SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
[ ] Definitive Proxy Statement Commission Only (as Permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Kinetiks.com, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
None
(2) Aggregate number of securities to which transaction applies:
None
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
Rule 0-11: $150.00, representing one-fiftieth of one percent
of $750,000 cash.
(4) Proposed maximum aggregate value of transaction:
$750,000
<PAGE>
(5) Total fee paid: $150.00
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: None
(2) Form, Schedule or Registration Statement No.: Not Applicable
(3) Filing Party: Not Applicable
(4) Date Filed: Not Applicable
Notes:
<PAGE>
KINETIKS.COM, INC.
700 Rockmead Drive, Suite 240
Kingwood, Texas 77339
Telephone: (713) 359-7638
March __, 1997
To Our Stockholders:
You are cordially invited to attend a Special Meeting of the Stockholders
of Kinetiks.com, Inc. (the "Company"), to be held on April __, 1997 at 10:00
a.m. local time in the Company's executive offices at 700 Rockmead Drive, Suite
240, Kingwood, Texas 77339.
At the Special Meeting, holders of the Company's Common Stock (the "Common
Stock") will be asked to consider and vote upon a proposal to approve the sale
by the Company of substantially all of the Company's assets excluding (i) fees
payable until July 31, 1997 to the Company under any initial term of any
existing contract with a third party to provide web site development and hosting
services, (ii) E-Dealer software (to the extent that it is separable from the
software supporting the Internet Waterway) and all rights to market E-Dealer
software to third parties, (iii) certain computers, furniture, office equipment
and supplies, (iv) the Company's leasehold interest in its current office space,
(v) accounts receivable prior to Closing, and (vi) the Company's cash on hand
and in bank accounts, to Trader Publishing Company ("Purchaser"), a Virginia
general partnership, for $750,000 in cash. Upon execution of a letter of intent
dated November 27, 1996 between the Company and the Purchaser (the "Letter of
Intent"), the Purchaser paid an earnest money deposit of $110,000 to the Company
and on December 20, 1996 loaned an additional $110,000 to the Company, all of
which will be applied to the purchase price upon the closing of the sale of the
Company's assets. This transaction (the "Asset Sale") is to be effected pursuant
to the Letter of Intent and definitive asset purchase agreement to be entered
into between the Company and the Purchaser (the "Asset Purchase Agreement").
The Board of Directors believes that the Asset Sale is in the best
interests of the Company and its stockholders. In arriving at its decision to
recommend the Asset Sale, the Board carefully reviewed and considered the terms
and conditions of the Asset Sale and the factors described in the enclosed Proxy
Statement.
The Board of Directors does not view its proposal to approve the Asset Sale
as granting authority for a liquidation or dissolution of the Company. If the
Company intends to liquidate or dissolve, it will seek shareholder approval for
such action.
<PAGE>
Approval of the Asset Sale requires the affirmative vote of the holders of
a majority of the Company's issued and outstanding shares of Common Stock. YOUR
BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ASSET SALE AND RECOMMENDS THAT
HOLDERS OF COMMON STOCK VOTE FOR APPROVAL OF THE ASSET SALE.
Two stockholders who, at the Record Date, had the right to vote in the
aggregate, 525,416 shares of the Company's Common Stock (15.4% of such Common
Stock outstanding), agreed pursuant to the Letter of Intent to vote all the
shares of Company's Common Stock held by them "FOR" the Asset Sale. In addition,
the Company's Board of Directors are controlling the voting rights by proxy for
1,000,000 shares of the Company's Common Stock (29.4% of such Common Stock
outstanding), and agreed pursuant to a Board of Directors' resolution to vote
all such shares of Common Stock "FOR" the Asset Sale.
If you are a holder of the Company's Common Stock, whether or not you plan
to attend the meeting, please fill in the appropriate blanks, sign and date the
enclosed proxy card and return it in the envelope provided for that purpose. If
you attend the meeting and wish to vote in person, you may do so by withdrawing
your proxy prior to the meeting. Under Delaware law, if you abstain from voting,
your abstention will be treated as a "no" vote for purposes of determining
whether approval of the Asset Sale has been obtained.
Sincerely,
Gregory S. Carr,
Secretary
<PAGE>
KINETIKS.COM, INC.
700 Rockmead Drive, Suite 240
Kingwood, Texas 77339
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL __, 1997
To the stockholders of Kinetiks.com, Inc.:
Notice is hereby given that a Special Meeting of the stockholders (the
"Special Meeting") of Kinetiks.com, Inc., a Delaware corporation (the
"Company"), will be held at the Company's executive offices, 700 Rockmead Drive,
Suite 240, Kingwood, Texas 77339, at 10:00 a.m., local time on April __, 1997,
or at any adjournment or postponement thereof, to consider and vote upon a
proposal to approve a letter of intent dated November 27, 1996, between the
Company and Trader Publishing Company ("Trader") (the "Letter of Intent"),
pursuant to which, (a) the Company will sell to Trader substantially all of the
Company's assets excluding (i) fees payable until July 31, 1997 to the Company
under any initial term of any existing contract with a third party to provide
web site development and hosting services, (ii) E-Dealer software (to the extent
that it is separable from the software supporting the Internet Waterway) and all
rights to market E-Dealer software to third parties, (iii) certain computers,
furniture, office equipment and supplies, (iv) the Company's leasehold interest
in its current office space, (v) accounts receivable prior to Closing, and (vi)
the Company's cash on hand and in bank accounts, (b) Trader will pay to the
Company as the purchase price for the Company's assets (the "Company's Assets")
a total consideration of $750,000 cash, (c) Trader paid $110,000 to the Company
as an earnest money deposit which will be applied to the purchase price upon the
closing of the sale of the Company's assets, (d) Trader loaned $110,000 to the
Company which will be applied to the purchase price upon the closing of the sale
of the Company's Assets, (e) the Company will enter into a one (1) year
consulting agreement with Trader, and (f) the Company will enter into five (5)
year non-competition agreement with Trader.
A copy of the Letter of Intent is attached to the accompanying Proxy
Statement as Exhibit A and the Proxy Statement forms a part of this Notice.
Details relating to the above matters are set forth in the attached Proxy
Statement.
The Board of Directors does not view its proposal to approve the Asset Sale
as granting authority for a liquidation or dissolution of the Company. If the
Company intends to liquidate or dissolve, it will seek stockholder approval for
such action.
<PAGE>
Holders of record of the Company's Common Stock, par value $.001 per share
(the "Common Stock") at the close of business on March __, 1997 (the "Record
Date"), are entitled to notice of, and to vote at, the Special Meeting and any
adjournment thereof.
The General Corporation Law of the State of Delaware does not provide for
dissenters' rights to stockholders regarding the sale of substantially all of a
Delaware corporation's assets.
If you are a holder of Common Stock please fill in the appropriate blanks,
sign, date and return the enclosed proxy card, whether or not you plan to attend
the Special Meeting. If you attend the meeting and wish to vote in person, you
may do so by withdrawing your proxy prior to the Special Meeting.
By order of the Board of Directors,
Gregory S. Carr
Secretary
March __, 1997
<PAGE>
Proxy Statement dated March __, 1997
Kinetiks.com, Inc.
700 Rockmead Drive, Suite 240
Kingwood, Texas 77339
Telephone: (713) 359-7638
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL __, 1997
This Proxy Statement is furnished to the holders as of the Record Date (as
defined below) of Common Stock, par value $.001 per share (the "Common Stock")
of Kinetiks.com, Inc., a Delaware corporation (the "Company"), in connection
with the solicitation of proxies by the Company's Board of Directors at a
Special Meeting of Stockholders of the Company (the "Special Meeting") to be
held at the Company's executive offices at 700 Rockmead Drive, Suite 240,
Kingwood, Texas 77339 at 10:00 a.m., local time, on April __, 1997, or at any
adjournment or postponement thereof. The Company anticipates that this Proxy
Statement and the accompanying form of proxy will be first mailed or given to
all stockholders of the Company on or about March __, 1997. The shares
represented by all proxies that are properly executed and submitted will be
voted at the meeting in accordance with the instructions indicated thereon. At
the Special Meeting, holders of the Common Stock will be asked to consider and
vote upon a proposal to approve a letter of intent dated November 27, 1996,
between the Company and Trader Publishing Company ("Trader") (the "Letter of
Intent"), pursuant to which, (a) the Company will sell to Trader substantially
all of the Company's assets excluding (i) fees payable until July 31, 1997 to
the Company under any initial term of any existing contract with a third party
to provide web site development and hosting services, (ii) E-Dealer software (to
the extent that it is separable from the software supporting the Internet
Waterway) and all rights to market E-Dealer software to third parties, (iii)
certain computers, furniture, office equipment and supplies, (iv) the Company's
leasehold interest in its current office space, (v) accounts receivable prior to
Closing, and (vi) the Company's cash on hand and in bank accounts, (b) Trader
will pay to the Company as the purchase price for the Company's assets (the
"Company's Assets") a total consideration of $750,000 cash, (c) Trader paid
$110,000 to the Company as an earnest money deposit which will be applied to the
purchase price upon the closing of the sale of the Company's assets, (d) Trader
loaned $110,000 to the Company which will be applied to the purchase price upon
the closing of the sale of the Company's Assets, (e) the Company will enter into
a one (1) year consulting agreement with Trader (the "Consulting Agreement"),
and (f) the Company will enter into five (5) year non-competition agreement with
Trader (the "NonCompetition Agreement"). The sale of the Company's Assets is
described more thoroughly in this Proxy Statement and in the documents attached
hereto which stockholders are urged to read carefully. The holders of a majority
of the Company's Common Stock, issued and outstanding as of the Record Date (as
defined below) will be required to approve the proposal. THE COMPANY'S BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE ASSET SALE AND RECOMMENDS A VOTE FOR THE
LETTER OF INTENT.
<PAGE>
Any Stockholder giving a proxy may revoke it at any time before it is
exercised by delivering written notice of such revocation to the Company, by
substituting a new proxy executed at a later date, or by requesting, in person,
at the Special Meeting, that the proxy be returned.
All of the expenses involved in preparing, assembling and mailing this
Proxy Statement and the materials enclosed herewith with all costs of soliciting
proxies will be paid by the Company. In addition to the solicitation by mail,
proxies may be solicited by officers and regular employees of the Company by
telephone, telegraph or personal interview. Such persons will receive no
compensation for their services other than their regular salaries. Arrangements
will also be made with brokerage houses and other custodians, nominees and
fiduciaries to forward solicitation materials to the beneficial owners of the
shares held of record by such persons, and the Company may reimburse such
persons for reasonable out of pocket expenses incurred by them in so doing.
2
<PAGE>
No person has been authorized to give any information or to make any
representation other than those contained in this Proxy Statement in connection
with the solicitation of proxies made hereby and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or any other person. All information pertaining to Trader and its
affiliates contained in this Proxy Statement has been supplied by Trader.
TABLE OF CONTENTS
PAGE
SUMMARY ................................................................... 5
THE SPECIAL MEETING ....................................................... 11
Time, Date and Place ............................................. 11
Matters to be Considered at the Special Meeting .................. 11
Voting and Record Date ........................................... 11
Proxies .......................................................... 12
THE ASSET SALE ............................................................ 13
The Company ...................................................... 13
The Purchaser .................................................... 13
Background and Reasons For the Asset Sale ........................ 14
Recommendation of the Board of Directors ......................... 15
Regulatory Approvals ............................................. 16
Accounting Treatment ............................................. 16
Certain Income Tax Consequences .................................. 17
Dissenting Stockholders' Rights .................................. 17
Effect of the Asset Sale on the Company's Stockholders ........... 17
Proceeds of the Asset Sale ....................................... 17
Plans for the Operation of the Company Following the
Asset Sale ....................................................... 18
THE LETTER OF INTENT ...................................................... 19
Assets ........................................................... 19
Retained Assets and Retained Liabilities ......................... 19
Consideration .................................................... 20
The Closing ...................................................... 20
Representations, Warranties and Covenants ........................ 20
Conditions to Closing ............................................ 21
Certain Operative Agreements ..................................... 22
Indemnification .................................................. 22
Termination ...................................................... 22
Termination Fee .................................................. 23
3
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Page
MARKET PRICE DATA AND RELATED MATTERS
REGARDING THE COMPANY .................................................... 23
Common Stock Information ......................................... 23
Dividends ........................................................ 23
SELECTED FINANCIAL DATA
OF THE COMPANY ........................................................... 24
UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF THE COMPANY ........................................................... 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY ................................................ 28
ADDITIONAL INFORMATION ABOUT THE COMPANY .................................. 32
Introduction ..................................................... 32
Overview ......................................................... 33
Strategy ......................................................... 35
Products and Services ............................................ 36
Marketing ........................................................ 37
Competition ...................................................... 38
Employees ........................................................ 39
Proprietary Rights ............................................... 39
Properties ....................................................... 40
MANAGEMENT OF THE COMPANY ................................................. 40
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT ........................................................... 42
OTHER MATTERS ............................................................. 42
COMPANY AUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
UNAUDITED FINANCIAL STATEMENTS FOR THE NINE-MONTH
PERIOD ENDED SEPTEMBER 30, 1996 .......................................... F-1
EXHIBIT A - LETTER OF INTENT
4
<PAGE>
SUMMARY
The following is a brief summary of information contained elsewhere in this
Proxy Statement. This summary is not a complete statement of all information,
facts or materials relevant to a stockholder's decision with respect to the
matters to be voted on at the Special Meeting. This summary should only be read
in conjunction with, and is qualified in its entirety by reference to, the more
detailed information contained in this Proxy Statement and the Exhibits hereto.
Unless otherwise defined, capitalized terms used in this summary have the
respective meanings ascribed to them elsewhere in this Proxy Statement.
Stockholders are urged to review carefully this Proxy Statement and the Exhibits
hereto in their entirety.
THE PARTIES TO THE LETTER OF INTENT AND THE ASSET PURCHASE AGREEMENT
The Company.........The Company was incorporated on August 9, 1995 in the State
of Delaware. On August 14, 1995, the Company issued
4,000,000 shares of its Common Stock to the stockholders of
Recreational Data Services, LLC ("RDS, L.L.C.") in exchange
for all of the assets of RDS, L.L.C. RDS, L.L.C. was a
limited liability company formed on April 3, 1995, and was
wholly-owned by Gregory S. and Dyann L. Carr (the "Carrs"),
the founders, principal stockholders, officers and directors
of the Company. RDS, L.L.C. exchanged equity interests in
RDS, L.L.C. for all of the assets of a sole proprietorship
formed by the Carrs, which operated under the trade name
"Recreational Data Services" and which commenced the initial
development of the Internet Waterway on January 18, 1995.
The Company develops and markets proprietary software
programs for use on the World Wide Web (the "Web") of the
Internet. The Company's software production, designated the
Internet Waterway, targets retail consumers and offers
products and services, and provides free information to
boaters, sailors, fishermen, and other water sports
enthusiasts. The Company's commercial production, designated
the Marine TradeNet, targets commercial businesses and
offers marine industry information and product sales
services over the Internet. Access to the Internet Waterway
is available on the Internet through such services as
America Online(TM), Prodigy(TM), CompuServe(TM), or the
Microsoft Network. The principal executive offices of the
Company are located at 700 Rockmead Drive, Suite 240,
Kingwood, Texas 77339 and its telephone number is (713)
359-7638. See "The Asset Sale - The Company."
5
<PAGE>
The Purchaser.......The Purchaser, Trader Publishing Company ("Trader" or
"Purchaser") is a Virginia general partnership founded in
1987. The principal executive offices of Trader Publishing
Company are located at 100 West Plume Street, Norfolk,
Virginia 23510 and its telephone number is (757) 640-4000.
See "The Asset Sale - The Purchaser."
THE SPECIAL MEETING
Time, Date and
Place.............The Special Meeting will be held at the Company's executive
offices at 700 Rockmead Drive, Suite 240, Kingwood, Texas
77339 on April __, 1997 commencing at 10:00 a.m., local
time.
Matters to be Considered at the
Special Meeting...At the Special Meeting, the stockholders of the Company will
be asked to consider and vote upon the Asset Sale and the
Letter of Intent including the Consulting Agreement and the
Non-Competition Agreement.
Record Date, Shares Entitled
to Vote...........Holders of record of shares of the Company's Common Stock at
the close of business on March __, 1997 are entitled to
notice of and to vote at the Special Meeting.
