As filed with the Securities and Exchange Commission on July 1, 1999
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
COMPU-DAWN, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
11-3344575
(I.R.S. Employer Identification No.)
12735 Gran Bay Parkway West, Building 200, Jacksonville, Florida 32258
(Address of Principal Executive Offices)
HONIGSFELD CONSULTING AGREEMENT
LOWENSTEN CONSULTING AGREEMENT
(Full Title of Plans)
R.E. (Teddy) Turner, IV
Chairman of the Board
Compu-DAWN, Inc.
12735 Gran Bay Parkway West
Building 200
Jacksonville, Florida 32258
Telephone:(904) 680-6680
Telecopier:(904) 680-6693
(Name, Address and Telephone Number of Agent for Service)
Copies of all communications and notices to:
Gavin C. Grusd, Esq.
Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York 11554
Telephone: (516) 296-7000
Telecopier: (516) 296-7111
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=============================================================================================
Proposed Proposed
Title of Maximum Maximum
of Securities Amount Offering Aggregate Amount of
To Be To Be Price Offering Registration
Registered Registered Per Share Price Fee
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares
(par value
$.01 per
share) 72,500(1) $ 5.00(2) $ 362,500 $ 101
=============================================================================================
</TABLE>
(1) Represents (a) the resale by one of the selling shareholders of up to
62,500 shares which were issued to him pursuant to a Consulting
Agreement dated May 11, 1999 between Compu-DAWN, Inc. and such selling
shareholder, and (b) the resale by one selling shareholder of up to
10,000 shares which were issued to him pursuant to a Consulting
Agreement dated October 20, 1998 between Compu-DAWN and such selling
shareholder.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee.
EXPLANATORY NOTE
Pursuant to General Instruction C of Form S-8, this
Registration Statement contains (as Annex A hereto) a prospectus meeting the
requirements of Part I of Form S-3 relating to reofferings of Common Shares,
$.01 par value, of the Registrant which are "restricted securities," as such
term is defined in Rule 144(a)(3) promulgated under the Securities Act of 1933,
as amended (the "Securities Act").
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PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference
Incorporated herein by reference are the following documents
filed by the Registrant with the Securities and Exchange Commission (the
"Commission") under the Securities Act and Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as the case may be:
(a) The Registrant's Annual Report on Form 10-KSB for the year
ended December 31, 1998.
(b) The Registrant's Quarterly Report on Form 10-QSB for the
three months ended March 31, 1999.
(c) The Registrant's Current report on Form 8-K for an event
dated May 12, 1999.
(d) The Registrant's Current Report on Form 8-K for an event
dated June 9, 1999.
(e) The Registrant's Current Report on Form 8-K for an event
dated June 29, 1999.
(f) The description of the Registrant's Common Shares
contained in the Registrant's Registration Statement on Form 8-A (File No.
000-22611), which was declared effective by the Commission on June 10, 1997.
All documents filed by the Registrant pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a
post-effective amendment to this Registration Statement which indicates that all
securities offered hereby have been sold or which deregisters all such
securities then remaining unsold, shall be deemed to be incorporated herein by
reference and to be a part hereof from their respective dates of filing.
Item 4. Description of Securities
Not applicable.
Item 5. Interests of Named Experts and Counsel
Certilman Balin Adler & Hyman, LLP, 90 Merrick Avenue, East
Meadow, New York has acted as counsel for Compu-DAWN in connection with this
offering.
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Item 6. Indemnification of Directors and Officers
Article X of the Registrant's Certificate of Incorporation
eliminates the personal liability of directors to the Registrant and its
stockholders for monetary damages for breach of fiduciary duty as a director to
the fullest extent permitted by Section 102 of the Delaware General Corporation
Law, provided that this provision shall not eliminate or limit the liability of
a director (i) for any breach of the director's duty of loyalty to the
Registrant or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
arising under Section 174 of the Delaware General Corporation Law (with respect
to unlawful dividend payments and unlawful stock purchases or redemptions), or
(iv) for any transaction from which the director derived an improper personal
benefit.
Additionally, the Registrant has included in its Certificate
of Incorporation and its by-laws provisions to indemnify its directors,
officers, employees and agents and to purchase insurance with respect to
liability arising out of the performance of their duties as directors, officers,
employees and agents as permitted by Section 145 of the Delaware General
Corporation law. The Delaware General Corporation law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors, officers, employees and agents may be entitled
under the Registrant's by-laws, any agreement, vote of stockholders or
otherwise.
The effect of the foregoing is to require the Registrant to
the extent permitted by law to indemnify the officers, directors, employees and
agents of the Registrant for any claim arising against such persons in their
official capacities if such person acted in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Registrant pursuant to the foregoing provisions, the Registrant 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
is therefore unenforceable.
Item 7. Exemption from Registration Claimed
The 72,500 outstanding Common Shares to be reoffered or resold
pursuant to this Registration Statement were acquired in private transactions,
not involving any public offering, which were exempt from the registration
provisions of the Securities Act pursuant to Section 4(2) thereof. The Common
Shares issued to Mark Honigsfeld were issued as part of the consideration for
his entering into a Consulting Agreement with the Company dated May 11, 1999
(the "Honigsfeld Consulting Agreement"). Mr. Honigsfeld was, until May 11, 1999,
the President, Chief Executive Officer and Secretary, and a Director of the
Company. The Common Shares issued to Mr.
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Lowenstein were issued as part of the consideration for his entering into a
Consulting Agreement with the Company dated October 20, 1998 (the "Lowenstein
Consulting Agreement").
Item 8. Exhibits
23.1 Consent of Lazar Levine & Felix LLP
24 Powers of Attorney (included in signature page
forming a part hereof)
Item 9. Undertakings
The undersigned Registrant will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration to:
(i) Include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a fundamental
change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the
form of a prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(iii) Include any additional or changed material
information on the plan of distribution;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8, and the information required
in a post-effective amendment is incorporated by reference from periodic reports
filed by the Company under the Exchange Act.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at the time to be the initial bona
fide offering.
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(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
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SIGNATURES
Pursuant to the requirements of the Securities Act , the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida, on the 30th day of
June, 1999.
COMPU-DAWN, INC.
By: /s/ R.E. (Teddy) Turner, IV
R.E. (Teddy) Turner, IV
Chairman of the Board
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POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears below
constitutes and appoints R.E. (Teddy) Turner, IV with full power to act as his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, and each of his
substitutes, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Capacity Date
/s/ R.E. (Teddy) Turner, IV Chairman of the Board and June 30, 1999
- --------------------------- Director (Principal Executive
R.E. (Teddy) Turner, IV Officer)
/s/ Rudy C. Theale, Jr. Vice Chairman of the Board June 30, 1999
- --------------------------- and Director
Rudy C. Theale, Jr.
/s/ Louis Libin Chief Technology Officer and June 30, 1999
- --------------------------- Director
Louis Libin
/s/ Christopher Liston Director June 30, 1999
- ---------------------------
Christopher Liston
Director _______, 1999
- ---------------------------
Harold Lazarus, Ph.D.
Director _______, 1999
- ---------------------------
Faith Griffin
/s/ David Greenspan Chief Financial Officer and June 30, 1999
- --------------------------- Secretary (Principal
David Greenspan Accounting Officer)
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ANNEX A
PROSPECTUS
----------------
COMPU-DAWN, INC.
