<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 2, 1996
SEC REGISTRATION NO. 333-14497
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
AMENDMENT NO. 2
FORM SB-2 REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NAVIDEC, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
COLORADO 7373 33-0502730
(State or Other (Primary Standard Industrial (IRS Employer
Jurisdiction of Incorporation) Classification Code Number) Identification
Number)
</TABLE>
14 INVERNESS DRIVE, BUILDING F, SUITE 116 ENGLEWOOD, COLORADO 80112 (303)
790-7565
(Address and telephone number of principal executive offices and principal place
of business)
RALPH ARMIJO
14 INVERNESS DRIVE, BUILDING F, SUITE 116, ENGLEWOOD, COLORADO 80112
(303) 790-7565
(Name, Address and Telephone Number of Agent for Service)
----------------------------------
COPIES TO:
ROGER V. DAVIDSON, ESQ. DAVID C. ROOS, ESQ.
JOHN D. TISHLER, ESQ. Berliner Zisser Walter
Cohen Brame & Smith Professional & Gallegos, P.C.
Corporation
1700 Lincoln Street, Suite 1800 1700 Lincoln Street, Suite 4700
Denver, Colorado 80203 Denver, Colorado 80203
(303) 837-8800 (303) 830-1700
Fax (303) 894-0475 Fax (303) 830-1705
----------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
OFFERING PRICE PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO PER UNIT/SHARE/ WARRANT AGGREGATE
SECURITIES TO BE REGISTERED BE REGISTERED (1) OFFERING PRICE
<S> <C> <C> <C>
Units consisting of one share of Common Stock, no par
value ("Common Stock") and one Common Stock Purchase
Warrant ("Warrant") (2)............................... 1,150,000 units $ 7.00 $ 8,050,000
Common Stock Issuable Upon Exercise of the Warrants
(2)(4)................................................ 1,150,000 shares $ 8.40 9,660,000
Representative's Options (5)............................ 100,000 options $ .001 100
Common Stock Issuable Upon Exercise of Representative's
Options (7)........................................... 100,000 shares $ 8.40(8) 840,000
Warrants Issuable Upon Exercise of Representative's
Options............................................... 100,000 warrants -- --
Common Stock Issuable Upon Exercise of the Warrants
Included in the Representative's Options (4).......... 100,000 shares $ 8.40 840,000
Common Stock Issued to Bridge Financing Selling
Stockholders and not offered hereby................... 129,126 shares $ 7.00 903,882
Warrants Issued to Bridge Financing Selling
Stockholders.......................................... 349,126 warrants -- --
Common Stock Issuable Upon Exercise of Warrants Issued
to Bridge Financing Selling Stockholders (4).......... 349,126 shares $ 8.40 2,932,658
Total................................................... $ 23,226,640
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Units consisting of one share of Common Stock, no par
value ("Common Stock") and one Common Stock Purchase
Warrant ("Warrant") (2)............................... $ 2,439.39
Common Stock Issuable Upon Exercise of the Warrants
(2)(4)................................................ 2,927.27
Representative's Options (5)............................ $ -0- (6)
Common Stock Issuable Upon Exercise of Representative's
Options (7)........................................... 254.55
Warrants Issuable Upon Exercise of Representative's
Options............................................... --
Common Stock Issuable Upon Exercise of the Warrants
Included in the Representative's Options (4).......... 254.55
Common Stock Issued to Bridge Financing Selling
Stockholders and not offered hereby................... 273.90
Warrants Issued to Bridge Financing Selling
Stockholders.......................................... --
Common Stock Issuable Upon Exercise of Warrants Issued
to Bridge Financing Selling Stockholders (4).......... 888.68
Total................................................... $ 7,038.34
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Includes 150,000 Units subject to sale upon exercise of over-allotment
option granted to Representative which may be offered to cover over-
allotments, if any.
(3) Includes 150,000 Warrants subject to sale upon exercise of over-allotment
option granted to Representative, which may be offered to cover over-
allotments, if any.
(4) Pursuant to Rule 416, there are also being registered such indeterminable
number of additional shares of Common Stock, which may be issued as a result
of the anti-dilution provisions of the Warrants.
(5) Represents options, to be issued to the Representative, to purchase Units.
(6) No separate registration fee is required pursuant to Rule 457(g).
(7) Pursuant to Rule 416, there are being registered such indeterminate number
of additional shares of Common Stock which may be issued as a result of the
anti-dilution provisions of the Representative's Options.
(8) Represents the exercise price of the Representative's Options.
----------------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 2, 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
1,000,000 UNITS
NAVIDEC, INC.
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE COMMON STOCK PURCHASE WARRANT
Each Unit ("Unit") of NAVIDEC, Inc., a Colorado corporation (the "Company")
consists of one share of Common Stock, no par value per share (the "Common
Stock"), and one Common Stock Purchase Warrant ("Warrant"). Of the 1,000,000
shares of Common Stock and 1,000,000 Warrants included in the Units offered
hereby, 780,000 shares of the Common Stock and 1,000,000 Warrants are being sold
by the Company and 220,000 shares of Common Stock are being sold by certain
stockholders of the Company (the "Bridge Financing Selling Stockholders"). See
"Bridge Financing Selling Stockholders." Until the completion of this offering,
the Common Stock and Warrants may only be purchased together as a Unit at an
anticipated public offering price of between $6.00 and $7.50 ("Offering Price"),
of which $.10 is the anticipated public offering price allocated to the
Warrants. The Units, Common Stock and Warrants offered hereby are sometimes
hereinafter collectively referred to as the "Securities." Upon completion of the
offering, the Common Stock and the Warrants will immediately trade separately.
The Company will not receive any of the proceeds from sales of Common Stock
included in the Units by the Bridge Financing Selling Stockholders. Each Warrant
entitles the holder to purchase one share of Common Stock at a price of $
(120% of the Offering Price) until , 2001 (five years from the date of
this Prospectus). The Warrants are redeemable at the option of the Company, at
$.05 per Warrant, at any time on or after , 1997 (one year from
the date of this Prospectus) or such earlier date as may be determined by Joseph
Charles & Associates, Inc., the representative (the "Representative") of the
Underwriters, upon at least thirty days' notice if the closing price of the
Common Stock equals or exceeds $ (140% of the Offering Price) for twenty
consecutive trading days ending within thirty days prior to the date notice of
redemption is given, and at such time there is a current effective registration
statement covering the shares of Common Stock underlying the Warrants.
In addition to the shares of Common Stock included in the Units and being
sold hereby by the Bridge Financing Selling Stockholders, an aggregate of
129,126 shares of Common Stock and 349,126 Warrants are being registered
simultaneously with this offering for resale by such Bridge Financing Selling
Stockholders. The Bridge Financing Selling Stockholders have, however, agreed
not to resell any additional Common Stock until ten months from the consummation
of this offering, subject, however, to earlier sale upon the prior written
consent of the Representative in its discretion in each case. See "Additional
Registered Securities" and "Underwriting."
--------------------------
(CONTINUED ON NEXT PAGE)
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.
<TABLE>
<CAPTION>
PROCEEDS TO
BRIDGE
PROCEEDS TO FINANCING
PRICE TO UNDERWRITING THE SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share............................... $ $ $ $
Per Warrant............................. $ $ $ $
Total (3)............................... $ $ $ $
</TABLE>
(FOOTNOTES CONTINUED ON INSIDE FRONT COVER)
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND
IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY
INVESTORS WHO
CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK
FACTORS" BEGINNING ON PAGE AND
"DILUTION."
The Securities are offered by the several Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and subject
to approval of certain legal matters by counsel and to certain other conditions.
The Underwriters reserve the right to withdraw, cancel or modify the offering
and to reject any offer to purchase in whole or in part. It is expected that
delivery of the certificates representing the Securities will be made against
payment therefor at the offices of Joseph Charles & Associates, Inc., 9701
Wilshire Boulevard, Ninth Floor, Beverly Hills, California 90212, or through the
facilities of Depository Trust Company, on or about , 1996.
JOSEPH CHARLES & ASSOCIATES, INC.
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
(FOOTNOTES CONTINUED FROM COVER)
- ------------------------
(1) Does not include additional compensation to be received by the
Representative in the form of (i) a 3% non-accountable expense allowance and
(ii) sale to the Representative for $100 of options ("Representative's
Options") to purchase 100,000 Units at a price of $ (120% of the Offering
Price) exercisable over a period of four years, commencing one year from the
date of this Prospectus. The Company has also agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting other expenses of this offering payable by the Company,
estimated to be $475,000, including the Representative's non-accountable
expense allowance.
(3) The Company has granted the Underwriters an option ("Over-allotment
Option"), exercisable within sixty days from the date of this Prospectus, to
purchase up to 150,000 additional Units on the same terms as set forth
above, solely for the purpose of covering over-allotments, if any. If the
Underwriters' Over-allotment Option is exercised in full, the total Price to
the Public, Underwriting Discount, and Proceeds to the Company will be
$ , $ and $ , respectively. See "Underwriting."
Prior to this offering, there has been no public market for the Securities
of the Company and there can be no assurance that any such market will develop
or be sustained after this offering. The initial public offering price of the
Securities has been determined by negotiation between the Company and the
Representative and does not necessarily reflect the Company's asset value,
performance or any other established criteria. For information regarding the
factors considered in determining the initial public offering price of the
Securities and the terms of the Warrants, see "Underwriting." The Company has
applied to have the Units, the Common Stock and the Warrants approved for
inclusion on The NASDAQ SmallCap-SM- Market under the symbols NVDCU, NVDC and
NVDCW, respectively.
AS OF THE DATE OF THIS PROSPECTUS, THE COMPANY WILL BECOME SUBJECT TO THE
REPORTING REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934 AND IN ACCORDANCE
THEREWITH WILL FILE REPORTS, PROXY STATEMENTS AND OTHER INFORMATION WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE COMPANY INTENDS TO FURNISH ITS
STOCKHOLDERS WITH ANNUAL REPORTS CONTAINING AUDITED FINANCIAL STATEMENTS AND
SUCH OTHER PERIODIC REPORTS AS THE COMPANY DEEMS APPROPRIATE OR AS MAY BE
REQUIRED BY LAW.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. EACH PROSPECTIVE INVESTOR IS URGED TO CAREFULLY
READ THIS PROSPECTUS IN ITS ENTIRETY, INCLUDING BUT NOT LIMITED TO THE RISK
FACTORS.
THE COMPANY
The Company is a leading provider of comprehensive Internet and Intranet
solutions for regional, national and international business organizations. The
Company also serves as a distributor of various high technology and other
products through traditional and electronic channels. The Company provides its
services and distributes its products to over 500 customers as of the date of
this Prospectus. The Company's Internet/Intranet solutions focus on all aspects
of commercial Internet and Intranet presence, including design and development
of World Wide Web ("WWW" or "Web") sites, marketing, database integration,
electronic commerce and order fulfillment. ("Intranets" are internal corporate
networks based upon protocols and technology developed for the Internet.) See
"Business--Internet/Intranet Solutions." Product distribution includes the sale
and installation of high technology systems and components from third party
manufacturers principally through traditional distribution channels. See
"Business--Distribution and Related Services." The Company's core competencies
in Internet/Intranet technology and traditional product marketing and
distribution form its business model of providing complete Internet/Intranet
solutions. These solutions include computer and network infrastructure
equipment, software and services, content and aggregation, electronic commerce
and fulfillment of orders.
The Company provides Internet/Intranet solutions to regional, national and
international clients including Hewlett Packard, AT&T, KN Energy, Kimmon
Electric of Japan, the Colorado Avalanche National Hockey League team, Gannett's
KUSA-TV Denver, the Colorado Rockies Major League Baseball team, Live
Entertainment, the Denver Metro Convention Bureau and others. See "Business--
Significant Clients." The Company distributes high technology products
manufactured or produced by IBM, Apple, Hewlett Packard, Tektronix, Kimmon
Electric of Japan, Hayashi Denko, Silicon Graphics, Netscape, Netcom, Sybase and
others. See "Business--Distribution and Related Services."
To date, distribution of high technology products and related services has
accounted for the substantial majority of the Company's revenue. Although the
Company intends to continue expansion of its traditional high technology product
distribution, the Company believes that substantial revenue growth opportunities
exist in the Internet/Intranet solutions industry and the Company has positioned
itself to take advantage of these growth opportunities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company has developed a number of strategic relationships with Internet
industry participants, including subcontracting arrangements with AT&T and IBM
(see "Business--Marketing"), and designated reseller arrangements with AT&T,
IBM, Hewlett Packard, Silicon Graphics, Microsoft, Netscape and Sybase. Many of
these companies also employ the Company's Internet/Intranet Solutions and refer
clients to the Company. See "Business--Business Strategy." The Company believes
that the combination of these relationships with the Company's business model
allows the Company to offer uniquely complete, integrated commercial Internet
and Intranet solutions to its clients. The Company is able to design and
implement Internet or Intranet sites and networks serving the full range of
client needs, from simple informational sites to interactive product
distribution sites to advanced, user friendly corporate Intranets. The Company
has also developed a number of proprietary software tools to implement
Internet/Intranet interactivity and electronic commerce on the Internet. These
tools are licensed to clients in connection with Internet/Intranet sites and
networks designed and maintained by the Company. See "Business--
Internet/Intranet Solutions." In addition, many of the Company's
Internet/Intranet clients have become sources of recurring revenue as a result
of their continued utilization of the full range of Internet/Intranet
4
<PAGE>
solutions offered by the Company, including technical upgrades, site
maintenance, advertising and marketing. See "Business--Business Strategy."
The Company merged with Interactive Planet, Inc., a designer and developer
of Internet World Wide Web ("WWW" or "Web") sites, in July 1996. The
consideration for the merger was the issuance of an aggregate of 678,877 shares
of Common Stock to the shareholders of IPI and a $75,000 note payable to one
shareholder of IPI. The merger was consummated in order to establish the
Company's business model of combined expertise in traditional marketing and
distribution and Internet/Intranet technology. See "Business--Overviews."
UNLESS OTHERWISE INDICATED, ALL SHARE AND PER SHARE DATA AND INFORMATION
CONTAINED IN THIS PROSPECTUS RELATING TO THE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING (I) ASSUMES THE EFFECT OF A 1-FOR-2 REVERSE SPLIT OF THE COMPANY'S
OUTSTANDING COMMON SHARES EFFECTED OCTOBER 18, 1996 AND THE EFFECT OF A
.85-FOR-1 REVERSE SPLIT OF THE COMPANY'S OUTSTANDING SHARES TO BE EFFECTIVE ON
THE DATE OF THIS PROSPECTUS, (II) ASSUMES THE ISSUANCE UPON CONSUMMATION OF THIS
OFFERING OF AN AGGREGATE OF 349,126 UNITS UPON CONVERSION OF $1,437,500
PRINCIPAL AMOUNT OF 10% UNSECURED SUBORDINATED CONVERTIBLE PROMISSORY NOTES OF
THE COMPANY ("BRIDGE PROMISSORY NOTES") SOLD IN A PRIVATE PLACEMENT FINANCING IN
AUGUST THROUGH OCTOBER 18, 1996 ("BRIDGE FINANCING PRIVATE PLACEMENT"), (III)
ASSUMES NO EXERCISE OF THE WARRANTS, (IV) ASSUMES NO EXERCISE OF THE
OVER-ALLOTMENT OPTION, (V) DOES NOT INCLUDE 100,000 UNITS (AND THE COMMON STOCK
ISSUABLE UPON EXERCISE OF THE WARRANTS INCLUDED IN SUCH UNITS) RESERVED FOR
ISSUANCE TO THE REPRESENTATIVE UPON EXERCISE OF OPTIONS TO BE ISSUED TO THE
REPRESENTATIVE UPON CONSUMMATION OF THIS OFFERING (THE "REPRESENTATIVE'S
OPTIONS"), AND (VI) DOES NOT INCLUDE A TOTAL OF 212,500 SHARES RESERVED FOR
ISSUANCE UPON EXERCISE OF OPTIONS FOR 212,500 SHARES OF COMMON STOCK GRANTED TO
AN EMPLOYEE OF THE COMPANY (THE "EMPLOYEE'S OPTIONS").
THIS PROSPECTUS INCLUDES PRODUCT NAMES, TRADE NAMES AND MARKS OF COMPANIES
OTHER THAN THE COMPANY. ALL OTHER COMPANY OR PRODUCT NAMES ARE TRADEMARKS,
REGISTERED TRADEMARKS, TRADE NAMES OR MARKS OF THEIR RESPECTIVE OWNERS AND ARE
NOT THE PROPERTY OF THE COMPANY.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Outstanding Prior to the Offering........................... 1,700,595 shares
Common Stock Offered by the Company...................................... 780,000 shares
Common Stock Offered by the Bridge Financing Selling Stockholders........ 220,000 shares
Common Stock to be Outstanding After the Offering........................ 2,829,721
shares(1)
</TABLE>
- ------------------------
(1) Includes 129,126 shares of Common Stock to be issued to Bridge Financing
Selling Stockholders which are not included in this offering.
<TABLE>
<CAPTION>
Use of Proceeds................... For purchase of capital equipment, development of
Internet/ Intranet solutions, advertising and marketing,
repayment of loans and working capital and other general
corporate purposes. See "Use of Proceeds."
<S> <C>
Proposed NASDAQ SmallCap-SM-
Symbols
Units......................... NVDCU
Common Stock.................. NVDC
Warrants...................... NVDCW
Risk Factors...................... The Securities offered hereby are highly speculative and
involve a high degree of risk and should be purchased
only by investors who can afford the loss of their
entire investment. See "Risk Factors." In addition,
there is immediate substantial dilution from the public
offering price. See "Dilution."
</TABLE>
6
<PAGE>
SUMMARY COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following tables set forth summary combined financial information and
other equity information of the Company. The summary financial information in
the tables is derived from the financial statements of the Company and IPI and
pro forma financial information, and should be read in conjunction with and is
qualified in its entirety by the more detailed financial statements, pro forma
combined financial information and related notes thereto, and other financial
information included herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1995 NINE MONTHS ENDED SEPTEMBER 30, 1996
---------------------------------------- ----------------------------------------
STATEMENTS OF OPERATIONS DATA NAVIDEC, INC. IPI(1) PRO FORMA(2) NAVIDEC, INC. IPI PRO FORMA(3)
- ---------------------------------- -------------- --------- ------------- -------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues...................... $ 4,121 $ 168 $ 4,288 $ 4,222 $ 185 $ 4,408
Operating Loss.................... (3) -- (82) (506) (100) (645)
Net Loss.......................... (23) -- (102) (636) (101) (776)
Loss Per Share.................... $ (.02) $ (.05) $ (.31) $ (.38)
Shares Outstanding(4)............. 1,352,075 2,030,952 2,030,952 2,030,952
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
------------------------
BEFORE AFTER
BALANCE SHEET DATA AT SEPTEMBER 30, 1996 NAVIDEC, INC. OFFERING(5) OFFERING(6)
- ------------------------------------------------------------------------ --------------- ----------- -----------
<S> <C> <C> <C>
Cash.................................................................... $ 277 $ 749 $ 5,139
Working Capital (Deficit)............................................... (463) 80 4,620
Total Assets............................................................ 1,871 2,421 6,525
Long-Term Liabilities................................................... 959 1,579 141
Stockholders' Equity (Deficit).......................................... (446) (446) 5,246
</TABLE>
- ------------------------
(1) IPI was incorporated May 15, 1995.
(2) Reflecting the combination of the Company and IPI as if the acquisition
occurred January 1, 1995.
(3) Reflecting the combination of the Company and IPI as if the acquisition
occurred January 1, 1996.
(4) Options and shares from the conversion of the Bridge Promissory Notes were
considered in the calculation of weighted average shares under the treasury
stock method based on the proposed public offering price.
(5) Reflecting the Company as if the issuance of the Bridge Promissory Notes
were completed on September 30, 1996.
(6) Reflecting the Company as if the issuance and conversion of the Bridge
Promissory Notes and this offering were completed on September 30, 1996.
7
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. EACH
PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS INHERENT IN,
AND AFFECTING THE BUSINESS OF, THE COMPANY AND THIS OFFERING BEFORE MAKING AN
INVESTMENT DECISION.
RISK FACTORS RELATING TO THE COMPANY
1. HISTORY OF OPERATING LOSSES. Although the Company has been in business
for three years, its business has only recently expanded into Internet and
Intranet infrastructure equipment, software and services, content creation and
aggregation, commerce and distribution (together, "Internet/Intranet
Solutions"). As a result of this expansion, the Company is subject to all the
risks inherent in a new business enterprise. The Company has only a very limited
operating history in the Internet/Intranet Solutions business upon which to base
any evaluation of the Company's performance and prospects in such business. On a
pro forma combined basis for the year ended December 31, 1995 (which includes
approximately six months of Interactive Planet, Inc.'s ("IPI") operations since
its formation), the Company would have realized $4,288,317 in net sales and
recorded a net loss of $101,919. On a pro forma combined basis for the nine
months ended September 30, 1996, the Company would have recorded $4,407,862 in
net sales and a net loss of $775,521. Although there has been growth in annual
revenue, the Company likely will incur losses and experience negative cash flow
during at least the first three quarters following this offering. The Company
plans to focus in the near future on growing its Internet/Intranet Solutions
business and increasing its distribution activities. In order to do so, it must
increase significantly its expenses for personnel, marketing, equipment and
other product purchases. In addition, the Company may experience fluctuations in
future operating results due to a variety of factors (many of which are out of
the Company's control), including general economic conditions, specific economic
conditions in the Internet industry, capital and other costs relating to the
expansion of operations and the mix of services and distribution channels
offered by the Company. There can be no assurance that the Company's operations
will generate sufficient revenues to become profitable. The likelihood of the
Company's success must be considered relative to the problems, experiences,
difficulties, complications and delays frequently encountered in connection with
the operation and development of a new business and the competitive environment
in which the Company operates. See "Business."
2. IPI HISTORY OF OPERATING LOSSES. IPI operated from May 1995 until the
merger with the Company in July 1996. During that time IPI accumulated net
losses of approximately $100,000. The business of IPI is integral to the
Company's new focus on Internet/Intranet Solutions. Management believes that
substantial revenue growth opportunities exist in the Internet/Intranet
Solutions business; however, there can be no assurance that the Company's
Internet/Intranet Solutions business will achieve profitability. See
"Business--Internet/Intranet Solutions" and Financial Statements.
3. POSSIBLE INABILITY TO CONTINUE AS A GOING CONCERN. The Company's
independent auditor has included paragraphs in each of its reports accompanying
the audited financial statements of the Company as of September 30, 1995 and
December 31, 1995 and 1994, and the audited financial statements of IPI as of
December 31, 1995, which state that the respective losses from operations and
negative cash flows from operations of the Company and IPI raise substantial
doubt about each company's ability to continue as a going concern. IPI was
merged into the Company in July 1996 and no longer operates as a separate
entity. Management has taken a number of actions to improve the Company's cash
position and operating results, including (i) raising $1,232,670 in net proceeds
from the Bridge Financing Private Placement in August through October 18, 1996;
(ii) completing the merger with IPI which merger management believes will
enhance the operating results of the combined entity and (iii) undertaking the
public offering contemplated hereby. Management believes that the proceeds from
this offering after amounts used to repay debt will be sufficient to finance its
cash requirements for at least the next 12 months. There can, however, be no
assurance that the Company will be profitable in the future or that the net
proceeds of this offering, together with any funds provided by operations and
presently available capital, will be sufficient to fund the
8
<PAGE>
Company's ongoing operations and there can be no assurance that additional
financing can be obtained in the future if needed. See Financial Statements,
"Use of Proceeds", "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Bridge Financing Private Placement."
4. SIGNIFICANT CAPITAL REQUIREMENTS. The Company's capital requirements
have been and will continue to be significant. To date, the Company has been
dependent primarily on bank loans and loans from the Company's affiliates and
employees, as well as the net proceeds from the recent Bridge Financing Private
Placement, to fund its capital requirements. To date, there has been limited
equity investment in the Company. The Company is dependent on and intends to use
a significant portion of the proceeds of this offering to fund its ongoing
operations as well as to implement its proposed expansion plans. The Company
anticipates that the proceeds to the Company from this offering, together with
projected cash flow from operations, will be sufficient to fund the Company's
operations during the twelve months following the consummation of this offering.
In the event that the Company's plans change, there are any delays in
implementing the proposed expansion, the Company's projections prove to be
inaccurate or the proceeds of this offering prove to be insufficient, the
Company may be required to seek additional financing or curtail its operations
and/or expansion activities. In such case, the Company will generally be
required to seek additional debt or equity financing to fund the costs of daily
operation and of continuing to expand its operations. Any additional equity
financing may involve substantial dilution to the Company's then-existing
stockholders. The Company has no current commitments or arrangements with
respect to, or readily available sources of, additional financing and there can
be no assurance that the current stockholders of the Company will provide any
portion of the Company's future financing requirements. There can be no
assurance that additional financing will be available to the Company when needed
or, if available, that it can be obtained on commercially reasonable terms. Any
inability to obtain additional financing when needed would have a material
adverse effect on the Company including requiring the Company to curtail the
expansion of its operations and possibly causing the Company to cease its
operations. Even if the Company is successful in its expansion plans, no
assurances can be given that the Company will be successful or that investors
will derive a profit from their investment. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and Financial Statements.
5. DEVELOPING MARKET; UNPROVEN MARKET FOR THE COMPANY'S PRODUCT. The
Internet, and particularly the Web, represent markets for the Company's products
and services which have only recently begun to develop, are rapidly evolving and
are characterized by low barriers to entry and an increasing number of market
entrants who have introduced or developed a wide variety of products and
services for communication, information and commerce. As is typical in the case
of a new and rapidly evolving industry, demand and market acceptance for new
products and services are subject to a high level of uncertainty. Moreover,
critical issues concerning the commercial use of the Internet (including
security, reliability, compatibility, cost, difficulty in obtaining user
demographic information, difficulty of use and access, and quality of service)
remain unresolved and may impact the growth of Internet and Web use. There can
be no assurance that marketing or commerce over the Internet will become
widespread, or that products and services which are being developed by the
Company for use on the Internet will become accepted. In particular, enterprises
that have already invested substantial resources in other means of conducting
commerce and exchanging information may be reluctant to adopt a new strategy
that could make their existing products and infrastructure obsolete. In
addition, there can be no assurance that individual personal computer users in
business or at home will adopt the Web for on-line commerce and communication.
Because the market for the Company's products and services is new and evolving,
it is also difficult to predict with any assurance the future growth rate, if
any, and the size of the market. There can be no assurance that the market for
the Company's products and services will continue to expand, that the Company's
products or services will be accepted, or that individual personal computer
users in business or at home will use the Internet or the Company's products and
services for commerce, information and communication. If a significant market
develops more slowly than expected or becomes saturated with
9
<PAGE>
competitors, or if the Company's products do not achieve market acceptance, the
Company's business, operating results and financial condition will be materially
adversely affected. See "Business."
6. RISKS RELATING TO COMPETITION; DYNAMIC MARKET. The market for
Internet/Intranet Solutions is new, intensely competitive, quickly evolving and
subject to rapid technological change. This market is also characterized by low
barriers to entry and frequent product introductions, and the Company therefore
expects competition will increase in the future. Some of the Company's current
and many of the Company's potential competitors have greater name recognition,
larger installed customer bases and significantly greater financial, technical
and marketing resources than the Company. Potential competitors include browser
and software vendors and servers, PC and UNIX software vendors, on-line service
providers, client/server applications and other database companies, multimedia
companies, document management companies, networking software companies, network
management companies, educational software companies, traditional advertising
agencies and interactive television. In a broader sense, the Company may compete
with the more traditional marketing and distribution mediums, such as
traditional distribution channels developed for products and services. This
intense level of competition could materially and adversely affect the Company's
future operating results and financial conditions.
A large number of companies act as manufacturer's representatives and
re-marketers of high technology equipment and related products, and the
Company's competition in this business is therefore also intense. The
distribution business is also characterized by low barriers to entry. In some
instances, the Company, in acting as a re-marketer, may compete with the
original manufacturer. Many of the Company's competitors in the distribution
business have longer operating histories, greater name recognition, larger
installed customer bases and significantly greater financial, technical and
marketing resources than the Company.
There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competitive pressures
faced by the Company will not materially adversely affect its business,
operating results and financial condition. See "Business--Competition."
7. RAPID OBSOLESCENCE AND TECHNOLOGICAL CHANGE. The market for
Internet/Intranet Solutions is characterized by rapidly changing technology,
frequent introductions of new products and evolving industry standards which
result in product obsolescence and short product life cycles. Accordingly, the
Company's success is dependent upon its ability to anticipate technological
changes in the industry and to continually identify, obtain and successfully
market new products and services that satisfy evolving technologies, customer
preferences and industry requirements. There can be no assurance that
competitors will not market products and services which have perceived
advantages over those of the Company or which render products and services to be
offered by the Company obsolete or less marketable. See "Business."
8. DEPENDENCE ON INTERNET INFRASTRUCTURE AND ACCESS. The Company's
revenues will depend in large part upon a robust industry and infrastructure for
providing Internet access and carrying Internet traffic. Notwithstanding current
interest and worldwide subscriber growth, the Internet may not prove to be a
viable commercial marketplace because of inadequate development of the necessary
infrastructure or complementary products, such as high speed modems. Because
global commerce and on-line exchange of information on the Internet and other
open 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, if developed, that the Internet will in fact 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. See "Business."
9. NEED FOR MANAGEMENT OF GROWTH. The Company's rapid growth and plans for
further growth have placed, and are expected to continue to place, a significant
strain on its administrative, operational and
10
<PAGE>
financial resources. The Company's ability to sustain growth effectively will
depend, in part, on its ability to manage growth and to train, motivate and
manage its employees. Currently, the Company relies on a limited staff which is
responsible for all of the Company's activities, including sales and promotion,
client planning, product distribution and technical development of products for
clients. Many of the staff members are currently performing a combination of
these functions. The Company's continued growth will require it to recruit and
hire new technical, sales and marketing personnel so that the staff can be
better specialized to market the services of the Company and serve client needs.
At the present time, the Company plans to use a portion of the net proceeds of
this offering to increase its sales force and technical staff, although no
assurances can be given that qualified personnel can be hired. Market
competition for the services of the limited number of people who are capable of
performing the technical services of the Company is intense. The inability to
recruit, hire and retain necessary personnel or the emergence of unexpected
expansion difficulties could adversely affect the Company's business, operating
results and financial condition. See "Management" and "Business--Employees."
10. DEPENDENCE ON RELATIONSHIPS. The Company maintains many important
relationships with it clients and suppliers. These relationships often result in
opportunities for expanding the Company's client base, technical capability and
revenue base. The most significant of these relationships are with AT&T, IBM,
Hewlett Packard, Silicon Graphics, Microsoft, Netscape and Sybase. While the
Company has contracts with most of these companies, none of the contracts are
exclusive and for the most part these companies are free to terminate their
relationship with the Company at any time. The termination or deterioration of
one or more of these relationships could have a material adverse effect on the
Company's business, operating results and financial condition. See "Business."
11. DEPENDENCE ON MAJOR SUPPLIERS. During the first three quarters of
1996, resales of the products from four manufacturers or aggregators of
traditional products marketed by the Company accounted for over 5% of the
Company's net sales during such period. The four manufacturers and aggregators
are Hewlett Packard, Kimmon Electric of Japan, Tektronix and Micro Age. A
disruption in the supply from any of these companies could have an adverse
affect on the Company's short-term operating results, but management believes it
would be able promptly to find alternative sources for any such products.
12. DEPENDENCE ON RECURRING REVENUES. A substantial part of the Company's
income is derived from the recurring revenues associated with sales of supplies
to existing clients and periodic maintenance and upgrades to Internet and
Intranet sites. Clients of the Company are not required to purchase supplies
from the Company and may find another source for such supplies, or their need
for such supplies may diminish or disappear as a result of technological
advances or changes in customer utilization of hardware. In addition, most of
the Company's Internet/Intranet Solutions clients are not required to utilize
the Company for periodic maintenance and updates to their Internet and Intranet
sites. Although many of the sites designed for the Company's clients contain
proprietary tools licensed by the Company to such clients only so long as the
Company maintains such sites, such clients are nonetheless free to take the
information content of their sites to their own servers or servers maintained by
competitors of the Company. The loss of clients who provide recurring revenues
could have a material adverse effect on the Company. See "Business."
13. DEPENDENCE ON PROPRIETARY TECHNOLOGY; LACK OF PATENTS AND PROPRIETARY
PROTECTION; RISKS OF THIRD PARTY INFRINGEMENT CLAIMS. The Company presently has
no patents with respect to its proprietary technology. Instead, the Company
currently relies upon copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions, all of which afford only
limited protection, to protect its proprietary products. Accordingly, there can
be no assurance that the Company's measures to protect its current proprietary
rights will be adequate to prevent misappropriation of such rights or that the
Company's competitors will not independently develop or patent technologies that
are substantially equivalent or superior to the Company's technologies.
Additionally, although the Company believes that its products and technologies
do not infringe upon the proprietary rights of any third parties, there can be
no assurance that third parties will not assert infringement claims against the
Company. Similarly,
11
<PAGE>
infringement claims could be asserted against products and technologies which
the Company licenses, or has the rights to use, from third parties. Any such
claims, if proved, could materially and adversely affect the Company's business
and results of operations. In addition, although any such claims may ultimately
prove to be without merit, the necessary management attention to, and legal
costs associated with, litigation or other resolution of such claims could
materially and adversely affect the Company's business and results of
operations. See "Business--Proprietary Rights."
14. DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a
significant extent on the continued service of certain key management personnel,
in particular Ralph Armijo, the Company's President and Chief Executive Officer.
The loss or interruption of Mr. Armijo's services, for whatever reason, would
have a material adverse effect on the Company. In the event of the loss of
services of Mr. Armijo, no assurance can be given that the Company will be able
to obtain the services of adequate replacement personnel. The loss or
interruption of the services of any of the Company's other senior management
personnel would also have an adverse effect on the Company. The Company has
entered into a two-year employment agreement with Mr. Armijo and the Company
currently maintains a $2 million life insurance policy on his life; however, no
assurance can be given that the Company will be able to keep such policy in
effect. The Company does not have employment agreements with or maintain life
insurance policies for any of its other executive officers. See "Management."
15. GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES. The Company is not
currently subject to direct regulation by any government agency, other than
regulations applicable to businesses generally. However, due to the increasing
popularity and use of the Internet, it is possible that a number of laws and
regulations may be adopted with respect to the Internet, covering issues such as
user privacy, unsolicited marketing, pricing and characteristics and quality of
products and services. The adoption of any such laws or regulations may decrease
the growth of the Internet, which could in turn decrease the demand for the
Company's products, increase the Company's cost of doing business or otherwise
have an adverse effect on the Company's business, operating results or financial
condition. Moreover, the applicability to the Internet of existing laws
governing issues such as real and intellectual property ownership, libel and
personal privacy is uncertain.
16. ELIMINATION OF DIRECTOR LIABILITY. The Company's Articles of
Incorporation contain a provision eliminating a director's liability to the
Company or its shareholders for monetary damages for a breach of fiduciary duty,
except in circumstances involving certain wrongful acts, such as the breach of a
director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law. The Company's Articles of
Incorporation also obligate the Company to indemnify its directors and officers
to the fullest extent permitted under Colorado law. While the Company believes
that these provisions will assist the Company in attracting and retaining
qualified individuals to serve as directors, they could also serve to insulate
directors of the Company against liability for actions which damage the Company
or its shareholders. See "Management."
17. HISTORY OF RELATED PARTY TRANSACTIONS. During the last two years, the
Company and IPI have borrowed approximately $360,000 from related parties, and
certain related parties have guaranteed receivables sold with recourse by the
Company in the maximum amount of $750,000. The terms of these related party
transactions were not subject to arm's length negotiations and necessarily
involved conflicts of interest between the Company and the related parties. The
Company's Articles of Incorporation require that related party transactions
either be approved by a majority of the disinterested directors or the
shareholders of the Company or that the transactions be intrinsically fair to
the Company. Nonetheless, there can be no assurance that the Company will not
engage in related party transactions which are more favorable to the related
parties than would be the case if the transactions were subject to arm's length
negotiations. See "Certain Transactions."
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<PAGE>
RISK FACTORS RELATING TO THIS OFFERING
1. IMMEDIATE AND SUBSTANTIAL DILUTION. An investor in this offering will
experience immediate and substantial dilution of $5.18, or 75%, per share
between the adjusted pro forma net tangible book value per share after the
offering and the initial public offering price of $6.90 per share. To the extent
that any Warrants, options or other securities convertible into shares of Common
Stock currently outstanding or subsequently granted to purchase the Common Stock
are exercisable at a price less than the net tangible book value per share
following this offering, there will be further dilution upon the exercise of
such securities. See "Dilution" and "Description of Securities."
2. CONTROL BY PRINCIPAL STOCKHOLDERS. Based upon the 2,829,721 shares of
Common Stock which will be outstanding upon completion of this offering,
assuming no exercise of the Warrants, the Over-allotment Option, the
Representative's Options or the Employee's Options, the Company's officers and
directors, as a group, will beneficially own and control 41% of the Company's
outstanding Common Stock (or approximately 24% assuming all of the foregoing
Warrants and options are granted and exercised to their fullest extent). In
addition, cumulative voting (which provides that a stockholder can cast votes in
the election of directors equal to the number of shares owned by such
stockholder multiplied by the number of directors to be elected to a single
candidate or among the candidates as the stockholder wishes) is not permitted
with respect to the Company's Common Stock. As a result, these persons acting
together, although not controlling a majority of the Common Stock, will be able
to exercise significant influence over all matters requiring stockholder
approval, including the election of directors and the approval of significant
corporate transactions. See "Principal Stockholders."
3. NO DIVIDENDS ON COMMON STOCK. The Company has not previously paid any
cash or other dividends on its Common Stock and does not anticipate payment of
any dividends for the foreseeable future, it being anticipated that any earnings
would be retained by the Company to finance its operations and future growth and
expansion. See "Dividend Policy."
4. ARBITRARY DETERMINATION OF OFFERING PRICE. The Combined Offering Price
for the Securities has been determined by negotiations between the Company and
the Representative and does not necessarily bear any relationship to the assets,
performance, book value or net worth of the Company or any other recognized
criteria of value. Among the factors considered in determining such price were
the business experience of the Company's management, the prospects for the
industry in which the Company operates, growth prospects of the Company and
prevailing market conditions generally. The Combined Offering Price should not
be considered to be an indication of the actual value of the Company. See
"Dilution" and "Underwriting--Determination of Offering Price."
5. MANAGEMENT'S BROAD DISCRETION IN APPLICATION OF PROCEEDS; UNSPECIFIED
POSSIBLE FUTURE ACQUISITIONS. Although the Company has tentatively allocated the
net proceeds from this offering for various uses, the projected expenditures are
estimates and approximations and do not represent firm commitments of the
Company. Accordingly, management of the Company has broad discretion to adjust
the application and allocation of 100% of the net proceeds of this offering
estimated to be $4,458,800, in order to address changed circumstances and
opportunities. In the event that the Company's plans change, or if the proceeds
of this offering together with the Company's cash flow prove to be insufficient
to fund operations, the Company may find it necessary to reallocate some or all
of the proceeds from the offering. A portion of the proceeds allocated to
Working Capital and other General Corporate Purposes ($1,808,800 or 41% of the
net proceeds of this offering) may be used to acquire the assets or operations
of companies which would supplement the growth of the Company. No such
opportunities are currently under consideration. If the Company does enter into
any such acquisition transactions, the shareholders of the Company may not have
the ability to review the financial statements of the acquisition candidate or
to vote on the acquisition. See "Use of Proceeds."
6. OFFICERS/DIRECTORS/AFFILIATES TO BENEFIT FROM PROCEEDS. Approximately
$150,000 of the proceeds of this offering have been allocated to the repayment
of indebtedness, representing approximately 3% of the
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<PAGE>
net proceeds of the offering. Approximately $100,000 will be used to pay the
remaining balance on a promissory note of the Company in favor of Mr. Arthur
Armijo in the original principal amount of $119,199. Mr. Armijo is a former
director and the brother of the Company's President. Approximately $50,000 will
be used to pay the remaining balance on a promissory note of the Company in
favor of Mr. Patrick Mawhinney in the original principal amount of $45,110. Mr.
Mawhinney is the Chief Financial Officer and a director of the Company. The use
of the proceeds for this purpose will reduce the amount of proceeds available
for other corporate purposes. See "Use of Proceeds" and "Certain Transactions."
7. NO ASSURANCE OF PUBLIC TRADING MARKET; RISKS ASSOCIATED WITH "PENNY
STOCKS;" Prior to this offering, there has been no established trading market
for the Company's securities and there can be no assurance that an active
trading market for the Company's securities will develop after the completion of
this offering. If a trading market does in fact develop for the Securities
offered hereby, there can be no assurance that it will be sustained. The Company
anticipates that, upon completion of this offering, the Common Stock and
Warrants will be listed on the Nasdaq SmallCap-SM- Market System ("NASDAQ"). If
the Company should experience losses from operations, it may be unable to
maintain the standards for continued quotation on NASDAQ. If, for any reason,
the Company's securities are not eligible for either listing or continued
listing on NASDAQ or if a public trading market does not develop, purchasers of
the Securities may have difficulty selling their Securities should they desire
to do so. If the Company's securities are not eligible for listing or continued
listing on NASDAQ, they may become subject to rules of the Securities and
Exchange Commission concerning penny stocks, which could materially, adversely
affect the liquidity of the Company's securities. The regulations define a penny
stock as any equity security not listed on a regional or national exchange or
NASDAQ that has a market price of less than $5.00 per share, subject to certain
exceptions. The material, adverse effects of such designation could include,
among other things, impaired liquidity with respect to the Company's securities
and burdensome transactional requirements associated with transactions in the
Company's securities, including, but not limited to, waiting periods, account
and activity reviews, disclosure of additional personal financial information
and substantial written documentation. These requirements could lead to a
refusal of certain broker-dealers to trade or make a market in the Company's
securities.
8. POSSIBLE VOLATILITY OF STOCK PRICE. The trading prices of the Company's
securities could be subject to wide fluctuations in response to quarterly
variations in actual or anticipated results of operations of the Company,
changes in analysts' earnings estimates, announcements of technological
innovations or new products or services by the Company or its competitors,
general conditions in the Internet or other high technology industries or other
factors. In addition, the securities markets frequently experience extreme price
and volume fluctuation which affect market prices for securities of companies
generally, and technology companies in particular. Such fluctuations are often
unrelated to the operating performance of the affected companies. Broad market
fluctuations may adversely affect the market price of the Company's securities.
9. POSSIBLE ADVERSE EFFECTS DUE TO SHARES ELIGIBLE FOR FUTURE SALE. Upon
consummation of this offering, the Company will have 2,829,721 shares of Common
Stock outstanding, of which 780,000 shares of Common Stock offered hereby by the
Company and the 220,000 shares of Common Stock offered by the Bridge Financing
Selling Stockholders will be freely tradable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"). In addition, 129,126 additional shares of Common Stock issuable upon
conversion of the Bridge Promissory Notes are also being registered
simultaneously with this offering for resale by the holders thereof from time to
time after ten months from the consummation of this offering (or sooner, if
permitted by the Representative in its sole discretion). When sold, such shares
will be freely tradable without restriction or further registration under the
Securities Act. The remaining 1,700,595 shares of Common Stock are "restricted
securities" as that term is defined under Rule 144 promulgated under the
Securities Act and may only be sold pursuant to a registration statement under
the Securities Act; in compliance with the exemption provisions of Rule 144; or
pursuant to another exemption under the Securities Act. The holders of all
1,700,595 restricted shares
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<PAGE>
have agreed not to sell any shares of Common Stock owned by them for a period of
twelve months after the date of this Prospectus without the Representative's
prior written consent. No prediction can be made as to the effect, if any, that
sales of shares of Common Stock or even the availability of such shares for sale
will have on the market prices of the Company's securities prevailing from time
to time. The possibility that substantial amounts of the Company's securities
may be sold in the public market may adversely affect prevailing market prices
for the securities and could impair the Company's ability to raise capital
through the sale of its equity securities. See "Description of Securities,"
"Shares Eligible for Future Sale" and "Underwriting."
10. FUTURE ISSUANCES OF STOCK BY THE COMPANY WITHOUT SHAREHOLDER
APPROVAL. Following the sale of the Securities offered hereby, a total of
2,829,721 shares of Common Stock will be issued and outstanding. The remaining
authorized but unissued shares of Common Stock not reserved for specific
purposes may be issued without any action or approval of the Company's
stockholders. Although there are no present plans, agreements or undertakings
involving the issuance of such shares, except as disclosed in this Prospectus,
any such issuances could be used as a method of discouraging, delaying or
preventing a change in control of the Company or could significantly dilute the
public ownership of the Company, which could adversely affect the market. There
can be no assurance that the Company will not undertake to issue such shares if
it deems it appropriate to do so. The holders of options, Warrants and other
securities convertible into shares of Common Stock have the opportunity to
profit from a rise in the market price of the Common Stock, if any, without
assuming the risk of ownership, with a resulting dilution in the interest of
other stockholders. The existence of the aforementioned options and Warrants and
any other options or warrants that may be granted in the future may prove to be
a hinderance to future equity financings by the Company. Further, the holders of
such warrants and options may exercise them at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable to
the Company. See "Description of Securities."
11. CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS. The Company will be able to issue shares of its Common Stock upon the
exercise of Warrants only if there is a current prospectus relating to the
Common Stock issuable upon the exercise of the Warrants under an effective
registration statement filed with the Securities and Exchange Commission and
such Common Stock is then qualified for sale or exempt therefrom under
applicable state securities laws of the jurisdictions in which the various
holders of Warrants reside. Although the Company has undertaken to maintain the
effectiveness of a current Prospectus covering the Common Stock underlying the
Warrants, there can be no assurance that the Company will be successful in
maintaining a current registration statement. The Warrants, therefore, may be
deprived of any value if for any reason a current prospectus covering the Common
Stock issuable upon exercise of the Warrants is not kept effective, or if such
Common Stock is not qualified or exempt from qualification in the states in
which the Warrant holders reside. The Company intends to qualify the sale of the
Common Stock and the Warrants in states, although certain exemptions under
certain state securities ("blue sky") laws may permit the Common Stock and
Warrants to be transferred to purchasers in states other than those in which the
Common Stock and Warrants were initially qualified. See "Description of
Securities--Warrants."
12. WARRANTS SUBJECT TO REDEMPTION. Each Warrant will entitle the holder
to purchase one share of Common Stock at an exercise price equal to 120% of the
Offering Price commencing from the effective date of this Prospectus. The
Warrants are redeemable by the Company for $.05 per Warrant at any time one year
after the date of this Prospectus (which period may be reduced or waived by the
Representative in its sole discretion) upon at least thirty days' prior written
notice provided the closing price of the Common Stock for twenty consecutive
trading days within the thirty-day period preceding the date of the notice of
redemption equals or exceeds 140% of the Offering Price. In the event the
Company exercises the right to redeem the Warrants, a holder would be forced
either to exercise the Warrant within the period of the notice of redemption
(which could occur at a time when it may be disadvantageous to do so), to sell
the Warrants at the then current market price when the holder might otherwise
wish to hold them, or to accept
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<PAGE>
the redemption. The Company presently expects to call all of the Warrants for
redemption as soon as permitted provided that a current prospectus relating to
the Common Stock underlying such Warrants is then in effect. See "Description of
Securities--Warrants."
13. CONTINUING INVOLVEMENT WITH REPRESENTATIVE. The Underwriting Agreement
with the Representative provides for the Company's continuing involvement with
the Representative after this offering, including (i) the Company's agreement to
retain the Representative as a consultant for two years from the date of this
Prospectus for a fee of $3,000 per month, (ii) the Company's agreement to allow
the Representative to nominate a director or to designate a consultant to the
Board of Directors for a period of four years from the date of this Prospectus,
(iii) the Company's agreement to appoint the Representative as Warrant
Solicitation agent and to pay a fee for such services equal to three percent of
the exercise price of Warrant exercises solicited by the Representative, (iv)
the grant to the Representative of an option to purchase 100,000 units at an
exercise price of 120% of the Offering Price and (v) the right of the
Representative to waive the ten month lock-up agreement applicable to the shares
of Common Stock held by the Bridge Financing Selling Stockholders not offered
hereby and the right of the Representative to allow the Company to redeem the
Warrants at a date earlier than twelve months after the date of this Prospectus
provided the other conditions for redemption have been satisfied. The fees to be
paid to the Representative will reduce the amount of working capital available
for other purposes and the Representatives options involve the risks specified
above under "Future Issuances of Stock by the Company Without Shareholder
Approval." See "Underwriting Agreement," "Additional Registered Securities" and
"Description of Securities--Stock Purchase Warrants."
USE OF PROCEEDS
After deducting the underwriting discount of $548,200 and other expenses of
the offering estimated to be $475,000 (which includes the Representative's
non-accountable expense allowance), and assuming an Offering Price of $7.00, the
Company will receive net proceeds from the offering of approximately $4,458,800.
The Company expects to use the proceeds substantially as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE OF
APPLICATION OF PROCEEDS DOLLAR AMOUNT NET PROCEEDS
- ------------------------------------------------------------------------------------ -------------- ----------------
<S> <C> <C>
Purchase of Capital Equipment(1).................................................... $ 1,000,000 22%
Development of Internet/Intranet Solutions(2)....................................... 750,000 17%
Advertising and Marketing(3)........................................................ 750,000 17%
Repayment of Loans(4)............................................................... 150,000 3%
Working Capital and Other General Corporate Purposes(5)............................. 1,808,800 41%
-------------- ---
Total........................................................................... $ 4,458,800 100%
-------------- ---
-------------- ---
</TABLE>
- ------------------------
(1) Such proceeds will be utilized for the purchase of additional computer
equipment, information systems and database services required in connection
with the Company's anticipated growth.
(2) Includes the development of new proprietary software tools, upgrades of
existing proprietary software tools, license fees for third-party software
tools and training of personnel for new Internet/Intranet technologies and
applications.
(3) Such proceeds will principally be used for purchasing advertising in trade
journals, newsprint and on the Internet to expand awareness of the Company's
products and services in domestic and international markets.
(4) Includes repayment of the loans to Arthur Armijo, the brother of the
Company's President, and Patrick Mawhinney, a director, executive officer
and principal shareholder of the Company. The loan
16
<PAGE>
from Mr. Armijo bears interest at 5% per annum and has no fixed maturity
date. The loan from Mr. Mawhinney bears interest at 10% per annum and
matures December 31, 1997.
(5) This sum shall be available for the payment of operational expenses
including salaries, rent and other similar items to the extent revenues from
operations are insufficient for such purposes. Additionally, these proceeds
may be used to acquire the assets or operations of other companies which
would supplement the growth of the Company. No such opportunities are
currently under consideration.
The amounts set forth above are the Company's best estimates based upon its
present plans and certain assumptions regarding general economic and industry
conditions and the Company's anticipated future revenue and expenditures, and
merely indicate the proposed use of proceeds. Actual expenditures may vary
substantially from these estimates depending upon many factors, such as the
financial health of the Company, economic conditions, possible mergers with or
acquisitions of other companies (the determination of which shall be in the sole
discretion of management), the success, if any, of the Company's business and
operations and the availability of other financing arrangements, such as lines
of credit and loans. Accordingly, stockholders of the Company must rely upon the
judgment and discretion of management with regard to that portion of the net
proceeds of this offering allocated for working capital and general corporate
purposes. To the extent that the Over-allotment Option or the Warrants are
exercised, any proceeds received from such exercise will be used for working
capital and general corporate purposes of the Company. Pending use of the
proceeds from this offering as set forth above, the Company may invest all or a
portion of such proceeds in short-term bank certificates of deposit, U.S.
Government obligations, money market investments and short-term investment grade
securities.
DIVIDEND POLICY
The Company intends to retain earnings, if any, to finance the development
and expansion of its business. Accordingly, the Company does not intend to pay
cash dividends in the foreseeable future on its Common Stock. Holders of the
Company's Common Stock are entitled to dividends when, as and if declared by the
Board of Directors out of funds legally available therefor. The payment of
dividends, therefore, is within the discretion of the Company's Board of
Directors. Cash dividends, if any, that may be paid in the future to holders of
Common Stock will be payable when, as and if declared by the Board of Directors
of the Company, based upon the Board's assessment of the financial condition of
the Company, its earnings, need for funds, capital requirements and other
factors, including any applicable laws. In addition, any financing which the
Company may obtain in the future may contain provisions restricting the
Company's ability to pay dividends. The Company is not currently a party to any
agreement restricting the payment of dividends.
DILUTION
The difference between the initial public offering price per share of Common
Stock and the adjusted pro forma net tangible book value per share after giving
effect to this offering constitutes the dilution to investors in this offering.
Adjusted pro forma net tangible book value per share is determined by dividing
the adjusted pro forma net tangible book value of the Company (total tangible
assets less total liabilities) by the number of shares of Common Stock
outstanding. All numbers included herein assume conversion of all of the Bridge
Promissory Notes to Common Stock and Warrants prior to this offering and do not
give effect to the conversion or exercise of any convertible securities or
options outstanding or being sold hereby.
At September 30, 1996, the net tangible book value of the Company was
negative $(445,537), or $(0.26) per share of Common Stock (based on 1,700,595
shares outstanding). After giving effect to the Bridge Financing Private
Placement, the net tangible book value of the Company would have been $334,657,
or $.16 per share of Common Stock (based on 2,049,721 shares outstanding,
assuming the issuance of an aggregate of 349,126 shares upon conversion of the
Bridge Promissory Notes). After giving
17
<PAGE>
effect to the sale by the Company of the 780,000 shares of Common Stock offered
by it hereby and the receipt of estimated net proceeds to the Company of
$4,458,800 (after deducting underwriting discounts and commissions and estimated
expenses of this offering), and after giving effect to the merger with IPI and
the Bridge Financing Private Placement, the net tangible book value of the
Company at September 30, 1996, would have been $4,874,196 or $1.72 per share.
This represents an immediate increase in the net tangible book value of $1.56
per share to the existing stockholders and an immediate dilution of net tangible
book value of $5.18 (or 75%) per share to new investors in this offering. The
following table illustrates the foregoing dilution to the investors on a per
share basis:
<TABLE>
<CAPTION>
Initial public offering price per share............................... $ 6.90
<S> <C> <C>
Pro forma net tangible book value per share before offering........... $ .16
Increase per share attributable to new investors...................... $ 1.56
---------
Pro forma net tangible book value per share after offering............ $ 1.72
---------
Dilution per share to new investors................................... $ 5.18
---------
---------
</TABLE>
To the extent outstanding options and Warrants are exercised, further
dilution to new investors in this offering may result.
The following table sets forth, on an unaudited pro forma basis as of
September 30, 1996, the differences in the total consideration and the average
price per share paid by the Company's existing stockholders, the Bridge
Financing Selling Stockholders and investors in this offering with respect to
the Company's Common Stock:
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED -------------------------
--------------------------------------------- AVERAGE
APPROX. APPROX. PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
-------------- ------------ --------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders............................. 1,700,595 60.0% $ 309,399(3) 4% $ 0.18
Bridge Financing Selling Stockholders............. 129,126(1) 4.6% 531,695 7% $ 4.12
New Investors..................................... 1,000,000(2) 35.4% 6,900,000 89% $ 6.90
-------------- --- --------------- --- -----
Total......................................... 2,829,721 100% $ 7,741,094 100% $ 2.74
-------------- --- --------------- --- -----
-------------- --- --------------- --- -----
</TABLE>
- ------------------------
(1) Does not include 220,000 shares of Common Stock sold in this offering by the
Bridge Financing Selling Stockholders.
(2) Includes 780,000 shares of Common Stock purchased from the Company and
220,000 shares of Common Stock purchased from the Bridge Financing Selling
Stockholders.
(3) Includes paid in capital of the Company at September 30, 1996 and the value
assigned to the shares of Common Stock issued to IPI shareholders in the
merger.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 (i) on an actual basis; (ii) on a pro forma basis to reflect
the issuance of an additional $620,000 of the Bridge Promissory Notes from
October 1, 1996 through October 18, 1996; and (iii) on a pro forma basis as
adjusted to give effect to the conversion of the Bridge Promissory Notes into
349,126 shares of Common Stock and Warrants upon consummation of this Offering,
and the sale of the 780,000 shares of Common Stock and 1,000,000 Warrants
offered by the Company hereby and the application of the net proceeds therefrom
as described under "Use of Proceeds." This table should be read in conjunction
with the Financial Statements and Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
--------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt................................................................. $ 959 $ 1,579(1) $ 141(2)
Shareholder's Equity
Common Stock, no par value, authorized 20,000,000 shares; issued and
outstanding 1,700,595 shares actual; 1,700,595 shares pro forma; 2,829,721
shares pro forma as adjusted............................................... -- -- 5,633
Excess of liabilities over assets upon termination of S-Corporation status..... (59) (59) --
Accumulated Deficit............................................................ (387) (387) (387)
--------- ------ ------
Total Shareholder's Equity (Deficit)........................................... $ (446) $ (446) $ 5,246
--------- ------ ------
Total Capitalization....................................................... $ (513) $ 1,133 $ 5,387
--------- ------ ------
--------- ------ ------
</TABLE>
- ------------------------
(1) Includes Bridge Promissory Notes in the principal amount of $1,437,500.
(2) Reflects the conversion of the Bridge Promissory Notes.
19
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following tables set forth summary combined financial information and
other equity information of the Company. The summary financial information in
the tables is derived from the financial statements of the Company and IPI and
pro forma financial information, and should be read in conjunction with and is
qualified in its entirety by the more detailed financial statements, pro forma
combined financial information and related notes thereto, and other financial
information included herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1995 NINE MONTHS ENDED SEPTEMBER 30, 1996
---------------------------------------- ----------------------------------------
STATEMENTS OF OPERATIONS DATA NAVIDEC, INC. IPI(1) PRO FORMA(2) NAVIDEC, INC. IPI PRO FORMA(3)
- ---------------------------------- -------------- --------- ------------- -------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues...................... $ 4,121 $ 168 $ 4,288 $ 4,222 $ 185 $ 4,408
Operating Loss.................... (3) -- (82) (506) (100) (645)
Net Loss.......................... (23) -- (102) (636) (101) (776)
Loss Per Share.................... $ (.02) $ (.05) $ (.31) $ (.38)
Shares Outstanding(4)............. 1,352,075 2,030,952 2,030,952 2,030,952
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
------------------------
BEFORE AFTER
BALANCE SHEET DATA AT SEPTEMBER 30, 1996 NAVIDEC, INC. OFFERING(5) OFFERING(6)
- ------------------------------------------------------------------------ --------------- ----------- -----------
<S> <C> <C> <C>
Cash.................................................................... $ 277 $ 749 $ 5,139
Working Capital (Deficit)............................................... (463) 80 4,620
Total Assets............................................................ 1,871 2,421 6,525
Long-Term Liabilities................................................... 959 1,579 141
Stockholders' Equity (Deficit).......................................... (446) (446) 5,246
</TABLE>
- ------------------------
(1) IPI was incorporated May 15, 1995.
(2) Reflecting the combination of the Company and IPI as if the acquisition
occurred January 1, 1995.
(3) Reflecting the combination of the Company and IPI as if the acquisition
occurred January 1, 1996.
(4) Options and shares from the conversion of the Bridge Promissory Notes were
considered in the calculation of weighted average shares under the treasury
stock method based on the proposed public offering price.
(5) Reflecting the Company as if the issuance of the Bridge Promissory Notes
were completed on Sepember 30, 1996.
(6) Reflecting the Company as if the issuance and conversion of the Bridge
Promissory Notes and this offering were completed on September 30, 1996.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was organized as ACI Systems, Inc. in July 1993. The Company's
principal sources of revenue are resales of computer equipment, high technology
peripherals and electronic components manufactured by independent vendors
("Product Distribution") and services related to Internet/Intranet Solutions.
Effective July 11, 1996, the Registrant acquired all of the outstanding common
shares of IPI in exchange for 678,877 shares of the Company's Common Stock and a
promissory note for $75,000 payable to a shareholder of IPI and merged IPI into
the Company. Management believes the merger with IPI has accelerated
implementation of the Company's Internet/Intranet Solutions operating plan while
contributing to continued growth in systems integration and sales of networking
and computer peripherals and supplies. The historic operations of IPI prior to
the merger were minimal and comparable financial data is not available.
Accordingly, only limited discussion of IPI operating results is possible.
The Company's strategy is to increase revenue generated by its two core
competencies: (1) Internet/ Intranet Solutions, which are focused in five major
market areas, including computer and network infrastructure equipment, software
and services, content and aggregation, electronic commerce and order
fulfillment, and (2) Product Distribution. The Company has built and intends to
continue to build an infrastructure that assumes this strategy will succeed. The
failure of the Company to achieve this strategy could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company recognizes revenue upon delivery of its Internet/Intranet
Solutions and Product Distribution goods. Internet/Intranet Solutions generally
begin with consulting arrangements which are billed on an hourly basis and
progress to a bid for a proposed project. Deposits are then taken upon
acceptance of the bid. Most of the Company's customers elect to update and
expand their Web sites frequently, and clients are billed monthly on a time and
materials basis for these services. Additional sources of ongoing revenue
include revenue from advertising sold by the Company on clients' Web sites,
revenue from sales of merchandise and services over clients' Web sites and
revenue from maintenance of client Web sites. The Company receives a percentage
of the gross revenue from advertising and merchandise sales immediately upon
completion of these sales.
Presently, the Company factors its receivables on a recourse basis allowing
it to have readily available access to cash from receivables at acceptable
discount rates. See Note 7 to the Financial Statements of NAVIDEC, Inc.
Depending upon the Company's cash position, management will consider alternative
credit facilities in order to lower its cost of capital.
21
<PAGE>
RESULTS OF OPERATIONS
NAVIDEC, INC.
The following table sets forth for the periods indicated the percentage of
net sales represented by certain line items included in the Company's statement
of operations.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED
SEPTEMBER 30 DECEMBER 31
------------------------ ------------------------
1996 1995 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales............................................................... 100% 100% 100% 100%
Cost of Sales........................................................... 81 81 81 75
--- --- --- ---
Gross Margin............................................................ 19 19 19 25
Operating Expense....................................................... 31 17 19 23
Other Income (Expense).................................................. (3) (1) (1) 1
--- --- --- ---
Net Income (Loss)....................................................... (15)% 2% (1)% (1)%
--- --- --- ---
--- --- --- ---
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Net sales for the nine months ended September 30, 1996 were $4,222,433 which
represents an increase of 39% compared to the prior year period net sales of
$3,044,539. The increase in net sales was principally due to implementation of
the Company's Internet/Intranet Solutions operating plan, growth in systems
integration and growth in sales of networking and computer peripherals and
supplies.
Gross margin was 19% during the nine months ended September 30, 1996 and
1995. Subsequent to the merger with IPI, gross margin improved as compared to
the first six months of 1996 as a result of a larger proportion of sales from
Internet/Intranet Solutions, including advertising and merchandise sales.
Operating expenses for the nine months ended September 30, 1996 were
$1,311,844 compared with $508,235 for the prior year period. The increase in
operating expenses was primarily the result of an increase in staff and
marketing activity and legal and consulting fees. Operating expenses related to
executive salary will be higher in future periods as a result of employment
agreements with officers and others executed during the third quarter of 1996.
Net interest expense for the nine months ended September 30, 1996 was
$128,332 compared with $21,135 for the prior year period. The increased interest
expense for 1996 was a direct result of the Bridge Promissory Notes, increased
credit facilities with the Company's banks and expenses related to loans from
its principal shareholders. Interest expense should be reduced during fiscal
1997 as a result of the conversion of the Bridge Promissory Notes upon
consummation of this offering.
YEAR ENDED DECEMBER 31, 1995 AND 1994
Net sales for fiscal 1995 were $4,120,742 which represents an increase of
125% compared to net sales of $1,830,734 in fiscal 1994. The increase was
primarily attributable to the Company's introduction of new products and
services with an emphasis in two areas: (1) computer systems integration and
networking and (2) computer peripherals and supplies. Net sales generated by
systems integration and networking increased by $1,323,476, or 1620%, in fiscal
1995 to $1,405,183 compared to $81,707 for fiscal 1994. Net sales generated by
computer peripherals and supplies increased by $779,812, or 309%, in fiscal 1995
to $1,032,003 compared to $252,191 for fiscal 1994. The increase in revenues in
both cases was primarily attributable to expanded product lines, increased
marketing activities and greater market penetration.
Gross margin was 19% during fiscal 1995 as compared to 25% during fiscal
1994. The decline in gross margin was principally due to the increased cost of
products imported from Japan (as a result of the decreased value of the Dollar
against the Yen) and increased sales of higher volume, lower gross margin
22
<PAGE>
products. The Company expects gross margin to improve commencing in the third
quarter of 1996 as a result of increasing sales of higher margin
Internet/Intranet Solutions.
Operating expenses for fiscal 1995 were $784,150 compared with $497,284 for
fiscal 1994. The increase in operating expenses was primarily due to an increase
in personnel expenses.
Net interest expense for fiscal 1995 was $29,739 compared with $17,867 for
fiscal 1994, reflecting the Company's increased borrowing levels during fiscal
1995.
IPI
MAY 15, 1995 (INCEPTION DATE) TO DECEMBER 31, 1995
IPI was founded in May 1995 and therefore had no revenues during fiscal
1994. Revenues for 1995 were $167,574. Gross margin was 78% of revenues during
1995, which reflects the nature of IPI's business of providing high margin
services which are billed at a contract or hourly basis to its customers.
Operating expenses for the year ended December 31, 1995 totalled $131,739. The
principal operating expenses were salary, payroll taxes and marketing expenses.
SIX MONTHS ENDED JUNE 30, 1996
Revenues for the six months ended June 30, 1996 were $185,429 with gross
margin of 68%. Operating expenses for the six months ended June 30, 1996 were
$225,161. The decline in gross margin and increase in operating expenses for the
six months ended June 30, 1996 compared to the period ended December 31, 1995
resulted principally from the decision of IPI's management to invest in content
aggregation Web sites such as All About Colorado. See "Business."
LIQUIDITY AND CAPITAL RESOURCES
Through September 30, 1996, the Company funded its operations primarily
through revenues generated from operations, the Bridge Financing Private
Placement, loans from principal shareholders and employees, lines of credit and
factoring arrangements made available to it by banks. On September 30, 1996, the
Company had cash and cash equivalents of $276,804 and a net working capital
deficit of $462,531. This compares with cash and cash equivalents of $106 and a
working capital deficit of $92,423 at December 31, 1995.
The Company raised net proceeds of approximately $1,232,670 from sale of the
Bridge Promissory Notes from August through October 18, 1996. Management
believes that such proceeds combined with the proceeds of this offering will be
sufficient to fund the Company's operations for at least the next twelve months.
Cash used in operating activities for the Company totalled $605,359 and
$48,554 for the nine month periods ended September 30, 1996 and 1995,
respectively. Cash used in investing activities consisted of expenditures for
property and equipment. Such expenditures increased to $377,307 during the nine
months ended September 30, 1996 from $35,140 during the prior year period
primarily due to expanded operations. During the nine months ended September 30,
1996 and 1995, cash from financing activities included borrowings (including
advances under the Company's line of credit and factoring arrangement and
proceeds from the Bridge Financing Private Placement) of $3,206,866 and
$661,698, respectively, net of note and line of credit payments of $2,519,772
and $580,658, respectively.
Cash used in operating activities by the Company totalled $104,951 during
fiscal 1995 as compared to $153,931 during fiscal 1994. Cash used in investing
activities in each of fiscal 1995 and fiscal 1994 consisted of expenditures for
property and equipment of $34,210 and $33,600, respectively. Expenditures for
property and equipment were the direct result of increasing business operations.
