Initial Public Offering (IPO): Registration Statement (General Form) — Form S-1
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-1 Registration Statement (General Form) 61 303K
2: EX-3.1 Articles of Incorporation 8 26K
3: EX-4.1 Registration Rights Agreement 18 79K
4: EX-4.4 Form of Common Stock Warrant 27 116K
5: EX-4.5 Certificate of Designation - Series B Preferred 10 45K
6: EX-10.1 Stock Purchase Agreement 12 43K
15: EX-10.10 Lease Agreement - Aliso Viejo, Ca 75± 276K
16: EX-10.12 Strategic Relationship Agreement - Onex Ventures 4 20K
17: EX-10.13 Strategic Relationship Agreement - Lockheed Martin 6 27K
7: EX-10.2 Merger Agreement 8 29K
8: EX-10.3 Employment Agreement - Thomas Blakeley 7 30K
9: EX-10.4 Employment Agreement - Mark Grundy 7 30K
10: EX-10.5 Employment Agreement - Eric A. McAfee 7 30K
11: EX-10.6 Form of Change in Control 11 58K
12: EX-10.7 Employee Stock Option Plan 14 71K
13: EX-10.8 Agreement Between Registrant and Eric McAffe 2 10K
14: EX-10.9 Form of Indemnification Agmt. Between Registrant 8 45K
and Directors
18: EX-23.1 Consent of Experts 1 7K
19: EX-27.1 Financial Data Schedule - Article 5 2 11K
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ECOMMERCIAL.COM, INC.
(Exact name of registrant as specified in charter)
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[Download Table]
Nevada 7319 77-0511097
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
95 Enterprise, Suite 360
Aliso Viejo, California 92656
(949) 916-8705
(Address, including ZIP code and telephone number, including area code, of
registrant's principal executive offices)
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Michael R. Friedl
Chief Financial Officer
eCommercial.com, Inc.
95 Enterprise, Suite 360
Aliso Viejo, CA 92656
Telephone (949) 916-8705
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
Copies to:
Attention: Kevin Coyle, Esq.
Gray Cary Ware & Freidenrich LLP
400 Capitol Mall, Suite 2100
Sacramento, CA 95814
Telephone: (916) 930-3240
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Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act Registration Statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
[Enlarge/Download Table]
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Proposed Proposed
Amount maximum maximum Amount of
Title of each class of to be offering price aggregate registration
securities to be registered registered per unit offering price fee
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Common Stock, par value $.001 per
share............................... 1,776,909 $8 $14,215,272 $3,753
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The offering price is estimated solely for the purpose of calculating the
registration fee in accordance with Rule 457(c), using the closing price
reported by the Over-the-Counter Bulletin Board market for the common stock on
November 29, 1999, based upon the last trade of such shares which was $8 per
share.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The shares offered hereby are highly speculative and involve a high degree
of risk to public investors and should be purchased only by persons who can
afford to lose their entire investment (See "Risk Factors" beginning on page
4).
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 29, 1999
PROSPECTUS
1,776,909 Shares of Common Stock
eCommercial.com, Inc.
This prospectus (the "Prospectus") covers our registration for possible
resale of 1,776,909 shares of our common stock (the "Shares") which are
issuable upon (i) conversion of shares of series B preferred stock into shares
of our common stock, or (ii) exercise of certain warrants issued in connection
with our private offering of series B preferred stock.
We are not currently a reporting company as defined in Section 12(g) of the
Securities Exchange Act of 1934. Shortly after the filing of this Registration
Statement, we will file a Form 10 to become a reporting company under the
Exchange Act. Our Form 10 has not yet been declared effective.
Certain of our shareholders may sell up to 1,776,909 shares from time to time
in the open market or otherwise at prevailing market prices.
Our common stock is traded on the Over-the-Counter Bulletin Board market
under the symbol "ECRL". On November 29, 1999, the last reported sale price of
our common stock was $8 per share.
We will not receive any of the proceeds from the sale of the Shares. We will
bear substantially all expenses of registration of the Shares under federal and
state securities laws incurred by the sale of Shares by the selling
stockholders. We have also agreed to indemnify certain of the selling
stockholders against certain liabilities under the Securities Act. See "Use of
Proceeds," "Selling Stockholders" and "Plan of Distribution".
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Investing in our Securities involves a high degree of risk. See "Risk
Factors" beginning on page 4.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this prospectus is December , 1999.
You should rely only on the information contained or incorporated in this
prospectus. We and the selling stockholders have not authorized anyone to
provide you with information different from that contained in this prospectus.
The selling stockholders are offering to sell, and seeking offers to buy,
shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or any sale of common stock. In this prospectus, "eCommercial.com,"
"we," "us" and "our" refer to eCommercial.com, Inc. and its subsidiary.
TABLE OF CONTENTS
[Download Table]
Disclosure Regarding Forward-Looking Statements........................ i
Summary................................................................ 1
Risk Factors........................................................... 4
Use of Proceeds........................................................ 10
Dividends.............................................................. 10
Capitalization......................................................... 11
Dilution............................................................... 11
Plan of Distribution................................................... 12
Selected Financial Data................................................ 13
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 14
Business............................................................... 17
Management............................................................. 23
Certain Transactions and Relationships................................. 29
Market for Common Stock................................................ 29
Significant Stockholders............................................... 30
Selling Security Holders............................................... 31
Description of Securities.............................................. 35
Legal Matters.......................................................... 38
Experts................................................................ 38
Where You Can Find More Information.................................... 38
Financial Statements................................................... F-1
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are subject to a number
of risks and uncertainties, many of which are beyond our control. All
statements contained herein, other than statements of historical facts included
in this prospectus, including the statements under "Summary," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business," regarding our business strategy, future operations, financial
position, estimated revenues, projected costs, prospects, plans and objectives
of management, as well as information concerning expected actions of third
parties are forward-looking statements. When used in this prospectus, the words
"anticipate," "intend," "estimate," "expect," "project," and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain such identifying words. All forward-
looking statements speak only as of the date of this prospectus. We do not
undertake any obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we can give no assurance that such expectations will prove to be
correct. Important factors that could cause our actual results to differ
materially from our expectations ("cautionary statements") are disclosed under
"Risk Factors" and elsewhere in the prospectus. The cautionary statements
qualify all forward-looking statements attributable to us or persons acting on
our behalf.
i
SUMMARY
This prospectus summary only highlights certain information contained in
this prospectus. This summary is not complete and may not contain all of the
information that is important to you in making a decision of whether or not to
invest. To fully understand us and this offering, you should read the entire
prospectus. Most importantly, you should read the "Risk Factors" beginning on
page 4.
The Company
We are a global provider of interactive marketing automation systems and
services. Interactive marketing automation is a new category of marketing that
utilizes the Internet to enable businesses to increase revenues by improving
customer relationship management.
We produce, distribute and track Internet direct marketing brochures and
campaigns based on our proprietary "eCommercial(TM)" authoring software and
patent-pending network configuration. eCommercials are highly compressed
multimedia files that combine audio, video, graphics, chat, animations and
hypertext links with integrated reporting that are sent as email attachments.
Our services include sending eCommercial messages via our network; activity
tracking and reporting systems; creative design and production services;
campaign consultation; sponsorship and promotions management; and network
services for the download of eCommercials from e-commerce websites.
Our Internet marketing solutions are primarily in two categories, both
utilizing the proprietary eCommercial technologies and network:
. Virtual Prospecting(TM): Salespeople use our "virtualprospector.com"
website to select and send electronic brochures to existing or
prospective customers.
. Internet Relationship Management: Clients build "clubs" or "networks" of
interested customers who receive eCommercials on a regular basis.
Our eCommercial.com business was founded in March 1999 and was incorporated
as a California corporation on April 9, 1999. On April 19, 1999, we merged into
Wireless Netcom, Inc., a pre-existing Nevada corporation. Our stock began
trading under the symbol "ECRL" on April 29, 1999.
Our main office is located at 95 Enterprise, Suite 360, Aliso Viejo, CA
92656, and our telephone number is (949) 916-8705. Our email address is
info@ecommercial.com.
1
The Offering
The shares offered in this offering are issuable upon (i) conversion of
shares of series B preferred stock into shares of our common stock, or (ii)
exercise of certain warrants issued in connection with our private offering of
series B preferred stock.
[Download Table]
Common stock outstanding prior to this offering:............ 9,536,623 shares
Common stock issuable on conversion of series B
preferred(1):.............................................. 1,388,073 shares
Common stock issuable on exercise of warrants(2):........... 388,836 shares
Common stock outstanding after conversion and exercise:..... 11,313,532 shares
[Download Table]
Use of Proceeds: We will not receive any of the proceeds of
the sale of the Shares.
Risk Factors This offering involves a high degree of
risk. See "Risk Factors" beginning on page
4.
The number of shares that will be outstanding after this offering is based
on the number of shares outstanding on November 29, 1999 and excludes 2,400,000
shares of common stock reserved for issuance under the 1999 Stock Option Plan,
and 381,344 shares reserved for issuance upon the exercise of outstanding
warrants not included above.
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(1) Includes 125,000 shares related to shares of series B preferred that are
issuable upon exercise of an option.
(2) Includes 12,500 shares related warrants that are issuable upon exercise of
an option.
2
Summary Financial Information
The following summary financial data should be read together with our
financial statements and the notes thereto included elsewhere in this
prospectus. The statement of operations data for the period ending
September 30, 1999 and the balance sheet data as of September 30, 1999 are
derived from, and are qualified by reference to, our audited financial
statements included elsewhere in this prospectus.
[Download Table]
For the period
from inception
(March 26, 1999) to
September 30, 1999
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Statement of Operations Data
Revenues.................................................... $ 6,250
Interest income............................................. 24,274
Total costs and expenses.................................... 2,315,070
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Net loss.................................................... $(2,284,546)
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Net loss per common share outstanding....................... $ (0.26)
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Weighted average common shares outstanding.................. 8,751,760
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September 30, 1999
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Balance Sheet Data
Current assets.............................................. $ 4,894,143
Working capital............................................. 2,351,053
Total assets................................................ 6,886,141
Total liabilities........................................... 2,543,090
Stockholders' equity........................................ 4,343,051
3
RISK FACTORS
The purchase of our common stock involves substantial investment risk. You
should carefully consider the following factors and other information in this
Prospectus before deciding to invest in shares of our common stock. This
Prospectus also contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors,
including the risks described below and elsewhere in this Prospectus.
We Are A New Company And Have Experienced Losses Since Inception
Our eCommercial.com business was formed in March 1999, and we have recorded
a net loss since inception. Accordingly, we have a limited operating history on
which to base our evaluation of current business and prospects. Our prospects
must be considered in light of the risks, difficulties and uncertainties
frequently encountered by companies in an early stage of development,
particularly companies in new and rapidly evolving markets such as the market
for Internet services and advertising.
To achieve and sustain profitability, we believe we must, among other
things, (i) successfully market and sell our production services, (ii)
effectively develop new and maintain existing relationships with advertisers,
customers and advertising agencies, (iii) continue to develop and upgrade our
technology and network infrastructure, (iv) respond to competitive
developments, (v) successfully introduce enhancements to our existing products
and services to address new technologies and standards, and (vi) attract,
retain and motivate qualified personnel. Our operating results are also
dependent on factors outside of our control, such as strength of competition
and the growth of the market for our services. There is no assurance that we
will be successful in addressing these risks, and failure to do so could have a
material adverse effect on our financial performance.
Additionally, our short operating history makes it difficult to predict
future results, and there are no assurances that our revenues will increase, or
that we will achieve or maintain profitability or generate sufficient cash from
operations in future periods. We expect to incur significant losses on a
monthly basis in accordance with our financial projections and our auditors
have expressed substantial doubt that we will be able to continue as a going
concern if we are unable to generate sufficient cash flow or raise the capital
necessary to allow us to continue to meet all of our obligations as they come
due.
Our Future Revenues Are Not Easy To Predict, And Could Vary Significantly
Because of our limited operating history and the emerging nature of our
markets, we are unable to reliably forecast our revenues. We plan to
substantially increase our operating expenses in order to, among other things,
(i) expand our sales and distribution network, (ii) fund increased sales and
marketing activities, and (iii) develop and upgrade our technology. Our expense
levels are based, in part, on expected revenues, and to a large extent such
expenses are fixed, particularly in the short term. If we are unsuccessful in
generating significant revenues, we may be unable to adjust spending in time to
compensate for a revenue shortfall or we may have to forego potential revenue
generating activities, either of which could hurt our financial performance.
Our quarterly operating results may fluctuate significantly in the future as
a result of a variety of factors, many of which are outside of our control.
These factors include (i) the demand for our business services, (ii) demand for
Internet advertising, (iii) seasonal trends in Internet and advertising
placements, (iv) the advertising cycles for, or the addition or loss of,
individual advertisers, (v) the amount and timing of capital expenditures and
other costs relating to the expansion of our operations, (vi) the introduction
of new products or services by us or our competitors and (vii) general economic
conditions and economic conditions specific to the Internet, such as electronic
commerce and online media. Any one of these factors could cause our revenues
and operating results to vary significantly. In addition, as a strategic
response to changes in the competitive environment, we may from time to time
make certain pricing, service or marketing decisions or acquisitions that could
significantly hurt our operating results in a given period.
4
The advertising industry is very seasonal. The extent to which Internet
advertising develops similar seasonality will impact how much our quarterly
revenues can be expected to vary. We expect our advertising sales generally to
follow the quarterly trends of traditional media advertising.
Due to all of the foregoing factors, we believe that period-to-period
comparisons of our results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. Furthermore, it
is possible that our operating results in one or more quarters will fail to
meet the expectations of securities analysts or investors. In such event, the
market price of our common stock could drop.
We're Not Sure If The Market Will Accept eCommercials
Our ability to establish and maintain a leadership position in Internet
messaging and eCommercial advertising will depend on, among other things, (i)
our marketing and sales efforts, (ii) market acceptance of our current and
future offerings, (iii) the reliability of our networks and services and (iv)
the extent to which end users are able to receive eCommercials at tolerable
download speeds, none of which can be assured. We operate in a market that is
at a very early stage of development, is rapidly evolving, and is characterized
by an increasing number of competitors. As is typical in the case of a new and
rapidly evolving industry, there is risk surrounding market acceptance of new
technologies and services. The sales cycle for our services can be lengthy. In
addition, potential customers must accept eCommercials as a viable alternative
to traditional commercial advertising. Because this market is so new, it is
difficult to predict the size of this market and its growth rate. If the market
fails to develop as we expect, our growth will be slower than expected.
Further, our success depends on the market acceptance of eCommercial
technology. For example, congestion over the Internet which causes packet loss
may interrupt eCommercial broadcasts, resulting in unsatisfying user
experiences. Due to bandwidth constraints on some corporate intranets, some
information systems managers may block reception of large files, including
email attachments and executable files. Widespread adoption of eCommercial
technology depends on overcoming these obstacles, improving audio and video
quality and educating customers and users. If our technology fails to achieve
broad commercial acceptance, our growth will be slower than expected.
The Internet is at an Early Stage of Development as an Advertising Medium
The Internet advertising market is rapidly evolving and new competitors
appear regularly. As is typical in the case of a new and rapidly evolving
industry, demand and market acceptance for recently introduced products and
services are subject to a high level of uncertainty. Most potential advertisers
and their advertising agencies have only limited experience with the Internet
as an advertising medium and have not devoted a substantial amount of their
advertising budget to Internet-based advertising. There can be no assurance
that advertisers will be persuaded to allocate portions of their budgets to
Web-based advertising or, if so persuaded, that they will find such advertising
to be effective for promoting their products and services relative to
traditional print and broadcast media.
No standards have yet been widely accepted for the measurement of the
effectiveness of Web-based advertising, and there can be no assurance that such
standards will develop sufficiently to enable Web-based advertising to become a
significant advertising medium. Acceptance of the Internet among advertisers
and advertising agencies will also depend, to a large extent, on the level of
use of the Internet by consumers and upon growth in the commercial use of the
Internet. If widespread commercial use of the Internet does not develop, or if
the Internet does not develop as an effective and measurable medium for
advertising, we will suffer.
We Must Manage Our Growth
We expect that we will grow quickly. Our growth might place a significant
strain on our managerial, operational and financial resources and systems. To
manage this growth, we must implement, improve and
5
effectively utilize operational, management, marketing and financial systems,
and train and manage our employees. Many of our senior management have only
recently joined us, and are in the process of integrating as a management team.
There can be no assurance that we will be able to manage effectively the
expansion of operations or that the current personnel, systems, procedures and
controls will be adequate to support operations. Any failure to manage our
growth effectively could hurt our financial performance.
We Could Have Network and System Failures
The performance, reliability and availability of our websites and network
infrastructure is critical to our reputation and ability to attract and retain
users, advertisers and content providers. Our systems and operations are
vulnerable to damage or interruption from earthquake, fire, flood, power loss,
telecommunications failure, Internet breakdowns, break-ins, tornadoes and
similar events. We carry business interruption insurance to compensate for
losses that may occur, but we're not guaranteed that our insurance will be
enough to remove all risk of loss. Services based on sophisticated software and
computer systems often encounter development delays and the underlying software
may contain bugs that could cause system failures. Any system failure that
causes an interruption could result in a loss of customers and advertisers and
could reduce the attractiveness of our services.
We are also dependent upon web browsers, Internet service providers ("ISPs")
and online service providers ("OSPs") to provide Internet users access to our
customers, users and web sites. Users may experience difficulties due to system
failures or delays unrelated to our systems. These difficulties may hurt audio
and video quality or result in intermittent interruptions in broadcasting and
thereby slow our growth.