72,500 SHARES OF COMMON STOCK
72,500 shares of common stock A purchase of these securities
offered by this prospectus involves a high degree of risk.
are being sold by stockholders See "Risk Factors," beginning
of Compu-DAWN. on page A-4.
The common stock of Compu-DAWN, Inc. is traded
on the Nasdaq SmallCap Market under the symbol "ETVC"
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Compu-DAWN, Inc.
12735 Gran Bay Parkway West
Building 200
Jacksonville, Florida 32258
(904) 680-6680
July 1, 1999
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the
Company with the Commission under the Securities Act of 1933, as amended
(the "Securities Act")and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as the case may be, and are incorporated herein by reference:
(a) The Registrant's Annual Report on Form 10-KSB for the year
ended December 31, 1998.
(b) The Registrant's Quarterly Report on Form 10-QSB for the
three months ended March 31, 1999.
(c) The Registrant's Current report on Form 8-K for an event
dated May 12, 1999.
(d) The Registrant's Current Report on Form 8-K for an event
dated June 9, 1999.
(e) The Registrant's Current Report on Form 8-K for an event
dated June 29, 1999.
(f) The description of the Registrant's Common Shares
contained in the Registrant's Registration Statement on Form 8-A (File No.
000-22611), which was declared effective by the Commission on June 10, 1997.
All documents filed by Compu-DAWN pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the offering of the Common Shares offered hereby
shall be deemed to be incorporated by reference into this Prospectus and to be a
part hereof from their respective dates of filing.
Compu-DAWN will provide without charge to each person to whom
a copy of this Prospectus is delivered, upon the written or oral request of any
such person, a copy of any or all of the documents referred to above which have
been incorporated into this Prospectus by reference (other than exhibits to such
documents). Requests for such copies should be directed to the Secretary, 12735
Gran Bay Parkway West, Building 200, Jacksonville, Florida 32258, telephone
number: (904) 680-6680.
Any statement contained in a document incorporated herein by
reference shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
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THE COMPANY
Compu-DAWN, Inc. is engaged in two lines of business. In one,
Compu- DAWN, through its wholly owned subsidiary, e.TV Commerce, Inc. ("e.TV"),
operates in the Internet, e- commerce and telecommunications business (the "e.TV
Business"), marketing products and services primarily using a person to person
sales approach with the services of commissioned sales representatives in a
multi-level referral network marketing organization. Key services and products
in this line of business include the following:
- Interactive tv set-top boxes which enable the consumer to
access the Internet through the consumer's tv set over a
telephone line, conduct electronic commerce through e.TV's own
e-commerce shopping mall, and access a variety of different
software applications;
- Sales of long distance telephone service;
- Sales of Internet access service;
- Online shopping; and
- Web page design.
In its other line of business, Compu-DAWN is engaged in the
business of designing, developing, licensing, installing and servicing computer
software products and systems predominantly for public safety and law
enforcement agencies (the "Public Safety Software Business"). Compu-DAWN's
public safety customers are primarily located in New York State.
Compu-DAWN's Board of Directors has determined that
Compu-DAWN's efforts should be focused on the e.TV Business. Accordingly,
Compu-DAWN is currently seeking to sell the Public Safety Software Business.
Compu-DAWN has signed a letter of intent to sell primarily all of the assets
which make up Compu-DAWN's public safety division to an unrelated third party
which is in a business similar to that of Compu-DAWN's public safety division.
Compu-DAWN decided to divest itself of its public safety
division since the main focus of its business has shifted to Internet services,
e-commerce and telecommunications services. The public safety division
accounted for approximately 14% of Compu-DAWN's revenues during the first
quarter of 1999. The letter of intent contemplates a cash payment and a royalty
related to future sales of products containing Compu-DAWN's technology or to
current Compu-DAWN customers. Although Compu-DAWN anticipates negotiating
and entering into a contract based on the letter of intent, there can be no
assurance such a contract will be entered into and the transaction closed.
Compu-DAWN was incorporated under the name Coastal Computer
Systems, Inc. in New York on March 31, 1983 and was reincorporated in Delaware
under its present name on October 18, 1996.
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Compu-DAWN's executive offices are located at 12735 Gran Bay
Parkway West, Building 200, Jacksonville, Florida 32258 (904) 680-6680.
RISK FACTORS
An investment by you in the shares offered by this prospectus
is speculative and involves a high degree of risk. You should only purchase
these securities if you can afford to lose your entire investment. Before making
an investment, you should carefully consider the following risks and speculative
factors, as well as the other information contained in this prospectus. As
discussed below, this prospectus contains forward-looking statements that
involve risks and uncertainties. The actual results of Compu-DAWN's operations
could be significantly different from the information contained in those
forward-looking statements. Those differences could result from the risk factors
discussed immediately below, as well as factors discussed in other places in
this prospectus.
In this "Risk Factors" section, "we," "our" and "ours" refer
to Compu-DAWN, and "you," "your" and "yours" refer to a purchaser of the shares
of Compu-DAWN offered by this prospectus.
1. Lack of Significant Revenues; Recent and Anticipated Continuing Losses.
Period Ended Revenues Net Loss
December 31, 1997 (year) $ 591,375 $ 4,436,745
December 31, 1998 (year) 1,248,489 2,783,552
March 31, 1999 (three months) 1,489,588 3,269,425
The table above sets out our revenues and net losses for the
periods indicated in the first column. We believe that we will be unable to
achieve enough revenues to offset operating costs for the foreseeable future;
therefore, we anticipate that operating losses will continue for at least the
next 12 months. We cannot predict how long these operating losses will continue
or what impact they will have on our financial condition and results of
operations. We cannot assure you that our products and services will be able to
compete successfully in the marketplace or that they will generate significant
revenue; nor can we assure you that our business will be able to operate
profitably.
The net losses are the result of significant expenses,
including the following relating to our public safety business in 1997 and 1998:
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- research and development expenses;
- enhancing and refining our product line;
- marketing costs; and
- employment agreement costs and general administrative expenses.
In addition, the 1997 loss reflects approximately $1,588,000 in non-recurring
deferred financing charges incurred in connection with a debt offering we made.
Furthermore, the net loss figure for 1998 was higher than it would have been
otherwise because we did not generate significant revenues, but did incur
expenses regarding contemplated business ventures.
Net losses in the first three months of 1999 are the result of
significant expenses including expenses related to our acquiring and operating
the business of our subsidiary e.TV Commerce, Inc. and marketing costs,
employment agreement costs and general and administrative expenses. Also, the
net loss amount for the first three months of 1999 includes a $1,498,400
operating loss of e.TV and a one-time charge of $834,133 largely related to
issuing common stock to suppliers of e.TV.
2. Compu-DAWN Needs More Capital to Grow and to Sustain Current
Operations. Compu-DAWN's cash requirements have been and will continue to be
significant. Based on historical performance, we currently anticipate that our
available cash resources and funds from operations will be sufficient to meet
our presently anticipated and projected working capital and capital expenditure
requirements for at least ninety days. We expect we will need to raise
additional funds through private debt or equity financings within ninety days in
order to continue to support current operations and develop our business plan.
If additional funds are raised through the issuance of equity securities, the
percentage ownership of our stockholders at that time will be reduced. Such
equity securities may have rights, preferences or privileges senior to those of
the holders of the Common Shares. We cannot assure that additional financing
will be available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, Compu-DAWN may not be able
to
- fund then existing operations;
- take advantage of new opportunities;
- develop new or enhanced services and related products;
- continue to develop its business plan; and
- otherwise respond to competitive pressures.