Votes Required......Under the laws of the State of Delaware, the affirmative
vote of the holders of a majority of the Company's Common
Stock, issued and outstanding on the Record Date is required
to authorize the Asset Sale. Abstentions will be treated as
"no" votes for purposes of determining whether approval of
the Asset Sale has been obtained. See "The Special Meeting -
Voting and Record Date."
6
<PAGE>
THE ASSET SALE
Background and Reasons for the
Asset Sale.........The Asset Sale represents the culmination of numerous steps
taken by the Company over the past year to stem continuing
losses and to reduce debt or, as an alternative, to sell to
a suitable purchaser or find a strategic partner to invest
in the operations of all or a substantial part of the
Company. See "The Asset Sale - Background and Reasons for
the Asset Sale."
Recommendation of the Board
of Directors......The Board of Directors has unanimously approved the Asset
Sale and recommends to the Company's stockholders that they
vote FOR its approval. The Board of Directors has determined
that the Asset Sale represents an attractive opportunity to
sell substantially all the Company's Assets at favorable
valuations. See "The Asset Sale - Recommendation of the
Board of Directors."
Regulatory
Approvals..........No federal or state regulatory requirements must be complied
with or approval must be obtained in connection with the
Asset Sale. See "The Asset Sale - Regulatory Approvals."
Accounting
Treatment..........The sale of certain assets valued at $550,000 as part of the
Asset Sale will be accounted for as a sale of certain
assets. The consideration received by the Company over the
book value (approximately $40,000) of the assets sold will
be recognized as a gain on the Company's books. As part of
the Asset Sale, the Company will enter into consulting
agreements for $100,000 and a non- competition agreement for
$100,000. The consideration received by the Company for
those agreements will be recognized as income over the terms
of the agreements. See "The Asset Sale - Accounting
Treatment."
Certain Income Tax
Consequences.......The Asset Sale will be a taxable transaction to the Company
but it is anticipated that the tax consequences, if any, to
the Company will be minimal. The Asset Sale will not result
in any direct federal or state income tax consequences to
stockholders of the Company. See "The Asset Sale - Certain
Income Tax Consequences."
7
<PAGE>
Dissenting Stockholder's
Rights.............The General Corporation Law of the State of Delaware does
not provide dissenting rights to stockholders of a Delaware
corporation which sells substantially all of its assets. See
"The Asset Sale - Dissenting Stockholders' Rights."
Effect of the Asset Sale on the Company's
Stockholders.......If the transactions included in the Asset Sale are
consummated, the stockholders of the Company will retain
their equity interests in the Company. The consummation of
the Asset Sale will not result in any changes in the rights
of stockholders of the Company.
Proceeds of the
Asset Sale........The cash proceeds of the Asset Sale will be applied to
reduce the Company's indebtedness, to pay accounts payable,
to pay transaction-related costs and expenses, as well as
for other general corporate purposes. See "The Asset Sale -
Proceeds of the Asset Sale" and "- Plans for the Operation
of the Company Following the Asset Sale."
Plans for Operation of the
Company following the Asset
Sale Transaction...Following the closing of the Asset Sale, the Company plans
to utilize its Marine Division to act as an agent to produce
web site services for marine industry clients of Trader,
continue to service its current web site clients, evaluate
and possibly establish web sites for the automotive and
motorcycle industries and explore mergers, acquisitions or
other transactions which may enhance the Company's value.
See "The Asset Sale - Plans for the Operation of the Company
Following the Asset Sale."
8
<PAGE>
THE LETTER OF INTENT AND THE
ASSET PURCHASE AGREEMENT
The Asset Sale......Upon the terms and subject to the conditions of the Letter
of Intent, the Company will sell and transfer, and the
Purchaser will purchase and acquire, the Company's Assets
(to be defined in the Asset Purchase Agreement), free and
clear of any liabilities and encumbrances. The Company's
Assets exclude (i) fees payable until July 31, 1997 to the
Company under any initial term of any existing contract with
a third party to provide web site development and hosting
services, (ii) E-Dealer software (to the extent that it is
separable from the software supporting the Internet
Waterway) and all rights to market E-Dealer software to
third parties, (iii) certain computers, furniture, office
equipment and supplies, (iv) the Company's leasehold
interest in its current office space, (v) accounts
receivable prior to Closing, and (vi) the Company's cash on
hand and in bank accounts, but include all other Company
assets and properties, as defined in the Asset Purchase
Agreement, including (i) all tangible personal property,
(ii) all rights, tangible and intangible, and leasehold
interests in personal property; (iii) all rights in and to
any governmental and private permits, licenses, certificates
of occupancy, franchise and authorizations, (iv) all
inventories, (v) all intangible Property Rights, (vi) all
patents, copyrights and trademarks, (vii) all customer
lists, promotion lists and marketing data, (viii) all
computer software programs, (ix) all causes of action, (x)
all accounts and notes receivable which arise subsequent to
the Closing, (xi) all account lists, books and records,
(xii) all goodwill related to the Company's business and
(xiii) all other Company assets not excluded (as defined in
the Letter of Intent). The Company will also be required to
enter into a one (1) year consulting agreement and a five
(5) year non- competition agreement with Trader. See "Letter
of Intent - Purchase and Sale of Assets."
9
<PAGE>
Consideration.......In consideration for the purchase of the Company's Assets,
including the Consulting Agreement and the Non-Competition
Agreement, the Purchaser will pay to the Company $750,000
cash. See "Letter of Intent" and "The Asset Purchase
Agreement - Consideration."
Certain Operative
Agreements.........The Letter of Intent requires the Company to (i) act as the
exclusive agent to produce web site services for marine
industry clients of Trader, (ii) enter into a one-year
consulting agreement with Trader, and (iii) enter into a
non-competition agreement not to compete with Trader in the
marine industry for five (5) years. See "Certain Operative
Agreements."
Termination and Certain Other
Provisions.........An Asset Purchase Agreement contemplated by the Company and
Trader will contain certain representations, warranties,
covenants, conditions and indemnification agreements of the
Company and the Purchaser customary for transactions of the
type contemplated by the Asset Purchase Agreement. See "The
Letter of Intent - Representations, Warranties and Covenants
of Seller," "- Representations, Warranties and Covenants,"
"- Conditions to Closing" and "- Indemnification."
The Letter of Intent may be terminated (i) at any time by
mutual consent of the Company and the Purchaser or (ii) by
Trader if the Company had failed to disclose matters to
Trader that materially and adversely affect the value of the
assets and business being transferred. In addition, the
Company agreed to pay $35,000 to Trader in the event of a
breach of the Letter of Intent by the Company resulting from
events beyond the control of the Company's Board of
Directors.
10
<PAGE>
THE SPECIAL MEETING
TIME, DATE AND PLACE
This Proxy Statement is being furnished to the holders as of the Record
Date (as hereinafter defined) of the Company's Common Stock in connection with
the solicitation of proxies by the Board of Directors for use at the Special
Meeting to be held on April __, 1997, at 10:00 a.m. local time, at the Company's
executive offices at 700 Rockmead Drive, Suite 240, Kingwood, Texas 77339 and at
any adjournment thereof.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, the holders of the Company's Securities will be
asked to consider and vote upon the Asset Sale, including the Consulting
Agreement and Non-Competition Agreement.
VOTING AND RECORD DATE
The Board of Directors has fixed March __, 1997, as the record date
("Record Date") for determining holders of the Company's Common Stock of record
entitled to receive notice of and to vote at the Special Meeting. Accordingly,
only holders of record of the Company's Common Stock who are holders of such
securities as of the Record Date will be entitled to notice of and to vote at
the Special Meeting. As of the Record Date, there were 3,387,924 shares of the
Company's Common Stock outstanding and entitled to vote.
Each holder of record of the Company's Common Stock on the Record Date is
entitled to cast one vote per share, exercisable in person or by a properly
executed proxy, with respect to the approval of the Asset Sale and any other
matter to be submitted to a vote of stockholders at the Special Meeting.
The presence at the Special Meeting, in person or by a proxy, of the
holders of a majority of the shares of the Company's Common Stock outstanding on
the Record Date will constitute a quorum at the Special Meeting. Votes cast by
proxy or in person at the Special Meeting will be counted by the persons
appointed by the Company to act as the inspectors for the meeting. Shares
represented by proxies that reflect abstentions or include "broker non-votes"
will be treated as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. Under the laws of the State of Delaware,
the affirmative vote of the holders of a majority of the Company's Common Stock
issued and outstanding on the Record Date is required to authorize the Asset
Sale. Abstentions and "broker non-votes" will be included in the calculation for
purposes of determining whether the Asset Sale has been approved and will be
treated as "no" votes.
11
<PAGE>
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ASSET SALE AND
RECOMMENDS A VOTE FOR THE APPROVAL OF THE ASSET SALE. THE COMPANY IS SEEKING
STOCKHOLDER APPROVAL OF THE ASSET SALE. Two stockholders who, at the Record
Date, had the right to vote in the aggregate, 525,416 shares of the Company's
Common Stock (15.4% of such Common Stock outstanding), agreed pursuant to the
Letter of Intent to vote all the shares of Company's Common Stock held by them
"FOR" the Asset Sale. In addition, the Company's Board of Directors are
controlling the voting rights by proxy for 1,000,000 shares of the Company's
Common Stock (29.4% of such Common Stock outstanding), and agreed pursuant to a
Board of Directors' resolution to vote all such shares of Common Stock "FOR" the
Asset Sale.
PROXIES
All shares of the Company's Common Stock which are represented at the
Special Meeting by properly executed proxies received prior to or at the Special
Meeting, and not duly and timely revoked, will be voted at the Special Meeting
in accordance with the choices marked thereon by the stockholders. Unless a
contrary choice is marked, or if the Proxy is left blank as to choice, the
shares will be voted FOR approval of the Asset Sale.
The Board of Directors is not aware of any other matters not referred to
herein that will be presented for action at the Special Meeting. If any other
matters properly come before the Special Meeting, the persons designated in the
proxy intend to vote the shares represented thereby in accordance with their
best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of the Company at or before the taking of the vote of the
Special Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of the Company before the taking of the vote at
the Special Meeting or (iii) attending the Special Meeting and voting in person
(although attendance at the Special Meeting will not in and of itself constitute
a revocation of a proxy).
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement, will be borne by the Company. In addition to
solicitation by mail, arrangements will be made with brokers and other
custodians, nominees and fiduciaries to forward proxy solicitation materials to
beneficial owners of shares of the Company's Common Stock held of record by such
brokers, custodians, nominees and fiduciaries, and the Company may reimburse
such brokers, nominees and fiduciaries for their reasonable expenses incurred in
connection therewith. Directors and employees of the Company may also solicit
proxies in person or by telephone without receiving any compensation in addition
to their regular compensation as directors and employees.
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<PAGE>
THE ASSET SALE
THE COMPANY
The following is a brief summary of information contained elsewhere in this
Proxy Statement. This summary is not a complete statement of all information,
facts or materials relevant to a stockholder's decision with respect to the
matters to be voted on at the Special Meeting. This summary should only be read
in conjunction with, and is qualified in its entirety by reference to, the more
detailed information contained in this Proxy Statement and the Exhibits hereto.
Unless otherwise defined, capitalized terms used in this summary have the
respective meanings ascribed to them elsewhere in this Proxy Statement.
Stockholders are urged to review carefully this Proxy Statement and the Exhibits
hereto in their entirety.
The Company was incorporated on August 9, 1995 in the State of Delaware. On
August 14, 1995, the Company issued 4,000,000 shares of its Common Stock to the
stockholders of Recreational Data Services, LLC ("RDS, L.L.C.") in exchange for
all of the assets of RDS, L.L.C. RDS, L.L.C. was a limited liability company
formed on April 3, 1995, and was wholly-owned by Gregory S. and Dyann L. Carr
(the "Carrs"), the founders, principal stockholders, officers and directors of
the Company. RDS, L.L.C. exchanged equity interests in RDS, L.L.C. for all of
the assets of a sole proprietorship formed by the Carrs, which operated under
the trade name "Recreational Data Services" and which commenced the initial
development of the Internet Waterway on January 18, 1995. The Company develops
and markets proprietary software programs for use on the World Wide Web (the
"Web") of the Internet. The Company's software production, designated the
Internet Waterway, targets retail consumers and offers products and services,
and provides free information to boaters, sailors, fishermen, and other water
sports enthusiasts. The Company's commercial production, designated the Marine
TradeNet, targets commercial businesses and offers marine industry information
and product sales services over the Internet. Access to the Internet Waterway is
available on the Internet through such services as America Online(TM),
Prodigy(TM), CompuServe(TM), or the Microsoft Network(TM).
The principal executive offices of the Company are located at 700 Rockmead
Drive, Suite 240, Kingwood, Texas 77339 and its telephone number is (713)
359-7638. See "The Asset Sale - The Company."
THE PURCHASER
The Purchaser, a Virginia general partnership founded in 1987, engages
primarily in the print and electronic publishing business. There are no
affiliations among the Purchaser and the Company.
The principal executive offices of the Purchaser are located at 100 West
Plume Street, Norfolk, Virginia 23510 and its telephone number is (757)
640-4000.
13
<PAGE>
BACKGROUND AND REASONS FOR THE ASSET SALE
The Asset Sale represents the culmination of numerous steps taken by the
Company over the past year to stem continuing losses and to reduce debt, or, as
an alternative, to find a strategic partner to invest in the Company or to sell
all or a substantial part of the Company to a suitable purchaser. As the
Company's working capital diminished, management began to explore alternative
capital sources to support the Company's continuing product development and
sales and marketing efforts. During the third quarter of 1996, sales did not
improve and cash flow remained negative. Accordingly, in August 1996, measures
were taken to reduce overhead and conserve cash. In addition, the Company began
pursuing joint ventures, strategic partnerships and distribution arrangements
that might provide funding.
In August 1996, the Company sought assistance and advice from its
investment bankers in raising additional capital by way of a private placement
offering of its securities, adjustment of the outstanding warrant exercise price
to make the exercise of the Company's outstanding Warrants more attractive, a
secondary offering of the Company's securities, strategic alliances, or any
other vehicle. Other than $138,000 of asset secured bridge loans in
contemplation of one of the foregoing transactions closing, the investment
bankers provided no viable alternatives.
The removal of the Company's Common Stock from the NASDAQ SmallCap Market
in October 1996, resulted in a more than 75% drop in the price of the Common
Stock, making it more difficult to attract new equity financing and depressing
the value of the Company in negotiations with strategic partners or acquirers.
The Company's financial difficulties also adversely affected its credibility in
the market place and its ability to sell its products to major national
accounts.
To obtain working capital, the Company's then principal shareholder and
Chief Executive Officer, Gregory S. Carr, transferred 400,000 shares of this
Common Stock to the Company in November 1996. The shares of Common Stock were
immediately sold by the Company in a private placement to one individual for
$100,000.
The Company had more than ten contacts with companies that were potential
strategic alliances or acquirers of the Company.
Mr. Robert Greer was engaged as an outside consultant during August,
September and October 1996 to, among other things, establish strategic
alliances. He was paid a monthly fee and expenses. Thereafter, he was to be paid
a percentage of the value of any transaction which he introduced.
Investment bankers Sands Brothers & Co., Ltd., 90 Park Avenue, New York, NY
provided advice concerning various transactions and independently met with
several potential strategic partners, none of which made a firm offer to enter
into a transaction.
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<PAGE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes that the Asset Sale including the
consideration to be received by the Company, is fair to and in the best
interests of the Company and its affiliated and unaffiliated stockholders.
Accordingly, the Board of Directors has unanimously approved the Asset Sale and
recommends to the Company's stockholders that they vote FOR the approval of the
Asset Sale.
In reaching its conclusions, the Board of Directors considered, among other
things, the following material factors:
(1) A wide range of alternative strategic options (including raising
additional capital, sales of assets or the entire Company, further
elimination or reduction of costs and finding strategic partners to invest
in the operations of the Company), out of which options the Asset Sale
presented the most benefits to the Company and the best value to its
stockholders constituting the highest-priced offer for the sale of
substantially all the Company's assets that could be closed quickly and was
not subject to burdensome contingencies, all as more fully described under
"- Background and Reasons for the Asset Sale."
(2) The Asset Sale (i) leaves the Company with significant personal
property including its E-Dealer software, (ii) permits the Company to
produce web sites for industries other than the Marine Industry, (iii)
leaves the Company with revenues from its current accounts until July 31,
1997, and (iv) allows the Company the opportunity to explore mergers,
acquisitions or other transactions which may enhance the Company's value.
See "- Plans for the Operation of the Company Following the Asset Sale."
