<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER , 1997
REGISTRATION NO. 333-4057
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
NETLIVE COMMUNICATIONS, INC.
(Name of small business issuer in its charter)
-------------------
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 7373 13-3848652
(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
------------------
584 BROADWAY
NEW YORK, NEW YORK 10012
(212) 343-7082
(Address and telephone number of principal executive offices)
-------------------
584 BROADWAY
NEW YORK, NEW YORK 10012
(Address of principal place of business or intended principal
place of business)
-------------------
MICHAEL KHARITONOV, CHAIRMAN AND PRESIDENT
NETLIVE COMMUNICATIONS, INC.
584 BROADWAY
NEW YORK, NEW YORK 10012
(212) 343-7082
(Name, address and telephone number of agent for service)
-------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. /X/
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. / /
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title Of Each Class Amount To Be Offering Aggregate Amount Of
Of Securities To Be Registered Registered Price Per Share(1) Offering Price(1) Registration Fee (8)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.0001 par value .............. 1,242,700 $5.50 $6,834,850 $2,016.28
Common Stock Purchase Warrants .............. 1,804,200 $ .10 $ 180,420 $ 53.22
Common Stock, $.0001 par value(2) ........... 1,804,200 $5.50 $9,923,100 $2,927.31
Common Stock, $.0001 par value(3) ........... 95,000 $6.60 $ 627,000 $ 184.96
Common Stock Purchase Warrants(4) ........... 73,000 $ .12 $ 8,760 $ 2.58
Common Stock, $.0001 par value(5) ........... 73,000 $6.60 $ 481,800 $ 142.13
Common Stock, $.0001 par value(6) ........... 183,400 $5.50 $1,008,700 $ 297.57
Common Stock Purchase Warrants(6) ........... 35,300 $ .10 $ 3,530 $ 1.04
Common Stock, $.0001 par value(7) ........... 35,300 $5.50 $ 194,150 $ 57.27
-----------
TOTAL .................................... 5,682.36
</TABLE>
<PAGE>
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457.
(2) Issuable upon exercise of the Common Stock Purchase Warrants.
(3) Issuable upon the exercise of a warrant issued by the Company upon its
initial public offering to May Davis Group, Inc., the underwriter of the
Company's initial public offering (the "Underwriter's Warrants"),
entitling, in part, the May Davis Group, Inc. ("May Davis") to purchase
up to 95,000 shares of Common Stock.
(4) Issuable upon exercise of the Underwriter's Warrants, entitling, in
part, May Davis to purchase up to 73,000 Common Stock Purchase Warrants.
(5) Issuable upon the exercise of the 73,000 Common Stock Purchase
Warrants included in the Underwriter's Warrants.
(6) To be sold by the Selling Securityholders, as subsequently defined.
(7) Issuable upon the exercise of the Common Stock Purchase Warrants to be
sold by the Selling Securityholders.
<PAGE>
(8) Previously paid.
Pursuant to Rule 416, there are also being registered such additional shares
as may become issuable pursuant to anti-dilution provisions of the Common
Stock Purchase Warrants and the Underwriter's Warrants.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
2
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one (the
"Prospectus") to be used in connection with the re-sale of Common Stock and
Common Stock Purchase Warrants by certain securityholders who purchased their
Common Stock or Warrants in the Company's initial public offering, in
transfers in the NASDAQ Small Cap market, or in negotiated transactions at
negotiated prices (the "Market Re-Sellers") and one (the "Selling
Securityholder Prospectus") to be used in connection with the initial sale of
shares of Common Stock and Common Stock Purchase Warrants by securityholders
who purchased their Common Stock or Warrants from the Company in the March and
May 1996 private placements (the "Selling Securityholders"). The Prospectus
and the Selling Securityholder Prospectus will be identical in all respects
except for the alternate pages for the Selling Securityholder Prospectus
included herein which are labeled "Alternate Page for Selling Securityholder
Prospectus."
3
<PAGE>
NETLIVE COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
FORM SB-2 ITEM CAPTION IN PROSPECTUS
<S> <C>
PART I
1. Forepart of the Registration Statement and
Outside Front Cover of Prospectus........ Cover Page; Outside Front Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages
of Prospectus............................ of Prospectus
3. Summary Information and Risk Factors....... Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Risk Factors
6. Dilution................................... Dilution
7. Selling Security Holders................... Selling Securityholders
8. Plan of Distribution....................... Plan of Distribution; Underwriting
9. Legal Proceedings.......................... Business--Legal Proceedings
10. Directors, Executive Officers, Promoters
and Control Persons...................... Management and Principal Stockholders
11. Security Ownership of Certain Beneficial
Owners and Management.................... Principal Stockholders
12. Description of Securities.................. Description of Securities
13. Interest of Named Experts and Counsel...... Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
15. Organization within Last Five Years........ Not Applicable
16. Description of Business.................... Business
17. Management's Discussion and Analysis or
Plan of Operation........................ Management's Discussion and Analysis of
Financial Condition and Results of Operations
18. Description of Property.................... Business--Facilities
19. Certain Relationships and Related
Transactions............................. Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters...................... Market for Common Equity and Related
Stockholder Matters
21. Executive Compensation..................... Management--Executive Compensation
22. Financial Statements....................... Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure............................... Not Applicable
PART II
24. Indemnification of Directors and Officers.. Indemnification of Directors and Officers
25. Other Expenses of Issuance and Other Expenses of Issuance and
Distribution............................. Distribution
26. Recent Sales of Unregistered Securities.... Recent Sales of Unregistered Securities
27. Exhibits................................... Exhibits
28. Undertakings............................... Undertakings
</TABLE>
4
<PAGE>
NETLIVE COMMUNICATIONS, INC.
RESALE OF 1,242,700 SHARES OF COMMON STOCK
RESALE OF 1,804,200 WARRANTS
SALE OF 1,804,200 SHARES OF COMMON STOCK TO BE ISSUED UPON EXERCISE OF WARRANTS
This Prospectus relates to the resale of 1,242,700 shares of common stock,
$.0001 par value ("Common Stock"), and 1,804,200 Common Stock Purchase
Warrants ("Warrants") of NetLive Communications, Inc. (the "Company" or
"NetLive"), which may be sold by certain securityholders who purchased their
Common Stock or Warrants in the Company's initial public offering, in
transfers in the NASDAQ Small Cap market, or in negotiated transactions at
negotiated prices (the "Market Re-Sellers") from time to time as market
conditions permit, or otherwise, at prices and terms then prevailing. This
Prospectus also relates to the sale of up to 1,804,200 shares of Common Stock
to be issued upon the exercise of outstanding Warrants, which may be exercised
at a price of $5.50 between August 12, 1998 and August 12, 2001. A current
prospectus must be in effect at the time of the sale of the shares of Common
Stock or Warrants to which this Prospectus relates. Each Market Re-Seller or
dealer effecting a transaction in the registered securities, whether or not
participating in a distribution, is required to deliver a current prospectus
upon such sale. See "Description of Securities" and "Plan of Distribution."
The Company will retain all proceeds from the exercise of the Warrants,
regardless of the number exercised. The gross proceeds (a maximum amount of
approximately $9,923,100 if all Warrants owned by the Market Re-Sellers are
exercised ) will be used for working capital and general corporate purposes.
The Company will not receive any proceeds from the resale of Common Stock by
the Market Re-Sellers.
As the resale of the shares of Common Stock is being registered under the
Securities Act of 1933, as amended ("Act"), holders who subsequently resell
such shares to the public may be deemed to be underwriters with respect to
such shares of Common Stock for purposes of the Act with the result that they
may be subject to certain statutory liabilities if the registration statement
is defective by virtue of containing a material misstatement or omitting to
disclose a statement of material fact. The Company has not agreed to indemnify
any of the Market Re-Sellers regarding such liability.
The Company is concurrently offering by Separate Prospectus 183,400 shares of
Common Stock and 35,300 Warrants.
--------------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE, INVOLVE A HIGH DEGREE OF RISK
AND SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY ANYONE WHO CANNOT
AFFORD THE LOSS OF HIS ENTIRE INVESTMENT. SEE "RISK FACTORS" AND "DILUTION"
----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------------------
The date of this Prospectus is December 17, 1997
5
<PAGE>
No person is authorized to give any information or to make any representation
other than those contained in this Prospectus, and if given or made, such
information or representation must not be relied upon as having been
authorized by the Company or any underwriter. The Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby, or an offer to sell or a solicitations of an offer
to buy any securities offered hereby to or from any person in any jurisdiction
in which such offer or solicitation would be unlawful. Neither the delivery or
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the business or
affairs of the Company since the date hereof or that the information in the
Prospectus is correct as of any time subsequent to the date as of which such
information is furnished.
6
<PAGE>
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by reference to
the more detailed information, financial statements and notes appearing
elsewhere in this Prospectus. Each prospective investor is urged to reach this
Prospectus in its entirety. This Prospectus contains forward-looking
statements that involve risks and uncertainties. When used in this Prospectus,
the words "anticipate," "believe," "estimate" and "expect" and other similar
expressions as they relate to the Company or its management ("Management") are
intended to identify such forward-looking statements. The Company's actual
results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as
those discussed elsewhere in this prospectus. As used in this Prospectus,
"fiscal year" refers to the fiscal year ending March 31 of the specifically
identified calendar year. Except as otherwise indicated herein, the
information contained in this Prospectus gives no effect to the exercise of
(i) non-plan stock options, (ii) warrants issued by the Company upon its
initial public offering ("IPO") to May Davis Group, Inc. ("May Davis") ,the
underwriter of the Company's IPO, entitling May Davis to purchase up to 95,000
shares of Common Stock and up to 73,000 Warrants (collectively the
"Underwriter's Warrants"), (iii) Warrants issued to securityholders who
purchased Common Stock and/or Warrants from the Company in the March and/or
May 1996 private placements (the "Selling Securityholders"), or (iv) options
granted under the Company's stock option plans. All per share information in
this Prospectus has been adjusted to reflect an 837.14 for one stock split of
the Company's Common Stock effected in March 1996.
THE COMPANY
NetLive, a development stage company, was incorporated on August 23, 1995 in
the State of Delaware. The Company initially focused on developing live,
one-on-one videoconferenced entertainment, educational and counseling services
over the Internet and technologies designed to deliver such content services
to consumers. In the first quarter of fiscal 1998, the Company shifted its
focus to concentrate principally on developing Internet call center software
technologies to license to businesses. The Company anticipates that many
applications of its systems, when and if marketed, will be without a video
component. The Company expects to take advantage of the convergence of the
rapid expansion and increasing technological sophistication of the call center
industry and the widespread growth of the Internet as a communications medium.
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock Outstanding.................. 2,950,000 shares
Common Stock to be Resold (1)............. 1,242,700 shares
Warrants Outstanding...................... 1,839,500 Warrants
Warrants to be Resold......... 1,804,200 Warrants
Common Stock to be issued
upon Exercise of the Warrants ........ 1,804,200 shares
Warrant Exercise Terms.................... Each Warrant entitles the holder thereof to purchase one share of
Common Stock for $5.50, during the three year period commencing
August 12, 1998. The exercise price and the number of shares issuable
upon exercise of the Warrants are subject to adjustment in certain
circumstances. See "Description of Securities."
Warrant Expiration Date................... August 12 , 2001
7
<PAGE>
Warrant Redemption........................ Redeemable by the Company, in whole or in part, at a price of $.05 per
Warrant, commencing August 12, 1997 upon not less than 30 days prior
written notice to the holders of such Warrants, provided that the
closing bid price (as defined) of the Company's Common Stock for the
twenty consecutive trading days immediately prior to the date on which
the notice of redemption is given, shall have exceeded $7.50 per
share.
Use of Proceeds........................... The Company will not receive any proceeds from the re-sale of Common
Stock by its stockholders. The Company will retain all proceeds from
the exercise of the Warrants, regardless of the number exercised. The
gross proceeds (a maximum amount of $9,923,100 if all Warrants owned
by the Market Re-Sellers are exercised) will be used for expansion of
operations, development of proposed business, capital expenditures and
working capital. See "Use of Proceeds".
Risk Factors.............................. Investment in the securities offered hereby involves a high degree of
risk and substantial dilution. See "Risk Factors" and "Dilution."
NASDAQ Symbols: (2)
Common Stock............................ NETL
Warrants................................ NETLW
</TABLE>
- ------------
(1) Does not include (i) 1,839,500 shares of Common Stock issuable upon the
exercise of the outstanding Warrants, (ii) 168,000 shares of Common Stock
issuable upon the exercise of the Underwriter's Warrants; (iii) 800,000 shares
of Common Stock reserved for issuance pursuant to the Company's 1996 stock
option plan; (iv) 600,000 shares of Common Stock reserved for issuance
pursuant to the Company's 1997 stock option plan; or (v) 260,000 shares of
Common Stock reserved for issuance pursuant to certain other options. See
"Management" and "Description of Securities."
(2) NASDAQ symbols do not imply that a liquid and active market will be
sustained for the securities.
8
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary of financial information should be read in conjunction
with the Financial Statements and notes thereto appearing elsewhere in this
Memorandum.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Period from
Year August 23, 1995 Six months
ended (date of inception) ended
March 31, 1997 to March 31, 1996(1) September 30, 1997
---------------------- --------------------- ----------------------
(audited) (audited) (unaudited)
Net revenue $7,689 -- $10,256
---------- ------------ ------------
Selling, General & Administrative Expenses 2,053,148 243,129 776,778
---------- ------------ ------------
Net loss (2,045,459) (243,129) (766,522)
========== ============ ============
Net loss per common share (0.75) (.16) (0.26)
========== ============ ============
Weighted average number of common shares
outstanding 2,733,821 1,543,385 2,950,000
========== ============ ============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
<S> <C> <C>
Period from
Six months August 23,1995
ended (date of inception)
September 30, 1996 to September 30, 1997 (1)
--------------------- ----------------------------
(unaudited) (unaudited)
Net revenue -- $17,945
------------- --------------
Selling, General & Administrative Expenses $700,440 3,073,055
------------- --------------
Net loss (700,440) (3,055,110)
============= ==============
Net loss per common share (0.30) --
============= ==============
Weighted average number of common shares
outstanding 2,348,292 --
============= ==============
</TABLE>
- ---------------------
(1) Reflects incorporation of the Company on August 23, 1995. See "Certain
Transactions."
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
<S> <C> <C>
September 30,1997 March 31, 1997
------------------ ---------------------
(unaudited) (audited)
Total current assets $1,811,543 $3,050,219
Total assets 2,284,623 3,194,184
Total current liabilities 159,637 414,633
Deficit accumulated during development stage (3,055,110) (2,288,588)
</TABLE>
9
<PAGE>
RISK FACTORS
An investment in the securities offered hereby is speculative in nature,
involves a high degree of risk and should not be made by any investor who
cannot afford the loss of his entire investment. The Company operates in a
rapidly changing environment that involves a number of risks, some of which
are beyond the Company's control. The following discussion highlights some,
but not all, of these risks. Certain other risks are presented elsewhere in
this Prospectus. Each prospective purchaser should carefully consider these
risks and speculative factors associated with this Offering, as well as other
factors described elsewhere in this Prospectus, before making an investment.
DEVELOPMENT STAGE COMPANY. The Company is in the development stage, has been
engaged primarily in organizational activities and has had limited operations.
As a result, the likelihood of success of the Company's operations must be
considered in view of all of the risks, expenses and delays inherent in the
establishment of a new business, including, but not limited to, unforeseen
expenses, complications and delays, the initiation of marketing activities,
the uncertainty of market acceptance of new services, intense competition from
larger more established competitors and other factors. The Company's WebCenter
call center system is still being developed; a full commercial version has not
been completed. Its MultiCenter system is currently being planned by the
Company, and neither a design nor a development version has been produced;
commercial versions of these systems have not yet been produced, tested,
marketed or sold by the Company, and therefore no revenues have been generated
from the sale thereof. No assurance can be given that the Company will succeed
in the development, commercial production and marketing of its systems.
Accordingly, there can be no assurance that the business of the Company will
be successful. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
NEED FOR ADDITIONAL FINANCING - The Company believes that its existing cash,
cash equivalents and marketable securities will be sufficient to fund the
Company's operations for approximately the next six months. This estimate is
based upon the Company's operations to date and its estimates as to cash flow.
However, in the event that such estimates are inaccurate or future events
prevent the Company from implementing its plans as anticipated, the Company
will be materially and adversely affected. The Company expects that it will
have to raise additional funds within the next six months and anticipates
actively seeking such capital during that time for additional software
development and sales and marketing. Such additional capital may take the form
of equity issuance, debt issuance or a combination thereof. The Company has
entered into a non-exclusive agreement with a financial advisor to assist it
in such financing activities. The Company currently does not have any
commitments to obtain additional financing and there can be no assurance that
such financing will be available or, if so, that it can be obtained on terms
satisfactory to the Company. Additional financing may result in dilution to
existing stockholders. In the event that the Company cannot obtain additional
funds when needed, the Company may be forced to significantly curtail or cease
its activities, which would likely result in loss to investors of all or a
substantial portion of their investment. See Management's Discussion and
Analysis.
NASDAQ MAINTENANCE REQUIREMENTS; POSSIBLE DELISTING OF SECURITIES FROM NASDAQ
MARKET; RISKS OF LOW-PRICED STOCKS - The Company's Common Stock and Warrants
are currently trading on the NASDAQ small capitalization market. The United
States Securities and Exchange Commission (the "Commission") has approved
rules for imposing criteria for listing of securities on NASDAQ, including
standards for maintenance of such listing. For continued listing, currently a
company, among other things, must have at least $2,000,000 in total assets,
$1,000,000 in stockholders' equity, $1,000,000 in market value of the public
float and a minimum bid price of $1.00 per share. In its Form 10-QSB filed on
November 14, 1997 for the fiscal quarter ended September 30, 1997, the Company
reported $1,962,061 in total assets as of September 30, 1997. On November 14,
1997, the Company received a letter from NASDAQ stating NASDAQ's intention to
de-list the Company after November 28, 1997 if the Company did not demonstrate
its compliance with NASDAQ's maintenance requirements or provide a definitive
plan to become in compliance. On November 26, 1997, the Company amended such
Form 10-QSB to reflect Management's decision to capitalize certain software
development costs as permitted by applicable accounting standards, which had
the effect of increasing the Company's total assets as of September 30, 1997
to $2,284,623. NASDAQ has requested supplemental information, which the
Company is currently compiling. In the event that the Company is de-listed,
trading, if any, in the Company's securities would thereafter be conducted in
the over-the-counter market in the so-called "pink sheets" or the
10
<PAGE>
NASD's "Electronic Bulletin Board." As a consequence of such de-listing, an
investor would likely find it more difficult to dispose of, or to obtain
quotations as to, the price of the Company's securities. A proposal to
increase NASDAQ's maintenance requirements, and add certain new criteria, was
approved on August 22, 1997 and will take effect in February 1998. The Company
would not satisfy such requirements if they were currently in effect and there
can be no assurance that the Company will not be de-listed.
PENNY STOCK REGULATION. In the absence of the Common Stock being quoted on
NASDAQ or the Company's having $2,000,000 in stockholders' equity, trading in
the Common Stock would be covered by Rule 15g-9 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), for
non-NASDAQ and non-exchange listed securities. Under such rule, broker-dealers
who recommend such securities to persons other than established customers and
accredited investors must make a special written suitability determination for
the purchaser and receive the purchaser's written agreement to a transaction
prior to sale. Securities are exempt from this rule if the market price is at
least $5.00 per share. The Commission has adopted regulations that generally
define a "penny stock" to be any equity security that has a market price of
less than $5.00 per share or an exercise price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include an equity security
listed on NASDAQ, and an equity security issued by an issuer that has (i) net
tangible assets of at least $2,000,000, if such issuer has been in continuous
operation for three years, (ii) net tangible assets of at least $5,000,000, if
such issuer has been in continuous operation for less than three years, or
(iii) average revenue of at least $6,000,000 for the preceding three years.
Unless an exception is available, the regulations require the delivery, prior
to any transaction involving a penny stock, of a risk disclosure schedule
explaining the penny stock market and the risks associated therewith. As
described above, there is a significant risk that the Company's securities
will be de-listed by NASDAQ in the near future. Accordingly, if the Company's
securities were to become subject to the regulations applicable to penny
stocks, the market liquidity for the securities would be severely affected,
limiting the ability of broker-dealers to sell the securities and the ability
of Market Resellers to sell their securities in the secondary market. There is
no assurance that trading in the Company's securities will not be subject to
these or other regulations that would adversely affect the market for such
securities.
ACCUMULATED DEFICIT; NO ASSURANCE OF PROFITABILITY; EXPLANATORY PARAGRAPH IN
INDEPENDENT AUDITOR'S REPORT - During the year ended March 31, 1997, the
Company incurred a net loss of $2,045,459. In addition, as of September 30,
1997, the Company had a deficit accumulated during the development stage of
$3,055,110. The Company has not derived substantial revenues and has continued
to incur losses. There can be no assurance that the Company will be able to
profitably implement and market its proposed products and services. It is
anticipated that until the Company is able to generate significant revenues,
the Company will sustain additional losses. As a result of the Company's
deficit accumulated during the development stage and the Company's inability
to generate significant revenue to date, the Company's independent auditor's
report on the Company's financial statements for the fiscal year ended March
31, 1997 contains an explanatory paragraph discussing the fact that there is
substantial doubt about the Company's ability to continue as a going concern.
UNCERTAINTY OF AND DEPENDENCE UPON MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS
- - The future of the Company is dependent upon the acceptance by the call
center community of it products, which have not been marketed to date. The
Company anticipates that there will be a market for its products; however, no
market study regarding the likelihood of such acceptance by the market has
been conducted to date. Achieving satisfactory market levels depends, in large
part, on the Company's ability to demonstrate the ease of use, reliability and
cost-effectiveness of its products to the call center community. No assurance
can be given that the Company's proposed products will gain the levels of
market acceptance necessary for the Company to become profitable or succeed.
SHARES ELIGIBLE FOR FUTURE SALE - The Company currently has 1,707,300 shares
of Common Stock outstanding that are "restricted securities", as that term is
defined under Rule 144 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"). In general, under Rule 144, a person who has
satisfied a certain holding period may, under certain circumstances, sell
within any three month period a number of shares of Common Stock that does not
exceed the greater of 1% of the then outstanding shares of Common Stock or the
average weekly trading volume in such shares during the four calendar weeks
prior to such sale. The holding period is one year for non-affiliates and two
years
11
<PAGE>
for affiliates of the Company. Rule 144 also permits, under certain
circumstances, the sale of shares without any quantity or other limitation by
a person who is not an affiliate of the Company and who has satisfied a
two-year holding period. Management believes that all persons who purchased
stock of the Company prior to its initial public ("IPO") offering have agreed
with May Davis, its underwriter for the IPO, not to publicly sell shares of
the Company's Common Stock until August 12, 1998. Certain of such stockholders
have been released from their lock-up agreements by May Davis. This
registration statement includes, in the Selling Securityholder Prospectus, the
registration of 183,400 of the above-mentioned 1,707,300 shares, as well as
35,300 Warrants, thereby making same eligible for immediate re-sale. Other
than Dennis Sal, who served as a Director in August 1997, none of the holders
of such securities or their affiliates has ever held any position or office
with the Company or had any other material relationship with the Company.
Furthermore, the Company intends to file a Form S-8 registration statement
between May 14, 1998 and August 12, 1998 to register some or all of 300,000
shares of Common Stock issued under the Company's Employee Performance Share
Program which may be awarded to various designees now or hereafter selected.
The Company is also considering registering after May 14, 1998, in the same or
a separate Form S-8 registration statement, some or all of 1,060,000 shares of
Common Stock subject to outstanding options under the Company's 1996 Employee
Stock Option or otherwise. The sale of a substantial number of shares of
Common Stock in the public market could adversely affect the market price for
the Company's Common Stock.