Cash provided by financing activities consisted of borrowings (including
advances under the Company's revolving line of
23
<PAGE>
credit) of $790,215 and $488,885 during fiscal 1995 and fiscal 1994,
respectively, net of $659,004 and $330,203 in note and line of credit payments
during fiscal 1995 and fiscal 1994, respectively.
The Company has not recorded a deferred tax asset as it cannot conclude to
date that it is more likely than not that the deferred tax asset will be
realized.
The Company's independent auditor has included paragraphs in each of its
reports accompanying the audited financial statements of the Company as of
September 30, 1996 and December 31, 1995 and 1994, and the audited financial
statements of IPI as of December 31, 1995, which state that the respective
losses from operations and negative cash flows from operations of the Company
and IPI raise substantial doubt about each company's ability to continue as a
going concern (see pages F-7 and F-22 of the Financial Statements). IPI was
merged into the Company in July 1996 and accordingly no longer operates as a
separate entity. The Company incurred a net loss of approximately $776,000 for
the first nine months of 1996 on a pro forma combined basis and will incur
significant cost in further development of its Internet/ Intranet Solutions. The
Company has however experienced a 39% increase in net sales for the nine months
ended September 30, 1996 compared to the prior year period and management
believes that gross margin will improve in future periods as a result of
increasing sales of higher margin Internet/Intranet Solutions. The Company's net
loss for the nine months ended September 30, 1996 reflected increased operating
expenses, which are expected to decline as a percentage of net sales in periods
following this offering.
The Company raised net proceeds of approximately $1,232,670 from sales of
the Bridge Promissory Notes from August through October 18, 1996. At September
30, 1996, the Company's current liabilities exceeded its current assets by
approximately $463,000, its cash balance was $276,804, and it had fully utilized
its receivables factoring arrangement. Since such date, the Company's cash
position has further declined. The Company nonetheless believes that its current
working capital, along with the proceeds of this offering will be sufficient to
meet its cash requirements for at least the next 12 months. See "Use of
Proceeds." There can however be no assurance that the Company will be profitable
in the future or that the net proceeds of this offering, together with any funds
provided by operations and presently available capital, will be sufficient to
fund the Company's ongoing operations. If the Company has insufficient funds,
there can be no assurance that additional financing can be obtained on
acceptable terms, if at all. The absence of such financing would have a material
adverse effect on the Company's business, including a possible reduction or
cessation of operations.
Upon completion of this offering, the Company plans to use a substantial
portion of the proceeds to expand its Internet/Intranet Solutions business.
Planned expenditures include up to $1,000,000 for the purchase of additional
computer equipment, information systems and database services required in
connection with the Company's anticipated growth; up to $750,000 for the
development of new proprietary software tools, upgrades of existing proprietary
software tools, license fees for third-party software tools and training of
personnel for new Internet/Intranet technologies and applications; and up to
$750,000 for advertising and marketing including advertising in trade journals,
newsprint and on the Internet to expand awareness of the Company's products and
services. See "Use of Proceeds."
Except for historical information contained herein, statements in this
discussion, including information regarding the combined business of the Company
and IPI, are forward looking statements. Forward looking statements involve
known and unknown risks and uncertainties which may cause the Company's actual
results in future periods to differ materially from forecast results.
INFLATION
The Company does not believe that inflation will have a material impact on
the Company's future operations.
24
<PAGE>
BUSINESS
OVERVIEW
The Company is a leading provider of comprehensive Internet and Intranet
solutions for regional, national and international business organizations. The
Company also serves as a distributor of various high technology and other
products through traditional and electronic channels. The Company provides its
services and distributes its products to over 500 customers as of the date of
this Prospectus. The Company's Internet/Intranet Solutions focus on all aspects
of commercial Internet and Intranet presence, including design and development
of World Wide Web ("WWW" or "Web") sites, marketing, database integration,
electronic commerce and order fulfillment. Product distribution includes the
sale of high technology systems and components manufactured by third parties,
principally through traditional distribution channels, and related services. The
Company's core competencies in Internet/Intranet technology and traditional
product marketing and distribution form its business model of providing complete
Internet/Intranet Solutions. These solutions include computer and network
infrastructure equipment, software and services, content and aggregation,
electronic commerce and fulfillment of orders.
The Company was formed as a Colorado corporation in July 1993 and since that
time has engaged in the distribution of high technology products and related
services. The Company merged with IPI, a designer and developer of Internet
World Wide Web sites, in July 1996. The Company issued an aggregate of 678,877
shares of Common Stock to the shareholders of IPI and a promissory note in the
amount of $75,000 to one shareholder of IPI in exchange for all of the issued
and outstanding stock of IPI. Prior to the merger, there was no affiliation
between the Company or its officers and directors and IPI and its former
officers, directors and principal shareholders. The terms of the merger were
determined by arm's length negotiations between the Company and IPI. The merger
was consummated in order to establish the Company's business model of combined
expertise in traditional marketing and distribution and Internet/ Intranet
technology.
BUSINESS STRATEGY
The Company's goal is to enhance its position as a leading provider of
comprehensive networking and electronic marketing and distribution solutions to
regional, national and international clients. To achieve this objective, the
Company is pursuing the following strategies.
LEVERAGE EXPERTISE AND CORE COMPETENCIES. The Company leverages its
expertise in two core businesses, high technology product distribution and
Internet/Intranet Solutions, into complete electronic marketing and networking
solutions. The Company's solutions span all segments of the commercial Internet
industry, including networking equipment and routers, Internet software,
Internet/Intranet design and implementation, content creation and aggregation,
promotion and advertising, electronic commerce and order fulfillment. Management
believes that its ability to offer this full range of Internet/Intranet products
and services as well as traditional distribution and marketing services is
unique in its industry.
EXPLOIT RECURRING REVENUE STREAMS. The Company emphasizes ongoing services
to its Internet/ Intranet Solutions clients, which services are a source of
recurring revenues often well in excess of the fees associated with initial Web
site development. Most of the Company's clients elect to update and expand their
Web sites on at least a monthly basis to reflect updated information and the
latest Internet technology. The data underlying a number of client Web sites is
stored on a Company server which is connected to the Internet by a high-speed
T-1 connection. The Company receives a monthly maintenance fee for this
"hosting" service. The Company also develops and markets advertising space on a
number of client Web sites and receives a portion of the revenues generated from
such advertisements. Annual recurring revenues derived from some
Internet/Intranet Solutions clients have been several times the original site
development revenues from those clients.
25
<PAGE>
DEVELOP STRATEGIC RELATIONSHIPS. The Company has developed technology,
marketing and distribution relationships with a number of leading Internet
industry and computer companies. Important relationships include those with
AT&T, IBM, Silicon Graphics, Sybase, Netscape, Netcom, Verity, Ajilon Services
and Ryan & Associates. The Company's strategic relationships with IBM and AT&T
have led to subcontracting agreements with those companies for the provision by
the Company of Internet/Intranet Solutions to customers of IBM and AT&T. See
"--Marketing." As a result of the Company's technical expertise, it has been
designated as a Netscape Commercial Applications Products Provider Partner
(NCAPP), which is Netscape's top reseller designation and which allows the
Company to offer all of Netscape's high-end commercial Internet software
products to its clients. These and other strategic relationships have fueled
much of the recent growth of the Company, and management expects them to
continue to generate additional clients and revenue.
MAINTAIN EXPERTISE. The Company intends to use a substantial portion of the
proceeds from this offering for development of proprietary software tools,
licensing of new third-party software tools and training of personnel in order
to maintain the Company's technological expertise. See "Use of Proceeds."
EMPHASIZE CLIENT RETURN ON INVESTMENT. The Company furnishes clients with
solutions which are designed to provide a return on their investment through
generation of leads, increased sales, reduced personnel expenses and/or revenues
from advertising. The Company intends to further promote advertising on client
Internet and Intranet sites as a means of offsetting clients' site development,
update and maintenance costs. The Company also intends to emphasize hardware
solutions such as on- and off-site free standing kiosks which include a computer
terminal linked to the Web site of the client. These kiosks are designed to
expand the audience for the client's electronic marketing presence.
PROMOTE INTRANETS. The Company believes that many companies can benefit
from the ease of use and familiarity of a Web-style interface for their internal
networks. Intranets can provide an open, non-proprietary "enterprise" interface
to a closed, proprietary "legacy" database system, thereby avoiding the need to
replace the entire legacy system when an updated enterprise interface is
desired. The Company has an informal strategic relationship with Ajilon
Services, a major provider of legacy/enterprise conversion and data migration
services, which allows the Company to offer integrated database conversion and
migration solutions as part of its Intranet solutions. The Company has
implemented a major Intranet system for KN Energy and intends to promote its
expertise in this area to other large companies with a need for an easy to use
internal network interface.
EXPAND TRADITIONAL DISTRIBUTION CHANNELS. To date, distribution of high
technology products and related services has accounted for the substantial
majority of the Company's revenue. The Company intends to expand its high
technology product distribution business by increasing its sales staff and its
national network of local representatives for products distributed by the
Company. The Company also plans to implement and promote its own Internet Web
site for direct sales of high technology products.
INTERNET/INTRANET SOLUTIONS
INTERNET/INTRANET INDUSTRY OVERVIEW
The Internet is a network of computer networks that are both commercially
and publicly owned. The networks all use a common set of nonproprietary
networking protocols. This commonality of protocols provides what appears to the
Internet user to be a seamless, integrated virtual network notwithstanding the
heterogeneity of the computer hardware and communications systems underlying the
Internet. Although the individual networks comprising the Internet are privately
owned, no one organization owns or controls the Internet. Any network may join
or remove itself from the Internet at any time and this open access has allowed
the Internet to grow exponentially as a resource in the United States and
world-wide.
Each new network (or individual connecting through a network) becomes not
only a consumer of information available on the Internet but also a potential
information or content provider to other users of the Internet. The following
table illustrates the growth in computers and routers ("hosts") which are
connected to the Internet.
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GRAPH SHOWING NUMBER OF INTERNET HOSTS FROM AUGUST 1981 THROUGH JUNE OF 1996 AS
REPORTED BY NETWORK WIZARDS WITH DATA AVAILABLE ON THE INTERNET AT
HTTP://WWW.NW.COM -- DATA POINTS ARE AS FOLLOWS:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
INTERNET HOST GROWTH
<S> <C>
Aug-81 213
May-82 235
Aug-83 562
Oct-84 1,024
Oct-85 1,961
Feb-86 2,308
Nov-86 5,089
Dec-87 28,174
Jul-88 33,000
Oct-88 56,000
Jan-89 80,000
Jul-89 130,000
Oct-89 159,000
Oct-90 313,000
Jan-91 376,000
Jul-91 535,000
Oct-91 617,000
Jan-92 727,000
Apr-92 890,000
Jul-92 992,000
Oct-92 1,136,000
Jan-93 1,313,000
Apr-93 1,486,000
Jul-93 1,776,000
Oct-93 2,056,000
Jan-94 2,217,000
Jul-94 3,212,000
Oct-94 3,864,000
Jan-95 4,852,000
Jul-95 6,642,000
Jan-96 9,472,000
Jul-96 12,881,000
</TABLE>
Internet networks are connected in a variety of ways, including regular
analog phone lines, high-speed digital lines and fiber optic links. The Internet
permits users to communicate electronically, share or publish information,
download software and participate in commercial transactions. Internet data
packets are transferred through flexible routing protocols which allow signals
to reach their destinations even though portions of the network may be down or
overburdened. Nonetheless, because of the rapidly growing traffic on the
Internet, users sometimes report significant delays in data transfer and some
loss of data. There is a risk that as the Internet grows in popularity, its
infrastructure will become overwhelmed to the point where its functionality is
impaired, perhaps significantly.
Because connecting directly to the Internet requires expensive equipment and
considerable technical expertise, most Internet users connect to the Internet
through one of a rapidly growing number of local and national Internet Service
Providers ("ISPs"), including the major on-line services such as America Online
and Compuserve. The Company is not one of these ISPs.
THE WORLD WIDE WEB. Much of the recent growth in Internet use has been
attributable to a network of servers and information available via open
protocols known as the World Wide Web. The Web can be accessed through software
programs such as Netscape Navigator and Microsoft Explorer, which allow non-
technical users to exploit the capabilities of the Internet. The Web enables
users to find, retrieve and link to multimedia content on the Internet with easy
to use graphical interfaces. Electronic documents are published on Web servers
in a common format called hypertext markup language ("HTML"). Web software
browsers can retrieve these documents across the Internet by making requests
through a standard communications protocol called Uniform Resource Locators, or
"URLs."
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The technical capabilities of the Web together with the increasing
availability of user-friendly navigational and utility tools and search engines
such as Yahoo, Excite, Webcrawler, Magellan and Alta Vista are responsible for
the rapid growth in the popularity of the Web as a distribution channel. The Web
is growing exponentially with over 1,000 businesses joining as participants each
day. (Source: Network Wizards). In October 1996, International Data Corp.
estimated the number of Web users at 31.4 million and projected the number of
users to grow to 163 million by the year 2000.
The term "Web site" is commonly used to describe the computer screen layouts
and the file server computer that are accessible by users of the Web. Typically,
a Web site has a collection of "Web pages" which may contain text, graphics,
pictures, sound, animation, video or other multimedia content. One important
feature of the HTML format is that it allows a Web user to travel to other sites
simply by selecting with a mouse or other pointing device a text or graphic
marker on the current Web page. In this manner, users can quickly and
effortlessly connect to Web pages that are part of the same Web site or to Web
pages located on servers in another continent. Web sites vary significantly in
their complexity and interactivity. A simple Web site may have only text in
outline form. More complex sites may have full multimedia content. Web sites may
also vary in their level of interactivity with the user. Many Web sites are for
inquiry only (informational), while others allow the user to interact with,
enter and process information (interactive).
COMMERCIAL USES OF THE INTERNET. Commercial uses of the Internet include
business-to-business and business-to-consumer transactions, product marketing,
advertising, entertainment, electronic publishing, electronic services and
Internet support. The Company views the Internet and in particular the Web as
presenting significant opportunities for electronic marketing, sale and
distribution of products. In the Company's view, the Internet's benefits
include:
- Low cost in comparison to other marketing channels
- Direct marketing of products and services
- Audio/visual display and demonstration of products
- Ability to capture orders electronically at significantly lower personnel
costs than traditional order-taking
- Provision of client services such as order tracking and trouble-shooting
- Immediate fulfillment and satisfaction of certain orders, such as software
and information deliverable electronically
- Customer convenience (24-hour, 7 days a week access)
- Potential for narrowly-targeted marketing
A number of companies have developed systems to maintain the security of
transactions on the Internet and the Company has developed its own proprietary
merchandise engine which provides security for order-taking functions. There can
however be no assurance that breaches in transaction security will not have an
adverse effect on the growth and viability of on-line commerce.
ADVERTISING. The Internet is essentially a media outlet and as such serves
as an attractive platform for advertising. In July 1996, SIMBA Information Inc.
projected that advertising revenues from the Web and the four largest on-line
services (America Online, Compuserve, Prodigy and Microsoft Network) will total
$200 million in 1996 and grow to $1.17 billion in the year 2000. Typically,
advertising on the Web is in the form of a customized graphic box, or
"billboard," covering a portion of the screen being viewed. Viewers of the site
who are attracted to the advertisement can generally click on the billboard and
be connected directly to the Web site of the advertiser, which may be located on
the server of the host site or addressed to another Internet server. The Company
currently sells advertising on certain Web sites it maintains to companies
including AT&T, Silicon Graphics, Sybase, Penzoil, The Rocky Mountain News, The
Denver Post and BFI Waste Services. Advertising proceeds are generally shared by
the Company and the client that commissioned the site.
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<PAGE>
INTRANETS. Because of the ease of use and widespread acceptance of Internet
protocols, HTML and other scripting languages and tools, a number of companies
have implemented internal networks, or Intranets, based on such protocols. The
use of these protocols allows employees using personal computers and Web browser
software to access and interact with a broad range of information sources within
their company, independent of physical location and underlying computer and
database design, on the familiar platform of Web browser software.
THE COMPANY'S INTERNET/INTRANET SOLUTIONS
The Company provides its Internet/Intranet Solutions through six business
units: Business Development Services, World Wide Web Services, Marketing
Services, Media Services, Client Services and Channel Services. These units
function as a team in providing solutions for clients. The Internet/Intranet
Solutions provided to clients often also involve one or more of the traditional
distribution services offered by the Company. See "--Distribution and Related
Services."
BUSINESS DEVELOPMENT SERVICES are delivered through consulting engagements,
generally billed on an hourly basis, in which Company professionals analyze
client business requirements and recommend comprehensive solutions for the
client's Internet or Intranet requirements. Proposed solutions offered by the
Company include one or more of the following components:
- Network solutions
- Web site specifications
- Private Intranets
- Web distribution strategies
- Traditional channel strategies
- Integrated marketing
- Image development
- Product introduction
- Project management
- Graphic design
- Product distribution
WORLD WIDE WEB SERVICES provide the design and implementation of a Web site
based upon specifications developed by the Company and the client. The Company's
World Wide Web Services also include the design and implementation of private
Intranets, including hardware and software implementation.
The Company designs many of its Web sites with database system integration,
which allows the Web site to act as an interface to selected portions of the
client's internal legacy or enterprise systems. Such integration allows the Web
site to reflect continuously the most current information concerning the client.
The Company has developed a set of proprietary software tools for
implementation on client Web sites. These tools are licensed to clients for use
on the particular site for so long as the site is maintained by the Company. A
brief description of each of the Company's proprietary tools follows.
- NAVIDEX. The Navidex tool is a dynamic, database driven table of contents
that allows the user to intuitively navigate the Web site.
- NAVIMAP. The Navimap tool is a graphical representation of site
information with links to other areas on the site.
- MERCHANDISE ENGINE. The Merchandise Engine creates an on-line catalog of
products available for sale through the Web site. The Merchandise Engine
also contains a secure algorithm for transmitting credit card information
and is capable of capturing contact and marketing information from
customers placing orders.
29
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- CALENDAR TOOL. The Calendar Tool provides a visual interface for
searching through a database of date oriented activities, announcements,
meetings or other events.
- E-MAIL TOOL. The E-Mail Tool is an e-mail engine which allows e-mail to
be sent from the Web site to e-mail addresses designated by the client for
purposes such as customer feedback, customer information capture and
customer service inquiries.
- ADMINISTRATION TOOLS. Administration Tools provide clients with the means
to maintain and update their sites themselves.
MARKETING SERVICES consist of market research, marketing, advertising and
public relations consulting and implementations designed to promote the client's
Internet presence. Such services are generally billed on an hourly basis.
Marketing Services also include the promotion and implementation of advertising
on client sites where appropriate. The Company generally charges for such
advertising placement through sharing of advertising revenues.
MEDIA SERVICES include digital image capture, post-processing services for
scanned images and graphic arts production. The Company offers these services to
assist clients in developing a uniform company image that spans both traditional
and electronic media. Actual output services provided by the Company include
photographic quality prints, color transparencies and printed output in all
sizes. The Company typically bills Media Services on a project basis.
CLIENT SERVICES include technical support, network implementation, Web site
maintenance and evolution, hosting of Web sites on a Company Internet server,
database management, product support and electronic messaging implementation.
The Company charges a variety of fees for these services, ranging from a
specific one time fee for change requests to a monthly fee for site maintenance.
CHANNEL SERVICES include all of the functions necessary to implement an
Internet marketing and distribution plan, including on-line sales of
merchandise, warehousing and order fulfillment. The Company generates revenues
from these services principally through sales commissions which vary depending
upon the level of Company involvement in the distribution plan.
SIGNIFICANT CLIENTS
The Company's major Internet/Intranet Solutions projects include the
following:
- HEWLETT PACKARD (HTTP://WWW.HP.COM). The Company designed the layout,
graphics and reusable templates for the Web pages of three Hewlett Packard
divisions (Electronic Measurements Division, Test & Measurement Operations
and the Colorado Division) contained within Hewlett Packard's primary Web
site.
- KN ENERGY ONLINE. The Company developed an Intranet for KN Energy that is
the primary resource for its employees to access company information. The
KN Energy Internet has a number of attractive features, including:
- a user interface featuring an animated "guide"
- a fully integrated search engine
- download capabilities
- internal authority and signature verification
- an extensive employee database
The Company maintains and enhances this network on the basis of a monthly
retainer and several major enhancements are planned for the network
commencing in the fourth quarter of 1996.
- LIVE ENTERTAINMENT. The Company, in partnership with Ajilon Services,
Inc., has entered into an agreement to design and implement a Web site for
Live Entertainment, which is a major Los
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<PAGE>
Angeles distributor of entertainment video tapes. The Web site will
interface with Live Entertainment's internal database to provide an
on-line catalog of all videos offered by Live Entertainment. The Company
will also fulfill on-line orders of Live Entertainment videos from the
Company's warehouse facility. The Company completed its initial work on
the Live Entertainment Web site in November of 1996 and expects it to be
operational in December 1996.
- COLORADO AVALANCHE (HTTP://WWW.COLORADOAVALANCHE.COM). The Company
developed this site during the 1995-1996 hockey season and the site has
been redesigned for the 1996-1997 season. The site received a four star
rating (the highest rating) from Magellan and it was chosen as the best
site in the NHL by ISWire. The site generates an average of 300,000
visitors a month, and hosted 2,000,000 visitors after the Avalanche won
the Stanley Cup in June of 1996. The Avalanche site has electronic
commerce capabilities and team apparel and other goods are being sold over
the site. The redesigned site features advanced graphics, video and audio
clips, player statistics and regularly updated features about the team.
The Company has a contract in place to maintain the Avalanche site until
the end of the 1996-1997 hockey season.
- BURT AUTOMOTIVE GROUP (HTTP://WWW.BURT.COM). The Company created and
maintains a large Web site for this multi-dealer automobile retailer. The
Company has installed hardware at the various dealerships and has deployed
computer kiosks at some of the dealerships to allow walk-in customers to
access the Web site information. The Burt Group, with the Company's
assistance, intends to place similar kiosks in remote locations such as
credit unions to further promote the dealership group. The Company intends
to use the Burt site as the prototype for the development of a nationwide
network of car dealerships through the Company's association with Ryan &
Associates, a national provider of services to automotive dealerships.
- ALL ABOUT COLORADO (HTTP://WWW.AACO.COM). All About Colorado is a
community directory organized by the Company and KUSA-9News, a Denver,
Colorado, NBC-TV affiliate. The site contains general information,
activity and entertainment listings in over fifty categories. Each
category is located on a separate page and each page has billboard
advertising space available for sale. The Company is currently in the
process of redesigning the site to provide substantial interactive
abilities, such as search capabilities and visitor profiles, and to allow
commerce to be performed over the site. The Company believes that this
site has the potential to generate substantial advertising revenue, and
pursuant to an agreement with the major site sponsors, the Company is
entitled to retain a significant percentage of such revenue. The Company
completed the first phase of this site in November 1996.
Other sites developed by the Company include Kimmon Electric Co., Ltd.
(http://www.kimmon.com), the Denver-Metro Regional Transportation District
(http://www.RTD-denver.com), Denver Metro Convention & Visitors Bureau
(http://www.denver.org), KUSA-9News (http://www.9news.com), the Colorado Rockies
(currently under development), Colorado Recreation
(http://www.coloradorecreation.com) and the American Animal Hospital Association
(http://www.healthypet.com).
DISTRIBUTION AND RELATED SERVICES
The Company distributes high technology systems and components manufactured
by third parties and provides related services such as system integration and
installation. Product distribution clients range from small businesses to
Fortune 100 companies. Significant product distribution clients include Lockheed
Martin, Johnson Controls, Hughes Aircraft and US West. The Company serves both
as a national manufacturer's representative for the products of certain
international manufacturers and as a reseller of selected computer products in
the Rocky Mountain region. The Company focuses its distribution efforts towards
selling specialized, higher margin products. The Company intends to expand its
product distribution activities into electronic channels, including sales over
the Internet on the Company's Web site.
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Distribution activities usually involve the receipt by the Company of orders
for equipment from prospective purchasers and the delivery and/or installation
of the equipment by the Company. The Company purchases the equipment directly
from the manufacturer or vendor and resells it to the purchaser at a price which
includes the Company's cost and a profit margin. With the exception of graphics
supplies and certain imported components, the Company does not generally
maintain an inventory of products it distributes. The Company specializes in
components, lasers, graphics, supplies, systems integration and reprographic
services.
COMPONENTS. The Company represents and distributes component products from
several Japanese manufacturers, principally Hayashi Denko and Sunmoulon.
Products include temperature sensors, push-button switches and numerous other
specialized components. These products are sold primarily through phone sales as
well as through a national network of manufacturer's representatives. Most of
these components are sold to original equipment manufactures ("OEMs") which
incorporate these components into their product designs. Key industries for the
Company's component products include: industrial process control, heating,
ventilation and air conditioning (HVAC), energy management, food processing,
consumer appliances and medical monitoring.
LASERS. The Company is the exclusive agent in North America for Kimmon
Electric Co., Ltd. Kimmon is the largest manufacturer in the world of Helium
Cadmium (HeCd) lasers and the Company provides all sales, service and support
for Kimmon's products in North America. These lasers are sold through a
combination of on-site direct sales, trade shows and telephone orders. The
Company sells Kimmon products to both end-users and OEMs. The primary
applications for HeCd lasers are mastering of CDs & CD-ROMS, prototype
production through three-dimensional stereolithography, production of holograms,
medical imaging and research.
GRAPHICS. The Company sells graphics products focused in the areas of data
capture (scanning, digital cameras and X-terminals) and color output (color
printers and LCD projection devices). The sale of many of these products is
through territorial authorizations granted to the Company by the manufacturers.
The Company has significant manufacturer alliances with Xerox, Tektronix, Sony,
InFocus and Hewlett Packard. Graphics products are sold primarily to end-user
customers by a direct sales team operating both in the field as well as through
an inside sales group which takes orders from existing customers.
REPROGRAPHIC SERVICES. This division acts as a complement to the graphics
division and provides the services described above under "Media Services." Sales
in this division are made through a direct sales force working with both
end-user and reseller customers.
SUPPLIES. The Company sells consumable supplies for color graphic output
devices. The Company stocks an inventory of popular consumables in order to
provide prompt response for customer orders. In addition, the supplies division
sells third-party extended warranty agreements for all hardware products.
SYSTEMS INTEGRATION. The Company offers network design and implementation
services to corporate customers in the Rocky Mountain region, which services
often include the acquisition and location of network equipment and servers.
These services are performed by a direct sales team. The primary manufacturers
of network equipment and servers distributed by the Company are Compaq, IBM and
Hewlett Packard.
MARKETING
Upon consummation of this offering, the Company intends to hire additional
personnel dedicated to marketing efforts. See "--Employees." In light of its
current client base, the Company's upcoming marketing efforts will be focused on
developing additional clients in the automotive, sports franchise, corporate
Intranet and regional directory businesses. The Company will also focus on
developing interest
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in electronic commerce and order fulfillment by the Company amongst the
Company's existing and new clients.
The Company expects to generate additional Internet/Intranet Solutions
clients from subcontracting arrangements entered into between the Company and
AT&T and IBM, each in August 1996. Under the terms of each of these agreements,
AT&T or IBM may refer customers to the Company and AT&T and IBM will receive in
exchange a percentage of the revenues received from such customers. Neither
agreement obligates the Company to accept any particular clients or projects or
obligates IBM or AT&T to refer any particular or minimum number of clients to
the Company, and both agreements are non-exclusive. Although there is no
guarantee that the Company will receive a substantial number of referrals or
derive substantial revenues from these agreements, management does expect that
these agreements will significantly expand the Company's client and revenue
base. Management plans to seek additional subcontracting opportunities with
other major computer and Internet industry companies.
PROPRIETARY RIGHTS
The Company has not yet determined whether any of its current products or
services are patentable. It has applied for federal trade name and trademark
registration of the "NAVIDEC" name and mark. The Company relies on a combination
of copyright, trade secret and trademark laws, and nondisclosure and other
contractual provisions to protect its various Web site tools and other
proprietary rights. These safeguards may not prevent competitors from imitating
the Company's products and services or from independently developing competing
products and services.
Because the Company's business is characterized by rapid technological
change, the Company believes that factors such as the technological and creative
skills of its personnel, name recognition and reliable client service and
support are more important to establishing and maintaining a competitive
position in its industry than the various legal protections of its proprietary
developments.
The Company believes that its proprietary rights do not infringe the
proprietary rights of third parties. There can be no assurance however that
third parties will not assert such infringement by the Company with respect to
current or future software, trade names or services. Any such claim, with or
without merit, could be time consuming, result in costly litigation and cause
product release delays and might require the Company to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms acceptable to the Company.
EMPLOYEES
There are currently 31 full-time employees of the Company. These include six
in Business Development, six in World Wide Web Services, three in Marketing
Services, three in Media (reprographic) Services, one in Client Services, six in
Channel Services (which includes high technology product sales personnel) and
six in management and accounting.
The Company expects to hire fifteen additional full-time employees in the
twelve months following this offering. The Company currently anticipates three
new hires dedicated to sales, four new hires dedicated to marketing and nine new
technical employees. The new employees will span all six of the Company's
business units, and some may be assigned to more than one unit.
PROPERTIES
The Company's headquarters are located at 14 Inverness Drive, Building F,
Suite 116, Englewood, Colorado, in a 5,900 square foot facility, which includes
approximately 1,500 square feet in warehouse space. The facility is occupied
under a lease with an unaffiliated party expiring in June 2001 and providing for
a current monthly lease rate of $4,166. The Company maintains a second office
facility in Englewood, Colorado consisting of approximately 2,600 square feet.
This facility is occupied under a lease with an unaffiliated party which will
expire in December 1996 and provides for a monthly lease rate of $1,750. The
Company intends to obtain comparable substitute facilities upon expiration of
this lease. The Company
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may lease additional warehouse space if needed to support the growth in
traditional and on-line product distribution.
COMPETITION
Existing competitors to the Internet/Internet Solutions business include
Online Systems Services, Inc., Eagle River Interactive, Inc. and Open Market,
Inc., all public companies traded on NASDAQ, as well as a large number of
regional firms providing similar services to those of the Company. Potential
competitors in this business include browser software vendors, PC and UNIX
software vendors and on-line service providers. Additional competition comes
from numerous client/server companies, database companies, multimedia companies,
advertising agencies, document management companies, networking software
companies, network management companies and educational software companies. In a
broader sense, the Company may compete with the more traditional advertising and
distribution mediums, such as radio, television and mail order outlets.
Potential competition also comes from the Company's clients, who could choose to
address their Internet/Intranet needs through in-house personnel. Some of the
Company's current and many of the Company's potential competitors have longer
operating histories, greater name recognition, larger installed customer bases
and significantly greater financial, technical and marketing resources than
those of the Company. Competitive factors in the Internet/Intranet Solutions
business include core technology, breadth of services offered, creative and
artistic ability, marketing and distribution resources, customer service and
support and price.
A large number of companies act as re-marketers of computer networks,
graphics equipment and components, and the Company's competition in the high
technology product distribution business is therefore also intense. In some
instances, the Company, in acting as a re-marketer, may compete with the
original manufacturer. In addition, a large number of companies offer the
reprographic services offered by the Company and competition in this area is
also intense. Many of the Company's competitors in the high technology product
distribution business have longer operating histories, greater name recognition,
larger installed customer bases, larger sales staffs and substantially greater
financial, technical and marketing resources than those of the Company.
Competitive factors in the distribution business include technical expertise,
breadth of products offered, product quality, performance and reliability,
price, name recognition, customer service and support and access to distribution
channels.
Both the Internet/Intranet Solutions business and the high technology
product distribution business are characterized by low financial barriers to
entry and frequent introductions of new products. The Company therefore expects
competition in each of its businesses to increase in the future. There can be no
assurance that the Company will be able to successfully compete in its
businesses. Although the Company believes that it has the requisite management,
technical and creative abilities to successfully compete, the intense level of
competition in each of the Company's businesses could materially, adversely
affect the Company's future operating results and financial condition.
LEGAL MATTERS
The Company is currently not involved in any material legal proceedings.
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MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth the name, age and position with the Company
of each officer and director of the Company as of the date of this Prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- --- --------------------------------------------------------------------
<S> <C> <C>
Ralph Armijo 44 President, Chief Executive Officer and Director
Andrew Davis 43 Vice President of Sales and Marketing
Patrick R. Mawhinney 32 Chief Financial Officer, Treasurer and Director
Kevin L. Blankenship 32 Vice President of Interactive Network Services and Secretary
Harold Anderson II 32 Vice President of Business Development
Lloyd G. Chavez, Jr. 46 Director Nominee
</TABLE>
The Company's Board of Directors currently consists of two members. All
directors hold office until the next annual meeting of the Company shareholders
and their successors are elected and qualified. The officers are elected by the
Board of Directors at the first meeting after each annual meeting of the Company
shareholders and shall hold office until their successors are duly elected and
qualified or otherwise in accordance with the Bylaws of the Company.
RALPH ARMIJO has served as the President, Chief Executive Officer and a
director of the Company since its inception in 1993. From 1981 to 1993, Mr.
Armijo was employed by Tektronix, Inc., a large communications company which
also produced testing and measuring equipment. Mr. Armijo's responsibilities at
Tektronix progressed from sales manager, to branch manager, to district manager
and, ultimately, to Western Regional Manager, a position he held for five years.
In that position, he was responsible for a $100 million budget in sales,
graphics, technical support and administration, and he was responsible for
developing new distribution channels, including reseller agreements. From 1976
to 1981, Mr. Armijo was employed by IBM Corporation, where he sold computerized
accounting and financial applications to small and medium-sized businesses. Mr.
Armijo received his B.A. from Colorado College and his M.B.A. from the
University of California, Los Angeles.
ANDREW DAVIS has served as Vice President of Sales and Marketing of the
Company since May 1996. From January 1994 to May 1996, Mr. Davis was manager of
wholesale distribution at InFocus Systems, a manufacturer of high resolution
projection systems. From September 1982 to January 1994, Mr. Davis held various
sales and marketing positions in Tektronix, Inc. including Director of Marketing
for the Interactive Technologies Division. Mr. Davis attended the University of
Denver from 1971 to 1974 where he studied Business Management and Marketing.
