new and rapidly evolving, we cannot yet gauge its effectiveness as
compared to traditional advertising media.
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The adoption of Internet advertising, particularly by those entities that
have historically relied upon traditional media for advertising, requires the
acceptance of a new way of conducting business, exchanging information and
advertising products and services. Advertisers that have traditionally relied
upon other advertising media may be reluctant to advertise on the Internet.
These businesses may find Internet advertising to be less effective than
traditional advertising media for promoting their products and services. Many
potential advertising and electronic commerce partners have little or no
experience using the Internet for advertising purposes. Consequently, they may
allocate only limited portions of their advertising budgets to Internet
advertising.
Advertisers and electronic commerce marketers may not advertise on
miningco.com or may pay less for advertising on miningco.com if they do not
believe that they can reliably measure the effectiveness of Internet advertising
or the demographics of the user viewing their advertisements. We use both
internal measurements and measurements provided to us by third parties. If these
third parties are unable to continue to provide these services, we would have to
perform them ourselves or obtain them from another provider. This could cause us
to incur additional costs or cause interruptions in our business while we are
replacing these services. In addition, we are implementing additional systems
designed to record demographic data on our users. If we do not implement these
systems successfully, we may not be able to accurately evaluate the demographic
characteristics of our users. Moreover, "filter" software programs that limit or
prevent advertising from being delivered to an Internet user's computer are
available. Widespread adoption of this software could adversely affect the
commercial viability of Internet advertising.
To the extent that minimum guaranteed impression levels are not met
ratably over the contract period, we defer recognition of the corresponding
pro-rata portion of the revenues related to such unfulfilled obligation until
the guaranteed impression levels are achieved. Advertising based on impressions,
or the number of times an advertisement is delivered to users, comprises
virtually all of our current revenues. To the extent that minimum impression
levels are not achieved for any reason, we may be required to provide additional
impressions after the contract term, which would reduce our advertising
inventory.
Our revenues could be adversely affected if we are unable to adapt to
other Internet advertising pricing models if they are adopted. It is difficult
to predict which, if any, pricing models for Internet advertising will emerge as
the industry standard. This makes it difficult to project our future advertising
rates and revenues.
We may not be able to adapt as Internet technologies and customer demands
continue to evolve.
To be successful, we must adapt to rapidly changing Internet technologies
by continually enhancing miningco.com and introducing new services to address
our customers' changing demands. We could incur substantial costs if we need to
modify our services or infrastructure in order to adapt to changes affecting
providers of Internet services. Our business, results of operations and
financial condition could be materially adversely affected if we incurred
significant costs to adapt, or cannot adapt, to these changes.
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Regulatory and legal uncertainties could harm our business.
Any new law or regulation pertaining to the Internet, or the application
or interpretation of existing laws, could decrease the demand for our service,
increase our cost of doing business or otherwise have a material adverse effect
on our business, results of operations and financial condition. There is, and
will be, an increasing number of laws and regulations pertaining to the
Internet. These laws or regulations may relate to liability for information
retrieved from or transmitted over the Internet, online content regulation, user
privacy, taxation and the quality of products and services. Moreover, the
applicability to the Internet of existing laws governing intellectual property
ownership and infringement, copyright, trademark, trade secret, obscenity,
libel, employment, personal privacy and other issues is uncertain and
developing.
We may be liable for the content we make available on the Internet.
We make content available on miningco.com and on the web sites of our
advertisers and distribution partners. The availability of this content could
result in claims against us based on a variety of theories, including
defamation, obscenity, negligence, copyright or trademark infringement. Other
claims may be brought based on the nature, publication and distribution of our
content or based on errors or false or misleading information provided on
miningco.com, including information deemed to constitute professional advice
such as legal, medical, financial or investment advice. We could also be exposed
to liability for third-party content accessed through miningco.com's links to
other websites or posted by users in chat rooms or bulletin boards offered on
the GuideSites. Our financial condition could be materially adversely affected
if we were found liable for information that we make available. Implementing
measures to reduce our exposure to this liability may require us to spend
substantial resources and limit the attractiveness of our service to users.
The development of our brand is essential to our future success.
