<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter period ended June 30, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Exchange Act
For the transition period from _________ to _________
Commission File number 001-15385
UDATE.COM, INC.
(Exact name of registrant as specified in its charter)
California 330835561
(State of incorporation) (IRS Employer Identification No.)
New Enterprise House, St Helens Street,
Derby, England DE1 3GY
(Address of principal executive offices)
(877) 815-2955
(Registrant's telephone number)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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 [ ]
As of August 11, 2000, there were 18,255,000 shares of registrant's Common
Stock, $0.001 par value, outstanding.
<PAGE>
UDATE.COM, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
June 30, 2000 and March 1, 1999 3
Condensed Consolidated Statements of Operations -
Three and Four Months ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows -
Three and Four Months ended June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 2. Changes in Securities 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 33
Signatures 34
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UDATE.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
30-JUN-00 1-MAR-00
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets: $ $
Cash 6,419,653 6,460
Trade accounts receivable 9,229 6,318
Due from officers and employees 20,504 7,894
Prepaid expenses and other current assets 178,334 18,753
------------------ -----------------
Total current assets 6,627,720 39,425
------------------ -----------------
Plant and equipment -- --
Computer and office equipment 570,041 288,523
Less: Accumulated depreciation 214,978 156,020
------------------ -----------------
Net plant and equipment 355,063 132,503
------------------ -----------------
6,982,783 171,928
================== =================
Current liabilities:
Current portion of obligations under capital leases 74,178 78,149
Accounts payable and accrued liabilities 534,096 83,570
Deferred revenue 147,140 22,926
Prommissory note 150,000 --
Amounts due to officers and directors -- 235,765
Other current liabilities 214,341 176,814
------------------ -----------------
Total current liabilities 1,119,755 597,224
Obligations under capital leases, excluding
current portion 45,637 63,945
------------------ -----------------
45,637 --
------------------ -----------------
Total liabilities 1,165,392 661,169
------------------ -----------------
Stockholders' equity:
Common stock, $.001 par value at June 30 2000, 1 Pound Sterling par value 18,255 167
at June 30 1999. Authorised 50,000,000 and 1,000 respectively.
Issued and outstanding 18,255,000 shares in 2000, 100 in 1999.
Additional paid-in capital 7,511,734 --
Retained earnings (1,754,191) (506,088)
Accumulated other comprehensive income -cumulative
translation adjustment 41,593 16,680
------------------ -----------------
Total stockholders' equity 5,817,391 (489,241)
Commitments and contingencies -- --
------------------ -----------------
Total liabilities and stockholders' equity 6,982,783 171,928
================== =================
</TABLE>
3
<PAGE>
UDATE.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
3 MONTH PERIOD ENDED 4 MONTH PERIOD ENDED
30-JUN-00 30-JUN-99 30-JUN-00 30-JUN-99
------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
$ $ $ $
Sales 132,294 11,533 162,899 12,731
Operating expenses
Selling, general and administrative expenses 685,637 31,437 744,531 40,530
Advertising 604,564 6,514 687,051 6,569
------------- ------------ ------------ ---------------
Total operating expenses 1,290,201 37,951 1,431,582 47,099
------------- ------------ ------------ ---------------
Net operating loss (1,157,907) (26,418) (1,268,683) (34,368)
Interest income 28,138 -- 28,138 --
Interest expense 7,558 421 7,558 674
------------- ------------ ------------ ---------------
Income before income taxes (1,137,327) (26,839) (1,248,103) (35,042)
Income taxes -- -- -- --
------------- ------------ ------------ ---------------
Net loss (1,137,327) (26,839) (1,248,103) (35,042)
============= ============ ============ ===============
Basic and diluted earnings per share (0.08) (0.00) (0.09) (0.00)
Weighted average number of shares used in 13,985,879 10,711,835 13,188,226 10,711,835
calculation of basic and diluted earnings per share
</TABLE>
4
<PAGE>
UDATE.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
3 MONTH PERIOD ENDED 4 MONTH PERIOD ENDED
30-JUN-00 30-JUN-99 30-JUN-00 30-JUN-99
----------- ---------- ----------- ---------
$ $ $ $
<S> <C> <C> <C> <C>
Net loss (1,137,327) (26,839) (1,248,103) (35,042)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation of plant and equipment 49,663 9,936 66,217 19,741
Increase in trade accounts receivable, amounts
due from officers and employees and preaid
expenses and other assets (178,760) 137 (175,102) (2,322)
Increase in accounts payable and accruals,
deferred income, amounts due to
officers and directors and other creditors 320,461 12,075 385,069 12,354
----------- ---------- ------------- ---------
Net cash provided by operating activities (945,963) (4,691) (971,919) (5,269)
Cash flows from investing activities:
Cash acquired with uDate.com,Inc -- -- 50,922 --
Capital expenditures, including interest capitalized (269,243) -- (288,777) --
----------- ---------- ------------- ---------
Net cash used in investing activities (269,243) -- (237,854) --
----------- ---------- ------------- ---------
Cash flows from financing activities:
Principal payments on under capital lease obligations (16,662) -- (22,279) --
Change in bank overdraft -- 4,691 -- 5,269
Proceeds from issuance of common stock 7,635,580 -- 7,733,545 --
Exchange difference proceeds from issuance of
common stock 9,665 9,665
----------- ---------- ------------- ---------
Net cash provided by financing activities 7,628,583 4,691 7,622,966 5,269
----------- ---------- ------------- ---------
Net increase (decrease) in cash and cash equivalents 6,413,377 -- 6,413,193 --
Cash and cash equivalents at beginning of period 6,276 -- 6,460 --
Cash and cash equivalents at end of year 6,419,653 -- 6,419,653 --
=========== ========== ============= =========
</TABLE>
5
<PAGE>
UDATE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying interim unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying interim unaudited condensed
consolidated financial statements contain all material adjustments consisting
only of normal recurring adjustments necessary to present fairly the financial
condition, the results of operations, the changes in stockholders' equity and
cash flows of uDate.com, Inc. for the interim periods presented.
The results of the three months ended June 30, 2000 are not necessarily
indicative of the results of operations for the full year. These interim
unaudited condensed consolidated financial statements and related footnotes
should be read in conjunction with the financial statements and footnotes
thereto included in the Company's Form 8-K/A filed with the Commission in August
2000.
NOTE 2. REVERSE ACQUISITION
On May 23, 2000, Anthem Recording West, Inc. (referred to herein as Udate.com
Inc. or Anthem) issued 10,925,000 shares of Common Stock in exchange for all
of the outstanding shares of capital stock of uDate.com, Ltd. (formerly
Icebreaker Personal Network Ltd.), an English corporation (subsequently
renamed"uDate.com, Ltd.") and its parent company, Internet Investments Inc.,
a Bahamian corporation ("Internet Investments Inc."), (the "Share Exchange
Transaction") pursuant to the terms of a Share Exchange Agreement dated as of
May 23, 2000 (the "Share Exchange Agreement"). uDate.com, Inc. and its
subsidiaries Internet Investments Inc. and uDate.com Ltd are referred to
herein as the "Company". The Share Exchange Transaction resulted in the
former shareholders of Internet Investments Inc., and uDate.com, Ltd.
controlling an aggregate of approximately 60% of the issued and outstanding
shares of Common Stock of the Company pursuant to the Share Exchange
Agreement. The Share Exchange Transaction is described, and the Share
Exchange Agreement is included, in a Current Report on Form 8-K filed with
the Commission on June 9, 2000, as amended by a Current Report on Form 8-K/A
filed with the Commission in August 2000.
As part of the share exchange transaction, the Company raised new capital in the
amount of $7,500,000 through a concurrent private placement of 1,000,000 units
at $7.50 per unit. Each unit consists of one share of common stock of the
Company and one warrant to purchase one-
6
<PAGE>
half of a share of common stock at $7.50 per shares if exercised within the
first year after issuance and $10.00 per share if exercised in the second
year. If not exercised within two years, the warrants terminate.
Since the legal acquirer, uDate.com, Inc., had no operations and the
stockholders in uDate.com Limited now own the majority of the shares in the
Company, the accounting for this transaction is to treat uDate.com Limited as
the accounting acquirer. The historical figures presented in these financial
statements are therefore those of uDate.com Limited. The fair value of the
net tangible liabilities of Anthem on May 23, 2000 ($105,758) were recorded
as a reduction of the shareholders equity of uDate.com ltd. No goodwill was
recorded in connection with this transaction. The Consolidated Statement of
Operations for the three month and four month periods ended June 30, 2000
incorporate the results of the consolidated Company from May 23, 2000.
