U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the transition period from _______ to _______ .
Commission File No. 0-27780
U-SHIP, INC.
(Exact Name of Small Business Issuer as specified in Its Charter)
Utah 87-0355929
(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
5583 West 78th Street, Edina, MN 55439
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (612) 941-4080
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES (X) NO ( )
As of May 9, 1997 the issuer had outstanding 5,006,359 shares of Common Stock,
$.004 par value.
U-SHIP, INC.
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
Page
PART 1. FINANCIAL INFORMATION 3
ITEM 1.
a) Condensed Consolidated Financial Statements
b) Condensed Consolidated Balance Sheets - March 31, 1997
and June 30, 1996 3
c) Condensed Consolidated Statements of Operations - Three
and Nine months ended March31, 1997 and 1996 4
d) Condensed Consolidated Statements of Cash Flows - Nine
months ended March 31, 1997 and 1996 5
e) Notes to Condensed Consolidated Financial Statements 6
ITEM 2.
a) Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION 15
ITEM 2. Changes in Securities 15
ITEM 5. Amendment #1 to Installation and Marketing Agreement
between the Company and OfficeMax, Inc. dated October
16, 1996 15
ITEM 6. Exhibits 15
10.1 Amendment #1 to Installation and Marketing Agreement
between the Company and OfficeMax Inc., dated October
16, 1996
10.2 Form of Subscription Agreement and Letter of Investment
Intent by and between the Company and Robertson Stephens
& Co.
27. Financial Data Schedule
SIGNATURES 16
PART I. - FINANCIAL INFORMATION
ITEM 1. - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U-SHIP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
----------- -----------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 371,471 $ 4,822,785
Accounts receivable 117,529 59,135
Prepaid expenses 61,903 12,208
Inventories 934,552 822,393
----------- -----------
Total current assets 1,485,455 5,716,521
----------- -----------
PROPERTY AND EQUIPMENT:
Shipping centers 1,025,187 87,045
Furniture, fixtures and equipment 515,170 365,003
Less-Accumulated depreciation (409,529) (230,704)
----------- -----------
Total property and equipment,net 1,130,828 221,344
----------- -----------
Other assets, net 112,251 76,964
----------- -----------
$ 2,728,534 $ 6,014,829
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and notes payable $ 43,705 $ 28,173
Checks issued not yet presented for payment - 1,851,365
Deferred Revenue 112,581 419,702
Accounts payable 455,552 194,227
Accrued liabilities 138,205 250,353
----------- -----------
Total current liabilities 750,043 2,743,820
----------- -----------
Long-term debt, net of current maturities 120,266 30,263
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock, $.004 par value; 25,000,000 shares authorized;
none issued and outstanding - -
Common stock, $.004 par value; 75,000,000 shares authorized;
4,020,850 and 3,916,564 issued and outstanding 16,083 15,666
Additional paid-in capital 8,864,046 8,548,875
Warrants 19,500 19,500
Accumulated deficit (7,041,404) (5,343,295)
----------- -----------
Shareholders' equity 1,858,225 3,240,746
----------- -----------
$ 2,728,534 $ 6,014,829
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
U-SHIP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
-----------------------------------------------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue
Package shipping revenue $ 170,455 $ 155,256 $ 492,015 $ 405,504
Machine sales revenue 22,996 53,367 135,628 163,553
Other revenue 3,813 964 22,216 6,940
----------- ----------- ----------- -----------
Net sales 197,264 209,587 649,859 575,997
Cost of goods sold 170,372 180,479 545,440 482,669
----------- ----------- ----------- -----------
Gross profit 26,892 29,108 104,419 93,328
General and administrative 607,254 238,149 1,295,642 637,450
Marketing and sales 166,059 86,414 429,157 204,827
Research and development 7,438 109,935 145,437 202,039
----------- ----------- ----------- -----------
Loss from operations (753,859) (405,390) (1,765,817) (950,988)
Interest income (13,046) (15,426) (79,715) (16,469)
Interest expense 6,171 150,154 12,007 237,576
----------- ----------- ----------- -----------
Net loss $ (746,984) $ (540,118) $(1,698,109) $(1,172,095)
=========== =========== =========== ===========
Net loss per share $ (0.19) $ (0.27) $ (0.42) $ (0.65)
----------- ----------- ----------- -----------
Weighted average number of
common shares outstanding 4,017,906 2,009,103 4,016,281 1,804,397
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
U-SHIP, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss $(1,698,109) $(1,172,095)
Adjustments to reconcile net loss to net cash flows used for
operating activities-
Depreciation and amortization 198,152 174,482
Reserve for doubtful accounts (2,440) -
Reserve for inventory (22,000) -
Debt issuance costs - (141,327)
(Gain)/Loss on retirement of equipment 4,312 -
Change in current operating items:
Checks held, not yet presented for payment (1,851,365) -
Accounts receivable (55,954) (52,084)
Inventories (90,159) (297,858)
Prepaid expenses and other (49,695) (68,497)
Accounts payable 261,325 (266,267)
Accrued liabilities and deferred revenue (419,269) 244,704
----------- -----------
Cash used for operating activities (3,725,202) (1,578,942)
----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment (1,132,235) (81,896)
----------- -----------
Cash used for investing activities (1,132,235) (81,896)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from notes payable and long-term debt 151,294 2,248,000
Payments on notes payable and long-term debt (45,759) (128,310)
Sale of common stock 300,588 103,000
Cancellation of shares - 5
----------- -----------
Cash provided by financing activities 406,123 2,222,695
----------- -----------
Net decrease in cash and cash equivalents (4,451,314) 561,857
Cash and cash equivalents, beginning of period 4,822,785 41,853
----------- -----------
Cash and cash equivalents, end of period $ 371,471 $ 603,710
=========== ===========
NONCASH TRANSACTIONS:
Conversion of debt to common stock - 1,095,001
Conversion of payables to common stock - 164,670
Common stock issued in exchange for patent 15,000 -
</TABLE>
The accompanying notes are an integral part of the financial statements.
U-SHIP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have been
prepared by U-Ship, Inc. which, together with its wholly-owned subsidiaries,
shall be referred to herein as the "Company", without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. The Company's
business is seasonal and, accordingly, interim results are not indicative of
results for a full year. In the opinion of the Company, all adjustments
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company as of March 31, 1997, and the results of its
operations for the three and nine months ended March 31, 1997 and 1996, have
been included. Certain information in footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
consolidated financial statements be read in conjunction with the financial
statements for the year ended June 30, 1996, and the footnotes thereto, included
in the Company's Report on Form 10-KSB, filed with the Securities and Exchange
Commission on September 26, 1996.
1. Basis of Presentation:
Principles of consolidation - The consolidated financial statements include the
accounts of U-Ship, Inc. and its wholly owned subsidiaries. All inter-Company
balances and transactions have been eliminated in the consolidation.
2. Inventories:
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market. Inventories consist of shipping systems in various stages of completion,
including component parts. The components of inventory are:
March 31, June 30,
1997 1996
--------- ---------
Raw materials and work components $ 775,048 $ 490,342
Finished goods 159,504 332,051
--------- ---------
$ 934,552 $ 822,393
========= =========
3. Revenue Recognition:
The Company has historically generated revenue from two primary sources: The
per-package shipping revenue generated from ongoing shipping volume and the sale
of automated shipping centers. Revenues are also derived, to a lesser extent,
from the sale of shipping supplies and maintenance contracts.
Package shipping revenue is recognized when the package is shipped. Revenue from
maintenance contracts is deferred and recognized over the period of the related
agreement.
The Company generally recognizes revenue from sales of shipping systems upon
delivery and installation. Certain sales agreements allow the customer to return
the shipping system under certain circumstances within the first 12 months. Such
revenue and related costs are deferred until the return rights lapse and certain
other conditions are met.
The components of deferred revenue are as follows:
March 31, June 30,
1997 1996
--------- ---------
Machine sales $59,724 $ 313,496
Maintenance contracts 52,857 106,206
--------- ---------
$ 112,581 $ 419,702
========= =========
Most of the automated shipping center sales are financed by third-party
equipment lessors. The lessor has certain recourse to the Company in the event
of customer default or return of the automated shipping center, primarily to
re-market the automated shipping center on a best efforts basis. The Company has
reserved the estimated cost of fulfilling such recourse arrangements.
