<PAGE>
Registration No. 333-47471
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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Amendment No. 1 to Form SB-2 on Form S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
E. COM INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
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<CAPTION>
OREGON 3669 91-1600822
<S> <C> <C>
(State of incorporation or organization) Primary Standard Industrial (IRS Employer Identification No.)
Classification Code Number
</TABLE>
7737 S.W. CIRRUS DRIVE
BEAVERTON, OREGON 97008
(503) 671-9900
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(Address, including zip code, and telephone number including area code, of
registrant's principal executive office)
WILLIAM F. STEPHENS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
E.COM INTERNATIONAL, INC.
7737 SW CIRRUS DRIVE, BEAVERTON, OREGON 97008
(503) 671-9900
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(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies of all communications to:
Mark R. Beatty, Esq.
Sophie Hager Hume, Esq.
Preston Gates & Ellis LLP
701 Fifth Avenue
Suite 5000
Seattle, Washington 98104-7078
(206) 623-7580
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AT SUCH TIME OR TIMES AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT AS
THE SELLING SECURITY HOLDERS SHALL DETERMINE.
If any of the Securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act, check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
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. / /
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
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Title of each
class of Proposed maximum Proposed maximum Amount of
securities to Amount to be offering price per aggregate registration
be registered registered security(1) offering price fee
- -------------- ----------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
Common Stock, 2,375,577 $3.50 $8,314,519.50 $2,453
no par value --------------
Warrants to 1,571,093 $3.50 --- ---
purchase -------- --------
Common Stock(2)
Warrants to 106.7 $3,500 --- ---
purchase Units(3)
Common Stock, 1,677,793 $3.50 $5,872,275.50 $1,732
no par value(4) ------------- ------
</TABLE>
(1) Estimated solely for calculating the registration fee.
(2) Pursuant to Rule 457(i) of the Securities Act of 1933, as amended, the
registration fee has been calculated on the basis of the shares underlying
the Warrants to purchase Common Stock and Warrants to purchase Units.
(3) Each Unit consists of 1,000 shares of Common Stock and 1,000 Warrants
each to purchase one share of Common Stock.
(4) Includes 213,400 shares of Common Stock underlying the Warrants to
purchase Units.
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>
PROSPECTUS
E.COM INTERNATIONAL, INC.
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This Prospectus relates to up to 2,375,577 shares of common stock
("Common Stock") of E.Com International, Inc., an Oregon corporation ("E.Com"
or the "Company"), up to 1,571,093 warrants each to purchase one share of
Common Stock (the "Warrants"), up to 106.7 warrants to purchase units
consisting of 1,000 shares of Common Stock and 1,000 Warrants (the "Unit
Warrants") and up to 1,677,793 shares of Common Stock underlying the Warrants
and Unit Warrants (the "Warrant Shares"), which may be offered from time to
time by the selling security holders named herein (the "Selling Security
Holders"). The Warrants were issued in conjunction with sales of the Common
Stock. Warrants issued from January 1997 to July 1997 have an exercise price
of $3.50 and an expiration date of January 31, 1999. Warrants issued between
September 1997 and December 1997 have an exercise price of $3.50 and an
expiration date of December 31, 2002. The Unit Warrants have an exercise
price of $3,500 and an expiration date of December 31, 2002. All of the
Common Stock, Warrants, Unit Warrants and Warrant Shares to be registered
hereby are to be offered for the account of the Selling Security Holders and
E.Com will not receive any of the proceeds from the sale thereof. E.Com will
bear the costs relating to the registration of the Common Stock and Warrants
estimated to be approximately $40,000. The Company expects that the Common
Stock and the Warrants will be listed on the OTC Bulletin Board under the
symbols ECOM and ECOMW, respectively.
THE COMMON STOCK, THE WARRANTS, THE UNIT WARRANTS AND THE WARRANT SHARES OFFERED
HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON
PAGE 6 OF THIS PROSPECTUS.
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.
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The date of this Prospectus is March 13, 1998.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . . . . .11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . .15
DESCRIPTION OF PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . .21
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
DETERMINATION OF OFFERING PRICE . . . . . . . . . . . . . . . . . . . . . .21
SELLING SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . .22
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
DIRECTORS AND EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . .34
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . .35
DESCRIPTION OF SECURITIES TO BE REGISTERED . . . . . . . . . . . . . . . . .36
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . .40
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS . . . . . . . . . .40
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . .40
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR ACCOUNTING AND FINANCIAL
DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
INFORMATION NOT REQUIRED IN PROSPECTUS . . . . . . . . . . . . . . . . . . .II-1
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-4
</TABLE>
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<PAGE>
AVAILABLE INFORMATION
E.Com is subject to the reporting requirements of the Securities Exchange
Act of 1934 (the "Exchange Act") and files reports and other information with
the Securities and Exchange Commission (the "Commission") in accordance
therewith. Such reports, proxy statements, and other information filed by E.Com
are available for inspection and copying at the public reference facilities of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices located at 7 World Trade Center, Suite 1300, New
York, New York 10048, and at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material may be obtained by
mail from the Public Reference Section of the Commission at 450 Fifth St., N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a World
Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants,
including E.Com, that file electronically with the Commission. The Common Stock
and the Warrants are expected to be listed on the OTC Bulletin Board as ECOM and
ECOMW, respectively.
No dealer, salesman, or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus, and,
if given or made, such information and representation must not be relied upon as
having been authorized by E.Com. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any of the securities offered
hereby in any state to any person to whom it is unlawful to make such offer in
such state. Neither the delivery of this Prospectus nor any sales made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of E.Com since the date hereof.
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<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE
READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS AND RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS.
THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED
IN THE FORWARD-LOOKING STATEMENTS.
THE COMPANY
E.Com International, Inc. ("E.Com" or the "Company") develops, manufactures
and markets integrated wireless mobile computing products for mobile computer
users. The Company's Discovery I is a fully integrated smart handheld device
that enables the user to send and receive wireless e-mail and faxes and access
and retrieve certain information from the Internet, corporate networks and
remote databases. The Company's Discovery II is a lower cost, fixed memory
handheld device that permits pen-based wireless messaging, e-mail and faxes.
The Company's PDxpress is a mobile, compact docking station that provides
integrated wireless communications capabilities and related battery management
functions for certain popular but now discontinued Hewlett Packard Company
("Hewlett Packard") handheld personal computers. The Company has completed
development of these products and expects its first commercial sales of the
Discovery I in the first quarter of 1998. E.Com's products are designed to
exploit the rapid response capabilities of wireless data communications in
industries with mobile employees and time-sensitive information requirements,
such as field sales and service, public safety, health care, financial services,
and delivery and courier services. Targeted likely users of the Company's
products are away from their offices at least 20% of the time and have
information processing and transmission requirements that extend beyond the
capabilities of standard cellular phones and pagers, but require less memory and
processing capabilities than standard laptop or handheld personal computers.
Demand for wireless communications products, primarily cellular phones and
paging and messaging devices, has exploded in recent years. At the same time,
there have been significant advances in computer memory, speed, functionality
and miniaturization in laptop, notebook and handheld computers. However, the
successful integration of wireless communications products with computers has
been relatively limited due to the complexities involved in developing and
integrating (1) wireless networks over which data can be transmitted; (2)
wireless network "gateways" to integrate and facilitate data communications
between networks; and (3) easy to use, cost-effective wireless computing
products for the end-user. E.Com believes that all necessary components for
reliable, convenient wireless computing are now in place in the United States,
that market demand is building and that many businesses and mobile employees are
ready to embrace affordable, reliable, easy to use wireless products. In
addition, E.Com believes that Asia-Pacific countries, where traditional
telephone land lines are often economically and geographically impractical, are
likely to begin relying on wireless data networks for more of their
communication needs.
E.Com's products are designed to address the critical wireless data
communications and computing needs of mobile computer users. The Company's
products incorporate proprietary software, integrated hardware, software and
packet radio modems to enable wireless communication that is as easy as using
a fax machine or network-wired computer. E.Com's products are lightweight,
compact and durable, and are priced at the low-end to lower-mid-range of
wireless mobile computing devices. All of E.Com's products enable mobile
users to send and receive wireless e-mail and faxes. Further, the Company's
Discovery I and PDxpress permit the mobile user to access and retrieve
certain information from the Internet, corporate networks and remote
databases. In addition, E.Com's products are energy efficient and can
operate for up to 30 hours without recharging based upon E.Com's proprietary
power and battery management systems.
E.Com's objective is to develop and market highly functional, reasonably
priced wireless mobile computing products for industries with mobile
employees and time-sensitive information requirements. E.Com has designed
its products to provide a broad range of performance capabilities at a
significantly lower price than products with comparable features. By
incorporating modular designs in its products, the Company can quickly
customize or upgrade its products to accommodate state-of-the-art technology.
E.Com intends to be a low-cost producer with the ability to respond quickly
to customer demand and technological and market developments in wireless
communications. While high-price customized wireless computing products
provide excellent wireless
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<PAGE>
connectivity, E.Com offers seamless integrated wireless connectivity at a
reasonable price. The Company believes that its highly functional,
lower-priced products will significantly expand the market for wireless
mobile computing products. The Company has established strategic
relationships with leading participants in the wireless data communications
markets and is pursuing alliances with the largest systems integrators as
well as other distribution arrangements with independent software vendors and
distributors. Further, E.Com will offer to end-users of its products
single-source technical support to solve any problems relating to its
products' hardware, software or radio modems.
E.Com was incorporated under the laws of the State of Oregon in 1996 and
then acquired key product designs and technologies from EnBloc, Inc.
("EnBloc"). E.Com's corporate offices are located at 7737 SW Cirrus Drive,
Beaverton, Oregon 97008 and its telephone number is (503) 671-9900.
THE OFFERING
Securities offered . . . . . . . . . . . . . . 2,375,577 shares of Common
Stock; 1,571,093 Warrants,
106.7 Unit Warrants,
1,677,793 shares of
Common Stock underlying the
Warrants registered herein.
(including 213,400
shares underlying the Unit
Warrants). See "Description
of Securities."
Common Stock to be outstanding after the 4,053,370 shares (assuming
offering . . . . . . . . . . . . . . . . . . . exercise of all Warrants
and Unit Warrants).
Use of Proceeds. . . . . . . . . . . . . . . . If all the Warrants were
exercised at the exercise
price of $3.50 and all Unit
Warrants were exercised, the
Company would receive
$5,819,775.50. The Company
expects to use the
proceeds therefrom for further
product development and
working capital, including
financing inventory and
outstanding accounts
receivable.
Risk Factors . . . . . . . . . . . . . . . . . Investment in the Common Stock
Warrants, and Unit Warrants
involves a high degree of
risk. See "Risk Factors."
Proposed OTC Bulletin Board symbols. . . . . . Common Stock: ECOM
. . . . . . . . . . . . . . . . . . . . . . . Warrants: ECOMW
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<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH
BELOW, IN ADDITION TO THE OTHER INFORMATION CONTAINED AND INCORPORATED IN
THIS PROSPECTUS, IN EVALUATING AN INVESTMENT IN THE COMMON STOCK, WARRANTS,
UNIT WARRANTS AND THE WARRANT SHARES OFFERED HEREBY.
UNCERTAIN MARKET ACCEPTANCE OF E.COM'S PRODUCTS. The Company is currently
focusing on developing and delivering wireless data products for the specific
needs of mobile users in a number of market segments with time-sensitive
information requirements, including field sales and service, public safety,
financial services and delivery and courier services. The Company believes that
reliance by such market segments on full performance laptop or notebook
computers to communicate limited amounts of data incurs unnecessary costs.
However, there can be no assurance the Company will be able to convince these
market segments of the relative benefits of its wireless products, that such
products will gain widespread commercial acceptance or that adoption of such
products will drive increased purchases. In addition, due to the unique nature
of such products, which combine certain technologies and features of packet
radio and mobile computing, the Company believes it will be required to incur
significant expenses for sales and marketing, including advertising, to educate
potential customers.
The mobile computer market represents only a small percentage of the
installed base of personal computers, and there can be no assurance that the
mobile computer market will continue to grow. Because all of the Company's
products are used in mobile computing applications, the Company's future
operating results would be materially adversely affected by any reduction in the
rate of growth of the mobile computer market. See "Business--Industry
Overview."
DEVELOPMENT STAGE ENTERPRISE; EXPECTATION OF LOSSES; NEGATIVE CASH
FLOWS. The Company was founded in April 1996 and, as a development stage
enterprise, has not yet generated significant revenues from product sales.
As of December 31, 1997, the Company had incurred since inception aggregate
losses of $2.6 million. The Company expects to continue to incur substantial
losses and negative operating cash flow at least through most of 1997 and
possibly thereafter. There can be no assurance that the Company will become
profitable or cash flow positive at any time in the future. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Operating results will depend, in part, on matters over which the
Company has no control, including, without limitation, competition,
technological and other developments in the wireless communications and
computing industries and general economic conditions. See "Financial
Information -- Management's Discussion and Analysis of Financial Condition
and Results of Operations."
EMERGING MARKET FOR WIRELESS MOBILE COMPUTING PRODUCTS. The market for
wireless mobile computing products is only beginning to emerge, and there can be
no assurance that it will develop sufficiently to enable the Company to achieve
broad commercial acceptance of its products. It is difficult to predict the
rate at which this market will grow, if at all, because this market is
relatively new. There are competing technologies and current and future
competitors are likely to introduce a variety of competing wireless mobile
computing solutions. If the wireless mobile computing market fails to grow, or
grows more slowly than anticipated, the Company's business, operating results
and financial condition will be materially adversely affected. Although the
Company intends to conform its products to meet emerging standards in the
wireless mobile computing market, there can be no assurance that industry
standards will emerge or, if they become established, that the Company will be
able to conform to these new standards in a timely fashion.
CAPITAL REQUIREMENTS. The Company's capital requirements will depend on
many factors, including, but not limited to, the costs and expense of
commercializing its products, and the market acceptance and competitive position
of its products. There can be no assurance that the Company will be able to
obtain financing, or that if it is able to obtain financing, it will be able to
do so on satisfactory terms or on a timely basis. If additional funds are
raised through the issuance of equity, convertible debt or similar securities,
shareholders may experience additional dilution and such securities may have
rights or preferences senior to those of the Common Stock. Moreover, if
adequate funds were not available to satisfy the Company's short-term or
long-term capital requirements, the Company would be required to limit its
operations significantly. See "Financial Information -- Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
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RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON PRODUCT DEVELOPMENT; PRODUCT
DEFECTS. The market for the Company's products is characterized by rapidly
changing technology, evolving industry standards and short product life cycles.
Accordingly, the Company's success will be substantially dependent on a number
of factors, including its ability to identify emerging trends in the wireless
mobile computing field, enhance its products by adding features to provide a
more complete solution and differentiate its products from those of its
competitors, maintain a competitive price performance ratio in its products and
bring products to market quickly. Given the emerging nature of the wireless
mobile computing market, there can be no assurance that the Company's products
or technology will not be rendered obsolete by alternative technologies.
Further, short product life cycles expose the Company's products to the risk of
obsolescence and require frequent new product introductions. If the Company is
unable to develop or obtain access to advanced wireless mobile computing
technologies as they become available, or is unable to design, develop, contract
for the manufacturing of and introduce competitive new products on a timely
basis, its future operating results will be materially adversely affected. Any
significant delays in the design, development, manufacture or shipment of new or
enhanced products would also materially adversely affect the Company's results
of operations.
The markets for mobile computers and their peripherals and for wireless
mobile computing products are extremely competitive and characterized by rapidly
advancing technology, frequent changes in user preferences and frequent product
introductions. The Company's PDxpress, for example, is targeted at users of a
popular Hewlett Packard handheld personal computer that was discontinued in late
1997. The future success of the Company will depend in large part on its
ability, and that of its strategic partners, to keep pace with advances in
software and hardware technologies for wireless mobile computing. There can be
no assurance that the Company will be able to respond effectively to these
technological changes or to new product introductions by others.
Although the Company performs testing prior to new product introductions,
the Company's hardware and software products may contain undetected flaws, which
may not be discovered until the products have been used by customers. From time
to time, the Company may temporarily suspend or delay shipments or divert
development resources from other projects to correct a particular product
deficiency. Such efforts to identify and correct errors and make design changes
may be expensive and time consuming. Failure to discover product deficiencies
in the future could delay product introductions or shipments, require the
Company to recall previously shipped products to make design modifications or
cause unfavorable publicity, any of which could have a material adverse effect
on the Company's operating results.
PACKET RADIO NETWORKS FAIL TO GAIN MARKET ACCEPTANCE. The Company's
products are designed to operate on the worldwide DataTAC and Mobitex packet
radio networks, and operate on the FCC-approved frequencies for messaging
technologies in the United States. New competitive wireless technologies, such
as Cellular Digital Packet Data ("CDPD") in the United States and Global System
for Mobile Communications Packet Radio Service ("GSM-GPRS") in Europe, being
developed by various market participants are not compatible with the DataTAC or
Mobitex packet radio networks and may be at different frequencies. If these new
technologies succeed, carriers may cease to support DataTAC and Mobitex, and,
while the Company expects to be able to upgrade its radio modems as necessary,
there is no assurance that the Company will be able to develop future products
based upon these new technologies. In addition, such developments could
significantly affect the Company's operations by diverting the Company's efforts
or increasing the opportunity for additional competition.
COMPETITION AND TECHNOLOGICAL ADVANCES. The overall market for
communications products is increasingly competitive, and the Company expects
competition in each of its market areas to intensify. Wireless mobile computing
products are currently available in the market, although at prices significantly
higher than the Company's targeted prices. The Company's products compete
directly with those of established manufacturers of high-end wireless mobile
computing products, including companies such as Norand Corporation ("Norand"),
Telxon Corporation ("Telxon") and Symbol Technologies, Inc. ("Symbol
Technologies"), all of which have substantially greater financial, technical and
other resources than the Company. The Company also competes indirectly with
other established manufacturers of wireless PC modem products, including
Ericsson, Inc. ("Ericsson") and U.S. Robotics Corporation ("U.S. Robotics"). If
another wireless mobile computing product competitive to the Company's products
were introduced and acquired significant market share, the Company's business
could be adversely affected.
