SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------------------------------------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ___________
Commission file number ____________
MONSTERDAATA.COM, INC.
(Exact name of small business issuer as specified in its charter)
(Formerly known as D-Vine, Ltd.)
DELAWARE 22-2732163
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
115 STEVENS AVENUE
VALHALLA, NEW YORK 10595
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 747-9100
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. |X| Yes |_| No
As of September 30, 2000, 15,266,010 shares of the Registrant's common stock,
par value $.01 per share, were outstanding.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format: [ ]Yes [X]No
<PAGE>
MONSTERDAATA.COM, INC.
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEET -- As of September 30, 2000
(Unaudited) ................................................Page 1
STATEMENTS OF OPERATIONS (Unaudited) --
For the Three Months and Nine Months
Ended September 30, 1999 and September 30, 2000 ..........Page 3
STATEMENTS OF CASH FLOWS (Unaudited) --
For the Nine Months Ended September 30,
1999 and September 30, 2000 ..............................Page 5
NOTES TO FINANCIAL STATEMENTS ..............................Page 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............Page 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ........................................Page 15
Item 2. Changes in Securities ....................................Page 16
Item 3. Defaults upon Senior Securities ..........................Page 16
Item 4. Submission of Matters to a Vote of Security Holders ......Page 16
Item 5. Other Information - Risk Factors .........................Page 17
Signatures ........................................................Page 27
(i)
<PAGE>
MONSTERDAATA.COM, INC
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
September 30,
2000
CURRENT ASSETS
<S> <C>
Cash and Cash Equivalents 1,006,382
Accounts Receivable 297,686
Prepaid expenses and other current assets 674,345
---------
TOTAL CURRENT ASSETS 1,978,413
PROPERTY AND EQUIPMENT, NET 1,432,725
SECURITY DEPOSITS 21,488
---------
TOTAL ASSETS 3,432,626
=========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued expenses 1,037,518
Deferred revenue - Current 465,716
Notes Payable - Stockholders less deferred debt discount
4,601,380
Current maturities of capital lease obligations
436,401
---------
TOTAL CURRENT LIABILITIES 6,541,015
---------
OTHER LIABILITIES
Capital lease obligations, less current maturities 808,476
Deferred revenue - Non-current 6,000
---------
TOTAL OTHER LIABILITIES 814,476
---------
TOTAL LIABILITIES 7,355,491
---------
STOCKHOLDERS' DEFICIENCY
Preferred Stock - $0.01 par value; 10,000,000 shares authorized: Series A
cumulative convertible preferred stock - $0.01 par value; $1,000 stated value;
2,000 shares authorized, 1,567.32 shares issued and
outstanding 1,567,320
Series B cumulative convertible preferred stock - $0.01 par value;
$1,000 stated value; 2,000 shares authorized, 425 shares issued and
outstanding 425,000
Common stock - $0.01 par value; 50,000,000 shares authorized;
15,266,010 issued and outstanding 152,660
Additional paid in capital 3,169,749
Options and warrants 711,566
Notes Receivable Stockholder (100,334)
Accumulated deficit (9,848,826)
-----------
TOTAL STOCKHOLDERS' DEFICIENCY (3,922,865)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY 3,432,626
=========
</TABLE>
<PAGE>
MONSTERDAATA.COM, INC
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three For the Three For the Nine For the Nine
Months ended Months ended Months ended Months ended
September September September September
30, 1999 30,2000 30,1999 30,2000
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
SALES $ 482,066 $ 384,634 $ 1,806,574 $ 1,331,720
COST OF SALES 169,981 178,669 561,253 408,749
------------ ------------- ------------- ------------
GROSS PROFIT 312,085 205,965 1,245,321 922,971
65% 54% 69% 69%
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
Product development costs 273,539 367,134 743,117 1,872,243
Selling, general and
administrative expenses 784,773 1,102,668 2,078,552 2,653,857
------------ ------------- ------------- ------------
TOTAL SELLING, GENERAL AND 1,058,312 1,255,134 2,821,669 4,526,100
ADMINISTRATIVE EXPENSES
OPERATING LOSS (746,227) (1,416,303) (1,576,348) (3,603,129)
OTHER INCOME/(EXPENSE)
Interest (expense) net of income 4,948 (226,857) 8,339 (318,126)
Loan Costs (139,000) (139,000)
Expense Settlements 219,984 219,984
Impairment of Asset (261,103) (261,103)
Merger/Acquisition costs (215,000)
------------ ------------- ------------- ------------
OTHER INCOME (EXPENSE) 4,948 (406,976) (206,661) (498,245)
------------ ------------- ------------- ------------
NET LOSS BEFORE INCOME TAXES
(741,279) (1,823,279) (1,783,009) (4,101,374)
INCOME TAXES
------------ ------------- ------------- ------------
NET LOSS $ (741,279) $ (1,823,279) $ (1,783,009) $ (4,101,374)
============ ============ ============ ============
Weighted Average Number of Shares
Outstanding 7,239,455 15,266,010 6,762,826 10,844,236
============ ============ ============ ============
Net Loss Per Share, Basic and
Diluted $ (0.102) $ (0.119) $ (0.264) $ (0.378)
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
MONSTERDAATA.COM, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
------------------ ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES
-----------------------------------------
<S> <C> <C>
Net loss (1,783,009) (4,101,374)
-----------------------------------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 78,312 214,710
Amortization of Deferred Debt Discount 209,000
Amortization of Deferred Debt Cost (21,000)
Amortization of Bridge Note Costs (380,208)
Accrued interest on receivable (4,383)
Stock based compensation 248,821 92,150
Increase in Security Deposits (7,955) (4,900)
(Increase)/Decrease in accounts receivable 308,419 (170)
Increase in prepaid expenses and other
current assets (8,942) (636,811)
Decrease/(Increase) in database cost (118,500) 261,103
Increase in fixed assets 31,702
Increase in accounts payable and accrued 561,302 516,740
expenses
Decrease in deferred revenue (228,039) (49,345)
-------- ----------
TOTAL ADJUSTMENTS 833,418 228,588
-------- ----------
NET CASH FROM OPERATING ACTIVITIES (949,591) (3,872,786)
-------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (57,711) (195,473)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 1,003,423
Proceeds from issuance of stock warrants 3,560,000
Proceeds from contributed capital 223,000
Proceeds from notes payable Stockholder 728,000
Increase in private placement costs (147,843)
Net proceeds from issuance of Series B preferred stock 425,000
Proceeds from exercise of options 5,000
Proceeds from exercise of warrants 75,000
Repayment of notes payable (62,232)
Repayment of notes payable, stockholders (21,833)
Principal repayments of capital lease obligations (68,261) (190,062)
--------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES 1,074,097 4,455,095
--------- ---------
NET INCREASE IN CASH 66,795 386,836
CASH - Beginning 55,592 619,546
--------- ---------
CASH - Ending 122,387 1,006,382
========= =========
Conversion of Series A Cumulative Convertible
Preferred Stock into Common Stock 24,440
Issuance of Series A Cumulative Convertible Preferred
Stock 10,000
Issuance of warrants 83,531 445,145
Conversion of Accounts Payable to note payable
Stockholder 553,686
Exercise of warrants on a cashless basis 113,714
Exercise of options on a cashless basis 114,275
Purchase of equipment through capital leases 1,364,057
Issuance of stock - stock based compensation 131,350
Bridge Warrants - Deferred Debt Discount 106,800
</TABLE>
See accompanying notes to financial statements
<PAGE>
MONSTERDAATA.COM, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION
THE COMPANY
MonsterDaata.com, Inc. was incorporated in Delaware on July 22, 1985 under the
corporate name "Trans West, Inc." For eight years prior to September 27, 1995,
we were an inactive corporation. On September 27, 1995, we revived our corporate
charter in Delaware and were reactivated, although we had no material assets or
capital, and no operations or income. On February 13, 1996, we changed our
corporate name to "D-Vine, Ltd."