NOTE 3. NATURE OF BUSINESS
uDate.com Limited, which currently comprises all of the Company's operations,
is a UK based company providing internet dating services on a global basis.
The Company is a technology business with primary operations consisting of a
high quality, Internet based, Introduction, Matchmaking, Relationship and
Dating Website. Our Website can be found using the URL http://www.udate.com.
Revenues are derived currently from the sale of membership subscriptions that
allow a paying member to contact and communicate with other members using the
Web Site's private email and messaging services. The Company began selling
advertising space on its web site in July 2000
NOTE 4. LIQUIDITY
As of June 30, 2000, the Company has $6,419,653 of cash which was primarily
raised from a recent equity offering. The Company believes that this cash
will be sufficient to meet its liquidity needs for the next 12 months and,
accordingly, has prepared its financial statements assuming that the Company
will continue as a going concern. However, the Company is in a growth stage
and it has experienced losses of $1,137,327 and $271,069 for the three month
period ended June 30, 2000 and the 11 months ended March 1, 2000,
respectively and negative cash flows from operations over those periods of
approximately $900,000. If its operating results and cash flows from
operations improve at a slower rate than is anticipated, the Company may need
additional funding to meet its working capital needs. If additional funds are
needed, the Company may seek additional financing through issuance of debt or
by raising additional equity capital in the future. There can be no assurance
that such financing will be available or, if it is available, that it will be
on terms favorable to the Company.
NOTE 5. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION POLICY
The financial statements have been prepared on a consolidated basis. All
significant intercompany balances and transactions have been eliminated in the
consolidated financial statements.
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, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the periods presented.
Actual amounts could differ from those estimates.
REVENUE RECOGNITION
Revenue is currently derived from subscriptions to the services offered by the
Company. Memberships may be purchased for periods of one, three, six or twelve
months and payment is made by the subscriber in advance, usually by credit card.
The revenue received is deferred and recognised on a straight line basis over
the period of each subscription.
7
<PAGE>
Deferred revenue comprises of subscription income to be earned in the future on
agreements in existence and billed for at the balance sheet date.
FIXED ASSETS
Fixed assets are recorded at cost. Depreciation is calculated on a straight line
basis to write off the cost of fixed assets over their estimated useful lives as
follows::
Office equipment 4 years
Computer equipment 2 to 3 years
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments that have an original
maturity of three months or less to be cash equivalents.
FOREIGN CURRENCY TRANSLATION
The company considers the pound sterling to be the functional currency of its UK
operations. The reporting currency of the Company is the US dollar; accordingly,
all amounts included in the consolidated financial statements have been
translated into US dollars.
All assets and liabilities are translated into US dollars using the exchange
rates in effect on reporting dates for assets and liabilities. Income and
expenses are translated at average rates in effect for the periods presented.
The cumulative currency translation adjustment is reflected as a separate
component of stockholders' equity on the consolidated balance sheet.
INCOME TAXES
The Company records income taxes using the asset and liability method. Deferred
tax assets and liabilities are recognised 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 carry forwards. 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 recognised in income in the period that includes the enactment date.
Valuation allowances are recognised for deferred tax assets, if it is considered
more likely than not, that all or some portion of the deferred tax assets will
not be realised. Income tax expense is tax payable for the current period and
the change during the year in deferred tax assets and liabilities.
ADVERTISING COSTS
Advertising costs are generally expensed as incurred. Advertising costs which
relate to future periods are included on the balance sheet in prepaid expenses
and expensed in the period that the advertising first takes place.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, and accounts payable are carried at cost, which
approximates their fair values because of the short term nature of these
instruments. The carrying value of the Company's capital lease obligations
approximate fair value because the interest rates approximate the Company's
current market rates.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based awards in accordance with the
intrinsic value method established by APB Opinion No., 25 "Accounting for
Stock Issued to Employees". No compensation expense is recognized for stock
options granted when the exercise price of these options granted is equal to
or greater than the fair market value of the Company's stock at the date of
grant. The Company has also adopted the disclosure requirements of SFAS No.
123, "Accounting for Stock-Based Compensation".
8
<PAGE>
LEASES
Assets acquired under capital leases are capitalised as fixed assets and
amortised over the asset's economic useful life, or over the period of the
lease, whichever is the shorter period. Full provision is made for the capital
cost outstanding on each asset so acquired, the interest element being written
off as incurred.
All other leases are accounted for as `operating leases' and the rental charges
are charged to expense on a straight line basis over the life of the lease.
NOTE 6. EARNINGS PER SHARE
Basic earnings (loss) per share (EPS) is computed by dividing income
available to common shareholders by the weighted average number of common
shares outstanding for the period, excluding the effect of any dilutive
potential common stock. Diluted EPS reflects the potential dilution in the
earnings of an entity that could occur as a result of any potential common
stock outstanding during the period. For the periods presented herein, basic
EPS is the same as diluted EPS since the Company reported a net loss for each
period (i.e 1,150,000 potential common shares related to employee stock
options and 500,000 potential common shares related to warrants were excludes
from the EPS calculations since their impact was anti dilutive).
<TABLE>
<CAPTION>
3 months 3 months 4 months 4 months
ended ended ended ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
<S> <C> <C> <C> <C>
$ $ $ $
Basic and diluted earnings per share
Net loss 1,137,327 26,839 1,248,103 35,042
---------- ---------- ---------- ----------
Weighted average number of common
shares outstanding 13,985,879 10,711,835 13,188,226 10,711,835
---------- ---------- ---------- ----------
Net loss per common share 0.08 0.00 0.09 0.00
========== ========== ========== ==========
</TABLE>
NOTE 7. SHARE OPTION AGREEMENTS
The Company granted stock options to certain officers of the Company as follows:
(i) To purchase 1,000,000 shares of common stock at an exercise price of
$7.50 per share. 50% of the options vest on May 10, 2001 and 50% vest
evenly over the following twelve months.
(ii) To purchase 150,000 shares of common stock at an exercise price of $5.00
per share. These options vest over a period of 360 days from June 21, 2000.
9
<PAGE>
NOTE 8. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
other Total
Number Common Additional Retained comprehensive stockholders'
of shares stock capital earnings income equity
<S> <C> <C> <C> <C> <C> <C>
$ $ $ $ $
Balances at March 1, 2000 10,711,835 167 - (506,088) 16,680 (489,241)
Net loss to June 30, 2000 - - (1,248,103) - (1,248,103)
Net exchange differences on
translation of sterling to US $ - - - 24,913 24,913
---------------
Comprehensive net loss (1,223,190)
Shares issued in connection with:
Offer to new investors in uDate.com
Limited 213,165 - 223,880 - - 223,880
Reverse Acquisition (note 2) and
Share reorganization 7,330,000 18,088 7,287,854 - - -
- - -
---------- --------- ------------ ------------- ------------- ---------------
Balances at June 30, 2000 18,255,000 18,255 7,511,734 (1,754,191) 41,593 5,817,391
========== ========= ============ ============= ============= ===============
</TABLE>
NOTE 9. SUBSEQUENT EVENT - PROMISSORY NOTE
The promissory note, which had an outstanding balance of $150,000 as of June 30,
2000, was repaid in full in August 2000.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Item 2, as well as other portions of this document, includes
certain forward-looking statements about the business, revenues, expenditures
and operating and capital requirements of uDate.com, Inc. (formerly Anthem
Recording West, Inc.) (the "Company" or "us"). In addition, forward-looking
statements may be included in various other Company documents to be issued
concurrently or in the future and in oral or other statements made by
representatives of the Company to investors and others from time to time. Such
statements are based upon current expectations, assumptions, estimates and
projections about the Company and our industry. These forward-looking statements
involve risks and uncertainties. Any statements contained herein that are not
statements of historical facts may be deemed to be forward-looking statements.
For example, words such as "may," "will," "should," "estimates," "predicts,"
"potential," "continue," "strategy," "believes," "anticipates," "plans,"
"expects," "intends," and similar expressions are intended to identify
forward-looking statements. The Company's actual results and the timing of
certain events could differ significantly from those anticipated in such
forward-looking statements. Such risks include, among others
- the Company's liquidity,
- significant variability in operating results, including variability in
revenues and expenses,
- fluctuating demand for new and established products and services,
- dependence on development of new products and services,
- increasing expenses for marketing and development of new products and
services,
- historical lack of profitability,
- rapid technological change that affects the ability of the Company to
respond to customer or market demands,
- risks associated with global operations,
- the continued and future acceptance of the Company's products and
services,
- the rate of growth in the Company's industries,
- the presence of competitors with greater technical, marketing and
financials resources, and
- the ability of the Company to successfully expand its operations.
