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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ______________________
Commission file number: 000-25129
MAREX.COM, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0354269
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2701 SOUTH BAYSHORE DRIVE, 5TH FLOOR
MIAMI, FLORIDA 33133
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (305) 285-2003
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Common Stock held by non-affiliates of the
registrant as of March 7, 2001 was approximately $14,145,000 based on the $2.50
closing price for the Common Stock on the Nasdaq National Market on such date.
For purposes of this computation, all executive officers and directors of the
registrant have been deemed to be affiliates. Such determination should not be
deemed to be an admission that such directors and officers are, in fact,
affiliates of the registrant.
The number of shares of Common Stock of the registrant outstanding as of March
7, 2001 was 7,343,980.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to specified
portions of the registrant's definitive Proxy Statement to be issued in
conjunction with the registrant's 2001 Annual Meeting of Stockholders, which is
expected to be filed not later than 120 days after the registrant's fiscal year
ended December 31, 2000.
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MAREX.COM, INC.
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business............................................................................................. 1
Item 2. Properties........................................................................................... 8
Item 3. Legal Proceedings.................................................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders................................................... 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................................. 9
Item 6. Selected Consolidated Financial Data..................................................................10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................................15
Item 8. Financial Statements and Supplementary Data...........................................................16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.................33
PART III
Item 10. Directors and Executive Officers of the Registrant....................................................33
Item 11. Executive Compensation................................................................................33
Item 12. Security Ownership of Certain Beneficial Owners and Management........................................33
Item 13. Certain Relationships and Related Transactions........................................................33
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................34
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PART I
ITEM 1. BUSINESS
THE FOLLOWING DESCRIPTION OF OUR BUSINESS CONTAINS FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, AS
DO THE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SECTIONS OF THIS FORM 10-K, ALL OF WHICH RELATE TO SUCH MATTERS AS
ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS PROSPECTS, TECHNOLOGICAL
DEVELOPMENTS, AND SIMILAR MATTERS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN
AND UNKNOWN RISKS, UNCERTAINTIES, AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL
RESULTS, PERFORMANCE, OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT
FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED ELSEWHERE IN THIS REPORT IN THE
SECTION ENTITLED "RISK FACTORS" AND THE RISKS DISCUSSED IN OUR OTHER SECURITIES
AND EXCHANGE COMMISSION FILINGS.
COMPANY
Marex.com, Inc. (the "Company" or "Marex") is the leading business to business
("B2B") e-commerce company serving the marine industry. Marex's mission is to
improve the efficiency of marine industry supply chains. We have developed
procurement solutions for the automation of business transactions for marine
businesses.
Our objective is to expand our position as the leading B2B e-commerce solution
for the marine industry. We are focused on developing our business to provide
the most efficient tools possible for the procurement of marine goods.
In June 2000, we launched our main products, MarExpress! and MarexPO!.
MarExpress! provides boat builders and other marine industry buyers with an
e-procurement solution that enables them to buy new parts, supplies, components,
and equipment through a web-based transaction system. Buyers can obtain product
information, conduct e-procurement to support business workflows and controls,
track orders, and complete product returns through a single, automated, online
hub. MarexPO! is an e-commerce solution for marine industry suppliers and
distributors that provides worldwide exposure and enables them to sell new
parts, supplies, components and equipment to marine businesses through a
web-based transaction system. By utilizing a thorough outfitting process for
buyers and suppliers, the system recognizes the unique relationships between
each buyer and supplier and only provides the supplier's product information and
pricing that is appropriate for each specific buyer. Prior to the launch of our
main products, the Company's Internet based trading exchange and its successor,
Classifieds and Auctions, were the only products offered to the marine industry.
Marex was originally incorporated in Florida in September 1992.
INDUSTRY OVERVIEW
GROWTH OF BUSINESS-TO-BUSINESS COMMERCE ON THE INTERNET
The Internet has emerged as a mass communications and commerce medium enabling
millions of people worldwide to share information, affiliate themselves with
others who share similar interests and conduct business electronically. The
Internet has created new opportunities for conducting commerce, such as B2B
e-commerce, that offers the potential for organizations to streamline complex
processes, lower costs and improve productivity.
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The dynamics of B2B e-commerce relationships differ significantly from those of
other e-commerce relationships. B2B e-commerce solutions frequently automate or
otherwise improve workflows or processes that are fundamental to a business'
operations by replacing various paper-based transactions with electronic
communications. B2B e-commerce solutions that offer improved efficiency through
the automation of business processes and workflows are being developed for a
variety of industries.
THE MARINE INDUSTRY
We feel that the marine market's highly fragmented supply chain coupled with the
inefficient purchasing methods being used by a vast majority of the industry
make it particularly well suited for B2B e-commerce. The marine industry
utilizes standard purchasing methods to buy and sell products. The current
methods are inefficient, costly and time consuming for both buyer and seller.
Product orders are traditionally handled through an internal, paper-based
purchasing process that requires searching for products in catalogs and manually
preparing a purchase order. Industry participants typically place orders by
telephone or fax and must place orders with multiple suppliers. While the
traditional means of telephone, facsimile and mail have historically served a
valuable purpose in facilitating commerce, information delivery, and
communications between buyers and sellers, they have inherent inefficiencies, in
that they are slower, more expensive in the long run, and inefficient compared
to Internet-related methods. In addition, traditional purchasing methods present
multiple challenges to suppliers trying to reach small to medium sized boat
builders with product information. Due to the high cost of printing and
distributing paper catalogs, suppliers cannot cost-effectively manage frequent
updates and distribution of time-sensitive information.
OPPORTUNITY FOR B2B E-COMMERCE SOLUTIONS FOR THE MARINE INDUSTRY
We believe that the fragmentation and complexities of the marine industry create
a need for B2B e-commerce solutions that seamlessly link suppliers and buyers of
marine products. To effectively address the needs of buyers, solutions must be
cost-effective, easily implemented, easy to use and provide comprehensive
product selection, in-depth product information, specialized search capabilities
and an efficient order and order tracking mechanism. To effectively address the
needs of suppliers, solutions must also offer a neutral and fair marketplace
with full catalog descriptions of products so as to attract additional
customers.
BUSINESS STRATEGY
Our objective is to expand our position as the leading provider of B2B
e-commerce solutions for the marine industry. The key components of our strategy
to achieve this objective include:
BUILD THE MAREX BRAND TO BECOME SYNONYMOUS WITH E-COMMERCE IN THE MARINE
INDUSTRY
We plan to capitalize on the fact that, to our knowledge, we are the first
company to offer B2B e-commerce solutions to address procurement inefficiencies
unique to the marine industry. We intend to continue our brand development
strategy through targeted marketing venues which may include advertising and
promotions, our direct sales force, press coverage and participation in trade
associations and industry events to continue to develop industry awareness of
our solutions.
INCREASE ADOPTION OF OUR CORE PRODUCTS
We intend to aggressively increase the base of members using MarExpress! and
MarexPO! and to increase their usage by current members. To encourage
implementation, we do not currently charge a membership fee. Additionally, we
intend to continue to educate users about the benefits of our solutions and to
provide training in their use, thereby accelerating adoption and use.
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PRODUCT DEVELOPMENT
We intend to focus on enhancing our system's reliability, functionality and ease
of integration with existing or newly developed purchasing systems.
COMPLETE STRATEGIC RELATIONSHIPS
We continue to form strategic relationships with industry leaders such as
manufacturers, technology partners, and other companies ancillary to the
industry that provide value added services.
B2B PROCUREMENT SOLUTIONS
Marex is the first company to develop a B2B e-commerce solution to address the
marine industry's online commerce needs. MarExpress! provides boat builders and
other marine industry buyers with an e-procurement solution that enables them to
buy new parts, supplies, components and equipment through a web-based
transaction system. Buyers can research product information from the industry's
best suppliers, conduct e-procurement to support business workflows and
controls, track orders and complete product returns through a single, automated
online hub. MarexPO! is an e-commerce solution for marine industry suppliers and
distributors that provides world-wide exposure and enables them to sell new
parts, supplies, components and equipment to marine businesses through a
web-based transaction system. By utilizing a thorough outfitting process for
suppliers and buyers, the system recognizes the unique relationships between
each buyer and seller and only provides the supplier's product information and
pricing that is appropriate for each specific buyer.
PRODUCT SUPPORT AND DEVELOPMENT
We dedicate a significant amount of our resources to developing, enhancing and
supporting our products. Expenses related to the development of our products
primarily consist of compensation for product support and development personnel,
cost of outside contractors, amortization of software development costs, and
general expenses associated with the support and development of our products. We
incurred product support and development expenses of approximately $9.4 million
during the year ended December 31, 2000.
RELIANCE ON MAJOR CUSTOMER
We have a Strategic Relationship Agreement with Genmar Holdings, Inc.
("Genmar"), one of the largest manufacturers of powerboats in the world. The
Strategic Relationship Agreement provides that Genmar will utilize the Company
as its exclusive provider of an online procurement system. For the year ended
December 31, 2000, revenues from Genmar accounted for approximately 47% of total
revenues.
INTELLECTUAL PROPERTY
We regard obtaining protection of our copyrights, service marks, trademarks,
trade dress and trade secrets as important to our future success and intend to
rely on a combination of copyright, trademark, service mark and trade secret
laws and contractual restrictions to establish and protect our proprietary
rights in products and services. While we plan to pursue the registration of our
trademarks and service marks in the U.S. and internationally, effective
trademark, service mark, copyright and trade secret protection may not be
available in every country in which our services are made available online.