We Could Have Security Risks
Despite the implementation of security measures, our networks may be
vulnerable to unauthorized access, computer viruses and other disruptive
problems. Anyone who is able to circumvent security measures could steal
proprietary information or cause interruptions in our operations. ISPs and OSPs
have occasionally experienced interruptions in service as a result of the
accidental actions of users or intentional actions of hackers. We may have to
spend significant capital to protect against security breaches or to fix
problems caused by such breaches. Although we intend to implement security
measures, there can be no assurance that such measures will not be circumvented
in the future. Eliminating computer viruses and alleviating other security
problems may require interruptions, delays or cessation of service to users,
which could hurt our business.
We Depend on Short-Term Advertising Contracts
Although some companies may enter into multi-year agreements, a substantial
portion of our advertising revenues will be derived from short-term contracts.
Consequently, many of our advertising customers can stop advertising quickly
and without penalty, thereby increasing our exposure to competitive pressures.
There can be no assurance that current customers will continue to be customers,
or that we will be able to attract new customers.
We Need to be Scalable in the Number of Users We Serve
Our success depends on our ability to broadcast eCommercials to a large
number of simultaneous users. The broadcast of a high volume of data requires
sophisticated software and extensive network capability that may not be
available, thereby limiting our revenue growth.
We Depend on Continued Growth in Use of the Internet
Rapid growth in use of the Internet is a recent phenomenon and there can be
no assurance that use of the Internet will continue to grow or that a
sufficient base of users will emerge to support our business. The
6
Internet may not be accepted as a viable medium for broadcasting advertising,
for a number of reasons, including (i) potentially inadequate development of
the necessary infrastructure, (ii) inadequate development of enabling
technologies, (iii) lack of acceptance of the Internet as a medium for
distributing rich media advertising and (iv) inadequate commercial support for
Web-based advertising. To the extent that Internet use continues to increase,
there can be no assurance that the Internet infrastructure will be able to
support the demands placed upon it, specifically the demands of delivering
high-quality video content.
Furthermore, user experiences on the Internet are affected by access speed.
There is no assurance that broadband access technologies will become widely
adopted. In addition, the Internet could lose its viability as a commercial
medium due to delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet activity, or due to
increased government regulation. Our business could suffer if use of the
Internet grows more slowly than expected, or if the Internet infrastructure
does not effectively support the growth that does occur.
We Run the Risk of Technological Change
In the Internet industry, change occurs quickly. Such change includes
software, network hardware and bandwidth changes. If we don't keep up with
changing tastes and technologies, our growth could suffer.
We Depend on Key People
Our continued growth and development is dependent upon our ability to retain
and motivate our key employees. Competition for top people is intense and there
can be no assurance that we will be able to retain our key management and
technical employees or that we will be able to attract or retain additional
qualified technical personnel and management in the future. If we are
unsuccessful in hiring and keeping key people, our business will suffer.
We Could Face Liability for Internet Content
As a distributor of Internet advertising content, we face potential
liability for negligence, copyright, patent, trademark, defamation, indecency
and other claims based on the content of our broadcasts. Such claims have been
brought, and sometimes successfully pressed, against Internet content
distributors. Our general liability insurance may not be adequate to indemnify
us for all liability that may be imposed. Although we generally require our
customers to indemnify us for such liability, such indemnification may be
inadequate. Any imposition of liability that is not covered by insurance or by
an indemnification by a customer could harm our business.
We Could be Subject to Government Regulation and Legal Uncertainty
Although there are currently few laws and regulations directly applicable to
the Internet, it is possible that new laws and regulations will be adopted in
the United States and elsewhere covering issues such as distribution of
unsolicited email, copyrights, privacy, pricing, sales taxes and
characteristics and quality of Internet services. The adoption of restrictive
laws or regulations could slow Internet growth or expose us to significant
liabilities associated with the operation of our business, particularly if any
such restrictive laws or regulations regulate the distribution of unsolicited
email over the Internet. The application of existing laws and regulations
governing Internet issues such as property ownership, taxation, defamation and
personal privacy is also subject to substantial uncertainty. There can be no
assurance that new government laws and regulations, or the application of
existing laws and regulations, will not expose us to significant liabilities,
slow Internet growth or otherwise hurt our business.
7
We Could be Impacted by Year 2000 Computer Problems
We are in the process of working with our software vendors to assure that we
are prepared for the year 2000. We have not verified that all companies we do
business with are year 2000 compliant. However, while we do not anticipate that
we will incur significant expenses to be year 2000 compliant, we can't be
completely sure. Any year 2000 compliance problem of ours, our customers or
advertisers could have a material adverse effect on the our business.
Our Stock Price Could be Volatile
Our stock price has been and is likely to continue to be highly volatile and
could be subject to wide fluctuations in response to factors such as actual or
anticipated variations in quarterly operating results, announcements, new sales
formats or new services offered by us or our competitors, changes in financial
estimates by securities analysts, conditions or trends in Internet markets and
changes in the market valuations of other Internet companies, many of which are
beyond our control. In addition, the stock market in general, and the market
for Internet-related and technology companies in particular, has experienced
extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of such companies. The trading
prices of many technology companies' stocks are at or near historical highs and
reflect price/earnings ratios substantially above historical levels. There can
be no assurance that these trading prices and price/earnings ratios will be
sustained. These broad market and industry factors may materially adversely
affect the market price of our common stock, regardless of our operating
performance. In the past, following periods of volatility in the market price
of a company's securities, securities class-action litigation has often been
instituted against such company. Such litigation, if instituted, could result
in substantial costs and a diversion of management's attention and resources,
which could seriously damage our business.
Our Efforts to Protect our Intellectual Property Rights May Not Sufficiently
Protect Us
We have filed fourteen patent applications through the U.S. Patent and
Trademark Office under the Patent Cooperation Treaty designating all member
countries, including the United States, essentially all of Europe, Japan,
Korea, China, Canada and Mexico. These patent applications cover aspects of our
proprietary eCommercial authoring software and our network architecture, as
well as methods of using eCommercials and related media in marketing. We plan
to file additional patent applications in the future with respect to various
additional aspects of these and other technologies. We continue to develop
proprietary computer software. We mark our software with copyright notices, and
intend to file copyright registration applications where appropriate. We have
also filed several federal trademark registration applications for trademarks
and service marks we use. In addition, we seek to protect certain proprietary
aspects of our products through nondisclosure agreements with our employees,
contractors and other third parties. There can, however, be no assurance that
any patents, copyright registrations, or trademark registrations applied for by
us will be issued, or if issued, will sufficiently protect our proprietary
rights.
We intend to continue to seek patent protection for technologies that we
consider important to the development of our business. We also intend to rely
upon copyright, trademark, trade secrets, know-how, and continuing
technological innovations to develop and maintain a competitive advantage.
Even if the patents we apply for are granted, they do not confer on us the
right to manufacture or market products or services if such products or
services infringe on intellectual property rights held by others. While we have
reviewed prior art in connection with the preparation of our patent
applications, we have not done any comprehensive patent infringement searches.
If any third parties hold conflicting rights, we may be required to stop
making, using, or marketing one or more of our products or to obtain licenses
from and pay royalties to others, which could have a significant and material
adverse effect on us. Further, in such event, there can be no assurance that we
will be able to obtain or maintain any such license on acceptable terms at all.
We also rely substantially on certain technologies that are not patentable
or proprietary and are therefore available to our competitors. In addition,
many of the processes and much of the know-how of importance to
8
our technology are dependent upon the skills, knowledge and expertise of our
technical personnel, whose skill, knowledge and experience are not patentable.
To protect our rights in these areas, we require all employees, significant
consultants and advisors to enter into confidentiality agreements under which
they agree not to use or disclose our confidential information as long as that
information remains proprietary. We also require that our employees agree to
assign to us all rights to any inventions made during their employment relating
to our activities, and not engage in activities similar to ours during the term
of their employment. There can be no assurance, however, that these agreements
will provide meaningful protection for our trade secrets, know-how or other
proprietary information in the event of any unauthorized use or disclosure of
such trade secrets, know-how or proprietary information. Further, in the
absence of patent protection, we may be exposed to competitors who
independently develop substantially equivalent technology or otherwise gain
access to our trade secrets, knowledge or other proprietary information.
There can be no assurance that these steps will be adequate, that we will be
able to secure trademark registrations for all of our marks in the United
States or other countries or that third parties will not infringe upon or
misappropriate our copyrights, trademarks, service marks and similar
proprietary rights. In addition, effective copyright and trademark protection
may be unenforceable or limited in certain countries, and the global nature of
the Internet makes it impossible to control the ultimate destination of our
broadcasts. In the future, litigation may be necessary to enforce and protect
our trade secrets, copyrights and other intellectual property rights.
We may also be subject to litigation to defend against claims of
infringement of the rights of others or to determine the scope and validity of
the intellectual property rights of others. If third parties hold trademark,
copyright or patent rights that conflict with our business, then we may be
forced to litigate infringement claims that could result in substantial costs
to us. In addition, if we were unsuccessful in defending such a claim, it could
have a negative financial impact. If third parties prepare and file
applications in the United States that claim trademarks used or registered by
us, we may oppose those applications and be required to participate in
proceedings before the United States Patent and Trademark Office to determine
priority of rights to the trademark, which could result in substantial costs to
us. An adverse outcome in litigation or privity proceedings could require us to
license disputed rights from third parties or to cease using such rights. Any
litigation regarding our proprietary rights could be costly, divert
management's attention, result in the loss of certain of our proprietary
rights, require us to seek licenses from third parties and prevent us from
selling our services, any one of which could have a negative financial impact.
In addition, inasmuch as we broadcast content developed by third parties, our
exposure to copyright infringement actions may increase because we must rely
upon such third parties for information as to the origin and ownership of such
licensed content. We generally obtain representations as to the origin and
ownership of such licensed content and generally obtain indemnification to
cover any breach of such representations; however, there can be no assurance
that such representations will be accurate or given, or that such
indemnification will adequately protect us.
As part of our confidentiality procedures, we generally enter into
agreements with our employees and consultants which limit access to and
distribution of our software, documentation and other proprietary information.
There can be no assurance that the steps taken by us will prevent
misappropriation of our proprietary information or that agreements entered into
for that purpose would be enforceable. Notwithstanding the precautions taken by
us, it might be possible for a third party to copy or otherwise obtain and use
our proprietary information without authorization. The laws of some countries
may afford us little or no effective protection of our intellectual property.
9
USE OF PROCEEDS
Since the only securities being offered are those of the selling
stockholders, we will not receive any of the proceeds from the sale of the
Shares.
Proceeds from exercise of warrants of up to $3,860,688 will be used for
general working capital purposes. However, each warrant contains a cashless
exercise feature so there can be no assurances that we will receive any
proceeds from the exercise of warrants or that any warrants will be exercised
at all.
DIVIDENDS
We have not declared or paid any dividends since our inception and do not
intend to declare or pay any such dividends in the foreseeable future. Our
ability to declare and pay dividends is subject to limitations imposed by
Nevada law.
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CAPITALIZATION
The following table sets forth our total capitalization as of September 30,
1999:
. on an actual basis;
. on a pro forma basis, adjusted to reflect the completion of the private
placement of series B preferred shares, which was completed in November
1999;
. on a pro forma basis, as further adjusted, giving effect to the
conversion of all outstanding shares of series B convertible preferred
stock into 1,388,073 shares of common stock and the exercise of warrants
to purchase 388,836 shares of common stock. The exercise of all of the
warrants hereunder for cash would result in proceeds of $3,860,688. Each
warrant contains a cashless exercise feature so there can be no
assurances that we will receive any proceeds for the exercise of warrants
or that any warrants will be exercised at all.
[Download Table]
Pro Forma
Actual Pro Forma As Adjusted
----------- ----------- -----------
Stockholders' Equity
Series B convertible preferred stock,
$0.001 par value; 2,000,000 shares
authorized; 1,085,573 shares issued
and outstanding, actual; 1,263,073
shares issued and outstanding,
pro forma; no shares issued and
outstanding, pro forma, as adjusted... $ 1,086 $ 1,263 $ --
Common stock, $0.001 par value;
20,000,000 shares authorized;
9,536,623 shares issued and
outstanding, actual and pro forma;
11,313,532 shares issued and
outstanding, pro forma, as adjusted... 9,537 9,537 11,314
Additional paid-in capital............. 7,211,449 8,614,253 12,474,427
Deficit accumulated during the
development stage..................... (2,284,546) (2,284,546) (2,284,546)
Unearned stock-based compensation...... (594,475) (594,475) (594,475)
----------- ----------- -----------
Total stockholders' equity........... $ 4,343,051 $ 5,746,032 $ 9,606,720
=========== =========== ===========
DILUTION
Since we do not receive the proceeds of the sale of the Shares, we will not
experience any direct dilution. The existing common shareholders paid
substantially less per Share than the offering price of the Shares sold under
this Prospectus.
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PLAN OF DISTRIBUTION
The selling stockholders may offer their Shares at various times in one or
more of the following transactions:
1. In the over-the-counter market where our common stock is listed, or on
the NASDAQ National Market, where we intend to apply to have our common
stock listed.
2. Transactions other than in the over-the-counter market;
3. In connection with short sales of our common stock;
4. By pledgees or donees; or
5. A combination of any of the above transactions.
The selling stockholders may sell their shares at the market price
prevailing at the time of sale or at negotiated prices.
The selling stockholders may use broker-dealers to sell their Shares. If
this happens, the broker-dealers will either receive discounts or commissions
from the selling stockholders or they will receive commissions from purchasers
of Shares for whom they acted as agents.
The selling stockholders may attempt to sell all of the Shares. This could
cause the supply of Shares to exceed demand, which could drive the price of our
Shares down.
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SELECTED FINANCIAL DATA
The following summary financial data should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the notes thereto included
elsewhere in this Prospectus. The Statement of Operations Data for the period
ending September 30, 1999 and the Balance Sheet Data as of September 30, 1999
are derived from, and are qualified by reference to, our audited financial
statements included elsewhere in this Prospectus.
[Download Table]
For the period
from inception
(March 26, 1999)
to September 30,
1999
----------------
Statement of Operations Data
Revenues.................................................... $ 6,250
-----------
Operating expenses:
Development............................................... 320,766
Production................................................ 139,674
Sales and marketing....................................... 1,060,795
General and administration................................ 684,343
Depreciation and amortization............................. 107,892
-----------
Total operating expenses................................ 2,313,470
-----------
Operating loss............................................ (2,307,220)
Interest income............................................. 24,274
Provision for income taxes.................................. (1,600)
-----------
Net loss.................................................. $(2,284,546)
===========
Net loss per common share outstanding....................... $ (0.26)
===========
Weighted average common shares outstanding.................. 8,751,760
===========
[Download Table]
September 30,
1999
-------------
Balance Sheet Data
Cash and cash equivalents...................................... $4,744,741
Working capital................................................ 2,351,053
Total assets................................................... 6,886,141
Total liabilities.............................................. 2,543,090
Stockholders' equity........................................... 4,343,051
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ substantially from
those anticipated in these forward-looking statements as a result of many
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus. The following discussion should be read together with our financial
statements and related notes included elsewhere in this Prospectus.
Overview
Our revenues are derived from the production and delivery of Internet direct
marketing brochures and campaigns developed for each customer utilizing the
proprietary eCommercial technology and patent-pending network. eCommercial
production services include theme development, eCommercial design and layout,
video production, special effects, hyperlink recommendations, hyperlink page
design and creation, reporting and sales cycle consultation. We have also
developed email subscriber programs to promote subscriber registration and to
sponsor advertising coordination, and we offer demographic and list development
as part of our direct marketing programs.
Revenues are recognized when the services are rendered or eCommercials
delivered. Customers are generally billed in advance of production and delivery
of eCommercials.
We generate revenues from production fees, for delivery and tracking of
eCommercials, and for consulting. In addition, we may generate revenues from
corporate sponsorships and from revenue-sharing arrangements with our clients.
We currently sell our products and services through a direct sales force and
are developing a network of resellers.
Results of Operations
For the period from March 26, 1999 (inception) to September 30, 1999,
revenues from eCommercial broadcast services totaled $6,250, as we focused on
developing our technologies and increasing our ability to serve customers.
Our net loss of $2,284,546 can be attributed to development, marketing and
selling, and general and administrative expenses incurred during the Company's
development stage.
Development expenses consist primarily of salaries and related expenses for
design engineers and other technical personnel, including consultants, and were
focused on continued advancements in eCommercial technology and the creation of
the eComNetwork. Total costs through September 30, 1999 amounted to $320,766.
We charge all research and development expenses to operations as incurred. We
believe that continued investment in research and development is critical to
our long-term success. Accordingly, we expect that our research and development
expenses will increase in future periods.
Production efforts focused on developing the eComStudio, which included
building a team of creative people and producing initial eCommercials and
related websites, in addition to building our own website, eCommercial.com, and
creating in-house marketing and support collateral materials. Total costs
through September 30, 1999 amounted to $139,674.
Sales and marketing expenses through September 30, 1999 amounted to
$1,060,795 and consisted primarily of salaries and related expenses for
developing our direct and reseller organizations, as well as marketing expenses
designed to create and promote brand awareness for eCommercials. Included in
this amount is a non-cash charge of $240,000, which represents the value of the
common stock issued upon the
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signing of a strategic partnership with Lockheed Martin Corporation, and a non-
cash charge of $78,780, which represents compensation expense related to the
issuance of stock options. We intend to pursue aggressive selling and marketing
campaigns and to expand our reseller organization, continue branding efforts
and identifying strategic partners. We therefore expect that our sales and
marketing expenses will increase in future periods.