As a result, Compu-DAWN's business, operating results and financial condition
could be materially adversely affected. Additionally Compu-DAWN may be forced to
scale back operations.
Compu-DAWN's Bridge Warrants to purchase 389,200 Common
Shares, are exercisable on and after June 10, 1999 at $3.00 per share.
Although we hope the Bridge Warrants will be exercised, if the market price
of our publicly traded Common Shares is less than $3.00 per share, it is
unlikely that the Bridge Warrants will be exercised. Even
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if the market price of Compu-DAWN's publicly traded Common Shares is above $3.00
a share, there can be no assurance that any of the Bridge Warrants will be
exercised, and if any are exercised, we cannot predict the number of Bridge
Warrants that would be exercised or when the Bridge Warrants would be exercised.
Even if all of the Bridge Warrants are exercised, we anticipate we will still
need to raise additional capital.
3. Limited Operating History. We were incorporated in New York on March
31, 1983 and reincorporated in Delaware on October 18, 1996. Until January 1999,
we were engaged primarily in the business of designing, developing, licensing,
installing and servicing computer application software systems for law
enforcement and public safety agencies. In January 1999 we commenced the
Internet, e-commerce, and telecommunications portion of our business (the "e.TV
Business"). In May 1999 we entered into a letter of intent to sell the public
safety software business. The e.TV Business has a limited operating history on
which to base an evaluation of our business and prospects. Our prospects in the
e.TV Business must be considered in light of the risks, uncertainties, expenses
and difficulties frequently encountered by companies in their early stages of a
new line of business, particularly companies in new and rapidly evolving markets
such as the sale of high technology and telecommunications products and
services, and online e-commerce. To address these risks and uncertainties, we
must, among other things
- maintain and increase the number of our telecommunications and
Internet services and e-commerce users;
- enhance our brand-name recognition for our interactive tv
set-top box product;
- continue to enhance the various e.TV Business services to meet
the needs of a changing and evolving market;
- maintain and enhance the number of vendors and variety of
products that are available on our on-line shopping mall;
- implement and execute our business and marketing strategy
successfully;
- continue to develop and upgrade our technology and information-
processing systems;
- provide superior customer service; and
- respond to competitive developments.
There can be no assurance that we will be successful in accomplishing all of
these things, and the failure to do so could have a material adverse effect on
our business, results of operations and financial condition.
4. No Assurance of Profitability. We believe that our continued growth
and our achieving profitability will depend in large part on our ability to
- increase our market share; and
- provide our customers with superior telecommunications
and Internet services and on-line commerce experiences.
We currently rely on our independent sales representatives to market and promote
our products and services. We also intend to invest in the development of our
operating infrastructure. Although we
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have experienced significant revenue growth and significant growth in the number
of our customers in the first three months of 1999 mainly because of the
operation of the e.TV Business, such growth rates may not be sustainable and may
decrease in the future. Also, the increase in revenues in the first three months
was accompanied by significant expenses which are inherent in a developing
network marketing referral business such as the e.TV Business. We believe that
period-to-period comparisons of our operating results are not necessarily
meaningful and should not be relied upon as indications of future performance
because of
- our recent acquisition of the e.TV Business;
- our announced intent to sell our public safety software
division, which has been all of our business before the e.TV
Business;
- the rapidly evolving nature of the e.TV Business; and
- our limited operating history in that area.
5. Management of Potential Growth; New Management Team; Dependence on
Key Personnel. We anticipate that expansion of our infrastructure, independent
sales representative force and product and services mix will be required to
address potential growth in our customer base and market opportunities. This
expansion has placed a significant strain on our management, operational and
financial resources, and is expected to continue to do so.
Certain members of our management, including our Chairman of
the Board, Executive Vice President, Chief Financial Officer and Chief Operating
Officer, have joined us within the last six months. Additionally, our new
employees include a number of key managerial, marketing, planning, technical and
operations personnel who have not yet been fully integrated into our company,
and we expect to add additional key personnel in the near future. Additionally,
the tenure of Compu-DAWN's former Chairman of the Board and Chief Executive
officer since August 1996 ended on May 11, 1999 when Compu-DAWN and he mutually
terminated his employment agreement.
To manage the expected growth of our operations and personnel,
we will be required to improve existing operational and financial systems and
controls, implement new ones, and expand, train and manage our growing employee
base. We also will be required to expand our finance, administrative and
operations staff. Further, we may be required to enter into relationships with
various strategic partners, suppliers and vendors and other third parties
necessary to the maintenance and growth of our business. There can be no
assurance that our current and planned personnel, systems, procedures and
controls will be adequate to support our future operations; or that our
management will be able to identify and exploit existing and potential strategic
relationships and market opportunities. Our failure to manage growth effectively
could have a material adverse effect on our business, results of operations and
financial condition.
Our performance is substantially dependent on the continued
services and on the performance of our senior management and other key
personnel. Our performance also depends on
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our ability to retain and motivate our other officers and key employees. The
loss of the services of any of our executive officers or other key employees
could have a material adverse effect on our business, results of operations and
financial condition. We maintain no "key person" life insurance policies except
on Louis Libin, the Chief Technology Officer and Senior Executive Vice
President. Our current management does not have significant experience in
operating a publicly traded company. Our future success also depends on our
ability to hire, train, retain and motivate other highly skilled personnel
including management, investor relations, technical, managerial, marketing and
customer service personnel. Competition for such personnel is intense, and there
can be no assurance that we will be able to successfully attract, integrate or
retain sufficiently qualified personnel. Our failure to retain and attract the
necessary personnel could have a material adverse effect on our business,
results of operations and financial condition.
6. Frequent Changes in the Market for Our Products and Services. The
markets for our products and services are characterized by rapid technological
change and frequent introductions of new products and services. Our ability to
compete will depend on our ability to adapt, enhance and improve our existing
products and services, and to develop and introduce new products and services in
a timely and cost-competitive manner. We cannot predict whether or not our
competitors will develop services or products that will render ours outmoded or
otherwise less marketable, or whether we will be able to enhance and adapt our
products and services successfully. Any one of these factors may render one or
more of our products or services obsolete. Other companies may be developing
products or services of which we are unaware and which may be similar or
superior to some or all of the products and services we offer.
7. Potential Problems in Developing and Identifying New Products. All
the risks inherent in developing or identifying new products and services
will accompany our development efforts. These risks include unanticipated
delays, expenses and technical problems associated with the manufacture of
technology-related products, and the research, marketing and other risks related
to the launching of new services and products. We cannot assure you that
- we can develop additional products or services or identify
services or products of other parties which we would like to
sell within a reasonable schedule;
- we will have sufficient resources to complete that development;
- we will have access to sufficient funding to complete
development; and
- we can make economically reasonable arrangements for the
completion of new products or the introduction of new services
by third parties.
Therefore, we can make no assurances as to when, or whether, new products and/or
services will be successfully developed or will become available.