We have entered into confidentiality agreements with our employees and certain
vendors in order to limit access to and disclosure of our proprietary
information. There can be no assurance that these contractual arrangements or
the other steps taken by us to protect our intellectual property will prove
sufficient to prevent misappropriation of our technology or to deter independent
third-party development of similar technologies.
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To date, we have not been notified that our technologies infringe the
proprietary rights of third parties, but there can be no assurance that third
parties will not claim infringement by us with respect to past, current or
future technologies. We expect that participants in our markets will be
increasingly subject to infringement claims as the number of services and
competitors in our industry segment grows. Any such claim, whether meritorious
or not, could be time-consuming, result in costly litigation, cause service
upgrade delays or require us to enter into royalty or licensing agreements. Such
royalty or licensing agreements might not be available on terms acceptable to us
or at all. As a result, any such claim could have a material adverse effect on
our business, results of operations and financial condition.
SOFTWARE DEVELOPMENT
We have developed proprietary software for both our internal needs and those of
our e-commerce products. To date, we have developed several internal proprietary
software programs that include a full suite of administrative, data collections,
sorting, and marketing management tools. All of these programs are maintained
in-house. We have also developed a proprietary electronic commerce software
program.
COMPETITION
The market for B2B e-commerce and Internet ordering and purchasing is new and
rapidly evolving. We perceive existing competition to be pervasive and expect it
to increase in the future. We believe that the critical success factors for
companies seeking to create Internet B2B e-commerce solutions include the
following: brand recognition; quality and reliability of the Internet purchasing
solution; breadth and depth of product offerings; base of customers; domain
expertise; and ease of use and convenience. We may face competition from other
companies with e-commerce offerings, traditional suppliers and distributors of
marine products and marine manufacturers that have developed their own
purchasing solutions. We may also face further competition in the future from
traditional suppliers and distributors that enter into B2B e-commerce over the
Internet either on their own or by partnering with other companies. In addition,
we may face competition from current online business to consumer companies.
GOVERNMENT REGULATION
Due to the increasing popularity and use of the Internet and other online
services, it is possible that a number of laws and regulations may be adopted
with respect to the Internet or other online services covering issues such as
user privacy, freedom of expression, pricing, content and quality of products
and services, taxation, advertising, intellectual property rights and
information security. The nature of such legislation and the manner in which it
may be interpreted and enforced cannot be fully determined and, therefore,
legislation could be enacted which could subject us and/or our customers to
potential liability, which in turn could have an adverse effect on our business,
results of operations and financial condition. The adoption of any such laws or
regulations might also decrease the rate of growth of Internet use, which in
turn could decrease the demand for our services or increase the cost of doing
business or in some other manner have a material adverse effect on our business,
results of operations and financial condition. In addition, applicability to the
Internet of existing laws governing issues such as property ownership,
copyrights and other intellectual property issues, taxation, libel, obscenity
and personal privacy is uncertain. The vast majority of such laws were adopted
prior to the advent of the Internet and related technologies and, as a result,
do not contemplate or address the unique issues of the Internet and related
technologies.
Several states have also proposed legislation that would limit the uses of
personal user information gathered online or require online services to
establish privacy policies. Changes to existing laws, or the passage of new laws
intended to address these issues, could create uncertainty in the marketplace
that could reduce demand for our services or increase the cost of doing business
as a result of litigation costs or increased service delivery costs, or could in
some other manner have a material adverse effect on our business, results of
operations and financial condition. In addition, because our services are
accessible worldwide, and we facilitate sales of goods to users worldwide, other
jurisdictions may claim that we are required to qualify to do business as a
foreign corporation in a particular state or foreign country. We are currently
only qualified to do business in the State of Florida and Australia, and our
failure to qualify as a
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foreign corporation in a jurisdiction where it is required to do so could
subject us to taxes and penalties for the failure to qualify and could result in
our inability to enforce contracts in such jurisdictions. Any such new
legislation or regulation, or the application of laws or regulations from
jurisdictions whose laws do not currently apply to our business, could have a
material adverse effect on our business, results of operations and financial
condition.
EMPLOYEES
As of January 3, 2001, we had 93 full-time employees. None of our employees is
represented by a collective bargaining agreement, nor have we experienced any
work stoppage.
RISK FACTORS
The following risk factors, together with all information in this Form 10-K,
should be carefully considered in evaluating Marex and its business. Due to the
significant impact that the risk factors set forth below may have on Marex's
business, results of operations and financial condition, actual results could
differ materially from those expressed or implied by any forward-looking
statement.
WE HAVE A LIMITED OPERATING HISTORY
Marex was founded in 1992 but did not launch its main products until June 2000.
Thus we have a limited operating history on which to base an evaluation of our
e-commerce business and prospects. Our prospects must be considered in light of
the risks, uncertainties, expenses and difficulties frequently encountered by
companies in their early stages of development, particularly companies in new
and rapidly evolving markets such as B2B e-commerce. Many of these risks are
described in this "Risk Factors" section. There can be no assurance that we will
be able to address these risks.
WE HAVE A HISTORY OF LOSSES
We have incurred losses from operations in each period since our inception. We
expect to incur substantial operating losses and have continued negative cash
flows from operations for the foreseeable future. Moreover, we expect to incur
significant sales and marketing, product support and development, and general
and administrative expenses. In addition, we have no material revenues to date.
If our revenue does not increase substantially or if our expenses are more than
we expect, we may not become profitable.
OUR QUARTERLY OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT
Due to our limited operating history, we believe that period-to-period
comparisons of revenues and results of operations are not meaningful. The
fluctuations in our operating results may fall below the expectations of
investors and securities analysts. Our failure to meet these expectations will
likely cause a significant decline in the market price of our stock.
THE BUSINESS TO BUSINESS E-COMMERCE MODEL IS NOT PROVEN
Our B2B e-commerce model is new and not proven and depends upon our ability to,
among other things: sell purchasing solutions to marine industry participants;
achieve high rates of adoption by customers; and generate significant revenues
from the use of our Internet-based solutions. We cannot be certain that the
business model will be successful, that it can achieve or sustain revenue
growth, or that it can generate any profits. The success of this business model
will require, among other things, that we develop and market solutions with
broad market acceptance by users and strategic partners. We cannot be certain
that B2B e-commerce on the Internet, our e-commerce solution, or our services
and brand in particular, will achieve broad market acceptance.
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IF WE FAIL TO ACHIEVE MARKET ACCEPTANCE, OUR BUSINESS WOULD BE ADVERSELY
AFFECTED
MarExpress! and MarexPO! were launched in June 2000. Accordingly, our core
e-commerce solutions have a limited market history. If MarExpress! and MarexPO!
do not achieve market acceptance, our business will be adversely affected.
WE FACE INTENSE COMPETITION
We perceive competition to be pervasive and we expect it to increase in the
future. We may face competition from other companies with e-commerce offerings
as well as traditional suppliers and distributors of marine products and marine
companies that have or may develop their own online solutions. In addition,
providers of online marketplaces and online auction services that currently
focus on other industries may expand their services to include marine products.
Our competitors and potential competitors may develop superior Internet
solutions that achieve greater market acceptance than the Marex solution. In
addition, substantially all of our prospective customers have established
long-standing relationships with some competitors and potential competitors. We
cannot be certain that we can compete successfully against future competitors.
OUR SOLUTION AND SERVICES ARE NEW AND FACE RAPID TECHNOLOGICAL CHANGES
The Internet market for the Marex solution is characterized by rapid
technological advances, evolving standards in the Internet and software markets,
changes in customer requirements and frequent new product and service
introductions and enhancements. As a result, we believe that our future success
depends upon our ability to enhance current Internet-based solutions and
services, and where necessary, to integrate Internet-based solutions with
customers' systems. If we do not adequately respond to the need to enhance our
solutions or services, then our business will be negatively affected. Further,
we may incur significant expense to integrate purchasing solutions with
customers' systems and to maintain this integration as customers' systems
evolve. Failure to provide this integration may delay or altogether dissuade the
marine market or a particular customer from adopting our Internet-based
solutions.
WE WILL NEED TO MANAGE OUR EXPANDING BUSINESS
Our growth has placed, and is expected to continue to place, a significant
demand on our sales, marketing, managerial, operational, information technology
and other resources. If we cannot manage our growth effectively, our business
will be adversely affected. Our current information systems, procedures and
controls may not support expanded operations and may hinder our ability to take
advantage of the market for e-commerce purchasing solutions to the marine
industry.
WE DEPEND ON A MAJOR CUSTOMER
We have an agreement with one of the largest manufacturers of powerboats in the
world for the utilization of our e-procurement solution. Our future growth is
greatly dependent upon the utilization of our system by this major customer. If
the agreement with this major customer is terminated, our business, results of
operations and financial condition will be adversely affected.
WE DEPEND ON KEY PERSONNEL
Our performance is substantially dependent on the performance of the executive
officers and other key employees. Failure to successfully manage personnel
requirements would have a negative effect on the business. We have experienced
difficulty from time to time in hiring the personnel necessary to support the
growth of our business, and we may experience similar difficulty in hiring and
retaining personnel in the future. Competition for senior management,
experienced sales and marketing personnel, software developers, and other
employees is intense, and we cannot be certain that we will be successful in
attracting and retaining personnel. The loss of the services of any executive
officers or key employees could have a negative effect on the business. Failure
to obtain or retain the services of necessary executive
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officers or key employees may not support existing or expanded operations, and
may hinder our ability to take advantage of the market for e-commerce purchasing
solutions to the marine industry.