General and administrative costs of $684,343 through September 30, 1999
primarily included salaries and related expenses for administrative, finance
and human resources personnel, professional fees and other corporate expenses
related to establishing our operations. Included in this amount is a non-cash
charge of $86,455, which represents compensation expense related to the
issuance of stock options. We expect that, in support of our continued growth
and our operations as a public company, general and administrative expenses
will increase in the foreseeable future.
Recent Financing
In November 1999, we completed a private placement offering of 1,263,073
shares of series B preferred stock at $8 per share. Gross proceeds amounted to
$10,104,584. The shares were sold to approximately 185 accredited investors.
Net proceeds to us, after selling commissions of $819,242 and direct offering
costs of $121,869, totaled $9,163,473, of which $1,402,981 was received after
September 30, 1999. We intend to use the net proceeds in our continuing
operations.
Liquidity and Sources of Capital
As of September 30, 1999, we had current assets of $4,894,143 and current
liabilities of $2,543,090. This represents working capital of $2,351,053.
Current liabilities included $2,200,412 of liabilities acquired in
acquisitions, of which $1,800,000 is reserved to pay the judgment in the Voxel
matter. One of our significant shareholders, who is also an officer and
director, has agreed to repay to us in common stock or cash, at his option, any
amounts we must pay to the plaintiffs in this matter. See "Business--Legal
Proceedings."
For the period from inception (March 26, 1999) to September 30, 1999, we
used $2,013,188 of cash for operating activities, and growing the
organizational infrastructure necessary to be able to service our customers.
During the same period, $1,263,133 of cash was used in investing activities,
primarily for acquisitions of fixed assets used to expand our technology
infrastructure and the eComNetwork. $8,021,062 was provided by financing
activities, primarily from issuances of common and preferred stock.
Our Plan of Operation for the Next Twelve Months
While we expect to begin generating significant revenues during the next
twelve months, it is likely that we will need to pursue additional funding in
order to continue the development of our technology infrastructure and add to
our capacity to provide services to our customers. We expect the number of
employees to increase during that time.
There can be no assurance that additional equity or debt financing, if
required, will be available on terms that are acceptable, or at all.
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Year 2000
There is significant concern that certain computer programs and computers
are not presently configured to recognize the year 2000 or succeeding years.
This defect in computer functions could have a serious adverse impact upon our
industry and other industries if various computer programs and applications
cease to function or function erroneously as we approach the year 2000. We
expect the year 2000 compliance problems we may face to fall within three
general categories:
1) Our own information technology ("IT").
2) Failure or malfunction in non-IT systems due to their computer
components such as telephone systems, security systems, etc.
3) Failure among third party service providers.
We believe that we have addressed our year 2000 problems related to our own
IT systems and have determined that our existing, as well as in-development,
internal hardware and software will function past the year 2000 without
modification. We have also addressed our non-IT systems and believe that these
systems also will function past the year 2000, without modification. We do not
believe that there are any feasible plans to adjust operations to potential
industry-wide problems, such as may occur with third party service providers,
suppliers or outsource consultants. We will deal with those problems when and
if they arise on a case-by-case basis.
Expenses incurred by us related to the year 2000 issue for the period from
March 26, 1999, (inception) to September 30, 1999, were not significant.
Amounts to be spent during the remainder of 1999 and the beginning of 2000 are
also not expected to be significant.
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BUSINESS
Overview
We are a global provider of interactive marketing automation systems and
services. Interactive marketing automation is a new category of marketing that
utilizes the Internet to enable businesses to increase revenues by improving
customer relationship management.
We produce, distribute and track Internet direct marketing brochures and
campaigns based on our proprietary "eCommercial(TM)" authoring software and
patent-pending network configuration. eCommercials are highly compressed
multimedia files that combine audio, video, graphics, chat, animations and
hypertext links with integrated reporting that are sent as email attachments.
We have filed 14 patent applications to protect various proprietary methods and
technologies used to deliver, transact and track eCommercials. Our services
include sending eCommercial messages via our network; activity tracking and
reporting systems; creative design and production services; campaign
consultation; sponsorship and promotions management; and network services for
the download of eCommercials from e-commerce websites.
Our Internet marketing solutions are primarily in two categories, both
utilizing the proprietary eCommercial technologies:
. Virtual Prospecting(TM): Salespeople use our "virtualprospector.com"
website to select and send electronic brochures to prospective customers.
. Internet Relationship Management: Clients build "clubs" or "networks" of
interested customers who receive eCommercials on a regular basis.
Internet marketing has traditionally been passive in nature, requiring the
Internet user to type in a web address before reaching the desired information
offered by a web page. eCommercial.com focuses on Internet direct marketing as
opposed to marketing via direct mail, print media, radio or television. Our
revenue comes from product and/or service promotions to individuals or affinity
groups, primarily the email lists of our customers or members.
Rapid technological innovation has created a richer Internet environment
capable of delivering rich interactive multimedia content. An eCommercial is an
independent executable file (.exe) that consists of a graphic background,
compressed video and audio files, and interactive web links. Customers can
choose between different video and audio compression levels and graphic data
types to be put into the eCommercial, depending on their marketing objective. A
typical file for an eCommercial ranges in size from 200 to 500 kilobytes.
eCommercials are delivered as email attachments through our specialized
network of high-bandwidth servers. An eCommercial requires no specialized
software (including a web browser) for receipt or play. eCommercials are self-
contained files that enable email recipients to simply "click" on the
attachment icon to begin viewing, or to save the file for later viewing.
Due to the visual and audio content, eCommercial introductions are more
personalized and compelling than traditional static text-oriented email
messages. The proactive nature of email also enables e-commerce companies to
"reach out" and deliver messages promoting their products or services directly
to a targeted audience, while enabling the individual recipients to interact
directly with the eCommercial.
We use our own proprietary eCommercial authoring software and complementary
third party technologies to produce Internet-based direct response advertising
campaigns. These campaigns are modeled on proven and accepted marketing
principles. Any business that is currently implementing traditional (non-
Internet) direct response advertising campaigns or is attempting to market on
the Internet is a prospective customer of ours.
Industry Background
The Internet. The Internet has grown explosively in recent years, and is
rapidly changing the face of business. Some key Internet statistics include:
. Access: The number of Americans going online jumped from 45 million to 63
million in the last year alone, according to a recent study by America
Online and Roper Starch Worldwide.
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. Use: Email is the most widely used Internet application, with the number
of emailboxes expected to increase from 240 million worldwide in 1998 to
590 million in 2003, according to International Data Corporation.
. Commerce: The amount of merchandise sold over the Internet is expected to
increase from $43 billion in 1998 to $1.3 trillion in 2003, according to
Forrester Research.
. Advertising: Internet advertising is expected to grow from $1 billion in
1998 to $33 billion in 2003, according to Forrester Research.
This growth has been spurred by developments such as easy-to-use Web
browsers, the availability of inexpensive multimedia PCs and Internet access,
the adoption of more robust network architectures, and the emergence of
compelling Web-based content and commerce applications. The proliferation of
email accounts has enabled businesses to use email as the primary means to
proactively communicate with their customers online. For example, email is
often used to confirm electronic transactions and to notify customers of
important new developments or product offerings.
Much of the Internet's rapid evolution towards becoming a mass medium can be
attributed to the accelerated pace of technological innovation, which has
expanded the Web's capabilities and improved users' experiences. Most notably,
the Internet has evolved from a mass of static, text-oriented Web pages and
email services to a much richer environment, capable of delivering graphical,
interactive and multimedia content.
Direct Marketing. Direct marketing, always a significant portion of overall
advertising spending, is becoming a significant force on the Internet. Some key
statistics:
. Overall: Businesses and other organizations spent approximately $285
billion on general advertising in 1998, of which 56% or $160 billion was
spent on direct marketing, according to the Direct Marketing Association.
. Internet-based: In 2002, Forrester Research estimates that direct
marketing will make up 60% of all Internet advertising, up from 15% in
1998.
Email marketing allows businesses to cost-effectively target online
customers through customized email campaigns. Email did not initially gain wide
acceptance as a marketing tool because of concerns regarding privacy and
unsolicited communication. With the recent advent of permission-based email,
where individuals sign up or "opt-in" to receive information from specific
sources on topics of interest to them, email has become an increasingly
important direct marketing tool. Email campaigns offer significant advantages
over traditional direct mail, including reduced cost, more rapid delivery, and
a greater degree of personalization. Further, response rates for direct email
campaigns can be much higher than for traditional direct mail campaigns.
Products and Services
Our technology has significant advantages over Internet-based content
delivery. Internet users can interact with the broadcast content and can view
and respond to an eCommercial when convenient, rather than requiring online
viewing. In addition, our technologies allow us to provide highly specific
feedback on the effectiveness of each campaign to our customers.
Our competitive advantage arises from our proprietary authoring software,
patent-pending Internet distribution network, and campaign tracking systems.
Rather than providing real-time multimedia content delivery services similar to
that which is provided by companies like Broadcast.com, in which users must
have an online connection to the content provider, we deliver eCommercials in a
manner that allows end users to view them at their leisure. The following is a
list of our revenue sources:
eCommercial Production. eCommercial production is managed by our eComStudio
production unit. Sound and video production is as complex as the client
requires, and can involve simple editing or more elaborate on-location filming
or special effects.
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Campaign Consultation. Campaign design and implementation is managed by
eComStudio. Consultation charges vary depending on the size, scope and length
of a given campaign.
eCommercial Network Deliveries. eCommercials are typically delivered as
email attachments and are the responsibility of our eComNetwork business unit.
eCommercial delivery is generally handled in one of three ways:
. Broadcast to a subscriber base
. Sent individually using our Virtual Prospector(TM) system
. Downloaded from e-commerce and other web sites.
In any case, eCommercial delivery pricing depends on the file size of the
eCommercial and the number of eCommercials sent.
eCommercial Activity Tracking and Reporting. Activity tracking and reporting
is handled by our eComTracker unit. Pricing for this service is based upon the
number of email addresses tracked, the level of detail captured, reporting
features and campaign duration.
eCommercial Merchandise Sales Revenue-Sharing. Sales of products or services
through eCommercials may result in variable commission revenues to us depending
on the product or service being sold.
eCommercial Ad Sponsorship Revenue-Sharing. In certain cases, our customers
choose to sell or have us sell sponsorship ads on their eCommercial. Each
eCommercial can support multiple sponsorships. All customer sponsorships are
subject to revenue sharing with us.
Business Strategy
We believe that eCommercials provide distinct advantages over more
traditional methods of advertising. Companies who desire to use the Internet to
promote or sell products and services have a turnkey solution available to them
through our team of web programmers, content designers, product managers and
network engineers.
One of the principal advantages of an eCommercial direct-response
advertising program is the comprehensive, informative nature of eCommercials.
An eCommercial is an executable file (giving it the same functional capability
of a standard Windows program), and each eCommercial has its own unique
identification number, allowing advanced campaign tracking and reporting.
eComTracker software reports on activity by number of video plays, click-
throughs, jump page activity, lead capture and sales transactions.
Traditional direct marketing programs, which typically include direct mail,
print media ads, or broadcast media ads, can produce "Information Gaps" for
intended recipients that impede the selling process. Information Gaps occur
when the prospective customer requires more information to make a purchasing
decision. A recipient of an eCommercial receives a compelling multimedia
presentation and is led through the sales process seamlessly (via interactive
web links), minimizing friction points and gaps, resulting in shorter selling
cycles, a lower selling cost, and increased marketing effectiveness.
Sales and Marketing
Our key marketing objective is to brand ourselves as the leading Internet
direct marketing network. To achieve this objective, we have a national team of
sales people and are pursuing direct sales and sales via resellers to market
leaders in several industries, including, but not limited to:
. Entertainment
. Electronic Commerce web sites
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. Telecommunications
. Financial Services
. Travel
. Computer Hardware/Software
. Industrial Products
. Government
Strategic Relationships
Currently, we have a strategic relationship agreement with Lockheed Martin
Integrated Business Solutions (IBS), a leading systems integrator, which
provides for joint marketing and service delivery efforts and allows us to
utilize Lockheed Martin in establishing and managing e-commerce projects.
We are currently negotiating several additional strategic relationships,
primarily with technology companies that provide products or services which
enhance the functionality or marketing of our technologies.
Intellectual Property
We regard our copyrights, trademarks, trade secrets and similar intellectual
property as critical to our success, and we rely on a combination of copyright
and trademark laws, trade secret protection, confidentiality and non-disclosure
agreements and contractual provisions with our employees and with third parties
to establish and protect our proprietary rights.
Patents and Proprietary Technology
We have filed fourteen patent applications through the U.S. Patent and
Trademark Office under the Patent Cooperation Treaty designating all member
countries, including the United States, essentially all of Europe, Japan,
Korea, China, Canada and Mexico. These patent applications cover aspects of our
proprietary eCommercial authoring software and our network architecture, as
well as methods of using eCommercials and related media in marketing. We plan
to file additional patent applications in the future with respect to various
additional aspects of these and other technologies. We continue to develop
proprietary computer software. We mark our software with copyright notices, and
intend to file copyright registration applications where appropriate. We have
also filed several federal trademark registration applications for trademarks
and service marks we use. In addition, we seek to protect certain proprietary
aspects of our products through nondisclosure agreements with our employees,
contractors and other third parties. There can, however, be no assurance that
any patents, copyright registrations, or trademark registrations applied for by
us will be issued, or if issued, will sufficiently protect our proprietary
rights.
We intend to continue to seek patent protection for technologies that we
consider important to the development of our business. We also intend to rely
upon copyright, trademark, trade secrets, know-how, and continuing
technological innovations to develop and maintain a competitive advantage.
Government Regulation
Although there are currently few laws and regulations directly applicable to
the Internet, it is likely that new laws and regulations will be adopted in the
United States and elsewhere covering issues such as broadcast license fees,
copyrights, privacy, pricing, sales taxes and characteristics and quality of
Internet services. The adoption of restrictive laws or regulations could slow
Internet growth. The application of existing laws and regulations governing
Internet issues such as property ownership, libel and personal privacy is also
subject to substantial uncertainty. There can be no assurance that current or
new government laws and regulations, or the application of existing laws and
regulations (including laws and regulations governing issues such as property
20
ownership, taxation, defamation and personal injury), will not expose us to
significant liabilities, slow Internet growth or otherwise hurt us financially.
We currently do not collect nor do we intend to collect sales or other taxes
with respect to the sale of services or products in states and countries where
we believe we are not required to do so. We do collect sales and other taxes in
the states in which we have offices and believe we are required by law to do
so. One or more states or countries have sought to impose sales or other tax
obligations on companies that engage in online commerce within their
jurisdictions. A successful assertion by one or more states or countries that
we should collect sales or other taxes on products and services, or remit
payment of sales or other taxes for prior periods, could have a material
adverse effect on our business, results of operations and financial condition.
The Communications Decency Act of 1996 (the "CDA") was enacted in 1996.
Although those sections of the CDA that, among other things, proposed to impose
criminal penalties on anyone distributing "indecent" material to minors over
the Internet were held to be unconstitutional by the U.S. Supreme Court, there
can be no assurance that similar laws will not be proposed and adopted.
Although we do not currently distribute the types of materials that the CDA may
have deemed illegal, the nature of such similar legislation and the manner in
which it may be interpreted and enforced cannot be fully determined, and
legislation similar to the CDA could subject us to potential liability, which
in turn could have an adverse effect on our business, financial condition and
results of operations. Such laws could also damage the growth of the Internet
generally and decrease the demand for our products and services, which could
adversely affect our business, results of operations and financial condition.
Competition
Although asynchronous messaging is a rapidly emerging Internet marketing
technology, the market for Internet advertising services is highly competitive
and we expect that competition will continue to intensify. We compete with (i)
online services, other Web site operators and advertising networks, as well as
traditional media such as television, radio and print, for a share of
advertisers' total advertising budgets and (ii) local radio and television
stations and national radio and television networks for sales of advertising
spots. There can be no assurance that we will be able to compete successfully
or that the competitive pressures faced by us will not harm us financially.
We believe that the principal competitive factors for attracting advertisers
include the number of users accessing the advertising message, the demographics
of our users, our ability to deliver focused advertising, and interactivity and
the overall cost-effectiveness and value of advertising offered by us. We
believe that the number of companies selling Web-based advertising and the
available inventory of advertising space have recently increased substantially.
Accordingly, we may face increased pricing pressure for the sale of
advertisements. Reduction in our advertising revenues would have a negative
financial impact.
We also compete for traditional media advertising sales with national radio
and television networks, as well as local radio and television stations. Local
radio and television content providers and national radio and television
networks may have larger and more established sales organizations than us.
These companies may have greater name recognition and more established
relationships with advertisers and advertising agencies than us. Such
competitors may be able to undertake extensive marketing campaigns, obtain a
more attractive inventory of ad spots, adopt more aggressive pricing policies
and devote substantially more resources to selling advertising inventory.
Research and Development
We have developed several proprietary technologies which are used in a
variety of Internet-related products and services. These products and services
are continually being enhanced to meet the needs of the Internet advertiser and
retailer. The Research and Development department is organized by area of
interest including Multimedia Development, Database Development, Web
Development, and Networking. Each
21
development area requires highly specialized individuals with extensive
backgrounds in their respective disciplines.
Through September 30, 1999, we had incurred $320,766 of research and
development expenses in the engineering of our software tools and the
eComNetwork.
Facilities
Our headquarters and production facilities are in Aliso Viejo, California
with a sales office in San Clemente, California. Our monthly rent for these
facilities totals $10,388. The leases for these facilities terminate when we
move into our permanent 12,000 square foot office space at 101 Enterprise,
Suite 340, Aliso Viejo, California 92656, planned for December 1999. The base
rent for the permanent headquarters is $29,642 per month. This lease expires in
November 2004.