On April 2, 1999, we acquired 99.2% of the outstanding capital stock of Taconic
Data Corp. ("Taconic"), a provider of database development and management
services to the real estate industry. Taconic was incorporated in New York in
1992. In connection with this acquisition, Taconic became our majority-owned
subsidiary and Taconic directors and officers replaced all of our directors and
officers. The stockholders of Taconic were issued 6,000,000 of our shares of
common stock in exchange for their shares, or approximately 85% of our total
outstanding common shares after giving effect to the acquisition (and the
exercise of certain warrants referenced in Note 3 below). Accordingly, a change
in control of our company occurred in connection with the acquisition, and the
acquisition was deemed a "reverse acquisition" for accounting purposes.
Our accompanying unaudited financial statements represent a consolidation of our
business with that of Taconic, and the consolidation has been prepared assuming
that we owned 100% of Taconic after the acquisition. Subsequent to the
acquisition, we changed our fiscal year end from September 30 to December 31 to
correspond with the fiscal year end of Taconic. On April 5, 1999, we changed our
corporate name to "MonsterDaata.com, Inc."
MINORITY INTEREST
The minority interest referred to above is held by an entity, which owns 0.8% of
Taconic. This entity's interest in the net assets of Taconic has been reduced to
zero on the Consolidated Balance Sheet portion of our accompanying unaudited
financial statements. Therefore, in accordance with generally accepted
accounting principles, the entity's minority interest in the losses for the
nine-month period ended September 30, 2000 and 1999 has not been recorded on our
accompanying unaudited financial statements. This minority interest in losses
will remain unrecognized in our future financial statements unless and until
they are fully offset, in the aggregate, by the entity's minority interest in
future profits of Taconic. We are pursuing legal action to recover this minority
interest.
<PAGE>
BASIS OF PRESENTATION
Our accompanying unaudited financial statements reflect all adjustments, which
are, in the opinion of management, necessary to a fair statement of the results
of the interim periods presented. All such adjustments are of a normal recurring
nature. The financial statements should be read in conjunction with the notes to
the financial statements and in conjunction with our audited financial
statements contained in our Form 10-KSB (filed on March 30, 2000).
NOTE 2 - STOCKHOLDERS' EQUITY
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
On January 6, 2000, we issued 20.53 shares of our Series A Cumulative
Convertible Preferred Stock (the "Series A Preferred") to an investor, resulting
in cash proceeds of $20,000, which was received by us on December 9, 1999. In
connection therewith, we issued to the investor warrants for the purchase of
3,080 shares of our common stock, par value $.01 per share ("Common Stock"), at
an exercise price of $3.75 per share.
In February 2000, we issued 10 additional shares of our Series A Preferred to an
investor as a correction to the 123.33 shares issued to the investor on November
1, 1999.
On March 9, 2000 and March 23, 2000, we converted 11.11 shares and 13.33 shares,
respectively, of our Series A Preferred into 5,000 shares and 6,000 shares,
respectively, of our Common Stock.
On March 9, 2000, March 10, 2000, and March 23, 2000, warrants to purchase 3,333
shares, 5,167 shares and 68,334 shares, respectively, of Common Stock with an
adjusted exercise price of $2.00 per share were exercised, on a cashless basis,
when the market value was $6.00, $5.875, and $4.50 per share, respectively.
1,666, 3,848 and 63,087 shares, respectively, of the Common Stock were issued in
connection with the exercise of such warrants.
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
On April 6, 2000, we issued 425 shares of our Series B Cumulative Convertible
Preferred Stock (the "Series B Preferred") to investors, resulting in aggregate
cash proceeds of $425,000 net of direct expense of $123,669. In connection with
this issuance, we authorized the designation of 2,000 shares of Series B
Preferred. Holders of the Series B Preferred are entitled to a quarterly
cumulative dividend equal to 1.5% of the then applicable liquidation preference
as defined.
Each share of Series B Preferred is convertible into 267 shares of Common Stock,
at the option of the holder, subject to certain adjustments and conditions. The
Series B Preferred will automatically convert into shares of Common Stock upon
the occurrence of certain defined events.
We also issued warrants to purchase 56,670 shares of our Common Stock at an
exercise price of $4.25 per share, subject to adjustment, to the Series B
Preferred holders for the April 6, 2000
<PAGE>
issuance. These warrants, which expire in April 2004, have an estimated fair
value of $205,145 using the Black-Scholes option-pricing model.
EXERCISE OF OPTIONS
On March 9, 2000, options to purchase 24,000 and 20,000 shares of Common Stock
with exercise prices of $4.00 and $3.02, respectively, were exercised, on a
cashless basis, when the market value was $6.00 per share. 10,286 and 10,175
shares, respectively, of Common Stock were issued in connection with the
exercise of such options.
On March 9, 2000, options to purchase 5,000 shares of Common Stock were
exercised, resulting in cash proceeds of $5,000.
BRIDGE FINANCING AND FINANCIAL ADVISORY AGREEMENT
On May 2, 2000, we signed an engagement letter (the "Engagement Letter") with
Commonwealth Associates, L.P., a limited partnership organized under the laws of
the State of New York ("Commonwealth"), pursuant to which Commonwealth was
engaged by us as an advisor.
ComVest Capital Management LLC, a Delaware limited liability company and an
affiliate of Commonwealth ("ComVest"), agreed to provide a credit facility to us
in an aggregate principal amount of up to $1,500,000. ComVest has loaned us a
total of $1,478,000 through September 30, 2000, commencing with an initial loan
on June 7, 2000, pursuant to a series of 8% Senior Secured Promissory Notes (the
"Notes"), a copy of the form of which is incorporated in the Form 8K we filed on
July 25, 2000. On September 13, 2000, $750,000 in principal amount was converted
by ComVest into 7.5 units at the initial closing of the Company's August/October
2000 private placement (See August/October 2000 Private Placement).