WE EXPECT THE PRICE OF OUR COMMON STOCK TO BE VOLATILE
The market price of our Common Stock may fluctuate significantly in response to
a number of factors, some of which are beyond our control, including the
following: quarterly variations in operating results; changes in market
valuation of Internet commerce companies; announcements of significant
contracts, acquisitions, strategic partnerships, joint ventures or capital
commitments; loss of a major customer or strategic partner, or failure to
complete a sale to a significant customer; additions or departures of any key
personnel; future sales of our Common Stock; and stock market price and volume
fluctuations, which are particularly common among highly volatile securities of
Internet companies.
SECURITY PROBLEMS MAY INHIBIT THE GROWTH OF INTERNET-BASED PURCHASING SOLUTIONS
A significant barrier to the adoption of e-commerce is the secure transmission
of confidential information over public networks. Users generally are concerned
with security and privacy on the Internet and any publicized security problems
could inhibit the growth of the Internet, and therefore inhibit the Marex
solution as a means of conducting transactions. If there is a breach in our
security system, we may be required to make significant expenditures to protect
against security breaches and to alleviate problems caused by such breaches.
SYSTEM FAILURE MAY CAUSE INTERRUPTION OF SERVICES
The performance of our server and networking hardware and software
infrastructure is critical to our business and reputation, and affects our
ability to process transactions, provide high quality customer service and
attract and retain customers, suppliers, users and strategic partners.
Currently, the infrastructure and systems are located at one site in Atlanta,
Georgia. We are in the process of adding a back-up and recovery site at our
headquarters in Miami, Florida. Until then, we depend on single-site
infrastructure. Any disruption to this infrastructure resulting from a natural
disaster or other event could result in an interruption in service, fewer
transactions and, if sustained or repeated, could impair our reputation and the
attractiveness of the services.
WE MAY REQUIRE ADDITIONAL CAPITAL FOR OPERATIONS, WHICH COULD HAVE A NEGATIVE
EFFECT ON YOUR INVESTMENT
We currently anticipate that our available funds will be sufficient to meet
anticipated needs for working capital and capital expenditures for at least the
next 12 months. We may need to raise additional funds in the future in order to
fund rapid expansion, to develop new or enhanced solutions and services, to
respond to competitive pressures, to acquire complementary businesses, or for
other operating requirements.
If we raise additional funds through the issuance of equity or convertible
securities, the percentage ownership of our stockholders will be reduced and may
be additionally reduced if the right of the holders of the Series A1 Preferred
Stock to amend the conversion price is triggered by the issuance of the equity
or convertible securities. We cannot be certain that we will be able to raise
additional capital on acceptable terms or at all.
WE DEPEND ON INTELLECTUAL PROPERTY RIGHTS
Our intellectual property is important to us. We seek to protect intellectual
property through copyrights, trademarks, trade secrets, confidentiality
provisions in customer, supplier and strategic relationship agreements, and
nondisclosure agreements with third parties, employees and contractors. We
cannot assure that measures we take to protect intellectual property will be
successful or that third parties will not develop alternative purchasing
solutions that do not infringe upon our intellectual property. In addition, we
could be subject to intellectual property infringement claims by others. Failure
to protect
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against misappropriation of intellectual property, or claims that we are
infringing the intellectual property of third parties could have a negative
effect on our business.
REGULATION OR TAXATION OF THE INTERNET OR TRANSACTING BUSINESS OVER THE INTERNET
Due to the increasing popularity and use of e-commerce, it is possible that a
number of taxes, laws and regulations may be adopted in the U.S. and abroad with
particular applicability to the Internet and e-commerce transactions. It is
possible that governments will adopt taxes and enact legislation that may be
applicable in areas such as content, product distribution, network security,
encryption and the use of key escrow, data and privacy protection, electronic
authentication or "digital" signatures, illegal and harmful content, access
charges and re-transmission activities. Moreover, the applicability to the
Internet of existing laws governing issues such as property ownership, content,
taxation, defamation and personal privacy is uncertain. Taxes, laws or
regulations may limit the growth of the Internet, dampen e-commerce and reduce
the number of transactions, increase the cost of doing business or increase
legal exposure. Any of these factors could have a negative effect on our
business.
SEASONALITY
Our business is seasonal due to the impact of the buying and selling patterns of
the members that utilize our system. We believe that the second and third
quarters are the peak periods for the recreational marine industry. In addition,
the recreational marine industry is highly cyclical and is highly affected by
several factors. Some of those factors are: (i) economic conditions, (ii)
consumer confidence levels, and (iii) weather conditions.
ITEM 2. PROPERTIES
Our offices are located in Miami, FL, and occupy 11,800 square feet. Our lease
for this facility expires June 30, 2004. We are currently relocating our offices
to a 32,621 square foot facility that is also located in Miami, FL. Our lease
for this facility expires October 31, 2003. As part of the relocation, we intend
to sublease the entire 11,800 square foot facility and a portion of the new
facility to a third party.
ITEM 3. LEGAL PROCEEDINGS
We are not aware of any pending material legal proceedings to which we are a
party or which our property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Our Common Stock is traded on the Nasdaq National Market under the symbol
"MRXX". The following table sets forth the high and low sale prices for our
Common Stock for the periods indicated.
HIGH LOW
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1999
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First Quarter $ 11.63 $ 8.50
Second Quarter 12.38 9.25
Third Quarter 10.50 7.63
Fourth Quarter 10.25 6.75
2000
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First Quarter $ 41.75 $ 8.88
Second Quarter 30.00 11.50
Third Quarter 20.00 10.00
Fourth Quarter 14.50 1.13
As of March 7, 2001, there were approximately 124 holders of record of our
Common Stock, of which 7,343,980 shares were issued and outstanding. The closing
sale price for the Common Stock on March 7, 2001 was $2.50 per share.
We have never paid cash dividends on our Common Stock. We intend to retain
future earnings, if any, to finance the expansion of our business and do not
anticipate that any cash dividends will be paid in the foreseeable future. The
future dividend policy will depend on our earnings, capital requirements,
expansion plans, financial condition and other relevant factors.
PRIVATE PLACEMENTS OF PREFERRED STOCK
In March 2000, we received net proceeds of $20.4 million in connection with the
sale of 210,000 shares of Series A1 Preferred Stock at $100 per share. In May
2000, we completed the private placement through the sale of an additional
210,000 shares of Series A1 Preferred Stock at $100 per share. Total net
proceeds from the private placement were $40.9 million. The shares of Series A1
Preferred Stock were sold pursuant to Rule 506 of Regulation D of the Securities
Exchange Act of 1933.
Each share of the Series A1 Preferred Stock is convertible into 7.69 shares of
Common Stock at the option of the holder at any time. In the event that the we
issue or sell Common Stock or securities convertible or exchangeable for Common
Stock, subject to certain exclusions, at a price per share less than the
conversion price of the outstanding Series A1 Preferred Stock, the holders of
the Series A1 Preferred Stock shall have the right to amend the conversion price
of the Series A1 Preferred Stock outstanding to the price per share of the
issuance. Automatic conversion occurs upon either of the following: completion
by the Company of a public offering which raises gross proceeds of at least $50
million, at an effective price per share to the public of at least $26.00 as
adjusted for stock splits, stock dividends or other similar transactions; or,
upon the event that the market price per share of the Company's Common Stock
exceeds $26.00, subject to adjustments for stock splits, stock dividends, or
other similar transactions, for a consecutive twenty day period following the
one-year anniversary of the effective date of a registration statement covering
the Common Stock underlying the Series A1 Preferred Stock.
PRIVATE PLACEMENTS OF COMMON STOCK
In 1999, we raised $6.9 million from the sale of 1,122,047 shares of Common
Stock and after deducting $872,000 in commissions and $31,000 in other costs
related to the financing. The shares were primarily
9
12
sold to overseas investors and were issued pursuant to Rule 505 and 506 of
Regulation D of the Securities Exchange Act of 1933.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction
with the consolidated financial statements and the notes to the consolidated
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," which are included elsewhere in this Form
10-K. The selected financial data of Marex as of and for each of the five years
in the period ended December 31, 2000 have been derived from Marex's audited
consolidated financial statements.