4. Subsequent Event - Private Placement:
The Company completed a private placement in April 1997 raising approximately
$1.7 million. The Company sold approximately 985,500 shares of its par value
$.004 common stock at $1.725 per share. The shares were sold to certain existing
institutional shareholders, certain directors and officers of the Company. Under
terms of the financing, the Company agreed to retroactively reduce the per share
price of shares to investors in the private placement if an offering of its
common stock before July 29, 1997 was consummated at a price lower than the
private placement price of $1.725. The price reduction would effectively require
the Company to issue additional shares to the investors to match the per share
price being offered in the new offering.
5. New Pronouncement:
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share," (SFAS 128) which
changes the way companies calculate their earnings per share (EPS). SFAS 128
replaces primary EPS with basic EPS. Basic EPS is computed by dividing reported
earnings by weighted average shares outstanding, excluding potentially dilutive
securities. Fully diluted EPS, termed diluted EPS under SFAS 128, is also to be
disclosed. The Company is required to adopt SFAS 128 in the second quarter of
fiscal 1998, at which time all prior period EPS are to be restated in accordance
with SFAS 128.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
U-SHIP, INC. AND SUBSIDIARIES
THE FOLLOWING DISCUSSION CONTAINS VARIOUS FORWARD-LOOKING STATEMENTS AS DEFINED
IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, WHICH MAY BE IDENTIFIED
BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "EXPECT," "ANTICIPATE,"
"ESTIMATE," "GOAL," "CONTINUE," OR OTHER COMPARABLE TERMINOLOGY. SUCH STATEMENTS
ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES RELATING TO THE COMPANY'S FUTURE
PERFORMANCE. ACTUAL RESULTS OR EVENTS MAY MATERIALLY DIFFER FROM THOSE INDICATED
IN SUCH FORWARD-LOOKING STATEMENTS. IN EVALUATING SUCH STATEMENTS, SHAREHOLDERS
AND PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH
FORWARD-LOOKING STATEMENTS AND ARE SPECIFICALLY DIRECTED TO REVIEW THE VARIOUS
FACTORS IDENTIFIED UNDER THE CAPTION "CAUTIONARY FACTORS" WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH FORWARD-LOOKING
STATEMENTS.
GENERAL
As of March 31, 1997, the Company had 270 Automated Shipping
Centers(TM) ("ASCs") located in 35 states and 4 Canadian provinces. The first
ASC was placed in service in November 1994. The Company has evolved from a
product and technology company selling a shipping product into a company
offering automated shipping equipment, shipping products and quality shipping
services through the use of technology. In the last three fiscal quarters, the
Company's sales efforts have emphasized the placement of ASCs in strategic
retail locations at the Company's expense and operating them to maximize the
Company's revenue. Under this plan, the Company continues to pay a percentage of
package shipping revenue to the retail location where the ASC is placed, but the
Company retains a greater share of the shipping revenue.
A key part of the Company's strategy is to select targeted locations
for its ASCs. The Company is concentrating on placing ASCs in locations that
have already established a shipping service or are trying to aggressively
establish these services. By concentrating on such shipping sites, the Company
believes that it can better reach its target market, the small office and home
office market and the occasional shipper, both segments currently under-served
by existing shipping service providers. The occasional shipper usually ships
under ten packages a year. These shippers usually go to the United States Post
Office or try to locate a United Parcel Service ("UPS") shipping center.
Throughout the country a large number of grocery, hardware and similar stores
offer shipping services through UPS. Such locations are already processing a
high volume of packages and benefit from the automation that U-Ship provides.
The small business and home office shippers frequently use outsourced business
services and these service providers are eager to provide additional services to
these customers to provide a one-stop shop. In addition, the Company believes
that small business and home office shippers are frequent business shippers, and
are more likely to use premium shipping services, such as next day delivery,
which provide a higher profit margin to the Company. The Company had expected
that by placing its ASCs at locations where individuals owning small businesses
or individuals working out of a home office frequent for business services, it
would be able to capture significant shipping volume without incurring the
significant expense of a consumer marketing program. However, the Company's
experience to date has not borne out this expectation and the Company is
currently developing marketing programs which the Company believes will lead to
increased usage of its ASCs at its various locations. The Company expects that
the implementation of marketing programs will increase the overall operating
costs of the Company, and no assurance can be given that these marketing
activities will result in any significant increase in package shipping volume at
these ASC locations.
In September 1996, the Company entered into an agreement with Kinko's,
Inc. ("Kinko's") to install up to 250 ASCs by the end of December 1997 (the
"Kinko's Agreement"). Pursuant to the Kinko's Agreement, each installation shall
remain in operation for a period of three years from the date of installation.
Under the Kinko's Agreement, the Company will retain ownership of the ASCs
installed at the Kinko's sites, and package shipping revenue generated at each
site will be shared between the Company and Kinko's.
In October 1996, the Company entered into an agreement with OfficeMax,
Inc. ("OfficeMax") to install 73 ASCs by the end of January 1997. In March 1997
the Company expanded this contract to install a total of 140 ASCs by the end of
January 1998. The OfficeMax agreement provides that each installation shall
remain in operation for a minimum period of three years from the date of
installation. The Company will retain ownership of the ASCs installed at the
OfficeMax sites, and package shipping revenue generated at each site will be
shared between the Company and OfficeMax.
The Company is also exploring the possibility of sales of its ASCs to
existing shipping oriented businesses and to mail centers located within
corporate settings. The Company believes that its automation technology for UPS
shipping can reduce costs, help in extending service hours through the use of
unattended ASCs and improve service to the shipping consumer. If the Company's
initial investigations provide evidence that a need for ASCs exist in these
market niches, the Company anticipates that it will pursue sales of its ASCs to
this market segment by entering into distribution agreements with current
distributors serving this market.
RESULTS OF OPERATIONS
Package shipping revenue for the three months ended March 31, 1997,
increased $15,199 or 10% to $170,455 from $155,256 for the same period in 1996.
Net sales for the three months ended March 31, 1997, decreased $12,323 or 6% to
$197,264 from $209,587 for the same period in 1996. The increase in package
shipping revenue is the result of the higher number of ASC locations offset by a
short term loss of package volume resulting from returns of some old leased
equipment. New ASC units take a number of months to reach their expected
on-going volume. As a result, the increase in package volume does not reflect
the expected full impact of the increase in number of ASC locations from 157
active units as of March 31, 1996 to 270 active units at the end of March 31,
1997. The Company has placed 188 ASCs at retail locations during the last twelve
months and taken back 75 old leased units. Of the increase in the number of ASCs
between the two periods, 77 units were placed in service during the quarter
ended March 31, 1997. The Company's expectations of package volume at new ASC
locations have not been met to date. The Company has initiated a number of
marketing initiatives which are intended to increase the volume of package
shipping at its ASCs. The results of these initiatives are not yet known and
there can be no assurance that the Company will be successful in increasing
package shipping volumes substantially at its existing ASC locations.
Package shipping revenue for the nine-month period ended March 31,
1997, increased $86,511 or 21% to $492,015 from $405,504 for the same period in
1996. Net sales for the nine-month period ended March 31, 1997, increased
$73,862 or 13% to $649,859 from $575,997 for the same period in 1996. These
increases are due primarily to the Company's increasing number of ASC locations
and building recurring revenue through increased package shipping revenue. The
Company emphasized placement of owned ASCs during the first three quarters of
this fiscal year. As a result, revenues from machine sales is lower for this
period. Package shipping revenues will continue to be the emphasis for growth in
future periods, although the Company is currently evaluating if sales of ASCs
provide an attractive market segment to exploit in certain circumstances.
Gross margins decreased by $2,216 or 8% to $26,892 for the three months
period ended March 31, 1997, from $29,108 for the same period in 1996. For the
nine months ended March 31, 1997, gross margins increased by $11,091 or 12% to
$104,419 from $93,328 for the corresponding nine-month period from the prior
year. Gross margins as a percent of sales decreased in the third quarter to 14%
compared to 20% in the second quarter of fiscal 1997, primarily due to higher
costs associated with certain production problems which have since been
corrected. The Company expects gross margins as a percent of sales to increase
as a greater proportion of its revenues are derived from package shipping.