PATRICK R. MAWHINNEY served as the President of IPI from its inception until
its merger with the Company in July 1996 and since that time has acted as Chief
Financial Officer, Treasurer and a director of the Company. From May 1995 until
May 1996, Mr. Mawhinney also served as a financial/accounting consultant for
MIS\Sunguard, a provider of accounting and investment software. Mr. Mawhinney
was employed as an Assistant Vice President of The Bank of Cherry Creek from
November 1993 to May 1995; as a Vice President of Vectra Banking Corporation
from June 1989 to November 1993; and as Operations Coordinator for Zions
Bancorporation from August 1986 to June 1989. He received his B.S. from Colorado
State University.
KEVIN L. BLANKENSHIP, Vice President of Interactive Network Services and
Secretary since July 1996, served as the Vice President of Technology for IPI
from May 1995 until the July 1996 merger with the Company. Mr. Blankenship also
serves on the Internet Advisory Council of Sybase, Inc., a major manufacturer of
database systems. From January 1993 to May 1995, Mr. Blankenship served as the
Director of Client Integration and Development for ADIA Information Technology
and was employed by
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U.S. West Communications as Manager of Multimedia Applied Engineering from
September 1986 to January 1993. Prior to 1989, Mr. Blankenship held various
positions of responsibility for software systems design. Mr. Blankenship has
expertise in the field of document and information management, as well as an
extensive background in complex, heterogeneous, corporate systems and computing
architectures. Mr. Blankenship attended the University of Colorado between
1982-1987 where he studied Electrical and Computer Science and Computer
Engineering.
HAROLD ANDERSON II, Vice President of Business Development since July 1996,
served as Vice President of Business Development for IPI from July 1995 until
the July 1996 merger with the Company. From September 1986 to July 1995, Mr.
Anderson was employed by U.S. West Advance Technologies and Communications,
where he worked in Distributed Technology Platform Security, served as the
Technical Project Manager, and later acted as a Product Marketing Specialist for
the U.S. West Internet Services Provider/On-line Service Project. Mr. Anderson
received his B.S. degree in Business Administration from the University of
Arizona in 1986 and a Masters degree in Computer Information Systems from the
University of Denver in 1991.
No director or executive officer of the Company is related to any other
director or executive officer. None of the Company's officers or directors hold
any directorships in any public company. Presently the Company has no
nominating, compensation or audit committees; however the Company does plan to
establish compensation and audit committees subsequent to this offering.
DIRECTOR NOMINEE
The Company intends to increase the size of the Board of Directors to five
directors after consummation of this offering. Two of the three vacancies
created thereby will be filled by the Board of Directors pursuant to the
Company's Bylaws, and the Company has agreed to allow the Representative to
nominate the third director, subject to the Company's approval. See
"Underwriting--Designee to the Board of Directors." Lloyd G. Chavez, Jr. has
agreed to serve as director following consummation of this offering. The Company
is currently seeking a second qualified nominee. If the Representative does not
nominate a director, the Company will seek a third qualified director to be
added to the Board. The business background of Mr. Chavez is as follows:
LLOYD G. CHAVEZ, JR. has been the Director of Automotive Markets at the Burt
group of automobile dealerships in Denver, Colorado since 1988. From 1983 to
1994, Mr. Chavez was Vice President of Fort Dodge Laboratories, a subsidiary of
American Home Products, where he was responsible for business acquisitions, new
products and technologies, joint ventures, intellectual property acquisitions,
strategic planning, market research and sale projections. From 1982 to 1983, Mr.
Chavez was Vice President of General Genetics Corporation, where he was
responsible for management of biological and pharmaceutical research and
development. Mr. Chavez received his B.A. in Molecular, Cellular, Development
Biology from the University of Colorado, his M.A. in Old Testament Studies from
Denver Seminary, his Ph.D. in Microbiology and Immunology from the University of
Virginia, and was a post-doctoral Fellow in Chemistry at Cornell University.
DIRECTOR COMPENSATION
None of the Company's directors received any compensation during the most
recent fiscal year for serving in their position as a director. No plans have
been adopted to compensate directors in the future; however it is likely that
during fiscal 1997 the Board of Directors will adopt an employee stock option
plan which includes provision for stock options to be issued to directors.
36
<PAGE>
EXECUTIVE COMPENSATION
The following table sets out the annual compensation paid to Ralph Armijo
for the last three fiscal years. No other executive officer has received annual
compensation in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------------------- ALL OTHER
--------------------- RESTRICTED STOCK COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDS OPTIONS ($)
- -------------------------------------- --------- ---------- --------- ------------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Ralph Armijo, Chief 1995 $ 111,444 $ 24,000 0 0 $ 9,000(1)
Executive Officer 1994 $ 69,541 $ 0 0 161,953(2) 0
1993 $ 0 $ 0 0 784,966(2) 0
</TABLE>
- ------------------------
(1) Consists of an automobile allowance.
(2) During 1994 and 1993 the Company issued stock options to Ralph Armijo to
purchase a total of 804,881 shares of Common Stock for a total exercise
price of $1,745. Compensation expense of $10,000 and $29,000 was recorded
for 1994 and 1993, respectively.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1995(#) DECEMBER 31, 1995($)
SHARES ACQUIRED ON EXERCISEABLE/ EXERCISEABLE/
NAME EXERCISE (#) VALUE REALIZED ($) UNEXERCISEABLE(1) UNEXERCISEABLE(2)
- -------------------------- ------------------- ------------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
Ralph Armijo, Chief
Executive Officer -- -- 804,881/0 $156,199/0
</TABLE>
- ------------------------
(1) Represents options to purchase 804,881 shares of common stock for a total
exercise price of $1,745. These options were exercised prior to the
acquisition of IPI during June 1996.
(2) Value of the options was determined by the Board of Directors at December
31, 1995 and assumes the exercise of the option and payment of the exercise
price. No market for the Company's securities existed at December 31, 1995.
No officer or director received any form of compensation other than cash
during 1995 and no long term incentive, bonus or option plans were or are in
place. Management expects to develop employee stock option plans during fiscal
1997.
The current annual salaries of the executive officers of the Company are as
follows: Ralph Armijo, President, $140,000; Andrew Davis, Vice President of
Sales and Marketing, $105,000; Patrick Mawhinney, Chief Financial Officer,
$75,000; Kevin L. Blankenship, Vice President of Interactive Network Services,
$70,000; and Harold Anderson II, Vice President of Business Development,
$68,000. Total annual compensation for all executive officers is $458,000.
The Board of Directors may, at its discretion, award discretionary bonuses
in the future. It is anticipated that a compensation committee will be
established during 1997. The compensation committee will establish salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company, and establish and administer the Company's benefit
plans and recommend policies relating to such plans.
37
<PAGE>
EMPLOYMENT AGREEMENTS
As a condition to the merger between the Company and IPI, the Company
entered into an employment agreement with Ralph Armijo. Such agreement will
continue through June 30, 1998, unless earlier terminated for cause and provides
for annual compensation of $140,000. Mr. Armijo also has agreed not to compete
with the Company during his employment term and for a period of one year
thereafter; however, courts sometime find noncompetition provisions in
employment contracts to be unenforceable or restrict the duration or geographic
scope of such agreements. Accordingly, there can be no assurance that Mr.
Armijo's agreement not to compete would be enforced by a court if challenged.
The Company entered into an employment agreement with John R. McKowen
employing Mr. McKowen as Director of Investor Relations for an initial term of
six months commencing in August 1996. The agreement will automatically be
extended upon consummation of this offering for 24 months following the date of
this Prospectus. Mr. McKowen's compensation under the agreement is $5,000 per
month and Mr. McKowen is entitled to an automobile allowance not to exceed $400
per month. In addition, he was granted options to purchase 212,500 shares of
Common Stock at an exercise price of $4.12 per share, exercisable no sooner than
thirty months following the date of grant and no later than sixty months from
such date.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Articles of Incorporation eliminate the personal liability of
its directors to the Company and its shareholders for monetary damages for
breach of the directors' fiduciary duties in certain circumstances. The Articles
of Incorporation further provide that the Company will indemnify its officers
and directors to the fullest extent permitted by law. The Company believes that
such indemnification covers at least negligence and gross negligence on the part
of the indemnified parties. Insofar as indemnification for liabilities under the
Securities Act may be permitted to directors, officers, and controlling persons
of the Company pursuant to the foregoing provisions or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
38
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus, and as
adjusted to reflect the sale by the Company of the 780,000 shares of Common
Stock offered by the Company hereby, the Common Stock ownership of each person
known by the Company to be the beneficial owner of five percent or more of the
Company's Common Stock, all directors individually, each executive officer and
all directors and executive officers of the Company as a group. Each person has
sole voting and investment power, as well as record and beneficial ownership,
with respect to the shares shown. None of the named persons hold any options,
warrants or other securities convertible into Common Stock within sixty days
after the date of this Prospectus.
As of the date of this Prospectus, there were 2,049,721 shares of Common
Stock issued and outstanding, including the 349,126 shares issued to the Bridge
Financing Selling Stockholders.
<TABLE>
<CAPTION>
COMMON STOCK PERCENT OF BENEFICIAL OWNERSHIP
BENEFICIALLY ---------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED BEFORE OFFERING AFTER OFFERING
- --------------------------------------------------------------- ----------------- ------------------- ------------------
<S> <C> <C> <C>
Ralph Armijo................................................... 831,659 40% 29%
Patrick R. Mawhinney........................................... 146,057 7% 5%
Harold Anderson II............................................. 76,573 4% 3%
Drew Davis..................................................... 21,250 1% 1%
Kevin L. Blankenship........................................... 76,573 4% 3%
Cynthia J. Simmons............................................. 358,132 17% 13%
84 Willowleaf Drive
Littleton, CO 80125
All directors and executive officers as a Group (Five
Persons)...................................................... 1,152,112 56% 41%
</TABLE>
- ------------------------
(1) Except as indicated herein, the address for each person is 14 Inverness
Drive, Bldg. F., Suite 116, Englewood, Colorado 80112.
BRIDGE FINANCING PRIVATE PLACEMENT
From August through October 18, 1996, the Company sold an aggregate of
$1,437,500 principal amount of 10% Unsecured Subordinated Convertible Promissory
Notes, due December 31, 1997 (the "Bridge Promissory Notes") in a private
placement to certain investors (the "Bridge Financing Private Placement"). Upon
consummation of the offering made by this Prospectus, each $50,000 in principal
amount of the Bridge Promissory Notes is automatically converted into 12,142.67
Units, rounded to the next whole Unit. Based upon the sale of Bridge Promissory
Notes in the aggregate amount of $1,437,500, upon the consummation of the
offering made by this Prospectus, the Bridge Promissory Notes will be
automatically converted into an aggregate of 349,126 Units, consisting of an
aggregate of 349,126 shares of Common Stock (the "Converted Shares") and 349,126
Warrants, and the Bridge Promissory Notes will no longer be outstanding. All of
the Converted Shares and the Warrants have been registered pursuant to the
Registration Statement, of which this Prospectus is a part, and 220,000
Converted Shares are being offered hereby and 129,126 Converted Shares may be
sold from time to time in the open market by the holders thereof (the "Bridge
Financing Selling Stockholders"), provided that the Bridge Financing Selling
Stockholders have agreed that they will not make any such sales of the Converted
Shares for ten months after the date of this Prospectus without the prior
written consent of the Representative in its sole discretion in each case. See
"Bridge Financing Selling Stockholders." The Warrants owned by the Bridge
Financing Selling Stockholders are not subject to any restrictions on sale and
may be sold at any time.
39
<PAGE>
BRIDGE FINANCING SELLING STOCKHOLDERS
The following table sets forth information with respect to the Bridge
Financing Selling Stockholders, who will own an aggregate of 349,126 Units
issuable upon conversion of the Bridge Promissory Notes, all of which are being
registered in the Registration Statement of which this Prospectus forms a part.
Of the Common Stock received upon conversion, an aggregate of 220,000 of such
shares are being offered hereby by the Bridge Financing Selling Stockholders.
See "Bridge Financing Private Placement." The Company will not receive any
proceeds from the sale of these shares. The Representative will receive from the
Company a non-accountable expense allowance equal to three percent of the total
proceeds of the 220,000 shares offered hereby. The cost of qualifying these
shares under federal and state securities laws, together with other costs in
connection with their offering, will be paid by the Company. The remainder of
the shares of Common Stock owned by the Bridge Financing Selling Stockholders
may be sold from time to time in the future, subject however to the Bridge
Financing Selling Stockholders' agreement not to sell any of these shares for
ten months after the date of this Prospectus without the prior written consent
of the Representative in its sole discretion in each case.
<TABLE>
<CAPTION>
COMMON
COMMON STOCK COMMON STOCK
RECEIVED ON CONVERSION STOCK OWNED WARRANTS RECEIVED ON
OF BRIDGE PROMISSORY OFFERED AFTER CONVERSION OF BRIDGE
NAME NOTES HEREBY OFFERING PROMISSORY NOTES
- ------------------------------------------ ---------------------- --------- --------- ----------------------
<S> <C> <C> <C> <C>
Ajan Family Trust......................... 3,036 1,913 1,123 3,036
Almeida, Donald E......................... 3,036 1,913 1,123 3,036
Barish, Marvin............................ 6,072 3,826 2,246 6,072
Bluett, David E........................... 3,643 2,296 1,347 3,643
Bluth, Mordecai........................... 6,072 3,826 2,246 6,072
Bussong, William.......................... 4,858 3,061 1,797 4,858
Campos, Felix and Joyce................... 6,072 3,826 2,246 6,072
Caribou Bridge Fund, L.L.C................ 18,215 11,479 6,736 18,215
Cooke, David.............................. 6,072 3,826 2,246 6,072
Davis, Jerry.............................. 3,643 2,296 1,347 3,643
Dill, H. Alan............................. 6,072 3,826 2,246 6,072
Downey, Mabe.............................. 6,072 3,826 2,246 6,072
Dukes, Leroy A............................ 6,072 3,826 2,246 6,072
Fishman, Eric............................. 6,072 3,826 2,246 6,072
Friedman, Richie.......................... 6,072 3,826 2,246 6,072
Funkhouser, Elliott M..................... 6,072 3,826 2,246 6,072
Generation Capital........................ 12,143 7,652 4,491 12,143
Gonte, William, M.D....................... 12,143 7,652 4,491 12,143
Grace, William............................ 3,036 1,913 1,123 3,036
Hall, Robert.............................. 12,143 7,652 4,491 12,143
Hall, James M............................. 12,143 7,652 4,491 12,143
HNC Associates............................ 3,036 1,913 1,123 3,036
Hoeppner, Fred C.......................... 3,643 2,296 1,347 3,643
Hupe, Gregory M........................... 3,036 1,913 1,123 3,036
Huston, Jeffrey D. and Frances B.......... 24,286 15,305 8,981 24,286
Inverness Investments..................... 6,072 3,826 2,246 6,072
Levenreich, David......................... 27,322 17,218 10,104 27,322
Liner, Richard M.......................... 6,072 3,826 2,246 6,072
Markowitz, Jeffrey........................ 6,072 3,826 2,246 6,072
Matsen, Nancy G........................... 9,107 5,739 3,368 9,107
McKay, Jerry S............................ 3,036 1,913 1,123 3,036
Nieder, Robert M.......................... 6,072 3,826 2,246 6,072
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
COMMON
COMMON STOCK COMMON STOCK
RECEIVED ON CONVERSION STOCK OWNED WARRANTS RECEIVED ON
OF BRIDGE PROMISSORY OFFERED AFTER CONVERSION OF BRIDGE
NAME NOTES HEREBY OFFERING PROMISSORY NOTES
- ------------------------------------------ ---------------------- --------- --------- ----------------------
Patterson, Philip J....................... 3,036 1,913 1,123 3,036
<S> <C> <C> <C> <C>
Quartly-Watson, Tim....................... 6,072 3,826 2,246 6,072
Riggs, Ralph.............................. 6,072 3,826 2,246 6,072
Rockies Fund, The......................... 6,072 3,826 2,246 6,072
Rosen, Michael............................ 12,143 7,652 4,491 12,143
Schneider, Rick........................... 15,786 9,948 5,838 15,786
Schwartzberg, Debbie...................... 12,143 7,652 4,491 12,143
Shikora, Melvin........................... 3,036 1,913 1,123 3,036
Spanier, Myron D.......................... 3,036 1,913 1,123 3,036
Upsala Florida Corp....................... 6,072 3,826 2,246 6,072
Ventura, Joe.............................. 6,072 3,826 2,246 6,072
Warfield, Steven.......................... 4,858 3,061 1,797 4,858
Wise, John A.............................. 6,072 3,826 2,246 6,072
Zygelman, Aron............................ 12,143 7,652 4,491 12,143
------- --------- --------- -------
Total................................. 349,126 220,000 129,126 349,126
------- --------- --------- -------
------- --------- --------- -------
</TABLE>
41
<PAGE>
ADDITIONAL REGISTERED SECURITIES
The Bridge Financing Selling Stockholders will receive 349,126 Units from
conversion of the Bridge Promissory Notes upon consummation of this offering. Of
the 349,126 shares of Common Stock included in the Units, 220,000 are being
offered hereby by the Bridge Financing Selling Stockholders. The remaining
129,126 shares of Common Stock and the 349,126 Warrants included in the Units
which are not being offered hereby are being registered simultaneously with this
offering for resale by the Bridge Financing Selling Stockholders from time to
time, provided that such stockholders have agreed with the Company not to make
any sales of the Common Stock until ten months after the consummation of this
offering without the prior written consent of the Representative in its sole
discretion in each case. The Company has been advised by the Representative that
it has no present plan or intention to consent to any early release from such
agreement. The Warrants owned by the Bridge Financing Selling Stockholders are
not subject to any restriction on sale and may be sold at any time.
There are no material relationships between any of the Bridge Financing
Selling Stockholders and the Company, nor have any such material relationships
existed within the past three years. The Company has been informed by the
Representative that there are no material relationships between any of the
Underwriters and any Bridge Financing Selling Stockholders, nor have any such
relationships existed within the past three years, and there are no agreements
between such parties regarding the distribution of the Common Stock or Warrants
of the Bridge Financing Selling Shareholders, other than the shares of Common
Stock offered hereby by the Bridge Financing Selling Stockholders. The Company
has been further advised by the Representative that none of the Bridge Financing
Selling Stockholders have any current plan or other arrangement or commitment
with respect to the sale of their Common Stock or Warrants.
The sale of Common Stock or Warrants by the Bridge Financing Selling
Stockholders may be effected from time to time in transactions (which may
include block transactions by or for the account of the Bridge Financing Selling
Stockholders) in the over-the-counter markets, in privately negotiated
transactions or otherwise. Sales may be made at fixed prices which may be
changed, at market prices prevailing at the time of sale, or at negotiated
prices. Bridge Financing Selling Stockholders may effect such transactions by
selling directly to purchasers, through broker/dealers acting as the seller's
agents or to broker/dealers who may purchase such securities as principals and
thereafter sell the securities from time to time in the over-the-counter market,
in negotiated transactions or otherwise. Such broker/dealers, if any, may
receive compensation in the form of discounts, concessions or commissions from
the sellers and/or the purchasers from whom such broker/dealers may act as
agents or to whom they may sell as principals or otherwise (which compensation
as to a particular broker/dealer may exceed customary commissions). Bridge
Financing Selling Stockholders will be required to deliver a current prospectus
in connection with their offer and sale of Common Stock or Warrants.
If any of the following events occur, the prospectus will be amended to
include additional disclosure before offers and sales of the Common Stock or
Warrants by the Bridge Financing Selling Stockholders are made: (i) to the
extent such securities are sold at a fixed price or by option at a price other
than the prevailing market price, such price would be set forth in the
prospectus; (ii) if the securities are sold in block transactions and the
purchaser wishes to resell, such arrangements would be described in the
prospectus; and (iii) if the compensation paid to broker/dealers is other than
usual and customary discounts, concessions or commissions, disclosure of the
terms of the transaction would be included in the prospectus. The prospectus
would also disclose if there are other changes to the stated plan of
distribution, including arrangements that either individually or as a group
would constitute an orchestrated distribution of the securities.
Under applicable rules and regulations under the Securities Exchange Act of
1934 (the "Exchange Act"), any person engaged in the distribution of the Common
Stock or the Warrants may not simultaneously engage in market making activities
with respect to any securities of the Company for a period of at least two (and
possibly nine) business days prior to the commencement of such distribution.
Accordingly,
42
<PAGE>
in the event that the Representative or any of the other Underwriters makes a
market in the Company's securities, the Bridge Financing Selling Stockholders
will likely be required to sell such securities through another broker/dealer.
In addition, each Bridge Financing Selling Stockholder desiring to sell
securities will be subject to the applicable provisions of the Exchange Act and
the rules and regulations thereunder, including without limitation Rules 10b-6
and 10b-7, which provisions may limit the timing of the purchases and sales by
the Bridge Financing Selling Stockholders.
The Bridge Financing Selling Stockholders and broker/dealers, if any, acting
in connection with such sales might be deemed to be "underwriters" as defined in
the Securities Act and any commission received by them and any profit on the
resale of the securities may be deemed underwriting discounts and commissions
under the Securities Act.
CERTAIN TRANSACTIONS
In October 1993, Arthur Armijo, brother of the Company's President, Ralph
Armijo, made a $119,199 loan to the Company. The loan is evidenced by a
promissory note dated October 1, 1993 bearing interest at the rate of 5% per
year. As of the date of this Prospectus, the outstanding amount due under the
note is approximately $100,000, which amount is to be paid in full out of the
proceeds of this offering.
In November 1993, Arthur Armijo and Ralph Armijo each personally guaranteed
a line of credit in the amount of $200,000 extended by Vectra Bank, Denver,
Colorado, to the Company. Such line of credit and Messrs. Armijos' personal
guarantees were terminated in February 1996. No compensation was paid by the
Company for such personal guarantees. In February 1996, Arthur Armijo and Ralph
Armijo each personally guaranteed the factoring arrangement of the Company with
Colorado State Bank of Denver for a maximum of $750,000. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation." To
date, Messrs. Armijo have received no compensation from the Company for such
personal guarantees.
In July 1996, Littleton Land Company made a $182,500 loan to the Company.
The loan was evidenced by a non-interest bearing promissory note with a maturity
date of August 31, 1996. Such note was prepaid in full on August 22, 1996. John
McKowen, an employee of the Company, is an affiliate of Littleton Land Company.
In August 1996, the Company granted options to Mr. McKowen to purchase 212,500
shares of Common Stock at an exercise price of $4.12 per share, exercisable from
February 1999 to August 2001. See "Management--Employment Agreements."
On March 31, 1996, Patrick Mawhinney, a shareholder, director and Chief
Financial Officer of the Company, made a $45,110 loan to IPI. The loan is
evidenced by a promissory note dated March 31, 1996, which provides for the
accrual of interest at a fixed rate of 10% per year and a maturity date of
December 31, 1997. The loan will be prepaid in full out of the proceeds of this
offering.
In June 1996, Schneider Mawhinney & Associates, P.C. advanced $32,500 to
IPI. Such amount was repaid without interest in October 1996. Patrick
Mawhinney's spouse is a principal of Schneider Mawhinney & Associates.
In July 1996, Cindy Simmons, a principal shareholder of the Company, was
issued a promissory note of the Company in the amount of $75,000 as part of the
purchase price for IPI. The promissory note provides for monthly payments of
$6,250 due on the first day of each month beginning August 1, 1996 and maturing
on July 1, 1997.
In July 1996, Mr. Mawhinney made a loan to the Company in the amount of
$30,000, evidenced by a promissory note dated July 26, 1996 and bearing interest
at the rate of 9.75 percent per year. Such note was prepaid in full in October
1996.
In August 1996, Ralph Armijo made a loan to the Company in the amount of
$70,000, evidenced by a promissory note dated August 6, 1996 and bearing
interest at the rate of 9.75 percent per year. Such note was prepaid in full in
October 1996.
43
<PAGE>
Although the foregoing transactions were determined without arm's length
negotiations and necessarily involved conflicts of interest between the
interests of the related parties and the Company, the Company believes that all
of the foregoing transactions were entered into on terms no less favorable to
the Company than could have been obtained from independent third parties. All
future transactions by the Company with officers, directors and 5% stockholders
and their affiliates will be entered into only if a majority of the outside
directors dertermine that the terms of such transactions are no less favorable
to the Company than could be obtained from unaffiliated parties. There are
currently no new proposed related party transactions contemplated by the
Company.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 20,000,000 shares of Common Stock, no par
value, of which 2,049,721 shares are currently outstanding including the shares
issued upon conversion of the Bridge Promissory Notes. After this offering,
there will be 2,829,721 shares of Common Stock outstanding, assuming no exercise
of the Warrants, the Over-allotment Option, the Representative's Options or the
Employee's Options.
Holders of Common Stock are entitled to dividends when, as and if declared
by the Board of Directors out of funds available therefor, subject to any
priority as to dividends for any preferred stock that may be outstanding. There
currently is no preferred stock authorized or outstanding. Holders of Common
Stock are entitled to cast one vote for each share held at all stockholder
meetings for all purposes including the election of directors. Cumulative voting
for the election of directors is not permitted. The holders of a majority of the
Common Stock issued and outstanding and entitled to vote, in person or by proxy,
constitute a quorum at meetings of stockholders and the vote of the holders of a
majority of Common Stock present at such a meeting will decide any question
brought before such meeting, except for certain actions such as amendments to
the Company's Articles of Incorporation, mergers or dissolutions, all of which
require the vote of the holders of a majority of the outstanding Common Stock.
Upon liquidation or dissolution, the holder of each outstanding share of Common
Stock will be entitled to share ratably in the net assets of the Company legally
available for distribution to such stockholder after the payment of all debts
and other liabilities and after distributions to preferred stockholders, if any,
legally entitled thereto. No holder of Common Stock has any preemptive or
preferential rights to purchase or subscribe for any part of any unissued or any
additional authorized stock or any securities of the Company convertible into
shares of its stock, nor does any holder of Common Stock have redemption or
conversion rights. The outstanding shares of Common Stock are, and the Common
Stock offered hereby will be when issued and paid, fully paid and nonassessable.
STOCK PURCHASE WARRANTS
Prior to the offering there were no warrants issued by the Company. Upon
consummation of this offering, 1,349,126 Warrants will be issued and outstanding
(consisting of 1,000,000 Warrants sold by the Company in this offering and the
349,126 Warrants issued to the Bridge Financing Selling Stockholders upon
consummation of this offering), assuming no exercise of the Over-allotment
Option. Each Warrant entitles the holder to purchase one share of Common Stock
at an exercise price equal to $ (120% of the initial offering price of the
Unit), subject to adjustment, for a period of five years commencing from the
date of this Prospectus. No holder of Warrants, as such, will be entitled to
vote or receive dividends or be deemed the holder of shares of Common Stock for
any purpose whatsoever until such Warrants have been duly exercised and the
purchase price has been paid in full. Each Warrant will be redeemable by the
Company for $.05 per Warrant at any time commencing one year after the effective
date of this offering ("Effective Date") (which period may be reduced or waived
by the Representative in its sole discretion), upon thirty days' prior written
notice, at any time when the closing price per share of Common Stock for twenty
consecutive trading days within the thirty-day period prior to the date notice
of redemption is given
44
<PAGE>
equals or exceeds 140% of the initial public offering price of the Unit and at
such time there is a current effective registration statement covering the
shares of Common Stock underlying the Warrants. The Company presently expects to
call all of the Warrants for redemption as soon as permitted provided that a
current Prospectus relating to the Common Stock underlying such Warrants is
effective at that time. In the event the Company gives notice of its intention
to redeem, a holder may exercise his Warrants within the period set forth in the
notice of redemption or they will be redeemed upon payment of the redemption
price. The Warrants will be entitled to the benefit of adjustments in the
exercise price and in the number of shares of Common Stock delivered upon the
exercise thereof upon the occurrence of certain events, such as stock dividends,
stock splits, recapitalizations, consolidations or mergers.
The Warrants will be exercisable only when there is a current effective
registration statement covering the shares of Common Stock underlying the
Warrants. If the Company does not or is unable to maintain a current effective
registration statement, the Warrant holders will be unable to exercise the
Warrants and the Warrants may become valueless. Because the Warrants may be
transferred, it is possible that the Warrants may be acquired by persons
residing in states where the Company has not registered them, or is not exempt
from registration, such that the shares of Common Stock underlying the Warrants
may not be sold or transferred upon exercise of the Warrants. Warrant holders
residing in those states would have no choice but to attempt to sell their
Warrants or let them expire unexercised.
Holders of the Warrants may be able to sell the Warrants if a market
develops rather than exercise them. However, there can be no assurance that a
market will develop, or if developed, will continue as to such Warrants.
Each Warrant will be exercisable by surrendering the Warrant certificate,
with the formal subscription form on the reverse side of the Warrant certificate
properly completed and executed, together with payment of the exercise price to
the Warrant Agent. Prior to their expiration or redemption by the Company, the
Warrants will be exercisable from time to time in whole or in part. If less than
all of the Warrants evidenced by a Warrant certificate are exercised, a new
Warrant certificate will be issued for the remaining number of Warrants.
REPRESENTATIVE'S OPTIONS
Subject to the terms and conditions of the Underwriting Agreement between
the Company and the Representative, the Company has agreed to sell to the
Representative options to purchase 100,000 Units. See
"Underwriting--Representative's Options."
TRADING SYMBOL
The Company has applied for inclusion of its Units, Common Stock and
Warrants for quotation on NASDAQ under the symbols "NVDCU," "NVDC" and "NVDCW,"
respectively. This offering is the initial public offering of the Company's
Securities and, accordingly, there is currently no public trading market for any
such Securities. Even if the Company's Common Stock and Warrants are accepted
for quotation on NASDAQ, there can be no assurance that a public trading market
will ever develop or, if one develops, that it will be maintained. Although it
has no legal obligation to do so, the Representative from time to time may act
as a market maker and otherwise effect transactions for its own account, or for
the account of others, in the Company's securities. The Representative, if it so
participates, may be a dominating influence in any market that may develop for
any of the Company's Securities.
TRANSFER AGENT AND REGISTRAR
The transfer agent for the Company's Common Stock and the Warrant Agent for
the Company's Warrants is American Securities Transfer & Trust, Inc.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have 2,829,721
shares of Common Stock outstanding, including 349,126 shares issued upon
conversion of the Bridge Promissory Notes. Of the 2,829,721 shares of Common
Stock outstanding, the 1,000,000 shares of Common Stock offered hereby will be
freely tradeable without restriction or further registration under the
Securities Act, except for any shares purchased by an affiliate of the Company
(in general, a person who has a control relationship with the Company), which
shares will be subject to the resale limitations of Rule 144 under the
Securities Act. In addition to the 1,000,000 shares of Common Stock offered
hereby, 129,126 shares of Common Stock issued in the conversion of the Bridge
Promissory Notes are being registered simultaneously with this offering for
resale by the holders thereof from time to time commencing ten months after the
consummation of this offering (or sooner, if permitted by the Representative in
its sole discretion). When sold, such shares will be freely tradeable without
restriction or further registration under the Securities Act. See "Additional
Registered Securities." The remaining 1,700,595 shares of Common Stock
outstanding are deemed to be "restricted securities," as the term is defined
under Rule 144 promulgated under the Securities Act, in that such shares were
purchased by the stockholders of the Company prior to the offering in
transactions not involving a public offering and as such may only be sold
pursuant to a registration statement under the Securities Act, in compliance
with the exemption provisions of Rule 144, or pursuant to another exemption
under the Securities Act. Rule 144 provides, in essence, that a person
(including a group of persons whose shares are aggregated) and including any
person who may be deemed an "affiliate" of the Company, as that term is defined
under the Securities Act, who has satisfied a two-year holding period for such
restricted securities may sell within any three-month period, under certain
circumstances, an amount of restricted securities which does not exceed the
greater of one percent of that class of the Company's outstanding securities or
the average weekly trading volume of that class of securities during the four
calendar weeks prior to such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. In addition, pursuant to Rule 144,
persons who are not affiliated with the Company and who have held their
restricted securities for at least three years are not subject to the quantity
limitations or the manner of sale restrictions of the rule. As of the date
hereof, 212,500 shares of Common Stock are available for resale pursuant to Rule
144; however, pursuant to an agreement with the Representative, the holders of
all of such shares are restricted from selling them for a period of twelve
months from the date of this Prospectus. See "Underwriting--Lock-Up Agreement."
A sale of shares by the Company's current stockholders, whether pursuant to Rule
144 or otherwise, may have an adverse effect upon the market price of the
Securities in any market for them that may develop. To the extent that these
shares enter the market, the value of the Common Stock in the over-the-counter
market may be reduced. See "Risk Factors."
46
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting Agreement,
the Underwriters named below, for whom Joseph Charles & Associates, Inc. is
acting as representative (the "Representative"), have severally agreed to
purchase from the Company and the Bridge Financing Selling Stockholders, and the
Company and the Bridge Financing Selling Stockholders have each agreed to sell
to the Underwriters named below, the aggregate number of Securities set forth
opposite their respective names in the table below at the price to the public
less underwriting discounts set forth on the cover page of this Prospectus. The
Units are being sold on a firm commitment basis. The Underwriting Agreement
provides, however, that the obligations of the Underwriters to pay for and
accept delivery of the Units are subject to certain conditions precedent, and
that the Underwriters are committed to purchase and pay for all Units if any
Units are purchased.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS OF UNITS
- ------------------------------------------------------------------------------------- -----------------
<S> <C>
Joseph Charles & Associates, Inc.....................................................