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. Since August 12, 1997, the
Warrants offered hereby have been redeemable, in whole or in part, at a price
of $.05 per Warrant, provided that (i) prior notice of not less than 30 days
is given to the Warrantholders; (ii) the closing bid price of the Company's
Common Stock for the twenty (20) consecutive trading days immediately prior to
the date on which the notice of redemption is given, shall have exceeded $7.50
per share; and (iii) Warrantholders shall have exercise rights until the close
of the business day preceding the date fixed for redemption. As of the date of
this Prospectus, the closing bid price of the Company's Common Stock has not
exceeded $7.50 per share on any day since August 12, 1997. Notice of
redemption of the Warrants could force the holders to exercise the Warrants
and pay the Exercise Price at a time when it may be disadvantageous for them
to do so, or to sell the Warrants at the current market price when they might
otherwise wish to hold them, or to accept the redemption price, which may be
substantially less than the market value of the Warrants at the time of
redemption. The Warrants may not be exercised unless the registration
statement pursuant to the Securities Act covering the underlying shares of
Common Stock is current and such shares have been qualified for sale, or there
is an exemption from applicable qualification requirements, under the
securities laws of the state of residence of the holder of the Warrants.
Although the Company does not presently intend to do so, the Company reserves
the right to call the Warrants for redemption whether or not a current
prospectus is in effect or such underlying shares are not, or cannot be,
registered in the applicable states. Such restrictions could have the effect
of preventing certain Warrantholders from liquidating their Warrants. See
"Description of Securities-- Warrants."
LIMITED MARKETING EFFORTS; RELIANCE ON STRATEGIC PARTNERS - To date, the
Company's marketing efforts primarily have been limited to hiring, in July
1997, a part-time Director of Marketing and to meeting with and otherwise
contacting several potential strategic partners and customers. The Company
anticipates that the development of strategic alliances will be the
cornerstone to the marketing of its products. To date, no contracts with such
potential partners have been obtained. There can be no assurance that any
strategic partner will actively utilize or distribute the Company's
technology, products and systems or that, if they do so, such alliance will be
successful or generate significant revenues for the Company.
RISK OF PRODUCT DEFECTS; FAILURE TO MEET PERFORMANCE CRITERIA - The Company's
software is intended for use in enterprise-wide applications that may be
critical to a customer's business. As a result, the Company's potential
customers typically are expected to have demanding requirements for
installation and deployment. Software products as complex as those to be
offered by the Company may contain errors or failures, particularly when
software must be customized for a particular licensee. The Company intends to
conduct extensive product testing during product development. There can be no
assurance that, despite testing by the Company and by current and potential
customers, errors will not be found in software or customizations resulting in
loss or delay of revenue, diversion of development
12
<PAGE>
resources or increased service and warranty costs, any of which could have a
material adverse effect upon the Company's business, operating results and
financial condition.
DEPENDENCE ON MICROSOFT'S NETMEETING AND OTHER CORE MICROSOFT TECHNOLOGIES -
The success of many of the Company's proposed products depends upon the
acceptance and continued use in critical business applications of Microsoft
Corporation's ("Microsoft") NetMeeting application and other core Microsoft
technologies, such as the Windows NT platform, the Windows NT Server, Internet
Explorer, the Microsoft SQL Server database and related Back Office software
on which such products are, or will be, based. If the NetMeeting application
is not widely released, is more slowly accepted than anticipated, has
operational difficulties or is discontinued, the Company's business, results
of operations and financial condition would be materially adversely affected.
The Company currently utilizes NetMeeting software under the non-exclusive
license (the "License") available to the general public. By its terms,
Microsoft reserves the right to terminate the License upon non-compliance with
any provisions thereof. While the Company believes that it is in compliance
with the provisions of the License, termination thereof could have a material
adverse effect upon the Company's business, operating results and financial
condition.
DEPENDENCE ON THE INTERNET. Sales of the Company's products and services will
depend in large part upon a robust industry and infrastructure for providing
Internet access and carrying Internet traffic. The Internet may not prove to
be a viable commercial marketplace because of inadequate development of the
necessary infrastructure, such as a reliable network backbone or timely
development of complementary products, such as high speed modems. Because
global commerce and on-line exchange of information on the Internet and other
similar open wide area networks are new and evolving, it is difficult to
predict with any assurance whether the Internet will prove to be a viable
commercial marketplace. There can be no assurance that the infrastructure or
complementary products necessary to make the Internet a viable commercial
marketplace will be developed, or, even if developed, that the Internet
necessarily will become a viable commercial marketplace. If the necessary
infrastructure or complementary products are not developed, or if the Internet
does not become a viable commercial marketplace, the Company's business,
operating results and financial condition will be materially adversely
affected.
DEPENDENCE ON LARGE CONTRACTS MAY RESULT IN LENGTHY SALES AND IMPLEMENTATION
CYCLES - The sale and implementation of the Company's products will involve a
significant commitment of resources by prospective customers. As a result, the
Company anticipates that its sales process will often be subject to delays
associated with lengthy approval processes attendant to significant capital
expenditures, definition of special customer implementation requirements, and
extensive contract negotiations with the customer. The Company expects that
the sales cycle associated with the license of the Company's products will
vary substantially from customer to customer and typically last between four
and nine months, during which time the Company may devote significant time and
resources to a prospective customer, including costs associated with multiple
site visits, product demonstrations and feasibility studies, and the Company
may experience a number of significant delays over which the Company has no
control. Because of the long sales cycle, the revenues anticipated to be
collected from any particular project may be deferred to future periods, even
though the costs associated with the sale of the product are fixed and will be
expended in current periods, resulting in timing differences between cash
expenditures related to certain costs and not receiving revenues associated
with a particular project. Any significant or ongoing failure by the Company
ultimately to achieve such sales of its products, and any significant delay in
the collection of revenues from such sales, could have a material adverse
effect on the Company's business, operating results and financial condition.
In addition, following the initial sale, the Company anticipates that the
implementation of its products will involve several months of customer
training and integration with the customer's other existing systems. A
successful implementation requires a close working relationship between the
customer and members of the Company's professional service organization, and
delays frequently will arise in completing the implementation services.
Occasionally, delays may result from a customer's inattention to the
implementation project for reasons unrelated to the Company's performance.
There can be no assurance that delays in the implementation process of the
Company's products will not have a material adverse effect on the Company's
business, operating results and financial condition.
13
<PAGE>
BURDENS OF CUSTOMIZATION - The Company anticipates that certain of the
Company's clients will request customization of the Company's software
products to address unique characteristics of their businesses or computing
environments. The Company's commitment to customization could place a burden
on the Company's client support resources or delay the delivery or
installation of products which, in turn, could materially adversely affect the
Company's relationship with significant clients or otherwise adversely affect
its business and results of operations. In addition, the Company could incur
penalties or reductions in revenues for failures to develop or timely deliver
new products or product enhancements under development agreements and other
arrangements with customers.
DEPENDENCE ON GROWTH OF CLIENT/SERVER COMPUTING ENVIRONMENT - The Company's
products are being designed for use by organizations employing a client/server
computing solution. The Company's business strategy assumes that the market
for the Company's products will expand as businesses migrate from host-based
to client/server computing environments. The Company's future results of
operations will depend in large part on continued growth in the number of
organizations adopting client/server computing solutions and the development
of applications for use in those environments. The Company's future financial
performance also will depend in large part on the continued reliance on third
party vendors for client/server software applications. There can be no
assurance that the client/server computing trends anticipated by the Company
will occur or that the Company will be able to respond effectively to the
evolving requirements of this market. If the client/server market fails to
grow or grows more slowly than Management anticipates, the Company's business
and results of operations would be materially adversely affected.
DEPENDENCE UPON MANAGEMENT; "KEY MAN LIFE INSURANCE"; ATTRACTION AND RETENTION
OF KEY PERSONNEL - The success of the Company will be dependent on the efforts
of Michael Kharitonov, the Company's President and Chief Executive Officer
since June 12, 1997. The loss of the services of Mr. Kharitonov could have a
material adverse effect on the Company. The Company does not have "key man
life insurance" on the life of Mr. Kharitonov. The Company's future success
will depend in part on its ability to attract and retain qualified personnel
to manage the development and future growth of the Company. The Company is
actively seeking additional technical and sales personnel and senior
management. There can be no assurance that the Company will be successful in
attracting and retaining such personnel.
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS. Holders of the Warrants will have the right to exercise the Warrants
for the purchase of shares of Common Stock only if a current prospectus
relating to such shares is then in effect and only if the shares are qualified
for sale under the securities laws of the applicable state or states. The
Company has undertaken and intends to file and keep current a prospectus which
will permit the purchase and sale of the Common Stock underlying the Warrants,
but there can be no assurance that the Company will be able to do so. Although
the Company intends to seek to qualify for sale the shares of Common Stock
underlying the Warrants in those states in which the securities are to be
offered, no assurance can be given that such qualification will occur. In
addition, purchasers may buy Warrants in the aftermarket or may move to
jurisdictions in which the shares of Common Stock issuable upon exercise of
the Warrants are not so registered or qualified during the period that the
Warrants are exercisable. In such event, the Company would be unable to issue
shares to those persons desiring to exercise their Warrants unless and until
the shares could be registered or qualified for sale in the jurisdiction in
which such purchasers reside, or an exemption to such qualification exists or
is granted in such jurisdiction. The Warrants may lose or be of no value if a
prospectus covering the shares issuable upon the exercise thereof is not kept
current or if such underlying shares are not, or cannot be, registered in the
applicable states. See "Description of Securities--Warrants."
ISSUANCE OF PREFERRED STOCK: ANTI-TAKEOVER PROVISIONS. The Company's
Certificate of Incorporation permits its Directors to designate the terms of
and issue shares of Preferred Stock. The issuance of shares of Preferred Stock
by the Board of Directors could adversely effect the rights of holders of
Common Stock by, among other matters, establishing preferential dividends,
liquidation rights and voting power. The issuance of preferred stock might
render it more difficult, and therefore discourage, an unsolicited takeover
proposal such as a tender offer, proxy contest or the removal of incumbent
Management, even if such actions would be in the best interest of the
Company's stockholders. See "Description of Securities."
14
<PAGE>
TECHNOLOGICAL CHANGE AND NEW SERVICES. The market for Internet services is
characterized by rapidly changing technology, evolving industry standards,
changing customer needs and demands, and frequent new product and service
introductions. The Company's future success will depend, in part, on its
ability to develop, maintain and improve new and existing technology for use
over the Internet. In addition, the Company's success will also depend on its
ability to provide extensive support and services to its customers. There can
be no assurance that the Company will be successful in effectively developing
or providing new technologies or services on a timely basis or that such
technologies or services will achieve market acceptance.
GOVERNMENT REGULATION. At present Management believes that there are few laws
or regulations that specifically address access to or commerce on the
Internet. The increasing popularity and use of the Internet, however, enhances
the risk that the government of the United States will seek to regulate
computer telephony and the Internet with respect to, among other things, user
privacy, pricing, and the characteristics and quality of products and
services; moreover, local authorities may aggressively seek to regulate
intrastate commerce on or access to the Internet. The Company is unable to
predict the impact, if any, that future legislation, legal decisions or
regulations may have on its business, financial condition or results of
operations.
In March 1996, the America's Carriers Telecommunication Association (the
"ACTA"), a group of telecommunications common carriers, filed a petition (the
"ACTA Petition") with the Federal Communications Commission (the "FCC")
arguing that providers of computer software products that enable voice
transmission over the Internet (Internet "telephone" services) are operating
as common carriers without complying with various regulatory requirements and
without paying certain charges required by law. The ACTA Petition argues that
the FCC has the authority to regulate both the Internet and the providers of
Internet "telephone" services and requests that the FCC declare its authority
over interstate and international telecommunications services using the
Internet, initiate rule-making proceedings to consider rules governing the use
of the Internet for the provision of telecommunications services, and order
providers of Internet "telephone" software to immediately cease the sale of
such software. The FCC has thus far not granted relief sought under the ACTA
Petition, however, any action taken by the FCC to grant the relief sought by
ACTA or otherwise to regulate use of the Internet as a medium of
communication, including any action to permit local exchange carriers to
impose additional charges for connections used for Internet access, could have
a material adverse effect on the Company's business, financial condition and
results of operations. In November 1997, the ACTA filed an action in the
United States Circuit Court of Appeals for the Eighth Circuit seeking
substantially similar relief. See "Business--Government Regulation."
POTENTIAL LIABILITY AND INSURANCE. The Company may be subject to substantial
liability as a result of claims made by customers arising out of the
performance of its products and the quality of its services. While the Company
does not currently maintain products liability or professional services
liability insurance, the Company intends to investigate the purchase of such
insurance if and when its products are generally marketed. There can be no
assurance that the Company will be able to obtain such insurance, or if
obtained, that such insurance will be sufficient to cover potential claims
or that an adequate level of coverage will be available in the future at a
reasonable cost. The Company will seek to limit any such potential liability
by providing disclaimers in connection with its products and services. There
can be no assurance, however, that the Company will not face claims resulting
in substantial liability for which the Company is partially or completely
uninsured. A partially or completely uninsured claim against the Company, if
successful and of sufficient magnitude, would have a material adverse effect
on the Company.
YEAR 2000 ISSUE. Many existing computer programs use only two digits to
identify a year in a date field. These programs were designed and developed
without considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results
by or at the year 2000. This issue is referred to as the "Year 2000 issue."
The Company is in the process of evaluating the potential cost to it in
addressing the year 2000 issue and the potential consequences of an incomplete
or untimely resolution of the Year 2000 issue. No assurance can be given that
the Company will not incur significant cost in addressing the Year 2000 issue
or that the failure to adequately address the Year 2000 issue will not have a
material adverse effect upon the Company.
15
<PAGE>
COMPETITION The market for Internet-enabled call center technology is just
emerging. When and if the Company's products are actively marketed, the
Company expects to compete with eFusion, Inc., Netspeak Corp., Interworks
Systems, Inc., Teloquent Communications Corp., NetiPhone, Inc., Lucent
Technologies, Inc. and others who currently provide or are developing
Internet-enabling call center technology with direct voice, video and data
links over the Internet. The Company expects further competition from existing
software and hardware vendors to telephone call centers, some of whom
currently provide Internet technology that allows a company, when prompted by
a visitor to its Web site, to place a call back to customers over a second
telephone line. The market for call center technology is intensely
competitive, highly fragmented and subject to rapid change. Among the
Company's potential competitors are also a number of large hardware and
software companies that may develop or acquire products that compete with the
Company's products. Increased competition is likely to result in price
reductions, reduced operating margins and the limiting of market share
acquisition, any of which could materially adversely affect the Company's
business, financial condition and results of operations. Many of the Company's
current and potential competitors have significantly greater financial,
technical, marketing and other resources than the Company. As a result, they
may be able to respond more quickly to new or emerging technologies and
changes in customer requirements, or to devote greater resources to the
development, promotion and sale of products than can the Company. There can be
no assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not materially adversely affect its business, financial condition
and results of operations.
BROAD DISCRETION IN USE OF PROCEEDS. All of the proceeds from the exercise of
the Warrants will be applied to working capital and other general corporate
purposes. Accordingly, Management of the Company will have broad discretion as
to the application of such proceeds. See "Use of Proceeds."
POTENTIAL CONFLICTS OF INTEREST. The Company's advisors and part-time
employees may be employed by or work for others, and, accordingly, may devote
only a small portion of their time to the Company. In addition, these
individuals may have entered or may enter into employment, consulting or other
advisory arrangements with other entities and, as a result, their obligations
to these other entities may conflict or compete with their obligations to the
Company. The Company will seek to enter into non-compete and confidentiality
agreements with such persons. See "Management".
NO DIVIDENDS AND NONE ANTICIPATED. The holders of Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors, out of
funds legally available therefor. To date, no dividends have been declared or
paid on the Common Stock, and the Company does not intend to declare any
dividends in the foreseeable future. It is currently anticipated that
earnings, if any, will be used to develop and finance the Company's proposed
business operations. See "Dividend Policy."
VOLATILITY OF STOCK PRICE. The stock market has, from time to time, experienced
significant price and volume fluctuations that may be unrelated to the
operating performance of any particular company. In addition, the market
prices of the securities of many publicly-traded companies in the Internet
industry have in the past been, and can in the future be expected to be,
especially volatile. Various factors and events, including future
announcements of new service offerings by the Company or its competitors,
developments or disputes concerning, among other things, government
regulations in the United States, and economic and other external factors, as
well as fluctuations in the Company's financial results, could have a
significant impact on the market price of the Company's securities.
IMMEDIATE AND SUBSTANTIAL DILUTION. This Offering involves immediate and
substantial dilution to any investors exercising the Warrants described
herein. As of September 30, 1996, the net tangible book value of the Company
was $1,797,295, or approximately, $.61 per share of Common Stock. Assuming all
Warrants described herein are exercised, investors who exercise such Warrants
into shares of Common Stock in the Offering will incur immediate dilution in
net tangible book value of $3.15 per share of Common Stock, which is
approximately 57.27% based on the exercise price of $5.50 per share.
See "Dilution".
16
<PAGE>
CONTROL BY MANAGEMENT. Jeffrey Wolf, Michael Kharitonov and Andrew Schwartz,
each a founder of the Company and a member of the Board (the "Affiliated
Founders"), currently own and have the power to vote in excess of 29.5% of the
total outstanding shares of Common Stock. In addition, by virtue of a
stockholder agreement entered into by the Affiliated Founders and a separate
stockholder agreement entered into by the Affiliated Founders and Laurence
Rosen and Scott Wolf, the Affiliated Founders have contractual rights that
affect the voting of 49.6% of the total outstanding shares of Common Stock.
The above-mentioned percentages have been calculated according to the
requirements of Section 13(d)(3) of the Exchange Act, which includes options
either currently exercisable or exercisable in the next 60 days for 274,419
and 512,085 shares of Common Stock, respectively. Accordingly, the Affiliated
Founders will, as a practical matter, be in a position to elect a majority of
the directors of the Company and to control the Company's affairs. See
"Principal Stockholders."
LACK OF EXPERIENCE OF MAY DAVIS. May Davis was organized in August 1993, was
registered as a broker dealer in June 1995, and became a member firm of the
NASD in June 1995. Management believes that May Davis is principally engaged
in retail brokerage and market making activities and various corporate finance
projects. Although May Davis has acted as a placement agent in private
offerings and has participated as a member of the underwriting syndicate or as
a selected dealer in one public offering, it had not acted as the lead
managing underwriter in any public offerings of securities prior to the
Company's IPO. While certain of the officers of May Davis have significant
experience in corporate finance and the underwriting of securities, the May
Davis did not previously underwrite any public offerings prior to the
Company's IPO. No assurance can be given that May Davis's lack of experience
as a lead managing underwriter of public offerings will not adversely affect
the development or maintenance of a liquid public trading market in the
Company's securities.
RELATIONSHIP OF MAY DAVIS TO TRADING. May Davis may act as a broker or dealer
with respect to the purchase or sale of the Common Stock and the Warrants in
the over-the-counter market where each is expected to trade. May Davis also
has the right to act as the Company's exclusive agent in connection with any
future solicitation of warrantholders to exercise their Warrants. Unless
granted an exemption by the Commission from Rule 10b-6 under the Exchange Act,
May Davis will be prohibited from engaging in any market-making activities or
solicited brokerage activities with regard to the Company's securities during
a period beginning nine business days prior to the commencement of any such
solicitation and ending on the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right May Davis
may have to receive a fee for the exercise of the Warrants following such
solicitation. As a result, May Davis and soliciting broker/dealers may be
unable to continue to make a market in the Company's securities during certain
periods while the exercise of Warrants is being solicited. Such a limitation,
while in effect, could impair the liquidity and market price of the Company's
securities.
UNDERWRITER'S WARRANTS AND REGISTRATION RIGHTS. The Company sold to May Davis
the Underwriter's Warrants, which entitle May Davis to purchase up to 95,000
shares of Common Stock and/or 73,000 Warrants, respectively. The securities
issuable upon exercise of the Underwriter's Warrants are identical to those
offered pursuant to this Prospectus. The Underwriter's Warrants are
exercisable at $6.60 and $.12, respectively, for a period of four years
commencing August 12, 1997. The exercise of the Underwriter's Warrants and the
Warrants contained in the Underwriter's Warrants may dilute the value of the
shares of Common Stock to be acquired by holders of the Warrants, may
adversely affect the Company's ability to obtain equity capital, and, if the
Common Stock issuable upon the exercise of the Underwriter's Warrants and the
Warrants contained in the Underwriter's Warrants are sold in the public
market, may adversely affect the market price of the Common Stock. May Davis
has been granted certain "piggyback" and demand registration rights for a
period of five years from August 12, 1996 with respect to the registration
under the Securities Act of the securities directly or indirectly issuable
upon exercise of the Underwriter's Stock Warrants and Underwriter's Warrants.
The exercise of such rights could result in substantial expense to the
Company. See "Underwriting."
17
<PAGE>
DILUTION
Set forth below is a description of dilution to purchasers of the Company
Common Stock, assuming the exercise of all of the Warrants.
As of September 30, 1997, the pro-forma net tangible book value of the
Company's Common Stock was $1,797,295 or $0.61 per share. "Net Tangible book
value per share" represents the amount of total tangible assets less total
liabilities of the Company. Without taking into account any changes in net
tangible book value after September 30, 1997, the pro-forma book value of the
Common Stock after the exercise of all Warrants will be $2.35 per share.
Consequently, the purchasers of the shares of Company Common Stock issued upon
exercise of all of the Warrants will sustain an immediate substantial dilution
(namely, the difference between the average exercise price of $5.50 and the
pro forma net tangible book value per share) after such exercise of $3.15 per
share. The following table illustrates such dilution:
Average Exercise Price of the Common Stock
Underlying the Warrants....................................... $5.50
Net Tangible Book Value of Outstanding
Common Stock ................................................. 0.61
Increase Attributable to Exercise of Warrants.................... 1.74
Pro forma Net Tangible Book Value After Exercise of
Warrants...................................................... 2.35
----
Per Share Dilution to New Investors.............................. $3.15
====
The following table sets forth, as of the date of this Prospectus, the total
number of shares of Common Stock purchased from the Company, the total
consideration recorded and the average price per share for (i) existing
holders of Common Stock for shares acquired since inception and (ii) the
investors upon exercise of all Warrants.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE ($)
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)... 2,950,000 62.05 5,999,936 37.68 2.03
New stockholders(1)........ 1,804,200 37.95 9,923,100 62.32 5.50
---------- ----- -------------- -----
Total...................... 4,754,200 100.00 15,923,036 100.00
========== ===== ============== =====
</TABLE>
- ----------------
(1) Prior to deducting any expenses associated with the issuances.
USE OF PROCEEDS
Assuming exercise of all the Warrants, the Company will receive aggregate
gross proceeds of approximately $9,923,100 net of offering expenses, which may
include, under certain circumstances, a 5% solicitation commission payable to
May Davis. The Company will use these proceeds for working capital and will
have broad discretion in the application of such proceeds. As there are no
commitments from the holders of the Warrants to exercise such securities,
there can be no assurance that any of the Warrants will be exercised. The
Company will receive no proceeds from the resale of shares of Common Stock by
its stockholders. Any proceeds received from this Offering will be used for
working capital. Prior to expenditure, such proceeds will be invested
principally in high grade short-term interest-bearing investments. See
"Underwriting."
18
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS
As of the date of this Prospectus, the Company's Common Stock and Common Stock
Purchase Warrants are traded on The Nasdaq SmallCap Market under the symbols
"NETL" and "NETLW", respectively.
The following table sets forth the high and low closing bid prices for the
Company's Common Stock and Common Stock Purchase Warrants since the Company's
initial public offering in August 1996, as reported by the Nasdaq SmallCap
Market. The quotes represent "inter-dealer" prices without adjustment or
retail mark-ups, mark-downs or commissions and may not necessarily represent
actual transactions. See "Risk Factors--Nasdaq Maintenance Requirements;
Possible Delisting Of Securities From Nasdaq Market; Risk Of Low-Priced
Stocks."
COMMON STOCK
<TABLE>
<CAPTION>
<S> <C> <C>
Quarter Ended High Low
- - ----------------------------------------- ----------------------------------------- -----------------------------------------
September 30, 1996 7.50 5.125
- - ----------------------------------------- ----------------------------------------- -----------------------------------------
December 31, 1996 7.75 4.75
- - ----------------------------------------- ----------------------------------------- -----------------------------------------
March 31, 1997 7.531 6.75
- ------------------------------------------- ----------------------------------------- -----------------------------------------
June 30, 1997 6.875 6.00
- ------------------------------------------- ----------------------------------------- -----------------------------------------
September 30, 1997 6.250 5.344
</TABLE>
19
<PAGE>
COMMON STOCK PURCHASE WARRANTS
<TABLE>
<CAPTION>
<S> <C> <C>
Quarter Ended High Low
- - --------------------------------------- --------------------------------------- ---------------------------------------
September 30, 1996 2.50 1.00
- - --------------------------------------- --------------------------------------- ---------------------------------------
December 31, 1996 1.938 1.00
- - --------------------------------------- --------------------------------------- ---------------------------------------
March 31, 1997 1.875 1.094
- ----------------------------------------- --------------------------------------- ---------------------------------------
June 30, 1997 1.563 0.875
- ----------------------------------------- --------------------------------------- ---------------------------------------
September 30, 1997 1.250 0.625
</TABLE>
The Company believes that as of December 10, 1997, there were approximately 32
holders of record of the Common Stock and as of August 14, 1997, there were
approximately 700 beneficial owners.