We also lease an office in Cupertino, California at a current monthly rent
of $10,091, a portion of which will be subleased to an unrelated party. This
lease expires September 1, 2004.
In addition, effective December 1, 1999, we will be opening an office in New
York City, in space we will be subleasing for $2,883 per month. We anticipate
that we will require additional space within the next 12 months and that
suitable additional space will be available on commercially reasonable terms,
although there can be no assurance in this regard. We do not own any real
estate.
Legal Proceedings
Although we have not become a party to any material legal proceeding since
eCommercial.com was founded, we are named as a defendant in a lawsuit filed in
connection with an Asset Purchase Agreement, dated November 25, 1998, pursuant
to which our predecessor, Wireless Netcom had proposed to acquire the assets of
Voxel, Inc. On October 27, 1999, the trial judge granted a summary judgment
motion in favor of the plaintiffs in the amount of $1.8 million. We plan to
request reconsideration of the summary judgment decision and aggressively
pursue a resolution of this matter.
Pursuant to an indemnity agreement, one of our significant shareholders, who
is also an officer and director, has agreed to reimburse to us in common stock
or cash, at his option, any amounts we must pay to the plaintiffs. Accordingly,
we have included the entire amount with acquired liabilities as of September
30, 1999, and will record any reductions in the balance due or amounts received
in repayment as additional paid-in capital at the time such amounts are
received.
Employees
As of October 31, 1999, we had 41 full-time employees. None of our employees
is subject to a collective bargaining agreement and we believe that our
relations with our employees are good.
22
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the company, their respective ages
and positions with us are as follows:
[Enlarge/Download Table]
Name Age Position
---- --- --------
Thomas J. Blakeley...... 40 Chief Executive Officer, President, Chairman of the Board
Mark Grundy............. 38 Chief Operating Officer, Executive Vice President, Director
Eric A. McAfee.......... 37 Executive Vice President, Corporate Secretary, Director
John Troiano............ 29 Director
Michael R. Friedl....... 36 Chief Financial Officer, Treasurer
Rick McEwan............. 35 Executive Vice President of Engineering
Michael Briola.......... 29 Vice President, Creative Director
Ross Teasley............ 36 Vice President of Marketing
Thomas J. Blakeley, 40, CEO, President and Chairman of the Board. Mr.
Blakeley founded eCommercial.com, and currently serves as President, Chief
Executive Officer and Chairman of the Board. Prior to joining us, Mr. Blakeley
was involved with several companies producing leading edge Internet products.
As director of marketing and sales for San Diego-based Cubic Videocomm, Mr.
Blakeley was responsible for the introduction of CVideo-Mail, one of the first
video email products and currently one of the most popular video email programs
in the retail software industry. In 1992, Mr. Blakeley founded Travel Edge
Solutions, a company that developed the first Internet-based airline
reservation processing system. Mr. Blakeley served as the Vice President of
marketing and sales for QSA Technology in 1983, and was responsible for the
introduction of the airline industry's first PC-based airline reservation
systems for United Airlines, Trans World Airlines and Texas Air's SystemOne
starting in 1985.
Mark Grundy, 38, Executive Vice President, Chief Operating Officer and
Director. Mr. Grundy joined the Company in May 1999 as Executive Vice
President, Chief Operating Officer and a director. In 1990, he founded
Destination America, Inc. a company that provided English language tours of the
United States. Mr. Grundy served as President of Destination America from its
inception until joining eCommercial.com in May 1999. From 1981 to 1990, he
developed sales and marketing strategies for Americantours International, Inc.,
the largest wholesale inbound travel company in the United States, where he
served as Vice President, Sales and Marketing.
Eric A. McAfee, 37, Executive Vice President and Director. Mr. McAfee is the
co-founder of eCommercial.com and currently serves as Executive Vice President,
Corporate Secretary and a Director of the company. Mr. McAfee is also a
principal at Berg McAfee Companies, a Silicon Valley venture capital
partnership based in Cupertino, California, with investments in Internet,
software and telecommunications companies. Mr. McAfee currently serves on the
board of directors of several companies, including Breakthrough Software, an e-
commerce software company. Prior to joining us, Mr. McAfee founded several
other companies, including PC-card manufacturer New Media Corporation and
Global Digital Technologies, an Internet software company which provides the
San Jose Mercury News, Los Angeles Times and other newspapers with system
software for Internet applications. Mr. McAfee has also served for six years as
a member of the Board of Directors of the California Manufacturer's
Association. Mr. McAfee is a graduate of Fresno State University with a B.S. in
Management (with an emphasis in statistics) and the Stanford Graduate School of
Business Executive Program.
John Troiano, 29, Director. Mr. Troiano, who joined our Board in November
1999, is the Managing Director of @ONEX LLC, a significant shareholder of the
Company. @ONEX LLC is wholly-owned by Onex Corporation, Canada's ninth largest
company. Mr. Troiano has led Onex' strategic investments in a number of
23
areas, particularly e-commerce and the Internet. He has also initiated and
developed value creation ideas in a number of other industry sectors where Onex
may now invest, specifically telecommunications, financial services and
consumer products. Before joining Onex, he was employed by Donaldson, Lufkin &
Jenrette in both the Investment Banking and Merchant Banking Groups. He also
worked in corporate finance for Gleacher & Co. in New York. Mr. Troiano
received his B.S. in Economics (summa cum laude) from the Wharton School,
University of Pennsylvania; and his M.B.A. from the Harvard Graduate School of
Business Administration.
Michael R. Friedl, CPA, 36, Chief Financial Officer. Mr. Friedl joined the
company as Chief Financial Officer and Treasurer in May 1999. Prior to joining
us, Mr. Friedl served as President of DialRight Software, Inc., a database
utility company he co-founded and a company for which he continues to serve as
a member of its board of directors. Prior to joining DialRight, Mr. Friedl was
the Chief Financial Officer of V-Systems, Inc., a software company that spun
out DialRight as a separate venture. From 1995 to 1997, Mr. Friedl served as
Chief Financial Officer for publicly-held Grip Technologies, Inc., an Irvine,
California, manufacturer of golf club components. From 1993 to 1995, Mr. Friedl
served as Corporate Controller for New Media Corporation, a high-tech
manufacturing company. From 1986 to 1993, Mr. Friedl worked in public
accounting, most recently for Arthur Andersen & Co. where he served as an Audit
Manager. Mr. Friedl is a graduate of Kent State University and is a Certified
Public Accountant licensed in Ohio and California.
Richard R. McEwan, 35, Executive Vice President of Engineering. Mr. McEwan
joined the company in April 1999 as Vice President of Engineering. Prior to
joining us, Mr. McEwan served as President, CEO, and a co-founder of Zap
International, a video compression technology company which was acquired by the
Company in April 1999. Prior to co-founding Zap International, Mr. McEwan was a
manager with Fourth Communications Network from 1993 through 1998, where he
managed the development of Internet systems for the hotel industry based on
Microsoft Windows NT Server, Windows 3.1/95, and NT Workstation as well as the
database systems for statistical gathering for all of Fourth Communications'
Internet-related advertising and commerce information. Prior to joining Fourth
Communications, Mr. McEwan ran his own consulting business where he created
custom sales information databases for various organizations including Agenda
Sales Inc., Pilot Pen Corporation, and Media and Creative Services. Before
entering the consulting field, Mr. McEwan spent over eight years in several
technical and marketing duties for technology companies such as SuperMac
Technology, RasterOps Corporation, and Ramtek Corporation.
Michael Briola, 29, Vice President, Creative Director. Mr. Briola joined the
company in April 1999 as Vice President, Creative Director. Prior to joining
us, Mr. Briola founded and served as Vice President of Marketing and a director
of Zap International, where he played a major role in the development of the
Zap Media Messenger technology. Prior to his work at Zap International, Mr.
Briola co-founded Cameo International (now AnTares Systems) where he served as
Vice President of Technology and Marketing. Prior to founding Cameo, Mr. Briola
was responsible for the North American launch of MegaChips Corporation, a
$200 million Japanese semiconductor design firm specializing in audio/video
codec and systems technologies. Previously, Mr. Briola served as Technical
Sales Director, Professional Products Division for InVision Interactive, Inc.
and was responsible for developing and maintaining sales channels in the United
States and abroad. From 1993 to 1996, Mr. Briola maintained a consulting
practice dedicated to supplying high-end computer-based multimedia design and
production equipment where he designed facilities and equipment systems for
clients such as Texas Instruments, J.C. Penny, Sonic Media, West End Post, and
Dallas Sound Labs.
Ross Teasley, 36, Vice President of Marketing. Mr. Teasley joined the
company as Vice President of Marketing in August 1999. Prior to joining us, Mr.
Teasley developed many of the unique, integrated marketing programs at
Autobytel.com, including broadcast television campaigns, affiliate marketing,
and rich-media programs. During his tenure there, Autobytel.com brand awareness
increased to the seventh most recognized e-commerce brand on the Internet. In
1993, Mr. Teasley co-founded HyperHead New Media, an award-winning content
publishing venture to produce CD-ROMs and Internet-based publications for the
music, sports and entertainment industries. Clients included Warner Brothers
Records, Sony Music, the Motion Picture Corp. of
24
America, Young & Rubicam, Cole & Weber, and National Video Subscriptions-TV.
Prior to that, Mr. Teasley co-founded Infoscan, Inc., a publishing, data
conversion and information management consultancy which supplied complex,
artificial intelligence knowledge based systems to clients like the U.S.
Library of Congress, Ford Motor Company, EuroDisney, the Central Intelligence
Agency and Unisys. Mr. Teasley graduated from the University of Michigan with
a dual-concentration honors degree in Slavic Languages and East European
History.
Other Significant Employees
Other significant employees of the company, their respective ages and
positions with us are as follows:
[Download Table]
Serge Herring................. 50 Vice President of Research & Development
Adrian Turcotte............... 48 Vice President of Media Development
Edward Roberts................ 33 Vice President of Information Technologies
Serge Herring, 50, Vice President of Research & Development. Mr. Herring
joined the company in April 1999 as Director of Program Development, and was
named Vice President of Research & Development in November 1999. Prior to
joining us, Mr. Herring was Senior Software Engineer for Zap International, a
video compression technology company which was acquired by the company in
April 1999. Prior to Zap International, Mr. Herring worked in research and
development for Innovacom, Inc., a video compression company serving the
broadcast industry. Prior to Innovacom, he worked as a Principle Engineer for
Intellect Electronics, Inc., a developer of point-of-sale terminals for the
retail and banking industries.
Adrian Turcotte, 48, Vice President of Media Development. Mr. Turcotte
joined the company as Vice President of Media Development in April 1999. Mr.
Turcotte's professional experience includes success in many different areas of
the Computer Services and Entertainment industries. His knowledge of
international consumer markets has contributed to the worldwide success of
Odyssey Productions where, as Executive Producer of the immensely popular and
critically acclaimed "Mind's Eye Series", he coordinated the business side of
feature film production and marketing. As a founder of Test Drive, Inc., Mr.
Turcotte was involved in the development of the first "try before you buy"
electronic software distribution and sales system. Test Drive was later
acquired by R.R. Donnelley. Previously, he was involved with marketing and
sales of the world's first dial-up access to airline reservation systems at
QSA Technology. Mr. Turcotte holds a Master's Degree from UCLA.
Edward Roberts, 33, Vice President of Information Technologies. Mr. Roberts
joined the company as Director of Information Technologies in May 1999, and
was named Vice President of Information Technologies in August 1999. Prior to
joining us, Mr. Roberts was the technical lead for the planning and deployment
of the worldwide implementation of Microsoft Windows NT and Microsoft Exchange
for Ingram Micro, Inc., a $22 billion computer distributor. Mr. Roberts' prior
experience also includes six years in the U.S. Navy working with Computers and
Radio Communications, and service as the Regional Systems Manager for
Intergraph Corporation, managing the internal systems for 12 offices in a 7-
state area. Mr. Roberts has also created two successful Microsoft-based
systems consulting practices, the first with an Orange County-based value-
added reseller and then with Inacom Corporation, the leading supplier of
hardware and software technologies to Fortune 1000 companies. Mr. Roberts'
professional activities include service as President of the Orange County
Microsoft NT Users Group, co-author of Que's "Special Edition Using Microsoft
Exchange Server 4.0", guest speaker at SoftBank Expo's Windows NT Intranet
Solutions on "Exchange Tuning and Optimization" and "Supporting Nomadic Users
in an NT Environment." Mr. Roberts is also the Messaging/Collaboration Track
chair for the IDG WorldExpo/Microsoft Windows 2000 Conference and Expo in San
Francisco.
25
Executive Compensation
The following table sets forth the total compensation for each of our most
highly compensated executive officers whose total salary and bonus for the year
ended September 30, 1999 would have exceeded $100,000 on an annualized basis
(collectively, the "Named Executive Officers"):
Summary Compensation Table
[Download Table]
Name and Principal Position Salary Bonus Options
--------------------------- -------- ------- -------
Thomas Blakeley, Chief Executive Officer(1)............ $178,000 $ -- --
Mark Grundy, Chief Operating Officer(1)................ 168,000 10,000 225,000
Eric A. McAfee, Executive Vice President(1)............ 172,000 -- --
Michael Friedl, Chief Financial Officer................ 110,000 3,000 100,000
Deborah Olinto, Vice President of Sales(2)............. 130,000 -- 100,000
Ross Teasley, Vice President of Marketing.............. 120,000 -- 85,000
--------
(1) Effective October 1, 1999, we entered into employment contracts with these
executives specifying levels of compensation, duties and cause for
termination.
(2) Effective October 2, 1999, Ms. Olinto left the company. No severance was
paid, and all of her options were forfeited.
Fiscal 1999 Stock Option Grants to Executives
The following table sets forth for each of the Named Executive Officers
certain information concerning stock options granted during fiscal 1999.
[Download Table]
% of Exercise
Name and Principal Position Options Total Price Expiration
--------------------------- ------- ----- -------- ----------
Thomas Blakeley, Chief Executive
Officer............................... -- -- -- --
Mark Grundy, Chief Operating Officer... 175,000(1) 8% $ 1 2005
50,000(2) 2 8 2005
Eric A. McAfee, Executive Vice
President............................. -- -- -- --
Michael Friedl, Chief Financial
Officer............................... 100,000(3) 5 1 2004
Deborah Olinto, Vice President of
Sales................................. 100,000(4,5) 5 8 2005
Ross Teasley, Vice President of
Marketing............................. 85,000(4) 4 8 2005
--------
(1) This option was granted in April 1999 and vests one-third in April 2000
with the remainder vesting quarterly over the following two years.
(2) This option was granted in September 1999 and vests one-third in September
2000 with the remainder vesting quarterly over the following two years.
(3) This option was granted in April 1999. 60,000 shares of which are
immediately vested, 40,000 shares of which vest one-third in April 2000
with the remainder vesting quarterly over the following two years.
(4) These options were granted in August 1999 and vest one-third in August 2000
with the remainder vesting quarterly over the following two years.
(5) Effective October 2, 1999, Ms. Olinto left the company. No severance was
paid, and all of her options were forfeited.
26
Stock Option Exercises And Year-End Value Table
The following table reflects the number of shares covered by both
exercisable and non-exercisable stock options as of September 30, 1999 for the
Named Executive Officers. Values for "in-the-money" options represent the
spread between the exercise price of existing options and the market value for
our common stock on September 30, 1999, which was $8.125 per share.
[Download Table]
Value of
Options Outstanding In-the-Money Options
------------------------- -------------------------
Name and Principal
Position Exercisable Unexercisable Exercisable Unexercisable
------------------ ----------- ------------- ----------- -------------
Thomas Blakeley, Chief
Executive Officer........ -- -- -- --
Mark Grundy, Chief
Operating Officer........ -- 225,000 -- $1,603,125
Eric A. McAfee, Executive
Vice President........... -- -- -- --
Michael Friedl, Chief
Financial Officer........ 60,000 40,000 $427,500 285,000
Deborah Olinto, Vice
President of Sales(1).... -- 100,000 -- 12,500
Ross Teasley, Vice
President of Marketing... -- 85,000 -- 10,625
--------
(1) Effective October 2, 1999, Ms. Olinto left the company. No severance was
paid, and all of her options were forfeited.
Compensation of Directors
We may reimburse directors for reasonable expenses pertaining to attending
meetings, including travel, lodging and meals but we do not pay directors for
their service as directors, as all of our directors are either executive
officers or significant shareholders.
Employment Agreements
As of September 30, 1999, each of the Named Executive Officers was a party
to a Change in Control Agreement with us, which provides for payment of one
year salary to the executive if we are acquired by another company and he (or
she) loses his (or her) job.
In addition, effective October 1, 1999, we entered into three-year
employment contracts with Messrs. Blakeley, Grundy and McAfee, setting forth
terms of their employment, as follows:
[Download Table]
Year Base Salary Bonus(1)
---- ----------- --------
Thomas Blakeley, Chief Executive Officer........... 2000 198,000 3.7%
2001 248,000
2002 298,000
Mark Grundy, Chief Operating Officer............... 2000 178,000 1.9%
2001 228,000
2002 278,000
Eric A. McAfee, Executive Vice President........... 2000 182,000 2.4%
2001 232,000
2002 282,000
--------
(1) Bonus is based upon a percentage of operating income.
Each of these employment agreements provides for payment in the amount of
two years salary if we terminate their employment. In addition, each contract
provides a $1 million life insurance policy, a car allowance of $750 per month,
and a car down payment reimbursement of $5,000 every two years.