-----------------
Total............................................................................ 1,000,000
-----------------
-----------------
</TABLE>
The Company has been advised by the Representative that the Underwriters
propose initially to offer the Units directly to the public at the offering
price set forth on the cover page of this Prospectus and to certain dealers (who
may include the Underwriters) at such price less a concession not in excess of
$ per Unit. The Underwriters may allow, and such dealers may reallow, a
concession to certain other dealers (who may include the Underwriters) not in
excess of $ per Unit. After the initial offering to the public, the
offering price and other selling terms may be changed by the Representative.
The Representative of the Underwriters has advised the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority as to such sale.
OVER-ALLOTMENT OPTION
The Company has granted to the Representative an option, exercisable for
sixty days after the date of this Prospectus, to purchase up to a maximum of an
additional 150,000 Units at the Offering Price, less the underwriting discounts,
set forth on the cover page of this Prospectus. The Representative may exercise
such option only to cover over-allotments made in connection with the sale of
the Units offered hereby.
NON-ACCOUNTABLE EXPENSE ALLOWANCE
The Company has agreed to pay to the Representative a non-accountable
expense allowance equal to three percent of the total proceeds of the offering
including proceeds paid to the Bridge Financing Selling Stockholders, or
$210,000 (based upon an assumed Offering Price of $7.00), of which $40,000 has
previously been paid. The Representative's expenses in excess of the
non-accountable expense allowance will be borne by the Representative. To the
extent that the expenses of the Representative are less than the non-accountable
expense allowance, the excess will be deemed to be underwriting compensation. In
addition to the Underwriter's discount and the non-accountable expense
allowance, the Company is required to pay the costs of qualifying the Securities
under federal and state securities laws, together with legal and accounting
fees, printing and other costs in connection with this offering.
47
<PAGE>
The Bridge Financing Selling Stockholders will sell such shares to the
Underwriter less a discount equal to ten percent of the offering price for the
Common Stock. The costs of qualifying these shares under federal and state
securities laws, together with legal and accounting fees, printing and other
costs in connection with the offering, will be paid by the Company.
REPRESENTATIVE'S FINANCIAL CONSULTANT AGREEMENT
The Company has agreed to retain the Representative as a financial
consultant for a period of two years from the date of this Prospectus for a fee
of $3,000 per month. The financial consulting services to be provided by the
Representative include assisting in the development of a long-term financial
strategy and working with financial analysts.
DESIGNEE TO THE BOARD OF DIRECTORS
The Company has agreed, for a period of four years from the date of this
Prospectus, at the option of the Representative, to nominate a designee of the
Representative, reasonably acceptable to the Company, for election to the
Company's Board of Directors or, at the option of the Representative, if the
Company is unable to obtain directors and officers insurance satisfactory to the
Representative, to designate a consultant to the Board of Directors who will
have the right to attend all Board and Board committee meetings and will be
compensated on the same basis as non-employee members of the Board. The
Representative has not yet exercised its right to designate such a person.
WARRANT SOLICITATION
The Company has agreed with the Representative not to solicit Warrant
exercises other than through the Representative. Upon exercise of any Warrants,
commencing one year from the date of this Prospectus, the Company will pay the
Representative a fee of three percent of the aggregate exercise price, if (i)
the market price of the Common Stock on the date the Warrant is exercised is
greater than the then exercise price of the Warrant; (ii) the exercise of the
Warrant was solicited by a member of the National Association of Securities
Dealers, Inc., who is designated in writing by the holder exercising the
Warrant; (iii) the Warrant is not held in a discretionary account except where
prior specific written approval for the exercise has been received; (iv)
disclosure of compensation arrangements was made both at the time of the
offering and at the time of exercise of the Warrant; (v) the solicitation of the
exercise of the Warrant was not in violation of Rule 10b-6 promulgated under the
Exchange Act; and (vi) the Representative provides bona fide services in
connection with the solicitation of the Warrant. No solicitation fee will be
paid to the Representative on Warrants exercised within one year of the date of
this Prospectus or on Warrants voluntarily exercised at any time without
solicitation. In addition, unless granted an exemption by the Commission from
Rule 10b-6 under the Exchange Act, the Representative will be prohibited from
engaging in any market making activities or solicited brokerage activities until
the later of the termination of such solicitations activity or the termination
by waiver or otherwise of any right the Representative may have to receive a fee
for the exercise of the Warrants following such solicitation. Such a
prohibition, while in effect, could impair the liquidity and market price of the
Securities.
REPRESENTATIVE'S OPTIONS
Subject to the terms and condition of the Underwriting Agreement between the
Company and the Representative, the Company has agreed to sell to the
Representative, for an aggregate purchase price of $100, as additional
compensation in connection with this offering, options (the "Representative's
Options") to purchase up to 100,000 Units. The shares of Common Stock underlying
the Representative's Options are identical to the shares offered hereby, and the
Warrants underlying the Representative's Options will have an exercise price and
other terms identical to the Warrants offered hereby except that such Warrants
will not be redeemable. The Representative's Options are exercisable for a
four-year period commencing one year from the date of this Prospectus and
entitle the Representative to purchase up to
48
<PAGE>
100,000 Units at a price per Unit equal to 120% of the initial offering price of
the Units subject to adjustment in certain events. The Representative's Options
are restricted from sale, transfer, assignment or hypothecation for a period of
one year from the date of this Prospectus except to officers or partners of the
Representative, other Underwriters, and members of the selling group and/or
their officers or partners. The Representative's Options contain anti-dilution
provisions providing for adjustment of the exercise prices as well as the number
of Units issuable upon the occurrence of certain events, including the issuance
of shares of Common Stock or Warrants at a price per share or per Warrant less
than the exercise price or the market price of the security, or in the event of
any recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transaction. The Representative's Options grant to the
holders thereof certain piggyback and demand registration rights as described
below.
If the holders of at least a majority of the Representative's Options or the
securities underlying them wish to register the Representative's Options or any
of the securities underlying them during the period commencing one year
following the date of this Prospectus and ending five years from the date of
this Prospectus, the Company has agreed to register or qualify such securities,
one time only, upon the request of the holders of at least a majority of such
Representative's Options or the securities underlying them ("Demand Registration
Right"). The Company will bear the full expense of such registration which may
be substantial. If the Demand Registration Right is exercised, the Company at
such time at its option may purchase the Representative's Options for the
difference between their exercise price and fair market value of the shares
issuable upon exercise. In addition, the Company has also agreed for a period of
five years commencing on the date of this Prospectus to give notice to the
holder or holders of the Representative's Options, or the Units underlying the
Representative's Options, of its intention to file a registration statement
under the Securities Act, and in that event the holders of the Representative's
Options or the securities underlying such options shall have the right to
request the Company to include the Representative's Options and such securities
underlying them in such Registration Statement. The Representative's Options and
the securities underlying them are being registered as part of the Registration
Statement of which this Prospectus forms a part.
The holders of the Representative's Options have no voting, dividend or
other rights as shareholders of the Company with respect to the shares of Common
Stock underlying the Representative's Options until the Representative's Options
have been exercised. The Company is obligated at all times to set aside and have
available sufficient number of authorized but unissued shares of Common Stock
and Warrants to be issued upon exercise of the Representative's Options.
LOCK-UP AGREEMENT
Except in connection with acquisitions or the exercise of options and
warrants that have been previously granted and the grant of options under an
incentive stock option plan reasonably acceptable to the Representative, the
Company has agreed, for a period of one year from the closing of this offering,
not to issue, sell or purchase any shares of Common Stock or other equity
securities of the Company without the prior written consent of the
Representative. The holders of the shares not being offered hereby and the
officers, directors and present stockholders have agreed that they will not
offer, sell or otherwise dispose of any shares of the Company owned by them to
the public for a period of at least twelve months from the closing of this
offering without the prior written consent of the Representative. The
Representative may, in its discretion, and without notice to the public, waive
such restrictions and permit holders otherwise agreeing to restrict their shares
to sell any or all of their shares.
INVESTOR RELATIONS
The Company has agreed with the Representative to engage the services of an
investor relations advisory firm, acceptable to the Representative, for at least
one year following the consummation of this offering.
49
<PAGE>
DIRECTORS AND OFFICERS LIABILITY INSURANCE
The Company has agreed with the Representative to acquire a reasonable
amount of directors and officers liability insurance (provided that such
insurance can be obtained at a reasonable cost, as determined by the Company and
the Representative) from an insurer satisfactory to the Representative.
RECIPROCAL INDEMNIFICATION
The Underwriting Agreement provides for reciprocal indemnification between
the Company, the Bridge Financing Selling Stockholders and the Underwriters
against certain liabilities in connection with the Registration Statement,
including liabilities under the Securities Act, and contribution to payments
that may be required to be made. Insofar as indemnification for liabilities
arising under the Securities Act may be provided to directors, officers and
controlling persons of the Company, the Company has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been no public market for the Common Stock
or Warrants. The purchase price for the Units and the exercise price and other
terms of the Representative's Options were determined by negotiations between
the Company and the Representative, are not necessarily related to the assets,
book value, earnings or net worth of the Company or any other established
criteria of value, and should in no event be regarded as an indication of any
future market price of these securities. Among the factors considered in
determining the initial public offering price and the exercise price of the
Warrants were the prospects for the Company, an assessment of the industry in
which the Company operates, the business experience of management, the number of
Units offered, the price that purchasers of such securities might be expected to
pay given the nature of the Company and the general condition of the securities
markets at the time of the offering. Accordingly, the initial public offering
price of the Units set forth on the cover page of this Prospectus should not be
considered an indication of the actual value of the Units. The market price of
the Common Stock and the Warrants is subject to change as a result of market
conditions and other factors, and no assurance can be given that the Common
Stock or Warrants can be resold at their combined initial public offering price.
The foregoing does not purport to be a complete statement of the terms and
conditions of the Underwriting Agreement, copies of which are on file at the
offices of the Representative, the Company and the Securities and Exchange
Commission, Washington, D.C. See "Additional Information."
In connection with the Bridge Financing Private Placement (see "Bridge
Financing Private Placement"), the Company paid the Representative a commission
in the amount of $143,750 and reimbursed the Representative for its
non-accountable expenses relating to the Bridge Financing Private Placement in
the amount of $35,938, including fees and expenses of its counsel. In addition,
the Company issued warrants to the Representative which were cancelled upon the
effective date of this offering.
A significant amount of Units offered hereby may be sold to customers of the
Representative or the other Underwriters and the concentration of customers of
the Representative or the other Underwriters may adversely affect the market for
and liquidity of the Company's securities. Such customers subsequently may
engage in transactions for the sale or purchase of the Common Stock or Warrants
through or with the Representative or the other Underwriters. Although they may
have no obligation to do so, the Representative or the other Underwriters may
make a market in the Company's securities and may otherwise effect transactions
in such securities. If they participate in the market, the Representative or the
other Underwriters may exert a dominating influence on the market, if one
develops, for the Common Stock and Warrants described in this Prospectus. Such
market activity may be discontinued at any time. The price and liquidity of the
Common Stock and Warrants may be significantly affected by the degree, if any,
of the Representative's or the other Underwriter's participation in such market.
50
<PAGE>
EXPERTS
The financial statements of the Company as of Septembr 30, 1996 and December
31, 1995 and 1994 and of IPI as of December 31, 1995 have been included herein
in reliance on the report of Hein + Associates LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters, including the legality of the issuance of the
Securities offered hereby, are being passed upon for the Company by Cohen Brame
& Smith Professional Corporation, 1700 Lincoln Street, Suite 1800, Denver,
Colorado 80203. Certain legal matters will be passed upon for the Underwriters
by Berliner Zisser Walter & Gallegos, P.C., Denver, Colorado.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. Office, a registration statement under the Securities Act on
Form SB-2 ("Registrations Statement") with respect to the Units offered hereby.
No distribution of the Units will be made until the Registration Statement, as
it may be amended, has been declared effective. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and the exhibits thereto,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. Statements contained in this Prospectus as to the contents of
any contract of 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. For further information with
respect to the Company and the Units offered hereby, reference is hereby made to
the Registration Statement and the exhibits thereto. All of these documents may
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies may be
obtained at the prescribed rates from the Public Reference Section of the
Commission at its principal office in Washington, D.C. The Commission also
maintains a site on the Web that contains reports, proxy and information
statements, and other information regarding the Company. The address for such
site is http://www.sec.gov.
51
<PAGE>
NAVIDEC, INC. (FORMERLY ACI SYSTEMS, INC.)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PRO FORMA COMBINING, CONDENSED FINANCIAL INFORMATION (UNAUDITED):
INTRODUCTION............................................................................................... F-2
CONDENSED BALANCE SHEET--September 30, 1996................................................................ F-3
COMBINING, CONDENSED STATEMENT OF OPERATIONS--For the Nine Months Ended September 30, 1996................. F-4
COMBINING, CONDENSED STATEMENT OF OPERATIONS--For the Year Ended December 31, 1995......................... F-5
NOTES TO COMBINING, CONDENSED FINANCIAL INFORMATION........................................................ F-6
NAVIDEC, INC. (FORMERLY ACI SYSTEMS, INC.):
INDEPENDENT AUDITOR'S REPORT............................................................................... F-7
BALANCE SHEETS--September 30, 1996 and December 31, 1995................................................... F-8
STATEMENTS OF OPERATIONS--For the Nine Months Ended September 30, 1996, for the Nine Months Ended September
30, 1995 (Unaudited), and for the Years Ended December 31, 1995 and 1994................................. F-9
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)--For the Years Ended December 31, 1994 and 1995 and
for the Nine Months Ended September 30, 1996............................................................. F-10
STATEMENTS OF CASH FLOWS--For the Nine Months Ended September 30, 1996, for the Nine Months Ended September
30, 1995 (Unaudited), and for the Years Ended December 31, 1995 and 1994................................. F-11
NOTES TO FINANCIAL STATEMENTS.............................................................................. F-12
INTERACTIVE PLANET, INC.:
INDEPENDENT AUDITOR'S REPORT............................................................................... F-21
STATEMENTS OF OPERATIONS--For the Six Months Ended June 30, 1996 (Unaudited) and for the Period from May
15, 1995 (Inception Date) to December 31, 1995........................................................... F-22
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)--For the Period from May 15, 1995 (Inception Date)
through June 30, 1996 (Unaudited)........................................................................ F-23
STATEMENTS OF CASH FLOWS--For the Six Months Ended June 30, 1996 (Unaudited) and for the Period from May
15, 1995 (Inception Date) to December 31, 1995........................................................... F-24
NOTES TO FINANCIAL STATEMENTS.............................................................................. F-25
</TABLE>
F-1
<PAGE>
NAVIDEC, INC. (FORMERLY ACI SYSTEMS, INC.)
INTERACTIVE PLANET, INC.
INTRODUCTION
The accompanying unaudited pro forma condensed balance sheet includes the
balance sheet of NAVIDEC, Inc. (formerly ACI Systems, Inc.) as of September 30,
1996, then assumes the receipt of the net proceeds of $542,500 from the sale of
unsecured subordinated convertible promissory notes from bridge financing during
October 1996, and the receipt of estimated net proceeds of $4,458,800 from the
sale of 780,000 shares of common stock of 780,000 warrants at $6.90 and $.10,
respectively (estimated) and 220,000 additional warrants at $.10 per warrant, as
contemplated in the proposed public offering as if such financing, and public
offering occurred at September 30, 1996. The promissory notes are convertible
into 12,142.67 shares of common stock and 12,142.67 warrants for every $50,000
in principal and must convert on a public offering.
The accompanying unaudited pro forma combining, condensed statements of
operations combine the operations of NAVIDEC and Interactive Planet, Inc. (IPI)
for the year ended December 31, 1995 and the nine months ended September 30,
1996 as if the acquisition was completed as of the beginning of the period
presented under the purchase method of accounting and based upon the assumptions
as included in the notes to the pro forma statements. As a result of the NAVIDEC
and IPI effective merger date of July 1, 1996, the financial statements of
NAVIDEC for the nine months ended September 30, 1996, includes three months of
IPI operations and the financial statements of IPI represents six months of
IPI's operations prior to the merger with NAVIDEC.
These statements are not necessarily indicative of future operations or the
actual results that would have occurred had the merger been consummated at the
beginning of the periods indicated.
The unaudited pro forma combined, condensed financial statements should be
read in conjunction with the historical financial statements and notes thereto,
included elsewhere in this document.
F-2
<PAGE>
NAVIDEC, INC. (FORMERLY ACI SYSTEMS, INC.)
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
NAVIDEC, BRIDGE PRO FORMA PRO FORMA
INC. FINANCING BEFORE OFFERING PRO FORMA
(A) ADJUSTMENTS OFFERING ADJUSTMENTS COMBINED
----------- ------------ ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash........................................ $ 276,804 $ 472,500 (B) $ 749,304 $4,389,539 (C) $5,138,843
Trade account receivables................... 285,955 -- 285,955 -- 285,955
Inventories................................. 281,678 -- 281,678 -- 281,678
Prepaid expenses and other current assets... 50,913 -- 50,913 -- 50,913
----------- ------------ ----------- ---------------- -----------
Total current assets...................... 895,350 472,500 1,367,850 4,389,539 5,757,389
PROPERTY AND EQUIPMENT, net................... 395,834 -- 395,834 -- 395,834
INTANGIBLE ASSETS............................. 579,806 77,500 (B) 657,306 (285,576)(B)(C) 371,730
----------- ------------ ----------- ---------------- -----------
TOTAL ASSETS.................................. $1,870,990 $ 550,000 $2,420,990 $4,103,963 $6,524,953
----------- ------------ ----------- ---------------- -----------
----------- ------------ ----------- ---------------- -----------
CURRENT LIABILITIES:
Current portion of capital lease
obligations............................... $ 30,593 $ -- $ 30,593 $ -- $ 30,593
Notes payable--related party................ 340,465 (70,000 (B) 270,465 (150,000 (C) 120,465
Accounts payable............................ 729,278 -- 729,278 -- 729,278
Other accrued liabilities................... 257,545 -- 257,545 -- 257,545
----------- ------------ ----------- ---------------- -----------
Total current liabilities................. 1,357,881 (70,000 ) 1,287,881 (150,000 ) 1,137,881
LONG-TERM DEBT:
Capital lease obligations................... 141,146 -- 141,146 -- 141,146
Other....................................... 817,500 620,000(B) 1,437,500 (1,437,500 (B) --
4,458,800(C)
STOCKHOLDERS' EQUITY (DEFICIT)................ (445,537 ) -- (445,537 ) 1,232,663(B) 5,245,926
----------- ------------ ----------- ---------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT).................................... $1,870,990 $ 550,000 $2,420,990 $4,103,963 $6,524,953
----------- ------------ ----------- ---------------- -----------
----------- ------------ ----------- ---------------- -----------
</TABLE>
See accompanying notes to combining, condensed financial information.
F-3
<PAGE>
NAVIDEC, INC. (FORMERLY ACI SYSTEMS, INC.) AND
INTERACTIVE PLANET, INC.
COMBINING, CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
INTERACTIVE PRO FORMA
NAVIDEC, PLANET, PRO FORMA BEFORE
INC.(G) INC.(F) ADJUSTMENTS OFFERING
-------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
NET REVENUES......................................... $ 4,222,433 $ 185,429 $ -- $ 4,407,862
COST OF REVENUES..................................... 3,416,948 60,017 -- 3,476,965
-------------- ------------- ----------- -------------
GROSS MARGIN......................................... 805,485 125,412 -- 930,897
OPERATING EXPENSES................................... 1,311,844 225,161 39,130(D) (1,576,135)
-------------- ------------- ----------- -------------
OPERATING LOSS....................................... (506,359) (99,749) (39,130) (645,238)
Other income (expense), net........................ (129,154) (1,129) -- (130,283)
-------------- ------------- ----------- -------------
NET LOSS............................................. $ (635,513) $ (100,878) $ (39,130) $ (775,521)
-------------- ------------- ----------- -------------
-------------- ------------- ----------- -------------
LOSS PER SHARE....................................... $ (.31) $ (.38)
-------------- -------------
-------------- -------------
WEIGHTED AVERAGE SHARES (E).......................... 2,030,952 2,030,952
-------------- -------------
-------------- -------------
</TABLE>
See accompanying notes to combining, condensed financial information.
F-4
<PAGE>
NAVIDEC, INC. (FORMERLY ACI SYSTEMS, INC.) AND
INTERACTIVE PLANET, INC.
COMBINING, CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
INTERACTIVE PRO FORMA
PLANET, PRO FORMA BEFORE
NAVIDEC, INC. INC. ADJUSTMENTS OFFERING
-------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
NET REVENUES............................................. $ 4,120,743 $ 167,574 $ -- $ 4,288,317
COST OF REVENUES......................................... 3,339,891 36,252 -- 3,376,143
-------------- ----------- ----------- ------------
GROSS MARGIN............................................. 780,852 131,322 -- 912,174
OPERATING EXPENSES....................................... 784,150 131,739 78,200(D) 994,089
-------------- ----------- ----------- ------------
OPERATING LOSS........................................... $ (3,298) $ (417) $ (78,200) $ (81,915)
Other income (expense), net............................ (20,004) -- -- (20,004)
-------------- ----------- ----------- ------------
NET LOSS................................................. $ (23,302) $ (417) $ (78,200) $ (101,919)
-------------- ----------- ----------- ------------
-------------- ----------- ----------- ------------
LOSS PER SHARE........................................... $ (.02) $ (.05)
-------------- ------------
-------------- ------------
WEIGHTED AVERAGE SHARES (E).............................. 1,352,075 678,877(A) 2,030,952
-------------- ----------- ------------
-------------- ----------- ------------
</TABLE>
See Accompanying Notes to Combining, Condensed Financial Information.
F-5
<PAGE>
NAVIDEC, INC. (FORMERLY ACI SYSTEMS, INC.) AND
INTERACTIVE PLANET, INC.
NOTES TO COMBINING, CONDENSED FINANCIAL INFORMATION
(A) Reflects the acquisition of IPI in a purchase transaction where NAVIDEC
acquired 100% of the stock of IPI for 678,877 shares of common stock of
NAVIDEC and a note payable of $75,000. The acquisition was valued at
$291,000, resulting in goodwill of approximately $391,000, which will be
amortized over 5 years.
(B) To reflect the bridge financing debt of $620,000 raised subsequent to
September 30, 1996, the payment of $70,000 related party note paid from the
bridge financing proceeds and then to reflect the conversion of the
$1,437,500 notes into 349,126 units (consisting of one share of common stock
and one purchase warrant) as contemplated in the proposed public offering.
(C) To reflect the sale of 780,000 shares of common stock and 1,000,000 warrants
at $6.90 and $.10, respectively, net of offering costs of $1,023,200, as
contemplated in the proposed public offering and the use of proceeds to
repay $150,000 in notes payable to related parties. Related past interest
expense on the $150,000 has not been a significant amount in the net loss
per share amount (if outstanding shares were adjusted to reflect such net
proceeds used to repay the debt).
(D) To reflect amortization of goodwill resulting from the value assigned in
purchase price allocation.
(E) Options and shares from the conversion of the bridge financing debt were
considered in the calculation of weighted average shares under the treasury
stock method based on the proposed public offering price.
(F) Includes the operation of IPI for the six months ended June 30, 1996, prior
to IPI's merger with NAVIDEC on July 1, 1996.
(G) Includes three months of IPI operations from July 1, 1996 (the effective
merger date of NAVIDEC and IPI) to September 30, 1996.
F-6
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
NAVIDEC, Inc.
Englewood, Colorado
We have audited the accompanying balance sheets of NAVIDEC, Inc. (the
Company) as of September 30, 1996 and December 31, 1995, and the related
statements of operations, changes in stockholders' equity (deficit), and cash
flows for the nine months ended September 30, 1996, and for the years ended
December 31, 1995 and 1994. These financial statements are the responsibility of
the Company's manage-ment. 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 the Company as of September
30, 1996 and December 31, 1995, and the results of its operations and its cash
flows for the nine months ended September 30, 1996 and for the years ended
December 31, 1995 and 1994, 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 2 to the
financial statements, the Company has incurred losses from operations and had
negative cash flows from operations. These factors raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.
HEIN + ASSOCIATES LLP
Denver, Colorado
November 6, 1996, except for a .85 for 1 reverse stock split described in the
third paragraph of footnote 8, for which the date is November 27, 1996
F-7
<PAGE>
NAVIDEC, INC.
(FORMERLY ACI SYSTEMS, INC.)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................................... $ 276,804 $ 106
Trade accounts receivable, net of $40,000 and $18,250 allowance for doubtful
accounts........................................................................ 285,955 668,312
Inventories....................................................................... 281,678 203,753
Prepaid expenses and other current assets......................................... 50,913 10,252
------------- ------------
Total current assets.......................................................... 895,350 882,423
PROPERTY AND EQUIPMENT, net......................................................... 395,834 37,715
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, net.............................. 371,730 --
DEFERRED FINANCING AND OFFERING COSTS............................................... 208,076 --
------------- ------------
TOTAL ASSETS........................................................................ $ 1,870,990 $ 920,138
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of capital lease obligations...................................... $ 30,593 $ --
Notes payable:
Related parties................................................................. 340,465 103,199
Other........................................................................... -- 386,801
Accounts payable.................................................................. 729,278 423,366
Other accrued liabilities......................................................... 257,545 61,480
------------- ------------
Total current liabilities....................................................... 1,357,881 974,846
------------- ------------
CAPITAL LEASE OBLIGATIONS, net of current portion................................... 141,146 --
UNSECURED SUBORDINATED CONVERTIBLE PROMISSORY NOTES................................. 817,500 --
COMMITMENTS AND CONTINGENCIES (NOTES 7 AND 8)
STOCKHOLDERS' DEFICIT:
Common stock, no par value; 20,000,000 shares authorized; 1,700,595 and 216,837
shares issued and outstanding as of September 30, 1996 and December 31, 1995,
respectively.................................................................... -- 62,714
Excess of liabilities over assets upon termination of S-Corporation status........ (58,575) --
Accumulated deficit............................................................... (386,962) (117,422)
------------- ------------
Total stockholders' deficit..................................................... (445,537) (54,708)
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT......................................... $ 1,870,990 $ 920,138
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to these financial statements.
F-8
<PAGE>
NAVIDEC, INC.
(FORMERLY ACI SYSTEMS, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEARS ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------- --------------------------
1996 1995 1994
------------ 1995 ------------ ------------
------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES................................................ $ 4,222,433 $ 3,044,539 $ 4,120,743 $ 1,830,734
Cost of sales.......................................... 3,416,948 2,465,279 3,339,891 1,370,874
------------ ------------ ------------ ------------
GROSS MARGIN............................................. 805,485 579,260 780,852 459,860
Operating expense...................................... 1,311,844 508,235 784,150 497,284
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS).................................. (506,359) 71,025 (3,298) (37,424)
OTHER INCOME (EXPENSE):
Interest expense, net.................................. (128,332) (21,135) (29,739) (17,867)
Other.................................................. (822) 2,010 9,735 32,416
------------ ------------ ------------ ------------
Other, Net............................................. (129,154) (19,125) (20,004) 14,549
------------ ------------ ------------ ------------
NET INCOME (LOSS)........................................ $ (635,513) $ 51,900 $ (23,302) $ (22,875)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
PRO FORMA NET INCOME (LOSS) PER SHARE.................... $ (.31) $ (.02)
------------ ------------
------------ ------------
PRO FORMA COMMON SHARES AND EQUIVALENTS OUTSTANDING...... 2,030,952 1,352,075
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to these financial statements.
F-9
<PAGE>
NAVIDEC, INC.
(FORMERLY ACI SYSTEMS, INC.)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
EXCESS OF
LIABILITIES
OVER
ASSETS UPON
COMMON STOCK TERMINATION OF
----------------------- S-CORPORATION ACCUMULATED
SHARES AMOUNT STATUS DEFICIT TOTAL
---------- ----------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1994................... 216,837 $ 52,714 $ -- $ (71,246) $ (18,532)
Options issued to officer for
compensation............................ -- 10,000 -- -- 10,000
Net loss.................................. -- -- -- (22,875) (22,875)
---------- ----------- -------------- ------------ -----------
BALANCES, December 31, 1994................. 216,837 62,714 -- (94,121) (31,407)
Net loss.................................. -- -- -- (23,302) (23,302)
---------- ----------- -------------- ------------ -----------
BALANCES, December 31, 1995................. 216,837 62,714 -- (117,423) (54,709)
Exercise of stock options................. 804,881 1,745 -- -- 1,745
Compensation recognized related to
transfers of common stock to
employees............................... -- 26,940 -- -- 26,940
Shares issued in acquisition of IPI....... 678,877 216,000 -- -- 216,000
Reclassification of accumulated deficit in
connection with termination of tax
status as a Subchapter S-Corporation.... -- (307,399) (58,575) 365,974 --
Net loss.................................. -- -- -- (635,513) (635,513)
---------- ----------- -------------- ------------ -----------
BALANCES, September 30, 1996................ 1,700,595 $ -- $ (58,575) $ (386,962) $ (445,537)
---------- ----------- -------------- ------------ -----------
---------- ----------- -------------- ------------ -----------
</TABLE>
See accompanying notes to these financial statements.
F-10
<PAGE>
NAVIDEC, INC.
(FORMERLY ACI SYSTEMS, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEARS ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------- ------------------------
1996 1995 1994
------------- 1995 ----------- -----------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ (635,514) $ 51,900 $ (23,302) $ (22,875)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization.......................... 65,719 12,483 33,595 6,087
Stock based compensation............................... 26,940 -- -- 10,000
Provision for bad debt................................. 22,647 500 22,445 1,776
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable................................ (394,819) (304,083) (374,835) (142,549)
Inventories........................................ (77,925) (36,516) (52,889) (62,969)
Other assets....................................... (25,661) (36,121) 13,216 (8,790)
Increase (decrease) in:
Accounts payable and accrued liabilities........... 303,842 265,086 244,771 37,964
Other liabilities.................................. 109,412 (1,803) 32,048 27,425
------------- ----------- ----------- -----------
Net cash used in operating activities.................... (605,359) (48,554) (104,951) (153,931)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment.......... (377,307) (35,140) (34,210) (33,006)
Cash acquired in merger with IPI......................... 4,987 -- -- --
------------- ----------- ----------- -----------
Net cash used in investing activities.................. (372,320) (35,140) (34,210) (33,006)
CASH FLOWS FROM FINANCING ACTIVITY:
Proceeds from sale of accounts receivable................ 773,614 -- -- --
Proceeds from issuance of common stock................... 1,745 -- -- --
Proceeds from issuance of notes payable and capital
leases................................................. 3,206,866 661,698 790,215 488,885
Payment on notes payable................................. (2,519,772) (580,658) (659,004) (330,203)
Payment for deferred financing and offering costs........ (208,076) -- -- --
------------- ----------- ----------- -----------
Net cash provided by financing activities.............. 1,254,377 81,040 131,211 158,682
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... 276,698 (2,654) (7,950) (28,255)
CASH AND CASH EQUIVALENTS, beginning of period............. 106 8,056 8,056 36,311
------------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period................... $ 276,804 $ 5,402 $ 106 $ 8,056
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash payments for interest............................... $ 129,551 $ 21,135 $ 29,739 $ 17,867
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Net assets, net of cash assumed, acquired in merger of
Navidec with IPI....................................... $ 286,013 $ -- $ -- $ --
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
</TABLE>
See accompanying notes to these financial statements.
F-11
<PAGE>
NAVIDEC, INC.
(FORMERLY ACI SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND NATURE OF OPERATIONS--The Company was incorporated in the
State of Colorado in 1993 and distributes various high technology and other
products through traditional and electronic channels. Effective on July 1, 1996,
the Company merged with IPI and as a result, the Company also provides
comprehensive Internet and Intranet solutions, including design and development
of Worldwide Web sites, marketing, database integration, electronic commerce and
order fulfillments. The Company has a December 31 year-end.
INVENTORIES--Inventories are stated at the lower of cost or market,
determined by the first-in, first-out method and consist primarily of products
held for resale.
PROPERTY AND EQUIPMENT--Property and equipment is stated at cost.
Depreciation is computed over the estimated useful lives of the assets using the
200% declining balance method generally over a three to seven year period.
Leasehold improvements are amortized on the straight-line method over the lesser
of the lease term or the useful life. Expenditures for ordinary maintenance and
repairs are charged to expense as incurred. Upon retirement or disposal of
assets, the cost and accumulated depreciation are eliminated from the account
and any gain or loss is reflected in the statements of operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The estimated fair values for financial
instruments are determined at discrete points in time based on relevant market
information. These estimates involve uncertainties and cannot be determined with
precision. The carrying amounts of cash, trade accounts receivable, notes
payable--other, accounts payable, and accrued liabilities approximate fair
value. The carrying amount of notes payable--stockholders which have interest
rates of 5% and -0-% are considered to be at below market rates, however, based
on the short-term nature of these notes, the fair value is not materially
different from the stated value.
CASH EQUIVALENTS--For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
REVENUE RECOGNITION--The Company recognizes revenue upon delivery of its
Internet/Intranet Solutions and Product Distribution goods. Internet/Intranet
Solutions generally begin with consulting arrangements, which are billed on an
hourly basis and/or on a percentage of completion method on fixed bid projects.
Most of the Company's customers elect to update and expand their Web site
frequently, and clients are billed monthly on a time and materials basis for
these services. Additional sources of ongoing revenue include revenue from
advertising sold by the Company on clients' Web sites, revenue from sales of
merchandise and services over clients' Web sites and revenue from maintenance of
client Web sites. The Company receives and records a percentage of the gross
revenue from advertising and merchandise sales immediately upon completion of
these sales.
PRO FORMA INCOME (LOSS) PER SHARE--Loss per share is generally computed
based on the weighted average number of shares outstanding. However, for the
periods presented, common and common equivalent shares, including the options
and convertible notes discussed in Notes 6 and 7, issued prior to the filing of
the Company's registration statement, at prices below the $6.90 per share
(estimated) minimum price (which is anticipated for the Company's proposed
public offering) have been included in the weighted average calculation, as if
they were outstanding for the year ended December 31, 1995 and
F-12
<PAGE>
NAVIDEC, INC.
(FORMERLY ACI SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
the nine months ended September 30, 1996 (using the treasury stock method and
the anticipated public offering price).