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<PAGE>
The Company also faces competition from companies that manufacture pagers
(including Motorola, Inc. ("Motorola"), Research in Motion Limited ("Research in
Motion") and Socket Communications, Inc. ("Socket Communications")) or offer
extended paging services and paging networks. Paging networks have evolved so
that many now offer two way paging that permits users to transmit short
messages. Such companies may seek to expand the capabilities of the paging
networks to match or exceed the capabilities of the packet radio networks. The
Company also faces competition from alternative methods of downloading
information into a mobile computer, primarily over telephone lines.
In addition to competition from companies that offer wireless data
communications devices, the Company could face competition from companies that
offer alternative wired or wireless communications solutions, or from large
computer and network equipment companies. The Company's business plan does not,
at this time, envision its products becoming available as consumer electronics
products; however, if products similar to the Company's products were to become
the focus of the consumer electronics industry, the Company would then have to
compete with companies that dominate that industry such as Casio Inc., Compaq
Computer Corporation, and NEC America Inc.
The Company's competitors and potential competitors have substantially
greater financial, marketing, technical and other resources than the Company and
may succeed in establishing technology standards or strategic alliances in the
wireless mobile computing market, obtain more rapid market acceptance for their
products, or otherwise gain a competitive advantage. There can be no assurance
that the Company will succeed in developing products or technologies that are
more effective or better accepted in the market than those developed by its
competitors. In addition, there can be no assurance that the Company's
competitors will not succeed in developing wireless mobile computing products
that would render the Company's products and proposed products obsolete. The
Company will also be competing with companies that have high volume
manufacturing and extensive marketing and distribution capabilities, areas in
which the Company has limited or no experience. Increased competition, direct
and indirect, could materially adversely affect the Company's revenues and
profitability through pricing pressure and loss of market share. There can be
no assurance that the Company will be able to compete successfully against
existing and new competitors as the market evolves and the level of competition
increases. See "Business -- Competition."
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; INFRINGEMENT ON COMPETITORS'
PATENTS. Except for a design patent granted for its compact docking station,
the Company relies on unpatented proprietary technology. Third parties could
develop the same or similar technology or otherwise obtain access to the
Company's proprietary technology. The Company has filed, and intends to
continue to file, applications as appropriate for patents covering its products;
however, there can be no assurance that patents will issue from any of its
pending applications or, if patents do issue, that the claims allowed will be
sufficiently broad to protect the Company's technology. Furthermore, there can
be no assurance that any patents issued to the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
proprietary protection to the Company. Since United States patent applications
are maintained in secrecy until patents issue, and since the publication of
inventions in technical or patent literature tends to lag behind such inventions
by several months or years, the Company cannot be certain that it was the first
creator of inventions covered by its pending patent applications, that it was
the first to file patent applications for such inventions or that the Company is
not infringing on the patents of others. The Company has also trademarked some
of its proprietary product names and logos and claims copyright protection for
its proprietary software.
Although the Company continues to implement protective measures and intends
to defend its proprietary rights vigorously, there can be no assurance that
these efforts will be successful. There can also be no assurance that third
parties will not assert intellectual property infringement claims against the
Company. Litigation may be necessary to enforce the Company's patents,
trademarks, copyrights or other intellectual property rights, to protect the
Company's trade secrets, to determine the validity and scope of the proprietary
rights of others or to defend against claims of infringement. The defense and
prosecution of such patent suits could result in substantial costs and diversion
of resources and could have a material adverse effect on the Company's business
and results of operations regardless of the final outcome of such litigation.
This is particularly true in foreign countries where the expenses associated
with such proceedings can be prohibitive. An adverse outcome in the defense of
a patent
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<PAGE>
suit could subject the Company to significant liabilities to third parties,
require the Company and others to cease selling its products, or require
disputed rights to be licensed from third parties. Such licenses may not be
available on satisfactory terms, or at all. Moreover, if claims of infringement
are asserted against future co-development partners or customers of the Company,
those partners or customers may seek indemnification from the Company for
damages or expenses they incur.
To protect its rights, the Company requires all employees and most
consultants, advisors and collaborators to enter into assignment of invention
and nondisclosure agreements. There can be no assurance, however, that these
agreements will provide meaningful protection for the Company's trade secrets,
know-how or other proprietary information in the event of any unauthorized use,
misappropriation or disclosure of such trade secrets, know-how or other
proprietary information. To date, the Company has had no experience in
enforcing such agreements. See "Business -- Intellectual Property and
Proprietary Rights."
DEPENDENCE ON FUTURE COLLABORATIONS; DEPENDENCE ON THIRD PARTIES. The
Company's strategy for the manufacture of existing and proposed products and
distribution of its products includes entering into manufacturing contracts,
supply contracts and/or distribution agreements with participants in various
segments of the wireless mobile computing markets. The Company's success will
depend not only on the Company's continued relationships with these parties, but
also on its ability to enter into additional strategic arrangements with new
partners on commercially reasonable terms. The Company believes that, in
particular, relationships with application software developers and systems
integrators are extremely important in creating commercial uses for the
Company's products necessary to achieve growth. There can be no assurance that
the Company will be able to negotiate such alliances on acceptable terms, if at
all. See "Financial Information -- Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Strategy."
The Company will rely significantly on its distributors and resellers for
the marketing and distribution of its products. The Company's agreements with
distributors and resellers, in large part, will be non-exclusive and may be
terminated on short notice by either party without cause. The Company's
distributors and resellers will not be within the control of the Company, will
not be obligated to purchase products from the Company and may represent other
lines of products. These distributors and resellers may give higher priority to
the sale of other products, which could include products of competitors. A
reduction in sales effort or discontinuance of sales of the Company's products
by its distributors and resellers could lead to reduced sales and could
materially adversely affect the Company' operating results. The Company may be
unable to recruit distributors and resellers in the future. Moreover, the
distribution industry has been characterized from time to time by financial
difficulties experienced by resellers and distributors. Any such problems could
lead to reduced sales and could materially adversely affect the Company's
operating results.
RELIANCE ON THIRD PARTY CONTRACT MANUFACTURERS AND COMPONENT SUPPLIERS.
The Company subcontracts the manufacture of substantially all of its products to
an independent, third party contract manufacturer on a sole source basis, but it
expects to evaluate additional sources in the future. E.Com has contracted with
Millennium Technology Services, Inc. ("Millennium Technology Services") of White
City, Oregon for the manufacture of the Discovery I. The Company performs the
final product testing on a sampled basis at its Beaverton, Oregon facility. In
July 1997, Millennium Technology Services filed a voluntary petition for Chapter
11 bankruptcy. While the Company expects Millennium Technology Services to
continue to meet its needs, it is exploring alternative manufacturers for its
Discovery I product and believes it would require approximately two to four
weeks to commence production with another manufacturer, if necessary. There can
be no assurance, however, that the Company will be able to contract with an
alternative manufacturer on favorable terms and on a timely basis.
E.Com relies on sole source components including radio modems manufactured
by Motorola Wireless Data Group ("Motorola WDG"), 386 chips manufactured by
Advanced Micro Devices, Inc. and wireline fax/modems manufactured by Rockwell
International Corporation. In addition, the Company purchases standardized
commodities electronics products from a number of independent suppliers.
Currently, the Company has a supply contract with Motorola WDG for the purchase
of radio modems used in its products. The contract is terminable at will by
either party upon ten days' notice. If this contract is terminated by Motorola
WDG, there can be no assurance that the Company will be able to obtain
substitute radio modems on favorable terms or on a timely basis. Certain
components used in the Company's products may not be available without a long
lead-time. If
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market demand develops for any of the Company's products, the Company may
experience some delay in responding to such demand since production will be
subject to time constraints inherent in obtaining the necessary components. The
Company has already experienced delays in obtaining supplies of display boards
and plastics for its PDxpress and Discovery I products. There is no assurance
that the Company will not experience such problems and/or delays in future
production.
Although to date the Company has generally been able to obtain adequate
supplies of all components, certain of these components are purchased on a
purchase order basis, and the Company does not have long-term supply contracts
for many of its components. There can be no assurance that the Company will not
be affected by component shortages. Although the Company's suppliers are
generally large, well financed organizations, a supplier experiencing financial
or operational difficulties that resulted in a reduction or interruption in
supply to the Company would materially adversely affect the Company's results of
operations until the Company established sufficient manufacturing supply through
an alternative source. The Company's inability in the future to obtain
sufficient limited source components, or to develop alternative sources, could
result in delays in product introductions or shipments, which could have a
material adverse effect on the Company's results of operations.
FUTURE PRODUCT DEVELOPMENT REQUIRED. Although the Company has developed
the PDxpress, Discovery I and Discovery II and is ready to manufacture PDxpress
and Discovery I units, the Company will need to conduct further limited testing
of the Discovery I and Discovery II prior to full production. There can be no
assurance that the Company will be successful in developing its line of products
or that the development will occur on a timely basis before competing products
acquire significant market share. In addition, delays in the testing and
debugging of products may delay the introduction of, or prevent the Company from
introducing, new, follow-on products to the marketplace and adversely affect the
Company's competitive position, financial condition and results of operations.
See "Business."
LACK OF MANUFACTURING EXPERIENCE. In order for the Company to be
successful as a product or component manufacturer, its products must be
manufactured to meet high quality standards in commercial quantities at
competitive prices. The Company currently has limited experience and capability
to manufacture products in commercial quantities and has contracted with an
electronics manufacturer for initial manufacture of the PDxpress and Discovery
I. The Company is establishing internal procurement, materials resource
planning, incoming test and battery conditioning, parts kitting and final test
procedures in its facilities to better manage its capacity and reduce costs;
however, it outsources all printed circuit board fabrication, board assembly and
final integration. There can be no assurance that the Company will meet its
manufacturing targets as expected or that it will be able to obtain its
objective of reducing costs while achieving high volume development. See
"Business -- Strategy" and "-- Manufacturing."
CONTROL BY EXISTING SHAREHOLDERS. As of January 31, 1997, the Company's
executive officers, directors and 5% shareholders and their affiliates
beneficially own approximately 38.6%, of the Company's outstanding shares of
Common Stock. Accordingly, these individuals will have the ability to influence
the election of the Company's directors as well as significant corporate matters
requiring approval by the shareholders of the Company. Such concentration of
ownership and the lack of cumulative voting also may have the effect of delaying
or preventing a change in control of the Company.
DEPENDENCE ON KEY PERSONNEL. The Company's development and operations to
date have been, and are expected in the immediate future to be, substantially
dependent on the services of its President and Chief Executive Officer, William
F. Stephens. The loss of Mr. Stephens' services could materially and adversely
affect the Company's business prospects. The Company is also dependent on the
continued service of certain other key management as well as its hardware and
software engineering personnel, the loss of whose services could significantly
delay the achievement of the Company's planned development objectives. The
Company has not purchased key man life insurance on any of its personnel.
Achievement of the Company's business objectives will require substantial
additional expertise in the areas of technology, finance, manufacturing and
marketing. The Company is actively seeking additional qualified personnel.
Competition for qualified personnel is intense, and the loss of key personnel,
or the inability to attract and retain the additional highly skilled personnel
required for the expansion of the Company's activities, could have a material
adverse effect on the Company's business and results of operations. See
"Business -- Employees."
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REGULATION. The Company is subject to various FCC regulations. Current
FCC regulations permit license-free operation of certain FCC-certified wireless
products. There can be no assurance that licensing will not be imposed by the
FCC or if imposed, that the Company would meet its licensing requirements. The
Company's products comply with certain FCC regulations, and the Company's
wireless communications products operate at frequencies based upon these
regulations. Due to recent and ongoing auctions by the FCC of frequencies for
use by communications infrastructures and products and changes in the allocation
of available frequency spectrum the future of remote wireless communications is
highly volatile.
POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS. The Company's Bylaws contain
certain procedural requirements that could have the effect of delaying the
ability of some shareholders to bring matters before a meeting of the
shareholders or to nominate directors. In addition, certain provisions of
Oregon law could have the effect of delaying, deterring or preventing a change
in control of the Company. See "Description of Registrant's Securities to be
Registered -- Provisions Affecting Acquisitions and Business Combinations."
ABSENCE OF DIVIDENDS. The Company has not paid cash dividends since its
inception. The Company currently intends to retain all of its earnings, if any,
for use in its business and does not anticipate paying any cash dividends in the
foreseeable future. Pursuant to the Company's Articles of Incorporation and
Bylaws, the payment of dividends is subject to the discretion of the Company's
Board of Directors and any terms and conditions imposed by law.
REDEMPTION OF WARRANTS. As described in greater detail elsewhere in
this Prospectus, outstanding Warrants issued from September 1997 to December
1997 are subject to redemption at $0.25 per Warrant on 30 days written notice
at any time the Common Stock closes at at least $5.00 per share as reported
by the OTC Bulletin Board for each of ten consecutive trading days
immediately preceding the date of the notice of redemption. Warrants issued
from January 1997 to July 1997 are subject to redemption at $0.50 per Warrant
on 30 days written notice if the Company files a registration statement with
the Commission for an initial public offering of Common Stock; an initial
public offering closes at a price of at least $4.00 per share; or the Company
receives revenue of at least $4 million. In the event the Company exercises
the right to redeem the Warrants, a holder will be forced either to exercise
the Warrants or accept the redemption price. See "Description of Registrant's
Securities to be Registered -- Warrants."
CURRENT PROSPECTUS AND BLUE SKY REGISTRATION REQUIRED TO EXERCISE THE
WARRANTS. Warrant holders will be able to exercise the Warrants included
therein only if a current prospectus relating to the Common Stock underlying
such Warrants is then in effect, and only if such Common Stock is qualified for
sale or exempt from qualification under applicable state securities laws of the
states in which such holders of the Warrants reside. The value of the Warrants
may be impaired if 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 holders of
Warrants reside.
YEAR 2000 COMPLIANCE
Management of the Company believes that the software packages currently
in use and expected to be in use prior to the year 2000 are year 2000
compliant. Management does not expect the financial impact of required
modifications to such software, if any, will be material to the Company's
financial position, cash flows or results of operations in any given year.
SELECTED FINANCIAL DATA
The following table presents summary historical financial information of
the Company. The financial information as of December 31, 1996 and December
31, 1997 has been derived from the financial statements audited by KPMG Peat
Marwick LLP, independent certified public accountants. The audited balance
sheet at December 31, 1997 and 1996 and the related statements of operations,
cash flows and changes in shareholders' equity (deficit) for the year ended
December 31, 1997, for the period from April 4, 1996 (date of inception) to
December 31, 1996 and for the period from April 4, 1996 to December 31, 1997
and notes thereto (the "Audited Financial Statements") appear elsewhere in
this Prospectus. The report of KPMG Peat Marwick LLP, which also appears
herein, contains an explanatory paragraph relating to the Company's ability
to continue as a going concern. See Note 2 of Notes to the Financial
Statements. This summary financial information should be read in conjunction
with the Financial Statements and other financial information included
elsewhere in this Prospectus.
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<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA:
PERIOD FROM PERIOD FROM
APRIL 4, 1996 APRIL 4, 1996
YEAR ENDED (DATE OF INCEPTION) TO (DATE OF INCEPTION) TO
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- ---------------------- ----------------------
<S> <C> <C> <C>
Sales $ 25,237 - $ 25,237
Cost of sales 21,797 - 21,797
----------- ----------- -----------
Gross profit 3,440 - 3,440
----------- ----------- -----------
Operating Expenses
Research and development 1,112,974 $ 230,525 1,343,499
Sales and marketing 238,467 89,649 328,116
General and administrative 655,100 243,514 898,614
----------- ----------- -----------
2,006,541 563,688 2,570,229
----------- ----------- -----------
Loss from operations (2,003,101) (563,688) (2,566,789)
----------- ----------- -----------
Other income (expense)
Interest income 19,139 - 19,139
Interest expense (29,784) (3,522) (33,306)
----------- ----------- -----------
Net loss $(2,013,746) $ (567,210) $(2,580,956)
----------- ----------- -----------
----------- ----------- -----------
Basic loss per share $ (1.46) $ (.63) $ (2.20)
Shares used in calculation 1,378,365 896,054 1,171,552
<CAPTION>
BALANCE SHEET DATA:
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 1,839,281 $ 16,190
Working capital 1,643,513 (298,831)
Total assets 2,614,249 136,019
Capital lease obligations,
less current portion 11,087 -
Shareholders' equity (deficit) 2,073,215 (195,825)
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company commenced operations in April 1996 and then acquired key
product designs and technologies from EnBloc. Since its formation, the Company
has been in the development stage with its principal activities consisting of
assembling a qualified technical and executive management team, continuing the
development of its products, commencing pre-introduction marketing activities
and raising capital. The Company has generated no significant revenues and has
incurred substantial losses since its inception. The Company expects to
continue to incur significant losses in 1998.
The Company expects revenues to be derived primarily from the sale of its
wireless mobile computing products. The Company does not expect to have any
significant revenues until the second quarter of 1998 at the earliest. Sales are
expected to be through purchase order contracts with each customer, which will
vary as to profitability. The Company expects to continue development of
enhancements, upgrades, and software for the Discovery I and for other new
products. Future revenues, profits and cash flow will depend primarily on
market acceptance of wireless communications through the packet radio networks,
acceptance of the Company's products, competition and other factors. See "Risk
Factors."
The Company's primary product is expected to be the Discovery I, a fully
integrated smart handheld device for wireless data communications. The Company
plans to commence commercial production and shipment of the Discovery I-TM- late
in the first quarter of 1998. The Company intends to purchase certain
manufacturing, tooling and test equipment to support its move to commercial
production. In addition, the Company expects to add to its engineering,
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marketing and sales staff to support its shift into commercial product sales.
During 1998, the Company expects to invest in continuing development of
enhancements, upgrades and software for its current products as well as
developing additional new products.
RESULTS OF OPERATIONS AND GOING CONCERN
Comparison of Periods Ended December 31, 1997 and 1996
The Company had revenues of approximately $25 thousand in 1997, compared
to no revenues in the period from inception through December 31, 1996.
Revenues were derived from sales of pre-commercial units of the Company's
Discovery I and PDXpress products to customers for the purpose of evaluating
the products. Upon commencing commercial production, the Company expects its
costs of sales to decline as a percentage of revenues. Operating expenses
increased 260% to $2 million in 1997 from $564 thousand for the prior period,
reflecting primarily the Company's research and development efforts for the
Discovery I product, increased headcount, sales and marketing activities and
the full year of operations. The increases in operating expenses also reflect
the continued development of the Company from start-up to a manufacturer, as
the Company added administrative staff and expanded sales and marketing
activities.