General and administrative expenses for the three months ended March
31, 1997, increased $369,105 or 155% to $607,254 from $238,149. Personnel
expenses accounted for $52,941 of the increase and additional increases in
general and administrative expenses, particularly ASC depreciation and an
increase in maintenance costs associated with a field upgrade completed in
February 1997, accounted for the remaining increase. For the nine month period
ended March 31, 1997, general and administrative expenses increased $658,192 or
103% to $1,295,642 from $637,450 for the same period in 1996. Personnel expenses
accounted for $135,436 of the increase, and additional increases in ASC
depreciation, increased maintenance costs associated with a field upgrade and
expenses associated with being a publicly held company accounted for the
remaining increase. In April 1997, the Company implemented cost-cutting measures
through the reduction of staff and deferral of certain expenditures. The impact
of these reductions, which amount to approximately $150,000 annually, will be
experienced in the quarter ending June 30 , 1997.
Marketing and sales expenses for the three months ended March 31, 1997
increased $79,645 or 92% to $166,059 from $86,414 for the same period in 1996.
Personnel expenses represented $35,110 of the increase, and the remaining
increase reflects the increased marketing and sales activity being undertaken by
the Company to increase the placements of the ASC units and to increase volume
at existing ASC sites. Marketing and sales expenses for the nine months ended
March 31, 1997 increased $224,330 or 110% to $429,157 from $204,827 for the same
period in the prior year. Personnel expenses represented $116,920 of the
increase between the two periods. The Company is currently implementing
marketing programs intended to improve package shipping volume at certain
locations. Additional marketing programs are being developed and will be
implemented during the three to six months. As a result, marketing expenses are
expected to increase over this period. Depending on the results of the marketing
programs, the Company may elect to continue these or similar programs to improve
package shipping volumes in the future. No assurance can be given that package
volumes will increase with the implementation of these marketing programs.
Research and development expenses for the three months ended March 31,
1997, decreased $102,497 or 93% to $7,438 from $109,935 for the corresponding
period in the prior fiscal period. The reduction is primarily due to the
completion of significant development work on the 3100 model ASC in earlier
periods with no new development activities currently underway. For the
nine-month period ended March 31, 1997, research and development expenses
decreased by $56,602 or 28% to $145,437 compared to $202,039 for the
corresponding period in the prior fiscal period. Research and development
expenses relate primarily to the development of new software tools for the ASCs
and costs associated with the development of new experimental models of the ASC.
Interest income decreased to $13,046 for the three months ended March
31,1997, compared to $15,426 for the corresponding three month period of the
prior year, primarily as a result of lower investments as cash balances were
reduced due to the funding of operating deficits. Interest income was higher in
the prior period due to higher cash balances resulting from proceeds of a bridge
loan prior to the Company's public offering completed in May 1996. Interest
expense decreased from $150,154 for the three month period ended March 31, 1996
to $6,171 for the same period in 1997. The decrease is the result of a reduction
in debt of $1,178,400 between the two periods. For the nine month period ended
March 31, 1997, interest income increased by $63,246 to $79,715 and interest
expense decreased by $225,569 to $12,007 as a result of the cash generated from
the Company's public offering in May 1996 which allowed the Company to pay down
its outstanding debt and invest the surplus.
Net loss for the three months ended March 31, 1997, increased $206,866
to $746,984 from $540,118 for the same period in the prior fiscal year. Net loss
for the nine months ended March 31, 1997 increased $526,014 to $1,698,109 from
$1,172,095 for the comparable period in the prior year. The Company expects to
have increases in its revenues as it invests in expanding its network of ASCs.
However, the Company expects to incur additional losses until its ASC's generate
sufficient volume to offset its investment and operating expenses. There can be
no assurance that the shipping volume will increase sufficiently or the Company
will be able to expand its network of ASCs sufficiently to generate profitable
revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed a public offering in May 1996, which raised
approximately $5.1 million. During the first quarter of the current fiscal year,
the Company received an additional $0.3 million as a result of the exercise by
the underwriter of its over-allotment option. The Company used approximately
$1.9 million of the public offering proceeds to repay bridge notes and bank
debt, leaving net proceeds of approximately $3.5 million to finance growth and
working capital. In April 1997, the Company completed a private placement of its
common stock raising approximately $1.7 million. The Company is currently
operating at a loss and depends on cash generated through its equity offerings
to fund its operating deficit. There can be no assurance that the Company will
be able to generate sufficient revenues to meet its operating cash and growth
needs or that any equity or debt funding will be available or at terms
acceptable to the Company in the future to continue operating in its current
form.
The Company's loss for the nine-month period ended March 31, 1997 was
$1,698,109. Although the Company expects revenue levels to continue to increase
as additional ASC units are placed at retail locations, the Company expects to
incur losses for the foreseeable future due to the ongoing activities of the
Company to expand its ASC network and the costs incurred in expanding its
organization to support the expected increase in this network. As noted earlier,
the Company has initiated marketing programs to influence the volume of package
shipping at its shipping centers. The Company believes that these programs will
result in greater package shipping revenues per shipping center, although no
assurance can be given that volumes will increase appreciably as a result of
these initiatives in the near future, if at all.
During September 1996, the Company entered into an agreement with
Kinko's to install up to 250 ASCs in Kinko's Copy Centers by December 1997. In
October 1996, the Company entered into a similar agreement with OfficeMax to
install 73 ASCs in OfficeMax locations by the end of January 1997, which
agreement was further expanded, in March 1997, to include a total of 140 ASCs.
The total cost of installing these units will be approximately $2 million.
Through March 31, 1997, the Company has installed 134 units at an approximate
cost of $737,000. To date, the Company has utilized funds generated from its May
1996 public offering to fund the installation of these units and expects to rely
on this, the private placement proceeds and internally generated funds to
continue financing the installations in the short term. It is likely that the
Company will need additional commercial financing for a portion of the remaining
installations. There can be no assurance that such financing will be available
to the Company on terms satisfactory to it.
Inventory levels increased by approximately $90,000 as of March 31,
1997, compared to June 30, 1996, reflecting the overall increase in purchases
made to fulfill the Kinko's and OfficeMax agreements. Accounts receivables
increased by approximately $56,000 from June 30, 1996 to March 31, 1997 due to
the seasonal increase in shipping volumes in December and January. Accounts
payables increased by approximately $261,000 over the same period due to
increased level of inventory purchases and deferral of payments to reduce
short-term cash outflow. Accrued liabilities and deferred revenue decreased due
to reversals of deferred revenues resulting from the exercise of return rights
and recognition of revenue on a monthly basis on leased units remaining.
Based on current commitments and on-going working capital needs, the
Company believes that it will require additional debt or equity funds within the
next eight months to ten months to continue to penetrate the market for
automated shipping and to fund its on-going operations. As noted earlier, the
Company is currently implementing marketing programs which it expects to
positively influence the volume of package shipping at its ASCs. The Company's
cash needs and usage may vary based on the outcome of these initiatives. There
can be no assurance that the necessary financing will be available to the
Company or on terms satisfactory to it.
CAUTIONARY FACTORS
THE COMPANY WISHES TO CAUTION SHAREHOLDERS AND PROSPECTIVE INVESTORS
THAT THE FOLLOWING IMPORTANT FACTORS, AMONG OTHERS, COULD IN THE FUTURE AFFECT
THE COMPANY'S ACTUAL OPERATING RESULTS, AND THAT SUCH RESULTS COULD DIFFER
MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS MADE BY THE
COMPANY. THE STATEMENTS UNDER THIS CAPTION ARE INTENDED TO SERVE AS CAUTIONARY
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. THE FOLLOWING INFORMATION IS NOT INTENDED TO LIMIT IN ANY WAY THE
CHARACTERIZATION OF OTHER STATEMENTS OR INFORMATION UNDER OTHER CAPTIONS AS
CAUTIONARY STATEMENTS FOR SUCH PURPOSE. THE ORDER IN WHICH SUCH FACTORS APPEAR
BELOW SHOULD NOT BE CONSTRUED TO INDICATE THEIR RELATIVE IMPORTANCE OR PRIORITY.
LIMITED OPERATING HISTORY; LOSSES FROM OPERATIONS; GOING CONCERN UNCERTAINTY
The Company entered its current business in 1992 and has had a limited
operating history. The Company's proposed operations are subject to all the
risks inherent in the establishment of a new business. The Company has never
generated net income, continues to sustain substantial operating losses and
expects to continue to operate at a loss thorough its current fiscal year. For
the fiscal year ended June 30, 1996, the Company incurred net losses of $
2,184,287. For the nine-month period ended March 31, 1997, the Company has
incurred an additional net loss of $1,698,109. As of March 31 1997, the Company
had working capital of $735,412. As of March 31, 1997, the Company had an
accumulated deficit of $7,041,404. The Company will continue to incur these
losses until there is a wide placement of ASCs which generate sufficient
revenues to offset operating costs. The report of the Company's independent
public accountants concerning the Company's financial statements as of June 30,
1995 and 1996 contain explanatory paragraphs relating to the Company's ability
to continue as a going concern. There can be no assurance that the Company will
achieve profitable operations. The Company expects that it will need additional
debt or equity funding in the next eight to ten months to fund on-going
operating costs. There can be no assurance that such funding will be available
to the Company at terms satisfactory to it.