Any of such statements and this discussion should be read in
conjunction with the discussion of "Risk Factors" in this Item 2 and the
Company's audited consolidated financial statements, including the notes
thereto, included in its annual report for the fiscal year ended December 31,
1999, on Form 10-KSB filed with the Commission on April 14, 2000, as amended by
Forms 10-KSB/A filed with Commission on May 23, 2000 and May 26, 2000, the
audited financial statements, including the notes thereto, and pro forma
consolidated financial statements included in the Current Report on Form 8-K/A
filed with the Commission on August 14, 2000 in connection with the Company's
acquisition of uDate.com, Ltd., and the Condensed Consolidated Financial
Statements and the related Notes to Condensed Consolidated Financial Statements
included in Item 1 of this Quarterly Report on Form 10-QSB. The company
undertakes no obligation to update publicly any forward-looking statements for
any reason, even if new information becomes available or other events occur in
the future.
11
<PAGE>
OVERVIEW
uDate.com, Inc., formerly Anthem Recording West, Inc., was incorporated
in California on January 4, 1999 and originally was organized to provide
representation and other services to musical artists such as songwriters and
performers. However, the Company had minimal operations and earnings, and
minimal business prospects, prior to May 23, 2000. The former management of the
Company determined that the business model of the Company was not successful and
sought to combine with or acquire a new business.
On May 23, 2000, the Company issued 10,925,000 shares of Common Stock
in exchange for all of the outstanding shares of capital stock of uDate.com,
Ltd. (formerly Icebreaker Personal Network Ltd.), an English corporation
("uDate.com, Ltd.") and its parent company, Internet Investments Inc., a
Bahamian corporation ("Internet Investments Inc.") (the "Share Exchange
Transaction"), pursuant to the terms of a Share Exchange Agreement dated as of
May 23, 2000 (the "Share Exchange Agreement"). At the consummation of the Share
Exchange Transaction, the former shareholders of Internet Investments Inc. held
approximately 60% of the issued and outstanding shares of Common Stock of the
Company. The Share Exchange Transaction is described, and the Share Exchange
Agreement is included, in a Current Report on Form 8-K filed with the Commission
on June 9, 2000, as amended by a Current Report on Form 8-K/A filed with the
Commission on August 14, 2000.
Atlas Trust Company (Jersey) Limited, as trustee of Internet
Investments Inc. Employees Benefits and Shares Trust, the former sole
shareholder of Internet Investments Inc., now holds a majority (58.6789%) of the
issued and outstanding shares of Common Stock of the Company. Immediately prior
to the Share Exchange Transaction, the prior members of the Board of Directors
resigned and appointed Melvyn Morris, Howard Thacker, Geoff Shingles and Ken
Olisa as directors of the Company. The previous officers of the Company also
resigned and Mr. Morris and Mr. Thacker were appointed officers of the Company.
uDate.com, Ltd. was formed in February 1998 in England as "Icebreaker
Personal Network Ltd." uDate.com, Ltd. is in the business of providing high
quality Introduction, Matchmaking, Relationship and Dating Services to Internet
users. Internet Investments Inc. was formed in the Bahamas in February 1998.
Prior to the Exchange Transaction, Internet Investments Inc. owned over 98% of
the capital stock of uDate.com, Ltd.
The Share Exchange Transaction also provided the Company with working
capital in the amount of $7,500,000 through a concurrent private placement of
1,000,000 units at $7.50 per unit. Each unit consists of one share of common
stock of the Company and a warrant to purchase one-half of a share of common
stock at $7.50 per shares if exercised within the first year after issuance and
$10.00 per share if exercised in the second year.
Upon completion of the acquisition of uDate.com, Ltd. and Internet
Investments, Inc., the name of the Company was changed to "uDate.com, Inc." We
also changed our ticker symbol on the OTC bulletin board from "ANRW" to "UDAT"
effective as of May 30,2000.
12
<PAGE>
Melvyn Morris, CEO and President and Director, has over of 25 years of
experience in information technology, including as chief executive of Prometrics
Ltd which was sold to Platinum Technology in 1997 for $15 million. Mel Morris'
earlier career included senior appointments with Wang Laboratories and
Linklaters. Howard Thacker, COO and Secretary and Director, is a proven
entrepreneur in the consumer goods sector having founded and developed what was
at one time Europe's largest manufacturer and distributor of golf equipment
which he sold in 1996. Mr. Geoff Shingles, CBE, Independent Director, is
chairman of Imagination Technologies Group plc., a public company listed on the
London Stock Exchange (IMG.L). Mr. Shingles has 40 years of experience in the IT
industry. He was granted a CBE (Commander of the British Empire) in 1987 for his
service to the IT industry. Mr. Ken Olisa, MA, Independent Director is Chairman
& Chief Executive Officer of Interregnum plc, a high tech consulting and
business development firm recently listed on the London AIM market. Mr. Olisa
has spent almost 30 years in the IT industry.
The Share Exchange Transaction has been accounted for as a reverse
acquisition because the former shareholders of the acquired company (uDate.com,
Ltd.) control the majority of the voting securities of the combined entity. As a
result, the historical financial statements of the uDate.com, Ltd. become the
financial statements of the Company and are therefore discussed below.
Operations
We are a technology business with present operations consisting of a
high quality, Internet based, introduction, matchmaking, relationship and dating
services. Our Website can be found using the URL http://www.udate.com.
Our revenues are derived primarily from two sources: (1) from the
sale of membership subscriptions that allow a paying member to contact and
communicate with other members using the Website's private email and messaging
services; and (2) since July 2000, from the sale of advertising and promotional
services to its membership base. In addition, we plan to explore other
e-commerce activities in the future.
We differentiate ourselves from our competitors by: (i) providing a
"best in class" matchmaking capability; (ii) offering members an extensive
global database; (iii) enabling members to readily find and communicate with
those that match their criteria; (iv) building an Internet-based community; and
(v) focusing on quality provided by (a) appealing to those serious in their
desire to meet someone, (b) offering a fast, friendly and pro-active customer
service capability, and (c) empowering the membership with real-time
self-regulation capabilities.
Core competencies inherent within our "web model" include: (i) an
ability to convert visitors to registered members; (ii) simple sign-up
procedures that enable a dialogue to be established quickly and effectively with
most site visitors; (iii) a balance of free and paying services which results in
our industry leading conversions from non-paying to paying membership; (iv)
facilities that encourage members to visit the site many times per week; (v) an
ability to keep members active on the site (i.e., "stickiness") for, on average,
in excess of 20 minutes per visit; (vi) an ability to serve high volume,
customized page views to each member;
13
<PAGE>
(vii) the capability to capture membership demographics and to support highly
targeted advertising content; and (viii) an ability to provide industrial
strength scalability and service. These core competencies are achieved through a
combination of proprietary software, advertising and customer services.
Marketing
Our primary marketing objective is to penetrate the online
matchmaking market, initially in English speaking territories and later to
expand into new geographic markets - first into developed, non English speaking
territories and thereafter into developing territories. Essential in market
penetration is brand development in both the business to consumer (B2C) and
business to business (B2B) markets. In achieving this goal, we will explore
traditional online and offline advertising, viral marketing techniques such as
"tell a friend" programs, promotional activities and public relations (PR).
Metrics
From launch in February 1999, our Website has achieved dramatic
growth in key financial and other industry metrics described in the table below:
<TABLE>
<CAPTION>
------------------ ------------------ ------------------- ---------------- ---------------
Registered * Membership Page Views UniqueSite
Date / Y2K Members Receipts (millions) Visits
------------------ ------------------ ------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
12 months to
12/31/1999 88,315 $164,583 1.8M
------------------ ------------------ ------------------- ---------------- ---------------
January 13,643 $37,341 14 205k
------------------ ------------------ ------------------- ---------------- ---------------
February 16,442 $36,397 17 292k
------------------ ------------------ ------------------- ---------------- ---------------
March 18,286 $39,541 22 449k
------------------ ------------------ ------------------- ---------------- ---------------
April 25,552 $60,972 30 554k
------------------ ------------------ ------------------- ---------------- ---------------
May 37,624 $78,288 47 712k
------------------ ------------------ ------------------- ---------------- ---------------
June 78,386 $118,041 83 930k
------------------ ------------------ ------------------- ---------------- ---------------
6 Months
to June 2000 278,248 $370,580
------------------ ------------------ ------------------- ---------------- ---------------
</TABLE>
*Membership receipts represent actual cash received from paying members. As 1,
3, 6 and 12 month memberships may be purchased, membership receipts shown above
will differ from membership revenues quoted elsewhere in this document and the
Company's financial statements because customer payments are received at the
beginning of the subscription period and recognized as revenue over the life of
the subscription period.