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ----------- ----------- ----------- -----------
STATEMENT OF OPERATIONS DATA:
Revenues $ 39,487 $ 7,277 $ -- $ -- $ --
------------ ----------- ----------- ----------- -----------
Operating expenses:
Product support and development 9,434,782 1,132,179 89,952 -- --
Selling and marketing 7,479,601 1,137,554 166,699 -- --
General and administrative 5,326,858 1,244,727 24,799 -- --
Stock-based compensation 847,919 -- -- -- --
Fair value of warrants 21,746,581 140,300 -- -- --
------------ ----------- ----------- ----------- -----------
Total operating expenses 44,835,741 3,654,760 281,450 -- --
------------ ----------- ----------- ----------- -----------
Loss from operations (44,796,254) (3,647,483) (281,450) -- --
------------ ----------- ----------- ----------- -----------
Other income (expense):
Interest income 1,366,189 106,411 -- -- --
Interest expense (13,298) (6,909) (45,208) (32,800) (16,800)
Other (2,938) (1,406) (912) (23,213) --
------------ ----------- ----------- ----------- -----------
Total other income (expense) 1,349,953 98,096 (46,120) (56,013) (16,800)
------------ ----------- ----------- ----------- -----------
Loss from continuing operations (43,446,301) (3,549,387) (327,570) (56,013) (16,800)
------------ ----------- ----------- ----------- -----------
Discontinued operations:
Loss from discontinued
operations -- (100,167) (827,483) (599,844) (308,568)
Loss on disposal, including
$11,869 for operating losses
during the phase out period -- (40,200) -- -- --
------------ ----------- ----------- ----------- -----------
Total discontinued operations -- (140,367) (827,483) (599,844) (308,568)
------------ ----------- ----------- ----------- -----------
Net loss $(43,446,301) $(3,689,754) $(1,155,053) $ (655,857) $ (325,368)
============ =========== =========== =========== ===========
Net loss per share, basic and diluted:
Continuing operations $ (6.39) $ (0.62) $ (0.07) $ (0.01) $ (0.02)
Discontinued operations -- (0.03) (0.17) (0.15) (0.27)
------------ ----------- ----------- ----------- -----------
Net loss $ (6.39) $ (0.65) $ (0.24) $ (0.16) $ (0.29)
============ =========== =========== =========== ===========
Weighted average shares of Common
Stock outstanding 6,798,813 5,700,306 4,752,975 3,995,719 1,127,869
============ =========== =========== =========== ===========
DECEMBER 31,
----------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ----------- ----------- ----------- -----------
BALANCE SHEET DATA:
Cash and equivalents $ 19,624,266 $ 3,434,036 $ 350,042 $ 28,778 $ 69,058
Working capital (deficit) 13,031,082 2,922,218 13,821 (226,200) (253,201)
Total assets 31,471,681 4,315,458 596,596 447,826 454,795
Long-term liabilities 217,306 6,734 28,647 92,215 113,017
Accumulated deficit (49,336,244) (5,889,943) (2,200,189) (1,045,136) (389,279)
Total shareholders' equity (deficit) 23,927,940 3,704,104 222,093 (27,836) (72,279)
10
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and the notes to the consolidated financial statements,
which are included elsewhere in this Form 10-K. It contains forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, which relate to such matters as anticipated financial
performance, business prospects, technological developments, and similar
matters. Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual results,
performance, or achievements of the Company to be materially different from
those expressed or implied by such forward-looking statements. Factors include,
but are not limited to, those discussed elsewhere in this report in the section
entitled "Risk Factors" and the risks discussed in our other Securities and
Exchange Commission filings.
OVERVIEW
Marex is the leading B2B e-commerce company serving the marine industry. In June
2000, we launched our main products, MarExpress! and MarexPO!. MarExpress!
provides boat builders and other marine industry buyers with an e-procurement
solution that enables them to buy new parts, supplies, components, and equipment
through a web-based transaction system. Buyers can obtain product information,
conduct e-procurement to support business workflows and controls, track orders,
and complete product returns through a single, automated, online hub. MarexPO!
is an e-commerce solution for marine industry suppliers and distributors that
provides worldwide exposure and enables them to sell new parts, supplies,
components and equipment to marine businesses through a web-based transaction
system. By utilizing a thorough outfitting process for suppliers and buyers, the
system recognizes the unique relationships between each buyer and supplier and
only provides the supplier's product information and pricing that is appropriate
for each buyer. Prior to the launch of our main products, our Internet based
trading exchange ("Exchange") and its successor, Classifieds and Auctions, were
the only products offered to the marine industry. We will be focusing all of our
resources on our main products and will therefore suspend the Classifieds and
Auctions product in the first quarter of 2001.
DISCONTINUED OPERATIONS
In 1999, we discontinued the operations of our non-core business subsidiary,
Sovereign Financial Information Services, Inc. ("Sovereign"), in order to focus
our business towards our Internet-based services and products for the marine
industry. The financial information in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" refers to our continuing
operations and excludes the operations of Sovereign.
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND 1999
REVENUES
For the year ended December 31, 2000, we recorded revenues of $39,000, compared
to $7,000 during the same period in 1999. The increase was primarily due to the
launch of MarExpress! and MarexPO! in June 2000.
MarExpress! and MarexPO! generate revenues by charging a transaction fee which
is based on the gross transaction price of items purchased and sold through the
system. The transaction fee is recognized as revenue when our customers' right
to receive a refund for the transaction fee expires. For the year ended December
31, 2000, we recorded revenues of $34,000 generated from $1.9 million of
transactions. As of December 31, 2000, in process transactions totaled $775,000,
which represents $14,000 of revenues that may be recognized in future periods.
MarExpress! and MarexPO! were not launched until June 2000, therefore no revenue
was recognized from these products during 1999.
11
14
In the future, we expect revenues from MarExpress! and MarexPO! to increase as a
result of the increase in the number of customers online and the increased use
of the system by our existing customers. As of December 31, 2000, we had entered
into agreements with 38 boat builders and 110 suppliers. Of these agreements, 12
boat builders and 25 suppliers were online. Due to the launch of Version 2.0 of
our e-commerce solutions in December 2000, we expect a significant increase in
the rate that customers will be signed and brought online.
Classifieds and Auctions generated revenues by charging listing and transaction
fees. For the year ended December 31, 2000, we recorded revenues of $6,000
generated from $114,000 of transactions through the Exchange and Classifieds and
Auctions. For the same period in 1999, we recorded revenues of $7,000 generated
from $194,000 of transactions through the Exchange. The decrease resulted
primarily from the decreased use of Classifieds and Auctions by our customers
during the year due to Classifieds and Auctions becoming a supplement to
MarExpress! and MarexPO!.
PRODUCT SUPPORT AND DEVELOPMENT
Product support and development expenses consist primarily of compensation for
product support and development personnel, cost of outside contractors,
amortization of software development costs, and other costs associated with the
operations and enhancements of the web site. Product development expenses
increased to $9.4 million for the year ended December 31, 2000, compared to $1.1
million for the same period in 1999. The change related primarily to increases
of $1.7 million in personnel and personnel related costs, $3.8 million in
outside contractor costs and $1.4 million in amortization of software
development costs. The balance was comprised of overhead and operating costs
directly associated with the development, support and maintenance of the web
site and e-commerce products.
SELLING AND MARKETING
Selling and marketing expenses consist primarily of compensation for sales and
marketing personnel, cost of outside contractors, advertising, trade shows and
related marketing costs. Selling and marketing expenses increased to $7.5
million for the year ended December 31, 2000, compared to $1.1 million for the
same period in 1999. The change is primarily due to increases of $2.6 million in
personnel and personnel related costs, $1.2 million in advertising and marketing
costs, and $1.1 million in outside contractor costs. The balance was comprised
of overhead and operating costs directly associated with selling and marketing
activities.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of compensation for
administrative personnel, facilities expenses, professional fees, and general
corporate expenses. General and administrative expenses increased to $5.3
million for the year ended December 31, 2000, compared to $1.2 million for the
same period in 1999. The change related primarily to increases of $1.9 million
in personnel and personnel related costs and $1.2 million in professional fees,
which include $435,000 for strategic business consulting services provided by a
consultant who is also a shareholder. The balance was comprised of corporate
charges directly associated with the administrative functions of our company.
STOCK-BASED COMPENSATION
For the year ended December 31, 2000, we recognized non-cash compensation
expense of $848,000 relating to options granted to a director. We did not incur
any stock-based compensation expense in 1999.
FAIR VALUE OF WARRANTS
For the year ended December 31, 2000, we recognized an expense of $21.7 million
relating to the fair value of warrants issued in connection with a strategic
relationship agreement, compared to $140,000 recorded for the year ended
December 31, 1999 relating to the fair value of warrants issued to consultants.
12
15
OTHER INCOME AND EXPENSE
We recognized $1.4 million of interest income for the year ended December 31,
2000, compared to $106,000 for the year ended December 31, 1999. The increase
was a result of higher balances of marketable securities derived from the net
proceeds of our private placements. Interest expense for the year ended December
31, 2000 was $13,000, compared to $7,000 for the year ended December 31, 1999.
The increase was primarily due to the increase in capital lease obligations.
LOSS FROM CONTINUING OPERATIONS
Our loss from continuing operations increased to $43.4 million for the year
ended December 31, 2000, from $3.5 million for the year ended December 31, 1999.
The change resulted from the increase in costs, as described above, associated
with the development and launch of our products and the charges relating to the
stock based compensation and fair value of warrants.
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUES
For the year ended December 31, 1999, we recorded revenues of $7,000 generated
from $194,000 of transactions through the Exchange. The Exchange, which was not
operational until November 1998, did not generate any revenues in 1998.
PRODUCT SUPPORT AND DEVELOPMENT
Product support and development expenses consist primarily of compensation for
product support and development personnel, cost of outside contractors,
amortization of software development costs, and other costs associated with the
operations and enhancements of the web site. Product support and development
expenses increased to $1.1 million for the year ended December 31, 1999,
compared to $90,000 for the same period in 1998. The change related primarily to
increases of $623,000 in personnel and personnel related costs, $114,000 in
outside contractor costs, and $59,000 in depreciation and amortization. The
balance was comprised of overhead and operating costs directly associated with
the development, support and maintenance of the web site.
SELLING AND MARKETING
Selling and marketing expenses consist primarily of compensation for sales and
marketing personnel, advertising, trade shows and related marketing costs.
Selling and marketing expenses increased to $1.1 million for the year ended
December 31, 1999, compared to $167,000 for the same period in 1998. The change
is primarily due to increases of $497,000 in personnel and personnel related
costs, $297,000 in advertising and marketing costs, and $54,000 in professional
fees. The balance was comprised of overhead and operating costs directly
associated with selling and marketing activities.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of compensation for
administrative personnel, facilities expenses, professional fees, and general
corporate expenses. General and administrative expenses increased to $1.2
million for the year ended December 31, 1999, compared to $25,000 for the same
period in 1998. The change related primarily to increases of $618,000 in
personnel and personnel related costs and $276,000 in professional fees. The
balance was comprised of corporate charges directly associated with the
administrative functions of our company.