Research and development expenses since inception have consisted primarily
of payments to engineering consultants, payments of salaries and fringe benefits
of employees and purchase of engineering parts and materials. To date, the
Company has expensed all such costs. Research and development expenses from
inception to December 31, 1997 were $1.2 million. In response to a purchase
order for the Discovery I (later canceled), in 1997, the Company committed
significant resources to engineering staff and consultants for research and
development of the Discovery I. The Company expects research and development
expenses to decline in the near-term, but this decline will be offset by higher
costs incurred to support higher engineering costs as the Company begins
commercial manufacturing of its initial products. Accordingly, the Company
anticipates that it will devote substantial resources to product development and
hiring additional personnel.
Sales, marketing, general and administrative expenses include payroll and
related costs for the Company's administrative and executive personnel, costs
related to the Company's marketing and promotional efforts, office lease
expenses and other overhead costs, including legal and accounting costs and fees
of consultants and professionals. Sales, marketing, general and administrative
expenses from inception through December 31, 1997 were approximately $328
thousand, and increased by 166% in 1997 from the prior period, reflecting
primarily preintroduction activities for the Discovery I. The Company expects
sales, marketing, general and administrative expenses to increase substantially
in future periods as the Company invests in marketing activities to promote its
family of products and as it increases its number of employees and level of
corporate and administrative activities in part due to the additional costs of
being a public company.
Net loss from inception through December 31, 1997 was approximately $2.6
million, and increased by 255% in 1997 from the prior period, reflecting
primarily the increase in operating expenses.
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LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its operations primarily through
private placements of common stock. In 1997, the Company raised in private
equity transactions, net of issuance costs, approximately $3.8 million,
including $3 million raised in a private offering during September, November
and December, 1997. At December 31, 1997, the Company had shareholders'
equity of $2.1 million, although from inception through December 31, 1997,
the Company had incurred an accumulated deficit of $2.6 million. The Company
had cash and cash equivalents of $1.8 million at December 31, 1997.
The Company applied the proceeds from the most recent private offering
to payment of outstanding accounts payable, tooling costs, repayment of a
shareholder loan, and salaries, benefits and other regular monthly expenses.
The Company expects to incur additional costs in the first quarter of 1998 to
commercialize its Discovery I, as well as repay additional shareholder debt.
The Company also expects that its operating costs will increase as the
Company hires additional staff to expand its marketing, engineering support
and production capabilities. If and when sales of the Company's products
occur, working capital needs will also increase to finance inventory and
accounts receivable. The Company had no material commitments for capital
expenditures at year end.
The Company's future expenditures and capital requirements will depend
on numerous factors, including the progress of its product development,
manufacturing, sales and marketing programs and sales growth. The Company
expects its cash requirements to increase significantly each year as it
expands its activities and operations to finance increased personnel costs,
inventory and accounts receivable. The Company currently expects that its
cash and cash equivalents will satisfy its working capital needs for
approximately six to eight months, assuming that the Company generates no
revenues during such period. The Company does not expect to qualify for
loans from commercial lenders until it achieves substantial revenues. The
Company anticipates needing to raise additional capital, debt or equity, in
public or private offerings, or loan transactions, to finance its continued
growth. The Company intends to call the Warrants and require the exercise
thereof promptly after (if ever) the call provisions are satisfied. See
"Risk Factors--Capital Requirements."
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standard
No. 130, "Reporting Comprehensive Income" ("SFAS 130"). This statement
establishes standards for reporting and displaying comprehensive income and its
components in a full set of general purpose financial statements. The objective
of SFAS 130 is to report a measure of all changes in equity of an enterprise
that result from transactions and other economic events of the period other than
transactions with owners. The Company expects to adopt SFAS 130 in the first
quarter of 1998 and does not expect comprehensive income to be materially
different from currently reported net income.
In June 1997, the FASB issued Statement of Financial Accounting Standard
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). This statement establishes standards for the way that public
business enterprises report information about operating segments in interim and
annual financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The Company expects to adopt SFAS 131 for its fiscal year beginning January 1,
1998.
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DESCRIPTION OF BUSINESS
E.Com, an Oregon corporation established in 1996, develops, manufactures
and markets integrated wireless mobile computing products for mobile computer
users. The Company's Discovery I is a fully integrated smart handheld device
that enables the user to send and receive wireless e-mail and faxes and access
and retrieve certain information from the Internet, corporate networks and
remote databases. The Company's Discovery II is a lower cost fixed memory
handheld device that permits pen-based wireless messaging, e-mail and faxes.
The Company's PDxpress is a mobile, compact docking station that provides
integrated wireless communications capabilities and related battery management
functions for certain popular but now discontinued Hewlett Packard handheld
personal computers. The Company has completed development of these products and
expects first commercial sales of the Discovery I in the first quarter of 1998.
E.Com's products are designed to exploit the rapid response capabilities of
wireless data communications in industries with mobile employees and
time-sensitive information requirements, such as field sales and service, public
safety, health care, financial services and delivery and courier services.
INDUSTRY OVERVIEW
Demand for wireless communications products, primarily cellular phones and
paging and messaging devices, has exploded in recent years. At the same time,
computer hardware and software in laptop, notebook and handheld computers have
made significant advances in computer memory, speed, functionality and
miniaturization. To date, however, the successful integration of wireless
communications products with computers has been relatively slow to occur due to
the complexities involved in developing and integrating (1) wireless networks
over which data can be transmitted; (2) wireless network "gateways" to integrate
and facilitate data communications between networks; and (3) easy to use,
cost-effective wireless computing products for the end-user. The following
diagram illustrates the critical components of a wireless data communications
solution.
[Diagram contains four interconnected elements: (1) wireless client; (2)
wireless network; (3) wireless gateway; and (4) internet or intranet servers.]
Most wireless networks, which have grown rapidly in recent years, were
designed and optimized for voice, rather than data communications. In
anticipation of growing demand for efficient wireless data communications,
several radio networks were developed for data transmission and deployed by
joint ventures of large computer and telecommunications firms in the United
States. Two of the largest networks, ARDIS and RAM Mobile Data, were developed
by joint ventures of International Business Machines Corporation ("IBM") and
Motorola Inc., and BellSouth Corporation and RAM Broadcast Systems, Inc.,
respectively. These networks, known as "packet radio networks," operate on
different frequencies from cellular phone networks and send and receive data
through highly condensed "packets" of information, rather than through the
continuous stream of transmissions necessary for cellular phones. As a result,
packet radio networks transmit significant volumes of data in seconds (or
microseconds) at a lower cost per kilobyte of data, for small to medium file
sizes, than competing networks now in operation. Users can be in continuous
contact on a packet radio network for an entire day, but accrue charges only
when actual data packets move over the network.
Packet radio networks have extensive geographic coverage in the United
States. The ARDIS network, for example, covers the largest 425 metropolitan
areas which includes more than 90% of all businesses and 80% of the total United
States population. The packet radio networks were designed from the outset for
data transmission and incorporate reliability and security features of critical
importance to users, including: (1) rapid data delivery to users 24 hours a day
requiring no end-user action; (2) automatic roaming capabilities among different
geographical areas through unified national networks at no additional cost;
(3) fully encrypted two-way communication providing data reliability and
security; (4) information storage and forwarding when a user logs on (messages
are
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<PAGE>
retained in the system until confirmation of receipt); (5) continuous network
monitoring with minimum power consumption; and (6) extensive user capacity.
Other networks are being developed, modified or expanded to compete with the
packet radio networks, including overlays to cellular networks (known as CDPD),
expansion of paging systems to encompass two-way communications and other new
networks. To date, these alternative data communications networks offer only
limited coverage, service and availability.
In addition to the United States, packet radio networks are becoming more
established in Asia-Pacific countries where traditional telephone land lines are
often economically and geographically impractical and telephone service may be
non-existent, or spotty at best. Singapore Telecommunications ("Singtel"), the
largest network in Asia, and Telstra Corporation Limited ("Telstra"), the
dominant Australian network, have established packet radio networks in their
regions as an alternative to land line data communications. Other countries
without extensive land line telephone systems are also exploring establishing
packet radio networks.
With the establishment of the packet radio networks by the mid-nineties and
with cellular phones increasingly commonplace, many industry observers have
predicted rapid expansion of wireless data communications. Sales of wireless
computing products, however, have continued to lag far behind sales of cellular
phones, in large part because end-users have been frustrated by problems
resulting from the difficulties of integrating wireless tools, a wireless
network gateway and corporate network and related systems. Unlike cellular
phones, for which the integration of technology has been virtually transparent
to users and the operation identical to traditional wireline phones, to date,
wireless data products have required sophisticated programming to integrate
computer hardware to wireless network gateways to corporate networks. Except
for users of high-price custom systems, prospective users of wireless computing
solutions have had few assurances of operational reliability. Recently,
however, several larger computer systems integrators, such as IKON Office
Solutions, Inc. ("IKON") and others, have established reputations for
integrating the hardware, software and wireless network links for wireless data
communications at reasonable cost with performance guarantees. E.Com believes
that advances in systems integration will continue to reduce operational
glitches in wireless data communications.
Finally, most wireless computing tools have been paging devices or laptop
or handheld computers modified to become wireless. Although Norand, Telxon and
Symbol Technologies produce integrated high-performance, custom systems, their
products are generally priced at between $3,000 and $6,000 per unit and
therefore have not enjoyed wide-spread market penetration. Several companies
such as Motorola WDG, Ericsson, U.S. Robotics and Socket Communications provide
PC card products that enable wireless messaging and paging features in laptop or
handheld computers. Although operational as an add-on or accessory, the
wireless features typically have operational deficiencies such as short battery
life or software integration issues that frustrate most mobile computer users.
Laptop computers, although available at dramatically reduced prices in the last
few years, also have drawbacks with respect to size, weight, ease of use and
lack of durability. Similarly, handheld personal computers have in recent years
become increasingly powerful; however, PC card wireless modems that provide
wireless connectivity generally occupy a critical expansion slot usually needed
for extra memory or application plug-ins. Consequently, the wireless mobile
computing market has not had available an affordable end-user product designed
and engineered specifically as a wireless computing device.
THE E.COM SOLUTION
E.Com's products are wireless communications devices that primarily rely
on the computing power and memory of corporate computer networks. This
mobile platform optimizes performance and minimizes costs by reducing memory
requirements and eliminating the need for a hard drive contained in the
devices. E.Com's products offer its customers the following advantages:
* SEAMLESS INTEGRATED WIRELESS CONNECTIVITY. By incorporating proprietary
software, integrated hardware, application software and packet radio
modems, E.Com's products permit seamless integration with a wireless
network, resulting in wireless communication that is as easy as using a fax
machine or network-wired computer.
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<PAGE>
* REASONABLE PRICE. E.Com's products are priced from the low-end to
lower-mid-range of wireless communications and wireless computing devices.
For example, the Company's flagship product, the Discovery I, is generally
priced at between $1,400 and $2,000 depending upon configuration,
components and customization. Monthly airtime costs are not included.
Competing wireless mobile computing devices range from $500 for radio
network adapters (not including the price of the portable computer) up to
$6,000 for high performance, customized products.
* E-MAIL, FAX AND INTERNET ACCESS. All of E.Com's products enable the mobile
user to send and receive wireless e-mail and faxes, while the Discovery I
and PDxpress permit the mobile user to access and retrieve certain
information from the Internet, corporate networks and remote databases.
* LIGHTWEIGHT, COMPACT PRODUCT. The Discovery I and Discovery II weigh 28
ounces and 26 ounces, respectively. Each product measures 4.3" x 7.3" x
1.4," or slightly larger than a typical handheld personal computer, and is
about twice as thick as typical handheld computers. The Discovery I opens
to allow access to a full keyboard and backlighted screen with touch screen
capabilities for pen-based applications. The Discovery II opens to provide
only pen-based touch screen capabilities. The PDxpress is slightly larger
and weighs 26 ounces (without the HP 100/200LX Palmtop computer).
* DURABLE PRODUCT DESIGN. E.Com's products are designed to withstand many of
the occasional accidents that accompany mobility, such as being dropped on
the floor.
* HIGHER CAPACITY AND LONGER BATTERY LIFE. E.Com's proprietary power
management systems, including power save mode, enable its products to (1)
use less energy for functions; (2) extend the capacity of the batteries for
up to 30 hours without recharging; and (3) increase the life of the
battery, reducing significantly the need for costly battery replacements.
The following table summarizes key features of the Company's products:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FEATURE DISCOVERY I PDXPRESS DISCOVERY II
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Windows-based operating system X X
- -----------------------------------------------------------------------------------------------------------------------------
Wireless network capability DataTac DataTac or Mobitex DataTac
- -----------------------------------------------------------------------------------------------------------------------------
Data collection applications X
- -----------------------------------------------------------------------------------------------------------------------------
Data transfer X
- -----------------------------------------------------------------------------------------------------------------------------
E-mail and fax X X
- -----------------------------------------------------------------------------------------------------------------------------
Corporate network access X
- -----------------------------------------------------------------------------------------------------------------------------
Internet access X
- -----------------------------------------------------------------------------------------------------------------------------
Paging X X
- -----------------------------------------------------------------------------------------------------------------------------
Power management X X
- -----------------------------------------------------------------------------------------------------------------------------
Power-save mode X X
- -----------------------------------------------------------------------------------------------------------------------------
Battery life 30+ hours operation 30+ hours operation 30+ hours operation
- -----------------------------------------------------------------------------------------------------------------------------
Resolution 480 x 320 LCD 480 x 320 LCD
1/2 VGA display 1/2 VGA display
- -----------------------------------------------------------------------------------------------------------------------------
Backlighting X
- -----------------------------------------------------------------------------------------------------------------------------
Durable design X X X
- -----------------------------------------------------------------------------------------------------------------------------
Dimensions 4.3 x 6.7 x 1.4" 7.9 x 5.2 x 1.1" 4.3 x 6.7 x 1.4"
- -----------------------------------------------------------------------------------------------------------------------------
Weight 28 ounces 22 ounces (without 26 ounces
HP100/200LX Palmtop)
- -----------------------------------------------------------------------------------------------------------------------------
Price $1,400 - $2,000 $895 $1,100 - $1,300
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-17-
<PAGE>
STRATEGY
The Company's objective is to develop and market highly functional,
reasonably priced, integrated, wireless mobile computing products. By
incorporating modular designs in its products to facilitate customizing or
upgrading its products, E.Com intends to be a low-cost producer with the ability
to respond quickly to customer demand and technological and market developments
in wireless communications. E.Com integrates its product designs and
proprietary software with components manufactured by leading technology
companies to produce high quality communication and computing products. Key
elements of E.Com's strategy are as follows:
* OPTIMIZE COMPUTING AND COMMUNICATION PERFORMANCE E.Com has designed its
products to provide flexible mobile computing functions at a significantly
lower price than products with comparable features. E.Com's products
require less processing power than laptop computers because intensive
computing functions are performed by a remote server connected through the
wireless network; therefore, E.Com's products are lighter weight and lower
cost than laptops equipped with a wireless modem. E.Com believes that this
approach will significantly expand the market for wireless mobile computing
products. E.Com's products are designed to provide the user with
high-demand features, such as the ability to send and receive e-mail and
faxes and access and retrieve certain information from the Internet,
corporate networks and remote databases.
* EMPHASIZE COST-EFFECTIVE WIRELESS SOLUTIONS. E.Com's modular component
design simplifies and reduces the cost of incorporating enhancements and
upgrades to software or critical components, thereby reducing the risk of
early product obsolescence. In addition, modular design allows E.Com to
customize its products at reasonable cost for volume purchasers of its
products. This modular design reduces manufacturing costs and allows the
Company to respond quickly to changes in market conditions without the need
to completely redesign its products. E.Com uses contract manufacturers to
fabricate and assemble its products so as to avoid the investment in
facilities, equipment and personnel.
* EXPAND MARKET BY PROVIDING INTEGRATED WIRELESS SOLUTIONS. Most wireless
mobile computing devices available today fail to provide seamless wireless
connectivity. While high performance, customized wireless computing
products provide excellent wireless connectivity, E.Com believes that such
devices have not enjoyed widespread acceptance by business customers due to
the high price (generally $3,000 per unit or higher) of highly functional
products and the poor product functionality of lower-priced products.
E.Com's products, and the Discovery I in particular, bridge that gap to
provide mobility and highly-functional connectivity at a reasonable price.
E.Com believes that lower-priced wireless computing devices with reliable
wireless connectivity will significantly expand the market for wireless
mobile computing products.
* OFFER CUSTOMER SUPPORT SERVICE. Users of laptop or handheld computers have
faced significant challenges in integrating the software, hardware and
wireless technology necessary to achieve reliable wireless operation.
E.Com has designed its products to provide seamless wireless connectivity
by integrating the features of its products with an advanced wireless radio
modem. Further, E.Com is able to provide single-source technical support
to end-users to solve problems relating to its products' software, hardware
or radio modems.
* TARGET MOBILE TIME-SENSITIVE APPLICATIONS. E.Com has targeted its products
at industries with mobile employees with time-sensitive information
requirements. Likely users include field sales and services, public
safety, health care, financial services and delivery and courier services.
E.Com's products, and the Discovery I in particular, are designed for such
users who may be dependent on rapidly changing mission-critical data or who
operate in rapidly changing environments. For such users, the fast
response capabilities of E.Com's wireless products are crucial.
* ESTABLISH STRATEGIC ALLIANCES TO CREATE DISTRIBUTION CHANNELS. The Company
has established strategic alliances to enhance its product marketing
efforts with leading participants in the wireless data communications
markets, including ARDIS, the largest packet radio network in the United
States, and
-18-
<PAGE>
Motorola WDG, the largest supplier of packet radio modems. All of E.Com's
wireless products are equipped with a Motorola WDG radio modem. The
Company is also pursuing alliances with the largest wireless computer
systems integrators as well as other distribution arrangements with
software vendors and distributors. The Company believes these alliances
and relationships will enable it to take advantage of the superior
distribution systems, financial resources and market presences of these
companies in establishing and eventually maintaining E.Com's products in
the wireless data industry.