INCOME TAXES--Subsequent to June 30, 1996, the Company converted to a "C
Corporation" and adopted Statement of Financial Accounting Standards No. 109,
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined, based on the difference between the financial
statements and tax bases of asset and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. No
provision has been made for income taxes since the Company has elected to be
taxed as an "S Corporation" as defined by the Internal Revenue Code. The
Company's stockholders will report the Company's taxable income or loss on their
individual income tax returns. Pro forma income tax expense prior to the
adoption of the "C Corporation" status is not presented due to anticipated
losses for the year and a valuation allowance for the loss carryovers which
would have been recorded under FASB 109 after the Company's proposed public
offering and the termination of the "S" corporate election. At September 30,
1995, the Company had a net operating loss of approximately $325,000, which, if
not previously utilized, will expire in 2011. At September 30, 1996, the tax
effects of temporary differences that give rise to significant portions of
deferred tax assets are $12,000 for allowance for doubtful accounts and $123,000
for the net operating loss carryforward, net of a valuation of allowance
totaling $135,000.
USE OF ESTIMATES--The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires the Company's
management to make estimates and assumptions that affect the amounts reported in
these financial statements and accompanying notes. Actual results could differ
from those estimates. The Company makes a significant estimates, including the
allowance for doubtful account and the life of the excess of purchase price over
net assets acquired (goodwill) in the IPI merger. Due to the uncertainties
inherent in the estimation process, it is at least reasonably possible that the
life of goodwill could be revised over the next year and such revisions could be
material.
IMPAIRMENT OF LONG-LIVED ASSETS--Effective January 1, 1996, the Company
adopted Financial Accounting Standards Board Statement 121 (FAS 121). In the
event that facts and circumstances indicate that the cost of assets or other
assets may be impaired, an evaluation of recoverability would be performed. If
an evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying amount to
determine if a write-down to market value or discounted cash flow value is
required. Adoption of FAS 121 had no effect on the September 30, 1996 financial
statements.
STOCK-BASED COMPENSATION--In October 1995, the Financial Accounting
Standards Board issued a new statement titled "Accounting for Stock-Based
Compensation" (FAS 123). The new statement was effective for the Company January
1, 1996. FAS 123 encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options, and other equity
instruments to employees based on fair value. Companies that do not adopt the
fair value accounting rules must disclose the impact of adopting the new method
in the notes to the financial statements. Transactions in equity instruments
with non-employees for goods or services must be accounted for on the fair value
method. The Company has elected not to adopt the fair value accounting
prescribed by FAS 123 for employees, and will be subject only to the disclosure
requirements prescribed by FAS 123.
F-13
<PAGE>
NAVIDEC, INC.
(FORMERLY ACI SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
During the nine months ended September 30, 1996, the Company granted options
for the purchase of 212,500 shares of common stock to an employee at the fair
market value as estimated by management of the Company. Management of the
Company believes the adoption of FAS 123 is not expected to have a material
impact on the Company's financial statements in the future based on transactions
through September 30, 1996.
UNAUDITED INFORMATION--The statement of operations for the nine-month period
ended September 30, 1995 was taken from the Company's books and records without
audit. However, in the opinion of management, such information includes all
adjustments (consisting only of normal accruals), which are necessary to
properly reflect the results of operations for the nine months ended September
30, 1995. The results of operations for the interim periods presented are not
necessarily indicative of those expected for the year.
2. CONTINUED OPERATIONS:
The accompanying financial statements have been prepared assuming that the
Company will continue operating as a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. The Company has incurred net losses for the past two years and has had
negative cash flows from operations. As described in Notes 3, 6, and 8,
management has taken the following actions to improve the Company's cash flow
and operating results.
- In October 1996, the Company completed a private offering for the sale of
$1,437,500 of unsecured subordinated convertible promissory notes and
intends to complete a public offering to provide gross proceeds of
approximately $5,482,000.
- Effective July 1, 1996, the Company acquired IPI. Even though IPI has had
insignificant revenues, management believes that the merger will enhance
the operating results of the combined entity.
The Company is also aggressively working to increase revenues and improve
operating results to ultimately achieve profitability, although no assurances
can be given the Company will be successful. The Company's ability to continue
as a going concern is dependent upon the factors described above. The
accompanying financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
3. ACQUISITION OF IPI:
Effective July 1, 1996, the Company acquired IPI in a purchase transaction,
where the Company acquired 100% of the stock of IPI for 678,877 shares of common
stock of the Company and a $75,000 note payable. The acquisition was valued at
approximately $291,000 and resulted in goodwill of approximately $391,000 being
recorded. The goodwill is being amortized over five years. IPI develops,
markets, and supports World Wide Web (Web) sites, on the Internet or Intranets.
IPI designs and implements Web sites ranging from basic inquiry-only sites to
complex, interactive sites capable of providing on-line commerce, database
integration and manipulation, sophisticated graphics, animation, and other
multi-media content. IPI also serves as a value-added reseller of software
capable of allowing the Internet or Intranet user to use self-service
applications such as the on-line purchase of products or services, product
warranty and
F-14
<PAGE>
NAVIDEC, INC.
(FORMERLY ACI SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITION OF IPI: (CONTINUED)
support, employee benefit enrollments and other applications. Immediately after
the effective date of the merger, IPI was dissolved.
The unaudited following pro forma information presents the effect of the
merger as if it occurred on January 1, 1995.
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS FOR THE
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Revenue......................................................... $ 4,407,862 $4,288,317
------------- ------------
------------- ------------
Net loss........................................................ $ (775,521) $ (101,919)
------------- ------------
------------- ------------
Loss per share.................................................. $ (.38) $ (.05)
------------- ------------
------------- ------------
Common share and equivalents outstanding........................ 2,030,952 2,030,952
------------- ------------
------------- ------------
</TABLE>
The above pro forma information is not necessarily indicative of the
financial results which would have occurred if such acquisition had taken place
at the earlier date, nor of future operating results.
4. CONCENTRATION OF CREDIT RISK:
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as contracted.
Concentrations of credit risk (whether on or off balance sheet) that arise from
financial instruments exist for groups of customers or counterparties when they
have similar economic characteristics that would cause their ability to meet
contractual obligations to be similarly effected by changes in economic or other
conditions described below. In accordance with FASB Statement No. 105,
DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET
RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK, the credit
risk amounts shown do not take into account the value of any collateral or
security.
A geographic concentration exists because the Company has historically sold
approximately 40% of its products and services in the State of Colorado with
remaining revenue derived from sales throughout the United States. Financial
instruments that subject the Company to credit risk consist principally of
accounts receivable.
At September 30, 1996, accounts receivable totaled $325,955, and the Company
has provided an allowance for doubtful accounts of $40,000. For the nine months
ended September 30, 1996 and 1995, and for the years ended December 31, 1995 and
1994, bad debts totaled $22,647, $500, $22,445, and $1,176, respectively. The
Company performs periodic credit evaluations on its customers' financial
condition and believes that the allowance for doubtful accounts is adequate.
At September 30, 1996, the Company maintained cash balances with a
commercial bank, which were approximately $171,000 in excess of FDIC insurance
limits.
The Company is dependent on four key suppliers. The Company has contracts
with these suppliers, however, they are not exclusive and can be terminated at
any time. Management believes that while the Company may suffer a short-term
adverse impact, it would be able to replace anyone of these suppliers.
F-15
<PAGE>
NAVIDEC, INC.
(FORMERLY ACI SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Furniture, fixtures and equipment............................... $ 474,541 $ 82,924
Leasehold improvements.......................................... 14,318 1,620
------------- ------------
488,859 84,544
Less accumulated depreciation................................... (93,025) (46,829)
------------- ------------
$ 395,834 $ 37,715
------------- ------------
------------- ------------
</TABLE>
F-16
<PAGE>
NAVIDEC, INC.
(FORMERLY ACI SYSTEMS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE:
Notes payable consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
RELATED PARTIES:
Note payable to an entity affiliated with an officer/
director/shareholder due on demand, non-interest bearing. $ 32,500 $ --
Note payable to an officer/director/shareholder, principal
along with interest at 10% per annum due in December 31,
1997.The Company intends to pay this note from the proceeds
of its initial public offering (see Note 8). 45,110 --
Note payable to a shareholder, non-interest bearing,
subordinated to all other indebtedness of the Company, due
in monthly installments of $6,250 through July 1, 1997. 62,364 --
Notes payable to two officers/directors/shareholders,
subordinated to all other indebtedness of the Company,
principal and interest at 9.75% per annum due July 1,
1997.Subsequent to September 30, 1996, the Company paid off
a $70,000 note. 100,000 --
Note payable to a shareholder, principal and interest at 5%
per annum are due as determined by the Company's
shareholders.The Company intends to pay this note from the
proceeds of its initial public offering (see Note 8). 100,491 103,199
------------- ------------
$ 340,465 $ 103,199
------------- ------------
------------- ------------
OTHER:
Note payable to a bank, interest at prime plus 1.5% (10.5% at
December 31, 1995) and principal payments of $3,333 payable
monthly, with remaining principal paid upon maturity in
June1996, collateralized by accounts receivable, inventory,
furniture, fixtures, equipment and a shareholder's home,
guaranteed by two shareholders of the Company. $ -- $ 200,000
</TABLE>
F-17
<PAGE>
NAVIDEC, INC.
(FORMERLY ACI SYSTEMS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE: (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
Revolving line-of-credit with bank maximum borrowings of
$200,000; interest of prime plus 1.5% (10.5% at December 31,
1995); collateralized by accounts receivable, inventory,
furniture, fixtures, equipment and a shareholder's home,
guaranteed by two shareholders of the Company.The revolving
line-of-credit agreement required compliance with certain
covenants and expired in June 1996.......................... -- 186,801
<S> <C> <C>
------------- ------------
$ -- $ 386,801
------------- ------------
------------- ------------
</TABLE>
PRIVATE OFFERING OF UNSECURED SUBORDINATED CONVERTIBLE PROMISSORY NOTES--In
October 1996, the Company completed the sale of $1,437,500 of unsecured
subordinated convertible promissory notes. As of September 30, 1996, the Company
had closed $817,500 in sales of these notes. Each $50,000 in principal is
convertible into 12,142.67 Units (consisting of one share of common stock and
one warrant) upon consummation of the initial public offering. The warrants will
be identical to the warrants offered in the initial public offering. Interest at
10% per annum is due on the earlier of December 30, 1997 or the consummation of
the public offering. In the event that the Company has not consummated the
initial public offering prior to December 30, 1997 and the Company defaults in
the repayment of the notes, the Company will issue 10,625 Units for every
$50,000 in principal. The warrants in such case will be exercisable within five
years from the closing date of the offering of these notes at $4.12 per share.
In addition, principal and interest at the lesser of prime rate plus 8% or the
maximum rate permitted by law will become immediately payable. The notes are
subordinated to all other indebtedness of the Company. The Company will issue
warrants to the placement agent entitling it to purchase 21,250 shares of common
stock at an exercise price of $4.28 per share. These warrants will be rescinded
by the placement agent upon completion of an initial public offering (See Note
8).
7. COMMITMENTS:
CAPITAL LEASE OBLIGATIONS--The Company leases certain equipment under
agreements classified as capital leases. Equipment under the leases has a cost
of approximately $177,000 and accumulated amortization of approximately $6,000.
The following is a schedule of future minimum lease payments under capital
leases at September 30, 1996.
<TABLE>
<S> <C> <C>
Future minimum lease payments.................................. $ 248,082
Less amount representing interest.............................. 76,343
-
---------
Present value of net minimum lease payments.................... 171,739
Less current portion........................................... (30,593)
-
---------
$ 141,146
-
-
---------
---------
</TABLE>
F-18
<PAGE>
NAVIDEC, INC.
(FORMERLY ACI SYSTEMS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS: (CONTINUED)
OFFICE LEASES--The Company leases two offices under operating leases for
terms expiring in 1996 and 2001. During 1996, the Company terminated one of its
leases effective December 1996. A termination fee of $10,000 is due on December
31, 1996. The Company moved its offices and entered into a new lease. The lease
calls for monthly payments of $4,584. These lease payments are included in the
schedule below. The aggregate minimum annual lease payments are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
----------
<S> <C>
Year ending December 31:
1996............................................................................ $ 51,496
1997............................................................................ 55,012
1998............................................................................ 55,012
1999............................................................................ 55,626
2000............................................................................ 55,626
Thereafter...................................................................... 35,287
----------
Total minimum lease payments.................................................. $ 308,059
----------
----------
</TABLE>
RECEIVABLES SOLD WITH RECOURSE--In 1996, the Company entered into an
agreement with a bank to sell, with full recourse, existing and future accounts
receivable to a maximum of $750,000 at a 2.55% discount. The Company must
maintain a cash reserve account with the bank of up to 20% of the face amount of
receivables sold to the bank. The Company's recourse obligation is secured by
all of the Company's assets and is guaranteed by two of the Company's
shareholders. As of September 30, 1996, the face amount of receivables sold was
$743,975.
EMPLOYMENT AGREEMENTS--In July 1996, the Company entered into employment
agreements with two shareholders. The agreements provide for payments totaling
$165,000 per year through June 30, 1998 and include covenants not to compete
during the term of employment and for one year thereafter.
The Company entered into an employment agreement with an employee which
commenced on August 1, 1996 and ends January 31, 1997 which is to be extended
for an additional 24 months from the date of completion of an initial public
offering by the Company. The agreement provides for payments of $5,400 per month
plus options to purchase 212,500 shares of the Company's common stock at $4.12
per share. The options are exercisable after 30 months and must be exercised
within 60 months from the date of the agreement. The agreement also contains a
covenant not to compete during the term of the employee's employment and for one
year thereafter. In July 1996, the company borrowed $182,500 from this employee.
The Company repaid this in full in August 1996.
8. STOCKHOLDERS' EQUITY:
TERMINATION OF S-CORPORATION STATUS--Effective July 1, 1996, the Company
terminated its S-Corporation status and became a C-Corporation. As a result, the
Company reclassified its accumulated deficit attributable to the S-Corporation
as a reduction in common stock, with the remaining accumulated deficit recorded
as excess of liabilities over assets upon termination of S-Corporation status.
F-19
<PAGE>
NAVIDEC, INC.
(FORMERLY ACI SYSTEMS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY: (CONTINUED)
LETTER OF INTENT FOR A PUBLIC OFFERING--On July 1, 1996, the Company signed
a letter of intent with an underwriter which has subsequently been amended, to
provide for a public offering consisting of 1,000,000 Units to provide gross
proceeds to the Company of approximately $5,482,000. Included in the 1,000,000
shares are 220,000 shares of common stock offered by the holders of the
unsecured subordinated convertible promissory notes. The Company anticipates
that the offering price will be $7.00 per unit, of which $0.1 is the warrant
price. Each warrant will allow the holder to purchase one share of common stock
at an exercise price of 120% of the unit offering price for a period of five
years after the date of the offering. The warrants are redeemable by the Company
at $.05 per warrant upon 30 days notice if the market price of the common stock
for 20 consecutive trading days within the 30-day period preceding the date the
notice is given equals or exceeds 140% of the unit offering price. The
underwriter has a 60-day option (over-allotment option) to purchase up to
150,000 Units at the unit offering price. The Company will also sell to the
underwriter at the close of the public offering underwriters warrants, at a
price of $0.001 per warrant, to purchase 100,000 Units exclusive of the
over-allotment. The underwriters warrants will be exercisable for 4 years
beginning one year after the effective date of the registration statement at
120% of the offering price. The letter of intent is subject to change and
cancellation by either party.
STOCK SPLIT--During 1996, the Company declared a 1 for 2 reverse stock split
and 510.2041 to 1 stock split. The Company also declared a .85 for 1 reverse
stock split to be effective immediately prior to the initial public offering.
Accordingly, all common stock reflected in the financial statements and
accompanying notes reflect the effect of the split and reverse splits.
COMMON STOCK TRANSFERS AND OPTIONS--In June 1996, an officer and a
shareholder transferred 83,725 shares of common stock to employees at no cost.
The Company recognized $26,940 in compensation expense related to this transfer.
During 1994 and 1993, the Company issued stock options to an officer and
shareholder to purchase 804,881 shares of common stock at an exercise price of
$1,745, which resulted in compensation expense being recognized of $10,000 and
$29,000, respectively, related to the issuance of such options. During June
1996, these options were exercised.
F-20
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Interactive Planet, Inc.
Denver, Colorado
We have audited the balance sheet (not separately included herein) of
Interactive Planet, Inc. (IPI) as of December 31, 1995, and the accompanying
related statements of operations, changes in stockholders' equity (deficit), and
cash flows for the period from May 15, 1995 (inception date) to December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of IPI as of December 31, 1994,
and the results of its operations and its cash flows for the period from May 15,
1995 (inception date) to December 31, 1995, in conformity with generally
accepted accounting principles.
The accompany financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred losses from operations and has
had negative cash flows from operations. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
HEIN + ASSOCIATES LLP
Denver, Colorado
October 4, 1996
F-21
<PAGE>
INTERACTIVE PLANET, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
MAY 15, 1995
(INCEPTION
DATE) TO
DECEMBER 31,
1995
FOR THE SIX ------------
MONTHS ENDED
JUNE 30,
1996
------------
(UNAUDITED)
<S> <C> <C>
REVENUES......................................................... $ 185,429 $ 167,574
Cost of services............................................. 60,017 36,252
------------ ------------
GROSS MARGIN..................................................... 125,412 131,322
Operating expense............................................ 225,161 131,739
------------ ------------
OPERATING LOSS................................................... (99,749) (417)
Interest expense............................................. 1,129 --
------------ ------------
NET LOSS......................................................... $ (100,878) $ (417)
------------ ------------
------------ ------------
</TABLE>
See Accompanying Notes to These Financial Statements.
F-22
<PAGE>
INTERACTIVE PLANET, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM MAY 15, 1995 (INCEPTION DATE) THROUGH JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCES, MAY 15, 1995..................... -- $ -- $ -- $ --
Common stock to founders for cash...... 1,597,357 1,000 -- 1,000
Net loss............................... -- -- (417) (417)
---------- --------- ------------ ------------
BALANCES, December 31, 1995................ 1,597,357 1,000 (417) 583
Net loss (unaudited)................... -- -- (100,878) (100,878)
---------- --------- ------------ ------------
BALANCES, June 30, 1996 (Unaudited)........ 1,597,357 $ 1,000 $ (101,295) $ (100,295)
---------- --------- ------------ ------------
---------- --------- ------------ ------------
</TABLE>
See Accompanying Notes to These Financial Statements.
F-23
<PAGE>
INTERACTIVE PLANET, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
MAY 15, 1995
(INCEPTION
DATE) TO
DECEMBER 31,
1995
FOR THE SIX ------------
MONTHS ENDED
JUNE 30,
1996
------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................... $ (100,878) $ (417)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization................................ 8,305 5,545
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable...................................... (7,342) (11,743)
Other assets............................................. 24,536 (39,536)
Increase (decrease) in:
Accounts payable and accrued liabilities................. 2,070 --
Other liabilities........................................ 30,734 55,919
------------ ------------
Net cash provided by (used in) operating activities.......... (42,575) 9,768
CASH FLOWS FROM INVESTING ACTIVITIES--
Capital expenditures for property and equipment................ 1,116 39,700
------------ ------------
Net cash used in investing activities........................ (1,116) (39,700)
CASH FLOWS FROM FINANCING ACTIVITY:
Proceeds from issuance of common stock......................... -- 1,000
Proceeds from issuance of notes payable........................ 44,249 33,361
------------ ------------
Net cash provided by financing activities.................... 44,249 34,361
INCREASE IN CASH AND CASH EQUIVALENTS 558 4,429
CASH AND CASH EQUIVALENTS, beginning of period................... 4,429 --
------------ ------------
CASH AND CASH EQUIVALENTS, end of period......................... $ 4,987 $ 4,429
------------ ------------
------------ ------------
</TABLE>
See Accompanying Notes to these Financial Statements.
F-24
<PAGE>
INTERACTIVE PLANET, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION--IPI was incorporated in the State of Colorado in 1995. The
Company develops, markets, and supports World Wide Web (Web) sites, on the
Internet or Intranets. The Company designs and implements Web sites ranging from
basic inquiry-only sites to complex, interactive sites capable of providing
on-line commerce, database integration and manipulation, sophisticated graphics,
animation, and other multi-media content. The Company plans to utilize leading
edge software in its Web site development.
CASH EQUIVALENTS--For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
REVENUE RECOGNITION--The Company recognizes revenue upon delivery of its
Internet/Intranet Solutions. Internet/Intranet Solutions generally begin with
consulting arrangements, which are billed on an hourly basis and/or on a
percentage of completion method on fixed bid projects. Most of the Company's
customers elect to update and expand their Web site frequently, and clients are
billed monthly on a time and materials basis for these services. Additional
sources of ongoing revenue include revenue from advertising sold by the Company
on clients' Web sites, revenue from sales of merchandise and services over
clients' Web sites and revenue from maintenance of client Web sites. The Company
receives and records a percentage of the gross revenue from advertising and
merchandise sales immediately upon completion of these sales.
INCOME TAXES--The Company accounts for income taxes under SFAS No. 109 which
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined, based on the difference between the financial
statements and tax bases of asset and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
USE OF ESTIMATES--The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires the Company's
management to make estimates and assumptions that affect the amounts reported in
these financial statements and accompanying notes. Actual results could differ
from those estimates.
STOCK BASED COMPENSATION--In October 1995, the Financial Accounting
Standards Board issued a new statement titled "Accounting for Stock-Based
Compensation" (FAS 123). The new statement is effective for fiscal years
beginning after December 15, 1995. FAS 123 encourages, but does not require,
companies to recognize compensation expense for grants of stock, stock options,
and other equity instruments to employees based on fair value. Companies that do
not adopt the fair value accounting rules must disclose the impact of adopting
the new method in the notes to the financial statements. Transactions in equity
instruments with non-employees for goods or services must be accounted for on
the fair value method. The Company has elected not to adopt the fair value
accounting prescribed by FAS 123 for employees, and will be subject only to the
disclosure requirements prescribed by FAS 123.
UNAUDITED INFORMATION--The statement of operations for the six-month period
ended June 30, 1996 were taken from the Company's books and records without
audit. However, in the opinion of management, such information includes all
adjustments (consisting only of normal accruals), which are necessary to
properly reflect the results of operations of the Company for the six months
ended June 30, 1996. The results of operations for the interim period presented
is not necessarily indicative of those expected for the year.
F-25
<PAGE>
INTERACTIVE PLANET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The Company had no operations from May 15, 1995 (inception date) to June 30,
1995, and as such, no comparative interim financial statements have been
presented for this period.
2. CONTINUED OPERATIONS:
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates the realization of
assets, including liquidation of liabilities in the normal course of business.
The Company has incurred substantial debt and recurring losses. As of December
31, 1995, the Company has a working capital deficiency of $211,000 and total
stockholders' equity of $583. As discussed in Note 6, subsequent to June 30,
1996, the Company merged with NAVIDEC, Inc. (NAVIDEC), which has also incurred
losses and has had negative cash flows from operations. NAVIDEC, however, has
completed a private placement of debt and is in the process of a public
offering, which management believes should provide adequate funding to enable
the combined entity to continue operations. In addition, management is
aggressively pursuing an increase in revenues, which ultimately, the Company
believes, will result in profitable operations. The Company's and Navidec's
ability to continue as a going concern are dependent upon the factors described
above. The accompanying financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
3. STOCKHOLDERS' EQUITY (DEFICIT):
During 1996, the Company declared a 15.97357 for 1 stock split. Accordingly,
all common stock reflected in the financial statements and accompanying notes
reflect the effect of the split.
4. INCOME TAXES:
The components of the net deferred tax asset recognized as of December 31,
1995 is as follows:
<TABLE>
<S> <C>
Long-term deferred tax assets (liabilities):
Net operating loss carryforwards......................... $ 5,000
Valuation allowance...................................... (5,000)
---------
Net long-term deferred tax asset......................... $ --
---------
---------
</TABLE>
At December 31, 1995, the Company had net operating loss carryforwards for
Federal tax purposes of approximately $13,726. The loss carryforwards, unless
utilized, will expire in 2010.
The Company's ability to use its net operating loss (NOL) carryforwards to
offset future income is subject to restrictions attributable to equity
transactions that result in change in ownership as defined by the Internal
Revenue Code. As a result of a merger subsequent to June 30, 1996 (see Note 8),
these restrictions will limit, on an annual basis, the Company's future use of
its NOL loss carryforwards.
5. MAJOR CUSTOMERS:
For the period from May 15, 1995 (inception date) to December 31, 1995, the
Company had sales to three customers representing 23%, 20%, and 12% of total
sales, respectively. As of December 31, 1995, the Company's accounts receivable
was from four customers. These receivables were collected in full subsequent to
the period then ended.
F-26
<PAGE>
INTERACTIVE PLANET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
6. SUBSEQUENT EVENTS:
Effective on July 1, 1996, the Company entered into an agreement and plan of
merger with NAVIDEC. Each of the issued and outstanding shares of the Company's
stock was exchanged for a share of NAVIDEC's common stock and NAVIDEC gave a
$75,000 note to one of the shareholders of the Company. Subsequent to June 30,
1996, NAVIDEC completed an offering for $1,437,500 of unsecured subordinated
convertible promissory notes. Additionally, NAVIDEC signed a letter of intent
with an underwriter for a proposed public offering.
F-27
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. ANY INFORMATION OR REPRESENTATION
NOT HEREIN CONTAINED, IF GIVEN OR MADE, MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES
OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES BY ANY PERSON IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. THE DELIVERY OF THIS PROSPECTUS
SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 4
The Company............................................................... 4
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 17
Dilution.................................................................. 17
Capitalization............................................................ 19
Selected Financial Data................................................... 20
Management's Discussion & Analysis of Financial Condition and Results of
Operations.............................................................. 21
Business.................................................................. 25
Management................................................................ 35
Principal Stockholders.................................................... 39
Bridge Financing Private Placement........................................ 39
Bridge Financing Selling Stockholders..................................... 40
Additional Registered Securities.......................................... 42
Certain Transactions...................................................... 43
Description of Securities................................................. 44
Shares Eligible for Future Sale........................................... 46
Underwriting.............................................................. 47
Experts................................................................... 51
Legal Matters............................................................. 51
Additional Information.................................................... 51
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
1,000,000 UNITS
NAVIDEC, INC.
CONSISTING OF 1,000,000 SHARES
OF COMMON STOCK AND 1,000,000
COMMON STOCK PURCHASE WARRANTS
---------------------
PROSPECTUS
---------------------
JOSEPH CHARLES & ASSOCIATES, INC.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation eliminate the personal liability of
directors to the Company or its stockholders for monetary damages for breach of
fiduciary duty to the extent permitted by Colorado law. The Company's Articles
of Incorporation and Bylaws provide that the Company shall indemnify its
officers and directors to the extent permitted by Colorado law, which authorizes
a corporation to indemnify directors, officers, employees or agents of the
corporation in non-derivative suits if such party acted in good faith and in a
manner such party reasonably believed to be in or not opposed to the best
interest of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The Colorado Business Corporation Act further provides that indemnification
shall be provided if the party in question is successful on the merits or
otherwise.
Reference is hereby made to the caption "Management--Limitation of Liability
and Indemnification" in the Prospectus which is a part of this Registration
Statement for a description of indemnification arrangements between the Company
and its directors.
The form of Underwriting Agreement, including as Exhibit 1.1, provides for
indemnification of the Company and certain controlling persons under certain
circumstances, including liabilities under the Securities Act of 1933, as
amended ("Securities Act"). Insofar as indemnification for liabilities under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions of the Underwriting Agreement,
the Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and therefore is unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of the distribution, all of which are to be borne by
the Company, are as follows:
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 8,332
NASD Fee.......................................................... $ 2,416
NASDAQ Fees....................................................... $ 10,000
Blue Sky Fees and Expenses........................................ $ 9,000*
Transfer Agent Fees............................................... $ 5,000*
Accounting Fees and Expenses...................................... $ 70,000*
Legal Fees and Expenses........................................... $ 85,000*
Representative's Non-Accountable Expense Allowance................ $ 210,000*
Printing and Engraving Expenses................................... $ 60,000*
Miscellaneous Fees and Expenses................................... $ 15,252*
---------
Total......................................................... $ 475,000
---------
---------
</TABLE>
- ------------------------
* All amounts are estimates
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In July 1996, the Company issued an aggregate of 678,877 shares of Common
Stock to the existing shareholders of Interactive Planet, Inc. ("IPI") in
exchange for all of the issued and outstanding shares of IPI in connection with
the merger of IPI with and into the Company. The Company relied on the statutory
exemption provided by Section 4(2) of the Securities Act of 1933 in accordance
with the preliminary note
II-1
<PAGE>
of Rule 145 whereby the exchange was made with a group of 14 shareholders of IPI
not involving any public offering.
In August 1996, the Company issued to John McKowen pursuant to an employment
agreement, options to purchase 212,500 shares of Common Stock at an exercise
price of $4.12 per share. Such options are exercisable after February 1, 1999
and expire on August 1, 2001. This was a privately negotiated transaction with a
sophisticated investor not involving any public offering and exempt pursuant to
Section 4(2) of the Securities Act of 1933.
From August through October 18, 1996, the Company consummated the sale of an
aggregate of $1,437,500 principal amount of 10% Unsecured Subordinated
Convertible Promissory Notes, due December 31, 1997, in a private placement to
investors. The Notes are automatically converted into an aggregate of 349,126
Units upon the effective date of this Registration Statement, at which time the
Notes will no longer be outstanding. Joseph Charles & Associates, Inc. received
$143,750 in commissions and $35,938 in expenses as placement agent in such
private placement. Joseph Charles & Associates also received five-year warrants
for the purchase of 21,250 shares at an exercise price of $4.28 per share. These
warrants will be rescinded by Joseph Charles & Associates upon the effective
date of this Registration Statement. This offering was made pursuant to Rule 506
of Regulation D promulgated pursuant to the Securities Act of 1933 as an
offering not involving any public offering solely to accredited investors.
In June 1996, Ralph Armijo exercised options to purchase 804,881 shares of
Common Stock for an aggregate exercise price of $1,745. These options were
granted during 1993 and 1994 in lieu of salary. Mr. Armijo was and is the chief
executive officer of the Company and the transaction was exempt as a transaction
not involving any public offering pursuant to Section 4(2) of the Securities Act
of 1933.
With respect to each transaction, no person acting on the Company's behalf
offered or sold the securities by means of any form of general solicitation or
general advertising.
ITEM 27. EXHIBITS
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement
1.2 Form of Selected Dealers Agreement
1.3 Warrant Exercise Fee Agreement
3.1 Amended and Restated Articles of Incorporation of ACI Systems, Inc.
3.2 Amended and Restated Bylaws of ACI Systems, Inc.
3.3 Articles of Merger and Agreement and Plan of Merger Between ACI Systems, Inc. and
Interactive Planet, Inc.
*4.1 Form of Certificate for Common Stock of NAVIDEC, Inc.
4.2 Form of Warrant
4.3 Form of Warrant Agreement
4.4 Form of Representative's Option Agreement
4.5 Form of Private Placement Financing Converted Units Registration Rights Agreement
4.6 Form of 10% Unsecured Subordinated Convertible Promissory Note
4.7 Form of Placement Agent's Warrant Registration Rights Agreement
4.8 Form of Placement Agent's Warrant for the Purchase of Shares of Common Stock and
Warrants
5.1 Opinion, with Consent, of Cohen Brame & Smith Professional Corporation
10.1 Form of "Lock Up" Letter to be entered into by the Company's officers, directors and
shareholders
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.2 Form of Shareholders' Agreement dated July 12, 1996, among NAVIDEC, Inc. and its
shareholders on such date.
10.3 Form of Confidentiality and Non-Disclosure Agreement between the Company and its
significant employees
10.4 Employment Agreement dated July 3, 1996 between NAVIDEC, Inc. and Ralph Armijo
10.5 Employment Agreement between NAVIDEC, Inc. and John R. McKowen
10.6 Lease Agreement dated February 23, 1996 for the premises located at 14 Inverness
Dr., Building F, Suite 116, Englewood, Colorado 80112
10.7 Lease Agreement dated October 27, 1993 for the premises located at 7002 S. Revere
Parkway, Suite 40, Englewood, Colorado 80112 [NEED]
10.8 Promissory Note as of October 1, 1993, in the principal amount of $119,199, from ACI
Systems, Inc. payable to Arthur Armijo
10.9 Promissory Note as of March 31, 1996, in the principal amount of $45,110 from
Interactive Planet, Inc. payable to Patrick Mawhinney
10.10 Promissory Note as of July 9, 1996, in the principal amount of $75,000 from NAVIDEC,
Inc. payable to Cynthia Simmons
10.11 Business/Manager Agreement and Commercial Security Agreement, each dated February
27, 1996, between NAVIDEC, INC. and Colorado State Bank of Denver
10.12 Form of Commercial Guarantee of Ralph Armijo and Arthur Armijo in favor of Colorado
State Bank of Denver in connection with the February 27, 1996 Promissory Note
10.13 Form of Commercial Continuing Guarantee of Ralph Armijo and Arthur Armijo dated
November 17, 1993 in favor of Vectra Bank in connection with line of credit
terminated in February 1996
10.14 Promissory Note as of August 6, 1996, in the principal amount of $70,000 from
NAVIDEC, INC. payable to Ralph Armijo
10.15 Promissory Note as of July 26, 1996 in the principal amount of $30,000 from NAVIDEC,
INC. payable to Patrick Mawhinney
10.16 Promissory Note as of July 25, 1996, in the principal amount of $182,500 from
NAVIDEC, INC. payable to Littleton Land Company
10.17 Netscape Commercial Applications Partner Program (NCAPP) Guidelines
10.18 Form of Agreement Not to Sell with Bridge Financing Selling Stockholders
21.1 Subsidiaries of the Registrant
*23.1 Consent of Hein + Associates LLP
23.2 Consent of Cohen Brame & Smith Professional Corporation (included in Exhibit 5.1)
*23.3 Consent of Lloyd G. Chavez, Jr.