The compound monthly growth in registered members is 45% per month.
Membership revenues which typically have a 4-6 week lag (i.e., between
registration and payment) have tracked new registered members. Page views and
Unique Site Visits (i.e., visits by separate users rather than repeat visits by
the same user) have also followed the monthly growth in registered members with
compound growth of 45% per month.
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As of June 30, 2000, more than 80% of our registered members resided
within North America and 85% of our registered members are between the ages of
21 and 50.
The Future
Our core competency lies in our highly effective proprietary
matchmaking database and web technology. We believe members return to the
uDate.com Website time after time because it allows them to quickly find and
communicate with people who meet their specific criteria and are also looking
for someone like them. This technology is highly flexible may be leveraged in
many other social community (sport, special interest, etc.) or business
community (employee recruitment and selection, research, etc.) environments.
The high quality demographics endemic to our applications will also
provide a powerful platform for highly targeted web advertising. We plan to
patent and develop a number of complementary proprietary and open technologies
in the field of demographic surveys, web advertising and privacy of user
information. These technologies are already in development and the Company
expects to bring these to market over the next two quarters. We believe these
developments will allow us to expand our B2B revenues.
RESULTS OF OPERATIONS FOR THE THREE AND FOUR MONTHS ENDED JUNE 30, 2000 AND JUNE
30, 1999.
REVENUES
Membership revenues for the three months ended June 30, 2000 were
$132,294 representing an increase of 1,047% as compared to the total net
revenues of $11,533 for the three months ended June 30, 1999. Membership
revenues for the four months ended June 30, 2000 were $162,899, representing an
increase of 1,179% as compared to the total net revenues of $12,731 for the four
months ended June 30, 1999. This increase is due to the greater awareness and
performance of the uDate.com Website as a consequence of traditional marketing
activity and improvements to the technical functionality and performance of the
Website.
From July 1, 2000, we began offering banner advertising in the B2B
market. We expect to aggressively develop this aspect of our B2B business during
the third quarter of 2000 and beyond. Twenty-one million ads were displayed in
the month of July 2000, the first month that we began selling online
advertisements, generating revenues of $61,000 and complimenting membership
revenues of approximately $197,000. During the first week of August 2000,
17,500,000 advertisements were displayed. The company expects the number of
advertisements to grow steadily over the next few months. Currently, all
advertisements are being served on a "run of site basis" using third party
advertising technology. In this context, "run of site" means that the
advertisement can be viewed on all pages of our Website and are not targeted,
for example, at individuals based on demographic information provided).
Beginning in the fourth quarter of 2000, we plan to begin providing highly
targeted advertising using our own proprietary technology. This will result in
much higher "click rates" (i.e., visits to the advertiser's Website) for
advertisers and a commensurate increase in revenues.
15
<PAGE>
SALES AND MARKETING EXPENSE
Sales and Marketing expenses increased during the three months ended
June 30, 2000 to $604,564 from $6,514 in the three months ended June 30, 1999.
Sales and Marketing expenses increased during the four months ended June 30,
2000 to $687,051 from $6,569 in the four months ended June 30, 1999.
During the first twelve months of operation we consciously limited
Sales and Marketing costs. The business focus was on developing and refining the
Website and associated business model.
We have recently begun an aggressive sales and marketing program to
leverage our product in order to develop u.Date.com into a leading brand.
The increased sales and marketing costs are a direct result of our
efforts to rapidly establish a critical mass of members necessary to broaden our
market appeal to both members and potential advertisers. The mainstream
promotional activities which centered around `on web' advertising have proved
highly effective and have resulted in our significant savings in new membership
acquisition costs (measured as a cost per new member sign up).
In the second half of 2000, we plan to complement online advertising
by an effective offline presence such as high profile radio promotions, which we
believe will have the effect of reaching new markets and developing brand
awareness.
Viral marketing techniques will be introduced during the next
quarter to build membership at minimum cost. Membership referral promotions will
be deployed to encourage current members to "tell a friend", a practice which
has proved very successful online for companies such as Hotmail and Amazon. In
addition, customer services will be further developed to educate visitors in
real time about the features, benefits and fun of the uDate.com Website. Along
with a series of online promotions these tactics are expected to improve
conversion to paying members.
GENERAL AND ADMINISTRATIVE EXPENSE
General and Administrative expenses increased during the three
months ended June 30, 2000 to $685,637 from $31,437 in the three months ended
June 30, 1999. General and Administrative expenses increased during the four
months ended June 30, 2000 to $744,531 from $40,530 in the four months ended
June 30, 1999.
For the period February 1998 through May 22, 2000 a number of
officers and key employees, including Mel Morris (CEO), Howard Thacker (COO) and
Anthony Dunn (CTO), carried out their duties without receiving regular
remuneration. The operation was funded during this period by loans and working
capital provided by Mel Morris and Howard Thacker.
The increase in costs for the last quarter include $221,000 for the
cost of employment for the company's officers and key employees.
16
<PAGE>
Other significant recurring costs include approximate figures of a)
depreciation of $37,000, b) Repairs and maintenance $8,000, c) Office Lease
Costs $9,500, d) Bank Charges $8,300, e) Telephone charges of $24,900, f) Travel
and Subsistence $25,000, g) ISP Charges $20,000, h) Credit card processing
$11,000, (i) legal, professional and consulting fees associated with the
offering of units and acquisition of uDate.com, Ltd. of $88,000.
Non-recurring costs include a) Severance payments of $36,000 to a
former employee and b) Consulting services of $17,000.
PROPERTIES
uDate.com leases 4,054 square feet at New Enterprise House, St.
Helens Street, Derby. The above Lease has been entered into between Howtin
Investments Limited and uDate.com Ltd. The rent is fixed at (pound)39,526.50
($59,170) per annum and the term of the Lease extends for one year.
In addition to the above property, the Company also has an
arrangement with Regent Business Centres which provides a New York address at
575 Lexington Avenue, 4th Floor, New York, New York 10022. We are also currently
considering leasing a 3,000 square foot office facility in New York City, to
house US employees, including financial, administrative and web development
staff.
LIQUIDITY AND CAPITAL RESERVES
At June 30, 2000, the Company's principal sources of liquidity
consisted of cash of $6,419,653 as compared to an overdraft of $6,460 at June
30, 1999. The Company's working capital position increased to $5,462,328 at June
30, 2000 from a negative working capital position of ($300,844) at June 30,
1999. The majority of the increase resulted from the $7,500,000 private
placement of units described above and in Item 2(c) below.
On the basis of the existing 2000 budget and forecasts to 2002, we
anticipate that our maximum cash burn will not exceed $5,000,000.
Notwithstanding this, however, we do not currently have an established line
of credit with a commercial bank. Such a credit facility may be difficult to
obtain in the short-term with the Company's historical operating results.
Accordingly, in order to obtain additional funds in the future, the Company
may need to seek additional equity capital which would be dilutive to current
stockholders.
17
<PAGE>
YEAR 2000 COMPLIANCE
Our business and operations experienced no material adverse effects
from the calendar change to the year 2000 or from the leap year that occurred in
2000, and we have not been notified of any disruptions to or failures in the
systems of any of our suppliers. We will continue to monitor our information
technology and non-information technology systems and those of third parties
with whom we conduct business throughout the year 2000 to ensure that any latent
year 2000 issues that may arise are addressed promptly. Although we do not
anticipate any additional expenditures relating to year 2000 compliance, we
cannot provide any assurance as to the magnitude of any future costs until
significant time has passed.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, as amended,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133),
will be effective for the Company for periods beginning after June 15, 2001.
SFAS 133 requires that all derivative financial instruments be recognized in
the balance sheet at fair value with changes in fair value recorded to the
statement of operations or comprehensive income depending on the nature of
the instrument. As the Company does not currently use any derivative
financial instruments, it does not expect the standard to have a material
effect on its financial statements.
The Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101), on
December 3, 1999. SAB 101 provides additional guidance on the application of
existing generally accepted accounting principles to revenue recognition in
financial statements. The Company does not expect the guidance of SAB 101 to
have a material effect on its financial statements.
RISK FACTORS
Risks Related to Our Financial Condition and Business Model
The Company has a limited operating history. The Company was formed in
January 1999 in order to provide representation and other services to musical
artists such as songwriters and performers. The Company had very limited
operations and revenues, and limited business prospects, until May 23, 2000, the
date of the acquisition of uDate.com. Ltd.
uDate.com, Ltd. was established in February 1998 to provide high
quality introduction, matchmaking, relationship and dating services to Internet
users. The Company has changed its business strategy to that of its subsidiary
uDate.com, Ltd.