In connection with this loan, we issued to ComVest a warrant to purchase
7,500,000 shares of our Common Stock for an exercise price of $.01 per share
(the "ComVest Warrant"). The ComVest Warrant, which was issued on June 7, 2000,
was valued by an independent third party at $240,000. This amount was recorded
as a deferred debt discount and is being amortized over the life of the Notes.
We agreed that, as long as this loan remained outstanding, the Board of
Directors of the Company would consist of seven directors, of which five would
be nominated by the Company with the consent of ComVest, which consent would not
be unreasonably withheld.
EXERCISE OF COMVEST WARRANT
On June 9, 2000, ComVest and Commonwealth exercised the ComVest Warrant,
purchasing 6,000,000 shares of our Common Stock in the case of ComVest and
1,500,000 shares of Common Stock in the case of Commonwealth. The purchase price
for these shares was $60,000 in the case of ComVest and $15,000 in the case of
Commonwealth.
GENERAL SECURITY AGREEMENT
In connection with this loan, we executed a General Security Agreement in favor
of ComVest and our principal subsidiary, Taconic Data Corp., a New York
corporation ("Taconic") executed a guarantee of the Notes to be issued to
ComVest and a General Security Agreement in favor of ComVest (all of which are
incorporated in the Form 8K we filed on July 25, 2000).
<PAGE>
POTENTIAL NOTE CONVERSION
We have also agreed that, if we complete a private placement of our securities
during the period that the Notes are outstanding, the holders of Notes will have
the option to convert all or a portion of their Notes into the securities sold
in any such transaction on the identical terms and conditions as the other
investors in any such transaction. Should ComVest and/or Commonwealth exercise
this option, their combined equity interest in us could increase, depending on
the amount of Notes converted and the terms and amount of any such transaction.
AUGUST/OCTOBER 2000 PRIVATE PLACEMENT
From August to October 2000, we conducted a private placement offering of 40
units at a price of $100,000 per unit. Each unit consists of an 8% convertible
subordinated promissory note and warrant to purchase 100,000 shares of our
Common Stock. As of September 30,2000, 25.6 units ($2,560,000) were sold to
approximately 13 investors. Through November 10, 2000, an additional 3.5 units
($350,000) were sold to approximately 7 investors. A portion of the net proceeds
raised from the placement has been used to fund the Company's working capital
and capital expenditure requirements, including the purchase of computer
hardware.
Each unit issued in the August/October 2000 private placement will automatically
convert into 10,000 shares of Series C Convertible Preferred stock, par value
$.01 per share with each such share convertible, at the holder's option, into 40
shares of the Company's common stock, par value $.01 per share (the "Common
Stock"), or an aggregate of 400,000 shares of Common Stock, and two-year
warrants to purchase 200,000 shares of Common Stock, at an exercise price of
$.25 per share (the "Warrants"), in each case, subject to adjustment.
NOTE 3 - STOCK OPTION PLAN
A total of 1,750,000 shares of Common Stock have been reserved for issuance
under the Company's 1999 Stock Option Plan (the "1999 Plan"). Options covering
the full number of shares authorized by the Plan have been granted to date, with
exercise prices between $.48 and $4.00 per share, and 709,877 of the options are
vested and exercisable as of September 30, 2000. The 1999 Plan was adopted by
the Board of Directors in June 1999 and approved by the Company's stockholders
in July 1999.
The 1999 Plan requires that the exercise price for each Option will be
established in the sole discretion of the Board of Directors, provided that the
exercise price per share for an incentive option will be not less than the fair
market value of a share on the effective date of grant of the option, the
exercise price per share for a nonstatutory option will be not less than 85% of
the fair market value of a share on the effective date of grant of the option,
and no option granted to an officer, director or greater than 10% shareholder
will have an exercise price per share less than 110% of the fair market value of
a share on the effective date of grant of the Option. The maximum term of
options granted under the 1999 Plan is 10 years.
Generally, any vested option held by a recipient who ceases to be employed or
retained by the Company may be exercised by such recipient within 30 days after
such recipient ceases to be employed or retained by the Company, or within one
year after an individual recipient ceased to be employed or retained in the case
of death or disability, respectively.
The Board of Directors of the Company anticipates approving a 2000 Stock Option
Plan, with substantially similar terms as the 1999 Plan, which would reserve
approximately 8,000,000 shares of Common Stock for future issuance upon the
exercise of stock options. Under the 2000 Stock Option Plan, approximately
5,400,000 options have been granted, which are subject to ratification by the
Company's stockholders
<PAGE>
NOTE 4 - CONTINGENT EQUITY PARTICIPATION
On September 19, 2000, we entered into a license and contingent equity
participation agreement with Utour.com, Inc. ("Utour"), a privately held
Portland, Oregon software developer. Pursuant to the agreement, we obtained a
non-exclusive, worldwide, perpetual license to use Utour software programs and
digital image inventory. We paid Utour a one-time license fee of $150,000, which
is being amortized over three years.
NOTE 5 - DATABASE IMPAIRMENT
During August of 1999, we entered into an agreement to purchase a database of
public and private school information. Delivery of the completed database was to
be on or about December 31, 1999. The database was never completely delivered
and we were not able to put the asset in place for our intended use. We believe
that there are no future cash flows to recover this asset. Therefore we believe
that the asset is impaired, accordingly we have written the asset off.
NOTE 6 - LITIGATION
We are currently involved in litigation with our former law firm (which is also
a stockholder) concerning disputed legal fees in the sum of approximately
$650,000 (and interest thereon). This liability is recorded as due to
stockholder in the amount of $570,421 with the remainder recorded in accounts
payable. In July 2000, we commenced an action in New York Supreme Court seeking
a declaratory judgment to have a certain promissory note forced upon us by such
law firm ruled invalid. Subsequently, the former law firm commenced a summary
proceeding in the same court to foreclose upon the promissory note. By order
dated August 11, 2000, the Court denied both of their motions for summary
judgment on the promissory note and our motion for dismissal or stay of the suit
on the note. However, the Court granted a conditional preliminary injunction and
directed us to deposit revenues from specified client contracts into an escrow
account up to an amount of $560,000. To date, approximately $252,127 in revenues
have been deposited in such escrow account.
<PAGE>
Note payable to a stockholder and former consultant of Taconic is payable in 36
monthly installments of $12,902 including interest of 9.71% per annum. At
September 30, 2000, the Company is in default of this note whereby the entire
balance is due. Accordingly, we have classified the entire balance including
accrued interest of the note as current liability. The former consultant has
sued the Company in New York Supreme Court to collect $390,000 allegedly owed to
it. In connection with the lawsuit the consultant was recently granted summary
judgment against us, with the Court directing a hearing on the issue of damages.
The consultant admitted overbilling so that the Court permitted us to prove any
further improper billing by the consultant. In addition, an order of attachment
was granted against us, resulting in the freezing of $400,000 in cash in our
operating bank account. We filed an appeal in this lawsuit in October 2000.