27
Stock Option Plans
Our Board of Directors adopted our 1999 Stock Option Plan (the "Plan") in
April 1999. The Plan was established to furnish incentives for employees,
consultants and other participants to continue their service to us. We reserved
2,400,000 shares of common stock for issuance upon exercise of options granted
under the Plan, which have vesting schedules up to 3 years. However, in the
event we undergo a change in control, as defined in the Plan, all unvested
options immediately become fully vested.
As of November 5, 1999, 2,191,500 options to purchase our Shares at exercise
prices ranging from $1 to $8 had been issued under the Plan. Our Board of
Directors administers the Plan. We intend to issue additional options or other
incentives to attract and retain qualified management and directors. Such plans
and incentives could have a dilutive effect on our common stock.
Indemnification of Directors and Officers
Our Bylaws provide for indemnification of our directors, officers and
employees as follows: Any person made a party to an action, suit or proceeding,
by reason of the fact that he/she, his/her testator or intestate representative
is or was a director, officer or general manager of the Corporation, or of any
Corporation in which he/she served as such at the request of the Corporation,
shall be indemnified by the Corporation against the reasonable expenses,
including attorney's fees, actually and necessarily incurred by him/her in
connection with any appeal therein, except in relation to matters as to which
it shall be adjudged in such action, suit or proceeding, or in connection with
any appeal therein that such officer, director or general manager is liable for
negligence or misconduct in the performance of his/her duties.
Our Bylaws further state that the foregoing right of indemnification shall
not be deemed exclusive of any other rights to which any officer or director or
general manager may be entitled apart from the provisions of this section.
The amount of indemnity to which any officer, director or general manager
may be entitled shall be fixed by the board of directors, except that in any
case where there is no disinterested majority of the board available, the
amount shall be fixed by arbitration pursuant to the then existing rules of the
American Arbitration Association. In the event that whatever liability
insurance is procured for the protection of the company, its officers,
directors or management, then the indemnification shall not exceed the maximum
percent of policy coverage procured. We have also entered into indemnification
agreements with each of our directors.
28
CERTAIN TRANSACTIONS AND RELATIONSHIPS
Certain executive officers and directors of the company are former
shareholders of eCommercial.com, Inc., a California corporation ("eCommercial
California"). Pursuant to the terms of the Merger Agreement dated as of April
19, 1999, between us and the shareholders of eCommercial California, those
executive officers and directors acquired an aggregate of 4,000,000 shares of
our common stock in exchange for their eCommercial California shares.
In September 1999, the Company entered into a non-cancelable five-year
sublease for a satellite office in Cupertino, California. The sublease calls
for minimum monthly rental payments ranging from $10,091 per month at the start
of the lease and gradually increasing to $13,358 per month by the end of the
lease. The sublessor is a company related to Clyde Berg, a significant
stockholder and Eric McAfee, an officer, director and significant stockholder.
The sublease terms are identical to the terms of the sublessor's lease with the
landlord, and are favorable to the terms we would have been able to acquire on
our own.
MARKET FOR COMMON STOCK
The principal United States market for our common stock is the OTC Bulletin
Board. Our common stock began trading on the OTC Bulletin Board on April 29,
1999. The high and low bid prices for shares of our common stock for each
quarter since April 29, 1999 were as follows:
[Download Table]
Low High
----- ----
Quarter ended June 30, 1999:.................................. 6 1/2 16
Quarter ended September 30, 1999:............................. 7 10
--------
Source: www.otcbb.com
These quotations represent inter-dealer prices, without retail mark-up,
markdown or commission, and may not represent actual transactions. On October
31, 1999, there were approximately 250 holders of record of our common stock
and 185 holders of record of our preferred stock.
29
SIGNIFICANT STOCKHOLDERS
The following sets forth certain information as of October 31, 1999 (the
"Reference Date") with respect to the beneficial ownership of our common stock,
(i) by each person known by us to own beneficially more than five percent of
our common stock, (ii) by each executive officer and director, and (iii) by all
officers and directors as a group. Unless otherwise indicated, all persons have
sole voting and investment powers over such shares, subject to community
property laws. As of the Reference Date, there were 9,536,623 shares of common
stock and 1,231,823 shares of preferred stock outstanding.
[Download Table]
Number of Percent
Name and Address of Owner(1) Shares(2) of Class
---------------------------- --------- --------
Thomas J. Blakeley, CEO, President, Chairman............... 2,000,000 21.0%
Mark Grundy, COO, EVP, Director............................ 120,000 1.2
Eric A. McAfee, EVP, Corporate Secretary, Director......... 2,036,567 21.4
John Troiano, Director(3).................................. 24,500 0.3
c/o @ONEX LLC, 712 Fifth Avenue, 40th Floor
New York, NY 10019
Michael R. Friedl, CFO, Treasurer.......................... 60,000 0.6
Ross Teasley, VP, Marketing................................ -- --
All directors and executive officers taken as a group...... 4,431,733 44.7
Clyde Berg................................................. 933,333 9.8
10050 Bandley Drive
Cupertino, CA 95014
@ONEX LLC(4)............................................... 525,000 5.2
712 Fifth Avenue, 40th Floor
New York, NY 10019
Joseph McCarthy............................................ 480,000 5.0
PO Box 361256
Milpitas, CA 95036-1256
--------
(1) Except as otherwise noted, the address for each person is c/o
eCommercial.com, Inc., 95 Enterprise Suite 360, Aliso Viejo, CA 92656.
(2) Unless otherwise noted, we believe that all persons named in the table have
sole voting and investment power with respect to all shares of common stock
listed as beneficially owned by them. A person is deemed to be the
beneficial holder of securities that can be acquired within 60 days from
the Reference Date upon the exercise of warrants or options. Each
beneficial owner's percentage ownership is determined by including shares,
underlying options or warrants which are exercisable currently, or within
60 days following the Reference Date, and excluding shares underlying
options and warrants held by any other person.
(3) Mr. Troiano is a manager of @ONEX LLC. He disclaims beneficial ownership of
shares owned by @ONEX LLC.
(4) @ONEX LLC is wholly-owned by Onex Corporation. Mr. Gerald W. Schwartz is
the Chief Executive Officer of Onex Corporation and owns stock having a
majority of the voting power of Onex Corporation's outstanding stock. Onex
Corporation and Mr. Schwartz may also be deemed beneficial owners of the
shares owned by @ONEX LLC. The business address of Onex Corporation and Mr.
Schwartz is 161 Bay Street, Toronto, Ontario M5J 2S1, Canada.
30
SELLING SECURITY HOLDERS
The stockholders who may from time to time offer their Shares for sale
pursuant to this prospectus are as follows:
[Download Table]
Shares Owned Shares Being
Prior to Offered Pursuant Shares Owned
this to this Pursuant After the
Name of Selling Stockholder(1) Offering(2) to this Prospectus Offering(3)
------------------------------ ------------ ------------------ ------------
@ONEX LLC(4)..................... 525,000 525,000 --
Alfred Abiouness................. 11,000 11,000 --
Richard Aghababian............... 6,188 6,188 --
Altech Packaging Co.............. 3,300 3,300 --
American High Growth Equities.... 18,563 18,563 --
Barclay M. Armitage.............. 3,713 3,713 --
William Barclay Trust............ 4,950 4,950 --
Barrington Barisic............... 1,444 1,444 --
Linda Bassin..................... 3,300 3,300 --
Jerome & Stuart Bercun........... 2,475 2,475 --
Valery Berger.................... 13,750 13,750 --
Bill Berkley..................... 4,950 4,950 --
Bill & Claudia Berkley........... 6,188 6,188 --
Paul D. Berkley.................. 2,475 2,475 --
Paul & Judith Berkman............ 6,188 6,188 --
Gregory Beyerl................... 6,188 6,188 --
Edwin R. Bindseil................ 4,400 4,400 --
Kostaki Bis...................... 3,713 3,713 --
BNB Associates c/o Ben Bollag.... 6,875 6,875 --
Michael Bollag................... 6,875 6,875 --
Richard Bowe..................... 3,300 3,300 --
Steven Braccini.................. 12,375 12,375 --
Alan & Cathy Buraghi............. 1,238 1,238 --
Ronald Buzard.................... 2,200 2,200 --
B V H Holdings c/o Ronald
Krinick......................... 4,400 4,400 --
John Byram....................... 34,375 34,375 --
Sean Cahill...................... 5,500 5,500 --
Car Cap, Co, LLC c/o Richard
Carney.......................... 11,413 11,413 --
James Carr....................... 3,300 3,300 --
Addie B. Carroll................. 1,856 1,856 --
Susan Carroll.................... 1,375 1,375 --
Richard Casari................... 2,475 2,475 --
Francis Cheong................... 1,238 1,238 --
Timothy & Nadine Cherney......... 2,475 2,475 --
Robert & Phyllis Ching........... 3,988 3,988 --
Robert Ching Trust............... 4,125 4,125 --
Raymond & Ellen Chow............. 4,950 4,950 --
James & Caren Cobb............... 22,000 22,000 --
Marc Cohen....................... 1,650 1,650 --
Del Coleman (Rose Inc.).......... 42,350 42,350 --
Thomas C. Coleman & Donna K.
Norell.......................... 2,200 2,200 --
Tom Coleman IRA.................. 6,875 6,875 --
James F. Corcoran................ 9,900 9,900 --
Edmund Cranch.................... 6,600 6,600 --
Robert W. Crawford............... 3,713 3,713 --
31
[Download Table]
Shares Owned Shares Being
Prior to Offered Pursuant Shares Owned
this to this Pursuant After the
Name of Selling Stockholder(1) Offering(2) to this Prospectus Offering(3)
------------------------------ ------------ ------------------ ------------
Jonathan Cress IRA............... 3,300 3,300 --
Scott Crowther................... 3,300 3,300 --
Brad Danforth.................... 2,475 2,475 --
Harvey Deckert................... 6,188 6,188 --
Daniel Denihan................... 9,900 9,900 --
Albert Digangi................... 2,475 2,475 --
David B. Doft.................... 2,750 2,750 --
Jacob Doft....................... 5,500 5,500 --
John P. Donohue.................. 7,425 7,425 --
Yakov Dumanis.................... 3,300 3,300 --
Glenn & Dorothy Egli............. 2,475 2,475 --
Clifford A. & Helen Falkenau..... 2,200 2,200 --
Tim Farrell...................... 2,475 2,475 --
Aaron Feder...................... 1,856 1,856 --
Dale S. Feinblatt & Jack
Feinblatt....................... 4,400 4,400 --
Lloyd Fields..................... 3,713 3,713 --
Kevin Fight...................... 9,281 9,281 --
Michael Finnell.................. 3,438 3,438 --
Jacob & Elizabeth Fish........... 4,813 4,813 --
Fred Foulkes..................... 2,475 2,475 --
Matthew Frank.................... 2,200 2,200 --
Henry Fredericks................. 11,000 11,000 --
Phil Fresen...................... 2,063 2,063 --
Stanley Friedlander.............. 3,300 3,300 --
Keith Gaeddert................... 3,713 3,713 --
Tim Gannon....................... 2,475 2,475 --
Theodore Gardocki Trust.......... 13,338 13,338 --
Kent Garlinghouse c/o Shadow
Capital......................... 8,800 8,800 --
Mark Geller...................... 2,475 2,475 --
Richard E. Gerzof................ 37,125 37,125 --
Elliot Goldberg.................. 2,475 2,475 --
Stanley Goldberg................. 11,000 11,000 --
Steven Graves.................... 6,188 6,188 --
Sean Green....................... 3,713 3,713 --
Paul & Linda Gridley............. 3,438 3,438 --
R.G. Hildreth Jr................. 2,750 2,750 --
Daryl & Joan Hill................ 5,500 5,500 --
Douglas & Alexis Hogue........... 3,300 3,300 --
Andrew Howard.................... 1,238 1,238 --
Donald R. Howren Jr.............. 4,400 4,400 --
Roger Husted..................... 6,188 6,188 --
David Ivers...................... 4,950 4,950 --
JAOR c/o James Jacobs............ 5,500 5,500 --
Art Jenkins...................... 3,300 3,300 --
Colleen Jenkins.................. 1,100 1,100 --
Irwin & Ruth Kabat............... 1,320 1,320 --
Leo G. & Merle Kailas............ 3,300 3,300 --
Robert Kantor.................... 12,375 12,375 --
Gerald Kay....................... 2,200 2,200 --
32
[Download Table]
Shares Owned Shares Being
Prior to Offered Pursuant Shares Owned
Name of Selling this to this Pursuant After the
Stockholder(1) Offering(2) to this Prospectus Offering(3)
--------------- ------------ ------------------ ------------
Peter Kellner........... 13,750 13,750 --
Jerry Kessler........... 1,650 1,650 --
Raji Khabbaz............ 1,650 1,650 --
Norman O. King.......... 3,300 3,300 --
Aaron Kirzner........... 2,200 2,200 --
Harvey Kohn............. 16,500 16,500 --
Jeffrey Kohn............ 2,200 2,200 --
Leonard Korets.......... 7,700 7,700 --
Lyudmila Korets......... 2,475 2,475 --
Walter Koschak.......... 6,875 6,875 --
Raymond Kralovic........ 11,000 11,000 --
Ronald & Elizabeth
Krinick................ 3,300 3,300 --
David & Catherine
Langlois............... 5,500 5,500 --
Barbara Lazarus......... 1,856 1,856 --
Eddie E. Lee............ 11,000 11,000 --
Michael Limberg......... 5,500 5,500 --
Morris Macy............. 3,713 3,713 --
Martin Madorsky & Judith
Richard................ 6,188 6,188 --
Dante & Jeanine Maffeo.. 1,238 1,238 --
Judy Marcucilli......... 3,300 3,300 --
Robert Margolin......... 2,063 2,063 --
James A. Martens........ 9,900 9,900 --
Raina Massand........... 1,650 1,650 --
Robert Mattei........... 1,238 1,238 --
Adam McAfee(5).......... 28,050 28,050 --
George McDonnell........ 3,713 3,713 --
John McNierney.......... 3,713 3,713 --
Aris Melissarratos...... 6,188 6,188 --
James Milgard........... 13,613 13,613 --
Allen Moore............. 4,400 4,400 --
Samuel Morse............ 3,300 3,300 --
Dave Mosenson........... 2,888 2,888 --
Peter Moser............. 11,000 11,000 --
Robert & Barbara
Myerson................ 3,713 3,713 --
Barry F. Nathanson...... 12,375 12,375 --
Jules Ness.............. 2,475 2,475 --
Allen Notowitz.......... 3,713 3,713 --
Jerry Novack............ 4,400 4,400 --
Adam & Sherri Ocner..... 9,625 9,625 --
Peter & Rosemary
O'Neill................ 11,000 11,000 --
Walter O'Neill.......... 3,713 3,713 --
Bertram Ordan........... 1,238 1,238 --
Anthony Pasco........... 688 688 --
Simon & Adina Pelman.... 3,713 3,713 --
Jonathan Plate.......... 3,713 3,713 --
Donald Poinsette........ 3,713 3,713 --
Point West Ventures..... 34,375 34,375 --
Paul Potamianos......... 6,600 6,600 --
John & Norma Price...... 2,200 2,200 --
Privet Row, Inc......... 34,375 34,375 --
33
[Download Table]
Shares Owned Shares Being
Prior to Offered Pursuant Shares Owned
this to this Pursuant After the
Name of Selling Stockholder(1) Offering(2) to this Prospectus Offering(3)
------------------------------ ------------ ------------------ ------------
Sheldon Rabin.................... 9,213 9,213 --
Sol Rabinipour................... 5,500 5,500 --
Edward Raskin.................... 11,000 11,000 --
Marsha & Barry Reiss............. 2,200 2,200 --
Stacey Richards.................. 1,650 1,650 --
Edwin W. Richardson.............. 3,300 3,300 --
Kevin Riegelsberger.............. 6,875 6,875 --
Margaret Rogers.................. 13,750 13,750 --
Romar Fabrics Corp............... 3,300 3,300 --
John Rose........................ 6,875 6,875 --
David Rosensaft & Debra
Braverman....................... 22,000 22,000 --
Steven Rubel..................... 6,188 6,188 --
Pairoj Ruktanonichai............. 6,188 6,188 --
Richard Santulli c/o Executive
Jet............................. 11,000 11,000 --
David Schneider.................. 3,713 3,713 --
Thomas Schoenauer................ 2,475 2,475 --
Joel Schoenfeld.................. 3,713 3,713 --
Howard Shapiro................... 2,475 2,475 --
Michael L. Shinn................. 6,188 6,188 --
Alexander Slobin................. 3,300 3,300 --
Glenn H. Spears.................. 12,375 12,375 --
Jerold Stern..................... 13,200 13,200 --
Cindy Stewart.................... 16,775 16,775 --
Joseph & Sandra Stewart.......... 3,713 3,713 --
Melissa Stewart.................. 16,775 16,775 --
Sandra Stewart................... 3,438 3,438 --
Ronald Sumner.................... 4,400 4,400 --
David J. Tadych.................. 3,300 3,300 --
Trude Taylor..................... 6,875 6,875 --
Bruce Toll....................... 55,000 55,000 --
John Troiano(4).................. 16,500 16,500 --
William D. Turner................ 1,238 1,238 --
Harry Vidger..................... 3,713 3,713 --
Samuel Watts..................... 2,475 2,475 --
Joel & Sandra Wenacur............ 4,331 4,331 --
Susan & Theodore Wenacur......... 4,950 4,950 --
Dean Willard..................... 3,713 3,713 --
Stanton & Jennifer Williams...... 6,188 6,188 --
Xanadu Associates LLC............ 12,375 12,375 --
Alkis P. Zingas.................. 12,375 12,375 --
Simon Zunamon.................... 6,188 6,188 --
--------
(1) Each selling stockholder has sole voting and investment power with respect
to the Shares beneficially owned by such selling stockholder. All share
amounts reflect beneficial ownership determined pursuant to Rule 13d-3
under the Exchange Act. Unless otherwise indicated, each selling
stockholder beneficially owns less than 1% of our outstanding common stock.