SALES AND MARKETING
E.Com's portable products are targeted at mobile users who require fast
reliable access to data in time-sensitive environments, such as field sales and
service, public safety, health care, financial services and delivery and courier
services. Targeted likely users of the Company's products are away from their
offices at least 20% of the time and have information processing and
transmission requirements that extend beyond the capabilities of standard
cellular phones and pagers, but require less memory and processing capabilities
than standard laptop or handheld personal computers.
E.Com's sales and marketing activities are focused primarily on two
geographic regions, the United States and the Asia-Pacific countries of
Singapore, Australia, Malaysia, and Taiwan. As described above, these regions
have (or will soon have) operational packet radio networks and E.Com believes
that many businesses and mobile employees in these markets want affordable,
reliable, easy to use wireless products.
The Company has established strategic relationships with leading
participants in the wireless data communications markets and is pursuing
alliances with the largest systems integrators as well as other distribution
arrangements with independent software vendors and distributors. Important
distribution channels for E.Com are the packet radio network operators, such as
ARDIS and RAM Mobile Data in the United States, Singtel in Singapore, and
Telstra in Australia. The packet radio network operators, with substantial
available capacity and facing increasing competition, are willing to promote and
distribute E.Com's products in conjunction with promoting their own networks.
All of E.Com's products have been designed to operate on DataTac networks, the
worldwide Motorola standard. Currently, only the PDxpress can also be
configured for the RAM Mobile Data network in the United States. RAM Mobile
Data operates on Mobitex, an Ericsson worldwide network standard similar to
DataTAC. The Company has plans to incorporate Mobitex radio modems into its
Discovery I and Discovery II products in the future.
E.Com is working with systems integrators to develop joint promotion,
distribution and representation arrangements for its Discovery I and Discovery
II products, as well as independent software vendors to develop other
distribution channels for these products. The Company has also established
relationships with authorized resellers of Hewlett Packard handheld personal
computer products to resell E.Com's PDxpress products. E.Com expects the recent
discontinuation of certain Hewlett Packard handheld personal computer products
will reduce the demand for the Pdxpress.
To further strengthen its position in the market, E.Com has entered into an
agreement with Motorola WDG in which Motorola WDG has agreed to provide wireless
radio modems for the Company's products. Motorola WDG has also agreed to
undertake joint product and business development and marketing activities such
as distributor training and advertising. The agreement is terminable without
cause by either party on ten day's notice. If the agreement is terminated by
Motorola WDG, there can be no assurance that the Company will be able to obtain
substitute radio modems on favorable terms or on a timely basis. E.Com also
plans to establish a focused direct sales force to market its products to
distributors of communications products and mobile computer professionals within
major corporate accounts to create product awareness, assist in product
evaluations, and provide ongoing education and support.
E.Com's marketing activities to date have been to position the Company as a
manufacturer of reasonably priced, integrated wireless mobile computing products
and to create product awareness. E.Com intends to expend significant resources
to create end user demand, establish brand name recognition and provide reseller
support. As of March 1, 1998, the Company had one and a half persons in sales,
marketing and support. The Company
-19-
<PAGE>
intends to increase its sales and marketing activities by adding two additional
personnel and increasing promotional activities.
Consistent with industry practice, the Company expects to provide its
distributors with stock balancing and price protection rights which permit these
distributors to return slow moving products to the Company for credit and price
adjustments and for inventories of the Company's products held by distributors
if the Company lowers the price of those products. Actual returns and price
protection may have a material adverse effect on future operating results,
particularly since the Company seeks to continually introduce new and enhanced
products and is likely to face increasing price competition. The Company
expects its agreements with its distributors will generally have terms of one to
two years with automatic renewal provisions and typically provide for the
termination of the agreement by either party upon 60 to 90 days notice.
MANUFACTURING
E.Com is establishing internal procurement, materials resource planning,
incoming test and battery conditioning, parts kitting, and final test procedures
in its facilities, while outsourcing all printed circuit board fabrication,
board assembly and final integration. E.Com has contracted with Millennium
Technology Services of White City, Oregon for the manufacturing of the
Discovery I and PDxpress. The Company expects to enter into written agreements
with Millennium and possibly other manufacturers, to provide for written
warranties, service, and other terms of the manufacturing arrangement. In July
1997, Millennium Technology Services filed a voluntary petition for Chapter 11
bankruptcy. While the Company expects Millennium Technology Services to
continue to meet its needs, it is exploring alternative manufacturers for its
Discovery I product and believes it would require approximately two to four
weeks to commence production with another manufacturer, if necessary.
COMPETITION
The Company competes directly with established manufacturers of high-end
wireless mobile computing products, including Norand, Telxon and Symbol
Technologies, all of which have substantially greater financial, technical and
other resources than the Company. Such companies have high volume manufacturing
and extensive marketing and distribution capabilities and may succeed in
establishing technology standards or strategic alliances in the data
communications or mobile computer market, obtain more rapid market acceptance
for their products, or otherwise gain a competitive advantage. The Company
competes indirectly with other established manufacturers of wireless PC modem
products, including Ericsson and U.S. Robotics.
The Company also faces competition from companies that manufacture pagers
(including Motorola WDG, Research in Motion and Socket Communications) or offer
extended paging services and paging networks. Paging networks have evolved so
that many now offer two-way paging that permits users to transmit short
messages. Such companies may seek to expand the capabilities of the paging
networks to match or exceed the capabilities of the packet radio networks. The
Company also faces competition from alternative methods of downloading
information into a mobile computer, primarily over telephone lines. In addition
to competition from companies that offer wireless data communications devices,
the Company could face competition from companies that offer alternative wired
or wireless communications solutions, or from large computer and network
equipment companies.
The overall market for communications products is increasingly competitive,
and the Company expects competition in each of its market areas to intensify.
There can be no assurance that the Company will be able to compete successfully
against existing and new competitors as the market evolves and the level of
competition increases. See "Risk Factors--Competition and Technological
Advances."
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
E.Com has developed power and battery management systems, software to
integrate such systems and other components to enhance its ability to develop
new hardware and software products quickly, to offer products which run on
multiple host platforms and to manufacture and package products at low cost.
The Company has
-20-
<PAGE>
also developed a software development kit for Windows 3.1 or PenRight!
applications which is used to reduce product development time and maximize
platform independence.
In June 1997 the Company was granted a design patent for its PDxpress
compact docking station. The Company's utility patent for the PDxpress is
currently under consideration. Otherwise, the Company relies on unpatented
proprietary technology and there can be no assurance that others may not
independently develop the same or similar technology or otherwise obtain access
to the Company's proprietary technology. To protect its rights in these areas,
the Company requires all employees and most consultants, advisors and
collaborators to enter into assignment of invention and nondisclosure
agreements. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's trade secrets, know-how or other
proprietary information in the event of any unauthorized use, misappropriation
or disclosure of such trade secrets, know-how or other proprietary information.
The Company has had no experience in enforcing its confidentiality agreements.
See "Risk Factors--Limited Protection of Proprietary Technology, Infringement on
Competitors' Patents."
GOVERNMENT REGULATION
The Company is subject to various Federal Communications Commission ("FCC")
regulations. The Company has received certification that its products comply
with certain FCC regulations, and the Company's wireless communications products
operate at frequencies based upon these regulations. Current FCC regulations
permit license-free operation of certain FCC-certified wireless products;
however, there can be no assurance that licensing will not be imposed by the FCC
or if imposed, that the Company would meet the requirements of such a licensing
scheme. In addition, the Company's products are dependent on the availability
of certain wireless communications frequencies. However, due to recent and
ongoing auctions by the FCC of frequencies for use by communications
infrastructures and products and changes in the allocation of available
frequency spectrum, the future of remote wireless communications is highly
volatile. There can be no assurance the Company will be able to adapt its
products on a timely and cost-effective basis to adapt to this changing
environment.
EMPLOYEES
As of December 31, 1997, E.Com had twelve full-time employees and three
part-time consulting or contract employees. E.Com is actively seeking
additional qualified personnel for engineering product support and sales and
marketing. The Company's employees are not subject to any collective
bargaining agreements and management regards its relations with employees to
be good. See "Risk Factors--Dependence on Key Personnel."
DESCRIPTION OF PROPERTY
E.Com currently leases approximately 6,200 square feet of combined use
office, testing and warehouse space at 7737 SW Cirrus Drive in Beaverton,
Oregon. The lease term is three years and expires in September 1999. The
Company believes that the current facilities are adequate but that it will
require additional space in the Spring of 1998 to accommodate planned growth.
The Company anticipates that additional space will be available on reasonable
terms if needed.
USE OF PROCEEDS
E.Com will not receive any proceeds from the sale of the Common Stock
offered hereby; nor will such proceeds be available for E.Com's use or
benefit. If all the Warrants were exercised at the exercise price of $3.50
and all Unit Warrants were exercised, the Company would receive
$5,819,775.50. The Company expects to use the proceeds therefrom for further
product development and working capital, including financing inventory and
outstanding accounts receivable.
DETERMINATION OF OFFERING PRICE
There is currently no established public market for the Common Stock,
Warrants or Unit Warrants. The exercise price of a Warrant is $3.50 which
was the price per share of common stock offered and sold by the Company in
private transactions in 1997. The exercise price was determined by the
Company and the selling agents in private placements. The exercise price of
a Unit Warrant is $3,500 which is the price at which units consisting of
1,000 shares of Common Stock and 1,000 Warrants were offered to investors in
an exempt private offering. The exercise prices of the Warrants and Unit
Warrants do not necessarily bear any direct relationship to the Company's
assets, earnings, book value per share or other generally accepted criteria
of value. Among the factors considered were the business in which the
Company is engaged, estimates of the business potential of the Company, the
Company's financial position, an assessment of the Company's management, the
general condition of the securities markets, the demand
-21-
<PAGE>
for similar securities of comparable companies and other relevant factors.
There can be no assurance that a public market for the Common Stock,
Warrants or Unit Warrants will ever be developed or that, if developed,
it will be sustained.
SELLING SECURITY HOLDERS
All of the securities to be registered are to be offered for the account of
the Selling Security Holders. The following table sets forth the name of each
Selling Security Holder; the nature of any position, office or other material
relationship which the Selling Security Holder had within the past three years
with E.Com; and the amount of the securities of each class owned by such Selling
Security Holder prior to the offering. It is presumed that each Selling
Security Holder will offer the entire amount of securities held and will not
have any securities remaining after the offering.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
AMOUNT BENEFICIALLY AMOUNT BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
- ------------------------------------------------------------------------------------------------------------------------------
NAME & RELATIONSHIP WITH THE
COMPANY (IF APPLICABLE) OF TITLE OF CLASS NUMBER PERCENT NUMBER PERCENT
BENEFICIAL OWNER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Agar, Allen Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Anderegg, Karen Common Stock 3,334 * 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Apex Limited Partners, LP Common Stock 25,000 1.1 0 0
Warrants 25,000 1.6 0 0
Warrant Shares 25,000 1.6 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Archer, Robert Common Stock 12,000 * 0 0
Warrants 12,000 * 0 0
Warrant Shares 12,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Armitage, Barclay(1) Common Stock 250,000 10.5 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Ashton Technology Group, The Common Stock 30,000 1.3 0 0
Warrants 30,000 1.9 0 0
Warrant Shares 30,000 1.9 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Baker, Jeffrey B. & Bonnie J. Common Stock 6,250 * 0 0
Warrants 6,250 * 0 0
Warrant Shares 6,250 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Bares, Steven J. Common Stock 42,648 1.8 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Barinaga, Louis Common Stock 60,002 2.5 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Barkus Capital Resources Ltd. Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
-22-
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
AMOUNT BENEFICIALLY AMOUNT BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
- ------------------------------------------------------------------------------------------------------------------------------
NAME & RELATIONSHIP WITH THE
COMPANY (IF APPLICABLE) OF TITLE OF CLASS NUMBER PERCENT NUMBER PERCENT
BENEFICIAL OWNER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bathgate, Steven M., Keogh, Delaware Common Stock 7,000 * 0 0
Charter FBO Steven M. Bathgate Keogh Warrants 7,000 * 0 0
Warrant Shares 7,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
BDJ Investment Common Stock 3,750 * 0 0
Warrants 3,750 * 0 0
Warrant Shares 3,750 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Bingham, Clarke Common Stock 49,208 2.1 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Bishop, Jr., B. H. Common Stock 6,250 * 0 0
Warrants 6,250 * 0 0
Warrant Shares 6,250 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Blackwell Donaldson & Company Common Stock 0 * 0 0
Warrants 35,000 2.2 0 0
Warrant Shares 35,000 2.2 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Blackwell, Cynthia A. Blackwell IRA, Common Stock 7,143 * 0 0
Hanifen Imhoff Custodian Warrants 7,143 * 0 0
Warrant Shares 7,143 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Blakley, Steven Common Stock 5,000 * 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Bowerly, Kent Common Stock 2,500 * 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Braddock, John Common Stock 2,500 * 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Bradley, Willie R. Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Branch, James C. Common Stock 50,000 2.1 0 0
Warrants 50,000 3.2 0 0
Warrant Shares 50,000 3.2 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Bronstein Family Trust Common Stock 6,250 * 0 0
Warrants 6,250 * 0 0
Warrant Shares 6,250 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Brown, Bradley N. Common Stock 3,750 * 0 0
Warrants 3,750 * 0 0
Warrant Shares 3,750 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Brunnacker, Siegfried & Martha Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Buckman, MD, Jeffrey Common Stock 6,000 * 0 0
Warrants 6,000 * 0 0
Warrant Shares 6,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
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<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
AMOUNT BENEFICIALLY AMOUNT BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
- ------------------------------------------------------------------------------------------------------------------------------
NAME & RELATIONSHIP WITH THE
COMPANY (IF APPLICABLE) OF TITLE OF CLASS NUMBER PERCENT NUMBER PERCENT
BENEFICIAL OWNER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Budihas, Robert Common Stock 12,500 * 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Bunn, Robert B., as Trustee of the Robert Common Stock 4,000 * 0 0
B. Bunn Revocable Living Trust, dated May Warrants 4,000 * 0 0
18, 1982 Warrant Shares 4,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Burr, Jeremy Common Stock 500 * 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Cambridge Holdings Ltd. Common Stock 30,000 1.3 0 0
Warrants 30,000 1.9 0 0
Warrant Shares 30,000 1.9 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Campbell, Dan Common Stock 2,500 * 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Caplan Family Trust Common Stock 25,000 1.1 0 0
Warrants 25,000 1.6 0 0
Warrant Shares 25,000 1.6 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Caribou Bridge Fund LLC Common Stock 7,000 * 0 0
Warrants 7,000 * 0 0
Warrant Shares 7,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Cavanaugh, John, Resources Trust Co. Trua Common Stock 7,500 * 0 0
dated fbo John Cavanaugh Warrants 7,500 * 0 0
Warrant Shares 7,500 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Charles, James J. Common Stock 10,000 * 0 0
Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Chester, Richard J. Common Stock 6,000 * 0 0
Warrants 6,000 * 0 0
Warrant Shares 6,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Cicrich, Allen Common Stock 2,500 * 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Clark, Ron Common Stock 2,500 * 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Clayton Living Trust, Noranne Common Stock 3,750 * 0 0
Warrants 3,750 * 0 0
Warrant Shares 3,750 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Cooperman, MD, Steven G. Common Stock 6,250 * 0 0
Warrants 6,250 * 0 0
Warrant Shares 6,250 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
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<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
AMOUNT BENEFICIALLY AMOUNT BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
- ------------------------------------------------------------------------------------------------------------------------------
NAME & RELATIONSHIP WITH THE
COMPANY (IF APPLICABLE) OF TITLE OF CLASS NUMBER PERCENT NUMBER PERCENT
BENEFICIAL OWNER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Copilow, Sidney Common Stock 6,000 * 0 0
Warrants 6,000 * 0 0
Warrant Shares 6,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Corbett, Heather G., Trust U/I dtd. Common Stock 5,000 * 0 0
10/29/74 fbo Heather G. Corbett et al Warrants 5,000 * 0 0
Warrant Shares 5,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Currier, Brian D. Common Stock 8,333 * 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Davis, Jr., Otis M. Common Stock 10,000 * 0 0
Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Dole, Donald A., Hanifen, Imhoff Inc., Common Stock 3,750 * 0 0
Custodian fbo Donald A. Dole IRA Warrants 3,750 * 0 0
Warrant Shares 3,750 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Duyn, Michael Common Stock 2,500 * 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Eastgate Motors Profit Sharing Trust Common Stock 4,000 * 0 0
Warrants 4,000 * 0 0
Warrant Shares 4,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Eischen IRA, Clement G. Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Enga, Sharon L. Common Stock 10,000 * 0 0
Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Finegan, Charles E. & Debra L. Common Stock 3,750 * 0 0
Warrants 3,750 * 0 0
Warrant Shares 3,750 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Firebaugh, Robert T. Common Stock 12,000 * 0 0
Warrants 12,000 * 0 0
Warrant Shares 12,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Fisher Brothers Investments Ltd. Common Stock 8,500 * 0 0
Partnership Warrants 8,500 * 0 0
Warrant Shares 8,500 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Frankel, Robert D. Common Stock 10,000 * 0 0
Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Fredson, Ronald A. Common Stock 10,000 * 0 0
Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Friesen Lumber Company Common Stock 3,750 * 0 0
Warrants 3,750 * 0 0
Warrant Shares 3,750 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
-25-
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
AMOUNT BENEFICIALLY AMOUNT BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
- ------------------------------------------------------------------------------------------------------------------------------
NAME & RELATIONSHIP WITH THE
COMPANY (IF APPLICABLE) OF TITLE OF CLASS NUMBER PERCENT NUMBER PERCENT
BENEFICIAL OWNER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gabriel R. Galletto Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Gabriel, Neil B. Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Generation Capital Associates Common Stock 10,000 * 0 0
Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Glenbrook Capital LP Common Stock 20,000 * 0 0
Warrants 20,000 1.3 0 0
Warrant Shares 20,000 1.3 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Gossman, Allan F. Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Gunther Family Trust Common Stock 12,500 * 0 0
Warrants 12,500 * 0 0
Warrant Shares 12,500 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Hall, Vaughn E. Hall IRA, Oppenheimer & Common Stock 5,000 * 0 0
Co. Custodian Warrants 5,000 * 0 0
Warrant Shares 5,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Hamersly, Wayne M. Sep. IRA Common Stock 4,000 * 0 0
Warrants 4,000 * 0 0
Warrant Shares 4,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Harris, David B. Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Haut, Henry Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Havens, Scott & Lee Common Stock 12,500 * 0 0
Warrants 12,500 * 0 0
Warrant Shares 12,500 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Henningsen, Paul G. & Judith S. Common Stock 6,000 * 0 0
Warrants 6,000 * 0 0
Warrant Shares 6,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Hoeppner, Fred C. & Margaret J. Common Stock 3,750 * 0 0
Warrants 3,750 * 0 0
Warrant Shares 3,750 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Holce, Thomas Common Stock 20,000 * 0 0
Warrants 15,000 1.0 0 0
Warrant Shares 15,000 1.0 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Hutchins, Jimmy Lee Common Stock 11,000 * 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
-26-
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
AMOUNT BENEFICIALLY AMOUNT BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
- ------------------------------------------------------------------------------------------------------------------------------
NAME & RELATIONSHIP WITH THE
COMPANY (IF APPLICABLE) OF TITLE OF CLASS NUMBER PERCENT NUMBER PERCENT
BENEFICIAL OWNER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ireton, Greg Common Stock 2,500 * 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Iseli, Andre Common Stock 10,000 * 0 0
Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Johnson JTTEN, Christopher L. & Ann Common Stock 10,000 * 0 0
Harding Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Johnson, Christopher L. Common Stock 5,000 * 0 0
Warrants 5,000 * 0 0
Warrant Shares 5,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Jones III, June S. Common Stock 7,000 * 0 0
Warrants 7,000 * 0 0
Warrant Shares 7,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Jones, Patrick J. & Lisa H. Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Kapdi Trust, Maggie Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Karamanos, Elias Common Stock 3,750 * 0 0
Warrants 3,750 * 0 0
Warrant Shares 3,750 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Karson, Dave Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Kayser, Henry Common Stock 10,000 * 0 0
Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Kennedy, Wayne L. & Judy A. Kennedy, Joint Common Stock 3,750 * 0 0
Tenants with Rights of Survivorship Warrants 3,750 * 0 0
Warrant Shares 3,750 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Khayyam, Mansour Common Stock 20,000 * 0 0
Warrants 20,000 1.3 0 0
Warrant Shares 20,000 1.3 0 0
- ------------------------------------------------------------------------------------------------------------------------------
King, Preston Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Knepper, Tracy Common Stock 25,000 1.1 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Koopman, Kerry Common Stock 3,941 * 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
-27-
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
AMOUNT BENEFICIALLY AMOUNT BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
- ------------------------------------------------------------------------------------------------------------------------------
NAME & RELATIONSHIP WITH THE
COMPANY (IF APPLICABLE) OF TITLE OF CLASS NUMBER PERCENT NUMBER PERCENT
BENEFICIAL OWNER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kravitz, Marc Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Krupinsky, George Common Stock 7,000 * 0 0
Warrants 7,000 * 0 0
Warrant Shares 7,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Lackey, Robert J. Common Stock 2,500 * 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Lake Norman LLC Common Stock 50,000 2.1 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Lance, Thomas W. Common Stock 10,000 * 0 0
Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Larkin, Edward C. Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Larson, Ray Common Stock 25,000 1.1 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Larson, Steven A. Common Stock 195,000 8.2 0 0
Chairman of the Board since April Warrants 0 * 0 0
1996, Vice President of Corporate Warrant Shares 0 * 0 0
Development since August 1997.