13
16
FAIR VALUE OF WARRANTS
For the year ended December 31, 1999, we recognized an expense of $140,000
relating to the fair value of warrants issued to consultants. We did not incur
any expense related to the fair value of warrants during the year ended December
31, 1998.
OTHER INCOME AND EXPENSE
We recognized $106,000 of interest income for the year ended December 31, 1999,
as a result of our investments in marketable securities which were derived from
the net proceeds of the private placements completed in 1999. Interest expense
for the year ended December 31, 1999 was $7,000, compared to $45,000 in the
prior year as a result of the decrease in our notes payable and loan from
related party balances.
LOSS FROM CONTINUING OPERATIONS
Our loss from continuing operations increased to $3.5 million for the year ended
December 31, 1999, from $328,000 in the prior year. The change resulted from the
increase in costs, as described above, associated with the launch of the
Exchange which was in the development stage until November 1998 and the
development of other e-commerce products.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily through the private sales of Common
Stock and Preferred Stock.
Net cash used in operating activities was $13.0 million for the year ended
December 31, 2000, primarily as a result of the net loss from continuing
operations and the increase of $644,000 in prepaid expenses and other current
assets. The net loss and increase in prepaid expenses and other current assets
were primarily offset by an increase of $6.6 million in accounts payable and
accrued expenses, a non-cash stock-based compensation charge of $848,000, the
non-cash expense of $21.7 million reflecting the fair value of warrants issued,
depreciation expense of $477,000 and amortization expense of $1.6 million.
Net cash used in investing activities was $11.8 million for the year ended
December 31, 2000, primarily due to $10.4 million of software development costs
related to the development of our e-commerce solutions and $1.5 million relating
to leasehold improvements, the purchase of computer and office equipment, and
the purchase of furniture and fixtures.
Net cash provided by financing activities was $41.0 million for the year ended
December 31, 2000, which was primarily due to the sale of 420,000 shares of
Series A1 Preferred Stock, resulting in net proceeds of $40.9 million.
At December 31, 2000, cash and cash equivalents totaled $19.6 million, while our
working capital was $13.0 million. In comparison, as of December 31, 1999, cash
and cash equivalents totaled $3.4 million, while our working capital was $2.9
million. The increase was primarily due to the sale of Series A1 Preferred Stock
in 2000. To date, our primary uses of cash have been in operating activities to
fund the development and promotion of our e-commerce solutions.
We anticipate that our operating expenses, as well as planned capital
expenditures, will constitute a material use of our cash resources. We believe
that the net proceeds from our sale of Series A1 Preferred Stock will be
sufficient to meet our working capital and operating resources requirements for
at least the next twelve months. In the event that our working capital and
operating resources requirements during the next twelve months exceed the cash
proceeds from our sale of Series A1 Preferred Stock, we may not be able to raise
additional capital on acceptable terms or at all.
14
17
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. As required, the Company adopted
SFAS No. 133 in the first quarter of 2001. The adoption of this statement did
not have a material effect on the Company's consolidated results of operations
and financial position.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB
101 provides guidance on applying accounting principles generally accepted in
the United States to revenue recognition issues in financial statements. We
adopted SAB 101 in the second quarter of 2000. The adoption of SAB 101 did not
have a material impact on our consolidated results of operations and financial
position.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not hold any market risk sensitive instruments. As a result, this item is
not applicable to the Company's consolidated balance sheet as of December 31,
2000.
15
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MAREX.COM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Certified Public Accountants............................................ 17
Independent Auditors' Report.................................................................. 18
Consolidated Balance Sheets as of December 31, 2000 and 1999.................................. 19
Consolidated Statements of Operations
For the Years Ended December 31, 2000, 1999 and 1998...................................... 20
Consolidated Statements of Shareholders' Equity
For the Years Ended December 31, 2000, 1999 and 1998...................................... 21
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2000, 1999 and 1998...................................... 22
Notes to Consolidated Financial Statements.................................................... 23
16
19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Marex.com, Inc.:
We have audited the accompanying consolidated balance sheets of Marex.com, Inc.,
(a Florida Corporation) and Subsidiaries (formerly Affiliated Networks, Inc.) as
of December 31, 2000 and 1999, and the related consolidated statements of
operations, shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Marex.com, Inc. and
Subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
--------------------------
Miami, Florida,
February 2, 2001.
17
20
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Marex.com, Inc. and Subsidiary, formerly
Affiliated Networks, Inc. and Subsidiary
Miami, Florida
We have audited the accompanying consolidated balance sheet of Marex.com, Inc.
and Subsidiary, formerly Affiliated Networks, Inc. and Subsidiary, as of
December 31, 1998, and the related consolidated statements of operations,
shareholders' equity (deficit), and cash flows for the year ended December 31,
1998. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Marex.com, Inc. and Subsidiary,
formerly Affiliated Networks, Inc. and Subsidiary, as of December 31, 1998, and
the results of their operations, changes in their shareholders' equity, and
their cash flows for the year ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ McClain & Company, L.C.
------------------------------------
Miami, Florida
January 18, 1999, except for Note 3,
as to which the date is February 21, 2000.
18
21
MAREX.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------------------------------
2000 1999
-------------------- -------------------
ASSETS
Current assets:
Cash and cash equivalents $ 19,624,266 $ 3,434,036
Accounts receivable, net 18,901 --
Prepaid expenses and other current assets 714,350 70,602
Loan to shareholder -- 22,200
---------------- --------------
Total current assets 20,357,517 3,526,838
---------------- --------------
Property and equipment, net 2,004,853 692,335
---------------- --------------
Other assets:
Trademark, net 6,771 23,021
Software development costs, net 8,904,897 71,668
Deposits 197,643 1,596
---------------- --------------
Total other assets 9,109,311 96,285
---------------- --------------
Total assets $ 31,471,681 $ 4,315,458
================ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Capital lease obligations $ 130,481 $ 6,845
Accounts payable and accrued expenses 7,137,201 534,552
Other current liabilities 58,753 63,223
---------------- --------------
Total current liabilities 7,326,435 604,620
Long-term liabilities:
Capital lease obligations, net of current portion 217,306 6,734
---------------- --------------
Total liabilities 7,543,741 611,354
---------------- --------------
Commitments and contingencies (note 11)
Shareholders' equity:
Preferred Stock, par value $.01 per share, 1,000,000 shares
authorized, 304,693 shares of Series A1 Convertible Preferred
Stock outstanding as of December 31, 2000, none outstanding
as of December 31, 1999 30,469,300 --
Common Stock, par value $.01 per share,
25,000,000 shares authorized, 7,339,780 and
6,396,806 shares issued and outstanding as of
December 31, 2000 and December 31, 1999, respectively 73,398 63,968
Additional paid-in capital 42,721,486 9,530,079
Accumulated deficit (49,336,244) (5,889,943)
---------------- --------------
Total shareholders' equity 23,927,940 3,704,104
---------------- --------------
Total liabilities and shareholders' equity $ 31,471,681 $ 4,315,458
================ ==============
See Notes to Consolidated Financial Statements
19
22
MAREX.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2000 1999 1998
------------ ----------- -----------
Revenues $ 39,487 $ 7,277 $ --
------------ ----------- -----------
Operating expenses:
Product support and development 9,434,782 1,132,179 89,952
Selling and marketing 7,479,601 1,137,554 166,699
General and administrative 5,326,858 1,244,727 24,799
Stock-based compensation 847,919 -- --
Fair value of warrants 21,746,581 140,300 --
------------ ----------- -----------
Total operating expenses 44,835,741 3,654,760 281,450
------------ ----------- -----------
Loss from operations (44,796,254) (3,647,483) (281,450)
------------ ----------- -----------
Other income (expense):
Interest income 1,366,189 106,411 --
Interest expense (13,298) (6,909) (45,208)
Other (2,938) (1,406) (912)
------------ ----------- -----------
Total other income (expense) 1,349,953 98,096 (46,120)
------------ ----------- -----------
Loss from continuing operations (43,446,301) (3,549,387) (327,570)
------------ ----------- -----------
Discontinued operations:
Loss from discontinued operations -- (100,167) (827,483)
Loss on disposal, including $11,869
for operating losses during
the phase out period -- (40,200) --
------------ ----------- -----------
Total discontinued operations -- (140,367) (827,483)
------------ ----------- -----------
Net loss $(43,446,301) $(3,689,754) $(1,155,053)
============ =========== ===========
Net loss per share, basic and diluted:
Continuing operations $ (6.39) $ (0.62) $ (0.07)
Discontinued operations -- (0.03) (0.17)
------------ ----------- -----------
Net loss $ (6.39) $ (0.65) $ (0.24)
============ =========== ===========
Weighted average shares of Common Stock
outstanding 6,798,813 5,700,306 4,752,975
============ =========== ===========
See Notes to Consolidated Financial Statements
20
23
MAREX.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ADDITIONAL TOTAL
PREFERRED COMMON PAID-IN ACCUMULATED SHAREHOLDERS'
STOCK STOCK CAPITAL DEFICIT EQUITY
------------ ------- ------------ ------------ ------------
Balance, December 31, 1997 $ -- $42,602 $ 974,698 $ (1,045,136) $ (27,836)
Issuance of 668,000 shares
of Common Stock -- 6,680 1,398,302 -- 1,404,982
Net loss -- -- -- (1,155,053) (1,155,053)
------------ ------- ------------ ------------ ------------
Balance, December 31, 1998 -- 49,282 2,373,000 (2,200,189) 222,093