Due to the limited operating histories of each of the Company and its
subsidiary, it will be difficult for you to evaluate the business and prospects
of the Company and an investment in the Company. As a new company, we face risks
and uncertainties relating to our ability to successfully implement our
strategy. You must consider the risks, expenses and uncertainties that an early
stage company in new and rapidly evolving markets like ours faces. Some of these
risks include:
- ability to sustain historical revenue growth rates;
- ability to increase awareness of our brand;
- managing our expanding operations;
- competition;
- attracting, retaining and motivating qualified personnel;
- maintaining our current, and developing new, strategic relationships;
- ability to anticipate and adapt to the changing Internet market and any
changes in government regulation;
- the level of usage of the Internet and traffic to the Company's
Internet site;
- continued acceptance of the Company's products and services;
- demand for Internet advertising, seasonal trends in advertising sales,
the advertising budgeting cycles of individual advertisers;
- capital expenditures and other costs relating to the expansion of
operations;
- the introduction of new products or services by the Company or its
competitors;
- the mix of the services sold and the channels through which those
services are sold;
18
<PAGE>
- pricing changes; and
- general economic conditions and specific economic conditions in the
Internet industry.
We have not been profitable, and we expect our losses to continue in the short
term.
Neither the Company nor uDate.com, Ltd. has ever been profitable. For
the quarter ended June 30, 2000, we incurred a net loss of approximately
$1,400,000. At June 30, 2000, we had an accumulated deficit of approximately
$1,750,000. We expect to continue to lose money through 2000 because we
anticipate incurring significant expenses in connection with building awareness
of the uDate.com brand and related brands, rapidly expanding our sales,
technology and other personnel, developing strategic relationships and improving
our products and services. We forecast our future expense levels based on our
operating plans and our estimates of future revenues. We may find it necessary
to accelerate expenditures relating to our sales and marketing, products and
technology and expansion efforts or to otherwise increase our financial
commitment to creating and maintaining brand awareness or developing our
products. Although the revenues of uDate.com, Ltd. have grown in this quarter,
we cannot assure you that we will achieve sufficient revenues for profitability.
Even if we do achieve profitability, we cannot assure you that we can sustain or
increase profitability on a quarterly or annual basis in the future. If our
revenues grow at a slower rate than we anticipate, or if our spending levels
exceed our expectations or cannot be adjusted to reflect slower revenue growth,
we may not generate sufficient revenues to achieve or sustain profitability.
You should not rely on our quarterly operating results as an indication of our
future results because they are subject to significant fluctuations.
Fluctuations in our operating results or the failure of our operating
results to meet the expectations of public market analysts and investors 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. Fluctuations in our
quarterly operating results could cause our stock price to decline. You should
not rely on quarter-to-quarter comparisons of our results of operations as an
indication of future performance. Factors that may affect our quarterly results
include:
- mismatches between resource allocation and consumer demand due to
difficulties in predicting consumer demand in a new market;
- the demand for and acceptance of our Website, products, product
enhancements and services;
- the timing, amount and mix of subscription and advertising;
- changes in general economic conditions;
- the magnitude and timing of marketing initiatives;
- the maintenance and development of our strategic relationships;
- the introduction, development, timing, competitive pricing and
market acceptance of our products and services and those of our
competitors;
- our ability to manage our anticipated growth and expansion; and
19
<PAGE>
- technical difficulties or system downtime affecting the Internet
generally or the operation of our products and services
specifically.
As a result of the factors listed above and because the online dating
and matchmaking market is new and it is difficult to predict consumer demand, it
is possible that in some future periods our results of operations may be below
the expectations of public market analysts and investors. This could cause our
stock price to decline.
Expense Levels and Changes in Pricing.
Our expense levels are based, in significant part, on the Company's
expectations as to future revenues and are therefore relatively fixed in the
short term.
Our major expenses are Sales and Marketing costs, Human Resource costs
and Technology costs. We plan to increase these expenses in the future to
provide for continued growth. These costs are subject to dynamic and, from time
to time, significant variation. Sales and Marketing costs may vary at any time.
Increases in these expenses can arise because, among other reasons, competitors
could tie up vast quantities of web advertising space resulting in our being
forced to buy at less cost effective prices. Human Resource costs are also
highly dynamic. Internet Salaries have been increasing over the last several
quarters. Technology costs may increase due to supply and demand issues. We rely
heavily on leading edge technology and there is no guarantee that the price of
this technology will remain available at today's prices. Any material increase
in any of these costs could materially and adversely effect our business or
operating results. If revenues fall below our expectations in any quarter and we
are unable to quickly reduce our spending in response, our operating results
would be lower than expected and our stock price may fall.
In addition, we anticipate that membership charges will increase
during the next quarter. If our competitors aggressively pursue our members and
potential members by offering lower membership rates, our membership base,
revenues and operating results may be adversely effected.
Our business model is unproven and may not be adaptable to a changing market.
If we are not able to anticipate changes in the online dating and
matchmaking market or if our business model is not successful, we may not be
able to expand our business or to successfully compete with other companies,
which could have a material adverse effect on our business, results of
operations and financial condition. Our current business model depends on
recurring revenues from members and advertisers using our Website. Our revenue
model and profit potential are unproven.
Membership revenues depend upon (i) the conversion of new non-paying
members to full paying members; and (ii) existing members renewing their
membership for further periods. Given that it is the company policy not to
automatically re-bill members on expiration of their membership period, there is
always the chance that they may seek an alternative service and never return.
Additionally, we anticipate that membership fees will increase and may have a
20
<PAGE>
negative effect on conversion and retention of existing paying members. This
could occur if competitors act to undercut fees and aggressively recruit our
members or if members feel the increase is too high. Our online advertising
figures demonstrate strong growth at present; however, there is a general level
of industry dissatisfaction with most forms of web advertising.
If current members decide to discontinue our service and we are
unable to replace them with new members, or if we are unable to prove that
advertising on our Websites is effective, or if there is a general downturn in
Internet advertising, our revenues could decrease or grow at a slower rate than
expected. It is possible that we will be required to further adapt our business
model in response to additional changes in the online dating and matchmaking
market or Internet advertising or if our current business model is not
successful.
Additionally, the Company operates on a global basis with members in
Europe and Asia, as well as North America. Changes in the economies, trade
policies, and fluctuations in interest or exchange rates may have an impact on
its future financial results. As the Company continues to operate more globally,
seasonality may become an increasing factor in our financial performance.
We may not be able to obtain sufficient funds to grow our business and any
additional financing may be on terms adverse to the interests of our
stockholders.
Because we expect to generate losses through the end of fiscal 2000 and
possibly into 2001, we do not expect that income from our operations will be
sufficient to meet our needs. We may have to raise additional funds in the
future in order to fund our anticipated growth, more aggressive marketing
programs or the acquisition of complementary businesses, technologies and
services. Although the Company has received indications of interest to invest
another $3,750,000 from Innovative Finance Limited, obtaining additional
financing will be subject to a number of factors including market and economic
conditions, our financial condition and operating performance and general
investor sentiment.
These factors may make the timing, amount, terms and conditions of
additional financing unattractive for us. If we are able to raise additional
funds and we do so by issuing equity securities, holders of our common stock may
experience significant dilution of their ownership interest and holders of these
securities may have rights senior to those of the holders of our common stock.
If we obtain additional financing by issuing debt securities, the terms of these
securities could limit our flexibility in making business decisions. If
additional financing is not available when required or is not available on
acceptable terms, we may be unable to fund our expansion, successfully promote
our brand name, develop or enhance our products and services, take advantage of
business opportunities or respond to competitive pressures, any of which could
have a material adverse effect on our business.
Risks Related to Our Markets and Strategy
We will only be able to execute our business model if use of the Internet grows
and our infrastructure is adapted to that growth.
21
<PAGE>
If Internet usage does not continue to grow, we may not be able to meet
our business objectives. Increased Internet usage will depend, in large part,
upon the maintenance of the Web infrastructure, such as a reliable network
backbone with necessary speed, data capacity and security, and timely
development of enabling products, such as high speed modems, for providing
reliable Web access and services and improved content.
Internet usage may be inhibited by any of the following factors:
- the Internet infrastructure may not be able to support the demands
placed on it, or its performance and reliability may decline as
usage grows;
- Websites may not be able to provide adequate security and
authentication of confidential information contained in
transmissions over the Internet;
- The Internet industry may not be able to adequately respond to
privacy concerns of potential users; and
- Government regulation may decrease the utility of the Internet for
some purposes.
We cannot assure you that the Web infrastructure or Internet industry
will be able to effectively respond to the demands placed on the Web by
increased numbers of users, frequency of use or increased bandwidth requirements
of users.