8. Emerging TV Set-Top Box Market May Adversely Effect Product
Acceptance. The tv set-top box market is a relatively new and growing niche in
the personal computing industry. We began selling tv set-top boxes in January
1999. During the first quarter of 1999 sales of tv set- top boxes accounted for
7 1/4 % of our sales. If our interactive tv set-top box product does not
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maintain a proportionate degree of acceptance or the market for it fails to grow
or grows more slowly than anticipated, or if we are unable to adapt our tv set-
top box to meet changing customer requirements or technological changes in this
emerging market, our business, operating results and financial condition could
be materially adversely affected.
9. Developing Market; Dependence on Continued Growth of Internet
Communication and Online Commerce. Rapid growth in the use of and interest in
the world-wide web, the Internet and other online services is a recent
phenomenon and there can be no assurance that this acceptance and use will
continue to develop; nor can there be any assurance that a sufficiently broad
base of consumers will adopt, and continue to use, the Internet as a medium of
commerce. The Internet may prove not to be a viable means of conducting commerce
or communications for a number of reasons, including potentially unreliable
network infrastructure and poor performance. In addition, if the Internet
continues to experience significant growth in the number of users and level of
use, the Internet infrastructure may not be able to support the demands placed
on it by such growth. Furthermore, the Web has experienced a variety of outages
and other delays, and could face such outages and delays in the future,
including outages and delays resulting from Year 2000 problems. These outages
and delays could adversely affect the level of Internet usage. The Internet
could lose its viability due to delays in the development or adoption of new
standards and protocols to handle increased levels of activity, or due to
increased governmental regulation.
Even if the infrastructure, standards or protocols are
developed and the Internet continues to be a viable commercial marketplace in
the long term, we might need to incur substantial expenditures in order to adapt
our Internet service and tv set-top box product to changing Web technologies,
which could have a material adverse effect on our business, results of
operations and financial condition. The Internet may also lose viability or
flexibility as a market place due to increased governmental regulation.
Furthermore, changes in, or insufficient availability of, telecommunications
services to support the Internet or other online services also could result in
slower response times and adversely affect usage of the Internet and other
online services generally.
The market for the sale of goods over the Internet,
particularly through online shopping malls, is a new and emerging market. Our
future revenues and profits from our online shopping mall service are
substantially dependent upon the widespread acceptance and use of the Internet
and other online services as a medium for commerce by consumers. Additionally,
the security and privacy concerns of existing and potential customers, including
the use of credit cards over the Internet, may inhibit the growth of the online
shopping mall market in general and Compu- DAWN's customer base and revenues in
particular. We need to educate users that electronic transactions use encryption
technology and other electronic security measures that make electronic
transactions more secure than paper-based transactions. While we believe that it
is utilizing proven applications designed for premium data security and
integrity to process electronic transactions, there can be no assurance that our
use of such applications will be sufficient to address the changing market
conditions or the security and privacy concerns of existing and potential
customers.
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Growth in our user base relies on obtaining consumers who have
historically used traditional means of commerce to purchase goods and obtain
information. For us to be successful, these consumers must accept and use novel
ways of conducting business and exchanging information.
If use of the Internet and other online services does not
continue to grow or grows more slowly than expected, if our infrastructure for
our Internet and other online services does not effectively support growth that
may occur, or if the Internet and other online services do not become a viable
commercial marketplace, our business, results of operations and financial
condition would be materially adversely affected.
10. Intense Competition for Our Products and Services. The markets for
our telecommunications and Internet products and services are intensely
competitive. We compete directly with
- companies that manufacture and sell personal computers and web
tv products; and
- providers of long distance telephone services
and Internet access services.
We compete with other companies in the long distance telephone service and
Internet access industries by emphasizing the value and premium quality of our
products and services and the convenience and opportunities of our network
referral marketing and distribution system of independent sales representatives.
Many of our competitors have much greater name recognition and
financial resources than we do. In addition, long distance telephone services,
Internet access products and services and personal computers can be purchased in
a wide variety of channels of distribution. While we believe that consumers
appreciate the convenience of ordering products and services from home through a
sales person, the buying habits of many consumers accustomed to purchasing
products through traditional retail channels are difficult to change. Our
product offerings in each product category are also relatively small compared to
the wide variety of products offered by many other telecommunications companies
and hardware and software manufacturers. There can be no assurance that our
business and results of operations will not be affected materially by market
conditions and competition in the future.
The e-commerce market is new, rapidly evolving and intensely
competitive, and we expect competition to intensify further in the future.
Barriers to entry are relatively low, and current and new competitors can launch
new websites at a relatively low cost using commercially available software. Our
direct competitors include various online shopping services, including
Amazon.com. We also face competition from a number of large online communities
and services that have expertise in developing online commerce. Certain of these
competitors, including Compaq, America Online, Inc., Microsoft Corporation and
Yahoo! Inc., currently operate online shopping services and offer businesses the
means to establish their own Websites to participate in e-commerce
independently.
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Many of the our current and potential competitors in all of
our markets have longer operating histories, larger customer bases, and
significantly greater financial, marketing, technical and other resources than
we do. Furthermore, some of these competitors enjoy greater brand recognition
than we do. In addition, certain of our competition may be acquired by, receive
investments from, or enter into, other commercial relationships with larger,
well-established and well-financed companies as use of the Internet and other
online services increases. We cannot assure you that we will be able to compete
successfully against current and future competitors.
11. Competition for Sales Representatives with Other Network Marketing
Companies. We also compete with other direct selling organizations, some of
which have a longer operating history, higher visibility, name recognition and
financial resources, including Amway Corporation and its affiliates, Big Planet,
ExcelCom, Nu-Skin Enterprises Inc. and Prepaid Legal Services Inc. We compete
for new independent marketing representatives on the basis of our financial
compensation plan and our premium quality products and services. We believe many
more direct selling organizations will enter into the marketplace as this
channel of marketing and distribution expands over the next several years. There
can be no assurance that we will be able to maintain or expand our force of
independent marketing representatives or keep our representatives motivated to
successfully meet the challenges posed by this increased competition.
12. Dependence on Productivity of Our Independent Representatives. We
sell our products and services exclusively through independent network marketing
referral sales representatives, and we depend upon them directly for
substantially all of our revenue. Thus, to increase our revenue our
representatives must increase in number and/or become more productive. We cannot
assure you that our representatives will maintain or increase their
productivity, or that we will be able to maintain or increase the number of our
representatives. Our representatives may terminate their services to us at any
time, and we may experience high turnover among our representatives from year to
year. We also cannot accurately predict how the number and productivity of our
representatives may fluctuate because we rely upon existing representatives to
sponsor and train new representatives and to motivate new and existing
representatives. The number and productivity of our representatives depend on
several additional factors, including:
- The public's perception of our products and services;
- The public's perception of our representatives and network
marketing referral businesses in general;
- Adverse publicity regarding us, our products or our competitors; and
- General economic and business conditions.
In addition, the number of representatives as a percentage of the population in
a given market could theoretically reach levels that become difficult to exceed
due to the finite number of persons inclined to pursue a network marketing
referral business opportunity.
13. Loss of Key High-Level Representatives. Although we have over
18,000 independent sales representatives, we estimate that approximately 77
representatives, together with
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their extensive networks of downline-sponsored representatives, account for
substantially all of our revenues. As a result, the loss of a high-level
representative or a group of leading representatives in such representatives'
network of downline representatives could significantly reduce our revenues.
14. Adverse Publicity Could Reduce the Size of Our Marketing Force and
Consequently Reduce Our Revenue. Adverse publicity in the future could reduce
the size of our distribution force and consequently reduce our revenues.