MARKET ACCEPTANCE OF PRODUCTS
A prerequisite to the Company's success will be to create demand for
self-service, automated shipping services and wide placement of the Company's
ASCs at retail and other business locations. The Company believes this is an
undeveloped market and there can be no assurance that such demand or market
acceptance of its ASCs will develop. To date the Company has had limited success
in creating a demand for automated shipping services. The marketing cost of
creating demand for the Company's services may be significant and beyond the
Company's funding capability. The commercial (non-U.S. Postal Service) package
shipping market is dominated by a relatively small number of established
carriers, which, together with the U.S. Postal Service, process the vast
majority of consumer and small business package shipping transactions. There can
be no assurance that any of such dominant commercial package shippers or the
public will adopt a self-service shipping center concept or that they will
select the Company's ASC in preference to the shipping services offered by its
competitors or potential competitors.
DEPENDENCE UPON CARRIERS
The Company is dependent upon the United Parcel Service ("UPS") to pick
up and transport packages processed via the Company's ASCs. Any interruption in,
or increase in price of, such service, or the failure of the Company to continue
to maintain arrangements with UPS or to develop relationships with other package
carriers, would cause an interruption of service to the Company's customers and
would have a material adverse effect upon its business. The Company has no
control over the nature, cost or availability of services provided by any
carrier and has no long-term contracts with such carriers.
SUBSTANTIAL INVESTMENT IN EQUIPMENT
As a part of its business strategy, the Company seeks to place ASCs, at
its own expense, in locations that have the potential to generate high package
volume and with businesses that have multiple strategic locations, such as
business centers, grocery stores and other service provider chains. Although the
Company was traditionally able to sell ASCs with financing from third party
lessors, no assurance can be given that similar financing will be available in
the future to finance the Company's plan of placing ASCs in service at its own
expense.
Although the Company believes that such a strategy will lead to the
generation of high package shipping volume and that such placements of ASCs is
cost-effective, there can be no assurance that this strategy will be successful
or that the Company will be able to recover its investments in the ASCs placed
in service pursuant to this program either through profit margins or higher
volumes of package shipments.
COMPETITION
The commercial (non-U.S. Postal Service) package shipping market is
dominated by a relatively small number of companies which have more experience
in the industry and have greater financial and technical resources than the
Company. Both FedEx, Inc. and UPS have test marketed automated self-service
shipping terminals, but have, to the best of the Company's knowledge,
discontinued such tests, and neither of them currently operate competing
machines in the market that are comparable to the form and function of the
Company's ASC. In addition, the Company competes with major air express
carriers, all of which deploy large numbers of "drop boxes" which may compete
with the Company's ASCs. According to industry sources, these carriers are
deploying additional drop boxes on an ongoing basis. Many of such boxes have or
will be installed in business centers, office parks and shopping malls, which
could be potential sites for the Company's ASCs. The Company also faces intense
competition from the related service industry providing package collection
services, such as mail and packaging stores. In addition, the Company's
competitors and the dominant package shippers, all of which have greater
resources than the Company, could develop products competitive with the
Company's ASCs.
ABILITY TO FORM STRATEGIC RELATIONSHIPS
The Company's strategy includes the formation of strategic
relationships with major carriers and retailers. The Company believes that
relationships with carriers will enable it to deploy its proprietary technology
in the market by leveraging a carrier's established service and distribution
channels. The Company has had no success to date in forming a strategic
relationship with a carrier. The Company has also sought to establish
relationships with multi-site retailers. To date, the Company has entered into
contracts with Kinko's and OfficeMax and some other smaller multi-site
retailers. However, there can be no assurance that the Company will be
successful in creating additional multi-site retailer relationships and/or
successfully retain and grow the existing multi-site retailer relationships.
DEPENDENCE ON PROPRIETARY RIGHTS
The Company's success will depend, in part, upon its ability to protect
its proprietary technology, for which it relies on a combination of patent,
copyright, trademark and trade secret laws. Although the Company has received
patents for its ASC, there can be no assurance that current intellectual
property laws will afford the Company significant protection against competitors
or that other technology will not be developed to functionally compete with the
product. The Company believes that one or more major carriers, all of which have
greater financial, technical and marketing resources than the Company, have
attempted to develop or purchase products or technologies competitive with the
Company's ASCs. There can be no assurance that the Company will be able to
maintain a competitive advantage in the ASC market based upon its proprietary
technology.
TECHNOLOGICAL RISKS
The Company anticipates that any market which develops for automated
shipping services will be characterized by rapidly changing technology and user
preferences. Such market will likely be heavily influenced by the preferences
and acceptance of such technology by major package and parcel carriers. There
can be no assurance that future products or technology developed by others will
not render obsolete the Company's technology. Failure on the part of the Company
to develop new technology to meet competitive challenges may adversely affect
the Company's prospects.
UNINSURED OBLIGATIONS TO SHIPPING CUSTOMERS
The Company or a retailer with whom a package is deposited may have
exposure to a customer to the maximum extent of the declared value of the
package in the event of its damage or destruction while in the possession of the
Company or a retailer. The Company limits its liability to the customer to the
amount of the declared value pursuant to the shipping transaction documentation,
and relies upon the carrier to reimburse it or the customer for damage occurring
during shipment. The Company, however, has no insurance which would protect it
against such losses.
QUARTERLY REVENUE FLUCTUATION; SEASONALITY
The Company expects to experience continued and substantial
fluctuations in revenue due to seasonal changes which affect the volume of
package shipping transactions. Such fluctuations create significant imbalances
in the Company's cash flow. Potential investors and shareholders should not,
therefore, rely on individual quarterly results as being indicative of the
Company's overall performance.
FRANCHISE REGULATION
The Federal Trade Commission regulates the offer and sale of franchises
under its "Franchise Rule," a regulation which sets forth standards mandating
disclosure of information before the sale of a franchise or business
opportunity. Additionally, several states, including Minnesota, have laws and
rules which regulate various aspects of franchising and the sale of business
opportunities. The Company believes that its programs for the sale, lease or
placement of ASCs do not constitute franchises or business opportunities within
the meaning of the Franchise Rule or such state laws. If the Company should be
required to comply with such laws or rules it would incur substantial costs,
delays and other burdens associated with various franchise registration and
disclosure compliance obligations. In addition, there can be no assurance that
other governmental regulations will not hinder the Company's plans. A finding
that the Company has violated state franchise laws or regulations of the
Franchise Rule could result in administrative, civil or criminal actions against
the Company and could materially and adversely affect its business. In addition,
if the Company is found to have violated franchise laws, certain persons
entitled to the benefit of such laws may have the right to rescind their
purchases or leases of the Company's ASCs, in addition to recovering damages,
interest and attorneys' fees.
PART II - OTHER INFORMATION
ITEM 2 - Changes in Securities
The Company completed a private placement on April 29, 1997 raising
approximately $1.7 million. The Company sold approximately 985,500 shares of its
common stock, $.004 par value per share, at $1.725 per share. The private
placement was not underwritten and shares were sold by the Company directly to
certain existing institutional shareholders, certain directors and officers of
the Company. The Company relied upon Section 4 (2) of the Securities Act of
1933, as amended, and Rule 565, of the Securities and Exchange Commission under
such act in effecting the private placement of its securities. Although no
formal agreements exist, the Company expects to pay a finder's fee to a broker
for the shares sold to non-director and non-officer shareholders. The amount of
the finder's fee (which is expected to have a cash and a warrant component) has
not yet been finalized and is under negotiation. Under terms of the financing,
the Company agreed to retroactively reduce the per share price of shares to
investors in the private placement if an offering of common stock before July
29, 1997 was consummated at a price lower than the private placement price of
$1.725. The price reduction would effectively require the Company to issue
additional shares to the investors to match the per share price being offered in
the new offering.