(3) Information concerning the financial performance, condition
(including serious negative balance sheet indicators), business operations
and prospects of the Company, including the possibility that the Company
would not be able to meet its debt repayment obligations. See "- Background
and Reasons for the Asset Sale" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations of the Company."
(4) The relatively small number of potential acquirers and the
inability of the Company to negotiate with any of such potential acquirers
a definitive agreement with terms more favorable than the Asset Sale
(including a sale of all or substantially all of the issued and outstanding
capital stock of the Company).
(5) The proposed terms and conditions of the Letter of Intent and the
Asset Purchase Agreement including (a) the obligations of the Purchaser to
complete the transaction not being subject to any but the usual conditions
concerning accuracy of the Company's representations and warranties and
compliance with the covenants of the agreement and (b) the Purchaser was
willing to pay to the Company a $110,000 earnest money deposit and to loan
the Company an additional $110,000 at signing for the purposes of paying
the current payroll and accounts payable.
15
<PAGE>
(6) The effect of the Asset Sale on the stockholders of the Company,
as well as on the Company's employees and lenders. See "- Effect of the
Asset Sale on the Company's stockholders."
(7) The experience, favorable reputation and perceived motivation of
the Purchaser and its executives and the Purchaser's financial condition,
which factors demonstrated the Purchaser's financial ability and
underscored the Purchaser's earnest intent to consummate the Asset Sale.
(8) The recommendation of the Company's management to enter into the
Asset Sale.
(9) The Board's expectation that completion of the Asset Sale would
substantially eliminate the Company's indebtedness, and result in
significant personal property retained by the Company.
In light of the Company's debt obligations and other liabilities and the
consideration to be received in connection with the Asset Sale, the Board
determined that the Asset Sale is in the best interests of the Company and its
stockholders. As indicated above, the Board considered the fact that (i) only a
relatively small number of parties expressed interest in acquiring all or a part
of the Company and (ii) it was reasonably unlikely that the Company would
receive, in the foreseeable future, offers to engage in alternative transactions
on terms more favorable to the Company and its stockholders than those offered
by the Purchaser.
The Company did not obtain an opinion by a financial advisor regarding the
fairness of the Asset Sale since the Company lacked the funds to obtain such an
opinion and the financial condition of the Company was such that if the Letter
of Intent had not been executed and the earnest money deposit and loan funding
thereunder obtained, the Company's operations would likely have been suspended
due to lack of working capital.
REGULATORY APPROVALS
No federal or state regulatory requirements must be complied with or
approval must be obtained in connection with the Asset Sale.
ACCOUNTING TREATMENT
The sale of certain assets valued at $550,000 as part of the Asset Sale
will be accounted for by the Company as a sale of certain assets. Upon the
consummation thereof, the consideration received by the Company in excess of the
book value (approximately $40,000) of the assets sold will be recognized as a
gain on the Company's books.
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<PAGE>
As part of the Asset Sale, the Company will enter into a consulting
agreement for $100,000 and a non-competition agreement for $100,000. The
consideration received by the Company for these agreements will be recognized as
income over the terms of the agreements.
The Company expects that representatives of its principal accountants, will
be present at the Special Meeting, will have the opportunity to make a statement
regarding the matters described in this Proxy Statement if they desire to do so
and will be available to respond to reasonable and appropriate questions.
CERTAIN INCOME TAX CONSEQUENCES
The Asset Sale will be a taxable transaction for federal and state income
tax purposes. The Company expects to recognize net taxable income with respect
to such sales, but also expects that such income will be substantially if not
totally offset for federal and state income tax purposes by unrelated deductions
and losses, including an offset for a loss for the fiscal year ended December
31, 1996 and an offset for certain net operating loss carryforwards which the
Company previously incurred. The Asset Sale will not result in any direct
federal or state income tax consequences to the stockholders of the Company.
DISSENTING STOCKHOLDERS' RIGHTS
The General Corporation Law of the State of Delaware does not provide
dissenting rights to stockholders of a Delaware corporation which sells
substantially all of its assets.
EFFECT OF THE ASSET SALE ON THE COMPANY'S STOCKHOLDERS
If the Asset Sale is consummated, the stockholders of the Company will
retain their equity interest in the Company. Such Asset Sale will not result in
any changes in the rights of the Company's stockholders.
PROCEEDS OF THE ASSET SALE
In connection with the Asset Sale, Trader advanced an aggregate of $220,000
to the Company in the form of $110,000 as an earnest money deposit and $110,000
as a loan. The funds were used by the Company to pay $120,000 of payroll tax
deposits and $100,000 of accounts payable, all of which were past due and to pay
the costs and expenses associated with the preparation of this Proxy Statement.
At the Closing, the Company will receive $530,000 from which it will pay
approximately $360,000 to accounts payable, $30,000 for the repayment of loans
by non-affiliates and utilize $140,000 for working capital.
17
<PAGE>
PLANS FOR THE OPERATION OF THE COMPANY FOLLOWING THE ASSET SALE
Effective at the Closing, the Company will act as the exclusive agent to
produce web site services for marine industry clients or Trader, continue to
service its current web site clients and evaluate and possibly establish web
sites for the automotive and motorcycle industries. In addition, the Company
will continue to explore opportunities for merger, acquisition or strategic
alliance to maximize return on its assets. Most likely candidates will be
privately held companies that have established management teams, a good track
record of operations and the ability to utilize the asset base of the Company
for the benefit of the stockholders. Following the Closing, twelve full-time
employees are anticipated. The business activities of the Company will include
the production of affinity group supersites, the production of business to
business intranets, the production of business web sites and the sale of
software.
The Company does not plan to liquidate or dissolve and the proposal to
approve the Asset Sale does not grant the authority for the Company to liquidate
or dissolve. If in the future the Company desires to liquidate or dissolve, it
will seek stockholder approval for such action.
18
<PAGE>
THE LETTER OF INTENT
The following is a summary of the material provisions of the Letter of
Intent and is qualified in its entirety by reference to the complete text of the
Letter of Intent a copy of which is attached as Exhibit A. Terms which are not
otherwise defined in the summary or elsewhere in this Proxy Statement shall have
the meanings set forth in the Letter of Intent.
Upon the terms and subject to the conditions of the Letter of Intent and
the Asset Purchase Agreement to be entered into between the Company and Trader,
effective on the Closing Date, the Company will sell and transfer, and the
Purchaser will purchase and acquire, the Company's Assets (as described below).
ASSETS
The Company's Assets being transferred pursuant to the Letter of Intent and
the Asset Purchase Agreement to be entered into between the Company and Trader,
include all of the Company's right, title and interest in and to substantially
all of the Company's assets and properties excluding (i) fees payable until July
31, 1997 to the Company under any initial term of any existing contract with a
third party to provide web site development and hosting services, (ii) E-Dealer
software (to the extent that it is separable from the software supporting
Internet Waterway) and all rights to market E-Dealer software to third parties,
(iii) certain computers, furniture, office equipment and supplies, (iv) the
Company's leasehold interest in its current office space, (v) accounts
receivable prior to Closing, and (vi) the Company's cash on hand and in bank
accounts. The Company's Assets being transferred as defined in the Asset
Purchase Agreement include (i) all tangible personal property, (ii) all rights,
tangible and intangible, and leasehold interests in personal property (as
defined in the Asset Purchase Agreement); (iii) all rights in and to any
governmental and private permits, licenses, certificates of occupancy, franchise
and authorizations, (iv) all inventories, (v) all intangible Property Rights,
(vi) all patents, copyrights and trademarks, (vii) all customer lists, promotion
lists and marketing data, (viii) all computer software programs, (ix) all causes
of action, (x) all accounts and notes receivable which arise subsequent to the
Closing, (xi) all account lists, books and records, (xii) all goodwill related
to the Company's business and (xiii) all other Company assets not excluded.
RETAINED ASSETS AND RETAINED LIABILITIES
The Letter of Intent excludes and the Asset Purchase Agreement will exclude
from the Assets the following Retained Assets: (i) fees payable until July 31,
1997 to the Company under any initial term of any existing contract with a third
party to provide web site development and hosting services, (ii) E-Dealer
software (to the extent that it is separable from the software supporting
Internet Waterway) and all rights to market E-Dealer software to third parties,
(iii) certain computers, furniture, office equipment and supplies, (iv) the
Company's leasehold interest in its current office space, (v) accounts
receivable prior to Closing, and (vi) the Company's cash on hand and in bank
accounts. The Company's Assets being transferred include (i) all tangible
19
<PAGE>
personal property, (ii) all rights, tangible and intangible, and leasehold
interests in personal property (as defined in the Asset Purchase Agreement);
(iii) all rights in and to any governmental and private permits, licenses,
certificates of occupancy, franchise and authorizations, (iv) all inventories,
(v) all intangible Property Rights, (vi) all patents, copyrights and trademarks,
(vii) all customer lists, promotion lists and marketing data, (viii) all
computer software programs, (ix) all causes of action, (x) all accounts and
notes receivable which arise subsequent to the Closing, (xi) all account lists,
books and records, (xii) all goodwill related to the Company's business and
(xiii) all other Company assets not excluded.
The Purchaser will be assigned all rights and will assume all liabilities
and obligations of the Company in connection with certain licenses, leases,
advertising contracts and other permits and contracts.
CONSIDERATION
In consideration for the purchase of the Assets, the Purchaser will pay to
the Company $750,000 cash consisting of $550,000 for the assets being
transferred, $100,000 for a one (1) year consulting agreement with the Company
and $100,000 for a five (5) year non-competition agreement.
THE CLOSING
It is anticipated that the sale and transfer of the Assets to the Purchaser
will take place at such time as the Company and the Purchaser agree in writing.
In any event, the Closing is to occur on or before March 31, 1997. See "-
Conditions to Closing." The date of the Closing is referred to herein as the
"Closing Date."
REPRESENTATIONS, WARRANTIES AND COVENANTS
It is contemplated that the Asset Purchase Agreement to be entered into
between the Company and Trader will contain certain representations and
warranties of the Company normal and customary to similar transactions. The
Company's representations and warranties will include, among other things: (i)
its organization and good standing, (ii) the execution, delivery and performance
of the Asset Purchase Agreement by the Company, the legality, validity and
enforceability thereof against the Company, the lack of conflict with any other
agreement, law, regulation, or the like. In each case related to the Company's
business, (iii) the condition of the Company's Assets, (iv) title to the
Company's Assets, (v) sufficient licenses, consents and approvals to operate the
Company's business, (vi) the legality, validity and enforceability of material
contracts, (vii) the absence of litigation material to the Asset Sale, and
compliance with laws, (viii) the absence of any material changes in the
operation of the Company's business, (ix) certain tax matters, (x) the absence
of bankruptcy proceedings, (xi) certain environmental and employment matters,
(xii) the Company's suppliers, (xiii) the Company's customers, (xiv) the truth
and completeness of the documentation relating to the Company's assets and the
Asset Sale, (xv) the Company's operation of its business, (xvi) the absence of
Company subsidiaries, (xvii) title and transferability of Company trademarks,
trade names and the like, (xix) the providing of services by the Company
regarding prepaid accounts and (xx) the Company ceasing using any names being
assigned to Trader commencing immediately after the Closing date.
20
<PAGE>
It is further contemplated that the Asset Purchase Agreement will also
contain certain representations and warranties of the Purchaser relating to,
among other things: (i) the organization and good standing of the Purchaser,
(ii) the execution, delivery and performance of the Asset Purchase Agreement and
the Purchaser Documents by the Purchaser, (iii) the legality, validity and
enforceability of such documents against the Purchaser, (iv) the absence of any
litigation material to the Asset Sale, and (v) the absence of bankruptcy
proceedings.
CONDITIONS TO CLOSING
The obligations of the Purchaser to consummate the Asset Sale on the
Closing Date shall be subject to the reasonable satisfaction (or waiver) of
certain conditions including: (i) all representations, warranties and covenants
of the Company in the Asset Purchase Agreement being true and correct in all
material respects on and as of the Closing Date, (ii) all actions, proceedings,
instruments, opinions and documents required to carry out the Asset Purchase
Agreement shall be reasonably satisfactory to Purchaser and its counsel, (iii)
the Company shall have delivered to Purchaser on the date of Closing such
documents and other evidence as Purchaser shall reasonably request in order to
establish the consummation of transactions relating to the execution, delivery
and performance by the Company of the Asset Purchase Agreement, the purchase,
transfer and delivery of the Assets to be purchased, the taking of all corporate
and other proceedings in connection therewith and the compliance with all other
conditions, (iv) all terms, covenants, agreements and conditions of the Asset
Purchase Agreement to be complied with and performed by the Company on or before
the Closing Date shall have been complied with and performed in all material
respects, and (v) Purchaser shall have received the consent of the Company's
stockholders, as required by applicable law, to the proposed transaction (Asset
Sale) and to the terms of the consulting agreements and non-competition
agreement as set forth in the Asset Purchase Agreement.
The obligations of the Company to consummate the Asset Sale will be subject
to the prior satisfaction (or waiver by the Company) of certain conditions,
including: (i) all representations, warranties and covenants of the Company in
the Asset Purchase Agreement being true and correct in all material respects on
and as of the Closing Date, (ii) all actions, proceedings, instruments, opinions
and documents required to carry out the Asset Purchase Agreement shall be
reasonably satisfactory to the Company and its counsel, (iii) the Purchaser
shall have delivered to the Company on the date of Closing such documents and
other evidence as the Company shall reasonably request in order to establish the
consummation of transactions relating to the execution, delivery and performance
by the Purchaser of the Asset Purchase Agreement, the purchase, transfer and
delivery of the Assets to be purchased, the taking of all corporate and other
proceedings in connection therewith and the compliance with all other
conditions, and (iv) all terms, covenants, agreements and conditions of the
Asset Purchase Agreement to be complied with and performed by the Purchaser on
or before the Closing Date shall have been complied with and performed in all
material respects.
21
<PAGE>
CERTAIN OPERATIVE AGREEMENTS
The Letter of Intent requires the Company to (i) act as an agent to produce
web site services for marine industry clients of Trader, (ii) enter into a
one-year consulting agreement with Trader, and (iii) enter into a
non-competition agreement not to compete with Trader in the marine industry for
five (5) years.
It is contemplated that the Company and Trader will enter into an Asset
Purchase Agreement that will further define the specific rights of the Company
and Trader as set forth in the Letter of Intent.
INDEMNIFICATION
The Asset Purchase Agreement may require the Company and Gregory S. Carr
and Dyann Carr, principal stockholders and officers and directors of the Company
(collectively, "Carr") to indemnify Purchaser for any liability, damages and
expenses (collectively "Losses") incurred by Purchaser as a result of any breach
of any representation, warranty or covenant contained in the Asset Purchase
Agreement or applicable laws (including any Losses arising from the Company's
failure to comply with any applicable UCC Bulk Sales Act) by the Company or Carr
or as a result of events occurring prior to Closing that relate to or affect the
Assets or the conduct of the Company's business.
The Asset Purchase Agreement may also require the Purchaser to indemnify
the Company and Carr with respect to any Losses incurred by them as a result of
any breach by Purchaser of any representation, warranty or covenant contained in
the Asset Purchase Agreement, or as a result of any events occurring after the
Closing that relate to the Assets or the conduct by the Purchaser of that
portion of the Company's business being transferred.
The Asset Purchase Agreement may further provide for a right of offset, as
applicable, to any claim under the indemnity provisions.
TERMINATION
The Letter of Intent may be terminated (i) at any time by mutual consent of
the Company and the Purchaser or (ii) by Trader if the Company had failed to
disclose matters to Trader that materially and adversely affect the value of the
assets and business being transferred. In addition, the Company agreed to pay
$35,000 to Trader in the event of a breach of the Letter of Intent by the
Company resulting from events beyond the control of the Company's Board of
Directors.
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<PAGE>
TERMINATION FEE
Other than the $35,000 agreed payment by the Company referenced above,
there is no specific termination fee set forth in the Letter of Intent.
MARKET PRICE DATA AND RELATED MATTERS
REGARDING THE COMPANY
COMMON STOCK INFORMATION
The Company had approximately 400 recordholders of its Common Stock as of
September 30, 1996. On December 2, 1996, the business day first preceding public
announcement of the Asset Sale, the high and low bid prices for the Common Stock
were $.438 and $.43, respectively. On February 27, 1997, the high and low bid
prices for the Common Stock was $.531 and $.50, respectively.