We are also a party to litigation involving a former customer which is seeking a
refund of a $175,000 downpayment for work the customer alleges we did not
perform properly and involving a former website developer for collection of
$163,000 in fees allegedly owed by us to it. Both actions are pending.
NOTE 7 - GOING CONCERN UNCERTAINTY
As shown in the accompanying financial statements, we incurred a net loss of
$1,823,279 during the three months ended September 30, 2000, and, as of that
date, our current liabilities exceeded our current assets by $4,562,602 and our
total liabilities exceeded our total assets by $3,922,865. These factors, as
well as the uncertain conditions that we face relative to capital raising
activities, create an uncertainty as to our ability to continue as a going
concern.
The financial statements do not include any adjustments that might be necessary
should we be unable to continue as a going concern.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW OF OPERATIONS
MonsterDaata.com is an information utility company. We provide proprietary
web-enabling applications, distribution technology, programming tools and
digital content to our network affiliates. Our proprietary applications and
technology consist of our ability to integrate data from many sources and
formats, distribute and reformat this data in a highly customizable manner and
track the usage of such data, helping our partners to better target, capture and
retain customers.
Our current digital content includes text, visual, geographical and interactive
programming tools, including more than 3.5 billion records of information for
over 61,000 communities composed of more than 220,000 distinct geographically
bounded areas in the United States. Our data includes neighborhood, crime,
demographic, lifestyle, risk hazard and school information. We distribute our
data through syndication and co-branding to a broad network of affiliates
including Internet portals, consumer and professional transaction and
destination websites, and classified advertising networks. As of September 30,
2000, we employed 42 full-time officers, data managers, web site developers,
salespeople and support personnel.
<PAGE>
We believe that our proprietary compilation of applications, data, programming
and customization tools and distribution technology boosts the effectiveness of
our affiliates' websites by increasing the frequency, duration and revenue of
each site visit. These businesses seek content and applications that will make
their websites more useful and attractive without the high fixed expense of
developing and maintaining their own information infrastructure. Our
customizable, proprietary, high-speed content delivery system enables our
distribution partners to offer interactive and localized content, facilitating
e-commerce, lead generation and advertising sales. We generate or plan to
generate revenue through our partners' websites from remote data distribution
(pay-per-query), licensing of content, subscriptions, advertising, lead
generation, usage reports, customized information delivery and planned product
and service transaction fees. We are developing co-branding relationships with
high-traffic sites, such as real estate portals that wish to display our
content.
RECENT EVENTS
NEW PRESIDENT AND CHIEF EXECUTIVE OFFICER
In September 2000, Samuel B. Petteway, Jr. became the President and Chief
Executive Officer of the Company. Prior to joining the Company, Mr. Petteway
served as the President of the Managed Care Division of Opticare Health
Systems, Inc. (formerly Saratoga Resources, Inc.) from July 1996 to August
2000, and led the managed care business operations of Consolidated Eye Care,
Inc. from 1989 to 1996. See "Management."
NEW BOARD MEMBERS
Following Mr. Petteway's joining the Company, he also agreed to become a member
of the Company's Board of Directors, together with Mitchell Deutsch, the
Company's co-founder and Vice Chairman, and other new directors, Harold S. Blue,
the Company's Chairman of the Board, and Keith M. Rosenbloom, the Director of
Merchant Banking of the Placement Agent.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AS COMPARED
TO THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Our total revenues for the nine month period ended September 30, 2000, were
$1,331,720 compared to $1,806,574 for the nine month period ended September 30,
1999. Our total revenues for the three month period ended September 30, 2000,
were $384,634 compared to $482,066 for the three month period ended September
30, 1999. This 26% and 20% decrease in revenue respectively, is largely
attributable to our focus on building out our new technology center. Over the
past quarter, we believe we have made substantial progress in building a
technology platform which will allow us to more easily distribute database
content to existing and new accounts. We are developing our Internet-based
revenue by attempting to achieve wide distribution of our products and services
through co-brands, partnerships, professional subscriptions and portal
distribution. We receive revenues from licensing fees, and sales of reports,
subscriptions, and services. In these efforts we have added approximately 116
new business contracts, which we believe we can began monitizing upon the
completion and implementation of the new technology distribution platform. We
anticipate that we will more than offset our MLS revenue loss through such
Internet-related sales over time.
<PAGE>
Our cost of sales for the nine month period ended September 30, 2000 was
$408,749, compared to $561,253 for the nine month period ended September 30,
1999. Our cost of sales for the three month period ended September 30, 2000 was
$178,669, compared to $169,981 for the nine month period ended September 30,
1999. This 27% decrease and 5% increase respectively, is primarily the result of
reassignment of many of our data collection employees to Web site development
functions as part of the transition of our business to the Internet. We
anticipate that our gross margins in future periods could improve. This is based
on our belief that our total revenues will increase faster than our related
costs of sales. This should occur as we move the primary means of distributing
our data products to the Internet and we expand our revenue base to include new
Internet related sources of revenue. We believe that these revenues can be
derived with minimal incremental expense beyond the fixed Internet costs that we
have already invested or have budgeted for future periods. Our cost of goods
sold includes referral and revenue sharing payments that we are required to make
to third party Web site operators for certain types of Internet related revenues
under our agreements with such operators. To date, these payments have not been
significant, but we expect that as our Internet related revenues grow these
payments will also grow.
Product development costs increased to $1,872,243, in the nine month period
ended September 30, 2000, from $743,117 for the nine month period ended on
September 30, 1999. Product development costs increased to $367,134 in the three
month period ended September 30, 2000, from $273,539 for the nine month period
ended on September 30, 1999. These increases are primarily due to the additional
technical staff recruited and expenses related to the development of our web
site.
Selling, general and administrative expenses increased from $2,078,552 for the
nine month period ended on September 30, 1999 to $2,653,857 for the nine month
period ended September 30, 2000. Selling, general and administrative expenses
increased from $784,773 for the three month period ended on September 30, 1999
to $1,255,134 for the three month period ended September 30, 2000. This 28% and
59.9% respectively, increase is attributed to new executive, sales, and
marketing staff, employee recruiting fees and depreciation expense for capital
equipment.
Our operating loss increased from $1,576,348 for the nine month period ended
September 30, 1999 to $3,603,129 for the nine month period ended September 30,
2000. Our operating loss increased from $746,227 for the three month period
ended September 30, 1999 to $1,416,303 for the three month period ended
September 30, 2000. This decrease in profitability is directly related to the
increase in product developmental costs, staffing and depreciation expenses
previously discussed.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, our cash balance was $1,006,382 and we had a working
capital deficit (excluding deferred revenue) of $4,096,886. For the nine months
ended September 30, 2000, our net cash flow used in operating activities was
$3,872,786.