DIVIDEND POLICY
The Company has never paid any cash dividends. The payment of dividends, if
any, in the future is within the discretion of the Board of Directors (the
"Board") and will depend upon the Company's earnings, its capital requirements
and financial condition, and other relevant factors. The Board does not
presently intend to declare any dividends in the foreseeable future, but
instead intends to retain all earnings, if any, for use in the Company's
business operations.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1997 and September 30, 1997 and such capitalization as adjusted to give
effect to the anticipated use of the net proceeds from exercise of the
Warrants in the manner contemplated under "Use of Proceeds". This table should
be read in conjunction with the historical financial statements and notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
ACTUAL AS ADJUSTED(1)
(unaudited) (unaudited)
------------ ------------------
<S> <C> <C>
Liabilities
Total liabilities $159,637 $159,637
======== ========
Stockholders' Equity
Preferred Stock, $.0001 par value: Authorized
1,000,000 shares; none issued.................. -- --
Common Stock, $.0001 par value: Authorized
19,000,000 shares; Issued and Outstanding--
2,950,000 and 4,754,200, respectively 295 475
Additional paid in capital....................... 5,864,448 15,261,213
Deficit accumulated during the development
stage.......................................... (3,055,110) (3,055,110)
Deferred compensation (684,647) (684,647)
-------- ----------
Stockholders' equity $2,124,986 $11,521,931
======== ==========
</TABLE>
- -----------------------
(1) Gives effect to the issuance of the shares of Common Stock registered
herein upon exercise of 1,804,200 Warrants registered herein at $5.50 per
share.
21
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this Prospectus.
PLAN OF OPERATION
The Company, a development stage company, was incorporated on August 23, 1995
in the State of Delaware. The Company is engaged principally in the design and
development of Internet call center software technologies to license to
businesses. The Company expects to take advantage of the convergence of the
rapid expansion and increasing technological sophistication of the call center
industry and the widespread growth of the Internet as a communications medium.
The Company continues to seek strategic alliances and joint ventures that
complement the Company's overall business strategy. No such alliances or
ventures have been consummated to date. Based on this strategy, the Company
directs a significant percentage of its capital reserves towards operating
expenses and towards non-operating expenses associated with business
development, and anticipates continuing to do so for the near future. Net
losses were $766,522 and $2,045,459 during the six months ended September 30,
1997 and the fiscal year ended March 31, 1997, as compared to $700,440 and
$243,129 during the six months ended September 30, 1996 and the period from
August 23, 1995 (date of inception) to March 31, 1996, respectively. Net loss
per share was $0.26 and $.75 during the six months ended September 30, 1997
and the fiscal year ended March 31, 1997, as compared to $0.30 and $.16 during
the six months ended September 30, 1996 and the period from August 23, 1995
(date of inception) to March 31, 1996, respectively.
The Company has only a limited operating history upon which an evaluation of
the Company and its prospects can be based. Testing of the Company's
technology has been delayed, and, to date, the Company has not produced or
sold any commercial products. Nor has the Company generated any significant
revenues. The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development, particularly companies in new and rapidly evolving
markets. To address these risks, the Company must, among other things, respond
to competitive developments, continue to attract, retain and motivate
qualified employees, and continue to develop its technologies and
commercialize products and services incorporating such technologies. There can
be no assurance that the Company will be successful in addressing such risks.
The Company has incurred net losses since inception through the quarter ended
September 30, 1997. As of September 30, 1997, the Company had an accumulated
deficit during the development stage of $3,055,110. There can be no assurance
that the Company will achieve or maintain profitability.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses consist primarily of expenses for
administration, office operations, finance and general management activities,
including legal, accounting and other professional fees. Selling, general and
administrative expenses (including research and development) were $776,778 and
$2,053,148 for the six months ended September 30, 1997 and the fiscal year
ended March 31, 1997, as compared to $700,440 and $243,129 for the six months
ended September 30, 1996 and the period from August 23, 1995 (date of
inception) to March 31, 1996, respectively. This increase was primarily
attributable to the hiring of additional personnel and otherwise expanding
operations and professional fees. Included in Selling, General and
Administrative expenses are salaries aggregating $233,081 and $477,019 for the
six months ended September 30, 1997 and the fiscal year ended March 31, 1997,
as compared to $192,176 and $160,714 for the six months ended September 30,
1996 and for the period from August 23, 1995 (date of inception) to March 31,
1996, respectively. Included in Selling, General and Administrative are
research and development expenses aggregating zero and $568,855 for the six
months ended September 30, 1997 and the fiscal year ended March 31, 1997, as
compared to $133,980 and zero for the six months ended September 30, 1996 and
for the period from August 23, 1995 (date of inception) to March 31, 1996.
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INTEREST EXPENSE, FINANCING COSTS AND INTEREST INCOME
Interest expense and financing costs consists of interest incurred on
equipment financing and financing costs incrurred in connection with the March
1996 private placement of debt securities. Such debt securities were re-paid
in May 1996. At the date of payment, the Company recorded a financing charge
of approximately $165,000. Interest expense and financing costs were $190,934
during the fiscal year ended March 31, 1997, as compared to $5,189 for the
period from August 23, 1995 (date of inception) through March 31, 1996.
Interest and dividend income were $51,805 and $113,686 for six months ended
September 30, 1997 and for the fiscal year ended March 31, 1997, respectively,
as compared to zero for the six months ended September 30, 1996 and for the
period from August 23, 1995 (date of inception) to March 31, 1996. These
amounts represent interest earned on investments of the proceeds from the
initial public offering.
PROVISION FOR INCOME TAXES
The Company has no provision for income taxes for all periods presented since
it incurred net losses for such periods
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents and marketable securities aggregated
$1,728,721 at September 30, 1997, as compared to $3,017,784 at March 31, 1997.
Net cash used in operations was $1,243,730 and $1,534,479 for the six months
ended September 30, 1997 and for the fiscal year ended March 31, 1997, as
compared to $646,144 and $81,660 used in operations for the six months ended
September 30, 1996 and for the period from August 23, 1995 (date of inception)
to March 31, 1996, respectively. The increase in net cash used in operations
from period to period was primarily attributable to the costs from hiring
additional personnel and otherwise expanding, and costs associated with a
threatened proxy contest by May Davis and affiliated parties.
The uses of cash during the six months ended September 30, 1997 were financed
almost exclusively by the sale in August 1996, of 950,000 shares of common
stock and 839,500 warrants to purchase common stock (including the exercise of
the underwriter's overallotment option relating to 109,500 warrants) which
resulted in proceeds of $4.2 million, net of offering expenses, as well as the
sale, in March and May 1996, of an aggregate of 400,000 shares of common stock
and 1,000,000 warrants in a private placement which resulted in proceeds of
$376,000, net of offering expenses.
Net cash provided by (used in) investing activities was $1,944,758 and
($3,062,545) for the six months ended September 30, 1997 and fiscal year ended
March 31, 1997, as compared to ($28,004) and ($18,923) for the six months
ended September 30, 1996 and for the period from August 23, 1995 (date of
inception) to March 31, 1996, respectively. The change in investing activities
was primarily due to purchases of and proceeds from sales of available for
sale securities.
Net cash provided by financing activities were zero and $4,469, 587 during the
six months ended September 30, 1997 and the fiscal year ended March 31, 1997,
as compared to $4,484,529 and $260,978 for the six months ended September 30,
1996 and for the period from August 23, 1995 (date of inception) to March 31,
1996, respectively. The change in net cash provided by financing activities
primarily reflects the receipt of proceeds from the Company's initial public
offering in August, 1996.
The Company anticipates spending approximately $400,000 of its available cash
and marketable securities during the last two quarters of fiscal 1998 on
software development costs, a portion of which will be capitalized.
The Company does not expect any purchase or sale of plant or significant
equipment during fiscal 1998.
23
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The Company believes that significant ongoing investment in all areas of the
business will continue to be critical to its success. The Company believes
that its existing cash and marketable securities will be sufficient to fund
the Company's operations for approximately six months. There can be no
assurance that the Company's cost estimates are accurate or that the Company's
cash and marketable securities will provide sufficient working capital for
operations. The Company expects that it will have to raise additional funds,
and anticipates actively seeking such capital, during the next six months for
additional software development and sales and marketing. Such additional
capital may take the form of equity issuance, debt issuance or a combination
thereof. The Company has entered into a non-exclusive agreement with a
financial advisor to assist it in such financing activities. The Company
currently does not have any commitments to obtain additional financing and
there can be no assurance that such financing will be available or, if so,
that it can be obtained on terms satisfactory to the Company. In the event
that the Company cannot obtain additional funds when needed, the Company will
be forced to significantly curtail or cease its activities, which would likely
result in loss to investors of all or a substantial portion of their
investment.
24
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BUSINESS
OVERVIEW
The Company, a development stage company, was incorporated on August 23, 1995
in the State of Delaware. The Company initially focused on developing live,
one-on-one videoconferenced entertainment, educational and counseling services
over the Internet and technologies designed to deliver such content services
to consumers. During the first quarter of fiscal 1998, the Company shifted its
focus to concentrate principally on developing Internet call center software
technologies to license to businesses. The Company anticipates that many
applications of its systems, when and if marketed, will be without a video
component. The Company expects to take advantage of the convergence of the
rapid expansion and increasing technological sophistication of the call center
industry and the widespread growth of the Internet as a communications medium.
The Company anticipates benefiting from Microsoft's release of NetMeeting
software. Microsoft reports that NetMeeting, a product that offers Internet
video and telephone functionality based on an open conferencing standard (the
H.323 standard) will come installed in the Microsoft Windows operating
systems, along with the Internet Explorer browser, and thus will not require a
download. By integrating the Microsoft product into its call center systems,
the Company plans to benefit from the expected large number of NetMeeting
users with compatible Internet phone capabilities. The Company is expanding
and modifying the development of the routing, tracking, billing and database
components of its Internet technology as well as developing additional
features, such as shared browsing. Such technology is planned to provide
advanced software solutions that Management hopes will assist businesses in
maximizing their marketing and customer service capabilities through the
powerful qualities of the Internet. Management believes that the Company's
systems will allow consumers to be connected directly to call center agents
with whom they can simultaneously communicate and share data over the Internet
on a single phone line connection.
In light of the lack of development of the Internet infrastructure sufficient
to allow commercial grade video, the reluctance in the Internet community to
pay for content and the Company's limited resources, the Company, in the first
quarter of fiscal 1998, de-emphasized the development of its video-based
Internet content services. Accordingly, the Company has suspended indefinitely
the development of its projected HolisticVisions, TutorNet, TherapyNet,
FantasyNet, ModelNet, WebClinic and CookNet services. The Company also
suspended indefinitely the development of its PsychicNet service in the third
quarter of fiscal 1998, because Management questioned its strategic value and
because of the Company's increasingly limited resources.
NetLive has concurrently increased its emphasis on designing and developing
Internet software systems that link businesses seeking to provide real-time,
live interaction on the Internet with consumers. The Company plans to support
voice, video and data communications through its systems, which the Company
plans to sell to call centers. The Company anticipates that its WebCenter
technology will provide call center customer service representatives ("CSRs")
with access to product support information, scripting and customer information
from existing client databases. NetLive plans that, after the second stage of
development, its technology will be interoperable with public switched
telephone network calls so that CSRs can handle both Internet "calls" and
regular telephone calls.
Management anticipates that the Company's WebCenter call center software will
be integrated with its customers' web sites so as to enable a seamless live
interaction with an available CSR. The Company's systems are designed to
provide queuing and intelligent routing of such Internet calls, so that
in-house or service agency call centers can conduct multiple sales and
marketing campaigns. The systems are designed to be fully "scalable," namely,
to be able to handle very large numbers of customers and CSRs. The Company
also plans to offer quantitative and qualitative monitoring of calls to and
from the call center. NetLive plans to develop a full customer interaction
management set of programs ("suite"), which will support customer service,
help desk, quality assurance, sales and marketing programs and internal help
desk functions. The Company's goal is to develop technology that will conform
to all relevant telecommunications and Internet industry standards and will be
interoperable with certain major database software, operating systems and
automatic call
25
<PAGE>
distributors. The Company is planning, as the second stage of its call center
systems, the development of MultiCenter, which will expand its technology to
permit the transmission of Internet calls and telephone calls across a single
system.
It is intended that computer users will be able, through the Company's
technology, to click on a button on a World Wide Web page to connect them to a
CSR through an Internet voice, video and/or text chat connection. Management
expects that the CSR will then share a browser or other application with the
customer, enabling the CSR to direct the customer to appropriate data. The CSR
will be able to provide a variety of supplemental information to the consumer,
including pricing, account and multimedia product information.
Management believes that NetLive's products will be the next step in the
evolution of the call center, bringing live multimedia interaction to this
powerful sales, marketing and customer service vehicle. Management anticipates
that, like traditional telephone call center applications, Internet call
centers will improve productivity and customer management efforts by
integrating the flow of critical information. With the explosive growth of the
Internet, a critical mass of prime consumers are accessible through digital
media, and a significant investment is being made in Internet-enabled
electronic commerce. The Company anticipates that the growth of automated
electronic services, such as travel, financial and product mail order sites,
will be accompanied by the demand for concurrent real-time customer
interaction. Demand for real-time interaction will be fueled by the increasing
bandwidth of the Internet and the greater availability of interoperable
multimedia client-side programs, such as Microsoft's NetMeeting and Netscape's
LiveMedia, bundled with popular operating systems and browsers. The increasing
demand for such communications will require commercial users of these
technologies to maintain Internet call center systems to provide standardized
quality of service, full access to relevant customer or product information,
customer tracking and efficient resource allocation.
The Company believes that the systems it is developing will offer several
advantages over existing technology. Foremost, it will allow a company greater
contact with customers, already visiting its Web site, who seek further
information about such company's products or services. Such customers will be
able to efficiently receive personalized communications, thereby improving
sales and marketing as well as customer service functions. This contact will
have greater efficiency because the Internet allows a more diverse flow of
information than is provided by the telephone. Routing to the appropriate CSR
with the aid of the Company's products also will be more refined because of
the opportunity for greater customer input across the Internet. In addition,
the Company's technology is designed to operate over a single phone line so
that a customer, already connected to the Web, does not have to relinquish
access to the information on the Web site that brought about his or her
inquiry. Finally, by integrating its back-end technology with NetMeeting,
Microsoft's Internet telephone, video and document sharing application, the
Company anticipates that it will benefit from the expected large number of
NetMeeting users with compatible Internet phone capabilities.
The Company's WebCenter call center system is still being developed; a full
commercial version has not been completed. Its MultiCenter system is currently
being planned by the Company, and neither a design nor a development version
has been produced; commercial versions of these systems have not yet been
produced, tested, marketed or sold by the Company, and therefore no revenues
have been generated from the sale thereof. No assurance can be given that the
Company will succeed in the development, commercial production and marketing
of its systems.
INDUSTRY BACKGROUND
Developed over 25 years ago, the Internet is a global web of computer networks
that allows personal computer users to access a variety of information and
services. The Internet was developed for use by academic institutions, the
Department of Defense and government agencies primarily for obtaining remote
access to host computers, for transferring files, and for sending and
receiving e-mail. This early Internet usage has changed substantially. The
Company believes that the number of commercial domains on the Internet has
surpassed the number of government and academic domains. The Internet has been
experiencing rapid growth as industry and individuals discover its substantial
information access abilities.
26
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Converging with the growth of the Internet and its audio and video
applications is the growth of telephone call centers. Over the past ten years,
businesses and other organizations have increasingly used dedicated centers
for processing and managing high volumes of incoming and outgoing telephone
traffic. Call centers have been used extensively in such fields as credit card
and consumer collections, catalog sales, telemarketing and customer service.
In these call centers, activities such as placing and receiving telephone
calls are linked to the computer functions of database management to capture,
store and report on relevant customer information. As the importance of the
call center has increased and as more functions and capabilities have been
combined, a parallel industry has emerged to create and support the systems,
software and services that are designed to make these call centers efficient,
effective and well matched to the broader corporate mission of the enterprise.
Frost & Sullivan, a market research firm in Mountain View, California,
estimates that the market for call center hardware and software was $1.69
billion in 1991 and expects it to exceed $10.0 billion by 2001.
Call center systems generally include specialized applications software which
allows organizations to conduct inbound or outbound calling activities, manage
system resources, monitor call center capacity and provide system usage and
other reporting capabilities. These applications have historically been
developed for centralized, mainframe-based information systems. These legacy
applications were often very expensive to install and did not offer sufficient
flexibility to allow customization or to adapt to an organization's changing
requirements. In addition, these applications did not provide high levels of
scalability or interoperability with an organization's other information
systems. Recently, call center technology has joined the more general
migration from mainframe-based legacy systems to distributed computing systems
based on open systems and client/server architecture. This development has
allowed companies to incorporate leading hardware and software products from
multiple vendors into more advanced and productive call center systems.
PRODUCTS
1. WEBCENTER - It is intended that NetLive's WebCenter system will allow
consumers to be connected directly to live CSRs over the Internet without the
need for a call-back. The user and CSR can then talk or use text chat and
simultaneously share visuals and applications over a single phone line.
NetLive anticipates that its WebCenter will be an Internet call center call
management system that intelligently queues incoming Internet calls, routes
Internet calls to CSRs, integrates customer data and handles tracking and
billing information. The Company anticipates working with clients to customize
and integrate NetLive's software products, once developed, with existing
information systems.
NetLive's planned WebCenter system is composed of three components that are
being designed to work together to permit efficient handling of real-time
Internet originated multimedia communications: an Internet call routing
system, an operator phone and a set of administrative management and analysis
tools. It is intended that users of NetLive's Internet call center systems
will be able to manage incoming and outbound Internet calls efficiently and
consistently across the Internet.
The Internet call routing system is designed to accept and direct requests for
calls placed from an Internet web site. Management anticipates that the system
will enable a web site visitor to initiate a real-time contact with a CSR with
a single click on an Internet link. The system will automatically evaluate the
call request and intelligently route the inquiry to the requested or next
available CSR by maintaining an internal database of CSRs and applying a
routing rule set. Management anticipates that the call routing system can be
integrated seamlessly into an existing web site's automated customer service
capabilities and is designed to make customer information available to CSRs.
The operator phone is a software application which is designed to allow CSRs
to receive calls, access customer information from either the Internet or from
internal databases, utilize custom scripts and carry out customer service
initiatives. Management expects that the operator phone will provide a high
level of computer-telephone integration to enable data-driven help desk and
sales force automation.
Management anticipates that the administrative management software will
comprise a standard set of reporting, monitoring and analysis tools which
provide real-time and summary information about the performance of the call
center.
27
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2. MULTICENTER - The Company plans, as the second stage of development of its
systems, to expand its technology to permit the transmission of Internet calls
and telephone calls across a single system. This will enable call centers to
use a single set of CSRs to handle calls from these separate mediums, thereby
maximizing labor pool efficiency. The Company also intends, as a further
enhancement to this system, to develop software to enable call centers to
blend inbound and outbound campaigns. Management anticipates that, if
successfully implemented, this will permit further efficiency for the
allocation of CSR resources and the minimization of CSR "down time." It is
anticipated that the open, modular architecture of the WebCenter system will
permit customers to upgrade, for an added fee, to the multiple medium
functionality of MultiCenter.
3. CUSTOMER SUPPORT - NetLive believes that customer service and support are
an integral part of its service offerings. Service capability, availability
and responsiveness will play an important role in marketing and selling its
products, particularly as the technological complexity of its products
increase.
Management anticipates that it will earn system and software support fees by
providing ongoing support for its products. It expects to provide training and
support both at its facilities and at the customer's site. The Company expects
to offer a full range of product support options, including telephone support
from "normal business hours" to "24 hours a day" and on-site response. It is
expected that customer support representatives will be able to service
customer call center systems on a remote basis from the Company's headquarters
in New York. The Company expects to earn other fees by providing, upon
customer request, certain special services, such as system relocation and
additional training. The Company currently does not have a customer service
staff. No assurance can be made that the Company will be able to recruit,
retain or properly train such personnel.
COMPANY STRATEGIES
The Company's WebCenter call center system is still being developed; a full
commercial version has not been completed. Its MultiCenter system is currently
being planned by the Company, and neither a design nor a development version
has been produced; commercial versions of these systems have not yet been
produced, tested, marketed or sold by the Company. Below are the Company's
strategies, several of which assume and are dependent upon production of
commercial versions of its systems. There can be no assurances of production
of a commercial version of the Company's systems.
1. ESTABLISH STRATEGIC ALLIANCES TO FACILITATE TECHNOLOGICAL ACCEPTANCE - In
order to facilitate and accelerate the acceptance of NetLive's technology, as
well as enhance marketing and distribution of its products and systems, the
Company plans to establish a number of strategic alliances with various call
center software and hardware industry leaders, high-end integrators,
re-sellers and other third party distributors. The Company envisions, pursuant
to these alliances, either integrating its technology into products that are
marketed by its strategic partners or having its strategic partners market and
distribute the Company's products and systems through their independent
distribution channels.
2. TARGET SPECIFIC INDUSTRIES - The Company's marketing strategy is to focus
on selected vertical industries in which it can develop a leading market
share. The Company currently expects to target the computer and financial
services industries, which have a relatively long experience with
telephonebased customer interaction. The Company believes that its targeted
marketing strategy better focuses product development efforts, helps control
selling costs and will lead to higher overall customer satisfaction. At the
same time, the Company plans to design desktop applications to support
modifications or additional functions needed for additional industries.
3. DEVELOP MULTIPLE DISTRIBUTION CHANNELS - The Company believes that it can
most rapidly obtain market share by using a combination of direct and indirect
sales channels. The Company intends to form alliances with software and
hardware industry leaders, high-end integrators and re-sellers to establish
its presence in the market for large-scale
28
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systems. The Company also intends to use distributors for indirect marketing
of its products. The Company further intends to use direct sales and support
as a channel for selling its products to call center operations.
4. ATTAIN TECHNOLOGY LEADERSHIP - The Company has invested, from its inception
through September 30, 1997, approximately $570,000 in research and
development. Additionally, approximately $320,000 of software development
costs have been incurred since the Company determined technological
feasibility of its WebCenter product in April 1997. The Company intends to
attain technology leadership by continuing its development efforts to enhance
the performance and functionality of its products. The Company additionally
will strive to make its products compatible with emerging telecommunications
and Internet technology and computing environments. The Company expects to
spend, during the remainder of fiscal 1998, approximately $400,000 of its
available cash and marketable securities on further software development.
5. LEVERAGE SCALABILITY - A further strategy of the Company is to develop
scalable Internet monitoring, queuing and customer interaction management
applications that may be effectively utilized by businesses of virtually all
sizes, with varying number of users, applications and levels of integration.
In addition, to maintain the scalability of its systems, the Company's
strategy is to design component-based software that leverages additional
transaction processing capabilities into its systems as the Internet call
center industry evolves.
6. LEVERAGE FROM MICROSOFT NETMEETING EXPECTED INSTALLED BASE - The Company's
system components are being designed to work together and for optimal
integration with Microsoft's NetMeeting conferencing software, which the
Company believes will be widely available to Internet users without a download
by being bundled with the Windows operating system. A caller with NetMeeting
will be able to conduct a real-time voice, video and/or data collaboration
session with a CSR through NetLive's call center technology.
MARKETING AND SALES
In order to facilitate and accelerate the acceptance of the Company's
technology, as well as enhance marketing and distribution of its products and
systems when and if developed and available for commercial use, NetLive seeks
to establish a number of strategic alliances with various call center software
and hardware industry leaders, high-end integrators, re-sellers and other
third party distributors. The ability of the Company to achieve significant
revenue growth, if any, in the future will depend on its success in executing
this strategy. In July 1997, the Company hired a Director of Marketing,
currently on a part-time basis, to forge such alliances in order to facilitate
distribution of the Company's technology, products and systems. No such
strategic partners have been retained to date, and there also can be no
assurance that the Company will be able to attract and retain such strategic
partners to market the Company's products effectively.