The Company's Common Stock was quoted on the NASDAQ SmallCap Market System
until October 28, 1996, under the symbol "KNET" and since that date on the
Electronic Bulletin Board in the over-the-counter market. The range of high and
low bid prices for the Common Stock as reported by NASDAQ and the Electronic
Bulletin Board for the periods indicated is set forth below.
Price
-----
By Quarter Ended: High Low
---- ---
Fiscal 1997
March 31, 1997 (through February 27, 1997).... $ .906 $ .500
Fiscal 1996
December 31, 1996............................. $ .843 $ .625
September 30, 1996............................ $3.062 $3.062
June 30, 1996................................. $6.125 $5.750
March 31, 1996................................ $5.500 $4.875
Fiscal 1995
December 31, 1995............................. $6.437 $6.25
DIVIDENDS
The Company has not paid dividends to its stockholders since inception.
23
<PAGE>
SELECTED FINANCIAL DATA
OF THE COMPANY
The financial data of the Company set forth below for the period ended
December 31, 1995 have been derived from the Company's audited financial
statements included herein. The financial data of the Company set forth below
for the nine months ended September 30, 1996, have been derived from the
Company's unaudited financial statements included herein. The data should be
read in conjunction with the financial statements, related notes and other
financial information included elsewhere in this Proxy Statement.
For the Period from
January 18, 1995 (inception) Nine Months Ended
to December 31, 1995 September 30, 1996
-------------------- ------------------
Income Statement Data:
Net loss..................... $(1,734,270) $(3,658,233)
Average shares outstanding... 5,229,445 5,383,962
Loss per share............... $(.33) $(.68)
December 31, 1995 September 30, 1996
----------------- ------------------
Balance Sheet Data
Working capital.............. $3,044,735 $(663,823)
Total assets................. 3,722,544 828,792
Long-term debt............... 211,309 224,853
Stockholders' equity......... 3,031,474 (224,761)
Book value per share......... $ .56 $ (.04)
----------- -----------
On November 29, 1996, the Company entered into a letter of intent to sell
substantially all of its assets.
24
<PAGE>
UNAUDITED PRO FORMA
FINANCIAL INFORMATION OF THE COMPANY
The following Pro Forma Consolidated Balance Sheet as of September 30, 1996
has been prepared on the assumption that closing of the proposed sale of assets
to Trader Publishing Company occurred on September 30, 1996.
A pro forma statement of operations has been omitted because the Company is
selling substantially all of its operating assets.
The unaudited pro forma adjustments are based upon available information
and certain assumptions that management believes are reasonable in the
circumstances. The unaudited pro forma financial information purports neither to
represent what the Company's financial position or results of operations would
actually have been if the Asset Sale had occurred on September 30, 1996, nor to
project the Company's financial position or results of operations for any future
date or period.
25
<PAGE>
KINETIKS.COM, INC.
Pro Forma Balance Sheet
September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Pro Forma After
September 30, 1995 Adjustment Adjustment
------------------ ---------- ----------
<S> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $10,435 $550,000 (1) $150,435
$200,000 (2)
($610,000)(3)
Accounts receivable 63,058 63,058
Notes and advances due from officers and
employees 26,535 26,535
Prepaid expenses and other current assets 64,849 64,849
------------- -----------
Total current assets 164,877 304,877
Property and equipment, net 450,547 (40,000)(1) 410,547
Prepaid stock offering cost 25,000 25,000
License agreement, net 188,368 188,368
------------- -----------
Total assets 828,792 928,792
============= ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable 3,042 3,042
Note payable to shareholder 30,000 (30,000)(3) 0
Accounts payable 532,327 (460,000)(3) 72,327
Accrued compensation 87,917 (40,000)(3) 47,917
Other accrued expenses 169,543 (80,000)(3) 89,543
Deferred revenue 5,871 120,000 (2) 125,871
-------------- -----------
Total current liabilities 828,700 338,700
Note payable to shareholder officer 224,853 224,853
Deferred revenue 80,000 (2) 80,000
Stockholders' equity(4)
Preferred stock; $.001 par value;
500,000 shares authorized; none issued
Common stock; $.001 par value;
20,000,000 shares authorized;
5,387,924 issued and outstanding
at September 30, 1996 5,388 5,388
Additional paid-in capital 5,162,354 5,162,354
Accumulated deficit (5,392,503) 510,000 (1) (4,882,503)
------------ -----------
Total stockholders' equity (224,761) 285,239
------------- -----------
Total liabilities and stockholders' equity 828,792 928,792
============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
KINETIKS.COM, INC.
Footnotes to Pro Forma Balance Sheet
1. To record the sale of certain assets of the Company in exchange for
$550,000 cash. The assets sold had a net book value of approximately
$40,000 resulting in a gain of $510,000. Due to the Company's net operating
loss during the current year and net operating loss carryforwards from the
previous year, the gain on the sale is not tax effected.
2. In conjunction with the sale of certain assets, the Company entered into a
five-year non-competition agreement for $100,000 and a one-year consulting
agreement for $100,000. The consideration received by the Company for those
agreements will be deferred and recognized as income over the terms of the
related agreements.
3. To record the utilization of the proceeds of the transaction to reduce the
Company's outstanding obligations. Approximately $140,000 of the proceeds
will be retained as working capital.
4. Stockholder's equity does not reflect the effects of the following
transactions:
In November 1996, Gregory Carr, the Company's founder and then Chief
Executive Officer, retired 400,000 shares of his personal holdings of
Company common stock. The Company subsequently sold the 400,000 shares to
an individual investor for $100,000. This sale was concluded in order to
fund immediate essential expenditure requirements related to operations. In
addition, during December 1996, Mr. and Mrs. Carr retired 3,000,000 of
their personal shares in an attempt to increase the value of the remaining
shares held by stockholders and in hopes of attracting additional
investment in the Company. Of those 3,000,000 shares, 1,000,000 of those
shares have voting rights which have been assigned to the Board of
Directors by Proxy and are subject to final retirement in 1997. The
remaining 2,000,000 shares have been retired to treasury and are
non-voting.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF THE COMPANY
Overview
The Company is engaged in electronic publishing and marketing on the
Internet. In general, the Company has provided a free information service
concerning subjects of interest to water sports enthusiasts, colorful and highly
graphical interactive advertising services for marine related vendors and an
interactive catalog of related water sports products.
Effective October 28, 1996, the Company's Common Stock was removed from
trading on the NASDAQ Small Cap Market because as of June 20, 1996, the
Company's total assets and stockholders equity fell below the mandatory
requirement for continued listing which are $2,000,000 and $1,000,000
respectively. This was the result of the Company's cumulative losses since
inception. The Company's stock is now traded on the OTC Bulletin Board. See
"Factors Affecting Operating Results" and "Liquidity and Capital Resources."
As a part of restructuring, the Company has entered into a letter of intent
to sell its website, the "Internet Waterway" which is planned to close the first
quarter of 1997. When this sale is concluded, the Company plans to use its
"Waterway" model to build other affinity websites for other markets.
From its inception, the Company's operating activities have related
primarily to building the trade name for the Internet Waterway, research and
development, recruiting personnel, raising capital, contracting advertisers and
leasing or purchasing operating assets. The Company recognized its first revenue
from advertising contracts when the Internet Waterway was established on the Web
in October 1995.
An evaluation of the Company's business prospects must be considered in
view of its performance during 1996 which reflects the difficulties and risks
which frequently face early stage development companies. In order for the
Company to regain viability in the near term, the Company must develop affinity
markets not related to recreational water activities. To achieve this goal, the
Company will be required to remain on the leading edge of Internet technology
and provide timely and valuable service and information to advertisers,
merchants and users.
Shareholders should carefully consider the information contained in this
Proxy before making a decision regarding this Proxy. Information in this Proxy
contains "forward-looking statements" which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "should" or
"anticipates" or the negative thereof or other variations thereon on comparable
terminology, or by discussions of strategy. No assurance can be given that the
future results covered by the forward-looking statements will be achieved. The
following matters constitute cautionary statements identifying important factors
with respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to vary materially from the
future results covered in such forward-looking statements. Other factors could
also cause actual results to vary materially from the future results covered in
such forward-looking statements.
28
<PAGE>
Results of Operations
Revenues
The Internet Waterway was placed online as of October 31, 1995. Revenue
recognized for the period ended December 31, 1995 was insignificant. For the
year to date period ended September 30, 1996, the Company has recognized
$1,011,805 in revenue of which $633,781 represented non-cash trade for
advertising.
Substantially all of the Company's revenue in the first year of operation
has been derived from sales of commercial website advertisements and creation of
commercial website creation and interactive advertising of marine related
businesses on the Internet Waterway. Income from advertising contracts is
recognized in the period in which the advertisement is displayed on a Web page
of the Internet Waterway. Minor amounts of revenue have been derived from
merchandise sold through online store sales offerings.
Operating Expenses
Operating expenses for the nine months ended September 30, 1996 totaled
$4,685,100. These expenses include 633,781 related to non-cash exchanges of
goods and services between the Company and certain vendors. Operating expenses
have been reduced from a monthly total of approximately $450,000 to a current
monthly total of approximately $75,000 as the result of reducing the number of
employees, freezing software development and reducing office space.
Research and Development
Research and development expenses for the nine months ended September 30,
1996 totaled $219,952. These costs consisted almost entirely of salaries and
consulting fees to support technological development. All research and
development costs have been expensed as incurred. The Company has suspended
research and development projects until such time as future events indicate a
profitable market for potential products.
Sales and Marketing
Sales and marketing expenses for the nine months ended September 30, 1996,
were $2,363,832 and include 633,781 related to non-cash exchanges of goods and
services between the Company and certain vendors. These expenses consisted
primarily of salaries for sales personnel, commissions, travel expenses, trade
show expenses and costs of marketing literature. As of February 28, 1997, the
Company has reduced its sales force from ten to four salesmen and placed its
remaining outside sales force on a commission basis.
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<PAGE>
General and Administrative
General and administrative expenses consisted primarily of fixed overhead
expenses, salaries and fees for professional services. For the nine months ended
September 30, 1996, these expenses totaled $1,339,358. The Company has, as part
of its restructuring effort, implemented personnel reductions and salary
reductions for remaining administrative officers and employees. As of February
28, 1997, the general and administrative personnel have been reduced from six to
three employees.
Factors Affecting Operating Results
Prior to 1996, the Company had no financial history on which to base
planned operating expenses. Therefore, the Company's projected expense levels
were based primarily on its anticipated future revenues. In large part, the
projected expense levels were fixed and could not be quickly adjusted.
Therefore, shortfall of sales, relative to the Company's expectations, had a
significant negative impact on the Company's business and financial condition.
To the extent that these expenses did not produce increased revenues, the
Company's business, operating results and financial condition were significantly
adversely affected.
The Company has recently revised its budgets in order to attempt to bring
its expenses in line with its expected cash flow. The Company has made major
adjustments in its expense structure, including staff layoffs, salary deferrals
and salary reductions for senior staff members. Such measures have reduced
monthly operating expenses to approximately $75,000.
Liquidity and Capital Resources
The Company has financed its operations through private and public sales of
equity securities and loans advanced by its President and others. Cash provided
by operating activities has fallen far short of projections.
The net proceeds from the Initial Public Offering, together with cash flows
generated from operations, have not been sufficient to meet the Company's cash
needs for working capital and capital expenditures. The Company has attempted to
sell additional equity and to obtain new credit facilities. None of these
efforts has yet proven successful.
In November 1996, Gregory Carr, the Company's founder and then Chief
Executive Officer, retired 400,000 shares of his personal holdings of Company
common stock. The Company subsequently sold the 400,000 shares to an individual
investor for $100,000. This sale was concluded in order to fund immediate
essential expenditure requirements related to operations. In addition, during
December 1996, Mr. and Mrs. Carr retired 3,000,000 of their personal shares in
an attempt to increase the value of the remaining shares held by stockholders
30
<PAGE>
and in hopes of attracting additional investment in the Company. Of those
3,000,000 shares, 1,000,000 of those shares have voting rights which have been
assigned to the Board of Directors by Proxy and are subject to final retirement
in 1997. The remaining 2,000,000 shares have been retired to treasury and are
non-voting. At the same time as the 3,000,000 shares were retired, Mr. Carr
resigned his position as Chief Executive Officer and requested that the Board of
Directors begin an immediate search to find a suitable replacement. Mr. Carr
will continue to serve the Company in various areas of business.
In an attempt to deal with its creditors without seeking protection under
the bankruptcy laws beginning in December 1996, the Company offered settlement
options to various trade creditors who are owed in excess of $600,000 in the
aggregate. These options include a payout schedule of 65% of the balance owed
over an 18-month payout period, or 20% of the balance owed within 45 days of the
creditors' signed election of that option. As a result, approximately $100,000
of the outstanding obligations have been consequently forgiven as of February
28, 1997, and approximately $100,000 was deferred over the 18-month payment
period.
As a result of significant and continuing negative cash flow, the Company
reduced personal costs by layoffs, salary reductions and reduced its overhead by
restructuring its office lease. The lack of operating capital and negative cash
flows significantly impaired the Company's ability to operate and, in the
absence of completing the Asset Sale, the Company will be required to further
substantially reduce and even terminate its operations. The Company continues to
actively explore various short and long term financing alternatives in order to
meet its immediate cash requirements. Such measures may entail a substantial
restructuring of the Company's present capital structure, including the
substantial dilution of the current stockholders.
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<PAGE>
ADDITIONAL INFORMATION ABOUT THE COMPANY
BUSINESS
Introduction
The Company is a development stage enterprise which commenced operations in
January 1995, to develop and market proprietary software programs for use on the
World Wide Web (the "Web") of the Internet. The Company's first software
program, Internet Waterway(TM) ("Internet Waterway"), which went "on-line" in
October 1995, offers products and services and provides free information to
boaters, sailors, fishermen and other water sports enthusiasts. Access to the
Internet Waterway is available on the Internet or through services such as
America On-Line(TM), Prodigy(TM), CompuServe(TM), the Microsoft Network or
through the Company's own proprietary software access programs.
The Company earns revenues through the Internet Waterway in primarily three
ways, (i) through the sale of interactive advertising by the Company on a fee
basis to manufacturers, retailers and dealers of a wide range of water sports
products such as sailboats, powerboats, boating equipment and fishing equipment
which it markets under the "Boat Finder," "Marina Finder" and "Dealer Finder"
trade names, (ii) through the direct sale by the Company of water sports
accessory products such as fishing rods and reels, related sporting goods and
attire which it markets under the "Ship Shop" trade name and (iii) through
revenues earned from the advertising placement sales of banners that link to web
sites from various high user traffic web pages on the Internet Waterway.
In order to attract Internet users ("Users") to the Internet Waterway, the
Company also offers free water sports related information services to Users such
as (i) selected comment from popular boating and fishing magazines (offered
under the trade name "Internet Waterway Newsstand"), (ii) action photographs of
water sports activities (offered under the trade name "On Line Images"), (iii)
calendars of major water sports activities (offered under the trade name "Marine
Calendar"), (iv) a potpourri of fishing facts, fishing bulletin boards and
fishing reports (offered under the trade name "Fish'N Net") and (v) extensive
database of marinas, cruise locations, services and a detailed classified
listing of boats (offered under the trade name "Marina Finder" and "Boat
Finder." See "Business - Products and Services" for a description of each of the
trade name categories described above which make up the Company's Internet
Waterway.
The Company's business strategy is (a) to utilize a national marketing
campaign for the Internet Waterway in order to attract advertisers and Users
which will emphasize the Internet Waterway's (i) in-depth database and high
quality, simple to use graphics, (ii) secure credit card environment for on-line
product purchases by Users and (iii) capacity to provide interactive
advertising, shopping and customer services and (b) to develop on a fee basis
commercial proprietary software programs similar to the Internet Waterway which
may be used by others to offer products and services on the Web. See "-
Strategy."
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<PAGE>
The Company is a start-up venture that only recently completed development
of the Internet Waterway's products and services and has generated insufficient
revenues to fund its operations. The Company's products and services described
herein became available on the Web in October 1995. There can be no assurance
that the Company will (i) attract Users or advertisers to the Internet Waterway
or (ii) generate revenues sufficient to maintain operations or earn a profit.
Moreover, the Company has not commenced development of any commercial
proprietary software programs for others and does intend to commence such
development in the near future.
Overview
The Internet and the World Wide Web
The Internet is a worldwide network that links thousands of public and
private computer networks. The Internet began in 1969 as a project of the
Advanced Research Projects Agency ("ARPA") of the U.S. Department of Defense to
connect different types of computers across geographically disparate areas. The
ARPA network was designed to allow any computer on the network to communicate
with any other computer on the network through an open communications protocol
known as TCP/IP.