Total cash flows from financing activities increased from $1,074,097 for the
nine month period ended on September 30, 1999 to $4,455,095 for the nine month
period ended September 30, 2000. On June 2, 2000, we entered into a financial
advisory relationship with Commonwealth Associates, L.P., a New York limited
partnership ("Commonwealth") and received a loan commitment of $1,500,000 of
which we drew down $1,478,000 through September 30, 2000. In connection with
this loan commitment, we issued warrants to purchase 7.5 million shares of our
Common Stock at a price of $.01 per share, which were subsequently exercised on
June 9, 2000 for $75,000.
From August to October 2000, we conducted a private placement of units,
consisting of 8% convertible subordinated promissory notes and warrants to
purchase common stock. In the private placement, as of September 30,2000,
$3,560,000 of promissory notes were sold and warrants to purchase up to
3,560,000 shares of Common Stock were granted to approximately 13 investors. As
of October 11, 2000 $350,000 of promissory notes were sold and warrants to
purchase up to 350,000 shares of Common Stock were granted to approximately 7
investors. A portion of the net proceeds raised from the placement of these
notes has been used to fund the Company's working capital and capital
expenditure requirements, including the purchase of computer hardware equipment.
The notes issued in the August 2000 private placement are automatically
convertible into securities being sold in November 2000.
Our working capital requirements depend upon numerous factors, including,
without limitation, levels of resources that we devote to the further
development of our Web site and marketing capabilities, technological advances,
competitive advantages and establishing collaborative arrangements with other
organizations. We will be required to raise additional capital in order to meet
our business objectives in 2000. We may not be successful in raising this
capital or in achieving these objectives. We believe that our current cash
resources will not be sufficient to fund our current operations much beyond the
fourth calendar quarter of 2000 if our development spending is to continue at
its current pace.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to several significant lawsuits. The Company is
currently involved in litigation with its former law firm over disputed legal
fees in the sum of approximately $650,000 (and interest thereon). In July 2000,
the Company commenced an action in New York Supreme Court seeking a declaratory
judgment to have a certain promissory note forced upon it by such law firm ruled
invalid. Subsequently, the former law firm commenced a summary proceeding in the
same court to foreclose upon the promissory note. By order dated August 11,
2000, the Court denied both of their motions for summary judgment on the
promissory note and the Company's motion for dismissal or stay of the suit on
the note. However, the Court granted a conditional preliminary injunction and
directed the Company to deposit revenues from specified client contracts into an
escrow account up to an amount of $560,000. To date, approximately $252,127 in
revenues have been deposited in such escrow account. Discovery in the actions
will be commenced shortly. It is premature to render an estimate of the outcome
of this litigation.
<PAGE>
A former consultant has sued the Company in New York Supreme Court to
collect $390,000 allegedly owed to it. In connection with the lawsuit the
consultant was recently granted summary judgment against the Company, with the
Court directing a hearing on the issue of damages. The consultant admitted
overbilling so that the Court permitted the Company to prove any further
improper billing by the consultant. In addition, an order of attachment was
granted against the Company, resulting in the freezing of $400,000 in cash in
the Company's operating bank account. The Company filed an appeal in this
lawsuit in October 2000.
The Company is also a party to litigation involving a former customer
which is seeking a refund of a $175,000 downpayment for work the customer
alleges the Company did not perform properly and involving a former website
developer for collection of $163,000 in fees allegedly owed by the Company to
it. Both actions are pending.
Other than the lawsuits above, the Company is not currently a party to any
litigation that, if determined adversely to it, the Company believes would have
a material adverse effect on it.
ITEM 2. CHANGES IN SECURITIES
We have sold additional shares to Commonwealth and ComVest Capital Management
LLC, a Delaware limited liability company and an affiliate of Commonwealth
("ComVest"), at a price that is materially lower than the purchase price paid by
the purchasers of our Series A Preferred and Series B Preferred. We have engaged
in preliminary discussions with representatives of some of these Series A
Preferred and Series B Preferred purchasers regarding an equitable adjustment to
the anti-dilution rights of the holders of the Series A Preferred and Series B
Preferred. To date, no agreement has been reached on this issue.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders through the solicitation
of proxies or otherwise during the third quarter of the fiscal year covered by
this report.
ITEM 5. OTHER INFORMATION - RISK FACTORS
This Report on Form 10-QSB contains, in addition to historical information,
forward-looking statements (as such term is defined in the Private Securities
Litigation Reform Act of 1995) that involve risks and uncertainties. Such
forward-looking statements may be identified by, among other things, the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should" or "anticipates" or comparable terminology. Our actual results,
performance or achievements could differ materially from the results expressed
in, or implied by, these forward-looking statements. We do not undertake any
obligation to publicly release any revisions to these forward-looking statements
or to reflect the occurrence of unanticipated events. Factors that may cause our
actual results to differ from our expectations include those discussed below.
<PAGE>
CERTAIN RISK FACTORS
The achievement of our business objectives is subject to a number of market and
other factors beyond our control, and our future prospects are speculative. If
we make any forward-looking statements or assumptions concerning our future
business activities, revenues, profits or financial condition, or if we make any
forward-looking statements concerning our industry, the economy, technological
changes or our competitors, potential investors should recognize that our
predictions and assumptions are subject to a great deal of uncertainty. Actual
results could differ materially from our predictions and assumptions,
particularly given the highly speculative nature of our business and that of
other Internet-related businesses in our industry. If our predictions prove to
be too optimistic, the value of our business could be adversely impacted and our
shareholders will probably lose money.
COMPANY RISK FACTORS
Our independent public accountants have qualified their opinion on our financial
statements.
We have generated limited revenue, have incurred substantial losses in recent
years, and currently are experiencing a substantial cash flow deficiency from
operations. We incurred net losses of approximately $1.6 million during 1998,
and approximately $2.8 million during 1999. As of September 30, 2000, we had a
working capital deficit of approximately $4.1 million (excluding deferred
revenues), a stockholders' deficiency of approximately $3.9 million and an
accumulated deficit of approximately $9.8 million. The report by our independent
public accountants on our financial statements for the year ended December 31,
1999 states that our losses, cash flow deficits, and other factors raise
substantial doubt about our ability to continue as a going concern.
We have experienced significant net losses in the past, and will need to raise
additional funds in the future.
We have incurred significant net losses since our transition to an
Internet-focused business in 1998. We have incurred and continue to incur
substantial costs to expand distribution, develop new services and products, and
create, introduce and enhance our web site. We would have run out of cash
earlier this year without the bridge financing or another cash infusion. We
expect operating losses and negative cash flows to continue for the foreseeable
future. Our limited operating history as an Internet-focused business makes it
difficult for investors to evaluate our potential for future success. Our
ability to generate significant Internet-related revenue is uncertain, and we
may never achieve profitability. We will likely require significant additional
financing in order to satisfy our longer-term cash requirements.
The failure to raise additional funds may prevent us from implementing our
business strategy. If revenues grow more slowly than anticipated, or if
operating expenses exceed expectations or cannot be adjusted in response to
slower revenue growth, our capital requirements could increase. Additional funds
may also be needed to take advantage of acquisition and expansion opportunities.