Another important element of the Company's distribution strategy is to
dedicate certain marketing department personnel toward end users in service
agency call centers or in-house call centers in key vertical markets. The
Company intends to develop an in-house sales force in order to focus its sales
efforts on direct sales to end-users and distributors. Generally, the sales
cycle begins with the generation of a sales lead, which will be followed by
qualification of the lead, an analysis of the customer's needs, multiple
presentations and/or product demonstrations to the prospective customer, and
ends with contract negotiation and commitment. The Company plans to focus
initial sales efforts on senior personnel in the prospective customer's
information technology department and line management executives in the
functional areas relevant to the application. While the sales cycle varies
substantially from customer to customer, it is expected that it will typically
require four to nine months. There also can be no assurance that the Company
will effectively identify key vertical markets or that it will be able to
effect such direct sales.
In addition to direct contact with potential customers and partners, it is
intended that the Company's in-house marketing and sales efforts will include
direct mail, advertising, other marketing campaigns and exhibiting at industry
trade shows to generate sales and educate potential customers as to the
features, functionality, cost effectiveness and other benefits of NetLive's
technology, products and systems. In addition, Management plans to allow
prospective customers on the
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Company's site on the World Wide Web to obtain information about its products
and services and have live interactions with NetLive staff members using the
Company's technology. The Company's marketing department also is responsible
for providing input into the Company's ongoing product development efforts
based on client feedback and market data. Assuming successful development of
the Company's systems and initial marketing and sales efforts, the Company
anticipates that additional funding will be necessary to support a full-scale
product marketing launch, which Management expects to occur in fiscal 1999 and
which Management believes will be necessary for the Company to achieve
profitability.
COMPETITION
The market for Internet-enabled call center technology is just emerging. The
Company expects to compete with eFusion, Inc., Netspeak Corp., Interworks
Systems Inc., Teloquent Communications Corp., NetiPhone Inc., Lucent
Technologies, Inc. and others, who currently provide or are developing
Internetenabling call center technology with direct voice, video and data
links over the Internet. The Company expects further competition from existing
software and hardware vendors to telephone call centers, some of whom
currently provide Internet technology that allows a company, when prompted by
a visitor to its Web site, to place a call back to customers over a second
telephone line. The market for call center technology is intensely
competitive, highly fragmented and subject to rapid change. Among the
Company's potential competitors are also a number of large hardware and
software companies that may develop or acquire products that compete with the
Company's products. Increased competition is likely to result in price
reductions, reduced operating margins and the limiting of market share
acquisition, any of which could materially adversely affect the Company's
business, financial condition and results of operations. Many of the Company's
current and potential competitors have significantly greater financial,
technical, marketing and other resources than the Company. As a result, they
may be able to respond more quickly to new or emerging technologies and
changes in customer requirements, or to devote greater resources to the
development, promotion and sale of products than can the Company. There can be
no assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not materially adversely affect its business, financial condition
and results of operations.
GOVERNMENT REGULATION
At present, there are few laws or regulations that specifically address access
to or commerce on the Internet. The increasing popularity and use of the
Internet, however, enhances the risk that the government of the United States
will seek to regulate computer telephony and the Internet with respect to,
among other things, user privacy, pricing, and the characteristics and quality
of products and services; moreover, local authorities may aggressively seek to
regulate intrastate commerce on or access to the Internet.. The Company is
unable to predict the impact, if any, that future legislation, legal decisions
or regulations may have on its business, financial condition or results of
operations.
In March 1996, the ACTA filed the ACTA Petition with the FCC arguing that
providers of computer software products that enable voice transmission over
the Internet (Internet "telephone" services) are operating as common carriers
without complying with various regulatory requirements and without paying
certain charges required by law. The ACTA Petition argues that the FCC has the
authority to regulate both the Internet and the providers of Internet
"telephone" services and requests that the FCC declare its authority over
interstate and international telecommunications services using the Internet,
initiate rule-making proceedings to consider rules governing the use of the
Internet for the provision of telecommunications services, and order providers
of Internet "telephone" software to immediately cease the sale of such
software. The FCC has thus far not granted relief sought under the ACTA
Petition, however, any action taken by the FCC to grant the relief sought by
ACTA or otherwise to regulate use of the Internet as a medium of
communication, including any action to permit local exchange carriers to
impose additional charges for connections used for Internet access, could have
a material adverse effect on the Company's business, financial condition and
results of operations. In November 1997, the ACTA filed an action in the
United States Circuit Court of Appeals for the Eighth Circuit seeking
substantially similar relief.
30
<PAGE>
PROPRIETARY RIGHTS
The Company relies on a combination of copyright, trade secret and trademark
laws, confidentiality procedures and contractual provisions to protect its
proprietary rights in its products and technology. The Company does not rely
upon patent protection and does not currently expect to seek patents on any
aspects of its technology. Policing unauthorized use of the Company's software
is difficult, and software piracy can be expected to be a persistent problem.
There can be no assurance that the confidentiality agreements and other
methods on which the Company relies to protect its trade secrets and
proprietary technology will be adequate. Further, the Company may be subject
to additional risks if it enters into transactions in countries where
intellectual property laws are not well developed or are poorly enforced.
Legal protections of the Company's rights may be ineffective in such
countries. Litigation to defend and enforce the Company's intellectual
property rights could result in substantial costs and diversion of resources
and could have a material adverse effect on the Company's business, financial
condition and results of operations, regardless of the final outcome of such
litigation. Despite the Company's efforts to safeguard and maintain its
proprietary rights, there can be no assurance that the Company will be
successful in doing so, or that the steps taken by the Company in this regard
will be adequate to deter misappropriation or independent third-party
development of the Company's technology or to prevent an unauthorized third
party from copying or otherwise obtaining and using the Company's products or
technology. There also can be no assurance that others will not independently
develop similar or superior technologies or duplicate any technology developed
by the Company. Any such events could have a material adverse effect on the
Company's business, financial condition and results of operations.
As the number of customer interaction software applications in the industry
increases and the functionality of these products further overlaps, software
development companies like the Company may increasingly become subject to
claims of infringement or misappropriation of the intellectual property rights
of others. There can be no assurance that third parties will not assert
infringement or misappropriation claims against the Company in the future with
respect to current or future products. Any claims or litigation, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays or require the Company to enter into royalty or
licensing arrangements. Such royalty or licensing arrangements, if required,
may not be available on terms acceptable to the Company, if at all, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. Adverse determinations in such claims or
litigation could also have a material adverse effect on the Company's
business, financial condition and results of operations.
EMPLOYEES
As of November 1, 1997, the Company employed 16 persons, including 10 software
development employees, 1 employee in marketing and sales and 5 administrative
personnel. Of such 17 persons, 16 persons are full-time and 1 person is
part-time. None of these employees are covered by a collective bargaining
agreement. The Company believes that its labor relations are good.
LEGAL PROCEEDINGS
The Company is not a party to, and its property is not the subject of, any
material pending legal proceeding requiring disclosure hereunder.
DESCRIPTION OF PROPERTY
The Company's executive offices comprise approximately 3,500 gross square feet
and are located at 584 Broadway, New York, New York. The Company occupies two
offices at such location pursuant to separate leases that both expire on
November 30, 1998. One lease, covering approximately 1,500 gross square feet,
requires the Company to pay $1,877 per month through November 30, 1997 and
$1,952 per month thereafter for the balance of the lease term. The second
lease, covering approximately 2,000 gross square feet, requires the Company to
pay $2,054 per month through November 30,
31
<PAGE>
1997 and $2,136 per month thereafter for the balance of the lease term. The
Company believes that its facilities are adequate for its current needs and
that additional space will be available on acceptable terms when it is
required.
32
<PAGE>
MANAGEMENT
Set forth below are the current directors and officers of the Company and a
brief biographical background on each based on information supplied by them:
Name and Age Business Experience and Other Affiliations or
Significant Activities
Adam Goldberg, 38 ADAM GOLDBERG has been a director of the Company
since September 15, 1997. He is an attorney, who
has worked as a sole practitioner since 1993. From
1989 to 1993, Mr. Goldberg was a staff attorney for
the New York City Department of Housing
Preservation and Development. From 1987 to 1989, he
was employed as an attorney with the firm Harold,
Salant, Comer, Strassfield & Spielberg. Mr.
Goldberg is a Class I director, whose term thus
expires at the 1998 annual meeting of stockholders.
Michael Kharitonov, 34 MICHAEL KHARITONOV, PH.D. is a co-founder of the
Company. He has been the Chairman of the Board and
Director of Technology of the Company since April
1996, and President and Chief Executive Officer
since June 1997. Dr. Kharitonov served as Secretary
of the Company from April 1996 through October
1996. From November 1992 to April 1996, Dr.
Kharitonov was employed by D.E. Shaw & Co., an
investment management firm, most recently having
held the position of vice president. Mr. Kharitonov
is a Class III director, whose term thus expires at
the 2000 annual meeting of stockholders.
John E. Meier, 51 JOHN E. MEIER has been a director of the Company
since July 1996. Mr. Meier became Executive Vice
President and Chief Operating Officer of the
Company effective in July 1997, and served in those
capacities until January 1998. From July 1996 to
July 1997, Mr. Meier served as a Vice President of
Subscriber Marketing of AirMedia, a division of Ex
Machina, Inc., an Internet broadcast network. From
1976 to 1996, Mr. Meier was employed by CompuServe,
Incorporated, a leading consumer on-line service,
having held the positions of Senior Vice President
of Market Planning and Development, and Senior Vice
President of Membership Support and Retention. Mr.
Meier is a Class II director, whose term thus
expires at the 1999 annual meeting of stockholders.
Andrew J. Schwartz, 33 ANDREW J. SCHWARTZ is a co-founder of the Company.
He has been a director of the Company since June
1997. He has been Secretary of the Company since
October 1996, Treasurer and Chief Financial Officer
since June 1997, and Vice President of Finance and
Administration since October 1997. Mr. Schwartz
also served as Vice President of Business
Development from October 1996 to October 1997. From
September 1991 through March 1996, Mr. Schwartz was
employed as an attorney at McCarter & English, a
New Jersey based law firm. Mr. Schwartz is a Class
III director, whose term thus expires at the 2000
annual meeting of stockholders.
Jeffrey Wolf, 34 JEFFREY WOLF is a co-founder of the Company. He has
been a director of the Company since September
1995. From September 1995 through December 1995,
Mr. Wolf served as the President of the Company,
and from September 1995 through April 1996, Mr.
Wolf served as the Treasurer of the Company. Mr.
Wolf has been a managing director of Athena
Ventures, LLC, a New York City based venture
capital firm, since January 1996. From November
1994 through December 1995, Mr. Wolf was the head
of Berenson Minella Ventures, the venture capital
division of Berenson Minella and Company, a New
York City based merchant bank. From July 1991
through November 1994, Mr. Wolf was a vice
president and managing director of the Castle
33
<PAGE>
Group, Ltd. a New York-based venture capital firm.
Mr. Wolf is a Class III director, whose term thus
expires at the 2000 annual meeting of stockholders
Michael E. Wolf, 35 MICHAEL E. WOLF, PH.D. has been a director of the
Company since August 11, 1997. Dr. Wolf has been a
quantitative analyst at J.P. Morgan & Co. since
February 1997 and held similar positions at Hong
Kong and Shanghai Bank from July 1996 through
February 1997 and at D.E. Shaw & Co. from September
1992 through May 1994. From July 1994 through June
1996, he was a computer programmer at Silicon
Graphics, Inc. Mr. Wolf is a Class II director,
whose term thus expires at the 1999 annual meeting
of stockholders.
Marcel M. Yung, 44 MARCEL M. YUNG, PH.D. has been a director of the
Company since August 11, 1997. He is currently a
Cryptographer and holds the position of Vice
President at CertCo LLC and has held such positions
there, and at its predecessor, since September
1996. From 1988 to 1996, Dr. Yung was a research
staff member at IBM/T.J. Watson Research Center
where he worked on IBM systems and products in the
areas of cryptography, security and network
applications. Mr. Yung is a Class I director, whose
term thus expires at the 1998 annual meeting of
stockholders.
Vladislav Rysin, 36 VLADISLAV RYSIN, PH.D. has been the Vice President
of Technology of the Company since October 1996 and
Senior Software Developer and Project Manager since
May 1996. From May 1993 to May 1996, Dr. Rysin
served as a Vice President of Accomet Corporation,
a company engaged in the manufacturing and trading
of metals. From May 1992 to May 1993, Dr. Rysin
served as a systems manager for Consist
International, Inc., a software development
company. From February 1990 to May 1992, Dr. Rysin
served as a project manager for Atedeca
Corporation, C.A., a software development company.
Michael Wolf and Jeffrey Wolf are not related. The Company is not aware of any
family relationships among directors or executive officers. Company is not
aware of any events during the past five years relating to the ability or
integrity of any director, person nominated to become a director, executive
officer, promoter or control person of the Company that are required to be
disclosed herein.
On June 12, 1997, the Company, May Davis, Owen May, Dibo Attar, Dennis Sal and
seven investment funds as to which Mr. Attar acts as advisors (the "Funds",
and together with May Davis and Messrs. May, Attar, and Sal, collectively, the
"Subscribing Parties") entered into a certain Settlement and Voting Agreement
(the "Voting Agreement") to, among other things, resolve certain corporate
governance issues relating to the Company. Among other things, under the
Voting Agreement, as amended, the parties agreed to increase the size of the
Company's Board of Directors (the "Board") to seven, and to fill the two
vacancies thereby created with a designee of the Subscribing Parties (the
"Subscribing Party Designee") and a designee (the "Class III Designee")
selected by the Class III directors, namely, Michael Kharitonov, Andrew J.
Schwartz, and Jeffrey Wolf, They also agreed that thereafter, for the balance
of the three year term of the Voting Agreement, Board will include as nominees
for election to the Board as Class I directors a designee of the Subscribing
Parties reasonably acceptable to the Board and an independent designee of the
Class III directors reasonably acceptable to the Board and to May Davis. Adam
Goldberg and Marcel Yung are the current Subscribing Party Designee and Class
III Designee, respectively, on the Company's Board.
Directors who are employed by or serve as consultants to the Company do not
currently receive fees for their services as Directors. Outside Directors
currently receive $1,500 for each Board meeting they attend. All Directors are
reimbursed for travel and other necessary business expenses incurred in such
capacity in the performance of their services for the Company.
34
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain summary information with respect to the
compensation paid to the Company's Chief Executive Officer for services
rendered in all capacities to the Company for each of the last two fiscal
years since the Company's incorporation on August 23, 1995 and for any other
Executive Officer whose total annual salary and bonus exceeded $100,000 for
the fiscal year ending March 31, 1997. Other than the Employee Performance
Share Program described below, the Company has not issued or created any stock
appreciation rights (SARs), restricted stock awards, pension plans, retirement
plans or long-term incentive plan awards.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Name and Fiscal Year Salary ($) Bonus ($) Other Annual Securities Underlying
Principal Position Ending Compensation Options (#)
March 31, ($)
- - ------------------ ----------- ---------- --------- ------------- ---------------------
<S> <C> <C> <C> <C> <C>
Laurence Rosen, 1997 110,833 -- -- 107,490
President and
Chief Executive 1996 61,250 29,167 -- 223,158
Officer
Vladislav Rysin, 1997 90,769 68,467 (1) 87,500 (2) 100,000
Vice President of
Technology
Michael 1997 70,544 30,000 -- 64,372
Kharitonov,
Director of
Technology
</TABLE>
- -----------------
(1) This amount constitutes a pro-rated portion accrued during fiscal 1997 of
a $79,000 bonus paid to Mr. Rysin on May 18, 1997.
(2) This amount represents amortization of deferred compensation during fiscal
1997 in connection with the issuance of 100,000 options under the 1996 Stock
Option Plan based on the difference between the fair market value of the
Common Stock underlying the stock options at the time of issuance and the
exercise price of such options.
EMPLOYMENT AGREEMENTS
Effective as of September 1, 1995, the Company entered into a consulting
agreement with Jeffrey Wolf. In addition, effective as of April 5, 1996, the
Company entered into an employment agreement with Michael Kharitonov, and,
effective as of May 19, 1996, the Company entered into an employment agreement
with Vladislav Rysin. The consulting agreement with Jeffrey Wolf was amended
effective May 1, 1996. In addition, the Company's employment agreement with
Michael Kharitonov was amended effective July 1, 1996. Effective as of
September 1, 1995, the Company entered into an employment agreement with
Laurence Rosen. Effective as of June 12, 1997, the Company entered into a
severance
35
<PAGE>
agreement and related agreements with Laurence Rosen. Effective as of July 16,
1997, the Company entered into an employment agreement with John Meier.
Pursuant to the consulting agreement with Jeffrey Wolf, which was amended
effective as of May 1, 1996, Mr. Wolf received a consulting fee of $50,000 per
year through August 31, 1996 and a consulting fee of $55,000 per year for the
year commencing September 1, 1996. Mr. Wolf will receive $60,000 per year for
the year commencing September 1, 1997. In addition, Mr. Wolf received 73,860
options, 50% of which are exercisable upon the earlier of (i) the Company
achieving certain earnings standards or (ii) five years from the date of
grant. The consulting agreement will be renewed for successive one year terms
unless the Company gives 30 days prior written notice of its intention not to
renew the agreement. The consulting agreement may be terminated by the Company
upon the death of Mr. Wolf or by either party for just cause (as defined in
the consulting agreement). The consulting agreement also provides for payments
to Mr. Wolf for a nine month period following termination equal to his
consulting fee and a pro-rata portion of any additional compensation to which
he would have been entitled in the event that the consulting agreement is
terminated other than as a result of the death of Mr. Wolf, for cause or for
lack of renewal thereof. The agreement does not require Mr. Wolf to devote his
time exclusively to the Company and also subjects Mr. Wolf to certain
confidentiality and non-competitive provisions.
Pursuant to the employment agreement with Dr. Kharitonov, which was amended
effective July 1, 1996, Dr. Kharitonov received a base annual salary of
$100,000 per year through August 31, 1996, a salary of $110,000 per year for
the year commencing September 1, 1996 and will receive $120,000 per year for
the year commencing September 1, 1997. However, Dr. Kharitonov has the option
to perform work for the Company on a reduced hour basis. In the event that Dr.
Kharitonov elects to perform his duties on a reduced hour basis, his salary
shall be adjusted so that the Company shall pay him a base salary after such
election at the rate of $50,000 per annum through August 31, 1996, $55,000
from September 1, 1996 through August 31, 1997, $60,000 per annum from
September 1, 1997 through August 31, 1998 and such equal or greater amount in
each subsequent year of the term of the employment agreement as may be
determined by the Board of Directors, payable in equal installments on a
semi-monthly basis in arrears. This reduced hour option was exercised by Dr.
Kharitonov from August 16, 1996 to February 28, 1997. Further, Dr. Kharitonov
was paid a bonus of $30,000 on January 1, 1997. In addition, Dr. Kharitonov
received 55,789 options, 50% of which are exercisable upon the earlier of (i)
the Company achieving certain earnings standards or (ii) five years from the
date of grant. The employment agreement will be renewed for successive one
year terms unless the Company gives 30 days prior written notice of its
intention not to renew the agreement. The employment agreement may be
terminated by the Company upon the death of Dr. Kharitonov and by either party
or for just cause (as defined in the employment agreement). The employment
agreement also provides for payments to Dr. Kharitonov following termination
as follows: (i) so long as Dr. Kharitonov performs his duties as a full-time
employee of the Company, upon termination Dr. Kharitonov shall receive
payments equal to his base salary and a pro-rata portion of any bonus to which
he would have been entitled for a nine month period after termination in the
event that the employment agreement is terminated other than as a result of
the death of Dr. Kharitonov, for just cause (as defined in the employment
agreement) or for lack of renewal thereof, or (ii) in the event that Dr.
Kharitonov elects to perform his duties on a reduced hour basis, upon
termination Dr. Kharitonov shall receive payments equal to the amount
described above but for the entire remaining term of the employment agreement.
The agreement with Dr. Kharitonov includes certain confidentiality and
non-competitive provisions. Upon Dr. Kharitonov's promotion to President and
CEO on June 12, 1997, the Board of Directors increased his salary to $115,000
per annum.
Pursuant to the agreement with Dr. Rysin, the Company's Vice President of
Technology and Senior Software Developer and Project Manager, Dr. Rysin
received a base salary of $98,000 per year through May 18, 1997, receives
$108,000 per year for the year commencing May 19, 1997 and will receive
$118,000 per year for the year commencing May 19, 1998. In addition, Dr. Rysin
received 100,000 vested options, one-third of which became exercisable one (1)
year from the date of his employment agreement, and an additonal one-sixth of
which shall become exercisable every six months thereafter. The employment
agreement will be renewed for successive one year terms unless the Company
gives 30 days prior written notice of its intention not to renew the
agreement. The employment agreement may be terminated by the Company upon the
death of Dr. Rysin or for just cause (as defined in the employment agreement).
Further, Dr. Rysin may also
36
<PAGE>
terminate the employment agreement for just cause (as defined in the
employment agreement). The employment agreement also provides for payments to
Dr. Rysin for a nine month period following termination equal to his base
salary and a pro-rata portion of any bonus to which he would have been
entitled in the event that the employment agreement is terminated other than
as a result of the death of Dr. Rysin, for cause (as defined in the employment
agreement) or for lack of renewal thereof. Further, Dr. Rysin shall be paid a
bonus of $79,000 on the last day of the month on each of the twelfth,
twenty-fourth and thirty-sixth months of the employment agreement. The
agreement with Dr. Rysin includes certain confidentiality and non-competitive
provisions. Upon his promotion to Vice President of Technology on October 7,
1996, the Company increased Mr. Rysin's salary to $110,000 per year through
May 19, 1997, $120,000 per year through May 19, 1998 and $130,000 per year
through May 19, 1999.
The employment agreement with Mr. Rosen, the Company's President, Chief
Executive Officer, and a Director through June 12, 1997, provided, among other
things, that, Mr. Rosen receive a base salary of $105,000 per year through
August 31, 1996, and a salary of $115,000 per year for the year commencing
September 1, 1996 and $125,000 per year for the year commencing September 1,
1997. In addition, Mr. Rosen received 93,158 options, 50% of which are
exercisable upon the earlier of (i) the Company achieving certain earnings
standards or (ii) five years from the date of grant. On June 12, 1997, a
certain Severance Agreement (the "Severance Agreement") and various related
documents including a certain Consulting Agreement (the "Consulting
Agreement") between the Company and Laurence Rosen became effective. Mr. Rosen
resigned as President, Chief Executive Officer, as a member of the Board of
Directors and all other positions with the Company. Concurrently, the Company
paid Mr. Rosen $147,500. Under the Severance Agreement, the Company and Mr.
Rosen exchanged mutual releases and made provision for certain of Mr. Rosen's
stock options and benefits. Mr. Rosen also agreed not to hire, or be hired by,
directly or indirectly, any existing employees of the Company for one year.
Under the Consulting Agreement, Mr. Rosen served as a consultant to the
Company from June 12, 1997 through September 1, 1997 and was compensated at
the rate of $500 per month.
Pursuant to the employment agreement with John Meier, the Company's Executive
Vice President and Chief Operating Officer, Mr. Meier receives a salary of
$120,000 per year. In addition, Mr. Meier receives a monthly $2,000 housing
allowance and reimbursement for travel to his home in Ohio. Mr. Meier receives
12,600 stock options per year, which options vest in equal amounts on a
monthly basis (1,050 per month), and 10,000 shares under the Company's
Employee Performance Share Program, which shares shall vest in full on August
12, 1998 or a pro rata portion shall vest on the date of termination of
employment. In the event that Mr. Meier is terminated for cause, no shares
shall vest. The agreement is terminable at will by either side, with or
without cause, upon 30 days written notice. Notice of termination without
cause was given by the Company on December 8, 1997. Under the agreement, Mr.
Meier has agreed to sign the Company's standard non-compete agreement.
Currently, all of the officers of the Company perform their duties as
full-time employees of the Company.