24.1 Power of Attorney with respect to certain signatures in the Registration Statement
(see signature page to Registration Statement)
*27 Financial Data Schedule
</TABLE>
- ------------------------
* Included herewith
II-3
<PAGE>
ITEM 28. UNDERTAKINGS
1. The Registrant hereby undertakes:
(1) that for purposes of determining any liability under the Securities
Act, treat the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant under Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this Registration Statement as of
the time the Commission declared it effective.
(2) that for the purpose of determining any liability under the
Securities Act, treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered in the
Registration Statement, and that offering of the securities at that time as
the initial bona fide offering of those securities.
(3) to file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereto) that, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) to include any additional or changed material information on
the plan of distribution.
(4) to remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the termination
of the offering.
(5) to provide to the Representative of the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations
and registered in such names as required by the Representative of the
Underwriters to permit prompt delivery to each purchaser.
2. 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 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 whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
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<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
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Englewood, State of Colorado, on the 2nd day of
December, 1996.
NAVIDEC, INC.
By: /s/ RALPH ARMIJO
-----------------------------------------
Ralph Armijo, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Ralph Armijo his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him in his name, place and stead, in any and
all capacities, to sign this Registration Statement and any and all amendments
(including post-effective amendments) to this Registration Statement on Form
SB-2 and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following person in the capacities
and on the dates indicated.
SIGNATURES TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ RALPH ARMIJO
- ------------------------------ President, Chief Executive December 2, 1996
Ralph Armijo Officer and Director
/s/ PATRICK R. MAWHINNEY
- ------------------------------ Chief Financial Officer, December 2, 1996
Patrick R. Mawhinney Treasurer and Director
II-5
<PAGE>
NAVIDEC, INC.
14 INVERNESS DRIVE, BUILDING F, SUITE 166
ENGLEWOOD, COLORADO 80112
UNDERWRITING AGREEMENT
_______________, 1996
Joseph Charles & Associates, Inc.
As Representative of the Several Underwriters
9701 Wilshire Boulevard, Ninth Floor
Beverly Hills, CA 90212
Ladies and Gentlemen:
NAVIDEC, INC., a Colorado corporation (the "Company"), and certain
security holders of the Company listed on Schedule A hereto (such security
holders being referred to in this Agreement as the "Selling Stockholders"),
propose to issue and sell pursuant to this Underwriting Agreement (the
"Agreement"), an aggregate of 1,000,000 shares of Common Stock, $.001 par
value per share (the "Shares"), and 1,000,000 Warrants, each of which may be
exercised to purchase one share of Common Stock (the "Warrants") commencing
on the effective date of the Registration Statement (the "Effective Date").
The Shares consist of 780,000 shares to be sold by the Company (the "Company
Shares") and 220,000 shares to be sold by the Selling Stockholders (the
"Stockholder Shares"). All of the Warrants are to be sold by the Company. In
addition, the Company proposes to grant the option referred to in Section
2(b) to purchase all or any part of an aggregate of 150,000 additional Shares
and 150,000 additional Warrants. You are acting as Representative (the
"Representative") of the Underwriters listed on Schedule I hereto (the
"Underwriters").
The aggregate of 1,000,000 Shares and 1,000,000 Warrants, together with
all or any part of the 150,000 Shares and 150,000 Warrants which the
Underwriters have the option to purchase, are herein called the "Securities."
The Common Stock of the Company to be outstanding after giving effect to the
sale of the Shares (including the 150,000 Shares that the Underwriters have
the option to purchase) is herein called the "Common Stock."
The Underwriters have advised the Company that they desire to purchase
the Securities. The Company and the Selling Stockholders confirm the
agreements made by them, respectively, with respect to the purchase of the
Shares by the Underwriters, as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
A. The Company represents and warrants to, and agrees with, each
Underwriter that:
(a) A registration statement (File No. 333-14497) on Form SB-2
relating to the public offering of the Securities, including a preliminary
form of prospectus, copies of which have heretofore been delivered to you,
has been prepared by the Company in conformity with the
<PAGE>
requirements of the Securities Act of 1933, as amended (the "Act") and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been with the
Commission under the Act. "Preliminary Prospectus" shall mean each prospectus
filed pursuant to Rule 430 of the Rules and Regulations. The registration
statement (including all financial schedules and exhibits) as amended at the
time it becomes effective and the final prospectus included therein are
respectively referred to as the "Registration Statement" and the
"Prospectus", except that (i) if the prospectus first filed by the Company
pursuant to Rule 424(b) or Rule 430A of the Rules and Regulations or
otherwise utilized and not required to be so filed shall differ from said
prospectus as then amended, the term "Prospectus" shall mean the prospectus
first filed pursuant to Rule 424(b) or Rule 430A or so utilized from and
after the date on which it shall have been filed or utilized, and (ii) if
such registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement and
prior to the Option Closing Date (as defined in Section 2(b)), the term
"Registration Statement" shall include such registration statement as so
amended, and the term "Prospectus" shall include the prospectus as so amended
or supplemented, or both, as the case may be.
(b) At the time the Registration Statement becomes effective and
at all times subsequent thereto up to the Option Closing Date (hereinafter
defined), (i) the Registration Statement and Prospectus will in all material
respects conform to the requirements of the Act and the Rules and
Regulations; and (ii) neither the Registration Statement nor the Prospectus
will include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they were made; provided, however, that the Company makes no representations,
warranties or agreements as to information contained in or omitted from the
Registration Statement or Prospectus in reliance upon, and in conformity
with, written information furnished to the Company by or on behalf of you or
any Selling Stockholder specifically for use in the preparation thereof. It
is understood that the statements set forth in the Prospectus with respect to
stabilization, the material set forth under the heading "Underwriting" and
the identity of counsel to the Underwriter under the heading "Legal Matters"
constitute the only information furnished in writing by the Underwriters for
inclusion in the Registration Statement and Prospectus, as the case may be.
(c) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus and is
duly qualified to do business as a foreign corporation and is in good
standing in all other jurisdictions in which the nature of its business or
the character or location of its properties requires such qualification,
except where failure to so qualify is not reasonably likely to materially
adversely affect the Company's business, properties or financial condition.
(d) The authorized capital stock of the Company as of the
Effective Date was as set forth under "Capitalization" in the Prospectus. The
shares of issued and outstanding capital stock of the Company set forth
thereunder have been duly authorized, validly issued and are fully paid and
non-assessable; except as set forth in the Prospectus, no options, warrants
or other rights to purchase, agreements or other obligations to issue, or
agreements or other rights to convert any obligation into, any shares of
capital stock of the Company have been granted or entered into by the
Company. The
2
<PAGE>
Securities and Representative's Warrants conform in all material respects to
all statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The Securities are duly authorized and, when issued, delivered
and paid for pursuant to this Agreement, will be duly authorized, validly
issued, fully paid and nonassessable and free of preemptive rights of any
security holder of the Company. The certificates evidencing the Securities
are and will be in valid and proper legal form. The Representative's Warrants
(as defined in Section 12) will be exercisable for Securities in accordance
with the terms of the Representative's Warrants and at the prices therein
provided for. The shares of Common Stock and Warrants have been duly
authorized and reserved for issuance upon such exercise, and such Securities,
when issued upon such exercise in accordance with the terms of the
Representative's Warrants and when the price is paid, shall be fully paid and
non-assessable. Neither the filing of the Registration Statement nor the
offering or sale of the Securities as contemplated in this Agreement gives
rise to any rights, other than those which have been waived or satisfied, for
or relating to the registration of any securities of the Company, except as
described in the Registration Statement.
(f) This Agreement and the Representative's Warrants have been
duly and validly authorized, executed and delivered by the Company, and
assuming due execution by the other party or parties hereto and thereto,
constitute valid and binding obligations of the Company enforceable against
the Company in accordance with their respective terms, except as rights to
indemnity and contribution hereunder may be limited by applicable law and
except as enforceability may be limited by bankruptcy, insolvency or other
laws affecting the rights of creditors generally or by general equitable
principles. The Company has full power and lawful authority to authorize,
issue and sell the Shares to be sold by it hereunder on the terms and
conditions set forth herein, and no consent, approval, authorization or other
order of any governmental authority is required in connection with such
authorization, execution and delivery or with the authorization, issue and
sale of the Securities or the Representative's Warrants, except such as may
be required under the Act or state securities laws.
(g) Except as described in the Prospectus, the Company is not in
material violation, breach or default of or under, and consummation by the
Company of the transactions herein contemplated and the fulfillment by the
Company of the terms of this Agreement and the Representative's Warrants will
not conflict with, or result in a breach of, any of the terms or provisions
of, or constitute a default under, or result in the creation or imposition of
any lien, charge or encumbrance pursuant to the terms of, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company is a party or by which the Company may be bound or to which
any of the property or assets of the Company are subject, which would have a
material adverse effect on the business, properties or financial condition of
the Company, nor will such action result in any violation of the provisions
of the certificate of incorporation or the by-laws of the Company, as
amended, or any statute or any order, rule or regulation applicable to the
Company of any court or of any regulatory authority or other governmental
body having jurisdiction over the Company, which would have a material
adverse effect on the business, properties or financial condition of the
Company.
(h) The Company owns no real property and, subject to the
qualifications stated in the Prospectus, the Company has good and marketable
title to all properties and assets described in the Prospectus as owned by
it, free and clear of all liens, charges, encumbrances or restrictions,
except such
3
<PAGE>
as are not materially significant or important in relation to its business;
all of the leases and subleases under which the Company is the lessor or
sublessor of properties or assets or under which the Company holds properties
or assets as lessee or sublessee as described in the Prospectus are in full
force and effect, and, except as described in the Prospectus, the Company is
not in default in any respect with respect to any of the terms or provisions
of any of such leases or subleases which would have a material adverse effect
on the business, properties or financial condition of the Company, and no
claim has been asserted by anyone adverse to rights of the Company as lessor,
sublessor, lessee or sublessee under any of the leases or subleases mentioned
above, or affecting or questioning the right of the Company to continued
possession of the leased or subleased premises or assets under any such lease
or sublease except as described or referred to in the Prospectus, which would
have a material adverse effect on the business properties or financial
condition of the Company; and the Company owns or leases all such properties
described in the Prospectus as are necessary to its operations as now
conducted and, except as otherwise stated in the Prospectus, as proposed to
be conducted as set forth in the Prospectus.
(i) Hein + Associates, who have given their report on
certain financial statements filed and to be filed with the Commission
as a part of the Registration Statement, which are included in the
Prospectus, are with respect to the Company independent public
accountants as required by the Act and the Rules and Regulations.
(j) The financial statements and schedules, together with
related notes, set forth in the Prospectus or the Registration
Statement present fairly the financial position and results of
operations and changes in financial position of the Company on the
basis stated in the Registration Statement, at the respective dates and
for the respective periods to which they apply. Said statements and
schedules and related notes have been prepared in accordance with
generally accepted accounting principles applied on a basis which is
consistent during the periods involved.
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, the Company has not
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business, or entered into any transaction not in the
ordinary course of business, which is material to the business of the
Company, and there has not been any change in the capital stock of, or any
incurrence of long-term debt by, the Company or any issuance of options,
warrants or other rights to purchase the capital stock of the Company or any
adverse change or any development involving, so far as the Company can now
reasonably foresee, a prospective adverse change in the condition (financial
or other), net worth, results of operations, business, key personnel or
properties of it which would be material to the business or financial
condition of the Company, and the Company has not become party to, and
neither the business nor the property of the Company has become the subject
of, any material litigation whether or not in the ordinary course of business.
(l) Except as set forth in the Prospectus, there is not now
pending nor, to the knowledge of the Company, threatened, any action, suit or
proceeding (including those related to environmental matters or
discrimination on the basis of age, sex, religion or race) to which the
Company is a party before or by any court or governmental agency or body,
which, if adversely determined, would result in any material adverse change
in the condition (financial or other), business
4
<PAGE>
prospects, net worth or properties of the Company; and, except as set forth
in the Prospectus, no labor disputes involving the employees of the Company
exist which, if adversely determined, would result in any material adverse
change in the condition (financial or otherwise), business prospects, net
worth or property of the Company.
(m) Except as disclosed in the Prospectus, the Company has filed
all necessary federal, state and foreign income and franchise tax returns and
has paid all taxes shown as due thereon; and there is no tax deficiency which
has been or to the knowledge of the Company might be asserted against the
Company which has not been adequately reserved for on the Company's balance
sheet.
(n) The Company has sufficient licenses, permits and other
governmental authorizations currently required for the conduct of its
business or the ownership of its property as described in the Prospectus and
is in all material respects complying therewith and owns or possesses
adequate rights to use all material patents, patent applications, trademarks,
mark registrations, copyrights and licenses necessary for the conduct of such
business and has not received any notice of conflict with the asserted rights
of others in respect thereof. To the best knowledge of the Company, none of
the activities or business of the Company is in violation of, or causes the
Company to violate, any law, rule, regulation or order of the United States,
any state, county or locality, or of any agency or locality, the violation of
which would have a material adverse effect upon the condition (financial or
otherwise), business prospects, net worth or properties of the Company.
(o) The Company has not, directly or indirectly, at any time (i)
made any contributions to any candidate for foreign political office, or if
made, failed to disclose fully any such contribution made in violation of
law, or (ii) made any payment to any state, federal or foreign governmental
officer or official, or other person charged with similar public or quasi
public duties, other than payments or contributions required or allowed by
applicable law. The Company's internal accounting controls and procedures are
sufficient to cause the Company to comply in all material respects with the
Foreign Corrupt Practices Act of 1977, as amended.
(p) On the Closing Dates (as defined in Section 2(c)), all
transfer or other taxes (including franchise, capital stock or other tax,
other than income taxes imposed by any jurisdiction), if any, which are
required to be paid in connection with the sale and transfer of the
Securities to the Underwriters hereunder will have been fully paid or
provided for by the Company and all laws imposing such taxes will have been
fully complied with.
(q) All contracts and other documents of the Company which are,
under the Rules and Regulations, required to be filed as exhibits to the
Registration Statement have been so filed.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Securities or to facilitate
the sale or resale of the Securities.
(s) Except as disclosed in the Registration Statement, the Company
has no subsidiaries.
5
<PAGE>
(t) Except for this Agreement and other agreements with you, and
except as disclosed in the Registration Statement, the Company has not
entered into any agreement pursuant to which any person is entitled either
directly or indirectly to compensation from the Company for services as a
finder in connection with the proposed public offering.
B. Each Selling Stockholder severally represents and warrants to, and
agrees with, each Underwriter that:
(a) When the Registration Statement shall become effective, and at
all times subsequent thereto up to the First Closing Date (defined below)
and, if any Optional Shares are purchased, up to the Option Closing Date
(defined below) (i) such parts of the Registration Statement and any
amendments and supplements thereto as specifically refer to such Selling
Stockholder will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading and (ii) such parts of the Prospectus
as specifically refer to such Selling Stockholder will not include an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(b) The execution and delivery by such Selling Stockholder of, and
the performance by such Selling Stockholder of its obligations under, this
Agreement, the Custody Agreement signed by such Selling Stockholder and
American Securities Transfer, Inc., as custodians (the "Custodians"),
relating to the deposit of the Stockholder Shares to be sold by such Selling
Stockholder (the "Custody Agreement") and the Power of Attorney appointing
certain individuals as such Selling Stockholder's attorneys-in-fact to the
extent set forth therein, relating to the transactions contemplated hereby
and the Registration Statement (the "Power of Attorney") will not contravene
any provision, or the certificate or articles of incorporation or by-laws of
such Selling Stockholder (if such Selling Stockholder is a corporation), or
any agreement or other instrument binding upon such Selling Stockholder or
any judgment, order or decree of any governmental body, agency or court
having jurisdiction over such Selling Stockholder, and no consent, approval,
authorization or order of or qualification with any governmental body or
agency, financial institution, or other person or entity is required for the
performance by such Selling Stockholder of its obligations under this
Agreement or the Custody Agreement or Power of Attorney of such Selling
Stockholder, except as required by the Securities Act or the securities or
Blue Sky laws of the various states in connection with the offer and sale of
the Shares.
(c) This Agreement, the Custody Agreement and the Power of
Attorney have been duly authorized, executed and delivered by, and are
binding and valid agreements of, such Selling Stockholder.
(d) Such Selling Stockholder on the First Closing Date will have
good and marketable title to the Stockholder Shares to be sold by such
Selling Stockholder, free and clear of any pledge, lien, security interest,
charge, claim, equity or encumbrance of any kind, and full right, power and
authority to enter into this Agreement and to sell, assign, transfer and
deliver the Shares to be sold by such Selling Stockholder hereunder. Upon the
delivery of and payment for the Stockholder Shares hereunder, good and
marketable title to the Stockholder Shares to be sold by such Selling
Stockholder
6
<PAGE>
will pass to the several Underwriters, free and clear of any pledge, lien,
security interest, charge, claim, equity or encumbrance of any kind.
(e) Certificates for all of the Stockholder Shares to be sold by
such Selling Stockholder pursuant to this Agreement in suitable form for
transfer by delivery or accompanied by duly executed instruments of transfer
or assignment in blank (with signatures guaranteed), have been placed in
custody with the Custodians for the purpose of effecting delivery pursuant to
this Agreement.
(f) Such Selling Stockholder shall not sell, transfer or otherwise
dispose of, or offer or contract to sell transfer or otherwise dispose of,
directly or indirectly (except for transfers during such Selling
Stockholder's lifetime or on death by will or intestacy to his or her
immediate family or a family trust; provided that such transferee shall agree
in writing to the restrictions on transfer set forth therein), any Common
Stock, any securities convertible into or exchangeable for Common Stock or
any rights to purchase or acquire Common Stock for a period of ten months
after the date of the public offering of the Shares contemplated hereby,
without your prior written consent, except for the Stockholder Shares offered
hereunder.
(g) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to cause or result in, or that
has constituted, or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company and
such Selling Stockholder has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and
sale of the Stock other than any Preliminary Prospectus filed with the
Commission or the Prospectus Or other material permitted by the Securities
Act.
2. PURCHASE, DELIVERY AND SALE OF THE SHARES.
(a) Subject to the terms and conditions of this Agreement, and
upon the basis of the representations, warranties and agreements herein
contained, (i) the Company agrees to issue and sell to the Underwriters and
the Underwriters agree to buy from the Company at $_____________ per
Share and $_________ per Warrant at the place and time hereinafter specified,
the number of Shares and Warrants set forth opposite each Underwriter's name
in Schedule I hereto (the "Company Firm Securities") (ii) each Selling
Stockholder agrees, severally but not jointly, to sell to the Underwriters
and the Underwriters agree to buy the number of Shares indicated by such
Selling Stockholder's name on Schedule II to this Agreement (the "Selling
Stockholders Firm Shares"). Together, the Company Firm Securities and the
Selling Stockholder's Firm Shares are the "Firm Securities." Each of the
Underwriters agrees, severally and not jointly, to purchase from the Company
and the Selling Stockholders, at a combined purchase price of
$____________ per Share and Warrant, the number of Firm Securities set
forth opposite such Underwriter's name on Schedules I and II hereto.
Delivery of the Firm Securities against payment therefor shall take
place at the offices of Joseph Charles & Associates, Inc., 9701 Wilshire
Boulevard, Ninth Floor, Beverly Hills, California 90212 (or at such other
place as may be designated by agreement between the Representative and the
Company) at 10:00 a.m. New York time on ______,1996, or at such other time
and date, not later than seven calendar days thereafter, as you may
designate, such time and date of payment and delivery for the Firm Securities
being herein called the "First Closing Date." Time shall be of the essence
and
7
<PAGE>
delivery at the time and place specified in this subsection (a) is a further
condition to the Underwriters' obligations hereunder.
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and
agreements herein contained, the Company hereby grants the Underwriters an
option to purchase all or any part of an aggregate of 150,000 additional
Shares and 150,000 additional Warrants at $___________ per Share and
$_____ per Warrant (such additional Shares and Warrants being referred to
herein as the "Option Securities"). This option may be exercised on one
occasion within 60 days after the Effective Date upon notice by the
Representative to the Company advising it as to the amount of Option
Securities as to which the option is being exercised, the names and
denominations in which the certificates for such Option Securities are to be
registered and the time and date when such certificates are to be delivered.
Such time and date shall be determined by the Representative but shall not be
earlier than four and not later than seven calendar days after the exercise
of said option, nor in any event prior to the First Closing Date, and such
time and date is referred to herein as the "Option Closing Date." Delivery of
the Option Securities against payment therefor shall take place at the
offices of Joseph Charles & Associates, Inc., 9701 Wilshire Boulevard, Ninth
Floor, Beverly Hills, California 90212. Time shall be of the essence and
delivery at the time and place specified in this subsection (b) is a further
condition to the Underwriters' obligations hereunder.
The Option granted hereunder may be exercised only to cover
over-allotments in the sale by the Underwriters of Firm Securities referred
to in subsection (a) above.
(c) The Company will make the certificates for the Securities to
be purchased by the Underwriters hereunder available to the Representative
for checking at least two full business days prior to the First Closing Date
or the Option Closing Date (which are collectively referred to herein as the
"Closing Dates" and individually as a "Closing Date"), as the case may be.
The certificates shall be in such names and denominations as the
Representative may request, at least two full business days prior to the
relevant Closing Dates.
Definitive engraved certificates in negotiable form for the
Securities to be purchased by the Underwriters hereunder will be delivered by
the Company to the Underwriters for the Underwriters' account against payment
of the purchase price by the Underwriters, at the option of the
Representative, by certified or bank cashier's checks in New York Clearing
House funds or by wire transfer, payable to the order of the Company and the
Selling Stockholders, as the case may be.
In addition, in the event the Underwriters exercise the option to
purchase from the Company all or any portion of the Option Securities
pursuant to the provisions of subsection (b) above, payment for such Option
Securities shall be made to or upon the order of the Company by the
Underwriters, at the option of the Representative, by certified or bank
cashier's checks payable in New York Clearing House funds or by wire
transfer, at the offices of Joseph Charles & Associates, Inc. at the time and
date of delivery of such Option Securities as required by the provisions of
subsection (b) above, against receipt of the certificates for such Option
Securities by the Underwriters, registered in such names and in such
denominations as the Underwriters may request.
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It is understood that you propose to offer the Securities to be
purchased hereunder to the public upon the terms and conditions set forth in
the Registration Statement, after the Registration Statement becomes effective.
3. COVENANTS OF THE COMPANY.
The Company covenants and agrees with each Underwriter that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective and, upon notification from the
Commission that the Registration Statement has become effective, will so
advise the Representative and will not at any time, whether before or after
the Effective Date, file any amendment to the Registration Statement or
supplement to the Prospectus of which the Representative shall not previously
have been advised and furnished with a copy or to which the Representative or
counsel to the Underwriters shall have reasonably objected in writing or
which is not in compliance with the Act and the Rules and Regulations. At any
time prior to the later of (A) the completion by you of the distribution of
the Securities contemplated hereby (but in no event more than nine months
after the Effective Date) and (B) 25 days after the Effective Date, the
Company will prepare and file with the Commission, promptly upon your
request, any amendments or supplements to the Registration Statement or
Prospectus which, in the Representative's reasonable opinion, may be
necessary or advisable in connection with the distribution of the Securities.
Promptly after the Representative or the Company is advised
thereof, the Representative will advise the Company or the Company will
advise the Representative, as the case may be, and confirm the advice in
writing, of the receipt of any comments of the Commission, of the
effectiveness of any post effective amendment to the Registration Statement,
of the filing of any supplement to the Prospectus or any amended Prospectus,
of any request made by the Commission for amendment of the Registration
Statement or for supplementing of the Prospectus or for additional
information with respect thereto, of the issuance by the Commission or any
state or regulatory body of any stop orders or other order suspending the
effectiveness of the Registration Statement or any order preventing or
suspending the use of any preliminary prospectus or the Prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or the institution of any proceedings for any of such purposes,
and will use its best efforts to prevent the issuance of any such order and,
if issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to the Underwriters copies
of each Preliminary Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the Act. The
Company authorizes the Underwriters and selected dealers to use the
Prospectus in connection with the sale of the Securities for such period not
to exceed nine months from the Effective Date as in the reasonable opinion of
counsel for the Underwriters the use thereof is required to comply with the
applicable provisions of the Act and the Rules and Regulations. In case of
the happening, at any time within such period as a Prospectus is required
under the Act to be delivered in connection with sales by an underwriter or
dealer, of any event of which the Company has knowledge and which materially
affects the Company or the Securities, or which in the opinion of counsel for
the Company or counsel for the Underwriters should be set forth in an
amendment to the Registration Statement or a supplement to the Prospectus in
order to make the statements therein not then misleading, in light of the
circumstances existing at the time the Prospectus is required to be
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<PAGE>
delivered to a purchaser of the Securities, or in case it shall be necessary
to amend or supplement the Prospectus to comply with the Act or with the
Rules and Regulations, the Company will notify the Representative promptly
and forthwith prepare and furnish to the Underwriters copies of such amended
Prospectus or of such supplement to be attached to the Prospectus, in such
quantities as the Underwriters may reasonably request, in order that the
Prospectus, as so amended or supplemented, will not contain any untrue
statement of a material fact or omit to state any material facts necessary in
order to make the statements in the Prospectus, in the light of the
circumstances under which they are made, not misleading. The preparation and
furnishing of any such amendment or supplement to the Registration Statement
or amended Prospectus or supplement to be attached to the Prospectus shall be
without expense to the Underwriters, except that in case the Underwriters are
required, in connection with the sale of the Shares, to deliver a Prospectus
nine months or more after the Effective Date, the Company will upon request
of and at the Underwriters' expense, amend or supplement the Registration
Statement and Prospectus and furnish you with reasonable quantities of
prospectuses complying with Section 10(a)(3) of the Act.
(b) The Company will comply with the Act, the Rules and
Regulations and the Shares Exchange Act of 1934, as amended (the "Exchange
Act") and the rules and regulations thereunder in connection with the
offering and issuance of the Securities.
The Company will use its best efforts to qualify or register the
Securities for sale under the securities or "blue sky" laws of such
jurisdictions as the Representative may have designated in writing prior to
the execution hereof and will make such applications and furnish such
information to counsel for the Underwriters as may be required for that
purpose and to comply with such laws, provided that the Company shall not be
required to qualify as a foreign corporation or a dealer in securities or to
execute a general consent to service process in any jurisdiction. The Company
will, from time to time, prepare and file such statements and reports as are
or may be required to continue such qualification in effect for so long a
period as you may reasonably request. Legal fees for such qualifications
shall be itemized based on the time expended and costs incurred, shall not in
any event exceed $30,000.00, exclusive of filing fees (unless otherwise
agreed).
(c) The Company will instruct its transfer agent to provide the
Representative with copies of the Depository Trust Company stock transfer
sheets on a weekly basis for a period of six months from the First Closing
Date and on a monthly basis thereafter for six additional months.
(d) The Company will use its best efforts to cause a Registration
Statement under the Exchange Act to be declared effective on the Effective Date.
(e) For so long as the Company is a reporting company under either
Section 12(g), 13 or 15(d) of the Exchange Act, the Company, at its expense,
will furnish to its stockholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail
and at its expense, will furnish to the Representative during the period
ending five years from the date hereof, (i) as soon as practicable after the
end of each fiscal year, a balance sheet of the Company and any subsidiaries
as at the end of such fiscal year, together with statements of income,
stockholders, equity and cash flows of the Company and any subsidiaries as at
the end of such fiscal year, all in reasonable detail and accompanied by a
copy of the certificate or report thereon of independent accountants; (ii) as
soon as they are available, a copy of all reports (financial or other)
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mailed to security holders; (iii) as soon as they are available, a copy of
all non-confidential reports and financial statements furnished to or filed
with the Commission; and (iv) such other information of a public nature as
you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in sub-section (e) above
will be on a consolidated basis to the extent the accounts of the Company and
its subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will deliver to the Representative at or before
the First Closing Date one signed copy of the Registration Statement
including all financial statements and exhibits filed therewith, and of all
amendments thereto. The Company will deliver to or upon the Representative's
order, from time to time until the Effective Date as many copies of any
Preliminary Prospectus filed with the Commission prior to the Effective Date
as the Underwriters may reasonably request. The Company will deliver to the
Representative on the Effective Date and thereafter for so long as a
Prospectus is required to be delivered under the Act, from time to time, as
many copies of the Prospectus, in final form, or as thereafter amended or
supplemented, as the Underwriters may from time to time reasonably request.
(h) The Company will make generally available to its security
holders and deliver to the Representative as soon as it is practicable to do
so, but in no event later than 90 days after the end of 12 months after its
current fiscal quarter, an earnings statement (which need not be audited)
covering a period of at least 12 consecutive months beginning after the
Effective Date which shall satisfy the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of the
Securities substantially for the purposes set forth under "Use of Proceeds"
in the Prospectus, and will file such reports with the Commission with
respect to the sale of the Shares and the application of the proceeds
therefrom as may be required pursuant to Rule 463 of the Rules and
Regulations.
(j) The Company will, promptly upon the Representative's request,
prepare and file with the Commission any amendments or supplements to the
Registration Statement, Preliminary Prospectus or Prospectus and take any
other action, which in the opinion of Berliner Zisser Walter & Gallegos,
P.C., counsel to the Underwriters, may be reasonably necessary or advisable
in connection with the distribution of the Securities and will use its best
efforts to cause the same to become effective as promptly as possible.
(k) Prior to the Effective Date, the Company will use its best
efforts to cause the cause the Selling Stockholders and all other
Stockholders of the Company to enter into a written agreement with the
Representative, which among other things shall provide that for a period of
10 and 12 months following the closing date of the offering, respectively,
such stockholders will not sell, assign, hypothecate or pledge any of the
securities of the Company owned by them on the Effective Date, or
subsequently acquired by the exercise of any options or warrants or
conversion of any convertible security of the Company held by them on the
Effective Date directly or indirectly, except with the Representative's prior
written consent (except for transfers during such stockholder's lifetime or
on death by will or intestacy to his or her immediate family or a family
trust; provided that such
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<PAGE>
transferee shall agree in writing to the restrictions on transfer set forth
therein). Such stockholders will permit all certificates evidencing those
shares to be stamped with an appropriate restrictive legend, and will cause
the transfer agent for the Company to note such restrictions on transfer
books and records of the Company.
(l) The Company shall, as soon as practicable after the initial
filing of the Registration Statement, make all filings required to obtain
approval for the quotation of the Securities on the Nasdaq SmallCap market
("NASDAQ") and will use its best efforts to effect and maintain the aforesaid
approval for at least five (5) years from the date of this Agreement. Within
ten (10) days after the Effective Date, the Company shall use its best
efforts to cause the Company to be listed in the Moody's OTC Industrial
Manual and cause such listing to be maintained for five years from the date
of this Agreement.
(m) The Company represents that it has not taken, and agrees that
it will not take, directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Securities or to facilitate
the sale or resale of the Securities.
(n) During the period of the offering, and for a period of twelve
(12) months from the Effective Date, the Company will not sell or otherwise
dispose of any securities of the Company (except for shares of Common Stock
issuable pursuant to acquisitions and upon exercise of options or warrants
outstanding on the Effective Date ) without your prior written consent.
(o) Prior to the Effective Date, the Company shall had retained a
public relations firm reasonably acceptable to the Representative, and shall
continue to retain such firm, or any alternate firm reasonably acceptable to
the Representative, for a minimum period of one (1) year from the First
Closing Date.
(p) The Company will reserve and keep available that maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Representative's Warrants (including securities issuable upon
the exercise of the Warrants which are issuable upon the exercise of the
Representative's Warrants) outstanding from time to time.
(q) The Company shall deliver to the Representative, at the Company's
expense, a total of three (3) bound volumes in form and content acceptable to
you, containing the Registration Statement and all exhibits filed therewith,
and all amendments thereto, and all other material correspondence, filings,
certificates and other documents filed and/or delivered in connection with
this offering. The Company shall use its best efforts to deliver such volumes
within ninety (90) days of the First Closing Date.
(r) The Company shall have acquired a reasonable amount of
Director and Officer Liability Insurance (provided that such insurance can be
obtained at a reasonable cost as determined by the Company and the
Representative) from a responsible insurer, all satisfactory to the
Representative, prior to the effectiveness of the Registration Statement.
The Company shall have acquired keyman life insurance on Ralph Armijo on the
terms described in the Prospectus.
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(s) Joseph Charles & Associates, Inc. shall have the right for a
period of four (4) years from the First Closing Date to designate one nominee
for election to the Board of Directors of the Company, such nominee to be
reasonably acceptable to the Company. In the event that the Company is unable
to obtain the Directors and Officers insurance described in subparagraph (r)
above, Joseph Charles & Associates, Inc. shall have the right for such four
(4) year period to designate a consultant to the Board of Directors of the
Company, which consultant shall have the right to attend all Board and Board
committee meetings and shall be compensated with respect to meetings of the
Board on the same basis as outside members of the Board.
(t) The Company agrees to deliver to the Representative a
financial consulting agreement whereby the Company will retain Joseph Charles
& Associates, Inc. as a financial consultant for a period of two years
following the First Closing Date for a fee of $3,000 per month.
(u) Each Selling Shareholder agrees to deliver to the
Representative on or prior to the First Closing Date a properly completed and
executed United States Treasury Department Form W-9 (or other applicable form
or statement specified by Treasury Department regulations in lieu thereof).
4. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS
The Underwriters' obligations to purchase and pay for the Securities
which they have agreed to purchase hereunder are subject to the accuracy (as
of the date hereof, and as of the Closing Dates) of and compliance with the
representations and warranties of the Company herein, to the performance by
the Company and the Selling Stockholders of their obligations hereunder, and
to the following conditions:
(a) The Registration Statement shall have become effective and the
Representative shall have received notice thereof not later than 4:30 p.m.,
Los Angeles time, on the date of this Agreement, or at such later time or on
such later date as to which you may agree in writing; on the Closing Dates,
no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that or any similar purpose
shall have been instituted or shall be pending or, to the knowledge of any
Underwriter or to the knowledge of the Company, shall be contemplated by the
Commission; any request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction of
Berliner Zisser Walter & Gallegos, P.C., counsel to the Underwriters; and no
stop order shall be in effect denying or suspending effectiveness of the
Registration Statement nor shall any stop order proceedings with respect
thereto be instituted or pending or threatened under the Act.