ITEM 5 - Amendment # 1 dated March 31, 1997 to Installation and Marketing
Agreement, dated October 16, 1996, between the Company and OfficeMax,
Inc.
On March 31, 1997, the Company amended its Installation and Marketing
Agreement dated October 16, 1996 with OfficeMax, Inc. to expand the number of
ASC units covered by the agreement from 73 to 140 with an expected fulfillment
of the additional units prior to December 31, 1997. All other terms of the
agreement remained unchanged. On October 16, 1996, the Company entered into a 36
month Installation and Marketing Agreement with OfficeMax, Inc.. The terms of
the Agreement requires the Company to install 73 ASCs into various CopyMax
locations by the end of January 1997. Under the terms of the Agreement each ASC
shall remain in service for 36 months following the date of its installation.
ITEM 6 - Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 10.1 Amendment #1 dated March 31, 1997 to
Installation and Marketing Agreement, dated
September 30, 1996, between the Company and
OfficeMax, Inc.
Exhibit 10.2 Form of Subscription Agreement and
Letter of Investment Intent by and between
the Company and Robertson Stephens & Co. and
related funds in the aggregate.
Exhibit 27 Financial Data Schedule
b. Reports on From 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in they City of Minneapolis, State of Minnesota on May 13 , 1997.
U-SHIP, INC.
By: /s/ Bruce H. Senske
Bruce Senske,
President and Chief Executive Officer
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
U-SHIP, INC.
EXHIBITS TO FORM 10-QSB
EXHIBIT NUMBER DESCRIPTION PAGE
- -------------- ----------- ----
Exhibit 10.1 Amendment #1 dated March 31, 1997 to
Installation and Marketing Agreement, dated
October 16, 1996, between the Company's and
OfficeMax, Inc.
Exhibit 10.2 Form of Subscription Agreement and Letter of
Investment Intent by and between the Company
and Robertson Stephens & Co. and related
funds in the aggregate
Exhibit 27 Financial Data Schedule
INSTALLATION AND MARKETING AGREEMENT
AMENDMENT #1
This is Amendment #1 to the INSTALLATION AND MARKETING AGREEMENT dated October
16th, 1996 between OFFICEMAX INC. AND U-SHIP INC.
Section 2 is hereby amended in the first sentence to change the
"Expiration Date" from December 31, 1997 to January 31, 1998.
Section 3 is hereby amended in the third sentence to change the number
of ASCAEs OFFICEMAX INC. shall allow U-SHIP INC. to install from
approximately 73 to approximately 140 retail locations to be installed by
approximately January 31, 1998 instead of January 31, 1997.
All other terms and conditions of the original INSTALLATION AND MARKETING
AGREEMENT remain the same.
OFFICEMAX, INC. U-SHIP, INC.
By:________________________________ By:_______________________________
Douglas L. Scroggins Bryan Virgin
Divisional Vice President Vice President Marketing & Sales
Date:______________________________ Date:_____________________________
FORM OF
SUBSCRIPTION AGREEMENT PRIVATE
AND
LETTER OF INVESTMENT INTENT
U-Ship, Inc.
5583 West 78th Street
Edina, MN 55439
Attention: Bruce H. Senske
Chief Executive Officer
Gentlemen:
The undersigned desires to become a shareholder of U-Ship, Inc. a Utah
corporation (the "Company"), and hereby subscribes for ____________ shares of
the Company's common stock, $.004 par value (the "Shares"), upon the terms and
conditions set forth below:
1. The undersigned hereby agrees to purchase the Shares for the sum of
$_____________, representing the purchase price of $___ per Share for each Share
subscribed for above. The undersigned acknowledges this subscription is
contingent upon acceptance in whole or in part by the Company.
2. The undersigned acknowledges and represents as follows:
(a) That it believes it is able to bear the economic risk of the
investment in the Shares;
(b) That it believes that it has knowledge and experience in financial
and business matters, that it is capable of evaluating the merits and risks
of the prospective investment in the Shares and that it is able to bear
such risks.
(c) That it understands an investment in the Shares is highly
speculative but believes that the investment is suitable for it based upon
its investment objectives and financial needs, and has adequate means for
providing for its current financial needs and personal contingencies and
has no need for liquidity of investment with respect to the Shares;
(d) That it has reviewed copies of the Company's recent reports filed
under the Securities Exchange Act of 1934, as amended, including, but not
limited to, the Company's 10-KSB Report for the fiscal year ended June 30,
1996 and is familiar with the factors contained therein under the caption
"Factors That May Affect Future Operating Results" which are intended to
serve as cautionary factors within the meaning of the Private Securities
Litigation Reform Act of 1995.
(e) That it has been given access to full and complete information
regarding the Company (including the opportunity to meet with Company
officers and review all documents as it may have requested in writing) and
has utilized such access to its satisfaction for the purpose of obtaining
information about the Company;
(f) That it recognizes that the Shares, as an investment, involve a
high degree of risk; and
(g) That it realizes that (i) the purchase of Shares is a long-term
investment; (ii) purchasers of Shares must bear the economic risk of
investment for an indefinite period of time because the Shares have not
been registered under the Securities Act of 1933, as amended (the "Act")
and, therefore, cannot be sold unless they are subsequently registered
under the Act or an exemption from such registration is available; and
(iii) the transferability of the Shares is restricted, and (A) requires the
written consent of the Company, (B) requires conformity with the
restrictions contained in paragraph 3 below, and (C) will be further
restricted by a legend placed on the certificate(s) representing the Shares
stating that the Shares have not been registered under the Act and
referring to the restrictions on transferability of the Shares, and by stop
transfer orders or notations on the Company's records referring to the
restrictions on transferability.
3. The undersigned has been advised that the Shares are not being
registered under the Act or the relevant state securities laws pursuant to
exemptions from the Act and laws, and that the Company's reliance upon such
exemptions is predicated in part on the undersigned's representations to the
Company as contained herein. The undersigned represents and warrants that the
Shares are being purchased for its own account and for investment and without
the intention of reselling or redistributing the same, that the undersigned has
made no agreement with others regarding any of such Shares and that its
financial condition is such that it is not likely that it will be necessary to
dispose of any of such Shares in the foreseeable future. The undersigned is
aware that, in the view of the Securities and Exchange Commission and applicable
state bodies that administer state securities laws, a purchase of Shares with an
intent to resell by reason of any foreseeable specific contingency or
anticipated change in market values, or any change in the condition of the
Company or its business, or in connection with a contemplated liquidation or
settlement of any loan obtained for the acquisition of the Shares and for which
the Shares were pledged as security, would represent an intent inconsistent with
the representations set forth above. The undersigned further represents and
agrees that if, contrary to its foregoing intentions, it should later desire to
dispose of or transfer any of such Shares in any manner, it shall not do so
without first obtaining (a) the opinion of counsel designated by the Company
that such proposed disposition or transfer lawfully may be made without the
registration of such Shares for such purpose pursuant to the Act, as then in
effect, and applicable state securities laws, or (b) such registrations (it
being expressly understood that the Company shall not have any obligation to
register the Shares for such purpose).
The undersigned agrees that the Company may place a following restrictive
legend on the certificate(s) representing the Shares, containing substantially
the following language:
"The shares represented by this Certificate were issued without
registration under the Securities Act of 1933, as amended (the "Act") and
without registration under Minnesota securities laws, in reliance upon
exemptions contained in the Act and such laws. No transfer of these shares
or any interest therein may be made except pursuant to effective
registration statements under said laws unless this Corporation has
received an opinion of counsel satisfactory to it that such transfer or
disposition does not require registration under said laws and, for any
sales under Rule 144 of the Act, such evidence as it shall request for
compliance with that rule."
The undersigned agrees and consents that the Company may place a stop transfer
order on the Certificate(s) representing the Shares to assure the undersigned's
compliance with this Agreement and the matters referenced above.
The undersigned agrees to save and hold harmless, defend and indemnify the
Company and its directors, officers and agents from any claims, liabilities,
damages, losses, expenses or penalties arising out of any misrepresentation of
information furnished by the undersigned to the Company in this Subscription
Agreement.
4. The Company agrees to the following terms and conditions relative to
registration of the Shares under the Act:
(a) Definitions. As used in this Agreement, the following terms shall
have the meanings set forth respectively:
"Advice" has the meaning set forth in Section 4(c).
"Affiliate" means, with respect to any specified person, any other
person who, directly or indirectly, controls, is controlled by, or is under
common control with such specified person.