1996 STOCK OPTION PLAN
Effective as of February 1996, the Board of Directors and stockholders of the
Company adopted a Company Stock Option Plan (the "1996 Option Plan"). The 1996
Option Plan is intended to recognize the contributions made to the Company by
key employees, Officers and Directors of the Company and to provide such
persons with additional incentive to devote themselves to the future success
of the Company. Furthermore, the 1996 Option Plan improves the ability of the
Company to attract, retain, and motivate individuals upon whom the Company's
sustained growth and financial success depend, by providing such persons with
an opportunity to acquire or increase their proprietary interest in the
Company through receipt of rights to acquire the Company's Common Stock.
The Company has reserved 800,000 shares of Common Stock for issuance upon the
exercise of options available for future grant under the 1996 Option Plan
designated as either (i) incentive stock options ("ISO's") under the Internal
Revenue Code of 1986, as amended (the "Code"), or (ii) non-qualified stock
options ("NQSO's"). ISO's may be granted under the Option Plan to employees
(including Directors) and Officers of the Company. NQSO's may be granted to
non-employee Directors, and Officers of the Company. Options relating to
approximately 700,000 shares of common stock
37
<PAGE>
have been granted under the 1996 Option Plan. In addition, the Company has
agreed to issue 60,000 options to a newly hired employee, although such
options have not yet been formally granted. Some of the 700,000 options have
vested, while the remainder are not vested.
NON-PLAN STOCK OPTIONS
The Company has issued options to purchase an aggregate of 260,000 shares of
Common Stock (the "Non-Plan Options") outside of the Option Plan to certain
Executive Officers, non-employee Directors and consultants. All of such
Non-Plan Options have vested. Fifty percent of such options became exercisable
on February 28, 1997, and the remaining 50% of such Non-Plan Options become
exercisable on the earlier of (i) the Company achieving an after-tax net
income of at least $1,250,000 for a full fiscal year or (ii) five years
following their date of grant.
EMPLOYEE PERFORMANCE SHARE PROGRAM
On February 27, 1997, the Company's Board of Directors adopted the NetLive
Communications, Inc. Performance Share Program, an employee deferred
compensation plan (the "Performance Plan"). The purpose of the Performance
Plan is to provide an incentive for, and to help retain, the Company's
employees and to facilitate hiring new employees. The Company also entered
into a Trust Agreement whereby the Performance Share Program Trust (the
"Trust") was created and issued 300,000 shares of the Company's Common Stock
to the Trust. Prior to vesting and distribution to the applicable employee(s),
the shares will be voted by the independent trustee of the Trust, Mr. R.
Andrew Lee. As of December 1, 1997, awards relating to an aggregate of 116,000
shares of common stock had been made to employees and, of such 116,000 shares,
awards relating to 28,000 shares of common stock were forfeited due to
employee departures. Thus, the awards outstanding net of awards forfeited
aggregated 88,000 shares of common stock as of December 1, 1997.
1997 STOCK OPTION PLAN
On October 8, 1997, the stockholders of the Company adopted the Company's 1997
Stock Option Plan (the "1997 Option Plan"). The 1997 Option Plan is intended
to recognize the contributions made to the Company by key employees, Officers
and Directors of the Company and to provide such persons with additional
incentive to devote themselves to the future success of the Company.
Furthermore, the 1997 Option Plan improves the ability of the Company to
attract, retain, and motivate individuals upon whom the Company's sustained
growth and financial success depend, by providing such persons with an
opportunity to acquire or increase their proprietary interest in the Company
through receipt of rights to acquire the Company's Common Stock.
The Company has reserved 600,000 shares of Common Stock for issuance upon the
exercise of options available for future grant under the 1997 Option Plan
designated as either (i) incentive stock options ("ISO's") under the Internal
Revenue Code of 1986, as amended (the "Code"), or (ii) non-qualified stock
options ("NQSO's"). ISO's may be granted under the Option Plan to employees
(including Directors) and Officers of the Company. NQSO's may be granted to
non-employee Directors, and Officers of the Company. The Company has agreed to
issue 40,000 options to a newly hired employee, although such options have not
yet been formally granted. No options have been granted yet under the 1997
Option Plan.
The Company intends to file a Form S-8 registration statement between May 14,
1998 and August 12, 1998 to register some or all of 300,000 shares of Common
Stock issued under the Company's Employee Performance Share Program, which
may be awarded to various designees now or hereafter selected The Company is
also considering registering after May 14, 1998, in the same or a separate
Form S-8 registration statement, some or all of 1,060,000 shares of Common
Stock subject to outstanding options under the Company's 1996 Employee Stock
Option or otherwise.
38
<PAGE>
The following table sets forth the information with respect to options issued
to the Company's Executive Officers about whom disclosure is required during
the fiscal year ended March 31, 1997:
<TABLE>
OPTION GRANTS DURING FISCAL YEAR ENDED MARCH 31, 1997
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES AND MARKET PRICE
OPTIONS/SARS DIRECTORS IN EXERCISE ON DATE OF
NAME GRANTED (#) FISCAL YEAR (%) PRICE ($) GRANT ($) EXPIRATION DATE
- - ---- ------------- --------------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Vladislav Rysin 100,000 (1) 46.5 2.50 5.50 5/19/01
All Directors and
Employees As a
Group 215,000 100.0
</TABLE>
- ---------------------
(1) All of such options are NQSO's granted under the Option Plan.
The following table sets forth the information with respect to options held by
the Company's Executive Officers about whom disclosure is required at the end
of the fiscal year ended March 31, 1997. The share closing price on March 31,
1997 for the Company's Common Stock was $6.875.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
NUMBER OF NUMBER OF
SECURITIES VALUE OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED UNDERLYING UNEXERCISED IN-
UNEXERCISED, IN-THE-MONEY UNEXERCISED, THE-MONEY
EXERCISEABLE EXERCISEABLE UNEXERCISEABLE UNEXERCISEABLE
OPTIONS AT OPTIONS AT OPTIONS AT FY OPTIONS AT FY
NAME FY END (#) FY END ($) END (#) END ($)
- - ---- ------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
LAURENCE 46,579 203,783 284,069 856,637
ROSEN
MICHAEL 27,895 122,040 162,266 563,360
KHARITONOV
VLADISLAV -- -- 100,000 437,500
RYSIN
</TABLE>
39
<PAGE>
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Delaware General Corporation Law contains various provisions entitling
directors, officers, employees or agents of the Company to indemnification
from judgments, fines, amounts paid in settlement and reasonable expenses,
including attorneys's fees, as the result of an action or proceeding (whether
civil, criminal, administrative or investigative) in which they may be
involved by reason of being or having been a director, officer, employee or
agent of the Company provided said persons acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interest of the
Company (and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that the conduct complained of was unlawful). The
By-Laws of the Company provide that the indemnification provisions of any
applicable law are to be utilized to the fullest extent permitted.
LIMITATION ON LIABILITY OF DIRECTORS
The Delaware General Corporation Law permits a corporation, through its
Certificate of Incorporation, to exonerate its directors from personal
liability to the corporation, or to its stockholders, for monetary damages for
breach of fiduciary duty of care as a director, with certain exceptions. The
exceptions include a breach of the director's duty of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, improper declarations of dividends, and transactions from
which the directors derived an improper personal benefit. The Company's
Certificate of Incorporation exonerates its directors from monetary liability
to the extent permitted by this statutory provision. The Company has been
advised that it is the position of the Securities and Exchange Commission that
insofar as the foregoing provision may be invoked to disclaim liability for
damages arising under the Act, that provision is against public policy as
expressed in the Act and is therefore unenforceable.
40
<PAGE>
PRINCIPAL STOCKHOLDERS
Based on information filed on Schedule 13D with the Commission, relating to a
March 11, 1997 reporting date, a "group" consisting of Laurence Rosen, Jeffrey
Wolf, Michael Kharitonov, Andrew Schwartz and Scott Wolf (individually a
"Founder," and collectively the "Founders" or the "Founders Group") entered
into a certain Stockholders' Agreement dated March 8, 1997 (the Stockholders'
Agreement") that provides, among other things, that each of the Founders will
vote all of the Company's securities then owned in the manner approved in
writing by a majority of such securities then owned by all of the Founders in
the aggregate. The Stockholders' Agreement further provides that no transfer
of the Company's securities by any of the Founders shall be effective, and no
transferee will be entitled to vote such securities or any other indices of
ownership, unless and until such transferee agrees in writing to be bound by
the terms and conditions of the Stockholders' Agreement. The Stockholders'
Agreement terminates upon a merger, the dissolution of the Company, the
written agreement of any subset of Founders owning 51% of the securities owned
by the Founders in the aggregate or August 12, 1998, whichever occurs
earliest. In such Schedule 13D, the Founders disclaimed beneficial ownership
of the securities owned by other Founders and disclaimed that they were a
single reporting entity for any other purpose. The Company believes that the
Founders, as of November 1, 1997, beneficially own an aggregate of 49.6% of
Common Stock outstanding as calculated for purposes of Section 13(d)(3) of the
Exchange Act, which includes options either currently exercisable or
exercisable in the next 60 days for 512,085 shares of Common Stock.
The Company has been advised that Michael Kharitonov, Andrew Schwartz and
Jeffrey Wolf (collectively the "Affiliated Founders") have entered into a
second stockholders agreement, dated November 12, 1997 (the "Second
Agreement"), that provides, among other things, that for any approval of
voting required under the Stockholder Agreement, each of the Affiliated
Founders will vote all of the Company's securities then owned in the manner
approved in writing by a majority of such securities then owned by all of the
Affiliated Founders in the aggregate. The Second Agreement further provides
that no transfer of the Company's securities by any of the Affiliated Founders
shall be effective, and no transferee will be entitled to vote such securities
or any other indices of ownership, unless and until such transferee agrees in
writing to be bound by the terms and conditions of the Second Agreement. The
Second Agreement terminates upon a merger, the dissolution of the Company, the
written agreement of any subset of Affiliated Founders owning 51.0% of the
securities owned by the Affiliated Founders in the aggregate or August 12,
1998, whichever occurs earliest. The Affiliated Founders have not yet filed a
Schedule 13D regarding the Second Agreement. The Company believes that the
Affiliated Founders, as of December 1, 1997, beneficially owned an aggregate
of 29.5% of Common Stock outstanding as calculated for purposes of Section
13(d)(3) of the Exchange Act, which includes options either currently
exercisable or exercisable in the next 60 days for 274,419 shares of Common
Stock.
As of November 1, 1997, R. Andrew Lee, 2100 Connecticut Avenue, N.W, Suite
705, Washington, D.C. 20008, held as Trustee of the NetLive Communications,
Inc. Performance Share Trust (the "Trust") established under the NetLive
Communications, Inc. Performance Share Program Plan (the "Plan") 300,000
shares of Common Stock. The Trustee exercises sole voting and dispositive
power over such shares.
Based on information filed on Schedule 13D with the Commission, a "group"
consisting of May Davis Group, Inc., Owen May, Dibo Attar and Dennis Sal (the
"May Davis Group") beneficially own an aggregate of 19.0% of the shares of
Common Stock outstanding (which includes 500,000 shares subject to warrants)
for purposes of Section 13(d)(3) of the Exchange Act. Mr. Attar, who reported
ownership of no shares personally, reported shared ownership of 555,000 shares
beneficially owned by certain funds. The disclosure required pursuant to
Schedule 13D describes voting power and Mr. Attar has disclaimed beneficial
ownership of such shares for other purposes. The Company has been advised by
May Davis Group, Inc. that, because of recent sales of Company Common Stock,
ownership by the May Davis Group has been reduced by approximately 250,000
shares. To the Company's knowledge, no amended Schedule 13D has been filed by
May Davis Group regarding the sale of such shares.
In addition to those set forth above, the table below lists all Directors and
Executive Officers of the Company and any person known by the Company
(including any "group") who is known to the Company to be the beneficial owner
of more
41
<PAGE>
than five percent of the Company's Common Stock as of December 1, 1997. Except
as otherwise stated, all persons named have sole voting and investment power
over the shares reported as owned.
<TABLE>
<CAPTION>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
NAME & ADDRESS AMOUNT AND NATURE PERCENT OF
BENFICIAL OWNER OF BENEFICIAL OWNER CLASS
(SHARES)
- - --------------- ----------- ---------
<S> <C> <C>
Laurence Rosen, 567,319(1)(10) 17.9%
94 Hudson St.,
Hoboken, NJ 07030
Jeffrey Wolf, 443,705(2)(10) 14.4%
230 Central Park West
New York, NY 10024
Michael Kharitonov, 393,477(3)(10) 12.8%
145 West 71st St., Apt. 4F
New York, NY 10023
Scott Wolf, 196,071(4) 6.6%
2501 Irving Ave. South
Minneapolis, MN 55405
Andrew J. Schwartz, 115,412(5) 3.9%
444 East 86th St., Apt. 27E
New York, NY 10028
Vladislav Rysin, 50,000(6) 1.7%
240 Prospect, #L-89,
Hackensack, NJ 07601
John E. Meier, 20,250(7) 0.7%
1915 Brandywine Dr.,
Columbus, OH 43220
Adam Goldberg, 10,000(8) 0.3%
330 16th Street
Brooklyn, NY 11215
Michael E. Wolf, 10,000(8) 0.3%
135 Wooster Street, #6
New York, NY 10012
Marcel M. Yung, 10,000(8) 0.3%
605 West 112th Street
New York, NY 10025
Directors and Officers 1,052,844(9) 31.7%
as a Group (8 persons)
</TABLE>
42
<PAGE>
- --------------
(1) Includes options either currently exercisable or exercisable in the next
60 days for 219,069 shares of Common Stock. These shares are also included
within, and constitute a portion of, the Founder Group shares described above.
(2) Includes options either currently exercisable or exercisable in the next
60 days for 122,152 shares of Common Stock. These shares are also included
within, and constitute a portion of, the Founder Group shares described above.
(3) Includes options either currently exercisable or exercisable in the next
60 days for 127,267 shares of Common Stock. These shares are also included
within, and constitute a portion of, the Founder Group shares described above.
(4) Includes options either currently exercisable or exercisable in the next
60 days for 18,597 shares of Common Stock. These shares are also included
within, and constitute a portion of, the Founder Group shares described above.
(5) Includes options either currently exercisable or exercisable in the next
60 days for 25,000 shares of Common Stock. These shares are also included
within, and constitute a portion of, the Founder Group shares described above.
(6) Includes options either currently exercisable or exercisable in the next
60 days for 50,000 shares of Common Stock.
(7) Includes options either currently exercisable or exercisable in the next
60 days for 20,250 shares of Common Stock.
(8) Includes options either currently exercisable or exercisable in the next
60 days for 10,000 shares of Common Stock
(9) Includes options either currently exercisable or exercisable in the next
60 days for 374,669 shares of Common Stock.
(10) May be deemed to be a "parent" and "promoter" of the Company as defined
in the Rules and Regulations of the Commision promulgated under the Act.
CERTAIN TRANSACTIONS
The Company was originally incorporated under the laws of the State of
Delaware under the name of NetVisions Incorporated and subsequently changed
its name to NetLive Communications, Inc. In September 1995, December 1995 and
January 1996, certain Executive Officers, Directors and/or principal
shareholders of the Company purchased shares of Common Stock for an aggregate
consideration of $6,750, $22,890 and $1.00, respectively. The following table
indicates the number of shares of Common Stock purchased by such persons and
the date of such purchases:
<TABLE>
<CAPTION>
Number of Number of Number of
Shares Shares Shares
Purchased In Purchased in Purchased in
Name September 1995 December 1995 January 1996
- - -------------------------------------------- ----------------- ---------------- ----------------
<S> <C> <C>
Scott Wolf................................... 132,268 45,206
Laurence Rosen............................... 263,699 88,737 1,674
Jeffrey Wolf................................. 263,699 88,737
Andrew Schwartz.............................. 45,206 45,206
Michael Kharitonov........................... 132,268 132,268 1,674
</TABLE>
In February 1996, Mr. Robert Friedman purchased 41,857 shares of the Company's
Common Stock for an aggregate consideration of $50,000. In addition, in
February 1996, Mr. Robert Friedman purchased 5,860 and 10,883 shares of the
Company's Common Stock from Messrs. Laurence Rosen and Jeffrey Wolf,
respectively. In February 1996, Mr. Laurence Rosen purchased 90,412 shares of
the Company's Common Stock from Mr. Andrew Schwartz. In December 1996, Mr.
Rosen and Mr. Schwartz rescinded their February 1996 transaction. An agreement
between Messrs. Rosen, Jeffrey Wolf, Scott Wolf, Kharitonov and Schwartz and
an agreement between Messrs. Jeffrey Wolf, Kharitonov and Schwartz relating to
the voting and transfer of these shares has been reported. See "Principal
Stockholders." Certain members of the
43
<PAGE>
Company's Board have been nominated pursuant to a certain Voting Agreement
dated June 12, 1997. See "Management."
The Company believes that all transactions with Officers, Directors and
principal shareholders and their affiliates were made on terms no less
favorable to the Company than those available from unaffiliated parties. In
addition, the Company has a policy that all transactions, including loans
between the Company and its Officers, Directors, principal stockholders and
their affiliates must be approved by a majority of the Board of Directors,
including a majority of the independent and disinterested outside Directors on
the Board of Directors, and will be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 19,000,000 shares of Common Stock,
$.0001 par value per share. The holders of Common Stock are entitled to
receive dividends equally when, as and if declared by the Board of Directors,
out of funds legally available therefor.
The holders of the Common Stock have sole voting rights, one vote for each
share held of record, and are entitled upon liquidation of the Company to
share ratably in the net assets of the Company available for distribution.
Shares of the Company's Common Stock do not have cumulative voting rights and
vote as a class on all matters requiring stockholder approval. Therefore, the
holders of a majority of the shares of Common Stock may elect all of the
directors of the Company, control its affairs and day to day operations. The
shares of Common Stock are not redeemable and have no preemptive or similar
rights. All outstanding shares of the Company's Common Stock are fully paid
for and non-assessable.
WARRANTS
Each Warrant entitles its holder to purchase one share of Common Stock at an
exercise price of $5.50 per share, subject to adjustment, from August 12, 1998
until August 12, 2001.
The Warrants were issued pursuant to a warrant agreement (the "Warrant
Agreement") among the Company, May Davis and American Stock Transfer & Trust
Co., the warrant agent, and are evidenced by warrant certificates in
registered form.
The exercise price of the Warrants and the number and kind of shares of Common
Stock or other securities and property issuable upon exercise of the Warrants
are subject to adjustment in certain circumstances, including stock splits,
stock dividends, subdivisions, combinations, reclassification, or issuances of
stock at a price lower than the current market price. Additionally, an
adjustment will be made upon the sale of all or substantially all of the
assets of the Company in order to enable the holders of the Warrants to
purchase the kind and number of shares of stock or other securities or
property (including cash) receivable in such event by a holder of the number
of shares of Common Stock that might otherwise have been purchased upon
exercise of the Warrants.
The Warrants do not confer upon the holder any voting or any other rights of a
stockholder of the Company. Upon notice to the holders of the Warrants, the
Company has the right to reduce the exercise price or extend the expiration
date of the Warrants.
Warrants may be exercised upon surrender of the Warrant certificate evidencing
those Warrants on or prior to the expiration date (or earlier redemption date)
of the Warrants to the Warrant Agent, with the form of "Election to Purchase"
on the reverse side of the Warrant certificate completed and executed as
indicated, accompanied by payment of the full
44
<PAGE>
exercise price (in United States funds, by cash or certified bank check
payable to the order of the Warrant Agent) for the number of Warrants being
exercised.
No fractional shares will be issued upon exercise of the Warrants. However, if
a holder of a Warrant exercises all Warrants then owned of record by him, the
Company will pay to that holder, in lieu of the issuance of any fractional
share which would otherwise be issuable, an amount in cash based on the market
value of the Common Stock on the last trading day prior to the exercise date.
No Warrant will be exercisable unless at the time of exercise the Company has
filed with the Commission a current prospectus covering the issuance of shares
of Common Stock issuable upon exercise of the Warrants and the issuance of
shares has been registered or qualified or is deemed to be exempt from
registration or qualification under the securities laws of the state of
residence of the holder of the Warrant. The Company has undertaken to use its
best efforts to maintain a current prospectus relating to the issuance of
shares of Common Stock upon the exercise of the Warrants until the expiration
of the Warrants, subject to the terms of the Warrant Agreement. While it is
the Company's intention to maintain a current prospectus, there is no
assurance that it will be able to do so. See "Risk Factors--Current Prospectus
and State Blue Sky Registration Required to Exercise Warrants."
The Warrants are redeemable, in whole or in part, by the Company at a price of
$.05 per Warrant, commencing August 12, 1997 and prior to their expiration,
provided that (i) prior written notice of not less than 30 days is given to
the Warrantholders, (ii) the closing bid price (as defined) of the Company's
Common Stock for the twenty consecutive trading days immediately prior to the
date on which the notice of redemption is given, shall have exceeded $7.50 per
share, and (iii) Warrantholders shall have exercise rights until the close of
business the day preceding the date fixed for redemption. The Warrants shall
be exercisable until the close of the business day preceding the date fixed
for redemption. In addition, subject to the rules of the NASD, the Company has
agreed to engage the May Davis as warrant solicitation agent, in connection
with which it would be entitled to a 5% fee upon exercise of the Warrants.
PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of "blank check" Preferred
Stock par value $.0001 per share ("Preferred Stock"). The Preferred Stock may
be issued from time to time, in one or more series, upon authorization by the
Company's Board of Directors. The Board of Directors, without further approval
of the stockholders, will be authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights and terms, liquidation
preferences, and any other rights, preferences, privileges and restrictions
applicable to each series of Preferred Stock. The issuance of Preferred Stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, adversely affect the voting
power of the holders of the Common Stock and, under certain circumstances,
make it more difficult for a third party to gain control of the Company,
discourage bids for the Company's Common Stock at a premium or otherwise
adversely affect the market price of the Common Stock. As of the date hereof,
the Company is negotiating a potential transaction with an investment bank
that involves the issuance of preferred stock.
TRANSFER AGENT AND WARRANT AGENT
The Transfer Agent for the Company's Common Stock and the Warrant Agent for
the Company's A Warrants is American Stock Transfer & Trust Co., New York, New
York.
SHARES ELIGIBLE FOR FUTURE SALE
The Company currently has 1,707,300 shares of Common Stock outstanding that
are "restricted securities", as that term is defined under Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities
Act"). In general, under Rule 144, a person who has satisfied a certain
holding period may, under certain circumstances, sell within any three month
period a number of shares of Common Stock that does not exceed the greater of
1% of the then outstanding
45
<PAGE>
shares of Common Stock or the average weekly trading volume in such shares
during the four calendar weeks prior to such sale. The holding period is one
year for non-affiliates and two years for affiliates of the Company. Rule 144
also permits, under certain circumstances, the sale of shares without any
quantity or other limitation by a person who is not an affiliate of the
Company and who has satisfied a two-year holding period.
Management believes that all persons who purchased stock of the Company prior
to its initial public ("IPO") offering have agreed with May Davis, its
underwriter for the IPO, not to publicly sell shares of the Company's Common
Stock until August 12, 1998. Certain of such stockholders have been released
from their lock-up agreements by May Davis. This registration statement
includes the registration of 183,400 of the above-mentioned 1,707,300 shares,
as well as 35,300 Warrants, and, if approved by the Commission, would make
those 183,400 shares of Common Stock and 35,300 Warrants eligible for
immediate re-sale. Other than Dennis Sal, who served as a Director, none of
the holders of such securities or their affiliates has ever held any position
or office with the Company or had any other material relationship with the
Company.
Furthermore, the Company intends to file a Form S-8 registration statement
between May 14, 1998 and August 12, 1998 to register some or all of 300,000
shares of Common Stock issued under the Company's Employee Performance Share
Program and which may be awarded to various designees now or hereafter
selected. The Company is also considering registering after May 14, 1998, in
the same or a separate Form S-8 registration statement, some or all of
1,060,000 shares of Common Stock subject to outstanding options under the
Company's 1996 Employee Stock Option or otherwise. The sale of a substantial
number of shares of Common Stock in the public market could adversely affect
the market price for the Company's Common Stock.
UNDERWRITING
There is no underwriter or coordinating broker acting in connection with the
proposed sale of Common Stock and Warrants by the Market Re-Sellers.
While certain of the officers of May Davis have significant experience in
corporate finance and the underwriting of securities, May Davis did not
underwrite any public offerings prior to the Company's IPO. No assurance can
be given that May Davis's limited public offering experience will not affect
the development of a trading market.