Until recently, use of the Internet was generally limited to governmental,
educational and commercial organizations with a working knowledge of the UNIX
operating system and commands, and the primary use made of the Internet was the
communication of information via electronic mail. However, there has been a
rapid growth in the use and popularity of the Internet in the past several
years. According to industry sources, users in more than 130 countries
throughout the world are connected to the Internet including 24 million users in
North America, 17.6 million of whom use the Web.
The dramatic growth in the number of Internet Users is attributable to a
number of developments and factors. The first was the introduction in 1992 of
the World Wide Web ("Web"), a client/server system of hyperlinked multimedia
databases which began to unlock the potential of the Internet as a mass medium.
The Web, developed by the European Laboratory for Research Physics ("CERN") in
Switzerland, advanced the potential of the Internet in several significant ways.
First, it enables full multimedia presentation (including text, graphics, video
and audio) over the Internet. Second, through the Web's system of standardized
information protocols and a communications format called HyperText Transfer
Protocol ("HTTP"), Users can gain access to information ("navigate") on the Web
without entering complex alphanumeric commands. Third, using HyperText Markup
Language ("HTML"), document authors can link text or images in one document to
other documents anywhere else on the Web. When the User selects or, if using a
mouse, clicks on the hypertext in one document (often displayed on the screen as
highlighted words or images), the linked document is automatically accessed and
displayed.
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<PAGE>
The Web is based on a client/server system in which certain computers
("servers"), such as the Company's computers, store information in files and
respond to requests issued by remote User computers to view or download files,
thus allowing multiple, geographically dispersed Users to view and use the
information stored on a single server. The User must use software, known as a
browser, that can read HTML documents and follow their hypertext links to
retrieve and display linked documents from servers such as the Company.
An early limitation to growth of the Web was that the browser software
initially provided by CERN was text-based and contained limited retrieval and
display capabilities. In January 1993, the National Center for Supercomputing
Applications ("NCSA") at the University of Illinois at Urbana-Champaign
significantly advanced the use of Web technology with the introduction of NCSA
Mosaic for X Window on the UNIX platform, the first graphical user interface
browser for the Web. The NCSA Mosaic graphical user interface allows Users to
access the diverse information archives, data protocols and data formats of the
Internet using point-and-click, mouse-driven commands. NCSA Mosaic, which is
offered to users on a freewith-copyright basis (making it available for use
without charge and without the right to distribute), served as a catalyst for
increased use of the Web. When NCSA released a version of NCSA Mosaic for
Windows in September 1993, the Web became accessible to personal computer users
for the first time.
The increased popularity of the Internet is also attributable to the
proliferation of information and services available on the Internet, as well as
the expanded use of home personal computers, which increasingly contain modems
as a standard feature. Among the types of publications and information available
to Internet Users are newspapers, magazines, weather updates, government
documents and industry newsletters, as well as a variety of commercial products
and services such as the Internet Waterway.
In order to support the continued growth and popularity of the Internet,
certain infrastructure elements must expand to handle the resulting increases in
Internet demand and traffic. These elements include widespread, inexpensive
Internet access, either through Internet access providers or on-line services,
and widely available high-speed communications channels to accommodate the
increasing number and size of files available for downloading.
Commercial Use of the Internet
As business organizations have begun to realize the potential of the
Internet as an inexpensive and effective means of offering products and services
directly to customers and potential customers, businesses are increasingly
advertising and selling such products and services on the Web. For example,
business organizations are now using the Web to provide product information and
support to existing customers, to advertise products and services and to offer
products and services for sale by means of on-line catalogs. It is this market,
that is the advertising and sale of products and services on the Web, that the
Company seeks to address through the Internet Waterway. Commercial organizations
that offer water sports related products and services represent potential
advertising customers for the Internet Waterway.
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<PAGE>
Computer users wishing to access the vast array of information and
services, such as the Internet Waterway, available on the Web use a browser that
can read HTML documents, follow hypertext links and interface with the diverse
information archives and data formats of the Web. The basic needs of most
individual computer users casually browsing the Web can be fulfilled by a number
of different browsers available today, including certain browsers (such as NCSA
Mosaic) that are available for no charge.
Strategy
The Company's business strategy is to (i) develop a national and
international User base for Internet Waterway which will, in turn, allow the
Company to generate fee-based, direct product sale and commission-based revenues
from advertisers and Users and (ii) develop on a fee basis commercial
proprietary software programs similar to the Internet Waterway which may be used
by others to offer products and services on the Web.
Development of User Base.
Development of the Company's Internet Waterway User base emphasizes the
following features of the Internet Waterway:
(i) The in-depth and frequently updated information provided by the
Internet Waterway to Users which includes sophisticated graphics and multimedia
characteristics such as motion pictures and sound. The Company's fee-based and
commissioned-based advertising has been designed for use in these high traffic
information areas.
(ii) The ability of Users to purchase goods and services on the Internet
Waterway by credit card. The Internet Waterway's E-mail will also allow
advertisers to provide customer service and obtain sales feedback in order to
establish a long-term relationship with the User.
(iii) Interactivity features offered on the Internet Waterway which combine
multimedia, search capabilities and E-mail, will provide Users with information
and a sense of participation while giving advertisers insights into User
interest in their products and services. Interactivity also promotes lengthier
User exposure, focus, and attention to sales materials than offered by print or
broadcast media.
The Company will continue to develop its User base through a national
marketing campaign and through the use of direct mail materials, advertising in
industry magazines, newspapers and periodicals, electronic media distribution
and ongoing promotions on the Internet and Web. See "- Marketing."
Development of Proprietary Programs.
The Company currently uses its computer programmers, graphic designers and
other personnel that were involved in creation of the Internet Waterway to
develop similar commercial proprietary programs for others interested in
offering products and services on the Web. The Company charges fees and/or
commissions for developing such programs. To date, the Company has not commenced
development of any such programs and is in the process of completing a business
plan outlining its approach to this business. The Company's business plan will
be determined in part by its future experiences in developing and marketing the
Internet Waterway.
35
<PAGE>
Products and Services
The Company operates an Internet Web site which is comprised of nine
"sub-sites," each offering different categories of products and services. Each
sub-site shares certain common characteristics, including point-and-click
technology, high quality graphics, multimedia entertainment and product
descriptions, interactivity (including secure credit card purchase capability),
advertising platforms and free water sports information.
The Company's nine product and service categories offered on the Web are as
follows:
1. Boat Finder. Users are offered thousands of new and used boats listed
for sale by brand, size, price, style and location. Advertisers include yacht,
sailboat and powerboat dealers, jet ski and wave rider retailers, private
watercraft owners and firms which finance, insure, transport, register,
document, survey or service watercraft.
2. Marina Finder. Advertisers include marinas and other facilities which
offer long-term accommodations for watercraft or temporary docks and slips while
traveling. Users may access information about these facilities by location or
alphabetically. Advertisers are able to respond to customer questions, take
reservations and make arrangements to meet service needs by E-mail.
3. Dealer Finder. Advertisers include those who buy and sell watercraft or
related products and services. Information is provided by location or
alphabetically, and includes displays of product lines and services through
interactive advertisements featuring photographs and watercraft specifications.
Users may arrange for additional information by E-mail, schedule a service
appointment or purchase a boat on-line.
4. Ship Shop. An on-line water sports store operated by the Company through
its five-year agreement with West Marine which is expected to offer up to 32,000
water sports related products. Users are also provided frequently asked
questions and answers concerning major products ("West Advisor") and have the
opportunity to communicate with suppliers by E-mail. Advertisements are
continually updated in real-time and are offered on an interactive basis.
Customers may purchase from the West Marine Online Store by clicking on the item
desired and providing a credit card number at checkout. All transactions are
protected by a secured commerce server. Products may be accessed by category and
information is provided with respect to shipping, handling and return policies.
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<PAGE>
5. Travel and Resort. Users are offered the opportunity to charter a boat,
book a cruise, make airline reservations or confirm resort reservations.
Advertisers, which include travel agents, charter boat operators, cruise lines
and resorts, pay the Company either a commission for the sale of their services
or a fixed advertising fee. Travel agents have the ability to display pictures
of vacation destinations, charter boat operators are able to display pictures of
boats and boat accommodations and cruise lines and resorts are able to display
pictures of accommodations, travel routes, location of facilities and
destination information. Users can book reservations electronically.
6. Regions. Allows Users to use point-and-click technology to browse
through fourteen Regional subsites dedicated to providing detailed nautical
information, news, weather, and regional business web site advertising banner
links. Icons for advertisers, which include marinas, boat dealers and travel and
resort operators, guide Users to advertisements in related categories. The
Company's editorial staff update the Regional sites, including content links to
related web sites of User interest.
7. Marine Calendar. A comprehensive and interactive calendar with thousands
of boating, fishing and sailing events listed. The calendar is searchable by day
or subject area. Users can also submit events for placement in the calendar.
8. Internet Waterway Newsstand. Provides water sports monthly magazines web
sites and their feature articles. Offers Users the opportunity to sample the
monthly magazines and purchase a subscription online. Magazines often provide
value added content with longer shelf life for Users such as buyers guides and
fishing techniques. Selected magazines have the opportunity to generate revenue
through banner placement advertising sales within the online edition.
9. Fish'N Net. Offers fishermen a variety of free information relating to
fishing boats, fishing equipment, lures, weather information, popular locations
to fish and tips on fishing technique. Advertisers include fishing guides,
fishing charter operators, fishing resorts and fishing boat dealers.
Marketing
The Internet Waterway target market is the water sports industry, which the
Company estimates is composed of over 75 million individuals in the United
States including more than six million water sports enthusiasts currently
on-line to the Internet. Additionally, over 24 million people in North America
are currently on-line and may be secondarily targeted for the Company's
products.
The Company segments the market where possible and concentrates advertising
efforts directly in each area. The Company's sales and marketing group seek to
develop long-term relationships with vendors, manufacturers, resorts, marinas
and dealerships emphasizing service and the "high tech" positioning of its
proprietary Web software capabilities. The Company uses direct mail,
telemarketing, targeted sales activity, brochures and software deliverables to
promote the Internet Waterway. The Company's sales and marketing organization
consists of a direct sales group, a marketing manager, a telemarketing manager,
an internal customer service manager and its executive officers. A Director of
Marketing oversees all advertising, public relations and promotions. Further,
the Company leverages commissions from sales made by magazine sales forces.
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The Company has joined several trade organizations and will actively
participate in events involving the industry. Moreover, the Company has
agreements with the National Marine Manufacturers Association (NMMA) and the
Marine Industries Association of Florida (MIAF) to produce and maintain
substantial web sites for those organizations. In return, the Internet Waterway
is being endorsed to the 1,500 NMMA members and the 1,400 MIAF members as the
official association supersite for membership to join. The trade for service
relationships with NMMA and MIAF also provide for boat show booth spaces and
advertising and Internet Waterway promotion by the associations.
Competition
The market for Internet-based content publication, software and services is
new, intensely competitive, quickly evolving and subject to rapid technological
change. The Company expects competition to persist and increase in the future.
The Company is in the development stage and therefore all of its current and
potential competitors have longer operating histories, greater name recognition,
larger installed customer bases and significantly greater financial, technical
and marketing resources than the Company. This intense level of competition
could materially adversely affect the Company's future business, operating
results and financial condition. The Company's current competitors include a
small number of firms which offer Internet sites for advertisers wishing to
reach water sports enthusiasts and hobbyists as well as individual dealers,
retailers, resort operators, cruise lines and others who market water sports
related products on the Internet.
Potential competitors include browse and software vendors and servers, PC
and UNIX software vendors and on-line service providers. Additional competition
could come from client/server applications, other database companies, multimedia
companies, document management companies, networking software companies, network
management companies and educational software companies. In a broader sense, the
Company may compete with the more traditional print advertising mediums, such as
newspapers and magazines.
There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competitive pressures
faced by the Company will not materially adversely affect its business operating
results and financial condition. Many of the Company's competitors have the
financial resources necessary to enable them to withstand substantial price and
product competition, which are expected to increase, and to implement extensive
advertising and promotional programs, both generally and in response to efforts
by other competitors to enter into new markets or introduce new products. The
Internet products and services industry is characterized by low financial
barriers to entry and frequent introductions of new products. The Company's
ability to compete successfully is largely dependent on its ability to
anticipate and respond to various competitive factors affecting the industry,
including new products which may be introduced, changes in consumer preferences,
demographic trends and pricing strategies by competitors, which could adversely
affect the Company's operating margins.
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The Company believes that competition factors for attracting advertisers on
the Internet include the price of advertisements on the Web, the number of Users
which browse the Web site, the quality of graphics included in the
advertisements, the amount and depth of information provided to Users and the
level of interactivity available to Users and advertisers. The Company believes
that the Internet Waterway provides high quality graphics and in-depth databases
of information together with interactivity functions superior to that of its
current competitors. However, the Company only recently completed development of
the Internet Waterway, has limited Users and can give no assurance it will
attract a significant number of Users in the future.
Employees
As of December 15, 1996, the Company employs 20 employees (including its
executive officers), comprised of 9 research and development personnel, 6 sales
personnel and 5 administrative personnel. The Company also employs 3 part-time
employees.
Proprietary Rights
The Company's success and ability to compete is dependent in part upon its
technology, although the Company believes that its success is more dependent
upon its technical expertise than its proprietary rights. The Company relies on
a combination of copyright, trademark and trade secret laws and contractual
restrictions to establish and protect its technology. It is the Company's policy
to require employees and consultants to execute confidentiality agreements upon
the commencement of their relationships with the Company. These agreements
provide that confidential information developed or made known during the course
of a relationship with the Company is to be kept confidential and not disclosed
to third parties except in specific circumstances. There can be no assurance
that the steps taken by the Company will be adequate to prevent misappropriation
of its technology or that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technology. The Company has no patents or patent applications.
The Company has registered the trademark Internet Waterway in the United
States Patent Office.
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Properties
The Company leases approximately 4,598 square feet for its executive office
and operating facilities at 700 Rockmead Drive, Kingwood, Texas 77339. The
Company's lease will expire on November 30, 1999 and provides for an annual rent
of $55,200.
MANAGEMENT OF THE COMPANY
Directors and Executive Officers
The executive officers and directors of the Company are as follows:
Name Age Position
---- --- --------
Charles M. Powell 45 President, Chief Executive Officer,
Chief Financial Officer, Chairman
of the Board of Directors
Gregory S. Carr 39 Secretary and Director
Peter H. Salus 58 Director
Robert C. Newman 53 Director
Dyann L. Carr 36 Director
Each director is elected for a period of one year and serves until his or
her successor is duly elected by the stockholders. The Board of Directors has no
committees except a Compensation Committee comprised of Dr. Salus. Gregory S.
Carr and Dyann L. Carr are married.
The principal occupations of each director and executive officer of the
Company, for at least the past five years, are as follows:
Charles M. Powell, President, Chief Executive Officer, Chief Financial
Officer, Chairman of the Board and Director. Mr. Powell co-founded and has been
Vice President of International Operations and Chief Financial Officer of KaPre
Software, Inc., a Boulder, Colorado based privately held developer of commercial
business software, since its inception in 1992. From January 1989 to March 1992,
Mr. Powell served as Vice President of International Operations for J.D. Edwards
& Company, a Denver, Colorado based software production company and previously
held positions with Price Waterhouse, Storagetek, Inc. and Columbine Systems,
Inc. Mr. Powell serves as a Director of the following publicly-held firms: The
Rockies Fund, a business development company; Milestone Capital Corporation, a
business development company; Siscom, Inc., a software development company;
International Nursing, Inc., a home health care service provider; and Premier
Concepts, Inc., a retail jewelry distribution.
40
<PAGE>
Gregory S. Carr, Secretary and Director. Mr. Carr co-founded the Company in
April 1995. From September 1991 until April 1995, he was a regional manager for
Molten Metal Technology, Inc. responsible for sales and management of certain
projects. From June 1983 to September 1991, he held a similar position with
Liquid Air Corp. in sales, project management and corporate re-engineering. Mr.
Carr graduated from Southern Illinois University in 1980 with a Bachelor's
degree in Chemistry and earned a Masters degree in Thermal and Environmental
Engineering from the same university in 1983. In 1989, Mr. Carr completed
advanced business studies in the corporate program at INSEAD, the European
Institute for Business Administration in Fountainbleau, France.