Specifically, we are susceptible to adverse publicity concerning:
- The legality of network referral marketing;
- Regulatory investigations of network referral marketing
generally, or as practiced by us or our competitors;
- The quality of our and competitors' products and services;
and
- Public perception of network referral marketing businesses
generally.
15. Independent Sales Representatives Action Could Subject Us to
Liability. Our sales representatives are independent contractors and not
employees. Accordingly, we cannot provide to them the same level of direction
and oversight as we would to our employees. Although we have established
guidelines for them to follow in conducting network marketing activities for us,
we do not have supervisory contact over their sales methods. We may have
difficulties enforcing our policies and procedures governing our representatives
because of their independence and their large number. In addition, there may be
laws and regulations in some states that limit our ability to monitor and
control the sales practices of representatives or terminate relationships with
representatives.
Representatives who sell telecommunications services could
expose us to liability for "slamming abuses" if a representative causes a change
of a customer's preferred telephone company to another company without the
customer's knowledge and consent. Additionally, representatives could expose us
to private litigation or state or federal regulation action if they do not
follow our sales guidelines and they market our referral network marketing
opportunity to other individuals as "pyramid" or "chain sales schemes" that may
promise quick rewards for little or no effort, or use high pressure recruiting
methods.
16. Network Marketing Laws and Regulations May Prohibit or Severely
Restrict Our Direct Marketing Efforts And Cause Our Sales and Profitability to
Decline. Various State and federal government agencies may claim authority to
regulate network marketing, intending generally to prevent fraud. If we are
unable to continue our business in our existing markets or commence operations
in new markets because of these laws, our revenue and profitability will
decline. Additionally, government agencies and courts may use their powers and
discretion in interpreting and applying laws in a manner that limits our ability
to operate or otherwise harms our business. Also, if any governmental authority
brings a regulatory enforcement action against us that interrupts our direct
sales efforts, there could be a material adverse effect on our business, results
of operations and financial position.
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17. Challenges by Private Parties to the Form of Our Network Marketing
System Could Harm Our Business. We may be subject to challenges by private
parties, including our representatives, to the form of our network marketing
system. We are aware of lawsuits against other network marketing companies which
involve claims under federal securities laws and state anti-pyramid laws.
Adverse judicial decisions in these lawsuits, a determination that our marketing
system constitutes a security, or the initiation of lawsuits against us
challenging the legality of our network marketing system would harm our
business. In the United States, the network marketing industry and regulatory
authorities have generally relied on the implementation of representative rules
and policies designed to promote retail sales, to protect consumers and to
prevent inappropriate activities in order to distinguish between legitimate
network marketing distribution plans and unlawful pyramid schemes. We have
adopted rules and policies based on those the Federal Trade Commission have
found acceptable in reviewing the legality of Amway Corporation's marketing
system and those established in the Federal Trade Commission v. Jewelway action.
Legal and regulatory requirements concerning network marketing systems, however,
involve a high level of subjectivity, are inherently fact based, and are subject
to judicial interpretation. Because of the foregoing, we cannot assure you that
we will not be harmed by the application or interpretation of statutes or
regulations governing network marketing.
18. Reliance on Third Party for Back Office Operations and
Administrative Support. We currently rely upon Atlantic Teleservices LP for back
office administrative support services, including
- the processing of sales orders;
- processing independent representative applications;
- independent sales representative support telephone services;
- customer service;
- passing along orders for telephone services to our telephone
service reseller vendors;
- distribution of commission checks to our independent
representatives; and
- The administration of service relationships between our
customers and our service vendors.
We do not believe that the loss of Atlantic Teleservices'
services would have a material adverse effect on us in the long term since we
could establish an infrastructure to provide these services ourselves or engage
another third party to provide these services. However, we could suffer a
material disruption to our business in the short term until we find a
replacement or we develop our own infrastructure. Developing our own
infrastructure would be very costly. Accordingly, based on our current negative
cash flow and need for financing in the near future, we cannot assure we would
be able to develop our own infrastructure at this time or in the future to
adequately provide the level of back office operations and administrative
support necessary to grow or even maintain our business.
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19. Obstacles to the Growth and Development of Our OnLine Shopping
Mall. Currently, our online shopping mall sales account for less than 1% of our
revenues. However, we seek to generate a high volume of traffic and transactions
in our on-line shopping mall. Accordingly, the satisfactory performance,
reliability and availability of our Web site, processing systems and network
infrastructure are critical to our reputation and to our ability to attract and
retain large numbers of users and vendors. Any system interruptions that result
in the unavailability of our online service or reduced Internet access would
reduce the attractiveness of our services, which could, in turn, negatively
affect our business, results of operations or financial condition. Conversely,
any substantial increase in the volume of traffic on our Web site or in our
online shopping mall may require us to expand and upgrade our technology and
network infrastructure. There can be no assurance that we will be able to
accurately project the rate or timing of increases, if any, in the use of our
Website or online shopping service. Furthermore, there can be no assurance that
we will be able to expand and upgrade our systems and infrastructure to
accommodate any increases in a timely manner. Our failure to expand or upgrade
our systems could have a material adverse effect on our future prospects and our
future business, results of operations and financial condition.
The success of Compu-DAWN's online shopping mall is dependent on
- Compu-DAWN's ability to sign up and retain a wide variety of
well-known merchants;
- the reliability of delivery of goods by merchants;
- Compu-DAWN's ability to provide web site convenience
and accessability; and
- the reliability of Compu-DAWN's online shopping mall
technology
20. Risks Associated with Information Disseminated Through Compu-DAWN's
Internet Access Service. The law relating to the liability of online service
companies for information carried on or disseminated through their services is
currently unsettled. It is possible that claims could be made against Internet
access and online service companies for defamation, libel, invasion of privacy,
negligence, copyright or trademark infringement, or other theories based on the
nature and content of the materials disseminated through their services. In
addition, legislation has been proposed that prohibits or imposes liability for
the transmission over the Internet of certain types of information. The
potential imposition upon us and other Internet access and online services
providers of liability for information carried on or disseminated through
Internet access and online services could require us to take measures to reduce
that exposure. There measures may require substantial expenditures and/or the
consideration of the discontinuance of certain service offerings. Furthermore,
the increased attention focused upon liability issues as a result of these
lawsuits and legislative proposals could impede the growth of Internet use.
While we carry liability insurance, it may not be adequate to fully compensate
us in the event we become liable for information carried on or disseminated
through our service. Any costs not covered by insurance incurred as a result of
such liability or asserted liability could have a material adverse effect on our
business, results of operations and financial condition.
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21. Governmental Regulation and Legal Uncertainties. We are not
currently subject to direct federal, state or local regulation, and laws or
regulations applicable to access to or commerce on the Internet, other than
regulations applicable to businesses generally. However, due to the increasing
popularity and use of the Internet and other online services, it is possible
that a number of laws and regulations may be adopted with respect to the
Internet or other online services covering issues such as
- user privacy;
- freedom of expression;
- pricing;
- content and quality of products and services;
- taxation;
- advertising;
- intellectual property rights; and
- information security.
The adoption of any such laws or regulations might also decrease the rate of
growth of Internet use, which in turn could decrease the demand for our tv
set-top box, Internet services and online shopping service, increase our cost of
doing business or in some other manner have a material adverse effect on our
business, results of operations and financial condition.