(2) The Shares listed herein include only the shares issuable upon conversion
of the series B convertible preferred stock and upon exercise of the series
B warrants and options.
(3) Assumes all of the Shares of common stock beneficially owned by the selling
stockholders and registered hereunder are sold.
(4) Prior to this offering, @ONEX LLC beneficially owns 5.2% of our outstanding
common stock. John Troiano, a manager of @ONEX LLC, is a member of our
board of directors. Mr. Troiano disclaims beneficial ownership of any
shares held by @ONEX LLC.
(5) Adam McAfee is a brother of Eric McAfee, a director, officer and
significant stockholder.
34
DESCRIPTION OF SECURITIES
We are authorized to issue up to 20,000,000 shares of common stock, par
value $.001 per share, and 2,000,000 shares of preferred stock, par value $.001
per share. We have designated 1,750,000 shares as series B preferred stock. As
of November 5, 1999, there were issued and outstanding 9,536,623 shares of
common stock, 1,231,823 shares of series B preferred stock, options to purchase
2,191,500 shares of common stock and warrants to purchase 740,965 shares of
common stock.
Common Stock
Common stockholders are entitled to one vote per share. Subject to the
preferences of outstanding preferred stock, common stockholders are entitled to
receive dividends, if and when they are declared by our Board of Directors. If
we go out of business and are liquidated, common stockholders will receive
their proportionate share of our assets that are available to be distributed,
after all other debts have been paid and the Preferred stockholders receive
their distribution. The common shares have no preemptive, subscription or
conversion rights nor may we redeem them.
Series A Preferred Stock
All shares of Series A Preferred Stock issued by our predecessor, Wireless
Netcom, were converted into shares of common stock upon the merger with
eCommercial California.
Series B Preferred Stock
The following is a brief summary of the rights, preferences, privileges and
restrictions and limitations of the series B preferred Stock (the "Series B
Preferred"):
Dividends. Dividends will be payable to holders of Series B Preferred when
and if declared by our Board of Directors and will be non-cumulative. No
dividends (other than those payable solely in common stock) will be declared or
paid with respect to shares of common stock for any fiscal year until dividends
in the aggregate amount of at least $0.90 per share (as adjusted for any stock
splits or recapitalizations) have been paid or declared and set apart with
respect to the Series B Preferred during such fiscal year.
Optional Conversion. The shares of Series B Preferred held by any holder may
be converted into shares of common stock at any time upon the stockholder's
election. The total number of shares of common stock into which a share of
Series B Preferred may be converted shall be determined by dividing the
purchase price of $8.00 by the conversion price applicable to the conversion of
the Series B Preferred (the "Conversion Price"). The Conversion Price is
currently equal to the purchase price, resulting in a conversion ratio of one-
to-one, but will be adjusted in the event of stock splits, stock dividends,
recapitalizations and similar events occurring with respect to our capital
stock. The Conversion Price will also be subject to adjustment in the event of
certain dilutive issuances of our capital stock.
Automatic Conversion. The shares of Series B Preferred will be automatically
converted into shares of common stock at the then-effective Conversion Price
upon (i) the effective date of a firm commitment, underwritten public offering
of common stock pursuant to an effective registration statement under the
Securities Act, other than a registration relating solely to a transaction
under Rule 145 of the Securities Act (or any successor thereto) or to any of
our employee benefit plans, generating aggregate proceeds to the Company of not
less than $15,000,000 (after deducting underwriters' discounts and all expenses
relating to the offering) and with a per share offering price (prior to
underwriters' discounts and expenses) of not less than $15.00 per share, as
such per share price may be adjusted to reflect stock subdivisions,
combinations or dividends with respect to such shares, or (ii) the date
specified by affirmative vote or written consent or agreement of the holders of
not less than two-thirds (2/3) of the then-outstanding shares of Series B
Preferred.
35
Antidilution Protection. If at any time while any shares of Series B
Preferred are outstanding we issue any capital stock (which includes options to
acquire our capital stock and instruments convertible into our capital stock)
without consideration or for consideration per share with a value less than the
then-effective Conversion Price, then the Conversion Price shall be adjusted
concurrently with such issue to a price (calculated to the nearest cent)
determined by multiplying such Conversion Price by a fraction, the numerator of
which shall be the number of shares of common stock outstanding immediately
prior to such issue (on a fully diluted basis) plus the number of shares of
common stock which the aggregate consideration received by us for the newly-
issued capital stock would purchase at the Conversion Price in effect
immediately prior to such issue, and the denominator of which shall be the
number of shares of common stock outstanding immediately prior to such issue
(on a fully diluted basis) plus the number of additional shares of capital
stock so issued; provided, however, that no such adjustment to the Conversion
Price shall be made with respect to (i) issuances to our employees,
consultants, officers and directors pursuant to stock purchase or stock option
plans or agreements or other incentive stock arrangements approved by our Board
of Directors, (ii) issuances as consideration in connection with mergers,
acquisitions or other business combinations, or (iii) issuances in connection
with strategic investments, licensing arrangements or debt or equipment
financings approved by our Board of Directors.
Voting Rights. Holders of shares of Series B Preferred are entitled to vote
on all matters submitted to a vote of our stockholders. Each share of Series B
Preferred entitles the holder to that number of votes equal to the number of
shares of common stock into which such share of Series B Preferred is
convertible as of the record date established for the vote of our stockholders.
Fractional votes will not, however, be permitted, and any fractional voting
rights resulting from the above formula (after aggregating all shares of common
stock into which shares of Series B Preferred held by each holder could be
converted) will be rounded to the nearest whole number (with one-half being
rounded upward). Except with respect to the two seats on the Board of Directors
allocated to the purchasers of the Series B Preferred or as required by law,
the Series B Preferred will vote together with the common stock and not as a
separate class.
Protective Covenants. So long as shares of Series B Preferred remain
outstanding and for such further period as may be required by law, we will not,
without first obtaining the affirmative vote or written consent of the holders
of at least a majority of the then outstanding Series B Preferred voting
separately as a class (i) sell, convey or otherwise dispose of all or
substantially all of our assets, merge with or consolidate the Company into
another entity, or engage in any other form of corporate reorganization or
recapitalization that would require the vote of our shareholders under
applicable law; (ii) increase the number of authorized shares of Series B
Preferred (except as a result of a stock split or combination); (iii) effect an
exchange, reclassification or cancellation of all or a part of the shares of
Series B Preferred (except as a result of a stock split or combination); (iv)
effect an exchange, or create a right of exchange, of all or part of the shares
of another class into shares of Series B Preferred; (v) alter or change the
rights, preferences, privileges and restrictions of the Series B Preferred;
(vi) authorize or issue shares of any class of stock having any rights,
preferences or privileges superior to any such right, preference or privilege
of the Series B Preferred; (vii) authorize or issue shares of stock of any
class or any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having option rights to purchase, any shares of our stock
having any rights, preferences or privileges superior to any right, preference
or privilege of the Series B Preferred; or (viii) reclassify any other
outstanding shares of stock into shares having any right, preference or
privilege superior to any such preference or priority of the Series B
Preferred.
Stock Dividends, Subdivisions and Consolidations. In the event we declare or
pay any dividend on the common stock payable in shares of common stock, or
effect a subdivision or consolidation of the outstanding shares of common stock
into a greater or lesser number of shares of common stock, then the number of
shares of common stock issuable upon conversion of the Series B Preferred shall
be adjusted accordingly.
No Impairment. We will not, by amendment of the Certificate of Incorporation
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issuance or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or
36
performed by us with respect to the Series B Preferred but will at all times in
good faith assist in the carrying out of all the provisions of the Certificate
of Incorporation relating to conversion and in the taking of all such action as
may be necessary or appropriate in order to protect the conversion rights of
the holders of the Series B Preferred against impairment.
Redemption. Shares of Series B Preferred are not redeemable by us.
Liquidation Preference. In the event of any liquidation, dissolution or
winding up of the Company, either voluntary or involuntary, the holders of the
Series B Preferred shall be entitled to receive, prior and in preference to any
distribution to the holders of the common stock, the amount of $8.00 (or as
such amount shall be adjusted to reflect subdivisions and combinations of
shares and stock dividends) for each share of Series B Preferred then held by
them plus an amount equal to all accrued and unpaid dividends (the "Liquidation
Amount"). If upon occurrence of any such liquidation, dissolution or winding up
the assets and funds available for distribution among the holders of the Series
B Preferred shall be insufficient to permit the payment of the full Liquidation
Amount, then such assets and funds shall be distributed ratably among the
holders of the Series B Preferred in proportion to their respective holdings of
Series B Preferred. After full payment of the Liquidation Amount has been made
to the holders of the Series B Preferred, our remaining assets if any, shall be
distributed ratably among the holders of the common stock.
A liquidation, dissolution or winding up of the company shall be deemed to
be occasioned by, or to include, (i) a consolidation, merger or reorganization
of the company with or into any other corporation or entity in which the
holders of our outstanding capital stock immediately before that consolidation,
merger or reorganization do not retain a majority of the voting power in the
surviving corporation immediately thereafter, or (ii) a sale, conveyance or
disposition of all or substantially all of our assets.
Registration Rights. Subject to certain restrictions set forth in the
Investors' Rights Agreement issued in connection with the Series B Preferred
Shares, if at any time we file a registration statement, other than a
registration relating solely to a corporate reorganization or other transaction
on Form S-4 (or any successor thereto) or to any employee benefit plan of the
Company with the Commission, the holders of our Series B Preferred Shares and
the holders of the Share Subscriber Warrants and the Shares of the common stock
issuable on conversion of the Series B Preferred Shares or upon exercise of the
Share Subscriber Warrants (the "Registrable Securities") will be entitled to
include any of the Registrable Securities held by such persons in such
registration up to a maximum of three such "piggy-back" registrations and no
more than one such registration in any twelve-month period. In the event that
any of such registrations are underwritten, the number of shares of Registrable
Securities that the holders thereof may include in such a piggyback
registration may be reduced if the underwriters of such registration determine
that market factors require such a reduction.
Subject to certain restrictions set forth in the Investors' Rights
Agreement, at any time after the expiration of one (1) year following the
closing of the initial underwritten public offering of our common stock, the
holders of Registrable Securities will be entitled to request that we file a
registration statement on Form S-3 with the Commission covering the shares of
Registrable Securities held by such holders, provided that the aggregate amount
of Registrable Securities to be registered on such Form S-3 shall have an
aggregate price to the public of not less than $1,000,000. In the event that
any of such registrations are underwritten, the number of shares of Registrable
Securities that the holders thereof may include in such a Form S-3 registration
may be reduced if the underwriters of such registration determine that market
factors require such a reduction.
In the event that all Registrable Securities are not sold in our initial
public offering, the holders of Registrable Securities not sold may be required
to execute "lock-up" agreements pursuant to which they will agree not to
transfer or otherwise dispose of any Registrable Securities for a period of up
to 180 days from the date of commencement of such initial public offering
without the prior written consent of the managing underwriter of such offering.
37
Warrants
We have outstanding warrants to purchase common stock at from $0.10 to
$11.25 per share, expiring at various dates through October 2004. The warrants
for shares registered under this Registration Statement include warrants for
138,836 shares issuable at $8 per share expiring at various dates from August
through November 2001, and 250,000 shares issuable at $7 per share expiring in
October 2004.
Shares Eligible for Sale
Sales of a substantial number of shares of common stock in the public market
could adversely affect the market price for our common stock. The number of
shares of common stock available for sale in the public market is limited by
restrictions under the Securities Act of 1933, as amended (the "Securities
Act"). As of November 5, 1999, there were 9,536,623 shares of common stock
outstanding, of which 7,448,920 were "restricted shares" under the Securities
Act and 2,087,703 were freely tradable subject to the restrictions and
conditions of SEC Rule 144. In addition, as of November 5, 1999, there were
outstanding warrants to purchase 757,680 shares of our common stock and options
to purchase 2,191,500 shares of our common stock.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is RTT Transfers, Inc.
LEGAL MATTERS
The validity of the issuance of our securities will be passed upon for us by
Gray Cary Ware & Freidenrich, LLP, Sacramento, California. Certain partners of
Gray Cary Ware & Freidenrich, LLP own an aggregate of 4,000 shares of our
stock.
EXPERTS
The financial statements appearing in this Prospectus have been audited by
Grant Thornton LLP, independent certified public accountants, to the extent and
for the periods set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of said firm as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed, with the Securities and Exchange Commission, a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered hereby. This prospectus does not contain all of the information in the
registration statement, the exhibits and schedules. For more information about
our common stock and us, please refer to the registration statement, exhibits
and schedules. Statements made in this prospectus as to the contents of any
contract, agreement or other documents referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the registration statement, reference is made to the exhibit
for a more complete description of the matter involved.
The registration statement, exhibits and schedules may be inspected without
charge and copied at the public reference facilities maintained by the SEC in
Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549, and at the SEC's
regional offices located at Citicorp Center, 500 West Madison, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material may be obtained from such offices upon the
payment of the fees prescribed by the SEC. The SEC phone number is 1-800-SEC-
0330.
In addition, the SEC maintains a website that contains registration
statements, reports, proxy and other information regarding registrants that
file electronically with the Securities and Exchange Commission. The address
for the website is http://www.sec.gov.
38
eCommercial.com, Inc. and Subsidiary
INDEX TO FINANCIAL STATEMENTS
[Download Table]
Report of Independent Certified Public Accountants......................... F-2
Financial Statements:
Consolidated Balance Sheet, September 30, 1999........................... F-3
Consolidated Statement of Operations, Period from Inception (March 26,
1999) to September 30, 1999............................................. F-4
Consolidated Statement of Changes in Stockholders' Equity, Period from
Inception (March 26, 1999) to September 30, 1999........................ F-5
Consolidated Statement of Cash Flows, Period from Inception (March 26,
1999) to September 30, 1999............................................. F-6
Notes to Consolidated Financial Statements............................... F-7
F-1
Report of Independent Certified Public Accountants
Board of Directors
eCommercial.com, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of
eCommercial.com, Inc. and Subsidiary (a development stage company) as of
September 30, 1999, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the period from inception (March 26,
1999) through September 30, 1999. 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 consolidated financial position of
eCommercial.com, Inc. and Subsidiary as of September 30, 1999, and the
consolidated results of their operations and their consolidated cash flows for
the period from inception (March 26, 1999) through September 30, 1999 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B, the Company
has a very limited operating history, is in the development stage, and has
generated losses since its inception on March 26, 1999. If the Company is not
successful in generating revenues sufficient to cover costs, it will need to
raise additional capital to fund operations. These factors raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans regarding those matters also are described in Note B. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Grant Thornton LLP
Reno, Nevada
October 25, 1999 (Except for Note H,
as to which the date is November 5, 1999)
F-2
eCommercial.com, Inc. and Subsidiary
(a development stage company)
CONSOLIDATED BALANCE SHEET
September 30, 1999
[Download Table]
ASSETS
------
Current Assets:
Cash............................................................ $ 4,744,741
Accounts receivable............................................. 25,500
Prepaid expenses................................................ 108,961
Other current assets............................................ 14,941
-----------
Total current assets.......................................... 4,894,143
Cash, Pledged..................................................... 233,890
Fixed Assets, at cost, net of accumulated depreciation of
$58,463.......................................................... 936,336
Intangible Assets, at cost, net of accumulated amortization of
$49,429.......................................................... 744,797
Deposits.......................................................... 76,975
-----------
$ 6,886,141
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable and accrued liabilities........................ $ 312,178
Customer deposits............................................... 30,500
Acquired liabilities............................................ 2,200,412
-----------
Total current liabilities..................................... 2,543,090
-----------
Stockholders' Equity:
Series B Convertible Preferred Stock, $0.001 par value;
2,000,000 shares authorized; 1,085,573 shares issued and
outstanding; $8,684,584 aggregate liquidation preference....... 1,086
Common Stock, $0.001 par value; 20,000,000 shares authorized;
9,536,623 shares issued and outstanding........................ 9,537
Additional paid-in capital...................................... 7,211,449
Deficit accumulated during the development stage................ (2,284,546)
Unearned stock-based compensation............................... (594,475)
-----------
4,343,051
-----------
$ 6,886,141
===========
The accompanying notes are an integral part of this statement.
F-3
eCommercial.com, Inc. and Subsidiary
(a development stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
For the period from inception (March 26, 1999) to September 30, 1999
[Download Table]
Revenues...................................................... $ 6,250
-----------
Operating expenses:
Development................................................. 320,766
Production.................................................. 139,674
Sales and marketing......................................... 1,060,795
General and administration.................................. 684,343
Depreciation and amortization............................... 107,892
-----------
2,313,470
-----------
Operating loss................................................ (2,307,220)
Interest income............................................... 24,274
Provision for income taxes.................................... (1,600)
-----------
Net loss.................................................. $(2,284,546)
===========
Basic and diluted loss per share.............................. $ (0.26)
===========
Shares used in computation of basic and diluted loss per
share........................................................ 8,751,760
===========
The accompanying notes are an integral part of this statement.