Exercise of stock options -- 3,466 135,534 -- 139,000
Issuance of 1,122,047 shares
of Common Stock -- 11,220 6,881,245 -- 6,892,465
Fair value of warrants -- -- 140,300 -- 140,300
Net loss -- -- -- (3,689,754) (3,689,754)
------------ ------- ------------ ------------ ------------
Balance, December 31, 1999 -- 63,968 9,530,079 (5,889,943) 3,704,104
Exercise of stock options
and warrants -- 560 174,072 -- 174,632
Issuance of 420,000 shares
of Preferred Stock 42,000,000 -- (1,098,995) -- 40,901,005
Conversion of Preferred
Stock (11,530,700) 8,870 11,521,830 -- --
Fair value of warrants -- -- 21,746,581 -- 21,746,581
Stock-based compensation -- -- 847,919 -- 847,919
Net loss -- -- -- (43,446,301) (43,446,301)
------------ ------- ------------ ------------ ------------
Balance, December 31, 2000 $ 30,469,300 $73,398 $ 42,721,486 $(49,336,244) $ 23,927,940
============ ======= ============ ============ ============
See Notes to Consolidated Financial Statements
21
24
MAREX.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
------------------------------------------------
2000 1999 1998
------------ ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations $(43,446,301) $(3,549,387) $ (327,570)
Adjustments to reconcile loss from continuing operations to
net cash used in continuing operations
Provision for doubtful accounts 170 -- --
Depreciation 476,986 71,006 2,594
Amortization 1,556,087 27,765 1,482
Stock-based compensation 847,919 -- --
Fair value of warrants 21,746,581 140,300 --
Loss on disposal of property and equipment 72,446 1,406 --
Increase in accounts receivable (19,071) -- --
Decrease in trading securities -- -- 34,875
Increase in prepaid expenses and other current assets (643,748) (70,602) --
Increase in deposits (196,047) -- --
Increase in accounts payable and accrued expenses 6,602,649 522,614 11,937
Decrease in other current liabilities (4,470) (13,074) --
------------ ----------- -----------
Net cash used in operating activities (13,006,799) (2,869,972) (276,682)
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,481,508) (693,477) (36,906)
Acquisition of trademark -- (32,500) --
Additions to software development costs (10,373,066) -- (8,158)
Decrease (increase) in loan to shareholder 22,200 (22,200) 61,038
------------ ----------- -----------
Net cash (used in) provided by investing activities (11,832,374) (748,177) 15,974
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party borrowings -- 224,551 438,862
Principal payments on due to related party -- (260,301) (403,112)
Proceeds from exercise of stock options and warrants 174,632 139,000 --
Principal payments on notes payable -- (139,727) (76,112)
Principal payments on capital lease obligations (46,234) (2,843) (10,749)
Proceeds from issuance of Common Stock -- 6,892,465 1,404,982
Proceeds from issuance of Preferred Stock 40,901,005 -- --
------------ ----------- -----------
Net cash provided by financing activities 41,029,403 6,853,145 1,353,871
------------ ----------- -----------
Net cash provided by continuing operations 16,190,230 3,234,996 1,093,163
Net cash used in discontinued operations -- (151,002) (771,899)
------------ ----------- -----------
Net increase in cash and cash equivalents 16,190,230 3,083,994 321,264
CASH AND CASH EQUIVALENTS, beginning of year 3,434,036 350,042 28,778
------------ ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 19,624,266 $ 3,434,036 $ 350,042
============ =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 13,298 $ 5,988 $ 45,200
============ =========== ===========
SUPPLEMENTAL DISCLOSURES OF NON-CASH INFORMATION:
Acquisition of equipment under capital lease obligations $ 380,442 $ 8,454 $ --
============ =========== ===========
See Notes to Consolidated Financial Statements
22
25
MAREX.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Marex.com, Inc. (the "Company" or "Marex") is a provider of business to business
(B2B) e-commerce solutions for the marine industry. The Company's products
provide marine businesses with e-commerce solutions, which will enable them to
buy or sell parts, supplies, components and equipment through web-based
transaction systems.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of Marex
and its subsidiaries. All intercompany accounts and transactions have been
eliminated in the consolidated financial statements.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of 90 days or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets or lease term as follows:
YEARS
----------------------
Computer hardware and software 3
Office equipment and furniture 5
Leasehold improvements 5
Equipment held under capital leases Life of Lease or
Estimated Useful
Life, if Shorter
TRADEMARK
The cost of the trademark acquired is being amortized using the straight-line
method over two years. Amortization of trademarks totaled approximately $16,000
and $9,000 for the years ended December 31, 2000 and December 31, 1999,
respectively, and is included in "Product support and development" in the
accompanying consolidated statements of operations.
SOFTWARE AND WEB SITE DEVELOPMENT COSTS
The Company follows Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," and EITF 00-02,
"Accounting for Web Site Development Costs," for the accounting of development
costs. During the year ended December 31, 2000, the Company capitalized
approximately $10.4 million of development costs associated with development of
its e-commerce solutions. The Company did not capitalize any development costs
during the year ended December 31, 1999.
23
26
Amortization of software development costs is computed using the straight-line
method over the useful life ranging from two to three years.
LONG-LIVED ASSETS
The Company evaluates its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of any asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. There were no impairment charges recorded in the years ended
December 31, 2000, 1999 and 1998.
INCOME TAXES
The Company utilizes an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax basis
of assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to effect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change in deferred tax assets and
liabilities and the change in any valuation allowance during the year.
REVENUE RECOGNITION
MarExpress! and MarexPO!, the Company's core products, generate revenues by
charging a transaction fee which is based on the gross transaction price of
items purchased and sold through the system. The transaction fee is recognized
as revenue when the customers' right to receive a refund for the transaction fee
expires. Classifieds and Auctions, which supplemented MarExpress! and MarexPO!,
generated revenues by charging listing and transaction fees.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense for the years
ended December 31, 2000, 1999, and 1998 was $1.7 million, $438,000, and
$141,000, respectively.
ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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. Actual results
could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable approximate their fair value.
24
27
ACCOUNTING FOR STOCK-BASED COMPENSATION
As permitted by Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," the Company continues to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees."
WARRANTS
As required by SFAS No. 123, the Company accounts for warrants issued to
non-employees not issued in conjunction with debt by amortizing the
Black-Scholes value of such warrants over the vesting period. The Black-Scholes
value of warrants issued in conjunction with debt is amortized over the life of
the loan agreement as interest expense. Expense related to warrants totaled
approximately $21.7 million and $140,000 for the years ended December 31, 2000
and 1999, respectively, and is included in "Fair value of warrants" in the
accompanying consolidated statements of operations. There were no expenses
related to warrants during the year ended December 31, 1998.
EARNINGS PER SHARE
SFAS No. 128, "Earnings Per Share," requires two presentations of earnings per
share -- "basic" and "diluted." Basic earnings per share is computed by dividing
income available to common shareholders (the numerator) by the weighted average
number of common shares (the denominator) for the period. The computation of
diluted earnings per share is similar to basic earnings per share, except that
the denominator is increased to include the number of additional common shares
that would have been outstanding if the potentially dilutive common shares had
been issued.
The following options and warrants to purchase shares of common stock were
outstanding at the end of each year, but were not included in the computation of
diluted earnings per share because the Company reported a net loss for all years
presented and, therefore, the effect would be antidilutive:
2000 1999 1998
------------ ----------- -----------
OPTIONS
Outstanding 2,862,050 2,416,000 1,911,000
Weighted average exercises $ 6.20 $ 5.00 $ 1.38
WARRANTS
Outstanding 1,852,052 436,971 33,000
Weighted average exercises $ 3.57 $ 9.19 $ 1.83
The Company had 304,693 shares of Preferred Stock outstanding as of December 31,
2000 that were convertible into 2,343,792 shares of Common Stock.
COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. Comprehensive income is defined as the
change in equity during the financial reporting period of a business enterprise
resulting from non-owner sources. For the years ended December 31, 2000, 1999
and 1998, the Company had no comprehensive income items to report outside of its
consolidated statements of operations.
25
28
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" which
requires the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. As required, the Company adopted SFAS No. 133 in the first quarter of
2001. The adoption of this statement did not have a material effect on the
Company's consolidated results of operations and financial position.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB
101 provides guidance on applying accounting principles generally accepted in
the United States to revenue recognition issues in financial statements. The
Company adopted SAB 101 in 2000. The adoption of SAB 101 did not have a material
impact on the Company's consolidated results of operations and financial
position.
NOTE 3 - DISCONTINUED OPERATIONS
On August 24, 1999, the Company's Board of Directors approved a plan to
discontinue the operations of its non-core business subsidiary, Sovereign
Financial Information Services, Inc. ("Sovereign"), in order to focus its
business towards its Internet-based e-commerce solutions for the marine
industry. Sovereign was engaged in the publishing of research reports, stock
handbooks and global industry guides. Sovereign ceased operations on September
30, 1999. The loss on the disposal of Sovereign totaled $40,000, consisting of a
write-down of Sovereign assets totaling $28,000 and a provision of $12,000 for
operating losses until the date of disposal.