"Closing Date" means the date on which the Shares were initially
purchased from the Company.
"Commission" means the Securities and Exchange Commission.
"Controlling Persons" has the meaning set forth in Section 4(e)(1).
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute, and the rules and regulations of
the Commission promulgated thereunder.
"Holder" means (i) the undersigned purchaser of the Shares and (ii)
each person to whom Holder transfers the Shares as provided in Section 4(g)
hereof, if the person to whom such Shares are transferred acquires such Shares
as Registrable Securities.
"Lock-up Period" has the meaning set forth in Section 4(f).
"Lock-up Request" has the meaning set forth in Section 4(f).
"Prospectus" means the prospectus included in any Registration
Statement (including without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, and by all other
amendments and supplements to the prospectus, including post-effective
amendments, and in each case including all material incorporated by reference or
deemed to be incorporated by reference in such prospectus.
"Registrable Securities" means the Shares; provided, however, that any
Shares shall cease to be Registrable Securities when (i) a Registration
Statement covering such Registrable Securities has been declared effective and
such Registrable Securities have been disposed of pursuant to such effective
Registration Statement, (ii) such Registrable Securities become eligible for
sale pursuant to Rule 144 (or any similar provision then in force) ("Rule 144")
under the Securities Act or (iii) such Shares cease to be outstanding.
"Registration Statement" means any registration statement of the
Company that covers any of the Registrable Securities pursuant to the provisions
of this Agreement and all amendments and supplements to any such registration
statement, including post-effective amendments, in each case including the
Prospectus, all exhibits, and all material incorporated by reference or deemed
to be incorporated by reference in such registration statement.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, or any successor statute, and the rules and regulations of the
Commission promulgated thereunder.
"Suspension Notice" has the meaning set forth in Section 4(c).
"Suspension Period" has the meaning set forth in Section 4(c).
(b) Resale Registration.
(1) Filing, Effectiveness. If on any one occasion, one or
more Holders holding Registrable Securities shall notify the Company
in writing that they intend to offer or cause to be offered for public
resale all or any portion of their Registrable Securities, the Company
will notify all of the Holders of Registrable Securities of its
receipt of such notification and will as soon as practicable, but not
later than 120 days after receipt from the Company of such
notification, prepare and file a registration statement with the
Commission under the Securities Act on Form S-3 (the "Resale
Registration Statement"), or on such other form as may be available
and for which the Company is eligible, in the event it is not eligible
to use Form S-3, covering the resale by such Holders of their
Registrable Securities pursuant to Rule 415 under the Securities Act
from time to time in transactions not involving any underwritten
public offering and use its best efforts (i) to cause such Resale
Registration Statement to be declared effective by the Commission for
such Registrable Securities as soon as practicable thereafter and (ii)
to keep the Resale Registration Statement continuously effective until
the earliest of (x) the date on which such Holders no longer hold any
Registrable Securities registered under the Resale Registration
Statement, (y) the second anniversary of the Closing Date, or (z) the
date on which the Shares subject to one or more Registration
Statements could be sold pursuant to Rule 144(k).
In the event the Company does not file the registration
statement within 120 days after receipt of the notice referred to
above, the Holder may demand in writing and without further
compensation to the Company, that the Company issue additional shares
to the Holder equal to ten (10) percent of the amount of shares
purchased by the Holder. Such demand shall be made not later than the
second anniversary of the Closing Date.
The Company shall not be required to cause a registration statement
requested pursuant to this Section 4(b) to become effective prior to 90 days
following the effective date of a registration statement initiated by the
Company if any managing underwriter named in such registration statement has
advised the Company in writing that the registration or sale of additional
securities by Stockholders of the Company within such 90-day period would have a
material adverse effect on the likelihood of success of such underwritten
offering; provided, however, that the Company shall use its best efforts to
achieve such effectiveness promptly following such 90-day period if the request
pursuant to this Section 4(b) has been made prior to the expiration of such
90-day period. The Company may postpone the filing of any Registration Statement
required hereunder for a reasonable period of time, not to exceed 60 days, if
the Company has been advised by outside legal counsel that such filing would
require the disclosure of a material transaction or other matter and the Company
determines reasonably and in good faith that such disclosure would have a
material adverse effect on the Company; provided, however, that the Company
shall (A) use reasonable efforts to disclose such material transaction or other
matter as soon as in its good faith judgment it is prudent to do so and (B) may
so postpone such filing only if all other persons who are named as selling
securityholders under then effective registration statements filed by the
Company with the Commission and all directors of the Company are advised of the
fact that a material transaction or other matter is not being disclosed during
the length of such postponement and of the consequences of such nondisclosure
under the Securities Act and the Exchange Act.
(2) Effective Registration. A registration will not be
deemed to have been effected as a Resale Registration unless the
Resale Registration Statement with respect thereto has been declared
effective by the Commission; provided, however, that if after it has
been declared effective, the offering of Registrable Securities
pursuant to a Resale Registration Statement is interfered with by any
stop order, injunction or other order or requirement of the Commission
or any other governmental agency or court, such Resale Registration
Statement will be deemed not to have become effective during, the
period of such interference until the offering of Registrable
Securities pursuant to such Resale Registration Statement may legally
resume.
(c) Registration Procedures. In connection with the obligations of the
Company to effect or cause the registration of any Registrable Securities
pursuant to the terms and conditions of this Agreement, the Company shall use
reasonable efforts to effect the registration and sale of such Registrable
Securities in accordance with the intended method of distribution thereof, and
in connection therewith:
(1) The Company shall prepare and file with the Commission a
Registration Statement on Form S-3 or other similar form under the
Securities Act which permits secondary sales of securities in a "shelf
registration," and use reasonable efforts to cause such Registration
Statement to become effective and remain effective in accordance with
the provisions of this Agreement;
(2) The Company shall promptly prepare and file with the
Commission such amendments and post-effective amendments to each
Registration Statement as may be necessary to keep such Registration
Statement effective for as long as such registration is required to
remain effective pursuant to the terms hereof; shall cause the
Prospectus to be supplemented by any required Prospectus supplement,
and, as so supplemented, to be filed pursuant to Rule 424 or 430A
under the Securities Act; and shall comply with the provisions of the
Securities Act applicable to it with respect to the disposition of all
Registrable Securities covered by such Registration Statement during
the applicable period in accordance with the intended methods of
disposition by the Holders set forth in such Registration Statement or
supplement to the Prospectus;
(3) The Company shall promptly furnish to any Holder such
number of copies of the Prospectus (including each preliminary
Prospectus) and any amendments or supplements thereto, as such Holder
may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities being sold by such Holder;
(4) The Company shall, on or prior to the date on which a
Registration Statement is declared effective, use reasonable efforts
to register or qualify the Registrable Securities covered by such
Registration Statement under such other securities or "blue sky" laws
of such states of the United States as any Holder requests; provided,
however, that the Company shall not be required (i) to qualify
generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 4(c)(4) or (ii)
to file any general consent to service of process;
(5) The Company shall promptly notify each Holder, (i) when
a Prospectus or any Prospectus supplement or post-effective amendment
has been filed and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of
any request by the Commission or any state securities authority for
amendments and supplements to a Registration Statement and Prospectus
or for additional information after the Registration Statement has
become effective, (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of a Registration Statement, (iv)
of the issuance by any state securities commission or other regulatory
authority of any order suspending the qualification or exemption from
qualification of any of the Registrable Securities under state
securities or "blue sky" laws, and (v) of the happening of any event
which makes any statement made in a Registration Statement or related
Prospectus untrue or which requires the making of any changes in such
Registration Statement or Prospectus so that they will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As soon as practicable following expiration of the
Suspension Period (as defined below), the Company shall prepare and
file with the Commission and furnish a supplement or amendment to such
Prospectus so that, as thereafter deliverable to the purchasers of
such Registrable Securities, such Prospectus will not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Upon receipt of any notice (a "Suspension Notice") from the Company of
the happening of any event of the kind described in Section 4(c)(5)(v) the
Holder shall forthwith discontinue disposition of the Registrable Securities
pursuant to the Resale Registration Statement covering such Registrable
Securities until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 4(c) or until it is advised in
writing (the "Advice") by the Company that the use of the Prospectus may be
resumed, and has received copies of any additional or supplemental filings which
are incorporated by reference in the Prospectus, and, if so directed by the
Company, such Holder will, or will request any broker-dealer acting as such
Holder's agent or as an underwriter to, deliver to the Company (at the Company's
expense) all copies, other than permanent file copies then in such Holder's or
broker-dealer's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice; provided, however,
that in no event shall the period from the date on which any Holder receives a
Suspension Notice to the date on which any Holder receives either the Advice or
copies of the supplemented or amended Prospectus contemplated by Section 4(c).