- ------------------------------------------------------------------------------------------------------------------------------
Lassen, Larry Common Stock 4,000 * 0 0
Warrants 4,000 * 0 0
Warrant Shares 4,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
LeDoux Family Limited Partnership Common Stock 6,000 * 0 0
Warrants 6,000 * 0 0
Warrant Shares 6,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Leonard, John G. & Ryan Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Liner, Morton A. Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Lupo, Paul J. & Kay B. Common Stock 10,000 * 0 0
Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Maloney, Dayle K. & Jeannine R. Common Stock 6,000 * 0 0
Warrants 6,000 * 0 0
Warrant Shares 6,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
-28-
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
AMOUNT BENEFICIALLY AMOUNT BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
- ------------------------------------------------------------------------------------------------------------------------------
NAME & RELATIONSHIP WITH THE
COMPANY (IF APPLICABLE) OF TITLE OF CLASS NUMBER PERCENT NUMBER PERCENT
BENEFICIAL OWNER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Manelski, Henry A. Trust fbo Henry A. Common Stock 3,000 * 0 0
Manelski Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Mann, Andrew S.M. & Diana Lee Common Stock 10,000 * 0 0
Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
McCulloch, Jr., Joseph P. Common Stock 3,750 * 0 0
Warrants 3,750 * 0 0
Warrant Shares 3,750 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
McGinnis, John M. Common Stock 10,000 * 0 0
Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Medding, Peter Y. & Ruth Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Menkes, Roslyn Defined Benefit Plan Common Stock 10,000 * 0 0
Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Meyer, Richard E., Enele Co. Custodian fbo Common Stock 7,500 * 0 0
Richard E. Meyer IRA #9969 Warrants 7,500 * 0 0
Warrant Shares 7,500 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Morris, Robert A. Common Stock 25,000 1.1 0 0
Warrants 25,000 1.6 0 0
Warrant Shares 25,000 1.6 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Morrow, Donald E. Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Neitling, Larry Common Stock 12,500 * 0 0
Director since August 1997. Warrants 12,500 * 0 0
Warrant Shares 12,500 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Nelson, JoAnne L. Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Newmark, Herbert L. & Jeanne Common Stock 6,250 * 0 0
Warrants 6,250 * 0 0
Warrant Shares 6,250 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Newton, William C., William C. Newton Common Stock 12,500 * 0 0
Living Trust Dated 7/20/84 as amended Warrants 12,500 * 0 0
Warrant Shares 12,500 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
O'Kennedy, Timothy J. Common Stock 5,000 * 0 0
Warrants 5,000 * 0 0
Warrant Shares 5,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Oeck, Robert C. Key Trust National Assoc. Common Stock 7,500 * 0 0
Kleenair P/PS fbo Oeck Warrants 7,500 * 0 0
Warrant Shares 7,500 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
-29-
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
AMOUNT BENEFICIALLY AMOUNT BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
- ------------------------------------------------------------------------------------------------------------------------------
NAME & RELATIONSHIP WITH THE
COMPANY (IF APPLICABLE) OF TITLE OF CLASS NUMBER PERCENT NUMBER PERCENT
BENEFICIAL OWNER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Oorthuys, John Common Stock 500 * 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Ortner IV, Paul P. Common Stock 10,000 * 0 0
Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Paulson Investment Co.(2) Common Stock 290,000 12.2 0 0
Warrants 290,000 25.2 0 0
Warrant Shares 290,000 25.2 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Persad, Stephen Paul, Hanifen Imhoff C/FBO Common Stock 3,750 * 0 0
Stephen Paul Persad Warrants 3,750 * 0 0
Warrant Shares 3,750 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Petersen, Aldo Common Stock 4,000 * 0 0
Warrants 4,000 * 0 0
Warrant Shares 4,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Pietz, Edward H. Common Stock 15,000 * 0 0
Warrants 15,000 1.0 0 0
Warrant Shares 15,000 1.0 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Platner, James Common Stock 12,500 * 0 0
Warrants 12,500 * 0 0
Warrant Shares 12,500 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Podgers, MD Jerome J. SC Employees Profit Common Stock 6,000 * 0 0
Sharing Trust Warrants 6,000 * 0 0
Warrant Shares 6,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Prescott, Bruce Common Stock 6,250 * 0 0
Warrants 6,250 * 0 0
Warrant Shares 6,250 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Pusey, Gregory Common Stock 5,000 * 0 0
Warrants 5,000 * 0 0
Warrant Shares 5,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Radke, Dr. Kermit Common Stock 10,000 * 0 0
Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Rametra, Surinder Common Stock 10,000 * 0 0
Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Reitz, John V. Common Stock 4,000 * 0 0
Warrants 4,000 * 0 0
Warrant Shares 4,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Ropp, Frank Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Rutherford IRA, William D., Oppenheimer & Common Stock 8,334 * 0 0
Co., Inc. as Custodian Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
-30-
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
AMOUNT BENEFICIALLY AMOUNT BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
- ------------------------------------------------------------------------------------------------------------------------------
NAME & RELATIONSHIP WITH THE
COMPANY (IF APPLICABLE) OF TITLE OF CLASS NUMBER PERCENT NUMBER PERCENT
BENEFICIAL OWNER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sapp, Jim Common Stock 50,000 2.1 0 0
Director since September 1996. Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
SCF Retirement Plan Common Stock 12,250 * 0 0
Warrants 3,750 * 0 0
Warrant Shares 3,750 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Schafer, Walter Warren & Jennie A. Common Stock 6,667 * 0 0
Schafer, Trustees, fbo Walter W. & Jennie Warrants 0 * 0 0
A. Schafer Trust dtd. 11/10/96 Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Schield Management Company LP Common Stock 7,000 * 0 0
Warrants 7,000 * 0 0
Warrant Shares 7,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Schield, Marshall L. Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Schneiter, Thair Q. Common Stock 10,000 * 0 0
Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Schut, David W. Common Stock 3,750 * 0 0
Warrants 3,750 * 0 0
Warrant Shares 3,750 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Schwarz Living Trust, William L. & Common Stock 10,000 * 0 0
Valerie V. Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Senkow, Robert L. Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Shalom, Fred Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
SJ Partners, Ltd. Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Slater, Judith M. Common Stock 7,500 * 0 0
Warrants 7,500 * 0 0
Warrant Shares 7,500 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Smith, Stephen A. & Patricia M. Common Stock 5,000 * 0 0
Warrants 5,000 * 0 0
Warrant Shares 5,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Sojcher, Stuart H. Common Stock 10,000 * 0 0
Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
-31-
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
AMOUNT BENEFICIALLY AMOUNT BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
- ------------------------------------------------------------------------------------------------------------------------------
NAME & RELATIONSHIP WITH THE
COMPANY (IF APPLICABLE) OF TITLE OF CLASS NUMBER PERCENT NUMBER PERCENT
BENEFICIAL OWNER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Spiller, Burton Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Steiner, Fern M. Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Stephens, William F. Common Stock 86,667 3.6 0 0
President, Chief Executive Officer & Warrants 0 * 0 0
Director since April 1996. Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Stoody, Amy Menkes & John Shelley Common Stock 13,000 * 0 0
Warrants 13,000 * 0 0
Warrant Shares 13,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Stott, Benjamin W. Common Stock 10,000 * 0 0
Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Swanson, Jr., Alvin L. Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Sznaider, Paul J. & Kelly A. Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Tamkin, MD, ACP Retirement Trust, James Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Tarantelli, Matthew T. Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Tiburon Fund Ltd. Common Stock 50,000 2.1 0 0
Warrants 50,000 3.2 0 0
Warrant Shares 50,000 3.2 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Tracy, Ronald G. Common Stock 10,000 * 0 0
Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Trailer Rancho Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Vivo, Eugene Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
VMH Management Ltd. Common Stock 86,000 3.6 0 0
Warrants 86,000 5.5 0 0
Warrant Shares 86,000 5.5 0 0
- ------------------------------------------------------------------------------------------------------------------------------
-32-
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
AMOUNT BENEFICIALLY AMOUNT BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
- ------------------------------------------------------------------------------------------------------------------------------
NAME & RELATIONSHIP WITH THE
COMPANY (IF APPLICABLE) OF TITLE OF CLASS NUMBER PERCENT NUMBER PERCENT
BENEFICIAL OWNER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Waibel, Al Common Stock 6,000 * 0 0
Warrants 6,000 * 0 0
Warrant Shares 6,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
WCN/GAN Partners, Ltd. Common Stock 12,500 * 0 0
Warrants 12,500 * 0 0
Warrant Shares 12,500 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Webb Securities Inc. Pension Profit Common Stock 7,500 * 0 0
Sharing Trust Warrants 7,500 * 0 0
Warrant Shares 7,500 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Weinberg, Dr. Gary Lee Common Stock 5,000 * 0 0
Warrants 5,000 * 0 0
Warrant Shares 5,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Wescott, David R. Common Stock 3,000 * 0 0
Warrants 3,000 * 0 0
Warrant Shares 3,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Williams, Don Common Stock 2,500 * 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Willis, David L. & Marilyn C. Common Stock 10,000 * 0 0
Warrants 10,000 * 0 0
Warrant Shares 10,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Women's Clinic of Vancouver, P.S. Profit Common Stock 6,250 * 0 0
Sharing Plan Warrants 6,250 * 0 0
Warrant Shares 6,250 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Woodburn Nursery, Inc. Common Stock 3,750 * 0 0
Warrants 3,750 * 0 0
Warrant Shares 3,750 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Wyckoff, Jan M. Common Stock 6,550 * 0 0
Warrants 0 * 0 0
Warrant Shares 0 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Young, Sharon M.Y. Revocable Living Trust Common Stock 7,000 * 0 0
4/28/95 Warrants 7,000 * 0 0
Warrant Shares 7,000 * 0 0
- ------------------------------------------------------------------------------------------------------------------------------
- -------------------------
* LESS THAN ONE PERCENT
(1) Entities affiliated with Mr. Armitage held demand notes the
principal balance of which was $195,000 at year end.
(2) Paulson Investment Co. Inc. is the beneficial owner of 106.7 Unit
Warrants. This amount constitutes 100% of the outstanding Unit Warrants.
It is presumed that Paulson will offer all of the Unit Warrants for sale.
</TABLE>
PLAN OF DISTRIBUTION
The Selling Security Holders may offer their Common Stock, Warrants,
and Unit Warrants to or through brokers and dealers and underwriters to be
selected by the Selling Security Holders from time to time. In addition, the
Company expects that the Common Stock and Warrants will be listed on the
OTC Bulletin Board as ECOM and ECOMW, respectively, and following such
listing, the Selling Security Holders may offer the Common Stock and
Warrants for sale through the over-the-counter market. The Selling Security
Holders may also offer the Common Stock, Warrants and Unit Warrants through a
market maker, in one or more private transactions, or a combination of such
methods of sale, at prices and on terms then prevailing, at prices related to
such prices, or at negotiated prices. Each Selling Security Holder may pledge
all or a portion of the Common Stock, Warrants, or Unit Warrants owned by him,
her or it as collateral in loan transactions. Upon default by any such
Selling Security Holder, the pledgee in
-33-
<PAGE>
such loan transaction would have the same rights of sale as such Selling
Security Holder under this Prospectus. Each Selling Security Holder may also
transfer Shares of Common Stock owned by him, her or it in other ways not
involving market makers or established trading markets, including directly by
gift, distribution, or other transfer without consideration, and upon any
such transfer the transferee would have the same rights of sale as such
Selling Security Holders under this Prospectus. In addition, any securities
covered by this Prospectus which qualify for sale pursuant to Rule 144 of the
Securities Act of 1933, as amended (the "1933 Act"), may be sold under Rule
144 rather than pursuant to this Prospectus. Finally, each Selling Security
Holder and any brokers and dealers through whom sales of the Common Stock are
made may be deemed to be "underwriters" within the meaning of the 1933 Act,
and the commissions or discounts and other compensation paid to such persons
may be regarded as underwriters' compensation.
DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and positions of the directors and executive officers of
the Company as of the date hereof are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- ----- --------
<S> <C> <C>
William F. Stephens 49 President, Chief Executive Officer and
Director
Jonathan D. Birck 49 Executive Vice President
Barry Rahimian 34 Vice President of Sales and Marketing
Steven A. Larson 48 Chairman of the Board and Vice President
of Corporate Development
Lawrence C. Neitling 49 Director
James M. Sapp 46 Director
Max E. Toy 49 Director
- -----------------------
</TABLE>
WILLIAM F. STEPHENS, a co-founder of the Company, has served as its
President and Chief Executive Officer and as a Director since its formation in
April 1996. From October 1995 to April 1996, Mr. Stephens was the President and
Chief Executive Officer of EnBloc. Mr. Stephens was the founder and from
April 1993 to October 1995 served as the President of Scientific Imaging
Technologies, Inc., a developer of advanced electronic imaging devices and
systems. From December 1990 to April 1993, he was President of Photonics
Marketing Associates. Mr. Stephens holds a B.S. and M.S. in electrical
engineering from Texas Tech University.
JONATHAN D. BIRCK joined the Company in November 1997 as Executive Vice
President. From 1984 to the present, Mr. Birck has served as President of
Virtual Corporation, a manufacturer of diagnostic hearing test equipment.
Virtual Corporation ceased production in December 1996. Since that time, Mr.
Birck's role as President of Virtual Corporation has been to assist with the
winding up of the corporation's affairs. From 1981 to 1984, Mr. Birck was
President of Northwest Instrument Systems, Inc., a manufacturer of electronic
test instrumentation. Mr. Birck holds a BSEE degree from Purdue University and
an MSEE degree from Stanford University.
BARRY RAHIMIAN has been Vice President of Sales and Marketing since
July 1996. Prior to joining the Company, Mr. Rahimian served as Division
Marketing Manager of Electro Scientific Industries, Inc. from October 1992 to
June 1994, and Director of Worldwide Sales and Marketing for Scientific Imaging
Technologies, Inc. from June 1994 to June 1996. Mr. Rahimian holds a B.S. in
mechanical engineering from Oregon State University and an M.B.A. from Stanford
University.
-34-
<PAGE>
STEVEN A. LARSON, a co-founder of the Company, has been Chairman of the
Board since its formation in April 1996 and Vice President of Corporate
Development since August 1997. From 1987 to the present, Mr. Larson has been
Chairman and Chief Executive Officer of Decision Point Data, Inc., a provider of
software development and data processing services.
LAWRENCE C. NEITLING joined the Company as a director in August 1997.
Since July 1997 he has been Vice President and General Manager of Grass
Valley Products, a division of Tektronix, Inc., a leading producer of
electronic products for television stations and cable companies. From May
1994 to May 1997, Mr. Neitling was President and Chief Operating Officer of
Merix Corporation, a developer and manufacturer of high performance printed
circuit boards. From 1985 until May 1994, Mr. Neitling held a series of
managerial positions at Tektronix Circuit Board Division which became Merix
Corporation in May 1994. Mr. Neitling is a graduate of Portland State
University and serves as a member of its Engineering Advisory Board.