We may not be able to develop awareness of our brand name.
We believe that continuing to build and maintain awareness of our brand
name is critical to achieving widespread acceptance of our business and to
sustain or increase the number of people who use our Website. Brand recognition
is a key differentiating factor among providers of online dating and matchmaking
services, and we believe it could become more important as competition in our
industry increases. In order to maintain and build brand awareness, we must
succeed in our marketing efforts, provide high quality services and increase the
number of members using our Websites, particularly www.udate.com. If we fail to
successfully protect, promote, position and maintain our brand names, incur
significant expenses in promoting our brand and fail to generate a corresponding
increase in revenue as a result of our branding efforts, or encounter legal
obstacles which prevent our continued use of any of our brand names, our
business, results of operations and financial condition could be materially
adversely affected.
We may not be able to successfully introduce new or enhanced products and
services.
The failure of any new or enhanced products and services to achieve
market acceptance and generate revenue could result in a material adverse effect
on our revenues. We expect to introduce enhanced products and services in order
to generate additional revenues, attract and retain more members to our Website
and respond to competition. Any new or enhanced product or service we introduce
that is not favorably received could damage our reputation and the perception of
our brand name.
22
<PAGE>
We may lose business if we fail to keep pace with rapidly changing
technologies and customer needs.
To remain competitive, we must continually improve the responsiveness,
functionality and features of our products and services and develop other
products and services that are attractive to members. If we are unable to timely
and successfully develop and introduce new services, products and enhancements
to existing products in response to our industry's changing technological
requirements, our revenues could be materially adversely affected. New
Internet-based services, products or enhancements which we have offered or may
offer in the future may contain design flaws or other defects that could require
extensive modifications or result in a loss of client confidence.
We may lose members if our Website content is not attractive to them.
Our future growth depends in part on our ability to attract and retain
members. This in turn depends in part on our ability to deliver original and
compelling content to these members. We cannot assure you that our content will
be attractive to Internet users. We also cannot assure you that we will be able
to anticipate, monitor and successfully respond to rapidly changing consumer
tastes and preferences to continue to attract a sufficient number of Internet
users to our Website. Internet users can freely navigate and instantly switch
among a large number of Websites. In addition, many other Websites offer very
specific, highly targeted content. These sites could have greater appeal than
our Website to particular groups within our target audience.
Competitive Industry
We operates in two of the most competitive sectors of the Internet,
namely matchmaking/dating and web advertising. We currently enjoy a very strong
position in the matchmaking/dating market - by this we mean that conversion
levels from visitors to paying members is very high. The emergence of highly
competitive technology and services aligned to aggressive pricing by competitors
could cause us difficulty in attracting and retaining members and converting
visitors to paying members.
We have just begun our advertising business. The Internet
advertising market is highly competitive and largely untested. Issues abound
concerning privacy of personal information, accuracy of accounting for
impressions, click rates and revenues. New technologies are emerging regarding
multi-media, targeting, tracking and delivery. It is possible that our
advertising technology may not prove as efficacious as we wish and could be made
obsolete by numerous third parties who may be planning to launch competing
products.
We expect competition to continue to increase because the market
poses no substantial barriers to entry. We believe that our ability to compete
depends upon many factors both within and beyond our control, including the
following:
- the timing and market acceptance of new solutions and enhancements
to existing solutions developed either by us or our competitors;
- our customer service and support efforts;
- our sales and marketing efforts; and
- the ease of use, performance, price and reliability of solutions
developed either by us or our competitors.
23
<PAGE>
We compete with companies, as well as newspapers, magazines and other
traditional media companies that provide dating and matchmaking services. We
also compete with large Internet information hubs, or portals, such as
Yahoo.com. Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources and larger customer bases than we do. These factors may allow them to
respond more quickly than we can to new or emerging technologies and changes in
customer requirements. It may also allow them to devote greater resources than
we can to the development, promotion and sale of their products and services.
These competitors may also engage in more extensive research and development,
undertake more far-reaching marketing campaigns and adopt more aggressive
pricing policies. We cannot assure you that our competitors will not develop
products or services that are equal or superior to our solutions or that achieve
greater market acceptance than our solutions. In addition, current and potential
competitors are making and are expected to continue to make strategic
acquisitions or establish cooperative, and, in some cases, exclusive
relationships with significant companies or competitors to expand their
businesses or to offer more comprehensive solutions.
Our business and growth will suffer if we are unable to hire and retain highly
skilled personnel.
Our success depends to a significant extent upon a number of key
management and technical personnel, the loss of one or more of whom could
adversely affect our business. We do not maintain key person insurance for any
member of our management team. In addition, certain members of our management
team have joined us within the last year. These individuals have not previously
worked together and are becoming integrated into our management team. If our key
management personnel are not able to work together effectively or successfully,
our business could be materially adversely affected.
In addition, we believe that our future success will depend to a
significant extent on our ability to recruit, hire and retain highly skilled
employees for product development, sales, marketing, and customer service.
Competition for such personnel in the Internet industry is intense, and there
can be no assurance that the Company will be successful in attracting and
retaining such personnel. Management of the Company will also be required to
manage growth of the Company in a manner that requires a significant amount of
management time and skill. There can be no assurance that the Company will be
successful in managing any future growth or that any failure to manage such
growth will not have a material adverse effect on the Company's business,
operating results or financial condition.
In addition, though we have confidentiality agreements with each of our
employees, if we were to lose a key employee, we cannot assure you that we would
be able to prevent the unauthorized disclosure or use of our procedures,
practices, new product development or client lists.
We may not be able to effectively manage our expanding operations.
In order to execute our business plan, we must continue to grow
significantly. If we are not able to expand our operations in an efficient
manner, our expenses could grow
24
<PAGE>
disproportionately to revenues or our revenues could decline or grow at a slower
rate than expected, either of which could have a material adverse effect on our
business, results of operations and financial condition. We have recently
experienced a period of rapid growth that has placed considerable demands on our
managerial, operational, financial and information system resources. We continue
to increase the scope of our operations, and we have grown our workforce
substantially.
Our growth has placed, and our anticipated future growth combined
with the requirements we face as a public company will continue to place, a
significant strain on our management, operations, systems and resources. We
expect that we will need to continue to improve our financial and managerial
controls and reporting systems and procedures, and will need to continue to
expand, train and manage our workforce. Our success depends to a significant
extent on the ability of our executive officers and other members of senior
management to operate effectively both independently and as a group. We will
also need to continue to expand and maintain close coordination among our
products and technology, finance and administration and sales and marketing
organizations. We cannot assure you that if we continue to grow, management will
be effective in attracting and retaining additional qualified personnel,
expanding our physical facilities, integrating acquired businesses or otherwise
managing growth. We cannot assure you that our information systems, procedures
or controls will be adequate to support our operations or that our management
will be able to successfully offer our products and services and implement our
business plan.
A failure to establish and maintain partnerships and alliances with other Web
properties could limit the growth of our business.
We have entered into, and expect to continue to enter into,
arrangements with third parties to increase our member base, bring traffic to
our Website and enhance our brands. If any of our current agreements are
terminated, we cannot assure you that we will be able to replace the terminated
agreement with an equally beneficial arrangement. We also cannot assure you that
we will be able to renew any of our current agreements when they expire or, if
we are, that we will be able to do so on acceptable terms. We also do not know
whether we will be successful in entering into additional partnerships and
alliances or that any relationships, if entered into, will be on terms favorable
to us.
We may not be successful in our plan for international expansion.
We may not be able to successfully execute our business plan in foreign
markets. If revenue from international ventures is not adequate to cover our
investment in those ventures, our total revenues could be materially adversely
affected. We believe that expansion into international markets through a
combination of internal business expansion, strategic alliances, joint ventures
and potential acquisitions will be important to continue to grow our business.
Our future international operations might not succeed for a number of reasons
including:
- difficulties in staffing and managing foreign operations;
- competition from local dating services and cultural and
sociological attitudes toward dating services;
25
<PAGE>
- operational issues such as longer customer payment cycles and
greater difficulties in collecting accounts receivable;
- language and cultural differences;
- legal uncertainties inherent in transnational operations such as
export and import regulations, tariffs and other trade barriers;
- taxation issues;
- unexpected changes in trading policies, regulatory requirements
and exchange rates;
- issues relating to uncertainties of laws and enforcement relating
to the regulation and protection of intellectual property; and
- general political and economic trends.
We may not be able to successfully make acquisitions of or investments in other
companies.