If our brand marketing efforts are unsuccessful, our business, financial
condition and results of operations would be materially adversely affected. In
order to build our brand awareness, we must succeed in our brand marketing
efforts, provide high-quality services and increase user traffic on
miningco.com. These efforts have required, and will continue to require,
significant expenses.
We must increase our internal advertising sales force to support our growth.
Our business, results of operations and financial condition will be
materially adversely affected if we do not develop and maintain an effective
internal advertising sales force. On March 31, 1999, our internal advertising
sales force had 18 members. We need to continue to increase our internal
advertising sales force in the near future to support our growth. Our ability to
increase our sales force involves a number of risks and uncertainties,
including:
o the competition we face in hiring and retaining advertising sales
personnel;
o our ability to integrate, train and motivate additional advertising
sales and advertising sales support personnel;
o our ability to manage a multi-location advertising sales
organization; and
26
<PAGE>
o the length of time it takes new advertising sales personnel to
become productive.
We may not be able to compete successfully.
Competition could result in less user traffic to miningco.com, price
reductions for our advertising inventory, reduced margins or loss of market
share, any of which would have a material adverse effect on our business,
results of operations and financial condition. We face intense competition for
users and for advertisers and electronic commerce marketers. We expect this
competition to increase because there are no substantial barriers to entry in
our market. Competition may also increase as a result of industry consolidation.
We may not be able to compete successfully.
We compete for users, advertisers and electronic commerce marketers with
the following:
o Internet retrieval companies, search engines and other Internet
"portal" companies (such as Excite, InfoSeek, Lycos and Yahoo!);
o online content web sites (such as C-net, ESPN.com and ZDNet.com);
o online community web sites (such as iVillage);
o online personal homepage services (such as GeoCities and
theglobe.com);
o publishers and distributors of television, radio and print (such as
CBS, Disney, NBC and Time Warner);
o general purpose consumer online services (such as America Online and
Microsoft Network); and
o web sites maintained by Internet service providers (such as AT&T
Worldnet, Earthlink and MindSpring).
Our ability to compete depends on many factors, many of which are outside
of our control. These factors include the quality of content provided by us and
by our competitors, the ease of use of services developed either by us or by our
competitors, the timing and market acceptance of new and enhanced services
developed either by us or by our competitors, and sales and marketing efforts by
us and our competitors.
Based on our review of publicly available documents, we believe that many
of our existing competitors, as well as potential new competitors, have longer
operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
This may allow them to devote greater resources than we can to the development
and promotion of their services. These competitors may also engage in more
extensive research and development, adopt more aggressive pricing policies and
make more attractive offers to existing and potential employees, guides,
distribution partners, and advertisers and electronic commerce partners. Our
competitors may develop services that are equal or superior to miningco.com or
that achieve greater market acceptance than miningco.com. 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 services to address the needs of advertisers and electronic commerce
marketers. As a result, it is possible that new competitors may emerge and
rapidly acquire significant market share.
27
<PAGE>
We would be unable to provide content without the efforts of our network of
guides.
Our business, results of operations and financial condition would be
materially adversely affected if our guides fail to provide us with adequate
content or if we fail to successfully replace former guides on a timely basis.
We are substantially dependent on our network of guides for providing in-depth,
high-quality, up-to-date content that covers thousands of subjects. Our guides
may not continue to provide us with a sufficient amount of high-quality content
covering a broad enough range of subjects. Furthermore, any number of guides may
discontinue their relationship with us. In addition, since the guides are
independent contractors, we have less control over the content production
process than if the guides were our employees.
We could incur significant withholding taxes and employee benefits expenses if
the guides were deemed to be our employees rather than independent contractors.
One or more jurisdictions or taxing authorities, including the Internal
Revenue Service, may seek to treat the guides as our employees rather than
independent contractors. As a result, they may seek to impose taxes, interest or
penalties on us. In addition, employees are generally entitled to healthcare and
other benefits that are typically unavailable to independent contractors. Since
we believe that the guides are independent contractors, we would vigorously
oppose any claim to the contrary. However, our efforts to do so might not be
successful. We have not estimated the minimum quantitative effect that these
taxes or employee benefit costs would have on us if the guides were deemed to be
employees. Our business, results of operations and financial condition would be
materially adversely affected if these claims are made and we do not prevail or
if we are required to treat the guides as employees for tax or employee benefit
purposes or otherwise.