JAMES M. SAPP has served as a director of the Company since September
1996. Mr. Sapp is the founder and has served as Chairman of Planned Marketing
Solutions of California, Inc. since April 1979. He is also the founder and
has served as Chairman of Championship Sport Games Inc. since June 1987, and
was the founder and Chairman of Slamma Jamma Inc. from February 1992 to
January 1997. Mr. Sapp has also been a business agent for Clyde Drexler of
the NBA Houston Rockets since 1993.
MAX E. TOY joined the Company as a director in November 1996. Since
1991, Mr. Toy has been the President and Chief Executive Officer of Paladin
Associates, Inc., a high-technology service business providing sales and
marketing services.
The Company's Board of Directors consists of five directors. Directors
of the Company hold office until the next annual meeting of shareholders or
until their successors have been elected and duly qualified. The Company's
1997 Incentive Compensation Plan provides for the grant of options to
directors under certain circumstances. In accordance with the Company's
Bylaws, directors may be paid for their expenses of attendance at each
meeting of the Board of Directors and may be paid a fee for such attendance
or a stated salary as director. Currently, non-employee directors receive
5,000 options per year for their services and for their participation at
Board meetings. In addition, Mr. Larson, Chairman of the Board, serves as
Vice President of Corporate Development and receives compensation from the
Company for his services. All directors are reimbursed for reasonable travel
and other out-of-pocket expenses incurred in attending meetings of the Board
of Directors.
Executive officers are elected by the Board of Directors of the Company
at the first meeting after each annual meeting of shareholders and hold
office until their successors are elected and duly qualified
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of December 31, 1997 by
(i) each person known by the Company to own beneficially more than 5% of the
Company's outstanding Common Stock ("Principal Shareholder"); (ii) each of
the Company's directors; (iii) each of the Company's executive officers; and
(iv) all executive officers and directors of the Company as a group.
-35-
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED (1)
-----------------------------
NAME AND ADDRESS NUMBER PERCENT(2)
- ------------------------------------ -------- ----------
<S> <C> <C>
Paulson Investment Company Inc.......... 290,000 12.2
811 S.W. Front Ave. Suite 200
Portland, OR 97204
Barclay Armitage........................ 250,000 10.5
Murray Business Center
3601 SW Murray Blvd. Suite 62
Beaverton, OR 97005
Steven A. Larson(3)..................... 211,667 8.8
7737 S.W. Cirrus Drive
Beaverton, OR 97008
William F. Stephens(3).................. 103,334 4.3
James M. Sapp(4)........................ 55,000 2.3
Lawrence C. Neitling.................... 12,500 *
Max E. Toy(4)........................... 5,000 *
Jonathan D. Birck ...................... -- --
Barry Rahimian(5)....................... 10,000 *
All executive officers and directors
as a group (seven persons)(6)........... 397,501 16.4
</TABLE>
- -----------------------
* less than one percent
(1) Shares not outstanding but deemed beneficially owned by virtue of the right
of an individual to acquire them within 60 days are treated as outstanding
for determining the amount and percentage of Common Stock owned by such
individual. To the Company's knowledge, each person has sole voting and
sole investment power with respect to the shares shown.
(2) Rounded to the nearest 1/10th of one percent, based on 2,375,577 shares of
Common Stock outstanding and assuming no exercise of any warrants or any
outstanding options.
(3) Includes 16,667 shares issuable upon exercise of options exercisable within
60 days after December 15, 1997.
(4) Includes 5,000 shares issuable upon exercise of options exercisable within
60 days after December 15, 1997.
(5) Includes 10,000 shares issuable upon exercise of options exercisable within
60 days after December 15, 1997.
(6) Includes 53,334 shares issuable upon exercise of options exercisable within
60 days after December 15, 1997.
DESCRIPTION OF SECURITIES TO BE REGISTERED
COMMON STOCK
The authorized Common Stock of the Company consists of 10,000,000 shares,
no par value. As of December 31, 1997, there were 2,375,577 shares of Common
Stock outstanding held of record by 167 shareholders. Holders of Common Stock
are entitled to one vote per share on all matters submitted to a vote of
shareholders and may not cumulate votes for the election of directors. Holders
of Common Stock also are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of the liquidation, dissolution or winding up of the Company, holders
of Common Stock are entitled to share ratably in all assets. Holders of Common
Stock have no preemptive, subscription, redemption or conversion rights. All
the outstanding shares of Common Stock are, and all shares of Common Stock to be
outstanding upon completion of this offering will be, fully paid and
nonassessable.
-36-
<PAGE>
WARRANTS
The Company issued Warrants in conjunction with sales of Common
Stock during 1997. The Warrants issued between September 1997 and December
1997 are described below as "Second Offering Warrants." In connection with
such sales the Company also issued the selling agent warrants to purchase 10%
of the number of units (each unit consisted of one thousand shares of Common
Stock and one thousand Warrants each to purchase one share of Common Stock)
sold in the offering (the "Unit Warrants"). The Company also issued Warrants
in connection with sales of Common Stock from January 1997 to July 1997,
described below as "First Offering Warrants." In connection with this
private offering the Company also issued the selling agent for that
transaction warrants to purchase 35,000 shares of Common Stock (the "Selling
Agent's Warrants").
SECOND OFFERING WARRANTS. As of December 31, 1997, the Company had
issued warrants to acquire up to 1,077,143 shares of Common Stock at an
exercise price of $3.50, subject to the warrant. Each Second Offering
Warrant entitles the holder thereof to purchase from the Company, subject to
the terms and conditions set forth in the Warrant Agreement, dated as of
September 1997 ("Warrant Agreement"), between the Company and TranSecurities
International, Inc., warrant agent of the Company ("Warrant Agent"), one
fully paid and non-assessable share of Common Stock upon presentation and
surrender of a Warrant Certificate with the instructions for the registration
and delivery of Common Stock filled in, at any time prior to 5:20 P.M.,
Pacific time, on December 31, 2002 or, if such Second Offering Warrant is
redeemed as provided in the Warrant Agreement, at any time prior to the
effective time of such redemption, at the stock transfer office in Spokane,
Washington, of the Warrant Agent or of its successor warrant agent or, if
there be no successor warrant agent, at the corporate offices of the Company,
and upon payment of the Exercise Price (as defined in the Warrant Agreement)
and any applicable taxes paid either in cash, or by certified or official
bank check, payable in lawful money of the United States of America to the
order of the Company. Each Second Offering Warrant initially entitles the
holder to purchase one share of Common Stock for $3.50, subject to reduction
by $0.01 per day for each day after the 90th day following the last day on
which Second Offering Warrants are sold by the Company on which a
registration relating in part to the Second Offering Warrants and the Common
Stock obtainable on exercise thereof is not effective under the 1933 Act.
The Company has determined this day to be March 5, 1998. The number and kind
of securities or other property for which the Second Offering Warrants are
exercisable (and the rate of reduction, if any, in the Exercise Price) are
subject to further adjustment in certain events, such as mergers, splits,
stock dividends, recapitalizations and the like, to prevent dilution. The
Company may redeem any or all outstanding and unexercised Second Offering
Warrants at any time if the Daily Price has exceeded $5.00 for twenty
consecutive trading days immediately preceding the date of notice of such
redemption, upon 30 days notice, at a price equal to $0.25 per Second
Offering Warrant. For the purpose of the foregoing sentence, the term "Daily
Price" shall mean, for any relevant day, the closing bid price on that day as
reported by the principal exchange or quotation system on which prices for
the Common Stock are reported, provided, however, that, if the principal
quotation system publishes a range of bid prices, the highest closing bid
price shall be used. All Second Offering Warrants not exercised or redeemed
prior to December 31, 2002 will automatically expire.
The Second Offering Warrants are issued subject to all of the terms,
provisions and conditions of the Warrant Agreement. Reference is made to the
Warrant Agreement for a full description of the rights, limitations of
rights, obligations, duties and immunities of the Warrant Agent, the Company
and the holders of the Warrant Certificates. Copies of the Warrant Agreement
are available for inspection at the stock transfer office of the Warrant
Agent or may be obtained upon written request addressed to the Company at
7737 Cirrus Drive, Beaverton, Oregon 97008, Attention: Chief Financial
Officer.
The Company shall not be required upon the exercise of the Second
Offering Warrants evidenced by a Warrant Certificate to issue fractions of
Warrants, Common Stock or other securities, but may make adjustment therefor
in cash on the basis of the current market value of any fractional interest
as provided in the Warrant Agreement.
In certain cases, the sale of securities by the Company upon exercise of
Second Offering Warrants would violate the securities laws of the United
States, certain states thereof or other jurisdictions. The Company has
agreed to use its best efforts to cause a registration statement to continue
to be effective during the term of the Second Offering Warrants with respect
to such sales under the 1933 Act, and to take such action under the laws of
various states as may be required to cause the sale of securities upon
exercise to be lawful. However, the Company will not be required to honor
the exercise of Second Offering Warrants if, in the opinion of the Board of
Directors, upon advice of counsel, the sale of securities upon such
-37-
<PAGE>
exercise would be unlawful. In certain cases, the Company may, but is not
required to, purchase Second Offering Warrants submitted for exercise for a
cash price equal to the difference between the market price of the securities
obtainable upon such exercise and the exercise price of such Warrants.
A Warrant Certificate, with or without other Certificates, upon
surrender to the Warrant Agent, any successor warrant agent or, in the
absence of any successor warrant agent, at the corporate offices of the
Company, may be exchanged for another Warrant Certificate or Certificates
evidencing in the aggregate the same number of Second Offering Warrants as
the Warrant Certificate or Certificates so surrendered. If the Warrants
evidenced by a Warrant Certificate shall be exercised in part, the holder
hereof shall be entitled to receive upon surrender hereof another Warrant
Certificate or Certificates evidencing the number of Warrants not so
exercised.
No holder of Second Offering Warrants, as such, shall be entitled to
vote, receive dividends or be deemed the holder of Common Stock or any other
securities of the Company which may at any time be issuable on the exercise
of Second Offering Warrants for any purpose whatever, nor shall anything
contained in the Warrant Agreement be construed to confer upon the holder of
a Warrant Certificate, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof or give or withhold consent
to any corporate action (whether upon any matter submitted to stockholders at
any meeting thereof, or give or withhold consent to any merger,
recapitalization, issuance of stock, reclassification of stock, change of par
value or change of stock to no par value, consolidation, conveyance or
otherwise) or to receive notice of meetings or other actions affecting
stockholders (except as provided in the Warrant Agreement) or to receive
dividends or subscription rights or otherwise until the Warrants shall have
been exercised and the Common Stock purchasable upon the exercise thereof
shall have become deliverable as provided in the Warrant Agreement.
If a Warrant Certificate shall be surrendered for exercise within any
period during which the transfer books for the Company's Common Stock or other
class of stock purchasable upon the exercise of the Warrants are closed for any
purpose, the Company shall not be required to make delivery of certificates for
shares purchasable upon such transfer until the date of the reopening of said
transfer books.
Every holder of Second Offering Warrants by accepting the same consents
and agrees with the Company, the Warrant Agent, and with every other holder
of Second Offering Warrants that:
(a) Warrant Certificates are transferable on the registry books of the
Warrant Agent only upon the terms and conditions set forth in the Warrant
Agreement, and
(b) the Company and the Warrant Agent may deem and treat the person in
whose name a Warrant Certificate is registered as the absolute owner thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone other than the Company or the Warrant Agent) for all purposes whatever
and neither the Company nor the Warrant Agent shall be affected by any notice to
the contrary.
The Company shall not be required to issue or deliver any certificate
for shares of Common Stock or other securities upon the exercise of Second
Offering Warrants until any tax which may be payable in respect thereof by
the holder thereof pursuant to the Warrant Agreement shall have been paid,
such tax being payable by such holder at the time of surrender.
UNIT WARRANTS. In connection with the exempt private offering between
September 1997 and December 1997, the Company issued 106.7 warrants to the
Selling Agent thereof for the purchase of Units. Each Unit Warrant entitles
the holder to purchase 1,000 Shares of Common Stock and 1,000 Warrants each
to purchase one Share of Common Stock. The exercise price of the Unit
Warrants is $3,500 and the expiration date is December 31, 2002. The Unit
Warrants are subject to the terms and conditions described above for the
Second Offering Warrants and to the Warrant Agreement except that the
exercise price of the Unit Warrants is not reduced by $.01 per day for each
day after March 5, 1998 on which a registration statement relating to the
Common Stock and Warrants is not effective. The Company reserved up to
213,400 shares of Common Stock for issuance upon exercise of the Unit
Warrants (including the Shares underlying Warrants issuable upon exercise of
the Unit Warrants).
FIRST OFFERING WARRANTS. As of December 31, 1997, the Company had issued
First Offering Warrants to acquire up to 352,250 shares of Common Stock at an
exercise price of $3.50. The First Offering Warrants expire on January 31 1999,
unless earlier redeemed. The Company may redeem the First Offering Warrants, at
$0.50 per
-38-
<PAGE>
warrant, upon at least 30 days prior written notice by the Company to the
holders, if (1) the Company files a registration statement with the
Commission for an initial public offering of the Company's Common Stock; (2)
an initial public offering of the Company's Common Stock closes on or before
the expiration of the warrants at a price of at least $4.00 per share; or (3)
the Company achieves revenues of at least $4 million. If at any time prior
to exercise, termination or redemption of the First Offering Warrants the
Company declares a dividend, or subdivides or combines outstanding shares of
common stock, the exercise price and number of Shares purchasable shall be
reduced or increased appropriately.
SELLING AGENT'S WARRANTS. The Company has also issued warrants to
acquire up to 35,000 shares of Common Stock at an exercise price of $2.00 per
share which will expire on the fifth anniversary after the date of the
Company's initial public offering. Such warrants contain no call option. The
exercise price and number of shares purchasable shall be reduced or increased
appropriately in the event the Company declares a dividend or subdivides or
combines outstanding shares of Common Stock.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Section 13.1 of the Company's Bylaws (the "Bylaws"), requires
indemnification of directors or officers of the Company to the fullest extent
not prohibited by the Oregon Business Corporation Act (the "Act"). The effects
of the Bylaws and the Act (the "Indemnification Provisions") are summarized as
follows:
(a) The Indemnification Provisions grant a right of indemnification in
respect of any action, suit or proceeding (other than an action by or in the
right of the Company) against expenses (including attorney fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred, if the
person concerned acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the Company, was not
adjudged liable on the basis of receipt of an improper personal benefit and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe the conduct was unlawful. The termination of an action, suit or
proceeding by judgment, order, settlement, conviction or plea of nolo contendere
does not, of itself, create a presumption that the person did not meet the
required standards of conduct.
(b) The Indemnification Provisions grant a right of indemnification in
respect of any action or suit by or in the right of the Company against the
expenses (including attorney fees) actually and reasonably incurred if the
person concerned acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the Company, except
that no right of indemnification will be granted if the person is adjudged to be
liable to the Company.
(c) Every person who has been wholly successful on the merits of a
controversy described in (a) or (b) above is entitled to indemnification as a
matter of right.
(d) Because the limits of permissible indemnification under Oregon law
are not clearly defined, the Indemnification Provisions may provide
indemnification broader than that described in (a) and (b).
(e) The Company may advance to a director or officer the expenses
incurred in defending any action, suit or proceeding in advance of its final
disposition if the director or officer affirms in writing in good faith that
he or she has met the standard of conduct to be entitled to indemnification
as described in (a) or (b) above and furnishes the company a written
undertaking to repay any amount advanced if it is determined that the person
did not meet the required standard of conduct.
The Company may obtain insurance for the protection of its directors and
officers against any liability asserted against them in their official
capacities. The rights of indemnification described above are not exclusive of
any other rights of indemnification to which the persons indemnified may be
entitled under any bylaw, agreement, vote of shareholders or directors or
otherwise. The Company believes that its Articles of Incorporation and Bylaw
provisions and indemnification agreements are necessary to attract and retain
qualified persons as directors and officers.
-39-
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 1933 Act and is,
therefore, unenforceable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into several demand notes with a principal
balance of $195,000 as of December 31, 1997 with A&B Partnership and W.B.
Armitage Trust, both affiliated with Barclay Armitage, a principal
shareholder, in exchange for cash advances to provide working capital for the
Company. All notes are term notes payable on March 20, 1998; and interest is
payable monthly at an annual rate of 10%.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
As of December 31, 1997, the Company had 2,375,577 shares of the Common
Stock outstanding held by 167 shareholders. The Common Stock is not
currently traded publicly. There are currently 670,000 shares of the Common
Stock subject to outstanding options and an additional 1,677,793 shares
subject to outstanding warrants. No shares of the Common Stock could be sold
pursuant to Rule 144 of the 1933 Act because the Company has not been subject
to the reporting requirements of sections 13 and 15(d) of the Exchange Act
for a period of at least 90 days. The Company has only been subject to the
reporting requirements of these sections since February 13, 1998, the date on
which its Form 10 became effective. The Company has agreed to register all
2,375,577 shares of the Common Stock under the 1993 Act for sale by security
holders.
The Company has not paid cash dividends since its inception. The Company
currently intends to retain all of its earnings, if any, for use in its business
and does not anticipate paying any cash dividends in the foreseeable future.
Pursuant to the Company's Articles of Incorporation and Bylaws, the payment of
dividends is subject to the discretion of the Company's Board of Directors and
any terms and conditions imposed by law.
EXECUTIVE COMPENSATION
The following table sets forth compensation earned during the fiscal years
ended December 31, 1996 and 1997 by the Company's President and Chief Executive
Officer (the "CEO"). No executive officer received total salary and bonus
during 1996 in excess of $100,000. The CEO received total salary and bonus in
the amount of $97,000 during 1997. No other executive officer received total
salary and bonus during 1997 in excess of $100,000
-40-
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Name and Principal Securities Underlying
Position Year Salary Bonus Options (#)
- -------------------------------------------------------------------------------
William F. 1996 $84,000 -- 50,000
Stephens
President and CEO 1997 $91,000 6,000 100,000
- -------------------------------------------------------------------------------
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning option grants held by
the Company's CEO as of December 31, 1997. The Company has not issued any stock
appreciation rights.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES PERCENTAGE OF POTENTIAL REALIZABLE
UNDERLYING TOTAL OPTIONS GRANTED TO EXERCISE VALUE AT ASSUMED ANNUAL
- -------------- EMPLOYEES AS OF PRICE EXPIRATION RATES OF STOCK PRICE
NAME OPTIONS GRANTED DECEMBER 31, 1997 PER SHARE DATE APPRECIATION FOR OPTION TERM (1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William F. 50,000 7.5% $3.00 July 26, 2006 5% ($) 10%($)
Stephens $ 79,236 $ 199,713
- -----------------------------------------------------------------------------------------------------------------------------------
100,000 14.9% $3.50 August 22, 2007 212,250 551,443
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Represents amounts that may be realized upon exercise of the options
immediately prior to expiration of their terms assuming appreciation of
5% and 10% over the option term. The 5% and 10% numbers are calculated
based on rules required by the SEC and do not reflect the Company's
estimate of future Stock price growth. The actual value realized may be
greater or less than the potential realizeable value set forth.