The accompanying consolidated balance sheets, consolidated statements of
operations, and consolidated statements of cash flows have been reclassified to
report separately the discontinued operations in the prior periods. Selected
results of the discontinued operations were as follows:
1999 1998
------------ -----------
Revenues $ -- $ 90,227
============ ===========
Gross profit $ -- $ 38,376
============ ===========
Selling, general and administrative $ 140,367 $ 865,859
============ ===========
Net loss $ (140,367) $ (827,483)
============ ===========
NOTE 4 - ACCOUNTS RECEIVABLE, NET
Accounts receivable as of December 31, 2000 is recorded net of an allowance for
doubtful accounts of $170.
NOTE 5 - PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
December 31,
------------------------------
2000 1999
------------- --------------
Computer hardware and software $ 1,690,125 $ 528,935
Office equipment and furniture 405,735 212,016
Leasehold improvements 87,633 41,867
Equipment held under capital leases 389,077 25,033
------------- --------------
2,572,570 807,851
Less accumulated depreciation (567,717) (115,516)
------------- --------------
Property and equipment, net $ 2,004,853 $ 692,335
============= ==============
26
29
Depreciation expense charged to operations for the years ended December 31,
2000, 1999 and 1998 was approximately $477,000, $71,000 and $3,000,
respectively.
NOTE 6 - SOFTWARE DEVELOPMENT COSTS, NET
Software development costs consist of the following:
December 31,
---------------------------------
2000 1999
------------ --------
Software development costs $ 10,464,502 $ 91,436
Less accumulated amortization (1,559,605) (19,768)
------------ --------
Software development costs, net $ 8,904,897 $ 71,668
============ ========
Amortization expense of software development costs totaled approximately $1.5
million, $18,000 and $2,000 for the years ended December 31, 2000, 1999 and
1998, respectively, and is included in "Product support and development" in the
accompanying consolidated statements of operations.
NOTE 7 - INCOME TAXES
The Company has recorded a 100% valuation allowance on its deferred tax assets
due to the uncertainty of the realization of the deferred tax assets. At
December 31, 2000 and 1999, the significant components of the Company's deferred
tax assets are as follows:
2000 1999
--------------- --------------
Net operating loss carryforwards $ 10,192,989 $ 2,209,411
Depreciation and amortization 448,093 12,344
Accrual to cash adjustment 23,208 24,972
Other 67 (9,529)
--------------- --------------
Total 10,664,357 2,237,198
Less valuation allowance (10,664,357) (2,237,198)
--------------- --------------
$ -- $ --
=============== ==============
The provision for income taxes differs from the amount computed by applying the
statutory federal and state income tax rates to income before income taxes. The
sources and tax effects of the difference are as follows:
2000 1999 1998
------------ ------------ ------------
Expected tax benefit at 39.5% $17,161,289 $ 1,457,452 $ 456,246
Non-deductible expenses (8,734,130) (52,127) (4,937)
Change in valuation allowance (8,427,159) (1,405,325) (451,309)
------------ ------------ ------------
$ -- $ -- $ --
============ ============ ============
As of December 31, 2000, the Company's net operating loss carryforwards for
income tax purposes amounted to approximately $25.8 million and expire at
various dates from 2011 through 2020.
NOTE 8 - SHAREHOLDERS' EQUITY
STOCK OPTION PLAN
In January 1997, the Company approved a 1996 and 1997 Incentive Stock Option
Plan (ISO). The 1996 and 1997 Incentive Stock Option Plans, as amended, provide
options for 900,000 and 4,000,000 shares, respectively, to be purchased for the
greater of $.33 or the fair market value on the date of grant. In
27
30
general, options have vesting terms of 4 to 5 years and expire 5 years after
date of grant. Shares available for future option grants at December 31, 2000
totaled 1,636,950. As of December 31, 2000, the Company had granted options to
purchase 3,932,400 shares of Common Stock to employees and Directors of the
Company. The following is a summary of stock option activity during the years
ended December 31, 2000, 1999 and 1998:
Weighted
Average
Shares Exercise Price
------------------- -----------------
Outstanding at December 31, 1997 1,932,000 $ 1.37
Granted -- --
Exercised -- --
Canceled (21,000) 0.33
-------------------
Outstanding at December 31, 1998 1,911,000 1.38
Granted 1,070,000 9.65
Exercised (372,000) 1.06
Canceled (193,000) 2.57
-------------------
Outstanding at December 31, 1999 2,416,000 5.00
Granted 762,400 12.31
Exercised (29,000) 4.32
Canceled (287,350) 12.53
-------------------
Outstanding at December 31, 2000 2,862,050 6.20
===================
The following table summarizes information about stock options outstanding and
exercisable at December 31, 2000:
Outstanding Options Exercisable Options
---------------------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Remaining Exercise Exercise
Price Range Number Life (Yrs.) Price Number Price
--------------- ----------- ----------- ---------- ------------- ----------
$0.33-$0.37 694,200 1.02 $ 0.36 636,000 $ 0.36
$1.83 510,000 1.06 1.83 408,000 1.83
$3.01-$3.86 220,650 4.88 3.73 -- --
$5.50 150,000 1.06 5.50 120,000 5.50
$8.03-$11.16 939,800 3.59 9.62 369,520 9.64
$13.00-$18.50 290,500 4.39 14.33 30,000 13.00
$21.50-$30.38 44,400 4.15 28.53 150 21.50
$32.94-$39.63 12,500 4.16 35.18 -- --
--------- ---------
$0.33-$39.63 2,862,050 2.58 6.20 1,563,670 3.58
========== =========
As permitted by SFAS No. 123, the Company accounts for options issued to
employees under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." In 2000, the Company granted options to a Director
at an exercise price below the quoted market price, which resulted in total
non-cash compensation of $2.4 million. The non-cash compensation cost is being
recognized ratably over the vesting period. For the year ended December 31,
2000, compensation expense relating to these options totaled approximately
$848,000.
28
31
If compensation cost for options issued to employees had been determined
consistent with SFAS No. 123, the Company's net loss and net loss per share
would have been the pro forma amounts shown in the following table:
2000 1999 1998
---------------- --------------- ---------------
Net loss:
As reported $ (43,446,301) $ (3,689,754) $ (1,155,053)
Pro forma (45,793,724) (4,469,977) (1,164,110)
Net loss per share,
basic and diluted:
As reported $ (6.39) $ (0.65) $ (0.24)
Pro forma (6.74) (0.78) (0.24)
During the year ended December 31, 2000, the weighted average fair values of
stock options granted at exercise prices below market price and at market price
were $23.82 and $9.37, respectively. Stock options granted during 1999 were all
granted at exercise prices equal to market and had a weighted average fair value
of $6.24. No options were granted during the year ended December 31, 1998.
The estimated fair value of each option granted is calculated using the
Black-Scholes option-pricing model. The weighted average assumptions used in the
model were as follows:
Risk-free Expected
Grant Interest Expected Term
Date Volatility Rate Dividends (Years)
-------- -------------- -------------- ---------------- ----------
1999 80% 5.50% 0% 4
2000 100% 6.11% 0% 4
PREFERRED STOCK
The Company has authorized 1,000,000 shares of Preferred Stock of $.01 par value
with preferences to be determined by the Board of Directors. On March 2, 2000,
the Board of Directors designated 430,000 shares as Series A1 Convertible
Preferred Stock ("Series A1 Preferred Stock").
In March 2000, the Company received net proceeds of $20.4 million in connection
with the sale of 210,000 shares of Series A1 Preferred Stock at $100 per share.
In May 2000, the Company completed the private placement through the sale of an
additional 210,000 shares of Series A1 Preferred Stock at $100 per share. Total
net proceeds from the private placement were $40.9 million. During 2000, 115,307
shares of Series A1 Preferred Stock were converted into 886,974 shares of Common
Stock.
Each share of the Series A1 Preferred Stock is convertible into 7.69 shares of
Common Stock at the option of the holder at any time. In the event that the
Company issues or sells Common Stock or securities convertible or exchangeable
for Common Stock, subject to certain exclusions, at a price per share less than
the conversion price of the outstanding Series A1 Preferred Stock, the holders
of the Series A1 Preferred Stock shall have the right to amend the conversion
price of the Series A1 Preferred Stock outstanding to the price per share of the
issuance. Automatic conversion occurs upon either of the following: completion
by the Company of a public offering which raises gross proceeds of at least $50
million, at an effective price per share to the public of at least $26.00 as
adjusted for stock splits, stock dividends or other similar transactions; or,
upon the event that the market price per share of the Company's Common Stock
exceeds $26.00, subject to adjustments for stock splits, stock dividends, or
other similar transactions, for a consecutive twenty day period following the
one-year anniversary of the effective date of a registration statement covering
the Common Stock underlying the Series A1 Preferred Stock.
29
32
The holders of the Series A1 Preferred Stock are entitled to the number of votes
equal to the number of shares of Common Stock into which such Preferred Stock is
convertible.
Upon declaration by the Board of Directors, holders of Series A1 Preferred Stock
shall be entitled to receive dividends ratably in an amount per share equal to
that which the holders would have been entitled had they converted their Series
A1 Preferred Stock into shares of Common Stock.
Upon any liquidation of the Company, holders of record of the Series A1
Preferred Stock shall be entitled to receive, out of the assets of the Company
and before any distribution or payment is made upon any class of security of
lesser rank, an amount per share equal to the lesser of $100 per share or the
assets of the Company available for distribution to its shareholders,
distributed ratably among holders of the outstanding Series A1 Preferred Stock.
After the distribution to the holders of Series A1 Preferred Stock has been
made, the remaining assets of the Company available for distribution to
shareholders shall be distributed pro rata solely among the holders of Common
Stock.