We cannot precisely predict the timing or amount of our capital requirements at
this time. Such requirements will depend on numerous factors, including the
success of our new product offerings, the growth of our Internet-related
<PAGE>
revenues, and competing technological and market developments. We will be
required to raise additional funds through public or private debt or equity
financing. Such additional funding may not be available on terms acceptable to
us, or at all. Any additional equity financing may be on terms that dilute the
holdings of our existing shareholders. In addition, new shares that are issued
may have rights, preferences or privileges senior to those of existing
shareholders. Debt financing, if available, may involve restrictive covenants
that limit our operating flexibility.
Our Internet strategy is relatively new and we should be considered an
early-stage business.
Potential investors should evaluate us in light of the expenses, delays,
uncertainties, and complications typically encountered by early-stage
businesses, many of which will be beyond our control. Our historical financial
data are of limited value in predicting our Internet-related results. These
risks include the following:
o lack of sufficient capital,
o unanticipated problems, delays, and expenses relating to product
development and implementation,
o lack of intellectual property,
o licensing and marketing difficulties,
o competition,
o technological changes, and
o uncertain market acceptance of our products and services.
Intense competition may render our services and products uncompetitive or
obsolete.
The market for Internet data services is relatively new, intensely competitive
and rapidly evolving. Our web services compete against a variety of firms that
provide information products through one or more media, including print, radio,
television and the Internet. Within our currently targeted niche of real estate
information products and the Internet, we compete with Homefair.com, recently
acquired by Homestore.com, SmartHomeBuy.com, eNeighborhoods.com, NearMyHome.com,
TheSchoolReport.com, Public Priority Systems (School Match), 2001Beyond.com, CAP
Index (Crime Check), Claritas, Inc., National Decision Systems,
AMSHomefinder.com, HomePriceCheck.com, CompleteHome.com, HomeGain.com,
RealEstate.com, Homes.com, Homestore.com, HomeSeekers.com, and numerous
specialized sites with limited coverage and local sites. We also compete with
Baca Landata, Experian, Acxiom, DataQuick, Vista Information Solutions and
TransAmerica Intellitech. While we believe that our information products are
more complete and comprehensive than those of our competitors, many of these
competitors offer one or more Internet sites with information products similar
to individual items we provide.
We expect competition to persist and intensify. Competitors using other media to
deliver information products, including some who supply data to us, could adapt
their businesses to include the Internet as a medium for delivering their
products. Competitors could develop or offer services that provide significant
performance, ease of use, price, creative or other advantages over those we
offer.
<PAGE>
Although we believe that our products and services can compete favorably under
current market conditions, we may not be able to maintain our competitive
position. Many of our current and potential competitors have longer operating
histories, greater name recognition, larger installed bases, and significantly
greater financial, technical, marketing, and sales resources than we do. As a
result, competitors may be able to react more quickly to emerging technologies
and changes in customer requirements or to devote greater resources to the
promotion and sale of their products. In addition, certain of our current
competitors in particular segments of the information marketplace may broaden or
enhance their offerings to provide a more comprehensive data product line which
would compete more effectively with our products and services.
The accuracy, availability and integrity of our data are critical to our
business.
A substantial portion of the raw data from which we develop our databases is
obtained from third parties, including public records offices and other
governmental sources. We use a variety of proprietary techniques to enhance the
content, applications and utility of the data. Our ability to attract and retain
customers and to generate revenues is highly dependent on customer confidence in
the comprehensiveness, accuracy and timeliness of our database. Establishing and
maintaining such comprehensiveness, accuracy and timeliness requires substantial
effort and resources. Although we disclaim financial responsibility for
inaccuracies in the data on our website, such disclaimers may not be effective
to shield us from all possible liability. Our business is based on establishing
our reputation as a trustworthy and dependable provider of information and
applications. Allegations of unreliable or outdated data, even if unfounded,
could have a material adverse effect on our business. We also license and use
data from third-party providers. If our license agreements are not renewed, we
may not be able to obtain alternative sources of comparable data at reasonable
cost, if at all.
Strategic and licensing agreements with other companies are important to our
business strategy and are subject to risks of termination and non-renewal.
We have entered into strategic agreements such as co-branding agreements with
other Internet companies in order to increase our revenues, provide wider
exposure to our name and products and deliver a sufficient number of customer
visits or page views to make the relationships profitable. We continue to seek
additional such agreements. Any future strategic alliances or related efforts
will be subject to the risk that we expend considerable time and money on an
agreement or joint venture that does not provide commensurate benefits.
Many of our licensing and other agreements are short-term and expose us to
termination and non-renewal risks. We are dependent on our relationships with
many of these contracting parties. We are currently a party to a limited number
of revenue-producing licensing agreements or comparable agreements with third
parties. Three of these agreements expire on or before March 2001, two expire on
or before March 2002, and two expire on or before June 2003. About half of these
agreements are currently with MLSs, rather than website operators or other
Internet-related businesses. Agreements with MLSs currently account for a
significant majority of our revenues. In general, the expiring contracts will
automatically renew for successive terms if we do not give or receive a notice
of non-renewal within a specified period ranging from 30 days to nine months
<PAGE>
before the scheduled termination date. While we believe that such relatively
short-term agreements are typical in our industry, our ability to maintain and
grow our business depends significantly upon our ability to enter into and
maintain licensing and comparable relationships. We may not be able to renew or
extend these agreements when they expire on terms as favorable to us as those
that we currently enjoy, if we can renew or extend them at all. In fact, we
expect our recurring revenues from existing agreements with MLSs to decline as
these agreements expire and we make our data available to more users, including
MLSs and their clients, at substantially lower cost over the Internet.
Our intellectual property rights may be difficult to protect and we may find
that they infringe on the intellectual property rights of others.
The intellectual property laws that apply to the Internet are still being
written. Existing laws may not provide adequate protection for our proprietary
database offerings or our Internet domain names. Our success and ability to
compete partly depend on the protection of our proprietary database offerings on
the Internet and on the goodwill associated with our trademarks, trade names,
and Internet domain names. We rely on copyright laws to protect the original
content that we develop for the Internet. We rely on contract restrictions and
copyright laws to protect the proprietary technologies that we have developed to
manage and improve our web site and database offerings. These laws may not
sufficiently protect us. Others, including former employees, may develop
technologies similar or superior to ours or obtain or use our technologies
without our authorization. Copyright protection is available for the originality
and creativity in the selection and arrangement of the data included in our
databases. We have obtained copyright registrations from the United States
Copyright Office for some of our databases. Copyright protection does not,
however, extend to the facts included in any of the databases.
Others may bring claims of copyright or trademark infringement against us, or
claim that our use of certain technologies or data violates the intellectual
property rights of others. Any claims of infringement, even if without merit,
could be time consuming to defend, result in costly litigation, divert
management attention, require us to enter into costly royalty or licensing
arrangements or prevent us from using important technologies or data. Any of
these could have a material adverse effect on our business. If we cease to use
certain intellectual property as a result of third party claims, we may not be
able to develop or acquire alternative technologies or obtain such licenses on
commercially acceptable terms.