F-4
eCommercial.com, Inc. and Subsidiary
(a development stage company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
For the period from inception (March 26, 1999)
to September 30, 1999
[Enlarge/Download Table]
Deficit
Series B Accumulated Unearned
Preferred Stock Common Stock Additional During the Stock-
----------------- -------------------- Paid-In Subscriptions Development Based
Shares Amount Shares Amount Capital Receivable Stage Compensation Total
---------- ------ ----------- ------- ----------- ------------- ----------- ------------ -----------
Balance, March
26, 1999....... -- $ -- -- $ -- $ -- $ -- $ -- $ -- $ --
Sale of common
stock, net of
issuance
costs.......... -- -- 4,000,000 4,000 595 -- -- -- 4,595
Issuance of
common stock
for acquisition
of Zap
International,
Inc............ -- -- 2,640,000 2,640 -- -- -- -- 2,640
Reclassifications
of $.001 common
stock.......... -- -- (6,640,000) (6,640) (595) -- -- -- (7,235)
Issuance of
$.001 common
stock in
connection with
reclassification
of equity...... -- -- 8,758,033 8,758 595 -- -- -- 9,353
Assumption of
liabilities and
subscription
receivable in
connection with
recapitalization.. -- -- -- -- (2,570,000) (47,000) -- -- (2,617,000)
Sale of common
stock, net of
issuance
costs.......... -- -- 475,118 475 941,929 -- -- -- 942,404
Issuance of
common stock
pursuant to
exercise of
warrants....... -- -- 233,613 234 23,123 -- -- -- 23,357
Issuance of
common stock at
a discount as
compensation
for services... -- -- 39,859 40 54,028 -- -- -- 54,068
Issuance of
common stock as
compensation
for services... -- -- 30,000 30 239,970 -- -- -- 240,000
Sales of
preferred
stock, net of
issuance
costs.......... 1,085,573 1,086 -- -- 7,759,406 -- -- -- 7,760,492
Compensation
expense on
option and
warrant
grants......... -- -- -- -- 167,923 -- -- -- 167,923
Unearned
compensation on
option and
warrant
grants......... -- -- -- -- 594,475 -- -- (594,475) --
Collection of
subscriptions
receivable..... -- -- -- -- -- 47,000 -- -- 47,000
Net loss........ -- -- -- -- -- -- (2,284,546) -- (2,284,546)
---------- ------ ----------- ------- ----------- -------- ----------- --------- -----------
Balance,
September 30,
1999........... 1,085,573 $1,086 9,536,623 $ 9,537 $ 7,211,449 $ -- $(2,284,546) $(594,475) $ 4,343,051
========== ====== =========== ======= =========== ======== =========== ========= ===========
The accompanying notes are an integral part of this statement.
F-5
eCommercial.com, Inc. and Subsidiary
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period from inception (March 26, 1999)
to September 30, 1999
[Download Table]
Cash flows from operating activities:
Net loss........................................................ $(2,284,546)
Adjustments to reconcile net loss to net cash used in
operations:
Depreciation and amortization................................. 107,892
Non-cash charges due to stock issuances....................... 294,068
Non-cash charges due to stock option and warrant grants....... 167,923
Increase in accounts receivable............................... (24,500)
Increase in prepaid expenses.................................. (98,743)
Increase in other current assets.............................. (14,941)
Increase in deposits.......................................... (76,975)
Decrease in accounts payable and accrued liabilities.......... (113,866)
Increase in customer deposits................................. 30,500
-----------
Net cash used in operations................................. (2,013,188)
-----------
Cash flows from investing activities:
Increase in cash--pledged....................................... (233,890)
Cash acquired in acquisition.................................... 2,898
Purchases of fixed assets....................................... (987,915)
Purchases of patents and trademark.............................. (44,226)
-----------
Net cash used in investing activities....................... (1,263,133)
-----------
Cash flows from financing activities:
Principal payments on notes payable............................. (756,786)
Payment received on subscriptions receivable.................... 47,000
Proceeds from issuance of Convertible Preferred stock........... 7,760,492
Proceeds from issuance of common stock.......................... 970,356
-----------
Net cash provided by financing activities................... 8,021,062
-----------
Net Increase in Cash.............................................. 4,744,741
Cash, March 26, 1999.............................................. --
-----------
Cash, September 30, 1999.......................................... $ 4,744,741
===========
Cash paid for income taxes........................................ $ --
===========
Cash paid for interest............................................ $ --
===========
Supplemental disclosure of noncash investing and financing
activities:
The Company acquired its subsidiary (Zap International, Inc.)
for 2,640,000 shares of common stock........................... $ 2,640
===========
Assumption of liabilities in connection with recapitalization... $(2,570,000)
===========
The accompanying notes are an integral part of this statement.
F-6
eCommercial.com, Inc. and SubsidiaryInc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
Note A--The Company and Summary of Significant Accounting Policies
eCommercial.com, Inc., a Nevada corporation ("eCommercial.com" or the
"Company"), is engaged in the business of producing electronic
"eCommercials(TM)" in the form of highly compressed multimedia files that
combine audio, video, graphics, hypertext links and chat with integrated
reporting. eCommercials are delivered to targeted customers of companies
marketing via the Internet.
The Company was founded on March 26, 1999 and incorporated as
eCommercial.com, Inc., a California corporation, on April 9, 1999.
On April 16, 1999, the Company acquired all of the outstanding common stock
of Zap International, ("Zap"), in exchange for 2,640,000 shares of Common
Stock. The transaction was recorded using the purchase method of accounting
(see Note E). Pro forma disclosures are not meaningful as Zap did not have
significant operations.
On April 19, 1999, Wireless Netcom, Inc. (a Nevada corporation) acquired all
of the outstanding shares of the Company. For accounting purposes, the
acquisition is treated as a recapitalization with the Company as the acquirer
(a reverse acquisition). Pro forma information is not presented since the
transaction is not a business combination (see Note E).
1. Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All significant intercompany balances and
transactions have been eliminated.
2. Revenue Recognition
The Company's revenues are derived from the production and delivery of
eCommercials as a part of comprehensive direct-response advertising campaigns
developed for each of its customers. eCommercials are delivered to targeted
email subscribers through email subscriber programs utilizing the Company's
unique personalization technology. The Company's eCommercial production
services include theme development, eCommercial design and layout, video
production, special effects, link recommendations, hyperlink page design and
creation, reporting and sales cycle consultation. The Company also has
developed email subscriber programs to promote subscriber registration and to
sponsor advertising coordination. The Company also offers demographic and list
development as part of its direct marketing programs. Revenue for all of the
Company's services is recognized when the services are rendered or eCommercials
delivered.
Customers are generally billed in advance of production and delivery of
eCommercials. Accordingly, customer deposits include the customer prepayments
less the portion of service that has been completed.
3. Product Development
Costs incurred in the development of new products and enhancements to
existing products are charged to expense as incurred.
4. Depreciation and Amortization
Property and equipment, including leasehold improvements, are stated at cost
and depreciated using the straight-line method over the estimated useful lives
of the assets, generally two to five years. Goodwill, patents,
F-7
eCommercial.com Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and trademarks are included in intangible assets and carried at cost less
accumulated amortization, which is being provided on a straight-line basis over
the economic lives of the respective assets, generally seven years. The Company
periodically evaluates the recoverability of its long-lived assets based on
expected undiscounted cash flows and recognizes impairments, if any, based on
expected discounted future cash flows.
5. Income Taxes
Income taxes are computed using the asset and liability method. Under the
asset and liability method, deferred income tax assets and liabilities are
determined based on the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the currently enacted
tax rates and laws. A valuation allowance is provided for the amount of
deferred tax assets that, based on available evidence, are not expected to be
realized.
At September 30, 1999, the Company has a deferred tax asset of approximately
$342,000 resulting from net operating loss for the period March 26, 1999
through September 30, 1999. The Company has provided for a valuation allowance
of $342,000 at September 30, 1999. The Provision for Income taxes on the
accompanying Consolidated Statement of Operations represents the minimum
California franchise tax.
6. Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." Under APB 25, compensation
expense is recognized over the vesting period based on the difference, if any,
on the date of grant between the fair value of the Company's stock and the
amount an employee must pay to acquire the stock.
7. Basic and Diluted Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income
(loss) per share is computed using the weighted average number of common and
common equivalent shares outstanding during the period. Common equivalent
shares consist of the incremental common shares issuable upon conversion of
convertible preferred stock (using the if-converted method) and shares issuable
upon the exercise of stock options and warrants (using the treasury stock
method). Common equivalent shares for the period from inception (March 26,
1999) to September 30, 1999 were excluded from the computation as their effect
was anti-dilutive (see Note H).
8. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
9. Cash and Cash Equivalents
All highly liquid instruments with an original maturity of three months or
less are considered cash equivalents, those with original maturities greater
than three months and current maturities less than twelve months from the
balance sheet date are considered short-term investments, and those with
maturities greater than twelve months from the balance sheet date are
considered long-term investments.
F-8
eCommercial.com Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Cash and Cash Equivalents--continued
As of September 30, 1999, the Company had a Certificate of Deposit account
that was pledged to collateralize an irrevocable letter of credit related to
the lease for the Company's headquarters. The letter of credit amount will
decrease by 50% in December 2000 and expire in December 2001. The pledged cash
is carried as a long-term asset on the accompanying consolidated balance sheet.
10. Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentration of credit risk consist primarily of cash, cash equivalents, and
accounts receivable. Substantially all of the Company's cash and cash
equivalents are held in one financial institution. As of September 30, 1999,
the carrying amount of cash in bank was $4,978,631, and the bank balance was
$5,239,321, of which $100,000 was FDIC insured. Accounts receivable are
typically unsecured and are derived from revenues earned from customers
primarily located in the United States. The Company performs ongoing credit
evaluations of its customers and will maintain reserves for potential credit
losses as the need arises.
11. Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
130, "Reporting Comprehensive Income," which has been adopted by the Company.
SFAS 130 establishes standards for reporting comprehensive income and its
components in a financial statement. Comprehensive income as defined includes
all changes in equity (net assets) during a period from non-owner sources.
Examples of items to be included in comprehensive income, which are excluded
from net income, include foreign currency translation adjustments and
unrealized gains and losses on available-for-sale securities. As none of these
components have impacted the Company, adjustments for comprehensive income have
not been made to the accompanying consolidated financial statements.
12. Segments
In June 1997, the FASB issued SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information," which establishes standards for the way
companies report information about operating segments in annual financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company
believes that it does not operate in more then one segment.
13. Fair Value of Financial Instruments
The fair value of financial instruments approximates their carrying amounts.
14. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133), and in July 1999 issued Financial
Accounting Standard No. 137,"Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement No. 133" (SFAS 137). SFAS 137 delayed the effective
date for SFAS 133 to fiscal years beginning after June 15, 2000. The Company
does not believe that this statement will have a material effect on its
financial position or results of operations.
F-9
eCommercial.com Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note B--Realization of Assets
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As shown in the
accompanying financial statements, the Company incurred a net loss of
$2,284,546 for the period ended September 30, 1999 and had no significant
revenues. The future of the Company is dependent upon its ability to generate
sufficient cash flows from revenues to cover operating costs. Until such time,
however, the Company expects to seek financing through a combination of private
placements and/or public offerings. There is no assurance, however, that such
plans will be completed or, if completed, will generate sufficient funds to
enable the Company to meet its obligations as they come due. The accompanying
consolidated financial statements do not include any adjustments relating to
the recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue as a going concern.
Note C--Fixed Assets
Fixed assets, at cost, consist of the following, at September 30, 1999:
[Download Table]
Computer equipment............................................... $668,361
Office equipment................................................. 10,723
Furniture and fixtures........................................... 118,246
Software......................................................... 21,451
--------
818,781
Less accumulated depreciation.................................... (58,463)
--------
760,318
Construction in progress......................................... 176,018
--------
$936,336
========
Note D--Intangible Assets
Intangible assets consist of the following, at September 30, 1999:
Patents and trademarks........................................... $ 44,226
Goodwill......................................................... 750,000
--------
794,226
Less accumulated amortization.................................... (49,429)
--------
$744,797
========
Note E--Commitments and Contingencies
1. Operating Leases
In June 1999, the Company entered into a non-cancelable five-year operating
lease for its primary facilities in Aliso Viejo, California. The Company
currently occupies temporary facilities which are leased for minimum monthly
rental payments of $6,713 per month through November 1999. When the permanent
office space is occupied, rent expense will increase to $29,642 per month
through May 2002 and $30,878 per month through the remaining term of the lease,
which expires in November 2004. The lease contains a five-year renewal option
from the date of expiration.
In addition to the lease mentioned above, the Company entered into a lease
for additional temporary facilities in August 1999. The lease, as extended,
calls for minimum monthly rental payments of $3,675 per
F-10
eCommercial.com Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
month until December 15, 1999, at which time the Company expects to be
occupying the primary facilities described above.
In September 1999, the Company entered into a non-cancelable five-year
sublease for a satellite office in Cupertino, California. The lease calls for
minimum monthly rental payments ranging from $10,091 per month at the start of
the lease and gradually increasing to $13,358 per month by the end of the
lease. The sublessor is a company related to two significant stockholders, one
of whom is an officer and director of the Company. The sublease terms are
identical to the terms of the sublessor's lease with the landlord, and are
favorable to the terms the Company would have been able to acquire on its own.
The minimum lease payments for operating leases for the years ending
September 30 are as follows:
[Download Table]
Year ending September 30,
2000....................................................... $ 459,896
2001....................................................... 506,972
2002....................................................... 518,305
2003....................................................... 529,629
2004....................................................... 519,668
Thereafter................................................. 61,755
----------
$2,596,225
==========
Rent expense for the period from inception (March 26, 1999) to September
30, 1999 amounted to $43,148.
2. Legal Proceedings
From time to time the Company is subject to legal proceedings and claims in
the ordinary course of business, including claims of alleged infringement of
trademarks, copyrights and other intellectual property rights. Except as
described below, the Company is not currently aware of any legal proceedings
or claims that the Company believes will have, individually or in the
aggregate, a material adverse effect on the Company's consolidated financial
position or results of operations.
The Company has been named as a defendant in an action seeking damages,
(the "Voxel Claim") in connection with an Asset Purchase Agreement, dated as
of November 25, 1998, pursuant to which Wireless Netcom, Inc. had proposed to
acquire the assets of Voxel, Inc. The Company has accrued $1.8 million in
estimated damages as a portion of the liabilities assumed during the
recapitalization (see Note J).
Note F--Acquisition
1. Acquisition of Zap International, Inc.
On April 16, 1999, the Company completed the acquisition of all outstanding
shares of Zap International, Inc. ("Zap"), for 2,640,000 shares of Common
Stock. Zap was a software company which had developed technology that enabled
generation of highly compressed multimedia files that combine audio, video,
graphics and hypertext links, and form the foundation of eCommercials. The
acquisition was accounted for as a purchase. Under the purchase method of
accounting, the purchase price is allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the date of the
acquisition. Zap is now a wholly owned subsidiary of the Company.
F-11
eCommercial.com Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The total purchase price of the acquisition was $2,640, which is 2,640,000
shares at a value of $.001. The purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair values. Goodwill
has resulted from the excess costs over fair value of net assets acquired.
[Download Table]
Goodwill........................................................ $ 750,000
Tangible assets acquired........................................ 1,000
Liabilities assumed............................................. (748,360)
---------
$ 2,640
=========
Goodwill is being amortized on a straight-line basis over seven years.
Amortization expense of goodwill was $49,107 for the period from inception
(March 26, 1999) to September 30, 1999.
2. Recapitalization
On April 19, 1999, Wireless Netcom, Inc. (a Nevada corporation) acquired all
of the outstanding common stock of the Company. For accounting purposes, the
acquisition is treated as a recapitalization with the Company as the acquirer
(a reverse acquisition). Pro forma information is not presented since the
transaction is not a business combination. The founding stockholders of
eCommercial.com., Inc. exchanged their common stock for 6,640,000 shares of
common stock (approximately 76% of the outstanding common stock) of Wireless
Netcom, Inc. In connection with the recapitalization, Wireless Netcom, Inc.
changed its name to eCommercial.com, Inc., and the Company assumed liabilities
of $2,570,000.
At the time of the recapitalization described above, Wireless Netcom had
178,502 common stock warrants outstanding. The exercise price of the warrants
was $0.10 per share, and they generally expire on May 15, 2000.
Note G--Strategic Alliances
In July 1999, the Company entered into a strategic alliance with Lockheed
Martin ("Lockheed"), whereby, Lockheed and the Company will work together to
serve mutual customers. Lockheed was issued 30,000 shares of common stock as
part of the agreement, for which the Company recognized a non-cash charge of
$240,000.
Note H--Stockholders' Equity
1. Series B Convertible Preferred Stock
As of September 30, 1999, the Company had issued 1,085,573 shares of Series
B Preferred Stock for $8 per share in a private placement which closed in
November 1999 (see Note J). Net proceeds were $7,760,492.
Dividends are payable to holders of Series B Preferred Stock when and if
declared by the Company and will be non-cumulative. No dividends (other than
those payable solely in Common Stock) will be declared or paid with respect to
shares of Common Stock until dividends in the aggregate amount of at least
$0.90 per share have been paid or declared on the Series B Preferred.
Holders of shares of Series B Preferred are entitled to vote on all matters
submitted to a vote of the stockholders. Each share of Series B Preferred
entitles the holder to the number of votes equal to the number of shares of
Common Stock into which the Series B Preferred is convertible as of the record
date established for the vote of the stockholders.