In addition, the applicability to the Internet of existing
laws governing issues such as property ownership, copyrights and other
intellectual property issues, taxation, libel, and personal privacy is
uncertain. The vast majority of such laws were adopted prior to the advent of
the Internet and related technologies and, as a result, do not address the
unique issues raised by use of the Internet and related technologies. We cannot
predict whether the federal government or one or more states will attempt to
impose these laws upon us in the future or whether such imposition will have a
material adverse effect on our business, results of operations and financial
condition.
Several states have also proposed legislation that would limit
the uses of personal user information gathered online or require online services
to establish privacy policies. The Federal Trade Commission has also initiated
action against at least one online service regarding the manner in which
personal information is collected from users and provided to third parties.
Changes to existing laws or the passage of new laws intended to address these
issues could create uncertainty in the marketplace that could reduce demand for
our services or increase the cost of doing business, or could in some other
manner have a material adverse effect on Compu-DAWN's business, results of
operations and financial condition.
Any such new legislation or regulation, or the application of
laws or regulations from jurisdictions whose laws do not currently apply to
Compu-DAWN's business, could have a material adverse effect on Compu-DAWN's
business, results of operations and financial condition.
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Compu-DAWN is qualified to do business in Delaware, New York,
Florida and Georgia in the United States. Our failure to qualify as a foreign
corporation in a jurisdiction where we are required to do so could subject us to
taxes and penalties for the failure to qualify, and could result in our being
unable to enforce contracts in those jurisdictions.
22. Year 2000 Problems Within our Business and in the Businesses of
Important Suppliers. Many currently installed computer systems and software
products are coded to accept only two-digit entries in the date code field.
Beginning on January 1, 2000, these code fields will need to accept four-digit
entries to distinguish 21st century dates from 20th century dates. Many
companies' software and/or computer systems may have to be upgraded or replaced
in order to correctly process dates beginning in 2000 and to comply with the
Year 2000 requirements. We may not accurately identify all potential Year 2000
problems within our business, and the corrective measures we may implement may
be ineffective or incomplete. Any such problems could interrupt our operations
and could have a material adverse effect on our business, results of operations
and financial condition. Similar problems and consequences could result if any
of our key vendors and suppliers, such as telecommunication and Internet service
providers, and the manufacturer of our tv set-top box product, experience Year
2000 problems. We are particularly vulnerable to the Year 2000 readiness of our
supplier of back-office and administrative services. We also cannot control or
otherwise predict the Year 2000 readiness of federal, state and local
governments, utility companies and other parties unrelated to us that could
impact our operations.
23. Loss of Supplier of TV Set-Top Box Could Cause Delay in Filling
Orders. Our tv set-top product is manufactured for us by Boca Research, Inc. We
believe that if we lost Boca Research as a supplier and we secured another
supplier, which we believe is readily available to manufacture a tv set-top box
to our specifications, we could experience a delay of approximately 90 days in
replenishing inventory, which, if inventory levels are low, could delay the
filling of orders. This in turn, could erode customer and independent
representative relationships and confidence, and cause us to lose customers and
independent representatives.
24. Loss of Vendors and Suppliers could Erode Customer and
Representative Confidence in Us. We currently act as a sales agent in the United
States for UniDial Incorporated and in Canada for Vir-Tec, each a reseller of
telecommunication services. The Internet access services we sell are provided by
StarNet, Inc., an Internet access provider and a reseller of GTE Wholesale
Internet access services. We believe that the loss of UniDial or Vir-Tec as
vendors to our customers, or the loss of StarNet as a supplier of our Internet
access services would not, by itself, have a material adverse effect on our
business, results of operations and financial condition because we believe
substitutes are available. However, if we lost any one of these vendors or
suppliers, we may experience a material adverse effect to our business, results
of operations, and financial condition based on
- the interruption of Internet Access Service to our customers
as we switch suppliers;
- the inability to provide customer service support to
customers who remain with former vendors of telephone services;
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- the loss of customer loyalty and confidence because of
interruptions to Internet Access services or our inability to
provide customer service support; and
- the loss of the independent representatives' confidence
in our management resulting from any customer
dissatisfaction in our services which could cause a decrease
in independent representative productivity or the loss of
representatives.
Furthermore, although we feel we can replace these vendors and suppliers we
cannot assure we could do so on terms which are as favorable as those we have
with our current vendors and suppliers.
25. Reliance on Third Party Software Systems. We rely on computer
software systems operated by Atlantic Teleservices in the provision of back room
operations and administrative support services to us. We may periodically need
to request that these systems be enhanced or modified in order to accommodate
any growth or change in the way we operate. Furthermore, in the future, we may
want to add additional features and function to our services and we may need to
develop or license additional technologies to do this. Our inability to add
additional software and hardware or to develop and further upgrade our existing
technology or network infrastructure to accommodate such growth and changes, may
cause
- unanticipated system disruptions;
- slower response times;
- degradation in levels of customer and independent
representative service;
- impaired quality of the user's experience of our
products and services; and
- delays in reporting accurate financial information.
We cannot be certain that we or Atlantic Teleservices will be able to
effectively upgrade and expand these systems or to integrate smoothly any new
technologies with existing systems. The inability to do so could have a material
adverse effect on our business, results of operations and financial condition.
26. System Failures. Our success depends largely on the efficient and
uninterrupted operation of our computer and communications hardware systems.
Substantially all of the computer hardware used by us and Atlantic Teleservices
to provide services to us is currently located at the facilities of Atlantic
Teleservices in Jacksonville, Florida, where our principal offices are also
located. These systems and operations are vulnerable to damage or interruption
from natural disasters, power loss, telecommunication failures, sabotage, acts
of vandalism and similar events. We do not presently have systems that are fully
backed up, a formal disaster recovery plan or alternative providers of hosting
services, and do not carry any business interruption insurance to compensate us
for losses that may occur. Despite our taking precautions and making additional
emergency plans, the occurrence of a natural disaster or other unanticipated
problems at the Jacksonville facility could result in interruptions or
disruptions in our services or Atlantic Teleservices' services to us which could
have a material adverse effect on our business, results of operations and
financial condition.
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In the case of frequent or persistent system failures, our
reputation and name brand could be materially adversely affected. Although we
have implemented certain network security measures, the servers used in the e.TV
Business are also vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions, which could lead to interruptions, delays in
providing service to customers, loss of data or the inability to complete
customer transactions, and the inability to provide support and process
commission payments to our independent representatives, any and all of which
could have a material adverse effect on our business, results of operations and
financial condition.
27. Risks Relating to Unspecified Acquisitions. We are exploring
and will continue to explore opportunities to add or acquire
- technology or products consistent with our current product
line; and
- businesses that make and/or market products or ervices not
in our current line of business.
If any such opportunity involves the acquisition of a business, we cannot be
certain that
- we will successfully integrate the operations of the acquired
business with ours;
- all the benefits expected from such integration will be
realized;
- delays or unexpected costs related to the integration will
not have a detrimental affect on our combined business,
operating results or financial condition;
- our respective operations, management and personnel will be
compatible; and
- we will not lose key personnel.