We have not yet obtained registrations for any of our trademarks, including our
corporate name. In view of the number of other users of the word "monster" in
their names or trademarks, including companies doing business on the Internet,
our attempt to register the mark "monsterdaata.com" may not be successful or our
use of this mark may be challenged by another user. Although we believe that we
have a reasonable position in favor of our right to use and register the mark,
defending such rights may be costly and an adverse determination or settlement
could require that we change our name.
We depend upon licensed technology from third parties.
<PAGE>
We do not have any patents or copyrights for the technology we utilize. We
license some of the technology integral to our business from third parties. We
also may be required to license additional technology for use in managing our
website and providing related services to users and advertising customers. Our
ability to generate revenues from Internet commerce may also depend on data
encryption and authentication technologies that we may be required to license
from others. These third party technology licenses may not be available to us on
acceptable commercial terms, or at all. If appropriate licenses are not
available on commercially reasonable terms, we may be required to develop or
find alternatives or be forced to alter our products or services. The inability
to enter into and maintain any of these technology licenses could have a
material adverse effect on our business.
Our commercial success will depend in part on our not breaching technology
licenses that cover technology we use in our business. We also expect to require
new licenses in the future as our business grows and technology evolves.
We need to retain and recruit key managers and employees, and to manage our
growth effectively.
Our success depends heavily upon the skills of our senior management team and
current key employees and upon our ability to identify, hire, and retain
additional sales, marketing, technical and financial personnel. Should one or
more members of senior management leave before acceptable replacements are
found, that could have a material adverse effect on our business. We currently
have employment agreements with the following executives: Samuel Petteway, Chief
Executive Officer and President, Mitchell Deutsch, Vice Chairman of the Board,
and founder of the Company; John Evans, Senior Vice President - Corporate
Development; Mark Nathan, Senior Vice President - Technology; Jon Bednarsh,
Senior Vice President - Operations and Mark Siden, Senior Vice President -
Corporate Development. These agreements generally provide provisions for
non-competition or confidentiality. We do not presently maintain key-person life
insurance on any of our key executives or employees. We believe that further
expansion of our operations will be required in order for us to address
potential market opportunities and produce meaningful products. Such expansion
may place a significant strain on our management, operations and financial
resources. An increase in the number of our employees, our market penetration
and our product and service development activities would result in increased
responsibility for our management. Management will be required to successfully
maintain relationships with various data and advertising customers, other
Internet sites and services, Internet service providers and other third parties
and to maintain control over our strategic direction in a rapidly changing
environment. Our current personnel, systems, procedures and controls may not be
adequate to support our future operations. Our management may not be able to
identify, hire, train, motivate or manage required personnel or successfully
identify and exploit existing and potential market opportunities. Our failure to
effectively manage growth and address these growth-related issues could have a
material adverse effect on our business.
We have a limited number of principal customers.
Our business could be materially and adversely affected if we lost a number of
our large MLS customers, or failed to connect them to our web services before we
more fully complete the transition of our business to the Internet. Our top five
MLS customers accounted for more than 66% of our total revenues in 1999.
<PAGE>
If we are unable to identify suitable acquisition targets or if we do not
successfully integrate acquired businesses into our own business, our results
could suffer.
We intend to explore the possible acquisition of complementary businesses in
order to expand our services, diversify our business and participate in the
consolidation trend among Internet information product providers. We are not
currently in negotiations with any acquisition candidates. We do not have any
present commitment or agreement with respect to any future acquisitions. We may
not be able to make any acquisitions in the future on favorable terms. We may
encounter substantial costs, delays or other problems in integrating any
acquisitions that we do make. Such costs could include severance payments to
employees of acquired companies, increased working capital requirements, systems
integration costs, restructuring charges and other expenses associated with a
change of control, as well as non-recurring acquisition costs including
accounting, legal and investment banking fees and transaction-related
obligations. Acquisitions could disrupt current operations, divert management
attention or dilute existing shareholders. Increased competition for the limited
number of suitable acquisition candidates may develop in our targeted
industries, in which case there may be fewer acquisition opportunities available
to us and higher acquisition costs for the opportunities that are available.
Neither our management nor management of any of the acquired companies may have
the necessary skills to manage the resulting business. We may seek to recruit
additional managers to supplement the management of any acquired companies, but
we may be unable to recruit additional managers with the necessary skills.
Certain investors and management control us and can approve or block significant
transactions.
Our principal stockholders are Commonwealth, ComVest and certain members of
management. Commonwealth and ComVest beneficially own about 58.3% of our
outstanding common stock, par value $.01 per share ("Common Stock"), Mitchell
Deutsch, together with his children, owns about 21.5% of our Common Stock, and
James Garfinkel, together with his child, owns about 8.6% of our Common Stock.
As a result, Commonwealth, ComVest, Mitchell Deutsch, James Garfinkel and their
families, if they choose to act together, will be able to elect a majority of
our board of directors and significantly influence our management and affairs
including all significant corporate transactions requiring shareholder approval.
Our principal stockholders could accept, or force us to accept, an offer for us
at a price below the price that our other stockholders would approve. Should
this happen, MonsterDaata.com, Inc., a Delaware corporation (the "Company"), (or
at least a controlling interest in the Company) could be sold on terms that
other investors may find unattractive. Similarly, the principal stockholders
could reject, or cause the Company to reject, an offer that the other
stockholders might find very attractive. These principal stockholders could also
sell their shares (and control of the Company) without including our other
shareholders in the transaction (or giving them the opportunity to sell their
shares on the same terms). In addition, this concentration of ownership could
have the effect of delaying or preventing a change in control of the Company,
even when such change of control is in the best interests of shareholders, and
might adversely affect the market price of the Common Stock.
<PAGE>
Our issuance of warrants to ComVest may result in adverse accounting treatment.
We believe that we may be required to record certain material non-recurring and
non-cash charges during the fiscal year ending December 31, 2000 or during later
periods in connection with the issuance of warrants to ComVest for nominal
consideration, since those warrants had exercise prices below the market price
of the Common Stock on the date of issuance. Any such charges could have a
material adverse effect on the market price of the Common Stock.
We depend upon key contractual relationships and vendors.
We have important contractual relationships. If any of these relationships are
terminated, expire, or are breached, or if any of these companies ceases
operations or stops offering the product or service, our operations would likely
be materially impacted. Further, any changes to the offerings provided by these
companies under these agreements may require us to change or re-engineer our own
services, and will likely cause a material disruption of our business. In any of
such cases, we may not be able to timely modify our services or to replace any
of the services on favorable terms or at all.
We also depend on outsource vendors, including the services of a data entry and
data conversion facility in the Philippines, a CD-ROM software company, and
Internet site development and hosting companies. Should the services of those
facilities become unavailable or unreasonably priced, we may experience an
interruption in some of our business activities until we identify other suitable
outsource vendors.