We depend on relationships with third parties.
Our business, results of operations and financial condition could be
materially adversely affected if we do not establish and maintain distribution
relationships on commercially reasonable terms or if any of our distribution
relationships do not result in increased user traffic on miningco.com. A portion
of the users who come to miningco.com come from third-party web sites with which
we have non-exclusive, short-term distribution relationships. Since these web
sites may not attract significant numbers of users themselves, miningco.com may
not receive a significant number of additional users from these relationships.
Moreover, we may have to pay significant fees to establish additional
relationships or maintain existing relationships in the future.
In the future, we may also enter into agreements with advertisers,
electronic commerce marketers or other third-party web sites that require us to
exclusively feature these parties in certain sections or on certain pages of
miningco.com. These exclusivity agreements may limit our ability to enter into
other advertising or sponsorship agreements or other strategic relationships.
Many companies we may pursue for strategic relationships also offer competing
services. As a result, these competitors may be reluctant to enter into
strategic relationships with us.
28
<PAGE>
We may not effectively manage our growth.
In order to execute our business plan, we must grow significantly. This
growth will place a significant strain on our personnel, management systems and
resources. If we do not manage growth effectively, our business, results of
operations and financial condition would be materially adversely affected. We
expect that the number of our employees, including management-level employees,
will continue to increase for the foreseeable future. Some of our key employees
have recently been hired. These individuals do not have significant experience
working with us or our management team. In addition, we expect that the number
of guides will continue to increase as new GuideSites are established. We must
continue to improve our operational and financial systems and managerial
controls and procedures, and we will need to continue to expand, train and
manage our workforce. We must also maintain close coordination among our
technical, accounting, finance, marketing, sales and editorial organizations.
We depend on our key personnel.
Our future success depends, in part, on the continued service of our key
management personnel, particularly Mr. Scott P. Kurnit, our President and Chief
Executive Officer, and Mr. William C. Day, our Chief Operating Officer. Although
we are the beneficiary of a key person life insurance policy on Mr. Kurnit's
life, the loss of his services, or the services of other key employees, would
have a material adverse effect on our business, results of operations and
financial condition. Our future success also depends on our ability to attract,
retain and motivate highly skilled employees. Competition for employees in our
industry is intense. We may be unable to attract, assimilate or retain other
highly qualified employees in the future. We have from time to time in the past
experienced, and we expect to continue to experience in the future, difficulty
in hiring and retaining highly skilled employees with appropriate
qualifications.
The performance of miningco.com is critical to our business and to our
reputation.
Any system failure, including network, software or hardware failure, that
causes an interruption in our service or a decrease in responsiveness of
miningco.com could result in reduced user traffic on miningco.com and reduced
revenue. miningco.com has in the past experienced slower response times and
interruptions in service for a variety of reasons. miningco.com could also be
affected by computer viruses, electronic break-ins or other similar disruptions.
Our insurance policies have low coverage limits and therefore our insurance may
not adequately compensate us for any losses that may occur due to any
interruptions in our service.
In January 1998, we entered into an Internet-hosting agreement with
Frontier Global Center ("Frontier") to maintain all of our production servers at
Frontier's Manhattan Data Center until February 1, 2000. Our operations depend
on Frontier's ability to protect its and our systems against damage from fire,
power loss, water damage, telecommunications failures, vandalism and other
malicious acts, and similar unexpected adverse events. Any disruption in the
Internet access provided by Frontier could have a material adverse effect on our
business, results of operations and financial condition.
Our users and our guides depend on Internet service providers, online
service providers and other web site operators for access to miningco.com. Each
of these providers has experienced significant outages in the past, and could
experience outages, delays and other difficulties due to system failures
unrelated to our systems.
29
<PAGE>
We may be unable to protect our intellectual property rights and we may be
liable for infringing the intellectual property rights of others.