If we acquire technology or products in the early stage of development
or growth, including technology or products that have not been fully tested or
marketed, we will be subject to numerous risks inherent in developmental
technology, plus the additional high level of risk associated with high
technology industries. Furthermore, these acquisitions may require us to obtain
additional financing from banks or other financial institutions or to undertake
debt or equity financing. We cannot assure you that we will be able to obtain
financing on commercially reasonable terms or at all. Moreover, equity financing
will result in a dilution to our existing stockholders, i.e., the number of
Common Shares that you own will represent a smaller percentage of our
outstanding Common Shares. The degree of dilution may be significant. In the
case of debt financing, we run the risks of interest rate fluctuations and
insufficiency of cash flow to pay principal and interest, along with other risks
traditionally associated with incurring indebtedness.
28. We Will Usually Accomplish Acquisitions Without Prior Stockholder
Approval. The Board of Directors will decide whether any opportunity to add
technology, products or a business is in the best interest of our stockholders.
We cannot be certain that any such opportunities will arise, or that, if they
do, we will be able to reach an agreement on terms acceptable to us. In most
cases, an acquisition will be concluded without stockholder approval and our
stockholders will not have an opportunity to review the financial statements of,
or other information relating to, the
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acquisition candidate. Although we will attempt to evaluate the risks inherent
in a particular acquisition, we cannot be certain that we will properly
ascertain or assess such significant risk factors.
29. Control By Management and Preferred Stockholders. Our directors and
executive officers beneficially own approximately 1.7% of our outstanding Common
Shares. Mark Honigsfeld, the former Chief Executive Officer and a Director,
currently owns approximately 11% of our outstanding Common Shares. Additionally,
Mr. Honigsfeld has given Rudy C. Theale, Jr., the Executive Vice President and a
Director of Compu-DAWN, a proxy to vote any Compu-DAWN Common Shares he owns
during a period of 12 months ending in May 2000 on matters brought to the
stockholders for a vote involving a change in control of Compu-DAWN or a
replacement of a majority of the Board of Directors, without Board of Director
approval. The proxy currently covers approximately 258,500 Common Shares. Mr.
Honigsfeld is not contractually restricted from disposing or acquiring any
Common Shares during the 12 month period or otherwise. If certain of the
executive officers, directors and Mr. Honigsfeld exercised options and warrants
which are currently exercisable, or exercisable within 60 days, they would own
an aggregate of approximately 10% and 18% of the outstanding Common Shares,
respectively. The holders of our Series A convertible preferred stock, Series B
convertible preferred stock and certain warrants held by such holders have the
right, if they waive certain limitations, to acquire approximately 12% of the
Common Shares that would be outstanding following conversion or exercise of
their securities.
Thus, these three groups of stockholders, if acting together, have the
potential voting strength to exert significant influence over the election of
our directors and over other matters submitted to our stockholders for approval.
The percentages given in this paragraph do not account for some of the rights
given to the holders of the Series A and Series B stock and warrants issued to
the Series A and Series B stockholders.
30. No Dividends. We have never paid any dividends on our common stock
and do not intend to in the foreseeable future. We anticipate retaining any
earnings which we may realize in the foreseeable future to finance our growth.
FORWARD-LOOKING STATEMENTS
Certain information contained in the matters set forth above are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, and is subject to the safe harbor created by that
act. Compu-DAWN cautions readers that certain important factors may affect
Compu-DAWN's actual results and could cause such results to differ materially
from any forward- looking statements which may be deemed to have been made above
and elsewhere in this Prospectus or which are otherwise made by or on
behalf of Compu-DAWN. For this purpose, any statements contained above and
elsewhere in this Prospectus that are not statements of historical fact
may be deemed to be forward-looking statements. Without limiting the generality
of the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "intend," "could," "estimate," or "continue" or the negative
variations of those words or comparable terminology are
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intended to identify forward-looking statements. Factors which may affect
Compu-DAWN's results include, but are not limited to, the risks and
uncertainties associated with multi-level network marketing, the Internet and
Internet-related technology and products, new technology developments,
developments and regulation in the telecommunications industry, the competitive
environment within the Internet and telecommunications industries, the level of
spending by law enforcement and public safety agencies for computer application
software and hardware, the competitive environment within the public safety
technology industry, the ability of Compu-DAWN to expand its operations, the
level of costs incurred in connection with Compu-DAWN's planned expansion
efforts, the financial strength of Compu-DAWN's customers and suppliers,
unascertainable risks related to possible unspecified acquisitions, the
competence required and experience of management, the risk of loss of management
and personnel, economic conditions, the risks and uncertainties inherent in
litigation, and the ability of Compu-DAWN to raise additional capital which will
be required in the near term to continue to develop and sustain business at
current levels and other risks described under "Risk Factors" above. Compu-DAWN
is also subject to other risks detailed herein or detailed from time to time in
Compu-DAWN's Securities and Exchange Commission ("SEC") filings. Readers are
also urged to carefully review and consider the various disclosures made by
Compu- DAWN which attempt to advise interested parties of the factors which
affect Compu-DAWN's business.
SELLING SHAREHOLDERS
The following table sets forth, as of June 29, 1999, to
Compu-DAWN's knowledge, certain securities ownership information with respect to
the Selling Shareholders:
<TABLE>
<CAPTION>
Common Shares Number of Common Common Shares to
Beneficially Owned Shares Offered Be Beneficially Owned
Name Before Offering(1) for Sale After Offering
Percent of
Number Outstanding
<S> <C> <C> <C> <C>
Mark Honigsfeld 716,300(2) 62,500 653,800 19.00%
David Lowenstein 60,000 10,000 50,000(3) 1.4%
</TABLE>
(1) Unless otherwise noted, Compu-DAWN believes that the persons named
above have sole voting and investment power with respect to all Common
Shares beneficially owned by him, subject to community property laws,
where applicable. A person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days from June
29, 1999 upon the exercise of warrants or options. Each beneficial
owner's percentage ownership is determined by assuming that options or
warrants that are held by such person
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(but not those held by any other person) and which are exercisable
within 60 days from June 29, 1999 have been exercised.
(2) Represents (i) 95,200 shares held by the Mark Honigsfeld Living Trust
(the "Honigsfeld Trust") whose sole beneficiary is Mr. Honigsfeld's
wife; Mr. Honigsfeld, the settlor and trustee of the trust, has the
right to terminate the Honigsfeld Trust and receive the shares; (ii)
100,000 shares held by the Mardee Charity Fund Foundation, a private
charitable foundation of which Mr. Honigsfeld and his wife are the sole
trustees; (iii) 425,000 shares issuable upon the exercise of currently
exercisable options; and (iv) 33,600 shares issuable upon the exercise
of currently exercisable warrants.
(3) Represents 50,000 shares issuable upon the exercise of currently
exercisable options.
There are no commitments pursuant to which Compu-DAWN will
receive any proceeds from the sale of the Common Shares by the Selling
Shareholders.
Mark Honigsfeld, one of the Selling Shareholders, served as
President, Chief Executive Officer and Secretary, and as a Director, of
Compu-DAWN until May 11, 1999. David Lowenstein is an independent contractor who
will provide services to Compu-DAWN by giving guidance and advice regarding long
distance, internet, cellular and other telephone products and services and
introducing Compu-DAWN to vendors and potential strategic allies in those areas.
PLAN OF DISTRIBUTION
The Common Shares set forth in the "Selling Shareholders"
table may be sold by the Selling Shareholders, or by pledgees, donees,
transferees or other successors in interest, either pursuant to the Registration
Statement of which this Prospectus forms a part or, if available, under Section
4(1) of the 1933 Act or Rule 144 promulgated thereunder.