We expect our growth to continue, in part, by acquiring complementary
businesses, products, services or technologies. We expect to have discussions
with companies regarding our acquiring, or investing in, their businesses,
products, services or technologies. We cannot assure you that we will be able to
identify suitable acquisition or investment candidates. Even if we do identify
suitable candidates, we cannot assure you that we will be able to make
acquisitions or investments on commercially acceptable terms. Acquiring other
businesses and technologies involves several risks, including:
- availability of financing on terms we find acceptable;
- diversion of our management's attention from other business
concerns;
- retention of key personnel of the acquired company;
- entry into markets in which we have little or no direct prior
experience;
- inability to identify and acquire businesses on a
cost-effective basis;
- inability to manage and integrate acquired personnel,
operations, services, products and technologies into our
organization effectively; and
- inability to retain and motivate key personnel and to retain
the clients or goodwill of acquired entities.
In pursuing acquisitions, we may compete with competitors that may be
larger and have greater financial and other resources than we have. Competition
for these acquisition targets could result in increased prices. In addition, in
executing our acquisition strategy, we may incur expenses without being able to
identify suitable acquisition candidates, which could reduce our profitability.
Risks Related to the Internet and Our Technology Infrastructure
To support our high level of growth it is critical that we scale our
Website operations to support the growth and maintain acceptable levels of
performance. We believe that the process of converting visitors to paying
members highly sensitive to Website availability, performance, speed of page
delivery and database operations. The company currently operates from a single
point of presence. The existing London based web farm will be augmented with a
second point of presence in Newark, New jersey by September 1, 2000. Until that
time the company is highly vulnerable to catastrophic events. Any catastrophic
failure at our facility could prevent us from
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serving our Web traffic for up to several days, and any failure of one or more
of our Internet service providers may adversely affect our network's
performance.
Our technology has demonstrated its ability to scale in accommodating
significant growth. However, we are among the "stickiest" (a quality which
refers to the time visitors stay online or revisit the site) of sites on the
web. As the performance of the service is enhanced following upgrade users
typically stay online longer. This can make capacity planning extremely
difficult giving rise to huge spikes in demand for services. The long-term
scalability of our current technology will be a critical factor as the Company
grows. Between now and the end of 2000, peak online users simultaneously
connected at busy times are anticipated to grow from 3,000 online users to over
20,000. There has been an increase in the time users stay connected to the site
following the last bandwidth upgrade. It is now common that 20% or more users
are connected for more than 2 hours per logon. The trend in average logon times
is also on the rise this will be a critical factor in influencing bandwidth and
technology requirements.
We may experience reduced visitor traffic, reduced revenue and harm to
our reputation in the event of unexpected network interruptions caused by system
failures. Any system failure, including network, software or hardware failure,
that causes an interruption in the delivery of our products and services or a
decrease in responsiveness of our services could result in reduced visitor
traffic, reduced revenue and could materially adversely affect our reputation
and brand. Our servers and software must be able to accommodate a high volume of
traffic. We have experienced system interruptions in the past, and we believe
that these interruptions will continue to occur from time to time in the future.
We believe that visitor traffic is also dependent on the timing and magnitude of
our advertising. We have experienced monthly fluctuations in visitor traffic,
including short-term reductions. Any substantial increase in demands on our
servers will require us to expand and adapt our network infrastructure. If we
are unable to add additional software and hardware to accommodate increased
demand, we could experience unanticipated system disruptions and slower response
times.
Our clients may become dissatisfied by any system failure that
interrupts our ability to provide our products and services to them or results
in slower response times. We do not maintain business interruption insurance and
our other insurance may not adequately compensate us for any losses that may
occur due to any failures in our system or interruptions in our service.
Breaches of our network security could be costly.
We may be required to expend capital and resources to protect against
or to alleviate security breaches, which could reduce our profitability. A
significant barrier to confidential communications over the Internet has been
the need for security. If unauthorized persons penetrate our network security,
they could misappropriate proprietary information or cause interruptions in our
services. Misappropriation of our and our customers' proprietary information or
interruptions of our services could result in reduced visitor traffic and a loss
of members. Computer viruses may cause our systems to incur delays or
interruptions, which could reduce demand for our service and damage our
reputation. Computer viruses may cause our systems to incur delays or other
service interruptions and could damage our reputation and have a material
adverse effect on our business, financial condition and results of operations.
The inadvertent
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transmission of computer viruses could expose us to a material risk of loss or
litigation and possible liability.
Risks Related to Legal Uncertainty
We may become subject to burdensome government regulations and legal
uncertainties affecting the Internet which could adversely affect our business.
Legal uncertainties and new regulations could increase our costs of doing
business, require us to revise our products or services, prevent us from
delivering our products and services over the Internet or slow the growth of the
Internet, any of which could increase our expenses, reduce our revenues or cause
our revenues to grow at a slower rate than expected and materially adversely
affect our business, financial condition and results of operations. Laws and
regulations directly applicable to Internet communications, commerce, recruiting
and advertising are becoming more prevalent, and new laws and regulations are
under consideration by the United States Congress and state legislatures. Any
legislation enacted or restrictions arising from current or future government
investigations or policy could dampen the growth in use of the Internet
generally and decrease the acceptance of the Internet as a communications,
commercial, recruiting and advertising medium. The laws governing the Internet,
however, remain largely unsettled, even in areas where there has been some
legislative action. It may take years to determine whether and how existing laws
such as those governing intellectual property, privacy, libel and taxation apply
to the Internet. In addition to new laws and regulations being adopted, existing
laws may be applied to the Internet. Moreover, the laws and the interpretation
of laws concerning the recruiting industry are constantly changing.
In addition, any imposition of state sales and use taxes on the
products and services sold over the Internet may decrease demand for products
and services that we sell over the Internet. The U.S. Congress passed
legislation in 1998 which limits for three years the ability of states to impose
any new taxes on Internet-based transactions. Failure by Congress to renew this
legislation and the subsequent imposition of state taxes on Internet-based
transactions could adversely affect our future operating results which could
result in a decline in our stock price.
Intellectual Property Protection.
We have developed technologies that we use in our business. We rely
primarily on a combination of trade secret, copyright and trademark laws and
contractual provisions to protect our proprietary rights in such technologies.
The steps we have taken to protect our proprietary rights may not be adequate to
deter misappropriation of proprietary information. We may not be able to detect
unauthorized use of our proprietary information or take appropriate steps to
enforce our intellectual property rights. In addition, the validity,
enforceability and scope of protection of intellectual property in
Internet-related industries is uncertain and still evolving. The laws of other
countries in which we market or may market our services in the future are
uncertain and may afford little or no effective protection of our intellectual
property. If we resort to legal proceedings to enforce our intellectual property
rights, the proceedings could be burdensome and expensive. The proceedings also
could involve a high degree of risk.
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Defending against intellectual property infringement claims could be
time consuming and expensive, and we may be liable for infringing on the
intellectual property rights of others. If we are not successful in defending
against these claims, we could be subject to significant damages and the
disruption of our business.
At this time we have not filed any patent applications for our
technologies. Patent protection may become important in the protection of the
commercial viability of our products and the failure to obtain such patent
protection could have an adverse effect on the commercial viability of such
products. Our success therefore may in part depend on our ability to obtain
strong patent protection or licenses to strong patents in the future. It is not
possible to anticipate the breadth or degree of protection that patents would
afford any product or the underlying technologies. There can be no assurance
that any patents issued or licensed to us will not be successfully challenged in
the future or that any of our products will not infringe the patents of third
parties. There can be no assurance that third parties will not assert
infringement claims against us in the future with respect to any current or
future product. Any such assertion, whether with or without merit, could require
us to enter into costly litigation or royalty arrangements. If required, such
royalty arrangements may not be available on reasonable terms, or at all.
We may be liable as a result of information retrieved from or transmitted over
the Internet.
We may be sued for defamation, civil rights infringement, negligence, copyright
or trademark infringement, personal injury, product liability or other legal
claims relating to information that is published or made available on
www.udate.com and the other sites linked to it. These types of claims have been
brought, sometimes successfully, against online services in the past. We could
also be sued for the content that is accessible from www.udate.com and through
links to other Internet sites or through content and materials that may be
posted by members in chat rooms or on bulletin boards. We also offer email
services, which may subject us to potential risks, such as liabilities or claims
resulting from unsolicited email or spamming, lost or misdirected messages,
security breaches, illegal or fraudulent use of email or interruptions or delays
in email service. Our insurance does not specifically provide for coverage of
these types of claims and therefore may not adequately protect us against these
types of claims. In addition, we could incur significant costs in investigating
and defending such claims, even if we ultimately are not liable. If any of these
events occur, our revenues could be materially adversely affected.
Other Risks
Our stock price may experience extreme price and volume fluctuations.