Third parties may infringe or misappropriate our patents, trademarks or
other proprietary rights, which could have a material adverse effect on our
business, results of operations or financial condition. While we enter into
confidentiality agreements with our material employees, guides, consultants and
strategic partners, and generally control access to and distribution of our
proprietary information, the steps we have taken to protect our proprietary
rights may not prevent misappropriation. In addition, we do not know whether we
will be able to defend our proprietary rights since the validity, enforceability
and scope of protection of proprietary rights in Internet-related industries is
uncertain and still evolving.
Third parties may assert infringement claims against us. From time to time
in the ordinary course of business we have been, and we expect to continue to
be, subject to claims of alleged infringement of the trademarks and other
intellectual property rights of third parties. These claims and any resultant
litigation, should it occur, could subject us to significant liability for
damages. In addition, even if we prevail, litigation could be time-consuming and
expensive to defend, and could result in the diversion of our time and
attention. Any claims from third parties may also result in limitations on our
ability to use the intellectual property subject to these claims unless we are
able to enter into agreements with the third parties making these claims.
We cannot predict our future capital needs and we may not be able to secure
additional financing.
We may need to raise additional funds in the future in order to fund more
aggressive brand promotion or more rapid expansion, to develop new or enhanced
services, to respond to competitive pressures or to make acquisitions. Any
required additional financing may not be available on terms favorable to us, or
at all. If adequate funds are not available on acceptable terms, we may be
unable to fund our expansion, successfully promote our brand, take advantage of
acquisition opportunities, develop or enhance services or respond to competitive
pressures, any of which could have a material adverse effect on our business,
results of operations and financial condition. If additional funds are raised by
our issuing equity securities, stockholders may experience dilution of their
ownership interest and the newly issued securities may have rights superior to
those of the common stock. If additional funds are raised by our issuing debt,
we may be subject to limitations on our operations, including limitations on the
payment of dividends.
Future sales of common stock by our existing stockholders could adversely affect
our stock price.
The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of common stock in the market, or the
perception that these sales could occur. These sales also might make it more
difficult for us to sell equity securities in the future at a time and at a
price that we deem appropriate.
Our officers and directors may still control us.
Our executive officers and directors beneficially own, in the aggregate,
approximately 38% of the common stock. These stockholders may be able to
exercise control over all matters requiring approval by our stockholders,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership may also have the effect of
delaying or preventing a change in control of us, which could have a material
adverse effect on our stock price.
30
<PAGE>
Our shares may experience extreme price and volume fluctuations.
The market for the stocks of Internet-related companies, including ours,
has experienced extreme price and volume fluctuations. The market price of our
common stock may continue to be volatile. In the past, securities class action
litigation has often been instituted against a company following periods of
volatility in the market price of MiningCo's securities. If instituted against
us, regardless of the outcome, litigation could result in substantial costs and
a diversion of our management's attention and resources and have a material
adverse effect on our business, results of operations and financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Currency Rate Fluctuations. MiningCo's results of operations, financial
position and cash flows are not materially affected by changes in the relative
values of non-U.S. currencies to the U.S. dollar. MiningCo does not use
derivative financial instruments to limit its foreign currency risk exposure.
Market Risk. MiningCo's accounts receivables are subject, in the normal
course of business, to collection risks. MiningCo regularly assesses these risks
and has established policies and business practices to protect against the
adverse effects of collection risks. As a result, MiningCo does not anticipate
any material losses in this area.
Interest Rate Risk. MiningCo's investments are classified as cash and cash
equivalents with original maturities of three months or less. Therefore, changes
in the market's interest rates do not affect the value of the investments as
recorded by MiningCo.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Changes in Securities:
NONE
(b) Use of Proceeds
On March 29, 1999, MiningCo consummated the initial public offering of
3,450,000 shares of its common stock and a concurrent private placement of
107,527 shares of its common stock (collectively, the "Offering"). Net proceeds
to MiningCo from the Offering were approximately $81.0 million
During the three months ended March 31, 1999, MiningCo used none of the
proceeds from the Offering.