The underwriting agreement provides for reciprocal indemnification between the
Company and May Davis against certain civil liabilities, including liabilities
under the Securities Act of 1933.
The Company sold to May Davis, at a price of $10, the Underwriters Warrants,
which entitle May Davis to purchase up to 95,000 shares of Common Stock of the
Company and/or 73,000 Warrants, respectively. The Underwriter's Warrants are
exercisable at a price of $6.60 per share and $.12 per Warrant, respectively,
for a period of four years commencing August 12, 1997, and they are not
transferable except to underwriters and selected dealers and officers and
partners thereof. May Davis has orally advised the Company of its intention to
exercise the portion of the Underwriter's Warrants relating to the 73,000
Warrants; no formal notice of exercise, however, has been received by the
Company. Any profit realized upon any resale of the Underwriter's Warrants or
upon any sale of the shares of Common Stock or Warrants underlying same may be
deemed to be additional underwriter's compensation. The Company has agreed to
register (or file a post-effective amendment with respect to any registration
statement registering), for a period of five years from the effective date of
this offering, the Underwriter's Warrants and the underlying securities under
the Securities Act at its expense on one occasion, and at the expense of the
holders thereof on another occasion, upon the request of a majority of the
holders thereof. The Company has also agreed to certain "piggy-back"
registration rights for the holders of the Underwriter's Warrants and the
underlying securities. Such piggy-back registration rights will expire seven
years from the effective date of this offering.
On June 12, 1997, the Company entered into a Voting Agreement with May Davis,
Owen May, Dibo Attar, Dennis Sal and seven investment funds as to which Mr.
Attar acts as advisors (the "Funds", and together with May Davis and Messrs.
May, Attar, and Sal, collectively, the "Subscribing Parties"), in which, among
other things, the Company agreed that, for
46
<PAGE>
the three year term of the Voting Agreement, the Board will include as a
nominee for election to the Board a designee of the Subscribing Parties
reasonably acceptable to the Board. Adam Goldberg is the current Subscribing
Party Designee on the Company's Board. See "Management."
May Davis has informed the Company that they do not expect sales of shares and
the Class A Warrants to be made to discretionary accounts to exceed 1% of the
shares of Common Stock and Warrants offered hereby.
The Company will pay May Davis a commission equal to five percent (5%) of the
exercise price of the Warrants exercised, of which a portion may be reallowed
to any dealer who solicited the exercise, provided that (i) at the time of
exercise the market price of the Common Stock is greater than the exercise
price of the Warrants, (ii) the exercise of the Warrants was solicited by May
Davis, (iii) the Warrants exercised are not held in discretionary accounts,
(iv) disclosure of the compensation arrangements have been made both at the
time of this Offering and at the time of exercise, and (v) the solicitation of
the exercise of the Warrants is not in violation of Rule 10b-6 under the
Securities Exchange Act of 1934. The Company has agreed not to solicit the
exercise of the Warrants other than through May Davis.
Management believes that stockholders of the Company agreed with May Davis
that they will not sell any shares of Common Stock to the public for a period
of twenty-four months. Since August 12, 1997, such stockholders have been
eligible for release from their lock-up agreements with the prior written
consent of May Davis, and certain of such stockholders have been so released.
The Company has entered into an agreement with May Davis to retain them as a
financial consultant for a period of three years from the date of the initial
public offering. May Davis's fee is $90,000 for such services, which amount
has already been paid in full.
47
<PAGE>
PLAN OF DISTRIBUTION
There is no underwriter or coordinating broker acting in connection with the
proposed re-sale of Common Stock and Warrants. The securities registered
hereby and described in this prospectus may be sold by the owners from time to
time through dealers or brokers in transactions on NASDAQ OverThe-Counter
market (Small Cap) at prices then prevailing, or directly to one or more
purchasers in negotiated transactions at negotiated prices, or in a
combination thereof. The Company is not aware of any agreements or
arrangements on the part of any person concerning the sale of any of the
securities registered hereby. The Company, at the request of any person
intending to sell any of the securities registered hereby, will deliver copies
of this prospectus, at no cost or charge, to such persons.
CONCURRENT REGISTRATION OF SECURITIES
Concurrently with this Offering, 183,400 shares of Common Stock and 35,300
Warrants have been registered under the Securities Act for immediate resale.
Aside from Dennis Sal, who served as a director of the Company during August
1997, none of the holders of such securities or their affiliates has ever held
any position or office with the Company or had any other material relationship
with the Company. The holders of such securities have agreed with May Davis
not to sell any of the registerable securities until August 12, 1998; however,
several of such stockholders have been released from such agreements by May
Davis.
48
<PAGE>
LEGAL MATTERS
The legality of the shares offered hereby was passed upon for the Company by
Gusrae, Kaplan & Bruno, Esqs., New York, New York. The firm of Gusrae, Kaplan
& Bruno owns 17,500 shares of the Common Stock of the Company, which shares
have been registered in the concurrent registration.
EXPERTS
The financial statements of the Company at March 31, 1997 and for the year
then ended and for the period from August 23, 1995 (date of inception) to
March 31, 1996 included in this Prospectus have been included in reliance upon
the report of Goldstein Golub Kessler & Company, P.C., independent certified
public accountants, given upon the authority of said firm as experts in
auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Commission in Washington, D.C., a Registration
Statement on Form SB-2 under the 1933 Act with respect to the Common Stock
offered by this Prospectus. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto.
For further information with respect to the Company and the Company's Common
Stock, reference is made to the Registration Statement and such exhibits.
Statements in the Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. The Company is subject to the informational
requirements of the Exchange Act, and in accordance therewith, files reports
and other information with the Commission. The Registration Statement, the
exhibits thereto and such reports and other information may be inspected by
anyone without charge at the principal office of the Commission at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and copies of all or any part of it may be obtained from the
Commission upon payment of a prescribed fee. As of the date of this
Prospectus, the Company's Common Stock and Warrants are quoted on the NASDAQ
Stock Market and reports and other information concerning the Company may also
be inspected and copied at the office of the NASDAQ Stock Market, Inc., NASDAQ
Operations, 1735 K Street, N.W., Washington, D.C. 20549. The Commission also
maintains a web site that contains reports, proxy and information statements
and other information that may be obtained electronically by using the
Commission's Web Site on the Internet at http://www.sec.gov. The Company will
provide without charge to each person who receives a copy of the Prospectus,
upon written or oral request of such person, a copy of any of the information
that is incorporated by reference in this Prospectus (not including exhibits
to the information that is incorporated by reference unless the exhibits are
themselves specifically incorporated by reference). Such request should be
directed to the Company, 584 Broadway, Suite 806, New York, NY 10012,
Attention: Andrew Schwartz.
49
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
INDEX TO FINANCIAL STATEMENTS
Independent Auditor's Report F-1
Balance Sheet at March 31, 1997 (audited) and
September 30, 1997 (unaudited) F-2
Statement of Operations for the period from August 23, 1995 (date of
inception) to March 31, 1996 (audited), for the year ended March 31,
1997 (audited), for the six month periods ended September 30, 1996 and
September 30, 1997 (unaudited), and for the period from from August 23,
1995 (date of inception) to September 30, 1997 (unaudited) F-3
Statement of Stockholders' Equity for the period from August 23, 1995
(date of inception) to March 31, 1997 (audited) and for the six month
period ended
September 30, 1997 (unaudited) F-4 - F-5
Statement of Cash Flows for the period from August 23, 1995 (date of
inception) to March 31, 1996 (audited), for the year ended March 31,
1997 (audited), for the six month periods ended September 30, 1996 and
September 30, 1997 (unaudited), and for the period from from August 23,
1995 (date of inception) to September 30, 1997 (unaudited) F-6
Notes to Financial Statements F-7 - F-18
</TABLE>
50
<PAGE>
NETLIVE COMMUNICATIONS, INC.
FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT F-1
FINANCIAL STATEMENTS:
Balance Sheet F-2
Statement of Operations F-3
Statement of Stockholders' Equity F-4 - F-5
Statement of Cash Flows F-6
Notes to Financial Statements F-7 - F-18
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
NetLive Communications, Inc.
We have audited the accompanying balance sheet of NetLive Communications, Inc.
(a development stage company) as of March 31, 1997 and the related statements
of operations, stockholders' equity, and cash flows for the year then ended
and for the period from August 23, 1995 (date of inception) to March 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with 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 audits provide 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 NetLive Communications, Inc.
as of March 31, 1997 and the results of its operations and its cash flows for
the year then ended and for the period from August 23, 1995 (date of
inception) to March 31, 1996 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 10 to the
financial statements, the Company has had limited operations and a deficit
accumulated during the development stage that raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 10. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
April 28, 1997
F-1
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
- -------------------------------------------------------------------------------
MARCH 31, SEPTEMBER 30,
1997 1997
- -------------------------------------------------------------------------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents (Note 1) $ 32,958 $ 733,986
Marketable securities (Notes 1 and 3) 2,984,826 994,735
Prepaid expenses and other current assets 32,435 82,822
- -------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,050,219 1,811,543
Property and Equipment, net (Notes 1 and 4) 93,853 114,772
Capitalized Software Development Costs (Note 1) - 322,562
Deferred Income Tax Asset, net of valuation
allowance of $340,000 and $438,000, respectively
(Notes 1 and 7) - -
Other Assets (Note 1) 50,112 35,746
===============================================================================
TOTAL ASSETS $ 3,194,184 $ 2,284,623
===============================================================================
LIABILITY AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Current Liability - accounts payable and
accrued expenses (Note 8) $ 414,633 $ 159,637
- -------------------------------------------------------------------------------
Commitments and Contingencies (Note 8)
Stockholders' Equity (Notes 2, 5, 6 and 9):
Preferred stock - $.0001 par value;
authorized 1,000,000 shares, none issued - -
Common stock - $.0001 par value; authorized
19,000,000 shares, issued and outstanding
2,950,000 shares 295 295
Additional paid-in capital 5,996,948 5,864,448
Deficit accumulated during the
development stage (2,288,588) (3,055,110)
Deferred compensation (Note 9) (929,104) (684,647)
- -------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 2,779,551 2,124,986
- -------------------------------------------------------------------------------
TOTAL LIABILITY AND STOCKHOLDERS' EQUITY $ 3,194,184 $ 2,284,623
===============================================================================
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-2
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
AUGUST 23, 1995 SIX-MONTH SIX-MONTH AUGUST 23, 1995
(DATE OF INCEPTION) YEAR ENDED PERIOD ENDED PERIOD ENDED (DATE OF INCEPTION)
TO MARCH 31, MARCH 31, SEPTEMBER 30, SEPTEMBER 30, TO SEPTEMBER 30,
1996 1997 1996 1997 1997
- ----------------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)
Net revenue - $ 7,689 - $ 10,256 $ 17,945
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selling, general and administrative expenses:
Salaries (Note 8) $ 160,714 477,019 $ 192,176 233,081 870,814
Research and development - 568,855 133,980 - 568,855
Professional fees 27,812 374,516 61,909 272,235 674,563
Rent (Note 8) 9,724 48,478 22,849 14,063 72,265
Depreciation and amortization 4,727 28,547 11,611 24,722 57,996
Interest expense and financing costs 5,189 190,934 169,932 - 196,123
Interest and dividend income - (113,686) - (51,805) (165,491)
Other 34,963 478,485 107,983 284,482 797,930
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 243,129 2,053,148 700,440 776,778 3,073,055
- ----------------------------------------------------------------------------------------------------------------------------------
Net loss $ (243,129) $(2,045,459) $ (700,440) $ (766,522) $ (3,055,110)
==================================================================================================================================
Net loss per common share $ (.16) $ (.75) $ (.30) $ (.26)
==================================================================================================================================
Weighted average number of common shares
outstanding (Note 1) 1,543,385 2,733,821 2,348,292 2,950,000
==================================================================================================================================
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-3
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM AUGUST 23, 1995 (DATE OF INCEPTION) TO SEPTEMBER 30, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEFERRED OFFERING
DEFICIT COSTS RELATING TO
ACCUMULATED COMMON STOCK
COMMON STOCK ADDITIONAL DURING THE DEFERRED ISSUED FOR
NUMBER PAID-IN DEVELOPMENT COMPEN- SERVICES RELATED
DATE OF SHARES AMOUNT CAPITAL STAGE SATION TO INTENDED IPO
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock for cash 9/02/95 837,140 $ 84 $ 6,666 - - -
12/18/95 400,154 40 22,850 - - -
1/11/96 3,349 - - - - -
2/01/96 41,857 4 49,996 - - -
Contributed property and
equipment and expenses
paid by stockholders,
contributed to the
Company (Note 9) - - 30,296 - - -
Issuance of common
stock for services
related to intended IPO 2/19/96 17,500 2 14,873 - - $(14,875)
Issuance of common stock
in connection with private
placement (Note 5) 3/20/96 200,000 20 149,980 - - -
Issuance of warrants in
connection with private
placement (Note 5) 3/20/96 - - 15,000 - - -
Net loss - - - $ (243,129) - -
- -------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 1,500,000 150 289,661 (243,129) - (14,875)
Issuance of common stock
in connection with
private placement
(Note 6) 5/09/96 200,000 20 376,009 - - -
Issuance of options to
purchase common stock
in connection with an
employment agreement
(Note 9) 5/19/96 - - 300,000 - $(212,500) -
Issuance of common stock
in connection with IPO
(Note 2) 8/12/96 950,000 95 4,302,558 - - 14,875
Issuance of common stock
to trustee under the
performance share program
(Note 9) 3/07/97 300,000 30 (30) - - -
Awards aggregating 106,000
shares of common stock to
employees under the
performance share program
(Note 9) 3/07/97 - - 728,750 - (716,604) -
Net loss - - - (2,045,459) - -
- -------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 2,950,000 295 5,996,948 (2,288,588) (929,104) -
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRICE
STOCKHOLDERS' PER
EQUITY SHARE
- ------------------------------------------------
<S> <C> <C>
Issuance of common
stock for cash $ 6,750 $ .01
22,890 .06
- -
50,000 1.19
Contributed property and
equipment and expenses
paid by stockholders,
contributed to the
Company (Note 9) 30,296 -
Issuance of common
stock for services
related to intended IPO - .85
Issuance of common stock
in connection with private
placement (Note 5) 150,000 .75
Issuance of warrants in
connection with private
placement (Note 5) 15,000 -
Net loss (243,129) -
- -----------------------------------------------
Balance at March 31, 1996 31,807 -
Issuance of common stock
in connection with
private placement
(Note 6) 376,029 2.50
Issuance of options to
purchase common stock
in connection with an
employment agreement
(Note 9) 87,500 -
Issuance of common stock
in connection with IPO
(Note 2) 4,317,528 5.50
Issuance of common stock
to trustee under the
performance share program
(Note 9) - -
Awards aggregating 106,000
shares of common stock to
employees under the
performance share program
(Note 9) 12,146 6.875
Net loss (2,045,459) -
- -----------------------------------------------
Balance at March 31, 1997 2,779,551 -
(continued)
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-4
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM AUGUST 23, 1995 (DATE OF INCEPTION) TO SEPTEMBER 30, 1997
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEFERRED OFFERING
DEFICIT COSTS RELATING TO
ACCUMULATED COMMON STOCK
COMMON STOCK ADDITIONAL DURING THE DEFERRED ISSUED FOR
NUMBER PAID-IN DEVELOPMENT COMPEN- SERVICES RELATED
DATE OF SHARES AMOUNT CAPITAL STAGE SATION TO INTENDED IPO
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
For the six-month period
ended September 30, 1997
(unaudited):
Termination of common stock
granted under the
performance share program
(Note 9) 7/07/97 - - $ (192,500) - $ 192,500 -
Award of 10,000 shares
of common stock to an
employee under the
performance share program
(Note 9) 9/15/97 - - 60,000 - (60,000) -
Compensation expense
(Note 9) - - - 111,957 -
Net loss - - - $ (766,522) - -
===================================================================================================================
Balance at September 30, 1997 2,950,000 $295 $5,864,448 $(3,055,110) $(684,647) -
===================================================================================================================
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRICE
STOCKHOLDERS' PER
EQUITY SHARE
- --------------------------------------------------
<S> <C> <C>
For the six-month period
ended September 30, 1997
(unaudited):
Termination of common stock
granted under the
performance share program
(Note 9) - -
Award of 10,000 shares
of common stock to an
employee under the
performance share program
(Note 9) - $6.00
Compensation expense
(Note 9) $ 111,957 -
Net loss (766,522) -
=================================================
Balance at September 30, 1997 $ 2,124,986
=================================================
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-5
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
AUGUST 23, 1995 SIX-MONTH SIX-MONTH AUGUST 23, 1995
(DATE OF INCEPTION) YEAR ENDED PERIOD ENDED PERIOD ENDED (DATE OF INCEPTION)
TO MARCH 31, MARCH 31, SEPTEMBER 30, SEPTEMBER 30, TO SEPTEMBER 30,
1996 1997 1996 1997 1997
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(243,129) $(2,045,459) $ (700,440) $ (766,522) $(3,055,110)
Adjustments to reconcile net loss to net cash
used in operating activities:
Expenses paid by stockholders, contributed to the
Company 12,006 - - - 12,006
Depreciation and amortization 4,727 28,547 11,611 24,414 57,688
Amortization of deferred compensation expense - 99,646 37,500 111,957 211,603
Amortization of debt issue costs and discount
on notes payable 3,869 186,131 186,131 - 190,000
Changes in operating assets and liabilities:
Increase in prepaid expenses and other current
assets (1,771) (30,664) (109,600) (50,387) (82,822)
(Increase) decrease in other assets (2,175) (42,500) (57,500) 14,366 (30,309)
Increase in capitalized software development
costs - - - (322,562) (322,562)
Increase (decrease) in accounts payable and
accrued expenses 144,813 269,820 (13,846) (254,996) 159,637
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (81,660) (1,534,479) (646,144) (1,243,730) (2,859,869)
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (14,703) (75,799) (26,084) (45,333) (135,835)
Acquisition of intangibles (4,220) (1,920) (1,920) - (6,140)
Purchase of available-for-sale securities - (4,984,826) - - (4,984,826)
Proceeds from sales of available-for-sale securities - 2,000,000 - 1,990,091 3,990,091
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (18,923) (3,062,545) (28,004) 1,944,758 (1,136,710)
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 79,640 4,737,057 4,737,057 - 4,816,697
Principal payments on obligations under capital
leases (162) (17,470) (2,528) - (17,632)
Proceeds from issuance (repayment) of notes
payable 250,000 (250,000) (250,000) - -
Debt issue costs (25,000) - - - (25,000)
Deferred offering costs (43,500) - - - (43,500)
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 260,978 4,469,587 4,484,529 - 4,730,565
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 160,395 (127,437) 3,810,381 701,028 733,986
Cash and cash equivalents at beginning of period - 160,395 160,395 32,958 -
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 160,395 $ 32,958 $3,970,776 $ 733,986 $ 733,986
=================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 70 $ 6,053 $ 7,155 $ - $ 6,123
=================================================================================================================================
SUPPLEMENTAL SCHEDULES OF NONCASH FINANCING
AND INVESTING ACTIVITIES:
Contributed property and equipment $ 18,290 - - - $ 18,290
=================================================================================================================================
Capital lease obligations incurred $ 17,632 - - - $ 17,632
=================================================================================================================================
Common stock issued for services related
to intended IPO $ 14,875 - - - $ 14,875
=================================================================================================================================
Common stock and stock options issued for
employment agreement and services - $ 1,028,750 $ 300,000 $ 60,000 $ 1,088,750
=================================================================================================================================
Termination of common stock granted under
the performance share program - - - $ 192,500 $ (192,500)
=================================================================================================================================
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-6
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE SIX-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
1. PRINCIPAL BUSINESS NetLive Communications, Inc. (a development stage company) (the "Company") was
ACTIVITY AND incorporated on August 23, 1995 under the laws of the State of Delaware. The Company
SIGNIFICANT ACCOUNTING was developing live, one-on-one, videoconferenced entertainment, educational and
POLICIES: counseling services over the Internet and technologies designed to deliver such content
services to consumers. Subsequent to March 31, 1997, the Company has shifted its focus
to concentrate principally on developing Internet call center software technologies to
license to businesses.
Property and equipment are recorded at cost. Depreciation is provided for by the
straight-line method over the estimated useful lives of the property and equipment.
Trademarks are being amortized over 10 years using the straight-line method and are
included in other assets in the accompanying balance sheet.
The Company recognizes revenue when services are provided.
Certain software development costs are capitalized in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86, Accounting for the Costs or Computer
Software to Be Sold, Leased, or Otherwise Marketed, and are stated at the lower of
unamortized cost or net realizable value. Capitalization of software development costs
begins upon the establishment of technological feasibility and ends when the product is
available for general release to customers. The Company determined that it achieved
technological feasibility during April 1997.
Amortization of capitalized software development costs shall start when the product is
available for general release to customers and will be provided at the greater of the
amount computed using (a) the ratio of current gross revenue for a product to the total
of current and anticipated future gross revenue or (b) the straight-line method over the
remaining estimated economic life of the product.
All other research and development expenses, consisting primarily of salaries and
consulting fees to support technology and services content development, are expensed as
incurred.
The Company employs the liability method of accounting for income taxes pursuant to SFAS
No. 109, under which method recorded deferred income taxes reflect the tax consequences
on future years of temporary differences (differences between the tax basis of assets
and liabilities and their financial amounts at year-end). The Company provides a
valuation allowance that reduces deferred tax assets to their net realizable value.
The Company considers all highly liquid investments with a maturity of three months or
less when purchased to be cash equivalents.
The Company maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits. The Company has not experienced any losses in such accounts.
</TABLE>
F-7
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE SIX-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
The preparation of financial statements in
accordance with generally accepted accounting
principles requires the use of estimates by
management.
Net loss per share of common stock has
been computed using the weighted average
number of shares of common stock outstanding.
For purposes of this computation shares of
common stock issued prior to the initial filing
of the Registration Statement relating to the
Initial Public Offering ("IPO") and shares
issuable upon the exercise of all common stock
purchase options outstanding, with exercise
prices below the IPO price, have been included
in weighted average number of shares
outstanding, since inception, utilizing the
treasury stock method. Common stock equivalents
issued after the IPO are not included in the
weighted average number of shares since the
effect would be antidilutive.
Management determines the appropriate
classification of marketable securities at the
time of purchase and reevaluates such
designation as of each balance sheet date. Debt
securities are classified as held-to-maturity
when the Company has the positive intent and
ability to hold the securities to maturity.
The Company's debt securities, consisting of
U.S. government obligations, are classified as
available-for-sale. Available-for-sale
securities are carried at fair value, with the
unrealized gains and losses, net of tax,
reported in a separate component of
stockholders' equity. The amortized cost of debt
securities in this category is adjusted for
amortization of premiums and discounts to
maturity. Such amortization is included in
interest and dividend income.
Realized gains and losses and declines in value
judged to be other-than-temporary on
available-for-sale securities are included in
investment income. The cost of securities sold
is based on the specific identification method.
Dividends on securities classified as
available-for-sale are included in interest and
dividend income.
The Company adopted SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, for its
1997 fiscal year which requires the Company to
review its long-lived assets and identifiable
intangibles for impairment whenever events or
changes in circumstances indicate that the
carrying value of an asset may not be fully
recoverable. The adoption of this pronouncement
did not have a material effect on the Company's
financial statements.
During 1996, SFAS No. 123, Accounting for
Stock-Based Compensation, became effective for
the Company. SFAS No. 123 prescribes the
recognition of compensation expense based on the
fair value of options determined on the grant
date. However, SFAS No. 123 allows companies
currently applying Accounting Principles Board
("APB") No. 25, Accounting for Stock Issued to
Employees, to continue using that method. The
Company has therefore elected to continue
applying the intrinsic value method under APB
No. 25 and therefore does not recognize
compensation expense for options granted, where
options are granted at a price equal to market
value on the date of grant. For companies that
choose to continue applying the intrinsic value
method, SFAS No. 123 requires certain pro forma
disclosures as if the fair value method had been
utilized. See Note 9 for additional discussion.
F-8
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE SIX-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
In February 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 128,
Earnings per Share. SFAS No. 128 requires dual
presentation of basic earnings per share ("EPS")
and diluted EPS on the face of all statements of
earnings issued after December 15, 1997 for all
entities with complex capital structures. Basic
EPS is computed as net earnings divided by the
weighted-average number of common shares
outstanding for the period. Diluted EPS reflects
the potential dilution that could occur from
common shares issuable through stock-based
compensation including stock options, restricted
stock awards, warrants and other convertible
securities. The Company does not anticipate the
effect on earnings per share to be material.