Peter H. Salus, Ph.D., Director. Dr. Salus was the Executive Director of
Sun User Group, a privately-held independent users association based in San
Jose, California. He is a past Executive Director of USENIX, the UNIX user group
association. Since January 1993, he has been a free-lance author and consultant
in the areas of UNIX and the Internet. Dr. Salus is the Managing Editor of the
MIT Press publication "Computing Systems," editor of I-Way magazine and regular
columnist in "Sun Expert." Mr. Salus earned a Bachelor of Science degree
(Chemistry) in 1960, a Masters degree (German Language) in 1961 and a Ph.D.
degree (Linguistics) in 1963, all from New York University.
Robert C. Newman, Director. Mr. Newman co-founded J.D. Edwards & Company
("Edwards") in 1978 and has been a Director and Vice President of Edwards since
that date. Edwards is a Denver, Colorado based firm engaged in software
development. Mr. Newman graduated from the University of California, Berkeley in
1965 with a Bachelor of Science degree and earned an M.B.A. from UCLA in 1968.
Dyann L. Carr, Director. From 1988 until she co-founded the Company in
April 1995, Ms. Carr owned and operated Dynamic Concepts, a graphic design
studio that licensed her designs to firms for various consumer applications.
41
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of the date hereof, by (i)
each person who is known by the Company to own of record or beneficially more
than 5 % of the Company's Common Stock, (ii) each of the Company's directors and
(iii) all directors and officers of the Company as a group. The stockholders
listed in the table have sole voting and investment powers with respect to the
shares indicated. The address of all such stockholders are in care of the
Company at 700 Rockmead Drive, Suite 240, Kingwood, Texas 77339, except Mr.
Walker whose address is 720 Olive Way, Suite 920, Seattle, Washington 98101.
Name and Address of Number of Percentage
Beneficial Owner Shares Owned of Class
Gregory S. Carr(l) 275,416 8.13%
Dyann L. Carr(l) 250,000 7.38%
Dwayne Walker 400,000 11.81%
Charles M. Powell 10,000 0.30%
Robert C. Newman 25,000 0.74%
Peter H. Salus 0 0%
All officers and directors 16.54%
as a group (5 persons) 560,466
(1) Gregory S. Carr and Dyann L. Carr are husband and wife, own 275,416 and
250,000 shares, respectively, of the Company's Common Stock and disclaim
any beneficial interest in the Common Stock owned by the other.
OTHER MATTERS
As of the date of this Proxy Statement, the Company's Board of Directors is
not informed of any matters, other than those stated in this Proxy Statement,
that may be brought before the meeting.
By Order of the Board of Directors
Gregory S. Carr
Secretary
Dated March __, 1997
42
<PAGE>
EXHIBIT INDEX
Exhibit Title
A Letter of Intent
<PAGE>
1997 PROXY CARD
KINETIKS.COM, INC.
SPECIAL MEETING -- APRIL _, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The
undersigned does hereby constitute and appoint Gregory S. Carr and Charles M.
Powell, or either one of them, the attorney(s) of the undersigned, with full
power of substitution, with alt the powers which the undersigned would possess
if personally present, to vote all stock of Kinetiks.com, Inc. which the
undersigned is entitled to vote at the special meeting of stockholders of
Kinetiks.com, Inc. to be held at the executive offices of Kinetiks.com, Inc.
located at 700 Rockmead Drive, Suite 240, Kingwood, Texas 77339, on April _,
1997 at 10:00 o'clock a.m., local time, and at any adjournment thereof, hereby
acknowledging receipt of the Proxy Statement for such meeting and revoking all
previous proxies.
This Proxy, when properly executed, will be voted as directed. If no
direction is made, this Proxy will be voted FOR the Asset Sale pursuant to a
Letter of Intent dated November 27, 1996 and an Asset Purchase Agreement (as
further described in the Proxy Statement) and, in the case of any other matters
that legally come before the meeting, as said attorney(s) may deem advisable.
(CONTINUED, AND TO BE SIGNED AND DATED ON REVERSE SIDE.)
<PAGE>
(CONTINUED FROM THE OTHER SIDE)
PLEASE VOTE, SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
[ ]FOR the Asset Sale [ ] AGAINST the Asset Sale
[ ] ABSTAIN the Asset Sale
CHECK HERE FOR ADDRESS CHANGE [ ]
Please provide new address, if applicable:
CHECK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]
Please sign name exactly as name appears. When signing in a fiduciary capacity,
please give full title. Co-fiduciaries and joint owners should each sign.
Date:_______________________________ __________________________________
Signature
__________________________________
Signature, if held jointly
<PAGE>
KiNetiks.Com, Inc.
(A Development Stage Company)
Index to Financial Statements
For the Period from January 18, 1995 (inception) to December 31, 1995
Report of Independent Auditors...............................................F-2
Balance Sheet................................................................F-3
Statement of Operations......................................................F-4
Statement of Stockholders' Equity............................................F-5
Statement of Cash Flows......................................................F-6
Notes to Financial Statements................................................F-7
F-1
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
KiNetiks.Com, Inc.
We have audited the accompanying balance sheet of KiNetiks.Com, Inc. (a
development stage company), as of December 31, 1995, and the related statements
of operations, stockholders' equity, and cash flows for the period from January
18, 1995 (inception) to December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of KiNetiks.Com, Inc., at December
31, 1995, and the results of its operations and its cash flows for the period
from January 18, 1995 (inception) to December 31, 1995, 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 1 to the
financial statements, the Company is in the development stage, has not achieved
significant operations, and has incurred losses since inception. These
conditions raise substantial doubt as to the Company's ability to continue as a
going concern. In order for the Company to emerge out of the development stage
and continue as a going concern, the Company must achieve a level of operations
sufficient to meet cash flow requirements and to recover the development costs
incurred. Management's plans in regard to these matters are described in Note 1.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of asset carrying
amounts or the amounts and classification of liabilities that may result should
the Company be unable to continue as a going concern.
Ernst & Young LLP
Houston, Texas
March 15, 1996
F-2
<PAGE>
KiNetiks.Com, Inc.
(A Development Stage Company)
Balance Sheet
December 31, 1995
Assets
Current assets:
Cash $ 1,896,964
Short-term investments 1,500,843
Accounts receivable 58,275
Notes and advances due from officers and employees 40,365
Prepaid expenses and other current assets 28,049
---------------
Total current assets 3,524,496
Property and equipment, net 198,048
---------------
Total assets $ 3,722,544
===============
Liabilities and stockholders' equity Current liabilities:
Note payable to shareholder $ 100,000
Accounts payable 175,667
Accrued compensation 41,848
Other accrued expenses 98,763
Deferred revenue 63,483
---------------
Total current liabilities 479,761
Note payable to shareholder officer 211,309
Stockholders' equity:
Preferred stock, $.001 par value, --
500,000 shares authorized; none issued
Common stock, $.001 par value; authorized
shares - 20,000,000; 5,380,000 issued and
outstanding at December 31, 1995 5,380
Additional paid-in capital 4,760,364
Deficit accumulated during the development stage (1,734,270)
---------------
Total stockholders' equity 3,031,474
---------------
Total liabilities and stockholders' equity $ 3,722,544
===============
See accompanying notes.
F-3
<PAGE>
KiNetiks.Com, Inc.
(A Development Stage Company)
Statement of Operations
For the Period from January 18, 1995 (inception) to December 31, 1995
Revenue $ 16,367
Operating expenses:
Cost of revenue 51,002
Research and development 426,216
Sales and marketing 576,937
General and administrative 592,947
-------------------
1,647,102
-------------------
Operating loss (1,630,735)
Other income (expense):
Early extinguishment of debt (87,500)
Interest expense (21,334)
Interest income 5,299
-------------------
Net loss $ (1,734,270)
===================
Net loss per common and common equivalent share $ (0.33)
===================
Shares used in computing net loss per common and common
equivalent share 5,229,445
===================
See accompanying notes.
F-4
<PAGE>
KiNetiks.Com, Inc.
(A Development Stage Company)
Statement of Stockholders' Equity
For the Period from January 18, 1995 (inception) to December 31, 1995
<TABLE>
<CAPTION>
Deficit
Recreational Accumulated
Data Additional During the Total
Services, Common Paid-in Development Stockholders'
L.L.C. Stock Capital Stage Equity
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Initial contribution in
Recreational Data
Services, L.L.C. (April
1995)....................... $ 4,000 $ -- $ -- $ -- $ 4,000
Issuance of 4,000,000
shares of common stock
in exchange for all of the
ownership interest in
Recreational Data
Services, L.L.C., on
August 14, 1995 ............ (4,000) 4,000 -- -- --
Issuance of 500,000 shares of
common stock at $1 per
share, net of issuance
costs of $42,186 (August
1995)....................... -- 500 457,314 -- 457,814
Issuance of 17,500 shares of
common stock at $3 per
share in connection with
the bridge loan agreements
(October 1995).............. -- 18 52,482 -- 52,500
Initial public offering of
862,500 shares of common
stock at $6 per share, net
of issuance costs of
$923,670 (December 1995) ... -- 862 4,250,568 -- 4,251,430
Net loss for the period ended
December 31, 1995........... -- -- -- (1,734,270) (1,734,270)
----------- ----------- ----------- ----------- -------------
Balance at December 31, 1995 .. $ -- $ 5,380 $ 4,760,364 $(1,734,270) $ 3,031,474
=========== =========== =========== =========== =============
</TABLE>
See accompanying notes.
F-5
<PAGE>
KiNetiks.Com, Inc.
(A Development Stage Company)
Statement of Cash Flows
For the Period from January 18, 1995 (inception) to December 31, 1995
Operating activities
Net loss $ (1,734,270)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 21,904
Early extinguishment of debt 87,500
Changes in operating assets and liabilities:
Interest accrued on note payable to shareholder officer 13,441
Accounts receivable (58,275)
Prepaid expenses and other current assets (28,049)
Accounts payable, accrued compensation and other accrued
expenses 316,278
Deferred revenue 63,483
------------------
Net cash used in operating activities (1,317,988)
Investing activities
Purchase of property and equipment (149,205)
Purchase of short-term investments (1,498,168)
Advances on notes due from officers and employees (40,365)
------------------
Net cash used in investing activities (1,687,738)
Financing activities
Proceeds from notes payable to shareholders 224,446
Proceeds from bridge loans, net of $35,000 in acquisition cost 262,500
Proceeds from issuance of common stock, net of issuance costs 4,765,744
Repayment of bridge loans (350,000)
------------------
Net cash provided by financing activities 4,902,690
------------------
Net increase in cash 1,896,964
Cash at beginning of period -
------------------
Cash at end of period $ 1,896,964
==================
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 7,893
==================
Supplemental disclosure of noncash investing and financing
transactions
Propertyand equipment acquired from a shareholder in
exchange for a note payable $ 73,422
==================
See accompanying notes.
F-6
<PAGE>
KiNetiks.Com, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1995
1. Background of the Company
KiNetiks.Com, Inc. (the "Company"), is a development stage enterprise. The
Company develops and markets proprietary software programs for use on the World
Wide Web (the "Web") of the Internet. The Company's first software production,
designated Internet Waterway, offers products and services, and provides free
information to boaters, sailors, fishermen, and other water sport enthusiasts.
Access to the Internet Waterway is available on the Internet through such
services as America On-line(TM), Prodigy(TM), CompuServe(TM), or the Microsoft
Network. The Company plans to earn revenues through the Internet Waterway Online
primarily in two ways: electronic publishing and advertising, and on-line
transaction fee based services. The Company's development effort has been
devoted to developing the Internet Waterway, through which the Company began
electronic publishing and advertising in November 1995. On-line transaction fee
based services were not significant in 1995. The Company's future development
plans are to (i) expand the Internet Waterway user base to allow the Company to
generate fee-based, direct product sale and commission-based revenue from
advertisers and users, and (ii) develop on a fee basis commercial proprietary
software programs similar to the Internet Waterway which may be used by others
(or the Company) to offer products and services in other industries on the Web.
The founding shareholders began operating on January 18, 1995 as a sole
proprietorship doing business as Recreational Data Services ("RDS"). On April 3,
1995, Recreational Data Services, L.L.C. ("RDS, L.L.C."), a Texas Limited
Liability Company, was formed. On August 9, 1995, the shareholders of RDS,
L.L.C., formed KiNetiks.Com, Inc., a Delaware corporation. Effective August 14,
1995, KiNetiks.Com, Inc., and RDS, L.L.C., were merged, with KiNetiks.Com, Inc.,
being the surviving entity. All of the outstanding ownership interests in RDS,
L.L.C., were exchanged for 4,000,000 shares of common stock of the Company.
Prior to the merger on August 14, 1995, KiNetiks.Com, Inc., had no operations.
The statement of operations of the Company includes the results of RDS and RDS,
L.L.C.
The Company is still in the development stage and has not yet achieved
significant operations. This raises substantial doubt as to the Company's
ability to continue as a going concern. In order for the Company to emerge out
of the development stage and to continue as a going concern, the Company must
achieve a level of operations sufficient to meet cash flow requirements and to
recover the development costs incurred. The Company raised equity funding
through an initial public offering ("IPO") of shares of its common stock to the
public, which was completed on December 12, 1995 (see Note 5). In addition, the
Company completed an operational version of the Internet Waterway
F-7
<PAGE>
KiNetiks.Com, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
1. Background of the Company (continued)
which became available on the Internet on November 1, 1995. Management believes
that the net proceeds from the IPO, together with cash flows expected to be
generated from operations, may not be sufficient to meet the anticipated cash
needs for working capital expenditures for at least the next 12 months. If such
cash flows are not sufficient to satisfy the Company's needs, the Company may
seek to sell additional equity or debt securities or obtain new credit
facilities.
2. Summary of Significant Accounting Policies
Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. As of December 31, 1995, cash and
cash equivalents include Treasury Bills which have original maturities of three
months or less and are carried at maturity value net of unamortized discount,
which approximates fair value.
Short-term investments include Treasury Bills which have original maturities
ranging from four to six months and are carried at maturity value net of
unamortized discount, which approximates fair value. (See Note 7).
Revenue and Cost of Revenue
Service revenues from the sale of advertising space is recognized ratably over
the period in which the advertisements are displayed on the Internet. Payments
received in advance of providing advertising services and contract amounts that
have been billed but have not been earned are recorded as deferred revenue. All
costs related to revenue producing activities are expensed as incurred.
Management believes that the majority of costs associated with an advertisement
are incurred in the set-up period and intends to develop statistical information
regarding the advertisement cost cycle based upon experience. Once reliable
historical experience is obtained, the revenue recognition and the cost of
revenue policies will be enhanced to ensure that either advertisement revenue is
recognized proportionately in the period in which costs are incurred; or that
costs in excess of earned revenue are deferred, if such results significantly
differ from the current method of recognizing revenue ratably over the
advertisement period and expensing costs as incurred.
F-8
<PAGE>
KiNetiks.Com, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are recorded at cost. The Company provides for
depreciation using the straight-line method over the estimated useful life of
the assets as follows:
Automobile 5 years
Boat 10 years
Computer and office equipment 3 years
Furniture and fixtures 7 years
Research and Development Costs
Research and development expenditures are charged to expense as incurred.
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed," requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility.
Based upon the Company's product development process, technological feasibility
is established upon completion of a working model. Costs incurred by the Company
between completion of the working model and the point at which the product is
ready for general release have been insignificant. All research and development
costs have been expensed.
Income Taxes
Income taxes are accounted for under Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes." Under this method, deferred tax assets
and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
For the period from inception through August 14, 1995, RDS and RDS, L.L.C. were
organized as a sole proprietorship and a Texas Limited Liability Company,
respectively. As a result, the income tax benefits from operations during this
period passed directly to the sole proprietor and shareholders, respectively.
The expenditures incurred prior to the merger were primarily start-up
expenditures, which were capitalized by the owners for
F-9
<PAGE>
KiNetiks.Com, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
income tax purposes, creating a deferred tax asset of approximately $136,000.
This tax asset was contributed to the Company in connection with the merger.
Losses from operations from August 14, 1995 through December 31, 1995 have
created additional deferred tax assets of approximately $468,000, resulting in a
total deferred tax asset of $604,000. A valuation allowance was established for
the full amount of these deferred tax assets because the future realization of
the cumulative tax benefit is not assured.