</TABLE>
AGGREGATED OPTION EXERCISES AND OPTION VALUES
The following table sets forth information concerning the value of
unexercised options as of December 31, 1997 held by the Company's CEO. No
options were exercised by the Company's CEO as of December 31, 1997.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1997 AT DECEMBER 31, 1997 (1)
- ------------------------------------------------------------------------------------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William F. Stephens 16,667 133,333 $ 8,334 $ 16,667
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------
(1) Based upon the difference between the fair market value of the securities
underlying the option at December 31, 1997 ($3.50 per share as determined
by the Board of Directors) and the exercise price of the options.
COMPENSATION OF DIRECTORS
In accordance with the Company's Bylaws, directors may be paid for their
expenses of attendance at each meeting of the Board of Directors and may be paid
a fee for such attendance or a stated salary as director. Currently,
non-employee directors receive 5,000 options per year for their services and for
their participation at Board meetings. All directors are reimbursed for
reasonable travel and other out-of-pocket expenses incurred in attending
meetings of the Board of Directors.
EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with William F. Stephens,
the Company's President and CEO, effective May 1, 1996, whereby Mr. Stephens
receives a monthly base salary and certain benefits. Mr. Stephens' employment
may be terminated by the Company at any time, for any reason upon 30 days
advance
-41-
<PAGE>
written notice. If the Company terminates Mr. Stephens' employment without
cause, Mr. Stephens will receive severance payments for six months, and if
his employment is terminated as a result of his death or disability, he will
receive any severance or disability payments to which he may be entitled
under the Company's standard benefit plans then in effect. In July 1996, the
Company's Board of Directors resolved that Mr. Stephens' base salary of
$7,000 would increase to $9,000 commencing February 1, 1997. Mr. Stephens
voluntarily suspended this increase until September 1997. The Board gave him
a $6,000 bonus, as a result of his willingness to voluntarily suspend his
salary increase. On August 22, 1997, the Board of Directors authorized a
grant to Mr. Stephens of 100,000 incentive stock options that will vest over
three years.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR ACCOUNTING AND FINANCIAL
DISCLOSURE
On June 27, 1997, the Company engaged the accounting firm of KPMG Peat
Marwick LLP ("KPMG") as principal accountants for the period ended December 31,
1996. KPMG replaced BDO Seidman LLP ("BDO") as of the date reported above. The
change in the Company's independent accountants was the result of the Company's
decision to terminate their relationship with BDO. The Company solicited a
formal proposal from KPMG due to KPMG's excellent reputation and expertise in
high-technology start-up companies. The Company's Board of Directors approved
the engagement of KPMG on June 27, 1997.
During the most recent fiscal year, there have been no disagreements with
BDO on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure or any reportable events.
BDO's report on the financial statements for the period ended November 30,
1996 contained no adverse opinion or disclaimer of opinion and was not qualified
or modified as to uncertainty, audit scope or accounting principles.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
E.Com by Preston Gates & Ellis LLP, 5000 Columbia Center, 701 Fifth Avenue,
Seattle, Washington 98104.
EXPERTS
The financial statements of E.Com included in this Prospectus have been
audited by KPMG Peat Marwick LLP, independent public accountants, to the extent
and for the periods set forth in their report appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of said firm
as experts in accounting and auditing.
Their report dated February 27, 1998, contains an explanatory paragraph
that states that the Company has no significant operating revenues and has
suffered recurring losses from operations that raise substantial doubt about
its ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
FINANCIAL STATEMENTS
Index To Financial Statements
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Shareholders' (Deficit) Equity . . . . . . . . . . . . . . F-5
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . F-8
-42-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
E.Com International, Inc.:
We have audited the accompanying balance sheets of E.Com International, Inc. (a
company in the development stage) as of December 31, 1997 and 1996, and the
related statements of operations, shareholders' equity (deficit), and cash flows
for the year ended December 31, 1997, for the period from April 4, 1996 (date of
inception) to December 31, 1996 and for the period from April 4, 1996 (date of
inception) to December 31, 1997. 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 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 E.Com International, Inc. (a
company in the development stage) as of December 31, 1997 and 1996, and the
results of its operations and its cash flows for the year ended December 31,
1997, for the period from April 4, 1996 (date of inception) to December 31, 1996
and for the period from April 4, 1996 (date of inception) to December 31, 1997
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 no significant operating revenues and has
suffered recurring losses from operations that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
KPMG PEAT MARWICK LLP
Portland, Oregon
February 27, 1998
F-2
<PAGE>
E.COM INTERNATIONAL, INC.
(A Company in the Development Stage)
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 1,839,281 $ 16,190
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 315,023 8,916
Prepaid expenses and other assets . . . . . . . . . . . . . 19,156 7,907
---------------- ----------------
Total current assets. . . . . . . . . . . . . . . . 2,173,460 33,013
---------------- ----------------
Property and equipment, net . . . . . . . . . . . . . . . . . 380,206 87,739
Intangible assets, net. . . . . . . . . . . . . . . . . . . . 19,833 9,767
Prepaid software royalties, net . . . . . . . . . . . . . . . 40,750 --
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . -- 5,500
---------------- ----------------
$ 2,614,249 $ 136,019
---------------- ----------------
---------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . 237,245 59,026
Accrued liabilities . . . . . . . . . . . . . . . . . . . . 95,558 45,818
Notes payable to shareholder. . . . . . . . . . . . . . . . 195,000 195,000
Contract payable. . . . . . . . . . . . . . . . . . . . . . -- 32,000
Current portion of capital lease obligations. . . . . . . . 2,144 --
---------------- ----------------
Total current liabilities . . . . . . . . . . . . . 529,947 331,844
---------------- ----------------
Capital lease obligations, less current portion . . . . . . . 11,087 --
Commitments
Shareholders' equity (deficit):
Common stock, no par value, authorized 10,000,000 shares;
2,375,577 and 951,684 issued and outstanding at December 31,
1997 and 1996, respectively . . . . . . . . . . . . . . . 3,386,025 377,181
Warrants outstanding. . . . . . . . . . . . . . . . . . . . 1,268,146 --
Subscriptions receivable from sale of stock . . . . . . . . -- (5,796)
Deficit accumulated during the development stage. . . . . . (2,580,956) (567,210)
---------------- ----------------
Total shareholders' equity (deficit). . . . . . . . 2,073,215 (195,825)
---------------- ----------------
$ 2,614,249 $ 136,019
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes to accompanying financial statements.
F-3
<PAGE>
E.COM INTERNATIONAL, INC.
(A Company in the Development Stage)
Statements of Operations
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
APRIL 4, 1996 APRIL 4, 1996
(DATE OF (DATE OF
YEAR ENDED INCEPTION) TO INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,237 $ -- $ 25,237
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . 21,797 -- 21,797
----------------- ----------------- -----------------
Gross profit. . . . . . . . . . . . . . . . . . . . . . 3,440 -- 3,440
----------------- ----------------- -----------------
Operating expenses:
Research and development. . . . . . . . . . . . . . . . . . . . 1,112,974 230,525 1,343,499
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . 238,467 89,649 328,116
General and administrative. . . . . . . . . . . . . . . . . . . 655,100 243,514 898,614
----------------- ----------------- -----------------
2,006,541 563,688 2,570,229
----------------- ----------------- -----------------
Loss from operations. . . . . . . . . . . . . . . . . . (2,003,101) (563,688) (2,566,789)
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . 19,139 -- 19,139
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . (29,784) (3,522) (33,306)
----------------- ----------------- -----------------
Loss before provision for income taxes. . . . . . . . . (2,013,746) (567,210) (2,580,956)
Provision for income taxes. . . . . . . . . . . . . . . . . . . . -- -- --
----------------- ----------------- -----------------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . $ (2,013,746) $ (567,210) $ (2,580,956)
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Basic loss per share $ (1.46) $ (.63) $ (2.20)
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Shares used in calculation 1,378,365 896,054 1,171,552
----------------- ----------------- -----------------
----------------- ----------------- -----------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
E.COM INTERNATIONAL, INC.
(A Company in the Development Stage)
Statements of Shareholders' Equity
<TABLE>
<CAPTION>
DEFICIT
NOTES ACCUMULATED TOTAL
COMMON STOCK RECEIVABLE DURING THE SHAREHOLDERS'
-------------------------- WARRANTS FROM SALE OF DEVELOPMENT EQUITY
SHARES AMOUNT OUTSTANDING STOCK STAGE (DEFICIT)
---------- ------------ ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 4,
1996 (date of
inception). . . . . $ -- -- $ -- $ -- $ --
Issuance of
common
shares. . . . . . . 951,684 377,181 -- (5,796) -- 371,385
Net loss . . . . . . . -- -- -- -- (567,210) (567,210)
---------- ------------ ----------- --------- ------------- ------------
Balance at
December 31,
1996. . . . . . . . 951,684 377,181 -- (5,796) (567,210) (195,825)
Issuance of
common shares and
warrants, net of
approximately
$ 1,032,000 in
offering expenses . 1,423,893 3,008,844 1,268,146 -- -- 4,276,990
Payments received
on receivable
from sale of
stock . . . . . . . -- -- -- 5,796 -- 5,796
Net loss . . . . . . . -- -- -- -- (2,013,746) (2,013,746)
---------- ------------ ----------- --------- ------------- ------------
Balance at
December 31,
1997. . . . . . . . 2,375,577 $ 3,386,025 1,268,146 $ -- $ (2,580,956) $ 2,073,215
---------- ------------ ----------- --------- ------------- ------------
---------- ------------ ----------- --------- ------------- ------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
E.COM INTERNATIONAL, INC.
(A Company in the Development Stage)
Statements of Cash Flows
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
APRIL 4, 1996 APRIL 4, 1996
(DATE OF (DATE OF
YEAR ENDED INCEPTION) TO INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,013,746) $ (567,210) $ (2,580,956)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . 115,746 11,335 127,081
Write off of acquired products in development . . . . . . . -- 39,098 39,098
Changes in operating assets and liabilities:
Inventories . . . . . . . . . . . . . . . . . . . . . . . (306,107) (6,990) (313,097)
Prepaid expenses and other assets . . . . . . . . . . . . (64,420) (25,964) (90,384)
Accounts payable and accrued liabilities. . . . . . . . . 227,959 104,844 332,803
----------------- ----------------- -----------------
Net cash used in operating activities . . . . . . . . . (2,040,568) (444,887) (2,485,455)
----------------- ----------------- -----------------
Cash flows from investing activities:
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . (385,850) (73,765) (459,615)
Acquisition of EnBloc assets. . . . . . . . . . . . . . . . . . -- (31,543) (31,543)
----------------- ----------------- -----------------
Net cash used in investing activities . . . . . . . . . (385,850) (105,308) (491,158)
----------------- ----------------- -----------------
Cash flows from financing activities:
Proceeds from sale of common stock and warrants, net. . . . . . 4,176,990 371,385 4,548,375
Proceeds from issuance of notes payable to shareholders . . . . 225,000 195,000 420,000
Repayment of notes payable to shareholders. . . . . . . . . . . (125,000) -- (125,000)
Principal payments under capital lease obligation . . . . . . . (1,277) -- (1,277)
Repayment of contract payable . . . . . . . . . . . . . . . . . (32,000) -- (32,000)
Payments received on subscriptions receivable from sale
of stock. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,796 -- 5,796
----------------- ----------------- -----------------
Net cash provided by financing activities . . . . . . . 4,249,509 566,385 4,815,894
----------------- ----------------- -----------------
Net increase in cash and cash equivalents . . . . . . . 1,823,091 16,190 1,839,281
Cash and cash equivalents at beginning of period. . . . . . . . . 16,190 -- --
----------------- ----------------- -----------------
Cash and cash equivalents at end of period. . . . . . . . . . . . $ 1,839,281 $ 16,190 $ 1,839,281
----------------- ----------------- -----------------
----------------- ----------------- -----------------
</TABLE>
(Continued)
F-6
<PAGE>
E.COM INTERNATIONAL, INC.
(A Company in the Development Stage)
Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
APRIL 4, 1996 APRIL 4, 1996
(DATE OF (DATE OF
YEAR ENDED INCEPTION) TO INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for interest. . . . . . . . . . . . $ 16,040 $ 2,148 $ 18,188
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Supplemental schedule of noncash investing and financing
activities:
Effective May 1, 1996, the Company purchased certain assets
of EnBloc for $63,543. In conjunction with the acquisition,
a contract payable was incurred as follows:
Fair value of assets acquired . . . . . . . . . . . . . . -- 63,543 63,543
Cash consideration. . . . . . . . . . . . . . . . . . . . -- 31,543 31,543
----------------- ----------------- -----------------
Contract payable incurred . . . . . . . . . . . . . . . $ -- $ 32,000 $ 32,000
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Sale of common stock for subscriptions receivable . . . . . . $ -- $ 5,796 $ 5,796
Capital lease obligation incurred for purchase of equipment . 14,508 -- 14,508
Warrants issued for partial compensation to selling agent . . 53,241 -- 53,241
Note payable to shareholder converted to common stock . . . . 100,000 -- 100,000
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
E.COM INTERNATIONAL, INC.
(A Company in the Development Stage)
Notes to Financial Statements
December 31, 1997 and 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The financial statements include the accounts of E.Com International, Inc.
(E.Com or the Company). The Company was incorporated on April 4, 1996 as
E.B.I. Acquisition, Inc. and changed its name as of January 10, 1997. It
is a development stage company which is in the process of developing,
manufacturing and marketing integrated wireless mobile computing products
for the mobile computer market. Since inception the Company has primarily
been engaged in product development, market development and organizational
development activities.
On May 1, 1996, the Company acquired key product designs and technologies
from EnBloc, Inc. (EnBloc). The acquisition was accounted for using the
purchase method, and the estimated fair values of the assets purchased and
liabilities assumed were recorded in the financial statements on the date
of acquisition.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments having an original
maturity of three months or less to be cash equivalents.
INVENTORY
Inventory, consisting principally of raw materials, parts and supplies,
are valued at the lower of cost (first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Equipment under capital lease is
stated at the present value of minimum lease payments.
Depreciation is provided using the straight-line method over the following
estimated useful lives:
Furniture and fixtures 5 to 7
Computers and equipment 3 to 7
Leasehold improvements 5
Depreciation for tooling is provided using the straight-line method over
the estimated useful life of the asset or the product life, whichever is
shorter; generally one year.
Equipment under capital lease is amortized straight-line over five years
which is the shorter of the estimated useful life of the asset or the lease
term.
INTANGIBLE ASSETS
Intangible assets include the E.Com trademark and logo, and patents. These
intangible assets are being amortized using the straight-line method over
the three year estimated useful life of the assets.
F-8
<PAGE>
E.COM INTERNATIONAL, INC.
(A Company in the Development Stage)
Notes to Financial Statements, Continued
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents. Cash
and cash equivalents consist of deposits and money market funds placed with
various high credit quality financial institutions.
NET INCOME (LOSS) PER SHARE
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 128 (SFAS No. 128) "Earnings Per Share". SFAS No. 128 requires
presentation of basic and diluted net income (loss) per share. Basic net
income (loss) per share is net income (loss) available to common
shareholders divided by the weighted-average number of common shares
outstanding. Diluted net income (loss) per share is similar to basic
except that the denominator includes potential common shares that, had they
been issued, would have had a dilutive effect.
(2) DEVELOPMENT STAGE BUSINESS AND GOING CONCERN
E. Com has been in development stage since its inception on April 4, 1996.
The Company has no significant operating revenues and has suffered
significant recurring losses from operations through December 31, 1997.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management of the Company has initiated the
following actions to address these conditions.
The Company is in the process of developing and introducing a series of
integrated wireless mobile communications and computing products for the
mobile computer market. Since acquiring product designs and technologies
from EnBloc in 1996 (see note 3 - Business Acquisition), the Company has
focused on assembling a qualified technical and executive management team,
developing key modular product designs, improving battery management
technology, refining manufacturing technology for mobile computing docking
stations and fully integrated wireless handheld personal computers and
raising capital. The Company expects to generate product sales revenue
during the first half of 1998.
F-9
<PAGE>
E.COM INTERNATIONAL, INC.
(A Company in the Development Stage)
Notes to Financial Statements, Continued
The Company's initial products include the PDxpress, a lightweight compact
docking station, and the Discovery I and Discovery II, integrated palmtop
mobile computing products. These products will allow the user wireless
access to files and databases via the Internet as well as corporate
intranets, and to send and receive wireless e-mail and faxes, as well as
order entry, status checks and remote data base queries. The Company's
products are designed for the growing markets of field sales and services
organizations, financial services representatives, health services
providers, and the transportation industry.
(3) BUSINESS ACQUISITION
The Company acquired key product designs and technologies from EnBloc,
effective May 1, 1996 for a promise to pay $32,000 in cash and the
assumption of certain vendor liabilities. The $63,543 total purchase price
was allocated to assets acquired based upon preliminary estimates of fair
values as follows:
<TABLE>
<CAPTION>
<S> <C>
Products in development. . . . . . . . . . . . $ 39,098
Furniture and fixtures . . . . . . . . . . . . 20,169
Computers and equipment. . . . . . . . . . . . 2,350
Inventory. . . . . . . . . . . . . . . . . . . 1,926
------------
Total . . . . . . . . . . . . . . . . . . $ 63,543
------------
------------
</TABLE>
The acquired products in development were considered not to have attained
technological feasibility and were expensed subsequent to the acquisition.