In June 1997, the FASB issued SFAS No. 130,
Reporting Comprehensive Income. SFAS No. 130
establishes standards for reporting and display
of comprehensive income and its components in a
full set of general-purpose financial statements
for fiscal years beginning after December 15,
1997. The application of SFAS No. 130 will not
have any effect on the Company's financial
position or results of operations.
2. INITIAL PUBLIC OFFERING: In August 1996, the Company completed an IPO of
950,000 shares of its common stock at $5.50 per
share and 730,000 common stock purchase warrants
for $.10 per warrant. The net proceeds to the
Company, after deducting underwriting
commissions and expenses of the offering of
approximately $1,100,000, were approximately
$4,200,000. Additionally, the Company received
net proceeds of approximately $9,500 from the
issuance of common stock purchase warrants and
the underwriters' warrant pursuant to an
over-allotment option.
3. MARKETABLE SECURITIES: At March 31, 1997 and September 30, 1997,
the fair value of the Company's
available-for-sale securities aggregated
$2,984,826 and $994,735, respectively, which
approximates cost. These securities, consisting
of U.S. government obligations, mature within
one year. Realized gains and losses are
determined on the basis of specific
identification. During the year ended March 31,
1997 and the six-month period ended September
30, 1997, sales proceeds on securities
classified as available-for-sale securities were
$2,000,000 and $1,990,091, respectively, with no
significant gross realized gains or losses
recognized.
F-9
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE SIX-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
4. PROPERTY AND Property and equipment, at cost, consists of the following:
EQUIPMENT:
<TABLE>
<CAPTION>
March 31, September 30, Estimated
1997 1997 Useful Life
--------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
Furniture and equipment $ 13,535 $ 16,685 5 years
Computer and video equipment 112,889 155,072 3 years
--------------------------------------------------------------------------------------------------
126,424 171,757
Less accumulated depreciation
and amortization 32,571 56,985
--------------------------------------------------------------------------------------------------
$ 93,853 $114,772
==================================================================================================
</TABLE>
5. NOTES
PAYABLE: In March 1996, the Company completed a private placement
for which it received in the aggregate $250,000 and in
exchange issued 200,000 shares of common stock, 1,000,000
redeemable common stock purchase warrants and $250,000
aggregate principal amount of its 12% redeemable
promissory notes with interest payable upon repayment. The
notes were due and payable at the earlier of the
completion of the Company's proposed IPO, March 1998, or
the date of closing of a sale of securities by the Company
in an amount of $500,000 or greater, as defined.
Accordingly, the notes were repaid in May 1996 (see Note
6) and the Company recorded a charge to operations of
approximately $165,000. In connection with this private
placement, the Company incurred costs amounting to
$25,000.
In accordance with paragraph 16 of APB Opinion No. 14,
Accounting for Convertible Debt and Debt Issued with Stock
Purchase Warrants, values were assigned to each part of
the transaction based on an allocation of the relative
fair values of the securities at the time of issuance. The
fair value of the promissory notes was based on a 24%
discount rate after effecting for the costs of the
offering. The fair value of the common stock was
determined to be $2.50 per share which was the price at
which 200,000 shares of common stock were sold in May 1996
(see Note 6). The fair value of the warrants was estimated
at $.05 per warrant. Accordingly, a value of $85,000 was
assigned to the promissory notes, a value of $150,000 was
assigned to the common stock and a value of $15,000 was
assigned to the warrants.
The redeemable common stock purchase warrants are not
exercisable until two years from the effective date of the
IPO and expire three years from the effective date of the
IPO. Each warrant entitles the holder to purchase one
share of common stock for $5.50 per share. The Company may
call these warrants for redemption one year from the
effective date of the IPO, as defined.
F-10
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE SIX-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
6. PRIVATE
PLACEMENT: During May 1996, the Company completed a private placement
offering of securities, whereby the Company issued 200,000
shares of common stock at an offering price of $2.50 per
share. Costs incurred in connection with the private
placement were approximately $124,000. A portion of the
proceeds from this private placement was used to repay
notes payable (see Note 5).
7. INCOME TAXES: The tax effects of loss carryforwards and the valuation
allowance that give rise to deferred tax assets are as
follows:
<TABLE>
<CAPTION>
March 31, September 30,
1997 1997
--------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Compensation expense not currently deductible $ 15,000 $ 32,000
Net operating loss carryforwards 325,000 406,000
Less valuation allowance (340,000) (438,000)
--------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS $ - 0 - $ - 0 -
==================================================================================================
</TABLE>
As of March 31, 1997 and September 30, 1997, the Company
had net operating loss carryforwards available to offset
future taxable income of approximately $2,167,000 and
$2,706,000, respectively, which expire in various years
through 2013. Between March 1996 and August 1996, the
Company completed an IPO and private offerings of
securities. Under Section 382 of the Internal Revenue Code
(the "Code") these activities effected an ownership change
and thus may severely limit, on an annual basis, the
Company's ability to utilize its net operating rate loss
carryforwards. The Company uses the lowest marginal U.S.
corporate tax rate of 15% to determine deferred tax
amounts and the related valuation allowance because the
Company has had no taxable earnings through September 30,
1997.
F-11
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE SIX-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
The reconciliation of income tax benefit
resulting from applying U.S. federal statutory
tax rates to pretax loss and the reported amount
of income tax benefit is as follows:
<TABLE>
<CAPTION>
Period from
August 23, 1995
(date of inception) Year ended Six-month periods
to March 31, March 31, ended September 30,
1996 1997 1996 1997
----------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Tax benefit at federal
statutory rate of 15% $ 36,000 $ 307,000 $ 105,000 $ 115,000
Increases in valuation
allowance (36,000) (304,000) (105,000) (98,000)
Other - (3,000) - (17,000)
----------------------------------------------------------------------------------------
$- 0 - $ - 0 - $ - 0 - $ - 0 -
========================================================================================
8. COMMITMENTS AND The Company leases office space under noncancelable operating leases which expire at
CONTINGENCIES: various dates through November 1998. The leases are subject to escalations for the
Company's share of increases in real estate taxes.
Minimum future obligations under the leases are as follows:
Six-month period ending March 31, 1998 (unaudited) $23,901
Year ending March 31, 1999 (audited) 32,707
----------------------------------------------------------------------------------------
$56,608
========================================================================================
Rent expense charged to operations for the
period from August 23, 1995 (date of inception)
to March 31, 1996, for the year ended March 31,
1997, and for the six-month periods ended
September 30, 1996 and 1997 amounted to $9,724,
$48,478, $22,849 and $14,063, respectively.
The Company has entered into employment
agreements with a consultant and executive
officers of the Company which provide for
compensation through May 18, 1999 as follows:
Six-month period ending March 31, 1998 (unaudited) $157,057
Year ending March 31,
1999 191,611
2000 16,392
----------------------------------------------------------------------------------------
$365,060
========================================================================================
</TABLE>
F-12
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE SIX-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Included in accounts payable and accrued
expenses at March 31, 1997 are accrued bonuses
of approximately $78,000 due to two officers
under employment agreements described above and
accrued severance pay of approximately $147,000
due to the former president of the Company.
9.STOCKHOLDERS'
EQUITY: Effective March 5, 1996, the Company's board of
directors approved an approximate 837.14-for-1
stock split, whereby the number of shares of
outstanding common stock was increased from
1,532 to 1,282,500. The stated par value of each
share was not changed from $.0001. A total of
$130 was reclassified from the Company's
additional paid-in capital account to the
Company's common stock account. All share and
per share amounts have been restated to
retroactively reflect the stock split.
The cash cost of the contributed property and
equipment and expenses paid by stockholders
aggregated $30,296. Contributed property and
equipment aggregating $18,290 which mainly
consisted of computer and video equipment have
been recorded at the stockholders' cost.
Expenses paid by stockholders aggregating
$12,006 consisted of consulting expense, travel
expense and other miscellaneous costs.
During February 1996, the board of directors of
the Company adopted the 1996 Stock Option Plan
(the "Plan") which authorizes the granting to
employees, officers and directors of the Company
options to purchase up to an aggregate of
800,000 shares of common stock. Both
nonqualified options and options intended to
qualify as incentive stock options ("ISOs")
under the Code of 1986, as amended, may be
granted under the Plan. ISOs granted under the
Plan may not be granted at a price less than the
fair market value of the common stock on the
date of the option grant, provided that the
exercise price of such option granted to a
stockholder owning more than 10% of the
outstanding common stock of the Company may not
be less than 110% of the fair market value of
the common stock on the date of the option
grant. The term of each option and the manner of
exercise are determined by a committee appointed
by the board of directors, but in no case can
the options be exercised in excess of 10 years
beyond the grant date, as defined.
In February 1996, the Company issued options to
purchase an aggregate of 260,000 shares of
common stock outside the Plan to certain
executive officers, nonemployee directors and
consultants. The options will be exercisable at
$2.50 per share of common stock commencing one
year from the date of grant. Options to purchase
130,000 shares of common stock are exercisable
at the earlier of five years from the date of
grant or when the Company achieves net income,
as defined, of at least $1,250,000 for a full
fiscal year. Options to purchase the remaining
130,000 shares are exercisable one year from the
date of grant.
In March 1996, options to purchase 622,854
shares of common stock at exercise prices
ranging from $2.50 to $5.50 per share were
granted under the Plan. A portion of the options
become exercisable one year following the
effective date of the Company's IPO and the
balance of the options become exercisable
F-13
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE SIX-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
incrementally every six months for a three-year
period. In accordance with APB No. 25, no
compensation expense has been recorded on the
option grants since the exercise price of each
option granted was the fair market value of the
common stock on the date of the option grant.
In May 1996, in connection with an employment
agreement, the Company issued options to
purchase 100,000 shares of common stock to an
employee. In connection with the issuance of the
options, the Company recorded deferred
compensation of $300,000 to reflect the
difference between the fair market price of the
stock and the exercise price of the options at
the date of issuance. The deferred compensation
is being amortized over three years, the term of
the employment agreement. During the year ended
March 31, 1997 and the six-month periods ended
September 30, 1996 and 1997, the Company
recorded a charge to earnings of $87,500,
$37,500 and $50,000, respectively, for
amortization of deferred compensation.
During February 1997, the board of directors of
the Company adopted a restricted stock program
which authorized the establishment of a trust
and contributed to the trust 300,000 shares of
the Company's common stock that shall be held
therein, until distributed to employees, as
defined. Shares to be awarded in the name of the
employee will have all rights of a stockholder,
subject to certain restrictions or forfeitures.
Restrictions on the awards expire annually over
a five-year period. During March 1997, 106,000
shares of common stock were granted to certain
employees. The market value on the date of these
grants was $728,750, which has been recorded as
deferred compensation and is shown as a separate
component of stockholders' equity. The deferred
compensation is being charged to selling,
general and administrative expense over the
five-year vesting period. During July 1997,
previously issued awards relating to 28,000
shares of common stock had been forfeited due to
employee departures. In connection with the
forfeiture of the 28,000 shares of common stock,
the Company adjusted deferred compensation
relating to the issuance of these awards by
$192,500. In September 1997, 10,000 shares of
common stock were granted to an employee. The
market value on the date of grant was $60,000,
which has been recorded as deferred compensation
and is shown as a separate component of
stockholders' equity. The deferred compensation
attributable to the 10,000 shares of common
stock granted to an employee is being charged to
selling, general and administrative expense over
the one-year vesting period. Compensation
charged to selling, general and administrative
expense was $12,146 and $61,957 for the year
ended March 31, 1997 and for the six-month
period ended September 30, 1997, respectively.
During October 1997, the board of directors of
the Company adopted the 1997 Stock Option Plan
(the "1997 Plan") which authorizes the granting
to key employees, officers, and directors of the
Company, and consultants and independent
contractors to the Company to purchase an
aggregate of 600,000 shares of common stock.
Both nonqualified options and ISOs may be
granted under the 1997 Plan. ISOs granted under
the 1997 Plan may not be granted at a price less
than the fair market value of the common stock
on the date of the option grant, provided that
the exercise price of such option granted to a
stockholder owning more than 10% of the
outstanding common stock of the
F-14
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE SIX-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Company may not be less than 110% of the fair
market value of the common stock on the date of
the option grant. The term of each option and
the manner of exercise are determined by a
committee appointed by the board of directors,
but in no case can the options be exercised in
excess of 10 years beyond the grant date, as
defined.
Presented below is a summary of stock option
plans activity for the periods shown:
<TABLE>
<CAPTION>
Wtd. Wtd.
Avg. Avg.
Exercise Options Exercise
Options Price Exercisable Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Granted 882,854 $3.42 - -
- ----------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 882,854 3.42 - -
Granted 215,000 3.95 - -
Canceled (96,007) 3.91 - -
- ----------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 1,001,847 3.49 156,667 3.07
Granted 15,000 5.69 - -
Canceled (65,000) 4.23 - -
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT
SEPTEMBER 30, 1997 951,847 $3.47 571,584 $3.32
======================================================================================================================
The following table summarizes information for
options currently outstanding and exercisable:
March 31, 1997
- ----------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
Wtd. Wtd. Wtd.
Avg. Avg. Avg.
Remaining Exercise Exercise
Price Number Life Price Number Price
- ----------------------------------------------------------------------------------------------------------------------
$2.50 641,848 7 yrs $2.50 131,667 $2.50
4.81 75,000 4 yrs 4.81 - -
5.00 115,000 4 yrs 5.00 - -
5.50 159,999 5 yrs 5.50 15,000 5.50
7.25 10,000 10 yrs 7.25 10,000 7.25
- ----------------------------------------------------------------------------------------------------------------------
$2.50 - $7.25 1,001,847 6 yrs $3.49 156,667 $3.07
======================================================================================================================
</TABLE>
F-15
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE SIX-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
<TABLE>
<CAPTION>
September 30, 1997
- ----------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
--------------------------------- -------------------
Wtd. Wtd. Wtd.
Avg. Avg. Avg.
Remaining Exercise Exercise
Price Number Life Price Number Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$2.50 621,848 7 yrs $2.50 324,085 $2.50
4.81 75,000 4 yrs 4.81 25,000 4.81
5.00 70,000 4 yrs 5.00 37,500 5.00
5.50 159,999 5 yrs 5.50 159,999 5.50
5.69 15,000 10 yrs 5.69 15,000 5.69
7.25 10,000 10 yrs 7.25 10,000 7.25
- ----------------------------------------------------------------------------------------------------------------------
$2.50 - $7.25 951,847 6 yrs $3.47 571,584 $3.32
======================================================================================================================
</TABLE>
The Company has elected, in accordance with the
provisions of SFAS No. 123, to apply the current
accounting rules under APB Opinion No. 25 and
related interpretations in accounting for stock
options, and accordingly, has presented the
disclosure-only information as required by SFAS
No. 123. If the Company had elected to recognize
compensation cost based on the fair value of the
options granted at the grant date as prescribed
by SFAS No. 123, the Company's net loss and net
loss per common share for the period from August
23, 1995 (date of inception) to March 31, 1996
and the year ended March 31, 1997 would
approximate the pro forma amounts shown in the
table below. There is no material effect on
earnings per share for options issued during the
six-month periods ended September 30, 1996 and
1997.
<TABLE>
<CAPTION>
Period from
August 23, 1995
(date of inception) Year ended
to March 31, March 31,
1996 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reported net loss $(243,129) $(2,045,459)
======================================================================================================================
Pro forma net loss $(732,740) $(2,314,309)
======================================================================================================================
Reported net loss per common share $ (.16) $ (.75)
======================================================================================================================
Pro forma net loss per common share $ (.47) $ (.85)
======================================================================================================================
</TABLE>
F-16
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE SIX-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
The fair value of options granted (which is
amortized to expense over the option vesting
period in determining the pro forma impact) is
estimated on the date of grant using the
Black-Scholes option-pricing model with the
following weighted- average assumptions:
<TABLE>
<CAPTION>
Period from
August 23, 1995
(date of inception) Year ended
to March 31, March 31,
1996 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Expected life of options 3 to 5 yrs 3 to 6 yrs
======================================================================================================================
Risk-free interest rate 5.51% - 6.22% 6.06% - 6.82%
=======================================================================================================================
Expected volatility of NetLive
Communications, Inc. 49% 49%
=======================================================================================================================
Expected dividend yield on NetLive
Communications, Inc. - -
=======================================================================================================================
The weighted-average fair value of options
granted during 1997 and 1996 is as follows:
Period from
August 23, 1995
(date of inception) Year ended
to March 31, March 31,
1996 1997
- ----------------------------------------------------------------------------------------------------------------------
Fair value of each option granted $ .55 $ 1.25
Total number of options granted 882,854 215,000
- ----------------------------------------------------------------------------------------------------------------------
TOTAL FAIR VALUE OF ALL OPTIONS GRANTED $489,611 $268,850
======================================================================================================================
</TABLE>
In accordance with SFAS No. 123, the
weighted-average fair value of stock options
granted is required to be based on a theoretical
statistical model using the preceding
Black-Scholes assumptions. In actuality, because
the Company's incentive stock options do not
trade on a secondary exchange, employees can
receive no value or derive any benefit from
holding stock options under these plans without
an increase in the market price of the Company.
Such an increase in stock price would benefit
all stockholders commensurately.
F-17
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE SIX-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
10. GOING CONCERN: The Company is in the development stage, has a
limited operating history, has not generated
significant revenue through March 31, 1997 and
September 30, 1997, and has an accumulated
deficit at March 31, 1997 and September 30,
1997. The Company has devoted substantially all
of its efforts to financial planning, raising
capital, research and development and software
development with respect to internet-related
technology to be utilized in commercial
applications.
The Company's financial statements have been
prepared on the assumption that the Company will
continue as a going concern. Management believes
that the development, marketing and initial
sales of certain of its internet-related
technologies will occur before March 31, 1998,
thus generating working capital. The Company is
also considering other financing alternatives
which will allow the Company to continue as a
going concern. If there is no or insufficient
revenue from the commercial applications of the
Company's technologies during the year ending
March 31, 1998, or additional financing cannot
be obtained, the Company would be materially and
adversely affected and there is substantial
doubt about the Company's ability to continue as
a going concern. The financial statements do not
include any adjustments necessary if the Company
becomes unable to continue operations for any
reason.
F-18
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
NETLIVE COMMUNICATIONS, INC.
SALE OF 183,400 SHARES OF COMMON STOCK
SALE OF 35,300 WARRANTS
SALE OF 35,300 SHARES OF COMMON STOCK TO BE ISSUED UPON EXERCISE OF WARRANTS
This Prospectus relates to the sale by certain securityholders who purchased
Common Stock and/or Warrants from the Company in the March and/or May 1996
private placements (the "Selling Securityholders") of 183,400 shares of common
stock, par value $.0001 per share (the "Common Stock") and 35,300 Common Stock
Purchase Warrants (the "Warrants") of NetLive Communications, Inc., a Delaware
corporation (the "Company" or "NetLive") None of the proceeds from the sale of
the Common Stock and Warrants by the Selling Securityholders will be received
by the Company. The Company will bear all expenses (other than selling
commissions and fees and expenses of counsel or other advisors to the Selling
Securityholders) in connection with the registration and sale of the Common
Stock and Warrants being offered by the Selling Securityholders hereunder.
The Common Stock and Warrants will be offered by the Selling Securityholders
in transactions in the over-the-counter market, in negotiated transactions or
a combination of such methods of sale, at fixed prices which may be changed,
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices. The Selling Securityholders
may effect such transactions by selling the Common Stock and Warrants to or
through broker/dealers, and such broker/dealers may receive compensation in
the form of discounts, concessions or commissions from the Selling
Securityholders and/or the purchasers of the Common Stock and Warrants for
whom such broker/dealers may act as agent or to whom they sell as principal,
or both. The Selling Securityholders may be deemed to be "underwriters" as
defined in the Securities Act of 1933, as amended (the "Securities Act"). If
any broker/dealers are used by the Selling Securityholders, any commission
paid to broker/dealers and, if broker/dealers purchase any Common Stock or
Warrants as principals, any profits received by such broker/dealers on the
resales of the Securities may be deemed to be underwriting discounts or
commissions under the Securities Act. In addition, any profits realized by the
Selling Securityholders may be deemed to be underwriter commissions. All
costs, expenses and fees in connection with the registration of the Common
Stock and Warrants offered by Selling Securityholders will be borne by the
Company. Brokerage commissions, if any, attributable to the sale of the Common
Stock and Warrants will be borne by the Selling Securityholders. See "Selling
Securityholders" and "Plan of Distribution".
The Company's Common Stock and Warrants are currently listed on the NASDAQ
SmallCap Market ("NASDAQ") under the symbols "NETL" and "NETLW," respectively.
The Company is concurrently offering by separate Prospectus 1,242,700 shares
of Common Stock and 1,804,200 Warrants (the "Market Re-Seller Securities").
-------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION. SEE "RISK FACTORS" AND "DILUTION".
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is December , 1997.
5
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by reference to
the more detailed information, financial statements and notes appearing
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. This Prospectus contains forward-looking
statements that involve risks and uncertainties. When used in this Prospectus,
the words "anticipate," "believe," "estimate" and "expect" and other similar
expressions as they relate to the Company or its management ("Management") are
intended to identify such forward-looking statements. The Company's actual
results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as
those discussed elsewhere in this prospectus. As used in this Prospectus,
"fiscal year" refers to the fiscal year ending March 31 of the specifically
identified calendar year. Except as otherwise indicated herein, the
information contained in this Prospectus gives no effect to the exercise of
(i) non-plan stock options, (ii) warrants issued by the Company upon its
initial public offering ("IPO") to May Davis Group, Inc. ("May Davis") ,the
underwriter of the Company's IPO, entitling May Davis to purchase up to 95,000
shares of Common Stock and up to 73,000 Warrants (collectively the
"Underwriter's Warrants"), (iii) Warrants held by certain securityholders who
purchased Common Stock and/or Warrants in the Company's initial public
offering, in transfers in the NASDAQ Small Cap Market, or in negotiated
transactions at negotiated prices (the "Market Re-Sellers"), or (iv)
options granted under the Company's stock option plans. All per share
information in this Prospectus has been adjusted to reflect an 837.14 for one
stock split of the Company's Common Stock effected in March 1996.
THE COMPANY
NetLive, a development stage company, was incorporated on August 23, 1995 in
the State of Delaware. The Company was developing live, one-on-one
videoconferenced entertainment, educational and counseling services over the
Internet and technologies designed to deliver such content services to
consumers. In the first quarter of fiscal 1998, the Company shifted its focus
to concentrate principally on developing Internet call center software
technologies to license to businesses. The Company anticipates that many
applications of its systems, when and if marketed, will be without a video
component. The Company expects to take advantage of the convergence of the
rapid expansion and increasing technological sophistication of the call center
industry and the widespread growth of the Internet as a communications medium.
<TABLE>
THE OFFERING
<S> <C>
Common Stock Outstanding.............................. 2,950,000 shares
Common Stock to be Sold (1)........................... 183,400 shares
Warrants Outstanding.................................. 1,839,500 shares
Warrants to be Sold................................... 35,300 shares
Common Stock to be issued
upon Exercise of the Warrants .................... 35,300 shares
Warrant Exercise Terms................................ Each Warrant entitles the holder thereof to
purchase one share of Common Stock for $5.50,
during the three year period commencing
August 12, 1998. The exercise price and the
number of shares issuable upon exercise of the
Warrants are subject to adjustment in certain
circumstances. See "Description of Securities."
Warrant Expiration Date.............................. August 12 , 2001
</TABLE>
7
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
<TABLE>
<CAPTION>
<S> <C>
Warrant Redemption................................... Redeemable by the Company, in whole or in part, at a price of
$.05 per Warrant, commencing August 12, 1997 upon not less than 30
days prior written notice to the holders of such Warrants, provided
that the closing bid price (as defined) of the Company's Common
Stock for the twenty consecutive trading days immediately prior to
the date on which the notice of redemption is given, shall have
exceeded $7.50 per share.
Use of Proceeds.............................. The Company will not receive any proceeds from the re-sale of Common
Stock by its stockholders. The Company will retain all proceeds from
the exercise of the Warrants, regardless of the number exercised.