Stock Options
The Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25), and related interpretations in accounting
for its employee stock options and intends to continue to do so.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Per Share Amounts
Net loss per common and common equivalent share is computed using the weighted
average number of common and common equivalent shares outstanding during the
period. Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin (SAB) No. 83, common stock and options to purchase common stock issued
by the Company within 12 months of the initial public offering date have been
included in the calculation of the weighted average number of common and common
equivalent shares outstanding (using the treasury stock method) as if they were
outstanding for the entire period.
F-10
<PAGE>
KiNetiks.Com, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
3. Property and Equipment
Property and equipment consist of the following at December 31, 1995:
Automobile and boat $ 60,700
Computer and office equipment 150,310
Furniture and fixtures 11,617
---------------
222,627
Less accumulated depreciation and amortization (24,579)
===============
Net property and equipment $ 198,048
===============
4. Commitments
Leases
The Company leases its office space and certain office equipment under
noncancelable operating lease agreements expiring through the year 2000. Future
minimum payments for each year succeeding December 31, 1995, with terms of one
year or more, are as follows:
Operating Leases
------------------
1996 $ 178,354
1997 133,739
1998 58,441
1999 4,528
2000 2,752
------------------
Total minimum lease payments $ 377,814
==================
Rent expense for the period from January 18, 1995 (inception) to December 31,
1995 was $35,413.
F-11
<PAGE>
KiNetiks.Com, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
4. Commitments (continued)
Employment Agreements
As of December 31, 1995, the Company has employment agreements with all officers
and key employees of the Company. These agreements call for the payment of
bonuses based upon the Company's cumulative sales revenue. The aggregate amounts
of all such bonuses would be $565,000 upon the Company reaching cumulative sales
of $20 million. Additionally, under the terms of these agreements, certain
employees' annual base compensation will increase as milestones of revenue
collected are met. As the Company's sales revenues are not significant through
December 31, 1995, no amount has been accrued for bonuses relating to these
employment agreements.
5. Capital Structure
Private Offering
Pursuant to a July 17, 1995 Confidential Private Placement Memorandum, the
Company sold 500,000 shares of its common stock at $1 per share in August and
September 1995.
Stock Option Plan
On August 10, 1995, the Company's Board of Directors approved a stock option
plan under which up to 1,100,000 shares of the Company's common stock may be
issued. In February 1996, the Board of Directors approved an amendment to the
Plan increasing the Company's total common shares available under the Plan to
1,600,000, which is subject to shareholder approval. Under the plan, incentive
and nonqualified stock options may be granted to employees, directors, and
consultants of the Company. Incentive stock options are granted at an exercise
price of not less than 100% (110% for individuals owning 10% or more of the
Company's common stock at the time of the grant) of the stock's fair market
value at the time of grant. Nonqualified stock options may be granted at an
exercise price determined by the Company's Compensation Committee.
F-12
<PAGE>
KiNetiks.Com, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
5. Capital Structure (continued)
The stock option activity under this plan is set forth below for the period from
January 18, 1995 (inception) to December 31, 1995:
Shares Under Option Price Per
Option Share
----------------------------------
Granted 1,254,000 $1.00 to $6.25
Forfeited (37,500) $1.00 to $6.00
----------------------------------
Outstanding at December 31, 1995 1,216,500 $1.00 to $6.25
==================================
At December 31, 1995, no options were exerciseable. Subsequent to December 31,
1995, additional options for 55,000 shares were granted which have exercise
prices ranging from $5.00 to $6.73, and 65,000 shares were forfeited which have
exercise prices ranging from $1.00 to $6.73 (See note 7). As of March 15, 1996,
1,206,500 shares covered by options are outstanding and 393,500 are available
for future grants. The options are generally exercisable for up to ten years
following the date of grant (five years for 10% owners).
Bridge Loans
As of October 3, 1995, the Company had entered into subscription agreements for
the private placement of $350,000 in bridge loans. In connection with the
agreements, the Company issued 17,500 shares of its common stock to the holder
of the notes. The notes accrued interest at prime plus 2% per annum and were
payable at the earlier of September 30, 1996 or ten days after completion of the
Company's initial public offering of its common stock. The bridge loans were
repaid in December 1995 following the initial public offering. The early
repayment of this debt resulted in $87,500 in debt extinguishment costs, which
are included in the statement of operations. These costs include the write-off
of $35,000 in loan acquisition costs and $52,500 of unamortized loan discounts.
F-13
<PAGE>
KiNetiks.Com, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
5. Capital Structure (continued)
Initial Public Offering
In December 1995, the Company sold 862,500 shares of its common shares of stock
to the public, resulting in net proceeds to the Company of approximately
$4,251,000. In connection with the initial public offering, the underwriter also
purchased warrants for 75,000 shares of the Company's common stock for $100. The
warrants are exercisable at any time in the four year period ending December 5,
1999 at an exercise price of $7.20 per share.
6. Notes Payable to Shareholders
The note payable to shareholder results from amounts advanced by a shareholder
to fund the operating expenses of the Company and bears interest at 10.91%. The
note is payable in eleven monthly installments of $10,000 and matures on
November 15, 1996.
The note payable to shareholder officer consists of amounts advanced by a
shareholder officer to fund the operating and start-up expenses of the Company
and the contribution of certain operating assets. The note bears interest at 9%
per annum and matures on January 2, 1997. The automobile and boat are pledged as
collateral on the note.
7. Subsequent Events
License Agreement
On February 10, 1996, the Registrant entered into an exclusive license agreement
(the "License Agreement") pursuant to which it acquired in perpetuity the
exclusive worldwide rights to the use of the tradename "MarineNet" and a five
year non-compete agreement from William Chen ("Chen"), a nonaffiliate. In lieu
of a royalty payment, the Company paid to Chen, as full and complete
consideration for acquisition of the MarineNet tradename, stock options to
purchase up to 70,000 shares of the Registrant's common stock exercisable in
whole or in part at $6.00 per share at any time between December 12, 1997 and
February 10, 2006. Simultaneous with the execution of the License Agreement, the
Company entered into a consulting agreement with Chen pursuant to which the
Company retained Chen as a consultant to the Company from February 10, 1996 to
July 11, 1997. In connection therewith, the Company agreed to pay Chen aggregate
consulting fees of $200,000 payable over the term of the consulting agreement.
F-14
<PAGE>
KiNetiks.Com, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
7. Subsequent Events (continued)
Debt Agreements
In January 1996, the Company borrowed $270,000 from a commercial bank to
purchase property and equipment. The notes bear interest at an annual rate of
prime plus .5% and are due in 1996. The notes are secured by approximately
$500,000 in short-term investments.
Staff Reduction
In February of 1996, the Company reduced its content production staff by 20 full
and part time employees. The reduction was the result of reorganizing the
production process to utilize smaller, more efficient production teams.
Severance commitments and termination payments were not significant.
F-15
<PAGE>
Kinetiks.com, Inc.
Balance Sheet
(Unaudited)
September 30,1996
-----------------
Assets
Current assets:
Cash and cash equivalents .............................. $ 10,435
Accounts receivable .................................... 63,058
Notes and advances due from officers and employees ..... 26,535
Prepaid expenses and other current assets .............. 64,849
-----------
Total current assets ........................................... 164,877
Property and equipment, net .................................... 450,547
Prepaid stock offering cost .................................... 25,000
License agreement, net ......................................... 188,368
-----------
Total assets ................................................... $ 828,792
===========
Liabilities and stockholders' equity Current liabilities:
Notes payable .......................................... $ 3,042
Note payable to shareholder ............................ 30,000
Accounts payable ....................................... 532,327
Accrued compensation ................................... 87,917
Other accrued expenses ................................. 169,543
Deferred revenue ....................................... 5,871
-----------
Total current liabilities ...................................... 828,700
Note payable to shareholder officer ............................ 224,853
Stockholders' equity:
Preferred stock, $.001 par value, 500,000 shares ....... --
authorized; none issued
Common stock, $.001 par value, 20,000,000 shares ....... 5,388
authorized; 5,387,924 issued and outstanding at
September 30, 1996
Additional paid-in capital ............................. 5,162,354
Accumulated deficit .................................... (5,392,503)
-----------
Total stockholders' equity ..................................... (224,761)
-----------
Total liabilities and stockholders' equity ..................... $ 828,792
===========
See accompanying notes.
F-16
<PAGE>
Kinetiks.com, Inc.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Period from
Three months Three months Nine months January 18, 1995
ended ended ended (inception) to
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue .................................. $ 369,397 $ -- $ 1,011,805 $ --
Operating expenses:
Cost of revenue .................. 248,877 -- 761,958 --
Research and development ......... 117,827 137,699 219,952 164,004
Sales and marketing .............. 660,887 139,171 2,363,832 165,530
General and administrative ....... 482,822 268,471 1,339,358 319,279
----------- ----------- ----------- -----------
1,510,413 545,341 4,685,100 648,813
----------- ----------- ----------- -----------
Operating loss ........................... (1,141,016) (545,341) (3,673,295) (648,813)
Other income (expense):
Interest income .................. 2,108 -- 44,929 --
Other income ..................... 3,313 -- 6,625 --
Interest expense ................. (11,837) (9,340) (36,491) (9,394)
----------- ----------- ----------- -----------
Net loss ................................. $(1,147,432) $ (554,681) $(3,658,233) $ (658,207)
=========== =========== =========== ===========
Net loss per common and common
equivalent share ................. $ (0.21) $ (0.10) $ (0.68) $ (0.12)
=========== =========== =========== ===========
Shares used in computing net loss per
common and common equivalent share 5,387,924 5,337,193 5,383,962 5,313,541
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-17
<PAGE>
Kinetiks.com, Inc.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Period from
Three months Three months Nine months January 18, 1995
ended ended ended (inception) to
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating activities
Net cash used in operating activities ...... $ (364,234) $ (453,197) $(2,929,662) $ (513,752)
Investing activities
Purchase of property and equipment ......... -- (81,560) (377,072) (97,006)
Maturity of short term investments ......... 245,560 -- 1,500,843 --
----------- ----------- ----------- -----------
Net cash provided by investing activities .. 245,560 (81,560) 1,123,771 (97,006)
Financing activities
Proceeds from notes payable ................ -- 76,196 270,000 153,625
Repayment of note payable to shareholder ... (13,679) -- (106,506) --
Repayment of loan from bank ................ (44,131) -- (244,131) --
Proceeds from issuance of common stock, net -- 462,314 -- 462,314
----------- ----------- ----------- -----------
Net cash provided by (used by) financing ... (257,810) 538,510 (80,637) 615,939
activities
----------- ----------- ----------- -----------
Net (decrease) increase in cash ............ (376,484) 3,753 (1,886,528) 5,181
Cash and cash equivalents at beginning
of period .................................. 386,920 1,428 1,896,964 --
----------- ----------- ----------- -----------
Cash and cash equivalents at end
of period .................................. $ 10,436 $ 5,181 $ 10,436 $ 5,181
=========== =========== =========== ===========
Supplemental disclosure of noncash investing
and financing transactions
Cash paid during the period for interest ... 5,668 437 13,679 437
Property and equipment acquired from ....... -- -- -- 73,422
shareholder in exchange for a note payable
</TABLE>
See accompanying notes.
F-18
<PAGE>
KINETIKS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Form 10-KSB for the period ended
December 31, 1995.
The Company began substantial initial operations during the first quarter of
1996. Prior to January 1, 1996, the Company had been considered to be in the
development stage. While the Company is operational, sales volumes have not yet
achieved the level necessary to sustain the Company's continuing operations.
Cumulative losses since inception have caused the Company's total assets and
equity to fall below the mandatory requirements of the Nasdaq, which resulted in
the Company's common stock being removed from registration and trading by the
Nasdaq Small Cap Market effective October 28, 1996. The cumulative losses,
removal of its listing from the Nasdaq Market, along with the Company's
inability to fund it's current liabilities of approximately $830,000 at
September 30, 1996 raises substantial doubt as to the Company's ability to
continue as a going concern.
The Company has begun to implement an action plan to restructure its operations
in order to attempt to reduce expenses to approximate the monthly cash flow from
sales. This plan specifically addresses reductions in payroll cost through
layoffs, salary reductions for the highest paid officers and employees, placing
sales staff on commission only, and termination of certain leased office space
which is not required under the new staffing.
During the time the forgoing plan is being implemented the Company must still
obtain sufficient capital to fund its operations and to recover the development
costs incurred. The Company raised equity funding of $ 4,251,000 through an
initial public offering ("IPO") of shares of its common stock to the public,
which was completed on December 12, 1995, (See Note 2). On November 8, 1996 the
Company's founder and Chief Executive Officer retired 400,000 of his personal
shares of the Company's Common Stock. Those shares were immediately sold to an
individual investor for $100,000 in order to satisfy certain urgent cash needs.
The Company's cash flow continues to be negative through the date of this report
and existing funds are inadequate to meet the Company's cash requirements. The
Company is actively exploring various short and long term financing alternatives
in order to meet its immediate cash needs. Such alternatives may include, among
others, a strategic partnership or private issuance of debt or equity
securities. The Company has temporarily postponed its plans to perform a second
public offering of its stock. While the Company's management is hopeful that a
financing or strategic partnership will succeed, there can be no assurance that
the Company will be successful.
F-19
<PAGE>
2. Summary of Significant Accounting Policies
Revenue and Cost of Revenue
Revenues from the sale of Internet Web Services are recognized ratably over the
period in which the web sites are produced on the Internet. All costs related to
revenue producing activities are expensed as incurred. Revenues for the quarter
ended September 30, 1996 include $209,267 for which payment was received in the
form of goods and services.
Management believes that the majority of costs associated with an online web
advertisement or creation of a web site are incurred in the set-up period and
intends to develop statistical information regarding the advertisement cost
cycle based upon experience. Once reliable historical experience is obtained,
the revenue recognition and the cost of revenue policies will be enhanced to
ensure that either web services revenue is recognized proportionately in the
period in which costs are incurred; or that costs in excess of earned revenue
are deferred, if such results significantly differ from the current method of
recognizing revenue ratably over the online placement period and expensing cost
as incurred.
Income Taxes
Income taxes are accounted for under Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes." Under this method, deferred tax assets
and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
For the period from inception through August 14, 1995, RDS and RDS,
L.L.C.(predecessors entities to the Company) were organized as a sole
proprietorship and a Texas Limited Liability Company, respectively. As a result,
the income benefits from operations during this period passed directly to the
sole proprietor and shareholders, respectively. The expenditures incurred prior
to the Company's merger with RDS, L.L.C. were primarily start-up expenditures,
which were capitalized by the owners for income tax purposes, creating a
deferred tax asset of approximately $136,000. This asset was contributed to the
Company in connection with the merger. Cumulative losses since inception have
created additional deferred tax assets of approximately $1,697,000, resulting in
a total deferred tax asset of $1,833,000 A valuation allowance was established
for the full amount of these deferred tax assets because the future realization
of the cumulative tax benefit is not assured.
3. Stock Option Plan
In February 1996, the Board of Directors approved an amendment to the Plan
increasing the Company's total options available under the Plan to 1,600,000,
which was approved by the stockholders at the annual stockholders meeting on
June 12, 1996. As of September 30, 1996, options with respect to 1,531,050
shares were outstanding. The options are generally exercisable for up to ten
years following the date of grant (five years for 10 percent owners). As of
September 30, 1996, a total of 606,550 were exercisable and elections to
exercise 1,550 options had been received.
F-20
<PAGE>
4. Debt Agreements
In September 1996, the Company repaid a $242,000 commercial bank loan. The
Company remains liable on approximately $3,000 of accrued and unpaid interest on
that loan.
15. Per Share Amounts
For 1996, net loss per common and common equivalent share is computed using the
weighted average number of common shares outstanding. Common equivalent shares
were excluded due to the fact that they are anti-dilutive. For 1995, net loss
per common and common equivalent shares is computed using the weighted average
number of common and common equivalent shares outstanding during the period.
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin
(SAB) No. 83, common stock and options to purchase common stock issued by the
Company within 12 months of the initial public offering date have been included
in the calculation of the weighted average number of common and common
equivalent shares outstanding (using the treasury stock method) as if they were
outstanding for the entire period.
6. Subsequent Event
On November 8, 1996 the founding shareholder and Chief Executive Officer retired
400,000 shares of his personal holdings of the Company's $.001 par value Common
Stock. The Company immediately sold those shares to an individual investor for
$100,000. Tile sale was concluded in order to fund critical cash requirements
related to operations of the Company. Additionally, in October, 1996, the
Company entered into an asset-based financing arrangement of up to $200,000 with
a merchant banking firm. As of the date of this report approximately $130,000
has been borrowed under that arrangement.