(4) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Leasehold improvements . . . . . . . . . $ 9,928 9,928
Furniture and fixtures . . . . . . . . . 50,955 47,870
Computers and equipment. . . . . . . . . 47,374 38,486
Tooling. . . . . . . . . . . . . . . . . 313,080 --
Equipment under capital lease. . . . . . 14,508 --
--------- ---------
435,845 96,284
Less accumulated depreciation and
amortization . . . . . . . . . . . . . (55,639) (8,545)
--------- ---------
$ 380,206 87,739
--------- ---------
--------- ---------
</TABLE>
F-10
<PAGE>
E.COM INTERNATIONAL, INC.
(A Company in the Development Stage)
Notes to Financial Statements, Continued
(5) INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1997 1996
-------- -------
<S> <C> <C>
Trademark and logo . . . . . . . . . . . $ 21,464 12,242
Patents and other. . . . . . . . . . . . 10,076 315
--------- ---------
31,540 12,557
Accumulated amortization . . . . . . . . (11,707) (2,790)
--------- ---------
Intangible assets, net . . . . . . . . . $ 19,833 9,767
--------- ---------
--------- ---------
</TABLE>
(6) RELATED PARTY TRANSACTIONS
Notes payable to shareholder consists of several unsecured demand notes
issued to one of the Company's principal shareholders in exchange for cash
advances to provide working capital for the Company. The notes and
interest are payable on demand, with interest at an annual rate of 10%. At
December 31, 1997, the Company was current in its payment and obligations
on all notes, the principal balance of the notes totaled $195,000 and
accrued interest totaled $15,118.
The Company had a contract with Steven A. Larson, a significant shareholder
who is also a director, for Mr. Larson to perform research and develop
equity financing resources for the Company and to assist with corporate
strategy and related issues. Under the contract, dated August 1, 1996, the
Company paid Mr. Larson $3,000 per month until July 31, 1997 for these
services. The Company also granted Mr. Larson options to acquire 50,000
shares of the Company's common stock at $3.00 per share vesting one third
as of May 31, 1997, 1998 and 1999, respectively.
(7) INCOME TAXES
The actual benefit differs from the "expected" benefit computed by applying
the U.S. federal corporate rate for the year ended December 31, 1997 and for the
period from April 4, 1996 (date of inception) to December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Computed "expected" income tax benefit. . . . . . . . (34)% (34)%
Increases (decreases) resulting from :
State income taxes, net of federal tax benefit. . . (4) (4)
Increase in valuation allowance . . . . . . . . . . 41 38
Research and experimentation credit . . . . . . . . (3) --
------- -------
Actual tax benefit . . . . . . . . . . . . . . . . . . --% --%
------- -------
------- -------
</TABLE>
F-11
<PAGE>
E.COM INTERNATIONAL, INC.
(A Company in the Development Stage)
Notes to Financial Statements, Continued
The tax effects of temporary differences and net operating loss
carryforwards which give rise to significant portions of deferred tax assets and
deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards. . . . . . . . $ 908,717 $ 200,992
Obsolete inventory. . . . . . . . . . . . . . . 61,914 --
Tax basis intangible assets, due to differences
in amortization . . . . . . . . . . . . . . . 92 14,548
Accrued vacation. . . . . . . . . . . . . . . . 6,878 2,373
Research and experimentation credit
carryforwards . . . . . . . . . . . . . . . . 67,661 --
Property and equipment, due to differences in
depreciation. . . . . . . . . . . . . . . . . 3,780 --
----------- -----------
Total gross deferred tax assets. . . . . . 1,049,042 217,913
----------- -----------
Less valuation allowance. . . . . . . . . . . . (1,049,042) (216,326)
----------- -----------
Net deferred tax assets. . . . . . . . . . -- 1,587
Deferred tax liabilities:
Property and equipment, due to differences in
depreciation. . . . . . . . . . . . . . . . . -- 1,587
----------- -----------
Total deferred tax liabilities . . . . . . -- 1,587
----------- -----------
Net deferred tax liability (asset) . . . . $ -- $ --
----------- -----------
----------- -----------
</TABLE>
The valuation allowance for the deferred tax assets as of April 4, 1996 (date
of inception) was $-0-. The net change in the total valuation allowance for
the year ended December 31, 1997 and for the period from April 4, 1996 (date
of inception) to December 31, 1996 was an increase of $832,716 and $216,326,
respectively. A valuation allowance is established when necessary to reduce
deferred taxes to the amount expected to be realized.
At December 31, 1997, the Company has a net operating loss carryforwards of
approximately $2,370,000 to offset future income for federal and state
purposes which will expire in 2011 - 2012. In addition, the Company has
research and experimentation credit carryforwards for federal and state
purposes of approximately $57,000 and $17,000, respectively, to reduce future
federal and state income taxes, if any, which expire in 2011 - 2012.
F-12
<PAGE>
E.COM INTERNATIONAL, INC.
(A Company in the Development Stage)
Notes to Financial Statements, Continued
A provision of the Internal Revenue Code requires the utilization of net
operating losses be limited when there is a change of more than 50% in
ownership of the Company. The Company appears to have incurred an
ownership change under IRC Section 382. This potential ownership change
would limit the utilization of any operating losses and research and
experimentation credits incurred prior to the change in ownership date.
The Company intends to complete an analysis under IRC Section 382 to
determine if any ownership change has occurred.
(8) COMMITMENTS
The Company leases office space under an operating lease which expires
September 30, 1999 and leases certain office equipment under an operating
lease which expires October 29, 1998. Rent expense incurred under these
leases for the year ended December 31, 1997 and for the period from April
4, 1996 (date of inception) to December 31, 1996 as $65,629 and $27,489,
respectively.
The Company is obligated under a capital lease for certain office
equipment. The lease expires April 2002. The gross amounts of equipment
and accumulated amortization recorded under the capital lease was $14,508
and $1,381 as of December 31, 1997, respectively.
Future minimum lease payments under noncancelable operating leases and
future minimum capital lease payments as of December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
OPERATING
CAPITAL LEASE LEASE
------------- ---------
<S> <C> <C>
Year ending December 31:
1998 $ 3,804 56,663
1999 3,804 40,995
2000 3,804 --
2001 3,804 --
2002 1,268 --
------------- ---------
Total minimum lease payments 16,484 $ 97,658
---------
---------
Less amount representing interest 3,253
-------------
Present value of net minimum
capital lease payments 13,231
Less current portion of capital
lease obligations 2,144
-------------
Capital lease obligations,
less current portion $ 11,087
-------------
-------------
</TABLE>
(9) INCENTIVE COMPENSATION PLAN
The Company has an Incentive Compensation Plan (the Incentive Plan), under
which shares of the Company's common stock may be made available to the
Company's employees, officers, directors and selected non-employee agents,
consultants, advisors, persons involved in the sale of distribution of the
Company's products and independent contractors of the Company.
F-13
<PAGE>
E.COM INTERNATIONAL, INC.
(A Company in the Development Stage)
Notes to Financial Statements, Continued
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION (SFAS 123), which defines a fair value based method of
accounting for an employee stock option and similar equity instrument. As
permitted under SFAS 123, the Company has elected to continue to account
for its stock-based compensation plan under Accounting Principal Board
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25), and
related interpretations. Accordingly, no compensation expense has been
recognized for the Plan. The Company has computed, for pro forma
disclosure purposes, the value of options granted under the Incentive Plan
using the minimum value method as prescribed by SFAS 123. The following
weighted average assumptions for grants used in the calculation are as
follows: a risk-free interest rate of 6.25%, an expected dividend yield of
0%, and an expected life of five years.
Using the minimum value method, the total value of options granted during
1997 and 1996 was $512,522 and $78,948, respectively, which is amortized on
a pro forma basis over the vesting period of the options. If the Company
had accounted for its stock-based compensation plan in accordance with SFAS
123, the Company's net loss for year ended December 31, 1997 and for the
period from April 4, 1996 (date of inception) to December 31, 1996 would
approximate the pro forma disclosure as follows:
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Net loss:
As reported. . . . . . . . . . . . $ (2,013,746) $ (567,210)
------------ -----------
------------ -----------
Pro forma. . . . . . . . . . . . . $ (2,082,269) $ (574,045)
------------ -----------
------------ -----------
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts and additional awards are anticipated in
future years.
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE PRICE
SHARES PER SHARE
------------ -------------
<S> <C> <C>
Options outstanding April 6, 1996 . . -- $ --
Granted . . . . . . . . . . . . . . . 100,000 3.00
Exercised . . . . . . . . . . . . . . -- --
Canceled. . . . . . . . . . . . . . . -- --
------------
Options outstanding at December 31, 1996 100,000 3.00
Granted . . . . . . . . . . . . . . . 570,000 3.44
Exercised . . . . . . . . . . . . . . -- --
Canceled. . . . . . . . . . . . . . . -- --
------------
Options outstanding at December 31, 1997 $ 670,000 3.37
------------
------------
</TABLE>
F-14
<PAGE>
E.COM INTERNATIONAL, INC.
(A Company in the Development Stage)
Notes to Financial Statements, Continued
Options become exercisable over a period of generally four years from the
date of grant as determined by the Board, at prices generally not less than
the fair market value at the date of grant. At December 31, 1997, 61,666
options were exercisable. As of December 31, 1997, the Company had
reserved 1,000,000 shares for issuance under the Incentive Plan with
330,000 shares available for future grant.
(10) SHAREHOLDERS' EQUITY
The Company issued the warrants in conjunction with sales of the common
stock during 1997. The warrants issued between September 1997 and
December 1997 are described below as "Second Offering Warrants". In
connection with such sales the Company also issued the selling agent
warrants to purchase 10% of the number of units (each unit consisted of
1,000 shares of the Common Stock and 1,000 Warrants each to purchase one
share of the Common Stock) sold in the offering (the Unit Warrants).
The Company also issued warrants in connection with sales of the Common
Stock from January 1997 to July 1997, described below as "First Offering
Warrants". In connection with this private offering the Company also
issued the selling agent for that transaction warrants to purchase
35,000 shares of the common stock (the Selling Agent's Warrants").
SECOND OFFERING WARRANTS
As of December 31, 1997, the Company had issued warrants to acquire up to
1,077,143 shares of common stock at an exercise price of $3.50, subject to
the warrant. Each warrant entitle the holder thereof to purchase from the
Company, subject to certain terms and conditions one fully paid and
non-assessable share of common stock prior to December 31, 2002 or, if such
warrant is redeemed as provided in the Warrant Agreement, at any time prior
to the effective time of such redemption.
Each warrant initially entitles the holder to purchase one share of common
stock for $3.50, subject to reduction by $0.01 per day for each day after
the 90th day following the last day on which warrants are sold by the
Company on which a registration relating in part to the warrants and the
common stock obtainable on exercise thereof is not effective under the
Securities Act of 1933, as amended. The number and kind of securities or
other property for which the warrants are exercisable (and the rate of
reduction, if any, in the Exercise Price) are subject to further adjustment
in certain events, such as mergers, splits, stock dividends,
recapitalizations and the like, to prevent dilution. The Company may
redeem any or all outstanding and unexercised warrants at any time if the
Daily Price, as defined, has exceeded $5.00 for twenty consecutive trading
days immediately preceding the date of notice of such redemption, upon 30
days notice, at a price equal to $0.25 per Warrant. All warrants not
exercised or redeemed prior to December 31, 2002 will automatically expire.
The warrants are issued subject to all of the terms, provisions and
conditions of the Warrant Agreement.
UNIT WARRANTS
In connection with an exempt private offering, the Company issued
warrants to the selling agent thereof and reserved up to 213,400 shares
of common stock for issuance upon exercise of the Unit Warrants
(including the shares underlying the Warrants issuable upon exercise of
the Unit Warrants). The Unit Warrants entitle the holder to acquire
106,700 shares of the common stock and 106,700 warrants to acquire one
share each of the common stock. The Unit Warrants are exercisable at any
time until December 5, 2002.
F-15
<PAGE>
E.COM INTERNATIONAL, INC.
(A Company in the Development Stage)
Notes to Financial Statements, Continued
FIRST OFFERING WARRANTS
As of December 31, 1997 the Company had issued First Offering Warrants to
acquire up to 352,250 shares of common stock at an exercise price of $3.50.
The First Offering Warrants expire in January 1999, unless earlier
redeemed. The Company may redeem the First Offering Warrants, at $.50 per
warrant, upon at least 30 days prior written notice by the Company to the
holders, if (1) the Company files a registration statement with the
Commission for an initial public offering of the Company's common stock;
(2) an initial public offering of the Company's common stock closes on or
before the expiration of the warrants at a price of at least $4.00 per
share; or (3) the Company achieves revenues of at least $4 million.
SELLING AGENT'S WARRANTS
The Company has also issued warrants to acquire up to 35,000 shares of
common stock at an exercise price of $2.00 per share which will expire on
the fifth anniversary after the date of the Company's initial public
offering. Such warrants contain no call option.
F-16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The information required in response to this item is incorporated by
reference to Item 12 of the Company's Registration Statement on Form 10 (No.
000-23547) filed with the Securities and Exchange Commission on February 13,
1998 (the "Form 10").
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses relating to the registration of the Common Stock, the Warrants
and the Warrant Shares will be borne by the registrant. Such expenses are
estimated to be as follows:
<TABLE>
<S> <C>
Registration Fee
Securities and Exchange Commission $ 4,185
------
Accountants' Fees $ 9,000
------
Legal Fees $15,000
Printer's Fees 10,000
Miscellaneous $ 500
------
Total $38,685
------
------
</TABLE>
Item 26. Recent Sales of Unregistered Securities.
The information required in response to this item is incorporated by
reference to Item 10 of the Form 10.
II-1
<PAGE>
ITEM 27. LIST OF EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- -------------------------------------------------------------
<S> <C>
3.1+ Articles of Incorporation of the Company
3.2+ Bylaws of the Company
4.1+ Form of Warrant Number One for Purchase of Common Stock
4.2+ Form of Warrant Number Two for Purchase of Common Stock
4.3+ Warrant Agreement including Form of Warrant
4.4+ Form of Warrant for Purchase of Units
5 Opinion of Preston Gates & Ellis LLP regarding legality
10.1+ Employment Agreement between the Company and William F. Stephens
10.2+ Employment Agreement between the Company and Jonathan D. Birck
10.3+ Contract between Company and Motorola Wireless Data Group
10.4+ Agreement between Company and L.G. Zangani, Inc.
10.5+ 1997 Incentive Compensation Plan
10.6+ Lease with Gateway Columbia Properties
16+ Letter from BDO Seidman, LLP Regarding Change in Certifying
Accountant
23.1 Consent of KPMG Peat Marwick LLP as Independent Accountants
23.2++ Consent of Preston Gates & Ellis LLP
24+++ Power of Attorney
27.1 Financial Data Schedule
- ------------------
+ Incorporated by reference to the Company's Form 10.
++ Contained within Exhibit 5.
+++ Incorporated by reference to the Company's Form SB-2 filed March 6, 1998.
</TABLE>
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
1933 Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
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 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% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under the 1933 Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) Insofar as indemnification for liabilities arising under the 1933
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company 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 Company 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 1933
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Beaverton, State of
Oregon, on the 12th day of March, 1998.
E.COM INTERNATIONAL, INC.
By /s/ William F. Stephens
---------------------------------------
William F. Stephens
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities indicated on the 12th day of March, 1998.
<TABLE>
<CAPTION>
SIGNATURES TITLE
- ------------------------------------------ ----------------------------------------
<S> <C>
/s/ William F. Stephens President, Chief Executive Officer,
----------------------------- Director and Principal Financial
William F. Stephens Officer
/s/ Steven A. Larson*
----------------------------- Chairman of the Board and Vice President
Steven A. Larson of Corporate Development
/s/ Lawrence C. Neitling*
----------------------------- Director
Lawrence C. Neitling
/s/ James M. Sapp*
----------------------------- Director
James M. Sapp
----------------------------- Director
Max E. Toy
*By William F. Stephens, Attorney in Fact
</TABLE>
II-4
<PAGE>
Exhibit 5
OPINION OF PRESTON GATES & ELLIS LLP
March 13, 1998
E.Com International, Inc.
7737 S.W. Cirrus Drive
Beaverton, Oregon 97008
Re: Registration Statement on Form SB-2
-----------------------------------
Ladies and Gentleman:
In connection with the registration of 2,375,577 shares of common stock,
no par value (the "Common Stock"), 1,571,093 warrants to purchase shares of
the Common Stock (the "Warrants"), 106.7 Warrants each to purchase units
consisting of 1,000 shares of Common Stock and 1,000 Warrants each to
purchase one share of Common Stock (the "Unit Warrants") and 1,677,793 shares
of Common Stock underlying the Warrants (the "Warrant Shares"), of E.Com
International, Inc. (the "Company") with the Securities and Exchange
Commission on a Registration Statement on Amendment No. 1 to Form SB-2 on
Form S-1 (the "Registration Statement"), relating to the sales, if any, of
the Common Stock Unit Warrants and Warrants by the selling security
holders, we have examined such documents, records and matters of law as we
have considered relevant. Based upon such examination and upon our
familiarity as counsel for the Company with its general affairs, it is our
opinion that, upon payment for such shares (if any) as may be required by the
terms of the Warrants:
The Common Stock, Warrants, Unit Warrants and Warrant Shares being registered
are legally issued, fully paid, and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
PRESTON GATES & ELLIS LLP
By /s/ Mark R. Beatty
Mark R. Beatty
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
E.Com International, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the headings "Experts" and "Selected Financial Data" in the
Prospectus.
Our report dated February 27, 1998 contains an explanatory paragraph that the
Company has no significant operating revenues and has suffered recurring
losses from operations that raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Portland, Oregon
March 13, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED FINANCIAL STATEMENTS OF E.COM INTERNATIONAL INC. AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,839,281
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 315,023
<CURRENT-ASSETS> 2,173,460
<PP&E> 435,845
<DEPRECIATION> 55,639
<TOTAL-ASSETS> 2,614,249
<CURRENT-LIABILITIES> 529,947
<BONDS> 0
0
0
<COMMON> 3,386,025
<OTHER-SE> 1,268,146
<TOTAL-LIABILITY-AND-EQUITY> 2,614,249
<SALES> 25,237
<TOTAL-REVENUES> 3,440
<CGS> 21,797
<TOTAL-COSTS> 2,006,541
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (29,784)
<INCOME-PRETAX> (2,003,101)
<INCOME-TAX> 19,139
<INCOME-CONTINUING> (2,003,101)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,013,746)
<EPS-PRIMARY> (1.46)
<EPS-DILUTED> 0
</TABLE>