(the "Suspension Period") exceed 60 days; and provided further that such
Suspension Notice shall not be effective unless the Company has
contemporaneously riven an analogous notice to all other persons named as
selling securityholders in then effective registration statements filed by the
Company with the Commission and to the Company's directors. In the event that
the Company shall give any Suspension Notice, the time periods for which a
Resale Registration Statement is required to be kept effective pursuant to
Section 4(b) hereof shall be extended by the number of days during the
Suspension Period.
(d) Registration Expenses. The Company shall bear all expenses
incurred in connection with the registration of the Registrable Shares pursuant
to Section 4(b) of this Agreement. Such expenses shall include, without
limitation, all printing, legal and accounting expenses incurred by the Company
and all registration and filing fees imposed by the Commission, any state
securities commission or the NASDAQ National Market. The Holders shall be
responsible for any brokerage or underwriting commissions and taxes of any kind
(including, without limitation, transfer taxes) with respect to any disposition,
sale or transfer of Registrable Securities and for any legal, accounting and
other expenses incurred by them.
(e) Indemnification and Contribution.
(1) Indemnification by the Company. The Company agrees to
indemnity and hold harmless, to the full extent permitted by law, each
Holder, its partners, officers, directors, trustees, Stockholders,
employees and agents, and each person who controls such Holder within
the meaning of either Section 15 of the Securities Act or Section 20
of the Exchange Act, or is under common control with, or is controlled
by, such Holder, together with the partners, officers, directors,
trustees, Stockholders, employees and agents of such controlling
person (collectively, the "Controlling Persons"), from and against all
losses, claims, damages, liabilities and expenses (including without
limitation reasonable legal fees and expenses incurred by any Holder
or any such Controlling Person documented in writing) (collectively,
the "Damages") to which such Holder, its partners, officers,
directors, trustees, Stockholders, employees and agents, and any such
Controlling Person may become subject under the Securities Act or
otherwise, insofar as such Damages (or proceedings in respect thereat)
arise out of or are based upon any untrue or alleged untrue statement
of material fact contained in any Registration Statement (or any
amendment thereto) pursuant to which Registrable Securities were
registered under the Securities Act, or caused by any omission or
alleged omission to state therein a material fact necessary to make
the statements therein in light of the circumstances under which they
were made not misleading, or caused by any untrue statement or alleged
untrue statement of a material fact contained in any Prospectus (as
amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact necessary to make
the statements therein in light of the circumstances under which they
were made not misleading, except insofar as such Damages arise out of
or are based upon any such untrue statement or omission based upon
information relating to such Holder furnished in writing to the
Company by such Holder specifically for use therein; provided,
however, that the Company shall not be liable to any Holder under this
Section 4(e)(1) to the extent that any such Damages were caused by the
fact that such Holder sold Shares to a person as to whom it shall be
established that there was not sent or given, at or prior to the
written confirmation of such sale, a copy of the Prospectus as then
amended or supplemented if, and only if, (i) the Company has
previously furnished copies of such amended or supplemented Prospectus
to such Holder and (ii) such Damages were caused by any untrue
statement or omission or alleged untrue statement or omission
contained in the Prospectus so delivered which was corrected in such
amended or supplemented Prospectus.
(2) Indemnification by the Holders. Each Holder agrees,
severally and not jointly, to indemnity and hold harmless the Company,
its Stockholders, directors, officers and each person, if any, who
controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Company to such Holder, but only with
reference to information relating to such Holder furnished in writing
to the Company by such selling Holder specifically for use in any
Registration Statement (or any amendment thereto) or any Prospectus
(or any amendment or supplement thereto); provided, however, that such
selling Holder shall not be obligated to provide such indemnity to the
extent that such Damages result from the failure of the Company to
promptly amend or take action to correct or supplement any such
Registration Statement or Prospectus on the basis of corrected or
supplemental information provided by such selling Holder to the
Company expressly for such purpose. In no event shall the liability of
any Holder of Registrable Securities hereunder be greater in amount
than the amount of the proceeds received by such Holder upon the sale
of the Registrable Securities giving rise to such indemnification
obligation.
(3) Contribution. To the extent that the indemnification
provided for in paragraph (1) or (2) of this Section 4(e) is
unavailable to an indemnified party or insufficient in respect of any
Damages, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to
the amount paid or payable by such indemnified party as a result of
such Damages in such proportion as is appropriate to reflect the
relative fault of the Company on the one hand and the Holders on the
other hand in connection with the statements or omissions that
resulted in such Damages, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and
of the Holders on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of
a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or by the
Holders and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
If indemnification is available under paragraph (1) or (2) of this
Section 4(e), the indemnifying parties shall indemnity each indemnified party to
the full extent provided in such paragraphs without regard to the relative fault
of said indemnifying party or indemnified party or any other equitable
consideration provided for in this Section 4(e)(3).
The Company and each Holder agrees that it would not be just or
equitable if contribution pursuant to this Section 4(e)(3) were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to herein.
(f) Restrictions on Sale. In the event of an underwritten public
offering for the account of the Company, upon the written request (the "Lock-up
Request") of the managing underwriter (or underwriters) of such offering, each
Holder agrees not to effect any public sale or distribution of any securities
similar to those being registered in such offering (other than pursuant to such
offering), including, without limitation, through sales of Shares pursuant to a
Resale Registration Statement, during the 14 days prior to, and during the
90-day period beginning on the effective date of the Registration Statement
relating to such offering (the "Lock-up Period"); provided, however, that the
Holders shall not be required to comply with such Lock-up Request unless the
Company simultaneously demands analogous restrictions on sale and uses all
reasonable efforts to obtain from all other persons who are contractually bound
with the Company to comply with such Lock-up Requests and from the Company's
directors. In the event of the delivery of a Lock-up Request, the time periods
for which a Resale Registration Statement is required to be kept effective
pursuant to Section 4(b) hereof shall be extended by the number of days during
the Lock-up Period.
(g) Transfer of Registration Rights. The registration rights of Holder
and any Holders under this Section 4 may be transferred to any transferee of
Registrable Securities that acquires at least 10,000 shares of Registrable
Securities (appropriately adjusted for stock splits, stock dividends and the
like). Each such transferee shall be deemed to be a "Holder" for purposes of
this Section 4.
(5) The undersigned represents and warrants that except as otherwise
specified in Section 9, the undersigned is a bona fide resident of, and is
domiciled in, the State of Minnesota and that the Shares are being purchased
solely for the beneficial interest of the undersigned and not as nominee, for,
or on behalf of, or for the beneficial interest of, or with the intention to
transfer to, any other person, trust or organization, except as specifically set
forth in paragraph 8 of this Agreement.
PARAGRAPH 5 IS REQUIRED IN CONNECTION WITH THE EXEMPTIONS FROM THE ACT
AND STATE LAWS BEING RELIED ON BY THE COMPANY WITH RESPECT TO THE OFFER AND SALE
OF THE SHARES. ALL OF SUCH INFORMATION WILL BE KEPT CONFIDENTIAL AND WILL BE
REVIEWED ONLY BY THE COMPANY, THE AGENT, IF ANY, AND THEIR RESPECTIVE COUNSEL.
The undersigned agrees to furnish any additional information which the Company,
the Agent, if any, or their respective legal counsel deem necessary in order to
verify the responses set forth below.
(6) Accredited Status. The undersigned represents and warrants as
follows (CHECK IF APPLICABLE):
_______ (a) The undersigned is an individual with a net worth, or a joint net
worth together with his or her spouse, in excess of $1,000,000. (In
calculating net worth, you may include equity in personal property and
real estate, including your principal residence, cash, short-term
investments, stock and securities. Equity in personal property and
real estate should be based on the fair market value of such property
minus debt secured by such property.)
_______ (b) The undersigned is an individual with income in excess of $200,000
in each of the prior two years and reasonably expects an income in
excess of $200,000 in the current year.
_______ (c) The undersigned is an individual who, with his or her spouse, had
joint income in excess of $300,000 in each of the prior two years and
reasonably expects joint income in excess of $300,000 in the current
year.