To Compu-DAWN's knowledge, this offering is not being
underwritten. Compu- DAWN believes that the Selling Shareholders, directly
through agents designated from time to time, or through broker-dealers or
underwriters also to be designated (who may purchase as principal and resell for
their own account), may sell the Common Shares from time to time, in or through
privately negotiated transactions, or in one or more transactions, including
block transactions, on the Nasdaq SmallCap Market or on any other market or
stock exchange on which the Common Shares may be listed in the future pursuant
to and in accordance with the applicable rules of such market or exchange, or
otherwise. The selling price of the Common Shares may be at market prices
prevailing at the time of sale, at prices relating to such prevailing market
prices or at negotiated prices. From time to time, to the extent permitted by
applicable law, the Selling Shareholders may engage in short sales against the
box, puts and calls and other transactions in securities of Compu-DAWN or
derivatives thereof, and may sell and deliver the Common Shares in connection
therewith. Further, the Selling Shareholders are not restricted as to the number
of Common Shares which may be sold at any one time pursuant to this Prospectus,
and it is possible that a significant number of Common
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Shares could be sold at the same time, which may have a depressive effect on the
market price of Compu-DAWN's Common Shares.
The Selling Shareholders may also pledge Common Shares as
collateral for margin accounts, and such Common Shares could be resold pursuant
to the terms of such accounts. Resales or reoffers of the Common Shares by the
Selling Shareholders must be accompanied by a copy of this Prospectus.
The Selling Shareholders and any agents or broker-dealers that
participate in the distribution of the Common Shares may be deemed to be
underwriters, and any profit on the sale of the Common Shares by them, and any
discounts, commissions or concessions received by them, may be deemed to be
underwriting commissions or discounts under the 1933 Act.
LEGAL MATTERS
Certilman Balin Adler & Hyman, LLP, 90 Merrick Avenue, East
Meadow, New York has acted as counsel for Compu-DAWN in connection with this
offering.
EXPERTS
The consolidated financial statements of Compu-DAWN appearing
in Compu- DAWN's Annual Report on Form 10-KSB for the year ended December 31,
1998 have been audited by Lazar Levine & Felix LLP, independent certified public
accountants, as set forth in their report thereon appearing therein and are
incorporated herein by reference to such Form 10-KSB, in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
NASDAQ LISTING AND "PENNY STOCK" RULES
THAT COULD AFFECT COMMON STOCK
Nasdaq Listing. Our common stock is currently traded on the Nasdaq
SmallCap Market. If we are unable to satisfy the requirements for continued
quotation on that market, trading of our common stock would be conducted in the
over-the-counter market, in what is commonly referred to as the "pink sheets" or
on the NASD OTC Electronic Bulletin Board. If you buy the common stock offered
by this prospectus and our common stock is afterwards traded only in the "pink
sheets" or on the Electronic Bulletin Board, you may find it more difficult to
dispose of the shares or obtain accurate quotations as to their price.
For continued listing on the Nasdaq SmallCap Market, we are required to
have, among other things, all of the following:
- either net tangible assets of $2,000,000, or market capitalization
of $35,000,000, or
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net income for the most recently completed fiscal year or in
two of the last three fiscal years of $500,000;
- minimum market value or public float of $1,000,000; and
- minimum bid price of $1.00 per share.
Nasdaq also requires that we have at least two independent directors and an
Audit Committee, a majority of whose members must also be independent directors.
We currently satisfy all of the above requirements.
"Penny Stock" Rules. The SEC has regulations that generally define
"penny stock" to be common stock that has a market price of less than $5.00 per
share. If our common stock is removed from the SmallCap Market at any time and
is traded at less than $5.00 per share, it will be subject to rules that impose
additional sales practice requirements. The "penny stock" rules may restrict the
ability of broker-dealers to sell our common stock, and may affect your ability
to sell our common stock in the secondary market as well as the price at which
such sales can be made. Also, some brokerage firms will decide not to effect
transactions in "penny stocks" and it is unlikely that any bank or financial
institution will accept "penny stock" as collateral.
For transactions covered by these rules, the broker-dealer must make a
special determination that a purchaser is suitable to purchase the common stock
and must have received the purchaser's written consent to the transaction prior
to the purchase. The "penny stock" rules also require the delivery, prior to the
transaction, of a risk disclosure document mandated by the SEC relating to the
penny stock market. The broker-dealer must also disclose (a) the commission
payable to both the broker-dealer and the registered representative, (b) current
quotations for the common stock, and (c) if the broker-dealer is the sole market
maker, the broker-dealer must disclose this fact and the broker- dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. These rules would apply to
sales by broker-dealers to persons other than established customers and
accredited investors until our common stock again traded above $5.00 per share.
Accredited investors are generally those with assets in excess of $1,000,000 or
annual income exceeding $200,000, or $300,000 together with their spouse.
CERTIFICATE OF INCORPORATION, BY-LAW AND STATE LAW PROVISIONS
THAT COULD ADVERSELY AFFECT COMMON STOCKHOLDERS
Our Certificate of Incorporation provides that a director shall not be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, with certain exceptions. These provisions may
discourage stockholders from suing a director for breach of fiduciary duty and
may reduce the likelihood of derivative lawsuits against any director. A
"derivative lawsuit" is one in which a stockholder sues an officer or director
of the corporation on behalf of the corporation, claiming that the officer or
director did some harm to the corporation. In addition, our Certificate of
Incorporation provides for mandatory indemnification of directors and officers
to the fullest extent permitted or not prohibited by Delaware law.
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Our Certificate of Incorporation also allows us to issue additional
preferred stock without approval of the holders of common stock. If we issue
preferred stock, it could discourage a third party from buying a majority of our
outstanding common stock. This, in turn, could prevent our stockholders from
selling their shares at a price above the market price. The rights that the
holders of common stock have will be subject to, and may be negatively affected
by, the rights that holders of preferred stock might be given. In addition, our
being governed by a staggered Board of Directors, certain provisions of our
By-Laws, and certain provisions of Delaware law that are applicable to us all
could delay or complicate a merger, tender offer or proxy contest involving us.
ADDITIONAL INFORMATION
Compu-DAWN has filed a Registration Statement on Form S-8
(together with all amendments thereto, the "Registration Statement") with the
Commission under the Securities Act with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement. For further information with respect to Compu-DAWN and
the securities offered hereby, reference is made to the Registration Statement
and to the exhibits filed therewith, copies of which may be obtained upon
payment of a fee prescribed by the Commission, or may be examined free of charge
at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Each statement made in
this Prospectus referring to a document filed as an exhibit to the Registration
Statement is qualified by reference to the exhibit for a complete statement of
its terms and conditions.
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INDEX TO EXHIBITS
Exhibit Description
Number of Exhibit
23.1 Consent of Lazar Levine & Felix LLP
24 Powers of Attorney (included in signature page forming a part
hereof)
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EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference, in the Registration
Statement on Form S-8, of our report dated February 25, 1999 (except as to Note
14 which is dated March 4, 1999) which appears on page F-2 of the annual report
on Form 10-KSB of Compu-DAWN, Inc. for the year ended December 31, 1998.
/s/ Lazar Levine & Felix LLP
LAZAR LEVINE & FELIX LLP
New York, New York
June 30, 1999
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