(b) At the First Closing Date, you shall have received the
opinion, dated as of the First Closing Date, of Cohen Brame & Smith
Professional Corporation, counsel for the Company, in form and substance
reasonably satisfactory to counsel for you, to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Colorado and is duly qualified or licensed to do business as a foreign
corporation in good standing in each other jurisdiction in which the
ownership or leasing of its properties or the conduct of its business
requires such
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qualification, except where failure to so qualify will not have a material
adverse effect in the business, properties or financial condition of the
Company;
(ii) the authorized capitalization of the Company as of the date
of the Prospectus was as set forth in the Prospectus; all of the shares of
the Company's outstanding stock requiring authorization for issuance by
the Company's Board of Directors have been duly authorized and validly
issued, are fully paid and non-assessable and conform to the description
thereof contained in the Prospectus; the outstanding shares of Common Stock
of the Company, to such counsel's knowledge, have not been issued in
violation of the preemptive rights of any stockholder and the stockholders
of the Company do not have any preemptive rights or other rights to
subscribe for or to purchase any of the Shares offered hereby; except for
the transfer restrictions regarding "affiliates" contained in Rule 144
promulgated under the Act and restrictions provided for in this Agreement,
to the knowledge of counsel, there are no restrictions upon the voting or
transfer of, any of the Shares; the Securities and the Representative's
Warrants conform in all material respects to the respective descriptions
thereof contained in the Prospectus; the Securities to be issued as
contemplated in the Registration Statement and this Agreement have been
duly authorized and, when paid, will be validly issued, fully paid and
non-assessable and free of preemptive rights, if any, contained in the
Company's certificate of incorporation or by-laws, or any other document,
instrument or agreement known to counsel; a sufficient number of shares of
Common Stock has been reserved for issuance upon exercise of the Warrants
and the Representative's Warrants (including shares issuable upon the
exercise of the Warrants which are issuable upon the exercise of the
Representative's Warrants); to such counsel's knowledge, neither the filing
of the Registration Statement nor the offering or sale of the Securities
as contemplated by this Agreement gives rise to any registration rights or
other rights, other than those contemplated by the Representative's
Warrants or which have been waived or satisfied, for or relating to the
registration of the Shares;
(iii) this Agreement and the Representative's Warrants
(sometimes hereinafter collectively referred to as the "Representative
Agreements") have been duly and validly authorized, executed and delivered
by the Company, and assuming due execution and delivery of the
Representative Agreements by you, such agreements are, or when duly
executed will be, the valid and legally binding obligations of the Company
except as enforceability may be limited by bankruptcy, insolvency,
moratorium or other laws affecting the rights of creditors, or by general
equitable principles and except as rights to indemnity and contribution
hereunder may be limited by applicable securities laws or public policy;
(iv) the certificates evidencing the Stockholder Shares are, and
the certificates representing the Company Shares and Warrants will be,
when issued, in valid and proper legal form; the Representative's Warrants
will be exercisable for shares of Common Stock of the Company in accordance
with the terms of the Representative's Warrants and at the prices therein
provided for; the shares of Common Stock and Warrants of the Company
issuable upon exercise of the Representative's Warrants have been duly
authorized and reserved for issuance upon such exercise, and such shares
and Warrants, when issued upon such exercise in accordance with the terms
of the Representative's Warrants and when the price is paid shall be fully
paid and non-assessable;
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(v) Such counsel knows of no pending or threatened legal or
governmental proceedings to which the Company is a party which are
required to be described or referred to in the Registration Statement
which are not so described or referred to;
(vi) The execution and delivery of this Agreement by the
Company and the Representative's Warrants and the incurrence of the
obligations of the Company herein and therein set forth and the
consummation by the Company of the transactions herein or therein
contemplated will not result in a violation of, or constitute a default
under, the certificate or articles of incorporation or by-laws of the
Company, or in a material violation of or default under any obligation,
agreement, covenant or condition contained in any bond, debenture, note
or other evidence of indebtedness or in any of the contracts,
indentures, mortgages, loan agreements, leases, joint ventures or other
agreements or instruments to which the Company is a party that are filed
as Exhibits to the Registration Statement or otherwise known to counsel;
(vii) The Registration Statement has become effective
under the Act, and to such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement is in effect, no
proceedings for that purpose have been instituted or are pending before,
or threatened by, the Commission and the Registration Statement and the
Prospectus (except, in the case of both the Registration Statement and
any Amendment thereto, and the Prospectus and any supplement thereto for
the financial statements and notes and schedules thereto, and other
financial information or statistical data contained therein, or omitted
therefrom, as to which such counsel need express no opinion) comply as
to form in all material respects with the applicable requirements of the
Act and the Rules and Regulations;
(viii) All descriptions in the Registration Statement and
the Prospectus, and any amendment or supplement thereto, of contracts
and other documents are accurate and fairly present the information
required to be shown, and such counsel is familiar with all contracts
and other documents referred to in the Registration Statement and the
Prospectus and any such amendment or supplement, or filed as exhibits to
the Registration Statement, and such counsel does not know of any
contracts or documents of a character required to be summarized or
described therein or to be filed as exhibits thereto which are not so
summarized, described or filed;
(ix) No authorization, approval, consent or license of any
governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or delivery
of the Securities by the Company, in connection with the execution,
delivery and performance of this Agreement or the Representative's
Warrants by the Company or in connection with the taking of any action
contemplated herein or therein, or the issuance of the Representative's
Warrants or the Shares or Warrants underlying the Representative's
Warrants, other than registration or qualification of the Shares or
Warrants under applicable state or foreign securities or blue sky laws
(as to which such counsel need express no opinion) and registration
under the Act; and
(x) To the extent that the statements contained in the
Prospectus under the headings "Business", "Management", "Description of
Capital Stock", "Shares Eligible For Future Sale" and "Legal Matters"
refer to opinions of such counsel or matters of law or purport
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to summarize the status of litigation or purport to summarize the
provisions of statutes, regulations, contracts, agreements or other
documents, such statements have been reviewed by such counsel and
accurately reflect the status of any such litigation, such provisions
purported to be summarized and any such opinions of such counsel;
(xi) The Company is not an investment company under the
Investment Company Act of 1940; and
(xii) Based solely on a review of the Company's transfer
records, the Selling Stockholders are the holders of record of the
Stockholder Shares.
Such counsel has participated in conferences with officers and
representatives of the Company and representatives of the Underwriters in
connection with the preparation of the Registration Statement and the
Prospectus and, although such counsel has not reviewed the accuracy or
completeness of, the statements contained in the Registration Statement or
Prospectus, on the basis of the foregoing, nothing has come to the attention
of such counsel that caused such counsel to have reason to believe that the
Registration Statement or any amendment thereto at the time it became
effective contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading or that the Prospectus or any
supplement thereto contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make statements therein in
light of the circumstances under which they were made not misleading (except,
in the case of both the Registration Statement and any amendment thereto and
the Prospectus and any supplement thereto, for the financial statements,
notes and schedules thereto and other financial information and statistical
data contained therein, as to which such counsel need express no opinion);
In rendering such opinion, such counsel may (i) rely upon
certificates of any officer of the Company or public officials as to matters
of fact and (ii) rely as to all matters of law other than the law of the
United States or of the State of Colorado upon opinions of counsel reasonably
satisfactory to you.
(c) All corporate proceedings and other legal matters relating to
this Agreement, the Registration Statement, the Prospectus, and other related
matters shall be reasonably satisfactory to or approved by Berliner Zisser
Walter & Gallegos, P.C., counsel to the Underwriters, and you shall have
received from such counsel a signed opinion, dated as of the First Closing
Date, with respect to the validity of the issuance of the Securities, the
form of the Registration Statement and Prospectus (other than the financial
statements and other financial data contained therein), the execution of this
Agreement and other related matters as the Representative may reasonably
require. The Company shall have furnished to counsel for the Underwriters
such documents as they may reasonably request for the purpose of enabling
them to render such opinion.
(d) You shall have received a letter on and as of the Effective
Date and again on and as of the First Closing Date, in each instance
describing procedures carried out to a date within five (5) days of the date
of the letter, from Hein + Associates, independent public accountants for the
Company, substantially in the form approved by the Representative.
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(e) At each of the Closing Dates, (i) the representations and
warranties of the Company and the Selling Stockholders contained in this
Agreement shall be true and correct with the same effect as if made on and as
of such Closing Date, and the Company and the Selling Stockholders shall have
performed all of its obligations hereunder and satisfied all the conditions
on its part to be satisfied at or prior to such Closing Date; (ii) the
Registration Statement and the Prospectus and any amendments or supplements
thereto shall contain all statements which are required to be stated therein
in accordance with the Act and the Rules and Regulations, and shall in all
material respects conform to the requirements thereof, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto shall contain any untrue statements of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under
which they were made; (iii) there shall have been, since the respective dates
as of which information is given, no material adverse change in the business,
properties, condition (financial or otherwise), results of operations,
capital stock, long-term or short-term debt or general affairs of the Company
from that set forth in the Registration Statement and the Prospectus, except
changes which the Registration Statement and Prospectus indicate might occur
after the Effective Date and the Company shall not have incurred any material
liabilities nor entered into any agreement not in the ordinary course of
business other than as referred to in the Registration Statement and
Prospectus; and (iv) except as set forth in the Prospectus, no action, suit
or proceeding at law shall be pending or threatened against the Company which
would be required to be disclosed in the Registration Statement, and no
proceedings shall be pending or threatened against the Company before or by
any commission, board or administrative agency in the United States or
elsewhere, wherein an unfavorable decision, ruling or finding would
materially and adversely affect the business, property, condition (financial
or otherwise), results of operations or general affairs of the Company. In
addition, the Representative shall have received, at the First Closing Date,
a certificate signed by the President and the principal financial or
accounting officer of the Company, dated as of the First Closing Date,
evidencing compliance with the provisions of this subsection (e). The power
of attorney for the Selling Stockholders shall have executed and delivered to
you a certificate dated the First Closing Date to the effect that the
representations and warranties of such Selling Stockholder contained in this
Agreement are true and correct on and as of the date of this Agreement and
such Closing Date and such Selling Stockholder has timely performed or
complied with all covenants and conditions therein contained required to be
performed or complied with on his, her or its part in all material respects
at or prior to such Closing Date.
(f) Upon exercise of the option provided for in Section 2(b)
hereof, the Underwriters' obligations to purchase and pay for the Option
Securities referred to therein will be subject (as of the date hereof and as
of the Option Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, no stop order suspending the effectiveness thereof
shall have been issued, and no proceedings for that purpose shall have
been instituted or shall be pending, or, to the knowledge of any
Underwriter or the knowledge of the Company, shall be contemplated by
the Commission, and any reasonable request on the part of the Commission
for additional information shall have been complied with to the
reasonable satisfaction of Berliner Zisser Walter & Gallegos, P.C.,
counsel to the Underwriters.
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(ii) At the Option Closing Date there shall have been
delivered to the Representative the signed opinion of Cohen Brame &
Smith Professional Corporation, counsel for the Company, dated as of the
Option Closing Date, in form and substance reasonably satisfactory to
Berliner Zisser Walter & Gallegos, P.C., counsel to the Underwriters,
which opinion shall be substantially the same in scope and substance as
the opinion furnished to the Representative at the First Closing Date
pursuant to Section 4(b) hereof, except that such opinion, where
appropriate, shall cover the Option Securities rather than the Firm
Securities. If the First Closing Date is the same as the Option Closing
Date, such opinions may be combined.
(iii) At the Option Closing Date, there shall have been
delivered to the Representative a certificate of the President and
financial officer of the Company dated the Option Closing Date, in form
and substance reasonably satisfactory to Berliner Zisser Walter &
Gallegos, P.C., counsel to the Underwriters, substantially the same in
scope and substance as the certificate furnished to the Representative
at the First Closing Date pursuant to Section 4(e) hereof.
(iv) Each Selling Stockholder or his designated
attorney-in-fact shall have executed and delivered to the Representative
a certificate dated the Option Closing Date to the effect that the
representations and warranties of such Selling Stockholder contained in
this Agreement are true and correct on and as of the date of this
Agreement are such Closing Date and such Selling Stockholder has timely
performed or complied with all covenants and conditions therein
contained required to be performed or complied with on his/her or its
part in all material respects at or prior to such Option Closing Date.
(v) At the Option Closing Date, there shall have been
delivered to the Representative a letter in form and substance
satisfactory to you from Hein + Associates, dated the Option Closing
Date and addressed to the Representative, confirming the information in
their letter referred to in Section 4(d) hereof as of the date thereof
and stating that, without any additional investigation required, nothing
has come to their attention during the period from the ending date of
their review referred to in said letter to a date not more than five (5)
days prior to the Option Closing Date which would require any change in
said letter if it were required to be dated the Option Closing Date.
(vi) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Securities
shall be reasonably satisfactory in form and substance to the
Representative, and you and Berliner Zisser Walter & Gallegos, P.C.,
counsel to the Underwriters, shall have been furnished with all such
documents and certificates as you may request in connection with this
transaction in order to evidence the accuracy and completeness of any of
the representations, warranties or statements of the Company or its
compliance with any of the covenants or conditions contained therein.
(g) If any of the conditions herein provided for in this Section
shall not have been completely fulfilled as of the date indicated, this
Agreement and all obligations of the Underwriters under this Agreement may be
cancelled at, or at any time prior to, each Closing Date by your notifying
the Company and the Selling Stockholders of such cancellation in writing or
by telegram at or prior
18
<PAGE>
to the applicable Closing Date. Any such cancellation shall be without
liability of any Underwriter to the Company and the Selling Stockholders,
except as otherwise provided herein.
5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY AND THE SELLING
STOCKHOLDERS.
The obligation of the Company and the Selling Stockholders to sell and
deliver the Securities is subject to the following conditions:
(a) The Registration Statement shall have become effective not
later than 4:30 p.m. Los Angeles time, on the date of this Agreement, or on
such later date or time as the Representative and the Company may agree in
writing.
(b) on the Closing Dates, no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
Act or any proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company and the Selling
Stockholders provided for in this Section have been fulfilled on the First
Closing Date but are not fulfilled after the First Closing Date and prior to
the Option Closing Date, then only the obligation of the Company to sell and
deliver the Option Securities on exercise of the option provided for in
Section 2(b) hereof shall be affected.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Representative and each Underwriter and, each person, if any, who controls
each Representative and each Underwriter, within the meaning of the Act, from
and against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys, fees), to
which you or such controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in (A) the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment thereof or supplement thereto, (B) any blue sky application or
other document executed by the Company specifically for that purpose or based
upon written information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the Shares under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or arise out of or are based
upon the omission or alleged omission to state in the Registration Statement,
or any supplement thereto, or in any Blue Sky Application, a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any
such case to the extent, but only to the extent, that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance
upon and in conformity with written information furnished to the Company by
or through the Representative or by or on behalf of any Selling Stockholder
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such Preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto and provided further, that the indemnity agreement
provided in this Section 6(a) with respect to any Preliminary
19
<PAGE>
Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any losses, claims, charges, liabilities or litigation based
upon any untrue statement or alleged untrue statement of a material fact or
omission or alleged omission to state therein a material fact purchased
Shares, if a copy of the Prospectus in which such untrue statement or alleged
untrue statement or omission or alleged omission was corrected has not been
sent or given to such person within the time required by the Act and the
Rules and Regulations thereunder. It is understood that the statements set
forth in the Prospectus with respect to stabilization, the material set forth
under the heading "Underwriting" and the identity of counsel to the
Underwriter under the heading "Legal Matters" constitute the only information
furnished in writing by the Underwriter for inclusion in the Registration
Statement and Prospectus, as the case may be. This indemnity will be in
addition to any liability which the Company may otherwise have.
(b) Each Selling Stockholder will, severally but not jointly,
indemnify and hold harmless each Representative, each Underwriter, and the
Company, and each person, if any who controls the Representative and each
Underwriter and the Company against any losses, claims, damages or
liabilities, joint or several, to which such entity or person may become
subject, under the Securities Act, the Exchange Act or otherwise, (including,
without limitation all costs of investigating, disputing or defending any
such claim or action or any amount paid in settlement thereof) insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, the
Prospectus, or any amendment or supplement thereto, or any related
Preliminary Prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (ii)
any untrue statement or alleged untrue statement of a material fact contained
in any application or other document or communication executed by or on
behalf of the Company and based upon written information furnished by or on
behalf of the Selling Stockholders filed in any jurisdiction in order to
qualify the Shares under the securities or Blue Sky laws thereof or filed
with the Commission or any securities exchange, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was based on information concerning
such Selling Stockholder included therein in reliance upon and in conformity
with written information furnished to the Company by such Selling Stockholder
expressly for use therein, and will reimburse each Representative and each
Underwriter and the Company for any legal or other expenses reasonably
incurred by each such Underwriter and the Company in connection with
investigating or defending any such loss, claim, damage, liability or action
as such expenses are incurred. Notwithstanding the foregoing, (i) in no event
shall the liability of any Selling Stockholder under this Section 6 (b)
exceed the proceeds received by such Selling Stockholder in connection with
the sale of the Shares as contemplated hereunder and, (ii) the Selling
Stockholders shall not be liable in any such case to the extent that any
losses, claims, damages or liabilities arise out of or are based upon an
untrue statement or alleged untrue statement in or omission or alleged
omission from the information included under the headings "Underwriting" and
"Legal Matters" in the Prospectus in reliance upon and in conformity with
written information furnished to the Company by you or by or on behalf of any
Underwriter through you specifically for inclusion therein;
(c) The Representative and each of the Underwriters agree to
indemnify and hold harmless the Company, each of its directors, each nominee
(if any) for director named in the
20
<PAGE>
Prospectus, each of its officers who have signed the Registration Statement,
and each person, if any, who controls the Company and each Selling
Stockholder, within the meaning of the Act, from and against any losses,
claims, damages or liabilities (which shall, for all purposes of this
Agreement, shall include, but not be limited to, all reasonable costs of
defense and investigation and all reasonable attorneys, fees) to which the
Company or any such director, nominee, officer or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or the alleged untrue statement or omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only
to the extent, that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or omission or alleged untrue statement
or omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus, or any amendment or supplement thereto, in reliance upon and
in conformity with written information furnished to the Company by or through
the Representative specifically for use in preparation thereof. It is
understood that the statements set forth in the Prospectus with respect to
stabilization, the material set forth under the heading "Underwriting" and
the identity of counsel to the Underwriter under the heading "Legal Matters"
constitute the only information furnished in writing by the Underwriter for
inclusion in the Registration Statement and Prospectus, as the case may be.
This indemnity agreement will be in addition to any liability which the
Representative and each of the Underwriters may otherwise have.
(d) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section, notify in writing the indemnifying party of the
commencement thereof, but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under this Section. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
in and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, subject to the
provisions herein stated, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation. The indemnified party shall have the right
to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at
the expense of the indemnifying party if the indemnifying party has assumed
the defense of the action with counsel reasonably satisfactory to the
indemnified party; provided that if the indemnified party is any underwriter
or a person who controls any Underwriter within the meaning of the Act, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized
in writing by the indemnifying party or (ii) the named parties to any such
action (including any impleaded parties) include both such Underwriter or
such controlling person and the indemnifying party, and in your reasonable
judgment (based upon the written opinion of your counsel), it is advisable
for such Underwriter or controlling persons to be represented by separate
counsel (in which case the indemnifying party shall not have the right to
assume the defense of such action on behalf of such
21
<PAGE>
Underwriter or such controlling person, it being understood, however, that
the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys). No settlement of any action against an indemnified party for
other than payment of money shall be made without the consent of the
indemnified party, which shall not be unreasonably withheld.
7. CONTRIBUTION.
In order to provide for just and equitable contribution in circumstances
in which the indemnification provided for in Section 6(a), (b) or (c) above
is due in accordance with its terms but for any reason is held to be
unavailable from the Company or each person who controls the Company or the
Selling Stockholders or any Underwriter, the Company, the Selling
Stockholders and the Underwriters shall contribute to the aggregate losses,
claims, damages, liabilities and expenses (including, without limitation,
legal and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit, proceeding or litigation, or any claim, but
after deducting any contribution received from persons other than the parties
hereto, such as persons who control the Company within the meaning of the
Securities Act, officers of the Company who signed the Registration Statement
and directors of the Company, who may also be liable for the contribution) to
which the Company, the Selling Stockholders and one or more of the
Underwriters may be subject in such proportion as is appropriate to reflect
the relative benefits received by the Company, the Selling Stockholders, and
the Underwriters, from the offering of the Shares or, if such allocation is
not permitted by applicable law or indemnification is not available as a
result of the indemnifying party not having received notice as provided in
Section 13 hereof, then each such indemnifying party shall contribute to such
amount paid or payable to such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company, the Selling Stockholders and the Underwriters, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The Company, the Selling Stockholders and the
Underwriters, shall be deemed to be in the same proportion as (a) the total
proceeds from the offering (net of underwriting discounts but before
deducting expenses) received by the Company, the Selling Stockholders, as set
forth in the table on the cover page of the Prospectus, bear to (b) the
underwriting discounts received by the Underwriters, as set forth in the
table on the cover page of the Prospectus. The relative fault of the Company,
the Selling Stockholders, or the Underwriters, shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact related to information supplied by the Company,
the Selling Stockholders, or the Underwriters, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, the Selling Stockholders and
the Underwriters agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to above. Notwithstanding the
provisions of this Section 7, (i) in no case shall any Underwriter (except as
otherwise agreed among the Underwriters) be liable or responsible for any
amount in excess of the underwriting discount applicable to the Shares
purchased by such Underwriter hereunder and (ii) the Company and the Selling
Stockholders shall be liable and responsible for any amount in excess of such
underwriting discount; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section
22
<PAGE>
11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. Any party
entitled to contribution will promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect
of which a claim for contribution may be made against another party or
parties under this Section 7, notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or
parties from whom contribution may be sought shall not relieve the party or
parties from whom contribution may be sought from any other obligation such
party or parties may have hereunder or otherwise than under this Section 7.
No party shall be liable for contribution with respect to any action, suit
proceeding or claim settled without its written consent. The Underwriters'
obligations to make contributions pursuant to this Section 7 are several in
proportion to their respective underwriting commitments and not joint.
8. COSTS AND EXPENSES.
(a) Whether or not this Agreement becomes effective or the sale of
the Securities to you is consummated, the Company will pay all costs and
expenses incident to the performance of this Agreement by the Company,
including but not limited to the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), each Preliminary Prospectus and the
Prospectus, as amended or supplemented, the fee of the National Association
of Securities Dealers, Inc. ("NASD") in connection with the filing required
by the NASD relating to the offering of the Securities contemplated hereby;
all expenses, including reasonable fees (but not in excess of the amount set
forth in Section 3(b)) and disbursements of counsel to you, in connection
with the qualification of the Shares under the State Securities or Blue Sky
Laws which you shall designate; the cost of printing and furnishing to you
copies of the Registration Statement, each Preliminary Prospectus, the
Prospectus, this Agreement, the Warrant Agreement and the Blue Sky
Memorandum; the cost of printing the certificates representing the Shares,
the expenses of Company due diligence meetings and presentations, (but not of
you or your counsel in connection therewith) and the expense (which shall not
exceed $7,500) of placing one or more "tombstone" advertisements as directed
by you. The Company shall pay any and all taxes (including any transfer,
franchise, capital stock or other tax imposed by any jurisdiction) on sales
to you hereunder. The Company will also pay all costs and expenses incident
to the furnishing of any amended Prospectus or of any supplement to be
attached to the Prospectus as called for in Section 3(a) of this Agreement
except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses, the Company shall at
the First Closing Date pay to you the balance of a non-accountable expense
allowance equal to 3% of the gross proceeds of the offering of the Firm
Securities, of which $40,000 has been paid. In the event the over allotment
option is exercised in part or in full, the Company shall pay to you at the
Option Closing Date an additional amount equal to 3% of the gross proceeds
received upon exercise of the over allotment option. In the event the
transactions contemplated hereby are not consummated for any reason, the
Company shall be liable for your actual accountable out-of-pocket expenses
(with credit given to the $40,000 paid), including legal fees, provided
however, that any portion of the $40,000 paid by the Company that has not
been utilized by you in connection with the offering on an accountable basis
shall be refunded by you to the Company; and further provided that if the
contemplated transactions are not consummated by reason of breach by the
Company of this Agreement or of any representation,
23
<PAGE>
warranty, covenant or condition contained herein, the Company shall be liable
for your accountable out-of-pocket expenses up to a maximum of $85,000.
(c) No person is entitled either directly or indirectly to
compensation from the Company, from any Selling Stockholder, from any
Underwriter or from any other person for services as a finder in connection
with the proposed offering, and the Company and each Selling Stockholder
agrees to indemnify and hold harmless the Representative and each
Underwriter, and the Representative and each Underwriter agrees to indemnify
and hold harmless, severally and not jointly, the Company and each Selling
Stockholder, from and against any losses, claims, damages or liabilities,
joint or several (which shall, for all purposes of this Agreement, include,
but not be limited to, all reasonable costs of defense and investigation and
all reasonable attorneys' fees), to which the indemnified party may become
subject insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon the claim of any person
(other than an employee of the party claiming indemnity) or entity that he or
it is entitled to a finder's fee in connection with the proposed offering by
reason of such person's or entity's influence or prior contact with the
indemnifying party.
9. EFFECTIVE DATE.
The Agreement shall become effective upon its execution, except that the
Representative may, at your option, delay its effectiveness until the earlier
to occur of 10:00 A.M., New York time on the first full business day
following the Effective Date as the Representative in its discretion shall
first commence the initial public offering by the Representative of any of
the Shares. The time of the initial public offering shall mean the time of
release by Representative of the first newspaper advertisement with respect
to the Shares, or the time when the Shares are first generally offered by the
Representative to dealers by letter or telecopier, whichever shall first
occur. This Agreement may be terminated by you at any time before it becomes
effective as provided above, except that Sections 6, 7, 8, 12, 13, 14 and 15
shall remain in effect notwithstanding such termination.
10. TERMINATION.
(a) This Agreement, except for Sections 6, 7, 8, 12, 13, 14 and
15, may be terminated at any time prior to the First Closing Date, and the
option referred to in Section 2(b), if exercised, may be cancelled, at any
time prior to the Option Closing Date, by the Representative if in its
judgment it is impracticable to offer for sale or to enforce contracts made
by the Representative for the resale of the Securities agreed to be purchased
hereunder, by reason of (i) the Company having sustained a material loss,
whether or not insured, by reason of fire, earthquake, flood, accident or
other calamity, or from any labor dispute or court or government action,
order or decree, (ii) trading in securities on the New York Stock Exchange or
the American Stock Exchange having been suspended or limited, (iii) material
governmental restrictions having been imposed on trading in securities
generally which are not in force and effect on the date hereof, (iv) a
banking moratorium having been declared by federal of New York State
authorities, (v) an outbreak of major international hostilities or other
national or international calamity having occurred, (vi) the passage by the
Congress of the United States or by any state legislative body of similar
impact, of any act or measure, or the adoption of any orders, rules or
regulations by any governmental body or any authoritative accounting
institute or board, or any governmental executive, which is reasonably
believed likely by you to have a material adverse impact on the business,
financial condition or financial statements of the Company, (vii) any
material
24
<PAGE>
adverse change in the financial or securities markets beyond normal
fluctuations in the United States having occurred since the date of this
Agreement, or (viii) any material adverse change having occurred, since the
respective dates for which information is given in the Registration Statement
and Prospectus, in the earnings, business, prospects or general condition of
the Company, financial or otherwise, whether or not arising in the ordinary
course of business.
(b) If the Representative elects to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section
10 or in Section 9, the Company shall be promptly notified by the
Representative, by telephone or facsimile transmission, confirmed by letter.
11. REPRESENTATIVE'S WARRANTS.
On the First Closing Date, the Company will issue to the Representative,
for consideration of $100.00 and upon the terms and conditions set forth in
the form of Representative's Warrants annexed as an exhibit to the
Registration Statement, Representative's Warrants to purchase an aggregate of
100,000 Shares. In the event of conflict in the terms of this Agreement and
the Representative's Warrants, the language of the Representative's Warrants
shall control.
12. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations, warranties and
other statements of the Company, and the Selling Stockholders, where
appropriate, and you, set forth in or made pursuant to this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the Representative or any Underwriter, the Company or any of its
officers or directors or any controlling persons and the Selling Shareholders
and will survive delivery of and payment for the Shares and the termination
of this Agreement.
13. NOTICE.
All communications hereunder will be in writing and, except as otherwise
expressly provided herein, if sent to you, will be mailed, delivered or
telecopied and confirmed to it at Joseph Charles & Associates, 9701 Wilshire
Boulevard, Ninth Floor, Beverly Hills, California 90212, with a copy sent to
David C. Roos, Esq., Berliner Zisser Walter & Gallegos, P.C., 1700 Lincoln
Street, Suite 4700, Denver, CO 80203-4547, or if sent to the Company or the
Selling Stockholders, will be mailed, delivered, or facsimile and confirmed
to Ralph Armijo of NAVIDEC, Inc., with copy sent to Roger V. Davidson, Esq.,
Cohen Brame & Smith, 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203.
14. PARTIES IN INTEREST.
The Agreement herein set forth shall inure solely to the benefit of, and
shall be binding upon, the Representative and the Underwriters, the Company,
the Selling Stockholders and, to the extent expressed, any person controlling
the Company, or you, and directors of the Company, nominees for directors of
the Company (if any) named in the Prospectus, the officers of the Company who
have signed the Registration Statement, and their respective executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term
25
<PAGE>
"successors and assigns" shall not include any purchaser of Securities from
any Underwriter merely because of such purchase.
15. APPLICABLE LAW.
This Agreement will be governed by, and construed in accordance with,
the laws of the State of California applicable to agreements made and to be
entirely performed within California.
If the foregoing is, in accordance with your understanding of our
agreement, kindly sign and return to us one of the counterparts hereof,
whereupon it will become a binding agreement among the Company, the Selling
Stockholders and the several Underwriters in accordance with its terms.
Very truly yours,
NAVIDEC, INC.
By:
-----------------------------------
Ralph Armijo, President
SELLING STOCKHOLDERS:
The foregoing Underwriting
Agreement is hereby By:
confirmed and accepted -----------------------------------
as of the date first , Attorney-in-fact
above written. ---------------
JOSEPH CHARLES & ASSOCIATES, INC.
For itself and for the other
several Underwriters listed in
Schedule I to the foregoing
Agreement.
By:
--------------------------------
26
<PAGE>
SCHEDULE I
Underwriting Agreement dated _____________, _1996
Number of Firm
Shares
Underwriter to be Purchased
- ----------- ---------------
Joseph Charles & Associates, Inc.
---------------
1,000,000
27
<PAGE>
SCHEDULE II
Stock to be sold by Selling Stockholders
Number of
Shares
Name and Address of Selling Stockholder of Stock
---------
Total. . . . . . . . . . . . . . . . . . . . .
28
<PAGE>
NAVIDEC
INCORPORATED UNDER THE LAWS OF THE STATE OF COLORADO
------------------------
CUSIP 639-34Q-01
------------------------
SEE REVERSE
FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF NO PAR VALUE COMMON STOCK OF
NAVIDEC, INC.
transferable only on the books of the Company in person or by duly authorized
attorney upon surrender of this Certificate property endorsed. This
Certificate is not valid unless countersigned by the Transfer Agent and
Registrar.
IN WITNESS WHEREOF, the said Company has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and to
be sealed with the facsimile seal of the Company.
Date:
KEVIN L. BLANKINSHIP, SECRETARY RALPH ARMIJO, PRESIDENT
COUNTERSIGNED:
American Securities Transfer & Trust, Inc.
P.O. Box 1090
Denver, Colorado 80201
By: ___________________________________________
Transfer Agent & Registrar Authorized Signature
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
We consent to the use of our reports dated November 6, 1996; except for a .85
for 1 reverse stock split described in the third paragraph of footnote 8 for
which the date is November 27, 1996 and October 4, 1996 accompanying the
financial statements of NAVIDEC, Inc. and Interactive Planet, Inc.,
respectively, included in the 2nd Amendment to the Form SB-2 Registration
Statement of NAVIDEC, Inc. and to the use of our name and the statements with
respect to us, as appearing under the heading "EXPERTS" in the Registration
Statement.
HEIN + ASSOCIATES LLP
Denver, Colorado
December 2, 1996
<PAGE>
CONSENT
I consent to the use of my name and statements related to me in Admendment
No. 2 to the Form SB-2 Registration Statement of NAVIDEC, Inc. I have also
agreed to serve on the Board of Directors of NAVIDEC, Inc. upon completion of
its initial public offering.
- -------------------------
Lloyd G. Chavez, Jr.
Dated: November 27, 1996
<TABLE> <S> <C>
<PAGE>
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<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-END> SEP-30-1996 DEC-31-1995
<CASH> 277 0
<SECURITIES> 0 0
<RECEIVABLES> 326 687
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<PP&E> 489 85
<DEPRECIATION> (93) 47
<TOTAL-ASSETS> 1,871 920
<CURRENT-LIABILITIES> 1,358 975
<BONDS> 818 0
0 0
0 0
<COMMON> 0 63
<OTHER-SE> (446) (117)
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<SALES> 4,222 4,121
<TOTAL-REVENUES> 4,222 4,121
<CGS> 3,417 3,340
<TOTAL-COSTS> 3,417 3,340
<OTHER-EXPENSES> 1,280 780
<LOSS-PROVISION> 31 4
<INTEREST-EXPENSE> 128 30
<INCOME-PRETAX> (636) (23)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (636) (23)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (636) (23)
<EPS-PRIMARY> (.31) (.02)
<EPS-DILUTED> 0 0
</TABLE>