Holders may redeem shares of Series A1 Preferred Stock in the event that the
Company does not honor a conversion. In such a case, the redemption amount is
equal to, at the option of the holder, the market value of the Common Stock that
the shares of Series A1 Preferred Stock would otherwise have been convertible
into or $100 per share.
WARRANTS
During 1997, the Company issued 6,000 warrants to two lenders as partial
consideration for loans. Each warrant is convertible into one share of the
Company's Common Stock and is exercisable at $1.83 per share. The warrants
expire 5 years from the effective date.
The Company has issued warrants to consultants in consideration of having acted
as agents for the Company's private placements. The Company issued warrants to
purchase 353,971 and 27,000 shares of Common Stock to placement agents in 1999
and 1997, respectively. The weighted average exercise price of warrants issued
to placement agents in 1999 and 1997 was $9.48 and $1.83, respectively. Each
warrant was exercisable at the date of grant and expires 5 years from such date.
The costs of warrants issued in conjunction with private placements were costs
of raising capital and thus were deducted from additional paid-in capital. The
fair value of the warrants, which was determined in accordance with SFAS No.
123, offset the deductions to additional paid-in capital.
On October 27, 1999, the Company granted 50,000 warrants to a consultant as
consideration for general corporate services. The warrants expire in October of
2002 and had a weighted average exercise price of $12.00. The Company used the
Black-Scholes model to calculate the fair value of these warrants by using the
following weighted average assumptions: Volatility, 80%; Risk-free Interest
Rate, 5.80%; Expected Dividends, $0; and Expected Term, 2 years. Based on these
assumptions, the computed fair value of warrants issued to consultants was
$140,000 and is charged to expense in the accompanying 1999 consolidated
statement of operations.
On April 26, 2000, the Company entered into a Strategic Relationship Agreement
(the "Strategic Relationship Agreement") with Genmar Holdings, Inc. ("Genmar").
The Strategic Relationship Agreement provides that Genmar will utilize the
Company as its exclusive provider of an online procurement system. In connection
with the Strategic Relationship Agreement, the Company entered into a Warrant
Agreement (the "Warrant Agreement") pursuant to which the Company issued to
Genmar warrants to purchase 1,442,081 shares of Common Stock upon execution of
the Warrant Agreement. Each warrant was exercisable at the date of grant and has
an exercise price of $1.83. Additional warrants to purchase 1,495,256 shares of
Common Stock will be issued on April 26, 2001, or earlier upon the occurrence of
certain events. The Black-Scholes value of the warrants issued to Genmar was
calculated using the following assumptions: Volatility, 80%; Risk-free Interest
Rate, 6.42%; Expected Dividends, $0; and Expected Term, 3 years. Based on these
assumptions, the computed fair value of the warrants issued
30
33
on April 26, 2000 was approximately $21.7 million, and is included as "Fair
value of warrants" in the accompanying consolidated statement of operations.
The following is a summary of warrant activity during the years ended December
31, 2000, 1999 and 1998:
Weighted
Average
Number of Warrants Exercise Price
------------------- -----------------
Outstanding at December 31, 1997 33,000 $1.83
Issued -- --
-------------------
Outstanding at December 31, 1998 33,000 1.83
Issued 403,971 9.79
-------------------
Outstanding at December 31, 1999 436,971 9.19
Issued 1,442,081 1.83
Exercised (27,000) 1.83
-------------------
Outstanding at December 31, 2000 1,852,052 3.57
===================
NOTE 9 - RELATED PARTY TRANSACTIONS
In July of 1999, the Company loaned its Chief Executive Officer, who is also a
Director and a shareholder, $22,200. The loan bore an interest rate of 1% over
the prime rate and matured in July of 2000. Interest income earned by the
Company from this loan was approximately $875 and $900 for the years ended
December 31, 2000 and 1999, respectively.
The Chief Executive Officer owns another company which made loans to the Company
pursuant to a revolving loan agreement. The loan agreement specified interest at
2.5% over the prime rate, with principal due upon demand. The loan was paid
during 1999. The Company incurred approximately $2,000 and $19,000 of interest
expense under the revolving loan agreement for the years ended December 31, 1999
and 1998, respectively.
NOTE 10 - MAJOR CUSTOMER
For the year ended December 31, 2000, revenues from one major customer accounted
for approximately 47% of total revenues.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its office space under two operating leases, one of which
expires on June 30, 2004 and the other on October 31, 2003. Minimum future lease
payments under non-cancelable operating leases as of December 31, 2000 are as
follows:
2001 $ 741,040
2002 933,347
2003 803,257
2004 124,307
--------------
$ 2,601,951
==============
For the years ended December 31, 2000, 1999 and 1998, rental expense for all
operating leases was approximately $239,000, $84,000 and $43,000, respectively.
31
34
CAPITAL LEASES
The Company is the lessee of certain equipment under capital leases expiring in
various years through the year 2004. The assets and liabilities under capital
leases are recorded at the lower of the present value of the minimum lease
payments or the fair value of the asset and are included in property and
equipment, net. The assets are depreciated over the lesser of their estimated
useful lives or the term of the lease. Depreciation of assets under capital
leases is included in depreciation expense.
Minimum future lease payments under capital leases as of December 31, 2000 are
as follows:
2001 $ 160,794
2002 160,794
2003 67,687
2004 8,189
---------
Total minimum lease payments 397,464
Less amount representing interest (49,677)
---------
Present value of net minimum lease payments $ 347,787
=========
Interest rates on capitalized leases vary from 9.5% to 11.31% and are based on
the Company's incremental borrowing rate. Interest expense on capital lease
obligations for the years ended December 31, 2000, 1999 and 1998 was
approximately $13,000, $2,000, and $4,000, respectively.
EMPLOYMENT AGREEMENTS
The Company has employment contracts with its executive officers, which expire
at various dates through December 31, 2004. The agreements provide for minimum
salary levels, annual bonuses at the sole discretion of the Board of Directors
and other benefits upon a change of control. The commitment for future salaries
at December 31, 2000, excluding bonuses, are as follows:
2001 $ 450,000
2002 265,000
2003 265,000
2004 265,000
----------
Total $1,245,000
==========
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
On August 24, 1999, we dismissed McClain & Company, L.C. ("McClain") as our
independent public accountant and engaged Arthur Andersen LLP as our independent
public accountant. Both of these decisions were approved by our Board of
Directors and the audit committee of our Board of Directors.
McClain's report on our financial statements for the two most recent fiscal
years did not contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
In addition, during our two most recent fiscal years and through August 24,
1999, there were no disagreements with McClain on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of McClain,
would have caused McClain to make reference to the subject matter of the
disagreement in connection with its report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required in response to this item is incorporated by reference
to the registrant's Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year covered by this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item is incorporated by reference
to the registrant's Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this item is incorporated by reference
to the registrant's Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item is incorporated by reference
to the registrant's Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year covered by this report.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) EXHIBITS
EXHIBITS DESCRIPTION OF DOCUMENT
-------- -----------------------
3.1 Form of Amended and Restated Articles of Incorporation of the
Company (1)
3.2 Form of Amended and Restated Bylaws of the Company (1)
3.3 Articles of Amendment to Amended and Restated Articles of
Incorporation of Affiliated Networks, Inc. (4)
4.1 Certificate of Designation for the Series A1 Convertible Preferred
Stock, par value $.01 (4)
4.2 Securities Purchase Agreement among Marex.com, Inc. and Certain
Purchasers, dated March 2, 2000 (4)
4.3 Registration Rights Agreement among Marex.com, Inc. and Certain
Purchasers, dated March 2, 2000 (4)
10.1 1996 Incentive Stock Option Plan, as amended (1)
10.2 1997 Incentive Stock Option Plan, as amended (1)
10.3 Amended and Restated 1997 Stock Option Plan (3)
10.4 Company's Office Lease, 2701 South Bayshore Dr., Miami, FL, as
amended (5)
10.5 Company's Office Lease, 5835 Blue Lagoon Dr., Miami, FL, as
amended (6)
21.1 Subsidiaries of the Registrant (6)
23.1 Consent of Arthur Andersen LLP (6)
23.2 Consent of McClain & Company, L.C. (6)
----------------
(1) Previously filed as an exhibit to the Company's Form 10-SB and Amendment
No. 1 to Form 10-SB.
(2) Previously filed as an exhibit to the Company's Form 10-KSB for the year
ended December 31, 1998.
(3) Previously filed as part of the Company's Form DEFS14A filed on October 19,
1999.
(4) Previously filed as an exhibit to the Company's Form 8-K filed on March 8,
2000.
(5) Previously filed as an exhibit to the Company's Form 10-K filed on March
23, 2000.
(6) Filed herewith.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed in the last quarter of the period covered
by this report.
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37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MAREX.COM, INC.
Date: MARCH 23, 2001 By: /s/ DAVID A. SCHWEDEL
-------------------------
David A. Schwedel
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DAVID A. SCHWEDEL Director, Chairman of the Board, March 23, 2001
--------------------- and Chief Executive Officer
David A. Schwedel
/s/ KENBIAN A. NG Chief Financial Officer March 23, 2001
----------------- (Principal Financial and Accounting
Kenbian A. Ng Officer)
/s/ DANIEL F. GALLAGHER Director March 23, 2001
-----------------------
Daniel F. Gallagher
/s/ GEORGE GLAZER Director March 23, 2001
-----------------
George Glazer
/s/ ROBERT C. HARRIS, JR. Director March 23, 2001
-------------------------
Robert C. Harris, Jr.
/s/ ROGER A. TROMBINO Director March 23, 2001
---------------------
Roger A. Trombino
35