The stock market in general and the market prices of shares in
technology companies, particularly those such as ours that offer Internet-based
products and services, have been extremely volatile and have experienced
fluctuations that have often been unrelated or disproportionate to the operating
performance of such companies. These fluctuations are in response to many
factors, some of which are largely beyond our control. These factors include:
- quarterly variations in our results of operations;
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- adverse business developments;
- changes in financial estimates by securities analysts;
- investor perception of us and online matchmaking services in
general;
- announcements by our competitors of new products and services;
and
- general economic conditions both in the U.S. and in foreign
countries.
Since our stock price is potentially volatile, we may become subject to
securities litigation which is expensive and could result in a diversion of
resources. Litigation brought against us could result in substantial costs to us
in defending against the lawsuit and a diversion of management's attention.
Securities class action litigation has often been brought against companies that
experience volatility in the market price of their securities. Since our stock
price is volatile, we could be subject to securities litigation and incur higher
expenses than expected, which could have a material adverse effect on our
business and results of operations.
Future sales of our common stock may negatively affect our stock price.
The market price of our common stock could decline as a result of sales
of a large number of shares of our common stock in the market or as a result of
sales by our existing stockholders, or the perception that these sales could
occur. We have and will continue to have a large number of shares of common
stock outstanding and available for resale. These sales 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. Unregistered shares of our common stock
currently outstanding are or will become eligible for sale without registration
pursuant to Rule 144 under the Securities Act, subject to certain conditions of
Rule 144. Certain holders of our common stock also have certain demand and
piggyback registration rights enabling them to register their shares under the
Securities Act for sale.
Forward Looking Statements.
Certain of the matters discussed in this report may constitute
"forward-looking" statements for purposes of the Securities Act of 1933, as
amended, and the Exchange Act of 1934, as amended, and, as such, may involve
known and unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievements of the Company to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements. Any statements made herein that are not
statements of historical fact are forward-looking statements including, but not
limited to, statements concerning the characteristics and growth of the
Company's markets or customers, the Company's objectives or plans for future
operations and products and the Company's expected liquidity and capital
resources. When used in this report, the words "anticipates," "estimates,"
"believes," "continues," "expects," "projections," "forecasts," "intends,"
"may," "might," "could," "should," and similar expressions are intended to be
among the statements that identify forward-looking statements. Such
forward-looking statements are based on a number of assumptions and involve a
number of risks and uncertainties, and therefore actual results could materially
differ. These risks and uncertainties include, among others, the Company's
continuing liquidity problems, significant variability in operating results,
including variability in product revenues and gross margins, fluctuating demand
for new and established products,
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dependence on development of new products, increasing expenses for marketing and
development of new products, historical lack of profitability, rapid
technological change that affects the ability of the Company to respond to
customer or market demands, risks associated with global operations, the
continued and future acceptance of the Company's products, the rate of growth in
the industries of the Company's products, the presence of competitors with
greater technical, marketing and financial resources, and the ability of the
Company to successfully expand its operations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) None
(b) None
(c) In connection with the Share Exchange Transaction described in Item 1 above
and Item 4 below, the Company (1) issued 10,925,000 shares of Common Stock to
the former shareholders of Internet Investments Inc. and uDate.com, Ltd., (2)
issued 1,000,000 Units at $7.50 per Unit to Innovative Finance Limited pursuant
to the terms of a Subscription Agreement, dated as of May 2000 and (3) granted
Melvyn Morris and Howard Thacker options to purchase 525,000 and 475,000 shares
of Common Stock, respectively, each at an exercise price of $7.50 per share.
Each of the Units referenced above consists of one share of Common
Stock and a one-half share purchase warrant. Each full warrant will entitle
the holder to purchase one additional common voting share of the Company's
Common Stock within two years after the effective date of the Share Exchange
Transaction at a price of: (1) $7.50, if exercised on or before the first
anniversary of the effective date of the Share Exchange Transaction; or (b)
$10.00, if exercised after the first anniversary of the effective date of the
Share Exchange Transaction. The Company also borrowed $1,050,000 from
Innovative Finance Limited prior to the consummation of the Share Exchange
Transaction. In connection with the sale of the Units, the debt owed to
Innovative Finance Limited was converted into an additional 140,000 Units.
The shares of the Company's Common Stock issued in connection with the Units,
assuming that all of the warrants issued in connection with the Units are
exercised, constitutes 8.2% of the issued and outstanding shares of the
Company's Common Stock, after giving effect to the Share Exchange Transaction.
The shares, Units and options issued and sold in the Share Exchange
Transaction were issued pursuant to an exemption from registration under the
Securities Act of 1933, as amended, afforded by Section 4(2) thereof.
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On June 21, 2000, the Company issued options to purchase 75,000 of
Common Stock of Registrant at $5.00 per share to each of Geoffrey Shingles, a
director of Registrant, and Interregnum Venture Marketing Ltd. (and affiliate of
Kenneth Olisa, a director of Registrant). The options were granted separately
from and are not governed by Registrant's 2000 Stock Incentive Plan. The Options
were granted pursuant to an exemption from registration under the Securities Act
of 1933, as amended, afforded by Section 4(2) thereof.
(d) None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 10, 2000 the holder of a supermajority (approximately 80%) of
the outstanding shares of Common Stock of the Company approved the issuance of
10,925,000 shares of common stock of the Company in connection with Share
Exchange Transaction pursuant to the Share Exchange Agreement described in Item
1 above. The holders of capital stock of the Company were granted notice of the
transactions and dissenters' rights in accordance with California law.
The majority shareholder also (a) approved (1) the grant of
registration rights to the former shareholders of Internet Investments Inc. and
uDate.com, Ltd. pursuant to a Registration Rights Agreement dated as of May 5,
2000 among the Registrant and the shareholders of Internet Investments Inc. and
uDate.com, Ltd. and (2) amendment of the Articles of Incorporation to change the
Company's name from "Anthem Recording West Inc." to "uDate.com, Inc." to more
accurately describe the proposed business of the Company and (b) ratified the
actions of the directors in adopting the Company's 2000 Stock Incentive Plan and
granting the Units and stock options described in Item 2(c) above.
On the record date of the shareholder action, the Company had
50,000,000 shares of Common Stock, $0.001 par value, authorized, 30,000,000
shares of which were issued and outstanding. Each of the actions described in
this Item 4 were approved by the holder of 23,700,000 shares of Common Stock.
The Share Exchange Transaction is described, and the Share Exchange
Agreement is included, in a Current Report on Form 8-K filed with the Commission
on June 9, 2000, as amended by a Current Report on Form 8-K/A filed with the
Commission on August 14, 2000.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
2.1 Share Exchange Agreement, dated as of May 23, 2000, by and
among the Registrant, Internet Investments Inc., uDate.com,
Ltd. and the selling shareholders named therein (1)
3.1 Articles of Incorporation (2)
3.2 Certificate of Amendment of Articles of Incorporation (3)
3.3 Bylaws, as amended.(2)
10.1 Subscription Agreement dated as of May 2000 by and between the
Registrant and Innovative Finance Limited (1)
10.2 Registrant's 2000 Stock Incentive Plan and form of Stock
Option Agreement (1)
10.3 Melvyn Morris Stock Option Agreement dated as of May 10, 2000
(1)
10.4 Howard Thacker Stock Option Agreement dated as of May 10, 2000
(1)
10.5 Notice of Non-Qualified Stock Option Award and Non-Qualified
Stock Option Award Agreement between the Registrant and
Geoffrey Shingles dated June 21, 2000 (3)
10.6 Notice of Non-Qualified Stock Option Award and Non-Qualified
Stock Option Award Agreement between the Registrant and
Interregnum Venture Marketing Ltd. dated June 21, 2000 (3)
27.1 Financial Data Schedule
99.1 Press Release announcing the completion of the Share Exchange
Transaction (1)
(1) Incorporated herein by reference to the Current Report on Form 8-K
filed by the Company with the Commission on June 9, 2000.
(2) Incorporated herein by reference to the Company's Registration
Statement on Form 10SB12B/A filed by the Company with the
Commission on January 26, 2000.
(3) Incorporated herein by reference to the Current Report on Form
8-K/A filed by the Company with the Commission on August 14, 2000.
(b) The Share Exchange Transaction, the issuance of options by the Company
described in Items 1 and 4 above and a change in the Company's auditors are
described in greater detail in a Current Report on Form 8-K filed with the
Commission on June 9, 2000, as amended by a Current Report on Form 8-K/A filed
with the Commission on August 14, 2000.
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SIGNATURES
In accordance with the Exchange Act, the registrant caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 14, 2000
UDATE.COM, INC.
(Registrant)
/s/ Melvyn Morris
-----------------------------------------------
Melvyn Morris, President
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