F-12
eCommercial.com Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Each share of Series B Preferred may be converted into one share of common
stock at any time upon the stockholder's election. The shares of Series B
Preferred will be automatically converted into shares of common stock upon (i)
the effective date of a firm commitment, underwritten public offering of common
stock pursuant to an effective registration statement under the Securities Act,
other than a registration relating solely to a transaction under Rule 145 of
the Securities Act or to any employee benefit plan of the Company, generating
aggregate proceeds to the Company of not less than $15,000,000 (after deducting
underwriters' discounts and all expenses relating to the offering) and with a
per share offering price (prior to underwriters' discounts and expenses) of not
less than $15.00 per share, as such per share price may be adjusted to reflect
stock subdivisions, combinations or dividends with respect to such shares, or
(ii) the date specified by affirmative vote or written consent or agreement of
the holders of not less than two-thirds ( 2/3) of the then outstanding shares
of Series B Preferred.
In the event of liquidation, the holders of the Series B Preferred shall be
entitled to receive, prior to and in preference to any distributions to the
holders of common stock, $8.00 per share of Series B Preferred plus any accrued
but unpaid dividends if and when declared by the Board of Directors.
In connection with the private placement of Series B Preferred stock,
warrants to purchase 341,251 shares of common stock at $8 per share were
granted to investors and the placement agent. These warrants expire in August
2001.
If the Company fails to file a registration statement with the SEC by
November 30, 1999, the holders of the Series B preferred shares and related
warrants will be entitled to receive an additional number of preferred shares
and warrants equal to 5% of the shares and warrants purchased in the offering.
2. Common Stock
Upon initial incorporation, the Company issued 4,000,000 shares of common
stock with a par value of $0.001 to its founders at par. It subsequently issued
475,118 shares in a private placement. Net proceeds from both transactions were
$946,999.
During the period from inception (March 26, 1999) to September 30, 1999, a
total of 233,613 shares of common stock were issued upon warrant exercises.
Total proceeds amounted to $23,357.
During the period from inception (March 26, 1999) to September 30, 1999, a
total of 69,859 shares were issued as compensation for services. The Company
recorded compensation expense in the amount of $294,068. Such amounts are
inclusive of the shares issued to Lockheed (see Note G).
3. Warrants
At the time of its acquisition of Zap, warrants to purchase 5,200 shares of
common stock at $5 per share were granted to a former Zap creditor. These
warrants expire in April 2004. In connection with the issuance of the warrants,
the Company recognized an expense of $1,508, which was the fair value of the
warrants at the time of issuance.
In connection with the private placement of common stock, warrants to
purchase 183,500 shares were granted at exercise prices ranging from $0.10 per
share and $0.50 per share, and expire in May 2000.
Warrants to purchase 15,000 shares of common stock at $11.25 per share have
been granted to a customer. They expire in May 2001. In connection with the
issuance of the warrants, the Company recognized an expense of $25,950, which
was the fair value of the warrants at the time of issuance.
F-13
eCommercial.com Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of September 30, 1999, a total of 476,340 warrants are outstanding, with
exercise prices ranging from $0.10 to $11.25 and expiring at various times
through April 2004.
4. Options
In April 1999, the Company adopted the 1999 Stock Option Plan (the "Plan").
The Plan reserves 2,400,000 shares of common stock for grants to employees.
Pursuant to the consummation of the reverse merger of Wireless Netcom, the
Company assumed and discontinued the Wireless Netcom 1997 Stock Option Plan
(the "Wireless Plan"). There were no outstanding options under the Wireless
Plan.
Under the Plan, incentive stock options may be granted to employees,
directors, and officers of the Company and non-qualified stock options and
stock purchase rights may be granted to consultants, employees, directors, and
officers of the Company. Options granted under the Plan are for periods not to
exceed ten years and must be issued at prices not less than 100% and 85%, for
incentive and nonqualified stock options, respectively, of the fair market
value of the stock on the date of grant, as determined by the Board of
Directors. Options granted to shareholders who own greater than 10% of the
outstanding stock are for periods not to exceed five years and must be issued
at prices not less than 110% of the fair market value of the stock on the date
of grant, as determined by the Board of Directors. Options granted under the
Stock Plan generally vest 33% after the first year of service and ratably each
quarter over the remaining twenty-four month period.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its plans.
If the Company had elected to recognize compensation cost on the fair market
value at the grant dates for awards under the stock option plan, consistent
with the method prescribed by SFAS No. 123, net income and income per share
would have been changed to the pro forma amounts indicated below:
[Download Table]
Period ended
September 30, 1999
------------------
Net loss--As reported................................... $(2,284,546)
Pro forma............................................. (2,434,063)
Basic and diluted loss per share--As reported........... (0.26)
Pro forma............................................. (0.28)
The fair value of the Company's stock options was estimated as of the grant
date using the Black-Scholes option pricing model with the following weighted
average assumptions for the period ended September 30, 1999: dividend yield of
0.0%, expected volatility of 50%, risk free interest rate of 6.5%, and an
expected holding period from 1 to 3 years. The following table summarizes
activity under the Company's stock option plan for the year ended September 30,
1999:
[Download Table]
Weighted
Average
Exercise
Shares Price
--------- --------
Outstanding at inception (March 26, 1999)............ -- --
Granted.............................................. 2,131,500 $3.08
Exercised.......................................... -- --
Forfeited/expired.................................. (61,000) 1.11
--------- -----
Outstanding at September 30, 1999.................... 2,070,500 3.13
========= =====
Weighted average fair value of options granted during
1999................................................ $ 1.03
=========
F-14
eCommercial.com Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999
[Download Table]
Stock Options Stock Options
Outstanding Exercisable
----------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life Price Shares Price
--------------- --------- ----------- -------- ------- --------
$1.00 to $4.00 1,503,000 5.0 $1.20 359,666 $1.33
$7.00 to $10.00 567,500 5.6 8.26 31,000 8.65
--------- -------
2,070,500 5.1 $3.08 390,666 $1.91
========= =======
Through September 30, 1999, the Company recorded compensation expense in the
amount of $167,923 related to certain stock options and warrants. Approximately
$594,000 remains to be amortized over the remaining vesting periods of the
options.
Note I--Employment Contracts
The Company has employment agreements and arrangements with certain
executive officers. The agreements generally continue until terminated by the
executive or the Company, and provide for severance payments under certain
circumstances. As of September 30, 1999, if all of the employees under these
contracts were to be terminated by the Company, the Company's liability would
be approximately $1.3 million.
Note J--Subsequent Events
In November 1999, the Company completed the private placement of Series B
Convertible Preferred Stock. Subsequent to September 30, 1999, the Company
issued 177,500 shares and 293,840 warrants for net proceeds of $1,402,981,
including $1,000,000 received from Onex, as described below. The total offering
netted $9,163,473 after expenses.
In October 1999, the Company entered into a strategic investment agreement
with @ONEX LLC, ("Onex"). Under the terms of the agreement, Onex made a
$1,000,000 investment into the private placement of Series B Convertible
Preferred Stock, and has the option to invest another $1,000,000 under the same
terms. The option expires on March 31, 2000. Further, Onex received warrants to
purchase 250,000 shares of common stock at the price of $7 per share.
Effective October 1, 1999, the Company implemented a 401(k) Profit Sharing
Plan (the "Plan") for its full-time employees. Each participant in the Plan may
elect to contribute from 1% to 17% of his or her annual compensation to the
Plan. The Company does not yet make matching contributions. However, at its
option, the Company may match employee contributions at a rate of 25%, up to 6%
of the Employee's salary. Employee contributions are fully vested, whereas
vesting in matching Company contributions occurs at a rate of 33.3% per year of
employment.
In connection with the Voxel, Inc. claim on October 27, 1999, the court
ruled in favor of the plaintiffs and awarded them $1.8 million in damages. The
Company intends to appeal the decision.
F-15
PART II:
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13: Other Expenses of Issuance and Distribution
The estimated expenses payable in connection with the issuance and
distribution of the securities being registered are as follows:
[Download Table]
SEC registration fee................................................ $ 3,753
Legal fees and expenses............................................. 40,000
Accounting fees and expenses........................................ 30,000
Printing and engraving expense...................................... 15,000
Transfer agent fees and expenses.................................... 2,500
Miscellaneous....................................................... 2,500
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TOTAL............................................................. $93,753
=======
Except for the SEC registration fee, the above amounts are estimated.
Item 15: Recent Sales of Unregistered Securities
Transactions prior to April 1999 were initiated by Wireless Netcom and its
predecessor company, Rubicon Sports. In connection with the merger of Wireless
Netcom and eCommercial California in April 1999, all preferred shares and
convertible debt balances were converted into common stock. As of November 12,
1999, we have only series B preferred stock and common stock outstanding.
On May 23, 1997, we undertook a private debt offering of $130,000 (the
"Bridge Financing"), pursuant to the exemption from registration provided by
Rule 506 of the Act. The Bridge Financing related to the sale of Promissory
Common Shares (the "Bridge Common Shares"). The Bridge Common Shares had a term
of six (6) months, bear simple interest at the rate of 8.5% per annum, payable
at maturity. Investors in the Bridge Financing were issued warrants to purchase
an aggregate of 5,000 shares of our common stock ("Bridge Financing Investor
Warrants"). Bridge Financing Investor Warrants are exercisable for a term of
three (3) years at an exercise price of the lesser of (i) $.10 per share, or
(ii) 50% of the initial public offering price of the common stock. The Bridge
Common Shares were secured by our assets as evidenced by the filing of a
Financing Statement pursuant to the Uniform Commercial Code. In addition, the
Placement Agent received warrants to purchase 5,000 shares of common stock,
exercisable on terms equivalent to the Bridge Financing Investor Warrants. The
Bridge Common Shares have been paid in full.
In June 1997, we undertook a private offering of 9% Series A Cumulative
Convertible Preferred Stock ("Series A Preferred") at the price of $2.50 per
share. The June 1997 Offering was made pursuant to the exemptions from
registration provided by Rule 506 of Regulation D and Section 4(2) of the Act
and applicable Blue Sky laws. We sold 892,400 shares of Series A Preferred and
received gross proceeds of $2,231,000. We issued warrants to purchase 7,428
shares of common stock at a price of $0.10 in connection with this Offering.
Concurrent with the merger of Wireless Netcom and eCommercial California, all
Series A Preferred shares were converted into 743,658 shares of our common
stock.
II-1
In June 1998, we undertook a private offering of non-interest bearing
Promissory Notes (the "Notes") maturing twelve (12) months from the date of
issuance. Originally, the Notes were convertible into common stock by each
investor no earlier than thirty (30) days following commencement of trading of
our common stock on the OTC Bulletin Board. We received subscriptions totaling
$500,000. Concurrent with the merger of Wireless Netcom and eCommercial
California, these Notes were converted into 166,667 shares of our common stock.
In July 1998, we undertook a private offering of 6% Convertible Promissory
Notes maturing twelve (12) months from the date of issuance. Originally, the
Notes were convertible into common stock thirty (30) days following
commencement of trading of our common stock on the OTC Bulletin Board. The
number of shares into which the Notes were convertible was determined by
dividing the dollar amount of such amount by the preceding five (5) day average
closing bid price of the Shares, discounted by twenty percent (20%), as quoted
on the OTC Bulletin Board. Concurrent with the merger of Wireless Netcom and
eCommercial California, these Notes were converted into 166,667 shares of our
common stock.
In April 1999, we undertook a private placement of our common stock, at a
price of from $1 to $4 per share ("April 1999 Offering"). The April 1999
Offering was made pursuant to the exemptions from registration provided by
Section 4(2) of the Act, and Rule 505 promulgated thereunder, and the
applicable blue sky laws. We received proceeds of $942,404 and issued 475,118
shares of common stock thereunder. The April 1999 Offering closed in May 1999.
In July 1999, we undertook a private placement of our Series B Preferred
Stock, at a price of $8 per share ("July 1999 Offering"). The July 1999
Offering was made pursuant to the exemptions from registration provided by
Section 4(2) of the Act, and Rule 505 promulgated thereunder, and the
applicable Blue Sky laws. We received proceeds of $9,163,463 and issued
1,263,073 shares of Series B Preferred Stock and 622,591 warrants thereunder.
We also issued an option to purchase an additional 125,000 shares of Series B
Preferred at $8.00 per share, expiring March 31, 2000. The July 1999 Offering
closed in November 1999.
Item 16: Index To Exhibits and Financial Statement Schedules
[Download Table]
Exhibit
No Title
------- -----
3.1 Articles of Incorporation of the Registrant
3.2* Amended and Restated Bylaws of the Registrant
4.1 Investor Rights Agreements
4.2* Form of Registrant's Specimen Common Stock Certificate
4.3* Form of Registrant's Series B Preferred Stock Certificate
4.4 Form of Common Stock Warrants
4.5 Certificate of Designation--Series B Preferred
5.1* Opinion on Legality
10.1 Stock Purchase Agreement, dated as of April 16, 1999 between the
Company and Shareholders of Zap International
10.2 Merger Agreement, dated as of April 19, 1999, between Wireless Netcom,
Inc. and the shareholders of eCommercial.com, Inc.
10.3 Employment Agreement--Thomas Blakeley
10.4 Employment Agreement--Mark Grundy
10.5 Employment Agreement--Eric A. McAfee
10.6 Form of Change in Control Executive Retention Agreement
10.7 Registrant's 1999 Stock Option Plan
10.8 Agreement between Registrant and Eric McAfee regarding Voxel
10.9 Form of Indemnification Agreement between Registrant and each of its
directors
II-2
[Download Table]
Exhibit
No Title
------- -----
10.10 Lease Agreement--Aliso Viejo, CA
10.11* Sublease Agreement--Cupertino, CA
10.12 Strategic Relationship Agreement between Registrant and ONEX Ventures
LLC.
10.13 Strategic Relationship Agreement between Registrant and Lockheed
Martin Corporation
23.1 Consent of experts
23.2* Consent of Counsel (see Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
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* to be filed by Amendment
Item 17: Undertakings
We hereby undertake to:
1. File, during any period in which we offer or sell securities, a post-
effective amendment to this Registration Statement to:
(a) Include any prospectus required by Section 10(a)(3) of the
Securities Act.
(b) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information set forth in
the Registration Statement.
(c) Include any additional or changed material information on the plan
of distribution;
2. For determining liability under the Act, treat each post-effective
amendment as a new registration of the securities offered, and the offering of
such securities at that time to be the initial bona fide offering; and
3. File a post effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
4. Provide certificates in such denominations and registered in such names
to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the company
pursuant to the foregoing provisions, or otherwise, the company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the company of expenses incurred or paid by a
director, officer or controlling person of the company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
For the purpose of determining any liability under the Securities Act, the
company will treat the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained in
a form of Prospectus filed by the Company pursuant to Rule 424(b)(1), or (4),
or 497(h) under the Securities Act as part of this Registration Statement as of
the time the Securities and Exchange Commission declares it effective.
For the purpose of determining any liability under the Securities Act, we
will treat such post-effective amendment that contains a form of prospectus as
a new Registration Statement for the securities offered therein, and treat the
offering of the securities at that time as the initial bona fide offering of
those securities.
II-3
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-1 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Aliso Viejo, State of California, on November 30,
1999.
eCommercial.com, Inc.
/s/ Thomas J. Blakeley
By: _________________________________
Thomas J. Blakeley
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Thomas J. Blakeley, Mark Grundy, and Michael R.
Friedl and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and any subsequent
registration statements pursuant to Rule 462 of the Securities Act of 1933, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each said
attorney-in-fact, or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has exercised this power of
attorney as of the date indicated.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
[Download Table]
Signature Title Date
--------- ----- ----
/s/ Thomas J. Blakeley Chairman of the Board November 30, 1999
____________________________________ Chief Executive Officer
Thomas J. Blakeley President (Principal
Executive Officer)
/s/ Mark Grundy Chief Operating Officer November 30, 1999
____________________________________ Executive Vice President
Mark Grundy Director
/s/ Eric A. McAfee Executive Vice President November 30, 1999
____________________________________ Secretary, Director
Eric A. McAfee
/s/ Michael R. Friedl Chief Financial Officer November 30, 1999
____________________________________ Treasurer (Principal
Michael R. Friedl Finance and Accounting
Officer)
/s/ John Troiano Director November 30, 1999
____________________________________
John Troiano
II-4
EXHIBIT INDEX
[Download Table]
Exhibit
No Description
------- -----------
3.1 Articles of Incorporation of the Registrant
3.2* Amended and Restated Bylaws of the Registrant
4.1 Investor Rights Agreements
4.2* Form of Registrant's Specimen Common Stock Certificate
4.3* Form of Registrant's Series B Preferred Stock Certificate
4.4 Form of Common Stock Warrants
4.5 Certificate of Designation--Series B Preferred
5.1* Opinion on Legality
10.1 Stock Purchase Agreement, dated as of April 16, 1999 between the
Company and Shareholders of Zap International
10.2 Merger Agreement, dated as of April 19, 1999, between Wireless Netcom,
Inc. and the shareholders of eCommercial.com, Inc.
10.3 Employment Agreement--Thomas Blakeley
10.4 Employment Agreement--Mark Grundy
10.5 Employment Agreement--Eric A. McAfee
10.6 Form of Change in Control Executive Retention Agreement
10.7 Registrant's 1999 Stock Option Plan
10.8 Agreement between Registrant and Eric McAfee regarding Voxel
10.9 Form of Indemnification Agreement between Registrant and each of its
directors
10.10 Lease Agreement--Aliso Viejo, CA
10.11* Sublease Agreement--Cupertino, CA
10.12 Strategic Relationship Agreement between Registrant and ONEX Ventures
LLC.
10.13 Strategic Relationship Agreement between Registrant and Lockheed
Martin Corporation
23.1 Consent of experts
23.2* Consent of Counsel (see Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
--------
* to be filed by Amendment
Dates Referenced Herein and Documents Incorporated by Reference
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