_______ (d) The undersigned is a director or executive officer of U-Ship, Inc.
_______ (e) The undersigned, if other than an individual, is an entity all of
whose equity owners meet one of the tests set forth in (A) through (D)
above.
_______ (f) The undersigned is an entity, and is an "Accredited Investor" as
defined in Rule 501(a) of Regulation D under the Act. This
representation is based on the following (check one or more, as
applicable):
______i. The undersigned (or, in the case of a trust, the
undersigned trustee) is a bank or savings and loan
association as defined in Sections 3(a)(2) and 3(a)(5)(A),
respectively, of the Act acting either in its individual or
fiduciary capacity.
______ii. The undersigned is an insurance company as defined in
section 2(13) of the Act.
______iii.The undersigned is an investment company registered
under the Investment Company Act of 1940 or a business
development company as defined in Section 2(a)(48) of that
Act.
______iv. The undersigned is a Small Business Investment Company
licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act
of 1958.
______v. The undersigned is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income
Security Act of 1974 ("ERISA") and either (check one or
more, as applicable):
___a. the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of ERISA,
which is either a bank, savings and loan
association, insurance company, or registered
investment advisor; or
___b. the employee benefit plan has total assets in
excess of $5,000,000; or
___c. the plan is a self-directed plan with investment
decisions made solely by persons who are
"Accredited Investors" as defined under the Act.
______vi. The undersigned is a private business development
company as defined in Section 202(a)(22) of the Investment
Advisors Act of 1940.
______vii.The undersigned has total assets in excess of
$5,000,000, was not formed for the specific purpose of
acquiring shares of the Company and is one or more of the
following (check one or more, as appropriate):
___a. an organization described in Section 501(c)(3) of
the Internal Revenue Code; or
___b. a corporation; or
___c. a Massachusetts or similar business trust; or
___d. a partnership.
______viii. The undersigned is a trust with total assets exceeding
$5,000,000 which was not formed for the specific
purpose of acquiring shares of the Company and
whose purchase is directed by a person who has
such knowledge and experience in financial and
business matters that he or she is capable of
evaluating the merits and risks of the investment
in the Shares. (IF ONLY THIS RESPONSE IS CHECKED,
please contact the Company to receive and complete
an information statement before this subscription
can be considered).
7. NASD Affiliation. The undersigned is affiliated or associated,
directly or indirectly, with a National Association of Securities Dealers, Inc.
("NASD") member firm or person.
Yes ________ No ________
If yes, list the affiliated member firm or person:____________
________________________________________________________________________________
________________________________________________________________________________
Your relationship to such member firm or person:______________
________________________________________________________________________________
________________________________________________________________________________
8. Entities. If the undersigned is not an individual but an entity,
the individual signing on behalf of such entity and the entity jointly and
severally agree and certify that:
(a) The undersigned was not organized for the specific purpose of
acquiring the Shares; and
(b) This Agreement has been duly authorized by all necessary action on
the part of the undersigned, has been duly executed by an authorized officer or
representative of the undersigned, and is a legal, valid and binding obligation
of the undersigned enforceable in accordance with its terms.
9. Miscellaneous.
(a) (Manner in which title is to be held: (check one)
_____ Individual Ownership
_____ Joint Tenants with Right of Survivorship*
_____ Partnership*
_____ Tenants in Common*
_____ Corporation
_____ Trust
_____ Other ________________________________
________________________________(describe)
(b) The undersigned agrees that the undersigned understands the
meaning and legal consequences of the agreements, representations and warranties
contained herein, agrees that such agreements, representations and warranties
shall survive and remain in full force and effect after the execution hereof and
payment for the Shares, and further agrees to indemnify and hold harmless the
Company, each current and future officer, director, employee, agent and
shareholder from and against any and all loss, damage or liability due to, or
arising out of, a breach of any agreement, representation or warranty of the
undersigned contained herein.
(c) This Agreement shall be construed and interpreted in accordance
with Minnesota law without regard to conflict of law provisions.
(d) The undersigned agrees to furnish to the Company or the Agent, if
applicable, upon request, such additional information as may be deemed necessary
to determine the undersigned's suitability as an investor.
[Note: Signature page follows]
- ----------
* Multiple signatures required
Dated: April ___, 1997.
____________________________________ ____________________________________
____________________________________ ____________________________________
Signature Signature
____________________________________ ____________________________________
Name Typed or Printed Name Typed or Printed
____________________________________ ____________________________________
Residence Address Residence Address
____________________________________ ____________________________________
____________________________________ ____________________________________
____________________________________ ____________________________________
City, State and Zip Code City, State and Zip Code
Robertson Stephens & Company ____________________________________
- ------------------------------------
Mailing Address Mailing Address
555 California Street ____________________________________
- ------------------------------------
San Francisco, California 94104 _______________________________________
- ------------------------------------
City, State and Zip Code City, State and Zip Code
____________________________________ ____________________________________
Tax Identification or Social Tax Identification or Social
Security Number Security Number
ACCEPTANCE BY THE COMPANY
U-Ship, Inc. hereby agrees to and accepts the foregoing Subscription Agreement
to the extent of _______________ shares of its common stock.
U-SHIP, INC.
By _________________________
Bruce H. Senske
Its: Chief Executive Officer
April 28, 1997
VIA TELECOPIER
Mr. John Wallace
Managing Director
Robertson Stephens & Company
555 California Street
San Francisco, California 94104
RE: PRIVATE PLACEMENT OF U-SHIP, INC. COMMON STOCK
Dear Mr. Wallace:
By way of follow-up to our recent conversations, and pursuant to the
terms of Section 4(b)(1) of the Subscription Agreement and Letter of Investment
Intent (the "Agreement"), dated April 28, 1997, between U-Ship, Inc. (the
"Company") and Robertson Stephens & Company ("Robertson"), pursuant to which
Robertson will purchase 869,565 shares of the Company's common stock (the
"Shares"), I am writing to confirm that immediately upon receipt by the Company
of the written notice given by Robertson discussed in Section 4(b)(1) of the
Agreement, the Company will undertake to prepare and file a registration
statement with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, on Form SB-2, or on such other form as may be available to
the Company and for which the Company is eligible. In accordance with the terms
of the Subscription Agreement, the Company will file the registration statement
as soon as practicable, but not later than 120 days after receipt by the Company
of such notice.
Further, this will confirm that if at any time during the three (3)
month period immediately following the date of the Agreement, the Company sells
shares of its common stock to any third party (the "Third Party Shares") at a
per share price which is lower than the per share price paid by Robertson for
the Shares, the Company will issue to Robertson such additional shares of its
common stock as would have been issued to Robertson had the Company sold the
Shares to Robertson at the lower per share price that it sold the Third Party
Shares. The rights granted to Robertson hereunder shall not be triggered by the
Company's (i) granting options to purchase shares of its common stock to its
employees, directors, officers, consultants or independent contractors pursuant
to the terms of one of the company's stock option plans, or (ii) making an award
of its shares of its common stock to one of its employees, directors, officers,
consultants or independent contractors. In addition, the rights granted to
Robertson hereunder shall not be triggered by the issuance by the Company of
shares of its common stock upon the exercise of any such option or warrant,
whether now existing or hereinafter granted or issued.
Further, the Company's obligation to issue to Robertson the additional shares of
its common stock discussed herein shall be triggered only if the Company
actually closes on the sale of the shares of its common stock and receives the
intended remuneration therefor, i.e., a mere offer to sell such shares shall not
trigger Robertson's rights under this paragraph.
Very truly yours,
Bruce H. Senske
President and CEO
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 371,471
<SECURITIES> 0
<RECEIVABLES> 117,529
<ALLOWANCES> 0
<INVENTORY> 934,552
<CURRENT-ASSETS> 1,485,455
<PP&E> 1,540,357
<DEPRECIATION> (409,529)
<TOTAL-ASSETS> 2,728,534
<CURRENT-LIABILITIES> 750,043
<BONDS> 120,266
0
0
<COMMON> 16,083
<OTHER-SE> 1,842,142
<TOTAL-LIABILITY-AND-EQUITY> 2,728,534
<SALES> 197,264
<TOTAL-REVENUES> 197,264
<CGS> 170,372
<TOTAL-COSTS> 170,372
<OTHER-EXPENSES> 780,751
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,171
<INCOME-PRETAX> (746,984)
<INCOME-TAX> 0
<INCOME-CONTINUING> (746,984)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (746,984)
<EPS-PRIMARY> (0.19)
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