F-21
<PAGE>
EXHIBIT A
<PAGE>
(TRADER PUBLISHING COMPANY LETTERHEAD)
November 27, 1996
Mr. Greg Carr
President and CEO
Kinetiks.com, Inc.
700 Rockmead Drive, Suite 240
Kingwood, Texas 77339
Dear Sir:
The purpose of this letter is to outline our understanding of the arrangements
pursuant to which Trader Publishing Company ("Trader") will acquire
substantially all of the assets and properties used by Kinetiks.com, Inc.
("Seller"), in the operation of the Internet Waterway (the "Business") more
particularly described on Schedule A. The total consideration for this
transaction (which amount includes the purchase price of the assets of the
Business and the payments to be made under the Agency, Consulting, and/or
Non-Competition Agreements discussed below, if applicable) is $750,000.00,
exclusive of the various adjustments normally made at closing and such other
adjustments as the parties may find are need.
1. Purchase and Sale of Assets. Except for the assets listed on Schedule B
(the "Excluded Assets"), at the Closing (as defined in Paragraph 10),
Seller (and such other persons as are listed on Schedule C who own the
specific assets listed thereon) will sell to Trader and Trader will
purchase from Seller (and such other persons), all assets used by Seller to
operate the Business. (Such assets are the "Acquired Assets"). The Acquired
Assets include, without Imitation, the following:
a. All equipment, furniture, fixtures, inventory, and lease-hold
improvements used in the Business, including, specifically a) computer
systems and associated equipment used to host the Business and b)
trade booths used in promotion of the Business, both of which are
owned outright by Seller,
b. All trademarks, trade names, patents, copyrights, and other intangible
rights or properties used in the Business, including but not limited
to those set forth on Schedule D.
c. The rights in all promotional and advertising agreements,
endorsements, leases and other contracts pertaining to the Business
that Trader elects to assume.
d. The real property described on Schedule E.
<PAGE>
11/27/96
Page 2
Those assets of Seller listed on Schedule B shall not constitute part
of the Acquired Assets and are not intended to be conveyed to Trader
as part of this transaction.
Seller will be responsible for paying all its current and long-term
liabilities, except for those liabilities described below in Paragraph
2.
2. Assumption of Liabilities by Trader. Trader will assume only liabilities
(i) which accrue after Closing under those leases and other contracts
listed on Schedule F and such other leases and other contracts, if any,
that the parties agree in the Definitive Agreement (defined below in
Paragraph 7) will be assigned to Trader by Seller at Closing, and (ii)
which do not constitute either payment in arrears for services or other
matters occurring prior to Closing or delayed payment on the purchase price
of an Acquired Asset.
3. Asset Purchase Price and Allocation. The Purchase Price for the Acquired
Assets ("Asset Purchase Price") will be $550,000.00, and will be allocated
among the Acquired Assets in accordance with Schedule F. The Asset Purchase
Price shall be payable on the Closing Date (as defined in Paragraph 10).
4. Agency Agreement. At the closing, Trader will enter into an Agency
Agreement with the Seller set forth on Schedule G which agreement shall be
in accordance with the applicable terms set forth below and on Schedule G.
Any Agency Agreement in part will provide that for the period of time
specified on Schedule G1, commencing on the Closing Date, Trader will
function as an agent on behalf of the Seller to promote the sale of
Seller's website development services. Any Agency Agreement will include
cross-default provisions referencing the Definitive Agreement, and will
require Trader to represent Seller in the sale of services as specified in
Schedule G1.
5. Consulting Agreement. At the closing, Trader will enter into a Consulting
Agreement with the person(s) set forth on Schedule G (a "Contracting
Party"), which agreement shall be in accordance with the applicable terms
set forth below and on Schedule G2.
Any Consulting Agreement in part will provide that for the period of time
specified on schedule G2, commencing on the Closing Date, the Contracting
Party, acting as an independent contractor, will consult with Trader
concerning the Business, including any expansion thereof. Any Consulting
Agreement will include cross-default provisions referencing the Definitive
Agreement, and will require the Contracting Party to be available to render
services to Trader for up to the number of hours per week specified on
Schedule G2 at mutually agreeable times after reasonable notice.
6. Non-Competition Agreements. At the Closing, Trader will enter into
Non-Competition Agreements with Seller and the person(s) set forth on
Schedule H (a "Potential Competitor"). These Non-Competition Agreements
will include cross-default provisions referencing the Definitive Agreement
and in part will provide that for the period of time specified on Schedule
H, commencing on the Closing Date, Seller and any such Potential Competitor
shall not compete, within the United States, with Trader, nor with its
successor to the Business, in the creation, production and/or maintenance
of an Internet affinity site serving the marine industry nor any such other
business as may be competitive with the Business.
7. Board/Shareholder Consent. Seller shall obtain the consent of its
shareholders and board of directors, as required, specifically approving
each Employment Agreement, Consulting Agreement and Non-Competition
Agreement between Trader and a Contracting Party or Potential Competitor,
and such consent shall be in a form that in the opinion of Trader's counsel
satisfies the requirements of Section 28OG of the Internal Revenue Code.
<PAGE>
11/27/96
Page 3
8. Definitive Agreement. The obligations of the parties that are outlined in
this letter will be contained in a definitive asset purchase agreement (the
"Definitive Agreement"). The parties hope to complete and execute the
Definitive Agreement by January 2, 1997. In addition to the basic terms and
conditions outlined in this letter, the Definitive Agreement will contain
terms and Conditions customary in transactions of the type contemplated
hereby, including but not limited to representations and warranties by
Seller, its principal shareholders, shareholders active in the Business,
and any other party selling assets hereunder: that Seller or such other
party has good and marketable title to the Acquired Assets, free and clear
of all liens and encumbrances; that all of the personal property
constituting the Acquired Assets is in good operating condition and repair;
that Trader shall have no liability to or obligation concerning Seller's
employees; that Seller and its shareholders shall indemnify Trader and hold
it harmless from any claim, loss or expense that it may suffer as a result
of a breach by Seller or any other party selling an Acquired Asset of any
representation, warranty or covenant in the Definitive Agreement or as a
result of events occurring in connection with Seller or its operations
prior to Closing; that all agreements shall be construed as if Trader and
any successor in interest is a Virginia general partnership and as if the
agreements are executed in, and are to be performed entirely in Virginia;
and that Seller shall obtain all necessary consents to the transaction from
its directors, shareholders and other relevant parties, including the
shareholder or board consent described above in Paragraph 6.
9. Expenses. Each Party will bear its own expenses in connection with the
contemplated transaction.
10. Non-Negotiation Period. In reviewing and preparing a Definitive Agreement
with Seller, Seller agrees that it will not during the period commencing on
the date, hereof and ending December 31, 1996, negotiate, discuss, or
otherwise communicate with any other potential purchaser of its business
unless Trader, prior to the expiration of such period, notifies Seller that
it has terminated its interest in acquiring Seller's business.
11. Closing. The Closing of the contemplated transaction (the "Closing") will
occur on or by January 2, 1997 or such other date as the parties may agree
is practicable (the "Closing Date") but in no event later than January 31,
1997, time being of the essence.
12. Access To Information. Following your acceptance of this letter, Seller
will provide Trader and its attorneys and other representatives with all
records and information relating to the Acquired Assets and Seller's
business as may be requested by Trader, and will permit Trader to visit and
inspect its properties in the accompaniment of Seller's representative.
13. Assignment. Prior to Closing, Trader may assign its rights to purchase the
Acquired Assets to a majority owned subsidiary in which event Trader will
guarantee the subsidiary's obligation to Seller, any Contracting Party, and
any Potential Competitor.
14. Return of Documents. In the event the transaction contemplated hereby is
not consummated, Trader will return to Seller all documents provided to
Trader by Seller together with any copies thereof and extracts therefrom
and any materials based on information provided by Seller.
15. Earnest Money Deposit. Within twenty-four (24) hours of the execution of
this letter agreement, Trader will deliver to Seller $110,000.00 as an
earnest money deposit ("Deposit") which will be applied to the asset
purchase price at Closing. In the event Trader terminates its agreement to
acquire the Business. Seller shall retain $35,000.00 as a cancellation
payment but shall return the remaining $75,000.00 of the Deposit
simultaneously upon delivering its notice of termination. If Seller
terminates its agreement to sell the Business, Seller shall return the full
Deposit simultaneously upon delivering its notice of termination. To secure
the obligation of Seller to repay all or part of the Deposit, Seller hereby
grants to Trader a first 1ien security interest on the Business, including,
without limitation, Marine Trade Net and the other assets to be conveyed to
Trader, Seller agrees to execute all documents and make all fillings
necessary to perfect such security interest and represent that there are no
prior lients.
<PAGE>
11/27/96
Page 4
The purpose of this document is to set forth the basic terms and conditions of
the proposed acquisition. Accordingly. this letter constitutes a binding
agreement between the Parties. A more complete explanation of the legal
obligations of the parties regarding the purchase and sale of the assets is
intended to be contained in the Definitive Agreement, which will be subject to
the approval of both parties and their respective board of directors, but the
provisions of the Definitive Agreement shall not be inconsistent with the terms
set forth herein.
If, however, Trader discovers from its due diligence review that there are
matters not disclosed to Trader by the date of this letter which materially and
adversely affect the value to it of the assets and business proposed to be
purchased hereunder, it may terminate this agreement immediately upon delivering
a written notice of such termination to Seller.
Seller, Greg Carr ("Carr") and Diane Carr ("D. Carr") jointly and severally
represent, warrant and covenant that Sellers Board of Directors has approved the
transaction set forth in this Agreement and will recommend its approval to the
shareholders of Seller and that Carr and D. Carr will, in their capacity as
shareholders, vote in favor of such approval. In the event of any breach of the
foregoing representations, warranties and covenants or in the event of any
breach of this Agreement by Seller which is not the result of events beyond the
control of the Board of Directors of Seller, Carr and D. Carr, Trader shall have
available to it all remedies existing under law, including, without limitation,
the right to compel specific performance and the right to money damages without
limitation. In the event of breach of this Agreement by Seller which results
from events beyond the control of the Board of Directors of Sell, Carr and D.
Carr. Seller shall pay to Trader the sum of $35,000.00. If the terms and
conditions of the proposed acquisition outlined in this letter are acceptable to
Seller and Seller's Board of Directors, please so , indicate by executing and
returning the enclosed duplicate of this letter. Upon Trader's receipt of this
letter executed by Seller, Trader will instruct its counsel to commence
preparation of the Definitive Agreement and associated documents.
Very truly yours,
TRADER PUBLISHING COMPANY
Date: 11/29/96 By: /s/ Norman W. Hoffmann
- -------------- --------------------------
Norman W. Hoffmann
Vice President
SEEN AND AGREED:
By: /s/ Greg Carr Date: November 29, 1996
- ----------------- -----------------------
Chairman
By: /s/ Greg Carr Date: November 29, 1996
- ----------------- -----------------------
Greg Carr
By: /s/ Dyane Carr Date: November 29, 1996
- ------------------ -----------------------
Diane Carr
Entered and Agreed as evidenced by payment of $110,000.00 delivered to
Kinetiks.com, Inc., via wire by December 2, 1996.
<PAGE>
11/27/96
Page 5
SCHEDULE A
Description of Business
(List names of publications and other businesses and general description of such
publications and businesses.)
Publication, composition, distribution, transmission and administration of
Internet Waterway, an Internet affinity supersite, serving the marine industry;
and MarineTradeNet, an Internet affinity supersite, serving the commercial
businesses within the marine industry.
<PAGE>
11/27/96
Page 6
SCHEDULE B
Excluded Assets
1. Fees payable to Seller under any initial term of any existing contract with
a third party to provide website development and hosting services.
2. E-Dealer software (to the extent that it is separable from the software
supporting Internet Waterway), and all rights to market E-Dealer software
to third parties.
<PAGE>
11/27/96
Page 7
SCHEDULE C
Acquired Assets Owned by Others
(Described asset to be sold, list name of its owner, and purchase price.)
None
<PAGE>
11/27/96
Page 8
SCHEDULE D
Trademarks, Trade Names, Etc.
(List all trademarks, trade names, patents, copyrights, and other intangible
rights used in the Business.)
Trademarks: Internet Waterway
MarineTradeNet
Internet URL: www.iwol.com and all its affiliate links
URL's affiliate with MarineTradeNet
<PAGE>
11/27/96
Page 9
SCHEDULE E
Real Property to be Sold or Leased
None
<PAGE>
11/27/96
Page 10
SCHEDULE F
Allocation of Asset Purchase Price*
Inventory
Furniture, Fixtures and Equipment
Promotional rights
Advertising and cross promotional rights
Website graphics
Website Names
Advertiser Lists
Goodwill
Going Concern Value
Contract Rights and Miscellaneous
TOTAL ASSET PURCHASE PRICE $550,000.00
* To be allocated in accordance with an appraisal by Trader Publishing Company.
<PAGE>
11/27/96
Page 11
SCHEDULE G1
Agency Agreement
1. Agreement to designate Seller as the exclusively endorsed organization to
produce website services for marine industry clients of Trader
A. Term: four years
B. Compensation
1. Seller shall receive 100% of all compensation from third party
marine clients under the original term of any agreements existing
with Seller as of the date of Closing.
2. Seller shall receive 85% of all compensation from third p@ m@e
clients under the subsequent term of any agreements ex@g with
Seller as of the date of Closing. Trader shall receive the
remaining 15% of compensation from third party marine clients
under the subsequent terms of any agreements existing with Seller
as of the date of Closing.
3. Seller shall receive 85% of all compensation from third party
marine clients which are negotiated exclusively by Seller after
the date of Closing. Trader shall receive the remaining 15% of
compensation from such third party marine clients as
consideration for Its providing hosting services for websites.
4. Seller shall receive 50% of all compensation from third party
marine clients which are sold through a combined effort of Seller
and Trader. Trader shall receive the remaining 50% of
compensation from such third party marine clients as
consideration for its providing sales and hosting services for
websites.
C. Basic website sales. Trader shall have the right to sell single page
websites to any marine customer and shall retain all consideration
paid by such customers for the website and hosting services.
D. Exclusivity limitations: Trader shall represent only seller for the
creation and sale of custom websites to marine affiliated customers.
However, Trader shall have the unlimited right to collect all hosting
fees charged to third party customers which contract with independent
developers for the creation of their web sites.
<PAGE>
11/27/96
Page 12
SCHEDULE G2
Consulting Agreements
(List name of each person, term of agreement payment terms, and any special
terms such as maximum number of days per year that party must be available for
consultation.)
A. Agreement by Kinetiks.com, Inc.,
1. Through staff members other than Greg Carr, agreement to consult for
one year.
a. Maximum of 4O hours per week for four weeks, immediately
following Closing.
b. Maximum of 40 hours per month for the eleven months following the
first four weeks after closing.
2. Through Greg Carr, agreement to consult for one year
a. Maximum of 10 hours per week for four weeks immediately following
Closing
b. Maximum of lO hours per month for the eleven months following the
first four weeks after closing.
B. Payment terms: $100,000.00 payable at closing
<PAGE>
11/27/96
Page 13
SCHEDULE H
Non-Competition Agreements
(List name of each person, term of agreement, payment terms, and any special
terms.)
A. Kinetiks.com (Seller) to be joined in by its principal shareholders Greg
Carr and Diane Carr.
1. Agreement not to compete against Trader Publishing Company in
accordance with Paragraph 6 within the United States for five years
B. Payment: $100,000 payable at closing to Kinetiks.com, Inc. on behalf of
both Kinetiks.com and Greg Carr.
<PAGE>
(TRADER PUBLISHING COMPANY LETTERHEAD)
Mr. Charles Powell, Director
c/o Mr. Greg Carr
Kinetiks.com, Inc.
700 Rockmead Drive, Suite 24C
Kingwood, TX 77339
Dear Mr. Powell
This will confirm our agreement to award the letter of intent between us at
November 29, 1996. The Closing as defined therin, will accur on or by February
28, 1997, or such other date as the parties may agree in practicable, but in no
eventlater than March 30, 1997, time being of the essence.
All other terms and conditions of the letter of intent shall remain in full
_____ and effect.
Very truly yours,
TRADER PUBLISHING COMPANY
By: /s/ Norman W. Hoffman
-------------------------
Norman W. Hoffman
Vice President
SEEN AND AGREED
By: /s/ Charles Powell
- ----------------------
Charles Powell
Director
By: /s/ Greg Carr
- -----------------
Greg Carr
By: /s/ Dyann Carr
- ------------------
Dyann Carr