31
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
As of February 5, 1999, in a written consent of the stockholders of
MiningCo, a majority of the holders of all outstanding shares of stock of
MiningCo (which majority included a majority of the holders of all outstanding
shares of the preferred stock voting on an as-converted basis) approved the
adoption of the Amended and Restated 1998 Stock Option/Issuance Plan, including
the reservation of 1,338,085 shares thereunder, and the 1999 Employee Stock
Purchase Plan, including the reservation of 125,000 shares thereunder.
As of March 10, 1999, in a written consent of the stockholders of
MiningCo, a majority of the holders of all outstanding shares of common stock
(which majority included 2/3 of the holders of all outstanding shares of the
preferred stock voting on an as-converted basis) approved a reverse stock split
in which each 2.809 shares of common stock was reclassified and converted into
one share of common stock, and the Amendment to the Amended and Restated
Certificate of Incorporation to reflect such stock split.
Also as of March 10, 1999, in a written consent of the stockholders of
MiningCo (which majority included 2/3 of the holders of all outstanding shares
of the preferred stock voting on an as-converted basis) approved the Second
Restated Certificate of Incorporation of MiningCo, and the Amended and Restated
Bylaws of MiningCo, both to be in effect upon the completion of the initial
public offering.
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) The following exhibits are filed as part of this report:
11.1 Statement re: Computation of Basic and Diluted Net Loss Per
Share
27.1 Financial Data Schedule
(b) MiningCo did not file any reports on Form 8-K during the three
months ended March 31, 1999.
32
<PAGE>
ITEM 7. SIGNATURES
Pursuant to the requirements of the Securities Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: _______________, 1999 MININGCO.COM, INC.
By: /s/ Todd B. Sloan
----------------------------------
Todd B. Sloan
Chief Financial Officer (Principal
Financial Officer)
33
<PAGE>
MiningCo.com, Inc
Exhibit 11.1
Three months ended
March 31, 1999
------------------
(Unaudited)
Basic:
Net Loss $(11,922,000)
Accretion of convertible preferred
stock to liquidation value (659,600)
------------
Net loss applicable to common
stockholders $(12,581,600)
============
Weighted average shares of common
stock outstanding 3,094,959
Add: Warrants issued for nominal
consideration --
------------
Basic weighted average shares
outstanding 3,094,959
============
Basic net loss per share $ (4.07)
============
Diluted:
Net loss applicable to common $(12,581,600)
stockholders
Basic weighted average shares
outstanding 3,094,959
Net effect of dilutive securities --
------------
Diluted weighted average shares
outstanding 3,094,959
============
Diluted net loss per share $ (4.07)
============
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 85,025,800
<SECURITIES> 0
<RECEIVABLES> 1,537,000
<ALLOWANCES> 66,200
<INVENTORY> 0
<CURRENT-ASSETS> 87,139,500
<PP&E> 5,790,900
<DEPRECIATION> 1,233,300
<TOTAL-ASSETS> 92,002,900
<CURRENT-LIABILITIES> 10,074,700
<BONDS> 902,700
0
0
<COMMON> 12,100
<OTHER-SE> 80,972,200
<TOTAL-LIABILITY-AND-EQUITY> 92,002,900
<SALES> 0
<TOTAL-REVENUES> 2,367,400
<CGS> 0
<TOTAL-COSTS> 14,307,900
<OTHER-EXPENSES> 659,600
<LOSS-PROVISION> 66,200
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (11,922,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,922,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,581,600)
<EPS-PRIMARY> (4.07)
<EPS-DILUTED> (4.07)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 357,000
<SECURITIES> 0
<RECEIVABLES> 93,300
<ALLOWANCES> 6,000
<INVENTORY> 0
<CURRENT-ASSETS> 444,300
<PP&E> 1,079,200
<DEPRECIATION> 333,200
<TOTAL-ASSETS> 1,414,400
<CURRENT-LIABILITIES> 4,984,800
<BONDS> 4,028,400
0
0
<COMMON> 1,500
<OTHER-SE> (12,966,400)
<TOTAL-LIABILITY-AND-EQUITY> 1,414,400
<SALES> 0
<TOTAL-REVENUES> 152,000
<CGS> 0
<TOTAL-COSTS> 2,099,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,425,100)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,425,100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,425,100)
<EPS-PRIMARY> (1.43)
<EPS-DILUTED> (1.43)
</TABLE>