The gross proceeds (a maximum amount of approximately $194,150 if
all Warrants owned by the Selling Securityholders are exercised)
will be used for expansion of operations, development of proposed
business, capital expenditures and working capital. See "Use of
Proceeds".
Risk Factors................................. Investment in the securities offered hereby involves a high degree of
risk and substantial dilution. See "Risk Factors" and "Dilution."
NASDAQ Symbols: (2)
Common Stock............................... NETL
Warrants................................... NETLW
</TABLE>
- ------------
(1) Does not include (i) 1,839,500 shares of Common Stock issuable upon the
exercise of the outstanding Warrants, (ii) 168,000 shares of Common Stock
issuable upon the exercise of the Underwriter's Warrants; (iii) 800,000 shares
of Common Stock reserved for issuance pursuant to the Company's 1996 stock
option plan; (iv) 600,000 shares of Common Stock reserved for issuance
pursuant to the Company's 1997 stock option plan; or (v) 260,000 shares of
Common Stock reserved for issuance pursuant to certain other options. See
"Management" and "Description of Securities."
(2) NASDAQ symbols do not imply that a liquid and active market will be
sustained for the securities following completion of the Offering.
8
<PAGE>
COMPETITION The market for Internet-enabled call center technology is just
emerging. When and if the Company's products are actively marketed, the
Company expects to compete with eFusion, Inc., Netspeak Corp., Interworks
Systems, Inc., Teloquent Communications Corp., NetiPhone, Inc. and others who
currently provide or are developing Internet-enabling call center technology
with direct voice, video and data links over the Internet. The Company expects
further competition from existing software and hardware vendors to telephone
call centers, some of whom currently provide Internet technology that allows a
company, when prompted by a visitor to its Web site, to place a call back to
customers over a second telephone line. The market for call center technology
is intensely competitive, highly fragmented and subject to rapid change. Among
the Company's potential competitors are also a number of large hardware and
software companies that may develop or acquire products that compete with the
Company's products. Increased competition is likely to result in price
reductions, reduced operating margins and the limiting of market share
acquisition, any of which could materially adversely affect the Company's
business, financial condition and results of operations. Many of the Company's
current and potential competitors have significantly greater financial,
technical, marketing and other resources than the Company. As a result, they
may be able to respond more quickly to new or emerging technologies and
changes in customer requirements, or to devote greater resources to the
development, promotion and sale of products than can the Company. There can be
no assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not materially adversely affect its business, financial condition
and results of operations.
BROAD DISCRETION IN USE OF PROCEEDS. All of the proceeds from the exercise of
the Warrants will be applied to working capital and other general corporate
purposes. Accordingly, Management of the Company will have broad discretion as
to the application of such proceeds. See "Use of Proceeds."
POTENTIAL CONFLICTS OF INTEREST. The Company's advisors and part-time
employees may be employed by or work for others, and, accordingly, may devote
only a small portion of their time to the Company. In addition, these
individuals may have entered or may enter into employment, consulting or other
advisory arrangements with other entities and, as a result, their obligations
to these other entities may conflict or compete with their obligations to the
Company. The Company will seek to enter into non-compete and confidentiality
agreements with such persons. See "Management".
NO DIVIDENDS AND NONE ANTICIPATED. The holders of Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors, out of
funds legally available therefor. To date, no dividends have been declared or
paid on the Common Stock, and the Company does not intend to declare any
dividends in the foreseeable future. It is currently anticipated that
earnings, if any, will be used to develop and finance the Company's proposed
business operations. See "Dividend Policy."
VOLATILITY OF STOCK PRICE The stock market has, from time to time, experienced
significant price and volume fluctuations that may be unrelated to the
operating performance of any particular company. In addition, the market
prices of the securities of many publicly-traded companies in the Internet
industry have in the past been, and can in the future be expected to be,
especially volatile. Various factors and events, including future
announcements of new service offerings by the Company or its competitors,
developments or disputes concerning, among other things, government
regulations in the United States, and economic and other external factors, as
well as fluctuations in the Company's financial results, could have a
significant impact on the market price of the Company's securities.
IMMEDIATE AND SUBSTANTIAL DILUTION. This Offering involves immediate and
substantial dilution to any investors exercising the Warrants described
herein. As of September 30, 1996, the net tangible book value of the Company
was $1,797,295, or approximately, $.61 per share of Common Stock. Assuming all
Warrants described herein are exercised, investors who exercise such Warrants
into shares of Common Stock in the Offering will incur immediate dilution in
net tangible book value of $4.84 per share of Common Stock, which is
approximately 88.0% based on the exercise price of $5.50 per share.
See "Dilution".
16
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
DILUTION
Set forth below is a description of dilution to purchasers of the Company
Common Stock, assuming the exercise of all of the Warrants.
As of September 30, 1997, the pro-forma net tangible book value of the
Company's Common Stock was $1,797,295 or $0.61 per share. "Net Tangible book
value per share" represents the amount of total tangible assets less total
liabilities of the Company. Without taking into account any changes in net
tangible book value after September 30, 1997, the pro-forma book value of the
Common Stock after the exercise of the Warrants included in this Prospectus
will be $.66 per share. Consequently, the purchasers of the shares of Company
Common Stock issued upon exercise of all of the Warrants will sustain an
immediate substantial dilution (i.e., the difference between the average
exercise price of $5.50 and the pro forma net tangible book value per share)
after such exercise of $4.84 per share. The following table illustrates such
dilution:
Average Exercise Price of the Common Stock
Underlying the Warrants......................................... $5.50
Net Tangible Book Value of Outstanding
Common Stock ................................................... 0.61
Increase Attributable to Exercise of Warrants...................... .05
Pro forma Net Tangible Book Value After Exercise of
Warrants........................................................ $.66
----
Per Share Dilution to New Investors............................... $4.84
=====
The following table sets forth, as of the date of this Prospectus, the total
number of shares of Common Stock purchased from the Company, the total
consideration recorded and the average price per share for (i) existing
holders of Common Stock for shares acquired since inception and (ii) the
Selling Securityholders upon exercise of all Warrants.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE ($)
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)....... 2,950,000 98.82 5,999,936 96.87 2.03
New stockholders(1) 35,300 1.18 194,150 3.13 5.50
---------- ----- --------- -----
Total.......................... 2,985,300 100.00 6,194,086 100.00
========== ====== ========= ======
</TABLE>
- -----------------
(1) Prior to deducting any expenses associated with the issuances.
USE OF PROCEEDS
Assuming exercise of all the Warrants, the Company will receive aggregate
gross proceeds of approximately $194,150, net of offering expenses, which may
include, under certain circumstances, a 5% solicitation commission payable to
May Davis. The Company will use these proceeds for working capital and will
have broad discretion in the application of such proceeds. As there are no
commitments from the holders of the Warrants to exercise such securities,
there can be no assurance that any of the Warrants will be exercised. The
Company will receive no proceeds from the resale of shares of Common Stock by
its stockholders. Any proceeds received from this Offering will be used for
working capital. Prior to expenditure, such proceeds will be invested
principally in high grade short-term interest-bearing investments. See
"Underwriting."
18
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER'S PROSPECTUS]
CAPITALIZATION
The following table sets forth the capitalization of the Company at
March 31, 1997 and September 30, 1997 and such capitalization as adjusted to
give effect to the anticipated use of the net proceeds from exercise of the
Warrants in the manner contemplated under "Use of Proceeds". This table
should be read in conjunction with the historical financial statements and
notes thereto appearing elsewhere in this Prospectus.
SEPTEMBER 30, 1997
ACTUAL AS ADJUSTED(1)
(unaudited) (unaudited)
----------- -----------
Liabilities
Total liabilities $ 159,637 $ 159,637
=========== ===========
Stockholders' Equity
Preferred Stock, $.0001 par value: Authorized
1,000,000 share; none issued .................. -- --
Common Stock, $.0001 par value: Authorized
19,000,000 shares; Issued and Outstanding--
2,950,000 and 4,754,200 respectively .......... 295 299
Additional paid in capital ...................... 5,864,448 6,048,886
Deficit accumulated during the development
stage ......................................... (3,055,110) (3,055,110)
Deferred compensation ........................... (684,647) (684,647)
----------- -----------
Stockholders' equity ............................ $ 2,124,986 $2,309,428
=========== ===========
- ---------------
(1) Gives effect to the issuance of the shares of Common Stock registered
herein upon exercise of 35,300 Warrants registered herein at $5.50 per share.
21
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
PLAN OF DISTRIBUTION
Each Selling Securityholder is free to offer and sell his or her Common Stock
and Warrants (collectively "Securities") at such time, in such manner and at
such prices as he or she shall determine. Such Common Stock and Warrants may
be offered by Selling Securityholders in one or more types of transactions,
which may or may not involve brokers, dealers or cash transactions. There is
no underwriter or coordinating broker acting in connection with the proposed
sale of Common Stock and Warrants by the Selling Securityholders.
The Selling Securityholders have advised the Company that sales of Common
Stock and Warrants may be effected from time to time in transactions, through
the writing of options on the Securities, or a combination of such methods of
sale, at fixed price which may be changed, at market prices prevailing at the
time of sale, or at negotiated prices, the Selling Securityholders may effect
such transactions by selling Common Stock and Warrants directly to purchasers
or through broker/dealers which may act as agents or principals. Such
broker/dealer may receive compensation in the form of discounts, concessions,
or commissions from the Selling Securityholders and/or the purchasers of
Common Stock and Warrants for whom such broker/dealers may act as agents or to
whom they sell as principal, or both (which compensation as to a particular
broker/dealer that act in connection with the sale of the Common Stock and
Warrants might be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act, and any commissions received by them and any
profit on the resale of the Common Stock and Warrants as principal might be
deemed to be underwriting discounts and commissions under the Securities Act.
The Selling Securityholders may agree to indemnify any agent, dealer or
broker/dealer that participates in transactions involving sales of the Common
Stock and Warrants against certain liabilities, including liabilities arising
under the Securities Act.
Because Selling Securityholders may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Common Stock and Warrants, they will be
subject to prospectus delivery requirements under the Securities Act.
Furthermore, in the event of a "distribution" of his or her Securities, any
Selling Securityholder, any selling broker/dealer and any "affiliated
purchasers" may be subject to Rule 10b-7 under the Exchange Act which
prohibits any "stabilizing bid" or "stabilizing purchase" for the purpose of
pegging, fixing or stabilizing the price of the Common Stock and Warrants in
connection with the Offering.
CONCURRENT REGISTRATION OF SECURITIES
Concurrently with this Offering, 1,242,700 shares of Common Stock and
1,804,200 Warrants have been registered under the Securities Act for immediate
resale in the public market.
48
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
SELLING SECURITYHOLDERS
The following table sets forth the number of shares of the Common Stock of the
Company beneficially owned by each Selling Securityholders and the number of
shares of Common Stock included for sale in this Prospectus.
<TABLE>
<CAPTION>
Number Of Shares
Of Common Stock
And Warrants
Beneficially Owned
Number Of Shares After The Selling
Of Common Stock Number Of Warrants Security Holders
Name Beneficially Owned Beneficially Owned Offering
- - ------------------------------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Dennis Sal................................. 37,500 35,300 0
Arlene Horowitz............................ 5,000 0 0
Lon Rubackin............................... 6,400 0 0
Edwin S. Osias............................. 15,000 0 0
Cliff Feldstein............................ 10,000 0 0
Georgia M. Rodgers......................... 10,000 0 0
Ulysses Flemming........................... 10,000 0 0
Phil Settles............................... 15,000 0 0
Farid K. Farida............................ 15,000 0 0
Robert B. Sauter........................... 15,000 0 0
Balch and Bingham
Money Purchase Pension
Plan FBO, Harold Bowron.......... 10,000 0 0
Annetta D'Amico Bolson..................... 7,000 0 0
Ben Shabtai................................ 10,000 0 0
Gusrae, Kaplan & Bruno..................... 17,500 0 0
- -----------------------------------------------------------------------------------------------------------------
Total 183,400 35,300 0
</TABLE>
49
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
LEGAL MATTERS
The legality of the shares offered hereby was passed upon for the Company by
Gusrae, Kaplan & Bruno, Esqs., New York, New York. The firm of Gusrae, Kaplan
& Bruno owns 17,500 shares of the Common Stock of the Company, which shares
have been registered in the concurrent registration.
EXPERTS
The financial statements of the company at March 31, 1997 and for the year
then ended and for the period from August 23, 1995 (date of inception) to
March 31, 1996 included in this Prospectus have been included in reliance upon
the report of Goldstein Golub Kessler & Company, P.C., independent certified
public accountants, given upon the authority of said firm as experts in
auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Commission in Washington, D.C., a Registration
Statement on Form SB-2 under the 1933 Act with respect to the Common Stock
offered by this Prospectus. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto.
For further information with respect to the Company and the Company's Common
Stock, reference is made to the Registration Statement and such exhibits.
Statements in the Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. The Company is subject to the informational
requirements of the Exchange Act, and in accordance therewith, files reports
and other information with the Commission. The Registration Statement, the
exhibits thereto and such reports and other information may be inspected by
anyone without charge at the principal office of the Commission at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and copies of all or any part of it may be obtained from the
Commission upon payment of a prescribed fee. The Company's Class A Common
Stock is quoted on the NASDAQ Stock Market and reports and other information
concerning the Company may also be inspected and copied at the office of the
NASDAQ Stock Market, Inc., NASDAQ Operations, 1735 K Street, N.W., Washington,
D.C. 20549. The Commission also maintains a web site that contains reports,
proxy and information statements and other information that may be obtained
electronically by using the Commission's Web Site on the Internet at
http://www.sec.gov. The Company will provide without charge to each person who
receives a copy of the Prospectus, upon written or oral request of such
person, a copy of any of the information that is incorporated by reference in
this Prospectus (not including exhibits to the information that is
incorporated by reference unless the exhibits are themselves specifically
incorporated by reference). Such request should be directed to the Company,
584 Broadway, Suite 806, New York, NY 10012, Attention: Andrew Schwartz.
50
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In general, Section 145 of the Delaware General Corporation Law provides that
persons who are officers or directors of a corporation may be indemnified by
the corporation for acts performed in their capacities as such. The
Registrant's by-Laws authorize indemnification in accordance with and to the
extent permitted by said statute.
The Company's Certificate of Incorporation and By-Laws provide for
indemnification to the fullest extent permitted by law.
Reference is also made to Section 8 of the Underwriting Agreement filed as
Exhibit 1.1 to this Registration Statement, pursuant to which the May Davis
agrees to indemnify the directors and certain officers of the Company and
certain other persons against civil liability.
Except as hereinafter set forth, there is no charter provision, by-law,
contract, arrangement or statute under which any director or officer of the
Company is indemnified in any manner against any liability which he may incur
in his capacity as such.
Article VI of the Company's Articles of Incorporation provides as follows:
A director of the corporation shall not be liable to the
corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except to the extent
such exemption from liability or limitation thereof is not
permitted under the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended. Any
amendment, modification or repeal of the foregoing sentence
by the stockholders of the corporation shall not adversely
affect, any right or protection of a director of the
corporation in respect of any act or commission occuring
prior to the time of such amendement, modification or
repeal.
Article X of the Company's By-Laws provides as follows:
The Corporation shall indemnify to the full extent
authorized by law any person made or threatened to be made a
party to an action or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that
he, his testator or intestate is or was a director, officer
or employee or agent of the Corporation or any predecessor
of the Corporation or serves or served any other enterprise
as a director, officer or employee or agent at the request
of the Corporation or any predecessor of the Corporation.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of this Offering all of which are to be paid by the
Registrant in connection with the issuance and distribution of the securities
being registered are as follows:
Printing and engraving expenses............................... $ 5,000
Accounting fees and expenses.................................. 15,000
Legal fees and expenses....................................... 10,000
-------
Total......................................................... $30,000
=======
1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Except as set forth below, there were no sales of unregistered securities by
the Registrant during the past three years:
Effective as of September 1995, the Registrant sold 132,268, 263,699, 263,699,
45,206 and 132,268 shares of the Company's Common Stock to Messrs. Scott Wolf,
Laurence Rosen, Jeffrey Wolf, Andrew Schwartz and Michael Kharitonov,
respectively, for aggregate consideration of $6,750. These transactions were
exempt from registration under the Securities Act of 1933, as amended (the
"Act"), under Section 4(2) of the Act as not involving a public offering.
Effective as of December 1995, the Registrant sold 45,206, 88,737, 88,737,
45,206 and 132,268 shares of the Company's Common Stock, to Messrs. Scott
Wolf, Laurence Rosen, Jeffrey Wolf, Andrew Schwartz and Michael Kharitonov,
respectively, for an aggregate consideration of approximately $22,890. These
transactions were exempt from registration under the Act, under Section 4(2)
of the Act as not involving a public offering.
On or about February 1, 1996, the Registrant sold 41,857 shares of the
Company's Common Stock to Mr. Robert Friedman for an aggregate consideration
of $50,000. This transaction was exempt from registration under the Act, under
Section 4(2) of the Act as not involving a public offering.
Effective as of January 1996, the Company sold 1,674 shares of the Company's
Common Stock to each of Messrs. Laurence Rosen and Michael Kharitonov for an
aggregate consideration of $1.00. These transactions were exempt from
registration under the Act, under Section 4(2) of the Act as not involving a
public offering.
On or about February 28, 1996, the Company sold 17,500 shares of the Company's
Common Stock to Gusrae Kaplan & Bruno in consideration for services rendered.
This transaction was exempt from registration under the Act, under Section
4(2) of the Act as not involving a public offering.
In March 1996, the Registrant issued an aggregate of $250,000 principal amount
twelve percent (12%) promissory notes, 200,000 shares of Common Stock and
1,000,000 Warrants to a total of four private investors, who paid total gross
consideration of $250,000. These transactions were exempt from registration
under the Act, under Section 4(2) and Rule 506 of Regulation D of the Act as
not involving a public offering. May Davis Group, Inc. acted as Placement
Agent for these issuances and received an aggregate of $25,000 in commissions
(10%). The recipients of all of the foregoing securities represented that such
securities were being acquired for investment and not with a view to the
distribution thereof. In addition, the certificates evidencing such securities
bear restrictive legends.
In May 1996, the Registrant issued an aggregate of 200,000 shares of Common
Stock to a total of 13 private investors, who paid total gross consideration
of $500,000. These transactions were exempt from registration under the Act,
under Section 4(2) and Rule 506 of Regulation D of the Act as not involving a
public offering. May Davis Group, Inc. acted as Placement Agent for these
issuances and received an aggregate of $65,000, consisting of commissions
(10%) and non-accountable expense allowances (3%). The recipients of all of
the foregoing securities represented that such securities were being acquired
for investment and not with a view to the distribution thereof. In addition,
the certificates evidencing such securities bear restrictive legends.
On February 27, 1997, the Company's Board of Directors adopted the NetLive
Communications, Inc. Performance Share Program, an employee deferred
compensation plan (the "Performance Plan"). The Company also entered into a
Trust Agreement whereby the Performance Share Program Trust (the "Trust") was
created and issued 300,000 shares of the Company's Common Stock to the Trust.
This transaction was exempt from registration under the Act under Section 4(2)
of the Act as not involving a public offering.
2
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibits: The following exhibits are filed herewith or incorporated
herein by reference:
1.1 Underwriting Agreement (1)
1.2 Form of Selected Dealers Agreement (1)
3.1 Articles of Incorporation, as amended to date(1) (6)
3.2 By-Laws (1) (2) (7)
4.1 Form of Underwriter's Warrant(1)
4.2 Form of Financial Advisory and Investment Banking Agreement with
the Underwriter(1)
4.3 Form of Common Stock Certificate(1)
4.4 Form of Common Stock Purchase Warrant(1)
4.5 Form of Common Stock Purchase Warrant used for Bridge Loans(1)
4.6 Form of Warrant Agreement(1) 5.1 Opinion of Gusrae, Kaplan &
Bruno (1)
10.1 Employment Agreement with Laurence Rosen(1) 10.2 Employment
Agreement with Michael Kharitonov(1) 10.3 Employment Agreement
with Jeffrey Wolf, as amended(1)
10.4 Amendment No. 1 to Employment Agreement with Michael
Kharitonov(1)
10.5 Employment Agreement with Vladislav Rysin(1)
10.6 License Agreement with Jeane Dixon(1)
10.7 Company's 1996 Incentive Stock Option Plan (1)(9)
10.8 NetLive Communications, Inc. Performance Share Program and
Performance Share Program Trust(3)
10.9 Settlement and Voting Agreement, dated as of June 12, 1997, among
the Company, May Davis Group, Inc. et al.(4)
10.10 Letter agreement, dated as of June 12, 1997, between the Company
and Gary Rogers(4)
10.11 Severance Agreement, dated as of June 12, 1997, between the
Company and Laurence M. Rosen and exhibits thereto including the
Consulting Agreement.(4)
10.12 Amendment to Settlement and Voting Agreement, dated as of
September 23, 1997, by and among the Company, May Davis Group,
Inc. et al. (5)
10.13 Amendment to Underwriting Agreement, dated as of September 23,
1997, by and between the Company and May Davis Group, Inc. (5)
10.14 Letter Agreement, dated as of September 23, 1997, by and between
the Company and Gary Rogers (5)
10.15 Company's 1997 Stock Option Plan (8)
23.1 Consent of Gusrae, Kaplan & Bruno (1)
23.2 Consent of Goldstein, Golub, Kessler & Company, P.C. (11)
27.1 Financial Data Schedule (10)
- - -----------------
(1) Filed with the Company's Registration Statement filed on Form SB-2
(File No. 333-4057) in connection with the Company's initial public
offering, effective August 12, 1997.
(2) Amendment to Article II, Section 7 of the Company's By-laws filed with
3
<PAGE>
the Company's Current Report on Form 8-K dated January 28, 1997.
(3) Filed with the Company's Current Report on Form 8-K dated February 27,
1997.
(4) Filed with the Company's Current Report on Form 8-K dated July 3, 1997
(5) Filed with the Company's Current Report on Form 8-K dated October 8, 1997
(6) Additional Articles IX, X and XI were filed with the Company's Current
Report on Form 10-QSB dated November 14, 1997.
(7) The amendment to Article III, Sections 1(a), 1(c), 6 and 9 and the
amendment to Article IV, Sections 1(b), 1(c) and 3 were filed with the
Company's Current Report on Form 10-QSB dated November 14, 1997.
(8) Filed with the Company's Current Report on Form 10-QSB dated November
14, 1997.
(9) Amended and corrected version filed with the Company's Current Report
on Form 10-QSB dated November 14, 1997.
(10) Filed with the Company's Current Report on Form 10-QSB/A dated November
26, 1997.
(11) Filed herewith.
All other schedules are omitted, as the required information is either
inapplicable or presented in the financial statements or related notes.
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to
directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that
in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the small business
issuer of expenses incurred or paid by a director, officer
or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the small
business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy
as expressed in the Act and will be governed by the final
adjudication of such issue.
4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form SB-2 and authorized this amendment to
the registration statement to be signed on its behalf by the undersigned in
the City of New York, State of New York.
NETLIVE COMMUNICATIONS, INC.
Date: 12/19/97 By: /s/ Michael Kharitonov
-------- ---------------------------------
Michael Kharitonov, President and
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
/s/ Michael Kharitonov Chairman of the Board, President,
- ---------------------- Chief Executive Officer December 19, 1997
Michael Kharitonov and Director
/s/ John Meier Executive Vice President,
- ---------------------- Chief Operating Officer and December 19, 1997
John Meier Director
/s/ Andrew Schwartz Secretary, Treasurer,
- ---------------------- Chief Financial Officer, Vice December 19, 1997
Andrew Schwartz President of Finance and Administration
and Director
/s/ Adam Goldberg
- ---------------------- Director December 19, 1997
Adam Goldberg
/s/ Jeffrey Wolf
- ---------------------- Director December 19, 1997
Jeffrey Wolf
/s/ Michael Wolf
- ---------------------- Director December 19, 1997
Michael Wolf
/s/ Marcel Yung
- ---------------------- Director December 19, 1997
Marcel Yung
</TABLE>
5
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
To the Board of Directors
NetLive Communications, Inc.
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form SB-2 of our report dated April 28, 1997, on the
financial statements of NetLive Communications, Inc. as of March 31, 1997 and
for the year then ended and for the period from August 23, 1995 (date of
inception) to March 31, 1996, which appear in such Prospectus. We also consent
to the reference to our firm under the caption "Experts" in such Prospectus.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
December 19, 1997