INTERNET RISK FACTORS
If the Internet proves not to be a viable commercial marketplace, it could have
a material adverse effect on our business.
We expect a substantial portion of our future revenue to come from the continued
development of our products and services to be distributed over the Internet. We
intend to further increase our reliance on the Internet for delivery of our
services and products. As a result, future cash flows and future results of
operations will continue to rely increasingly upon customer use of information
services and transaction support products on the Internet.
Business use of the Internet is relatively new. The Internet may not prove to be
a viable commercial marketplace. Known issues in this regard include inadequate
development of Internet infrastructure to date, competing communications
technologies, delays in the development of new standards and protocols required
to handle increased Internet activity, and the possibility of significant
government regulation and/or taxation (locally, nationally and internationally).
Moreover, concerns over the security of Internet transmissions and the privacy
of users may inhibit the growth of the Internet, particularly as a means of
conducting commercial transactions. To the extent that our activities involve
the storage and transmission of confidential information, such as credit card
numbers, security breaches could expose us to a risk of loss or litigation and
possible liability. Contractual provisions attempting to limit our liability in
such areas may not be adequately implemented or enforceable or other parties may
not accept such contractual provisions as part of our agreements. Well
<PAGE>
publicized security breaches involving the Internet generally could deter our
customers from conducting electronic transactions that transmit confidential
information. We could incur significant costs to protect against security
breaches or to alleviate problems caused by such breaches. Internet issues such
as reliability, cost, ease of deployment, administration and quality of service
may affect our ability to succeed.
We depend upon growth in our markets and acceptance of our products.
We offer proprietary web enabling software applications, electronic distribution
technology and digital content to our customers. The market for digital
information and associated applications is in an early stage of development. It
is difficult to predict the rate at which this market will grow, if at all.
Because most of the factual information we provide is available from other
sources, we rely upon our ability to customize the presentation and distribution
of data to market our services. Our products and services may not be accepted by
the marketplace. New or increased competition may result in market saturation,
more competitive pricing, or lower margins. Our business, operating results, and
financial condition would be materially and adversely affected if the market for
our products and services fails to grow, grows more slowly than anticipated, or
becomes more competitive or if our products and services are not preferred by
targeted customers even if a substantial market develops.
Adoption of new laws and government regulations relating to the Internet or
Internet domain names could harm our business.
New laws or regulations may be adopted relating to Internet issues such as user
privacy, freedom of expression, content, copyrights, distribution, quality and
pricing of products and services, taxation, advertising, intellectual property
rights, information security and the convergence of traditional communication
services with Internet communications. Furthermore, the growth and development
of the market for online commerce may prompt more stringent consumer protection
laws that may impose additional costs and administrative burdens on those
companies conducting business online. New regulations relating to user privacy,
including the collection, use, retention and transmission of personal
information provided by on-line users, could adversely affect our business. The
adoption of any additional laws or regulations may decrease the growth of the
Internet, which could, in turn, decrease the demand for our products and
services and increase our cost of doing business, or otherwise have an adverse
effect on our business.
The applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes and personal
privacy is uncertain and may take years to resolve. The Internet Tax Information
Act placed a three-year moratorium on new state and local taxes on Internet
commerce. This moratorium is expected to end on October 21, 2001. If this
moratorium is not extended, the taxation of our business may change
significantly. If we sell to consumers residing in many states and foreign
countries, such jurisdictions may claim that we are required to qualify to do
business as a foreign corporation in each such state and foreign country. Our
failure to qualify as a foreign corporation in a jurisdiction where it we are
required to do so could subject us to taxes and penalties for the failure to
qualify. Any such new legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to our
business, or the application of existing laws and regulations to the Internet,
could have a material adverse effect on our business.
<PAGE>
The Federal Communications Commission (the "FCC") has characterized dial-up
Internet traffic bound for Internet service providers as jurisdictionally mixed
but largely interstate in nature. The FCC has made it clear, however, that its
position does not (i) affect its long-standing rule that Internet and other
information services are exempt from interstate access charges, (ii) change the
manner in which consumers obtain and pay for access to the Internet, or (iii)
transform the nature of traffic routed through Internet service providers.
Certain local telephone carriers claim that the increasing popularity of the
Internet has burdened the existing telecommunications infrastructure and that
many areas with high Internet use are experiencing interruptions in telephone
service. These carriers have petitioned the FCC to impose access fees on
Internet service providers, but not consumers. If access fees are imposed on
Internet service providers, the cost of communicating on the Internet could
increase, which could decrease demand for our developing Internet services.
We currently hold various web domain names, including www.monsterdaata.com,
relating to our brand and sites. The acquisition and maintenance of domain names
generally is regulated by governmental agencies and their designees. We have
registered our important domain names with Network Solutions, Inc. However, the
regulation of domain names in the United States and in foreign countries is
subject to change. Governing bodies may establish additional top-level domains,
appoint additional domain name registrars or modify the requirements for holding
domain names. Different jurisdictions may register domain names differently in
the future. As a result, we may be unable to acquire or maintain relevant domain
names in all countries in which we may wish to conduct our business.
Furthermore, the relationship between regulations governing domain names and
laws protecting trademarks and similar proprietary rights is unclear. We may be
unable to prevent third parties from acquiring domain names that are similar to,
or infringe upon or otherwise decrease the value of our trademarks and other
proprietary rights. Any such inability could have a material adverse effect on
our business.
If we do not successfully develop new and enhanced Internet services and
products, our revenues could be adversely impacted.
Business on the Internet is characterized by rapid technological change,
frequent changes in user requirements and preferences, frequent new product and
service introductions embodying new processes and technologies and evolving
industry standards and practices that could render our information delivery
practices obsolete. Our success will depend partly on our ability to improve our
existing services, develop new product offerings, including imaging and virtual
tours, use web technology to enhance our existing product offerings, extend our
market reach, and respond to technological advances, emerging industry standards
and competitive offerings. As a result, we will be required to expend
substantial funds for and commit significant resources to the conduct of
continuing product development. We may not be successful in all these endeavors.
Service interruptions could damage our business.
Evolving Internet technology and standards increase the risk that system
interruptions will occur. Our Internet operations are also vulnerable to
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interruption by fire, power loss, telecommunications failure and other events
beyond our control. System interruptions that result in the unavailability of
our website, or slower response times for users, could reduce the number of
advertisements delivered, revenues earned from advertisers, as well as the
eReport and eLead fees we collect from consumers and businesses using our
database information products over the Internet or cause customers to seek
alternate sources of data. We have experienced periodic system interruptions in
the past and such interruptions could continue to occur from time to time in the
future. Additionally, any substantial increase in traffic on our website could
require us to expand and adapt our network infrastructure. We may not be able to
expand our network infrastructure on a timely basis to meet any increased
demands.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MONSTERDAATA.COM, INC.
(Registrant)
Date: November 15, 2000 /s/ Samuel B. Petteway
------------------------------
Samuel B. Petteway
President and Chief Executive
Officer
